$500m raising to turn unloved hotels, offices into rental housing

Co-living is a form of build-to-rent accommodation where units are typically smaller and tenants share some communal facilities in exchange for lower rents.

Pro-invest, which is best known as a developer and operator of hotels – it owns and manages a $3 billion portfolio of 32 properties and 6000 rooms – flagged plans to move into the burgeoning build-to-rent sector in September last year.

Speaking to The Australian Financial Review from Singapore on Wednesday, where he was meeting with investors, Pro-invest founder and chairman Ron Barrott said the group had already identified a pipeline of future conversion opportunities and expected to announce its first project within three months.

A new Pro-invest “Flexible Living” brand is also being developed.

“We’ve done a lot of homework, and found there is substantial demand for co-living and for key worker accommodation for professionals like nurses and firemen who need to live close to cities,” Mr Barrott said.

He added that developing and managing a co-living portfolio of assets played to Pro-invest’s strengths as a major hospitality operator with a centralised platform.

“We’re already raising funds for this [co-living] pipeline. It could be a club of investors or a single investor. We’re talking to parties now.”

Mr Barrott said about $500 million was targeted to fund the first wave of developments, with “value-add” returns anticipated. By comparison, global fund manager PGIM is targeting average net yields on cost of 6.5 per cent for its Australian co-living projects.

This raising will fund the first tranche development of about 2000 studio and one-bedroom apartments across 10 towers. This could be worth around $1 billion based on the metrics of Pro-invest’s existing $3 billion portfolio of 6000 rooms.

Pro-invest has longer-term plans to grow its co-living business to the current size of its hotel portfolio.

The initial focus will be on the conversion of existing assets – predominantly older hotels – of up to 200 units, with new-builds considered where appropriate.

Older B and C grade offices with “the right shape and profile” will also be considered for conversion to co-living accommodation.

Mr Barrott said converting existing buildings aligned with its sustainability credentials and was more cost-effective.

“We’re very conscious that there are a lot of older buildings that need to be utilised,” he said.

Having started out as a developer of newly built Holiday Inn Express hotels eight years ago, Pro-invest has more recently turned its focus to acquiring existing hotels and repositioning them under new brands.

Last year it spent $20 million turning the former Holiday Inn hotel on Flinders Lane in the Melbourne CBD into the city’s first Hotel Indigo, and did a similar conversion project on the former Larmont hotel in Sydney’s Potts Point.

Alongside these redevelopments, Pro-invest also has plans to build a $1 billion office tower in North Sydney, but this project remains on hold.

“We’re waiting to see what happens in the office market,” Mr Barrott said.

Like the broader build-to-rent sector, where 17,000 units have been completed or are under construction (according to advisory firm Franklin St), co-living is also attracting investment from the big end of town.