Japan’s Sumitomo Forestry Takes on $790M Australia BTR JV

A real estate affiliate of Japan’s Sumitomo Corporation has formed a wood-themed A$1.2 billion ($790 million) joint venture with Brisbane property firm Cedar Pacific to develop rental housing in Australia as Japanese companies deepen their involvement in the country’s residential sector.

Sumitomo Forestry, which specialises in both housing and wood products, has tied up with Cedar Pacific, which focuses on build-to-rent homes, to bring more sustainable housing to Australia with projects incorporating cross-laminated timber.

“”This partnership allows us to combine both companies’ development expertise with leading-edge sustainability practices, creating communities that are not only desirable places to live but also contribute positively to the environment and communities in which they are located,” Cedar Pacific chief executive Bernie Armstrong said in a release.

The deal concludes the first tranche of funding for Cedar Pacific’s inaugural build-to-rent strategy after the company founded by Switzerland’s Pamoja Capital launched the vehicle in May last year.

Timber Tech

“We are committed to expanding our sustainable development business globally, and this partnership with Cedar Pacific represents a significant step forward,” said Yasuhiro Odagane, managing director of Sumitomo Forestry Australia.

The joint venture is being seeded with a 475-unit affordable rental housing project currently under construction at 50 Quay Street in Brisbane’s central business district which is set to be completed by 2027, the firms said in their announcement.

The developers are shooting for a 5-star Green Star rating for the project and plan to use utilise timber technologies in the construction as well as operate the facility at a net carbon neutral once it is up and running.

The 32-storey rental housing complex will have 250 of the 475 units offered at a discount to renters subsidised by the state. It also features 3,420 square metres of communal space for amenities including a cinema, co-working spaces, dining areas and a rooftop pool.

The JV has more projects lined up in Brisbane, as well as in Melbourne, Canberra and Auckland, New Zealand.

Economic Law on Your Side

The Brisbane-based fund manager and developer, which specialises in purpose-built rental residential projects, primarily in student housing, has linked up with Sumitomo Forestry after it launched its inaugural BTR fund in May 2023.

For this initial BTR vehicle, the company had said last year that it aimed to raise A$500 million to be deployed across nine prospective BTR projects that could potentially yield 3,500 units across Australian capital cities and Auckland.

Savills, which advised Cedar Pacific advisor on fundraising, pointed to attractive risk-adjusted returns, steady cash flows and favourable supply and demand dynamics as the primary selling points for Australia’s BTR sector.

“With record low residential vacancies of sub-1% nationally in Australia, rents continuing to increase, and housebuilding falling, we see BTR playing an increasingly important role in plugging this housing gap,” said Conal Newland, operational capital markets head of Savills Australia and New Zealand.

Backing Aussie Housing

While the timber aspect makes the Sumitomo Forestry-Cedar Pacific venture stand out, major commitments by Japanese investors to Australia’s residential market have become increasingly common, with the country ranking as the top source of cross-border acquisitions of income-earning real estate assets Down Under last year, according to MSCI Real Assets.

In September, Japan’s Mitsui Fudosan expanded its existing commitment to a residential joint venture with Frasers Property to A$797 million, with that strategy developing a total of 1,145 condo units in Sydney’s Macquarie Park area.

In July last year Japan’s Daiwa House teamed up with Australian developer Lendlease to develop a 45-storey build to rent tower in Melbourne at an expected investment of A$650 million.

That deal came after Mitsubishi Estate in March 2023 signed a deal with Australia’s Mirvac to invest in that company’s 5,000-unit build to rent venture.

Japanese investors acquired A$1.85 billion in income-earning assets, which was up nine-fold from the annual average over the previous decade, MSCI data shows.