Build to rent offers best of both worlds

Opportunity for investors to acquire a residential investment with all the attributes of commercial property

Commercial investors can buy properties of almost any value, but investors in residential property typically have to build their portfolio one house or apartment at a time – until now.

An unprecedented opportunity is available for investors to acquire a residential investment with all the attributes of commercial property, including long leases and minimal management involvement.

That way they get the best of both worlds, benefitting from residential rental and capital appreciation, while enjoying passive income.

Colliers International is offering 19 already completed and leased residential buildings on two huge sites for sale, one in May Road, Mangere, and one in McKenzie Road, Mangere Bridge.

In total these accommodate 171 studio units, which have been virtually 100 per cent occupied since opening in 2016.

Each of the 19 buildings comprises nine studio units. Each building is head leased, with one lessee having all the land and buildings at May Road and another lessee all the land and buildings at McKenzie Road. The lessees are responsible for all operational matters.

The vendor, Du Val Group, also manages the lessee entities, and has done so since opening three years ago. They pay rent totalling $1,767,000 per annum on leases which expire in 2026, but with rights of renewal to 2037.   

Alan McMahon and Chris Farhi from Colliers’ Strategic Advisory team in Auckland, specialists in build-to-rent (BTR) investment matters, are offering the properties for sale, with a closing date of 20 August, if not sold prior.

“There has been a lot of talk about the potential of the build-to-rent sector, but this is the first real investment opportunity to buy purpose-built modern physical property in Auckland at scale, as far as we are aware,” says McMahon.

“Demand is brewing from prospective tenants, particularly in Auckland, for long-term BTR residential accommodation.

“In essence, an unprecedented combination of factors has come together to boost demand for quality well-managed residential rental accommodation.”

McMahon highlights several of these factors:

  • Residential sale prices are static but are likely to increase in the medium to long term, exacerbating the unaffordability problem.
  • New Zealand’s archaic residential tenancy laws, combined with the fact that residential investment has been the retirement saving fund of choice for individuals, typically with little capital, means that the renting experience has not been a pleasant one for many tenants.
  • Revisions to the Residential Tenancies Act, combined with discouragement of investors through Reserve Bank mandated changes to bank lending practices, will improve the lot of tenants, but at the same time reduce the number of private rentals available through the traditional channels.
  • New supply is constrained by industry capacity, and expensive building and land costs.
  • Auckland’s population has grown strongly in recent years and is likely to continue to do so.

“For all these reasons, demand will continue to outweigh the supply of accommodation in Auckland in the long-term,” McMahon says.

“We can’t do much about increasing the number of people who can buy, but we can do something about increasing high quality, secure supply for renters, who, even if they want to buy, will never have a 20 per cent deposit.

“For all the same reasons, it is an investment asset class whose time has come.”

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