The Australian Financial review (24/3/2017) reported that JLL (known to many as previously Jones Lang Wootton or similar) has spent about 12 million dollars to buy the residential management rights of around 700 apartments spread across several buildings.
A spokesman from JLL said the management rights sector was becoming an increasingly institutionalised investment. As we understand it, JLL only entered this market in Brisbane in 2016, but now claims 1700 apartments under their management.
This announcement follows one by the Mantra Group early in 2016. In a move that was widely reported in the media it was announced that Mantra was making a move into residential management rights after buying the rights to 1500 apartments in the Newstead & Fortitude Valley area. [Gold Coast Bulletin, 13 February 2016] Since that time Mantra has also announced the acquisition of other Fortitude Valley management rights to be conducted under the Peppers brand. This apparently covers 970 apartments across three towers.
It's not entirely clear what’s driving this new trend, but low interest rates and annuity style income may make this investment as useful bolt on to other activities. Further, the growing realisation that Body Corporates can do little about innovative tenancy arrangements may be another element in their long-term thinking.
It is not clear how the stakeholders in this industry will view this development, if it is indeed the commencement of a trend. You can guarantee there will be unattended consequences. Smaller body corporates might consider this is not an issue for them, but if management rights ‘industrialised’ starts in your neighbourhood then you may be vulnerable as strategic bolt-on to the larger portfolio.
Some owners have already expressed disquiet about this trend. They never envisaged their building could be an ‘industrialised institutional investment’. That they may end up with a corporate caretaker and the service delivery that will not be dedicated to their building, but rather a clutch of buildings.
Operations on the scale above may bring more services and a more process driven facilities management approach to caretaking duties, but it may also bring a hard-headed business, less personal approach that may not be welcome by some owners. Property developers obviously find these omnibus sales very convenient.
Institutional caretakers are not new, but their relationship with owners seems to be a mixed bag. Some committees will find it a challenge to deal with well-resourced institutional caretakers with layers of management and operational staff.
by Gary Wilson, Executive Committee member