They’re a dark horse on a dark race course, coming for the Boomers hearts and pockets like it was Yesterday. George Harrison probably wasn’t talking about “land lease” seniors accommodation models but he could have been. Whether one uses the aspirational term of “lifestyle communities”, the more depressing term “manufactured home estates” or something else, the model is essentially the same. That is, the senior buys a ‘relocatable’ house in a seniors’ community and enters into long-term lease for the land on which the house sits from the community operator. As they’re buying the house and not the land, pricing is discounted between 11%-70% of the surrounding area and therefore buys a lifestyle that might not otherwise be affordable. Further, they don’t pay stamp duty or rates, there are no exit fees and, at the more affordable end, seniors can use Commonwealth rent assistance payments to subsidise the cost of their ongoing site lease fees.
Traditionally, these villages have been tacked onto caravan parks and their tiny, densely packed, pre-fabricated houses look only marginally more permanent than their caravan neighbours. Things have been changed over the last 20 years however and the product has experienced a bit of a coming of age. House quality has improved dramatically so that they look and feel more like an upmarket suburban properties than ‘relocatable’ cottages. Communities are ‘master planned’ and communal amenities offer everything from cinemas, restaurants and bars to community gardens and workshops to ten pin bowling alleys and golf simulators. One Queensland operator, Living Gem, offers communal Jayco motor homes for rent, another offers communal boats.
The industry is maturing at a rate of knots and what was a niche market is now increasingly attractive to institutional investors. Stockland announced an aggressive expansion into the sector last July with the acquisition of Queensland operator Halcyon for a hefty $620 million and then upped the ante again with its recent announcement of a new $4bn capital partnership with Mitsubishi Real Estate Asia to develop and own land lease communities. Mirvac recently announced that it is looking to “press the button” on two pilot projects in Victoria and there has been a swathe of other M&A in the past 12 months as investors recognise the sector as a bonafide investment asset class including Ingenia’s $270 million acquisition of Seachange Lifestyle Resorts .
In Western Australia, the story is more muted, and perhaps because the (until recently) depressed property market has acted as a break here (with the sale of the family home typically being required to finance a buy-in). Currently there is only one player of any size servicing less than 3000 residents this one being specialist operator National Lifestyle Villages (NLV) owned by investment management company, Serenitas. So, with a forecast market penetration of 3.5%, there would seem to be a significant under-supply in Western Australia both in terms numbers and operators and it seems only a matter of time before the ‘Growth Machine” as it has been called, bolts from the starting gates.
Whilst the big institutional investors are likely to dominate, there is opportunity for smaller plays. In this respect my money is on firstly, niche operators who deeply understand and are committed to their market. One example here would be Providence Lifestyle which now has 4 existing and upcoming communities in WA which offer master-planned communities with high quality fit-outs and a wide range of resort style amenities. Another example would be existing retirement village operators who are tired of the over-regulation wrought by the Retirement Villages Act, who want to sell a simpler product and, importantly, who already understand how to create and nurture seniors communities. Of particular note here, would be those land-banked not-for-profit retirement village operators whose affordable seniors housing mission fits nicely with land lease and who can also access some very helpful tax exemptions.
Land lease has been around for a long time, in a well-known but thoroughly unattractive guise and, consequently, ignored as a viable senior accommodation model. However, land lease operators are breaking out and tapping into the psyche of their customer base like never before and arguably, better than their close competitors in the retirement village sector. Land lease is a dark horse and like all dark horses, underestimated. For how much longer though? As George said, “Seems as if you heard a little late but I warned you when we both were at the starting gate”.
