Real estate and operations firm Pro-invest Group is moving into residential real estate and converting non-core hotels in its home base of Australia to fulfill what it says is an urgent need for housing.
Sabine Schaffer, a London-based managing partner and CEO, Europe of Pro-invest — which is expanding its portfolio notably in Europe — said during the planning process the firm calculated the yield on future residential assets as though they remained hotels.
“We’re set to enter the residential sphere, but managing properties as we would hotels,” she said. “Investment, development and management will be end to end, just like we do with hotels. Our approach to management of these residences will be hospitality-focused.”
More than half of Pro-invest Group's hotel portfolio is new construction, with the rest being conversions and redevelopments.
“We are well-versed in both and see real opportunity in converting existing hospitality assets into co-living properties because these assets will yield sooner, and that’s what investors are looking for right now in this space,” she said. “This is a natural extension of what we have been doing for the last decade. We have gained a reputation for doing that in hotels, and now is the time to do that, too, with serviced residences.”
Pro-invest Group’s co-living platform is focused on high-quality, multifamily, one-bedroom or studio self-contained units and serviced residences, Schaffer said.
Buy-to-rent and co-living — already models prescient in the United Kingdom and U.S. — are relatively new ideas in Australia, but as the sector ramps up, new players are coming into the market, including Pro-invest Group.
The developer interest is fueled by demand, Schaffer said.
“[Residential] vacancy rates in Australia are 2%; 0.8% in Melbourne. And Australia has a lot of hotel stock that is outdated, 40 years plus, so it is a simple equation,” Schaffer said.
She added that many of these hotels were built for a leisure and tourism need but have now become part of residential areas.
Phase one will bring 2,000 units to the market over a two- to three-year period. Offerings will model extended-stay properties, which are not as penetrated in the Australia market as in many other markets.
“Then we might raise a new fund for another 2,000. It is feasible over five to seven years, and the demand is there. Australia needs 126,000 residential units. Our plans are to scale up to approximately 6,000 units in 10 assets, which would be about the same size as our hotel business,” she said.
“In terms of asset ownership, Pro-invest is focusing on redeveloping hotels and offices, and we will be firstly making hotel acquisitions to turn around. We have identified the first seed assets and are actively working on a strong pipeline.”
Despite rising construction costs, there has been increasing demand for build-to-rent housing, Schaffer said.
“The time is up for these assets as hotels,” she said. “We believe that this is the key to a success, with people increasingly desirable to live in a residence that has all the amenities they expect at a hotel, such as concierge, housekeeping, loyalty programs and even all-inclusive options. And we will mix both short- and long-term rental options.”
Schaffer said hotels continue to be a core business for Pro-invest Group, with the firm starting in self-service and now branching out more into lifestyle.
“Australia is a very strong hospitality market. We are the franchisee of choice with IHG Hotels & Resorts and Accor, and now we are working with Hilton,” she added.
Earlier in March, Aareal Bank AG and Pro-invest Group signed the "largest green hotel portfolio loan in Asia-Pacific," Schaffer said.
The arrangement will permit Pro-invest Group to refinance key properties in its hotel portfolio, including the Holiday Inn Express Brisbane Central, Holiday Inn Express Adelaide City Centre, Holiday Inn Express Melbourne Southbank, Holiday Inn Express Newcastle and Holiday Inn Express Sydney Airport.
Loyalty Ingredient
Residential projects in Australia are also crying out for hotel-specific notions such as loyalty, Schaffer said.
She said Pro-invest Group noticed the demand from its hotel guests.
“Some customers were in our hotels for two or three months, there for a project, and they desired human interaction. It is an opportunistic move,” she said.
A loyalty program will help create a “proper brand that people want to follow,” she said.
She said in Australia, despite its modern origins, there does not exist the “Anglo-Saxon idea that my home is my castle.”
“On average 30 years ago in Australia, a place to buy would cost five times an annual salary, but nowadays that is 30. This is not a question of what I would like to do, but what can I do?” Schaffer said.