The Switch to double student property portfolio to $900m amid sector’s resurgence

Backed at the startup stage by US$1 trillion investment manager Nuveen, property management professionals Craig Oliver and David Cameron, who established The Switch in 2019, cite the success of their first three projects in Melbourne, Adelaide and Perth, worth a combined $450 million, for their plans to double their portfolio to $900 million over the next three years.

The Switch, which adopts a build-to-rent model that aligns with Nuveen’s long-term investment strategy, is currently completing a fourth development at Kensington in Sydney’s inner east and has plans to build in most of Australia’s capitals with a strong focus on the eastern seaboard and potentially in New Zealand.

“We think of ourselves as a purpose-built housing operator,” Cameron tells Business News Australia.

Cameron, whose business background is in investment management and capital raising, points out that The Switch has a different take on communal student accommodation as each of its projects also targets Gen Z and young professionals whom he says share ‘certain characteristics’ in terms of their needs for housing.

The Switch takes a tech and sustainability-focused approach to its designs that the founders say targets tenants from start-up, creative, financial and professional walks of life.

“We’re good at understanding the preference decisions that Gen Z and Millennials make when choosing accommodation,” says Cameron.

The Switch offers a range of accommodation from private studios to four-bedroom shared apartments, with pricing currently lowest in Perth where a shared two-bedroom apartment rents for well below $300 and a studio for around $450 a week. Rooms are fully furnished and the rent includes Wi-Fi, electricity and utility costs, as well as laundry and common spaces.

“In our current portfolio some of the tenants are students and some are young professionals,” says Cameron. “That doesn’t mean that in the future we can’t look at other types of customers.”

However, the resurgence of international students across Australia currently has The Switch leaning towards student accommodation.

While the Perth and Adelaide developments, comprising 39-storey and 34-storey towers respectively, offer a tenant blend of young professionals and students, the Melbourne project which opened on 6 February is fully booked to students.

The Sydney project, which is scheduled to open in 2024, is also exclusively for students. When completed, the four projects will have delivered a combined total of more than 1,700 beds to the market.

The three finished projects were fully leased prior to completion, which has promoted The Switch to ramp up its development program.

Cameron says the business model remains robust despite inflationary pressures because of a ‘versatile lease tail’ that he says allows the business to readily adjust to dynamic market conditions.

“In most markets there are exceptionally low levels of supply and because of that the net operating income that we can generate from these types of assets is very strong,” he says.

“From an investment proposition, purpose-built housing is looking very good on an absolute basis and a relative basis compared to some of the more traditional sectors.”

The Switch’s also benefits from the security of patient capital due to its partnership with Nuveen.

The US-based Nuveen, which manages a portfolio of assets worth more than US$1 trillion ($1.5 trillion), is the investment manager of the century-old TIAA (Teachers Insurance and Annuity Association of America) which was founded by industrialist Andrew Carnegie in 1918.

Although The Switch had acquired its Perth, Adelaide and Melbourne sites ahead of the COVID pandemic in 2019, Cameron says the pandemic provided an opportunity to garner a ‘more sophisticated view of the customer and what the customer actually wanted’.

He describes the partnership with Nuveen as a ‘meeting of the minds’.

“They clearly liked the look of the sector and we embarked on this journey together. Nuveen already had a sophisticated understanding of this sector having done it globally.

“Fortunately, we were developing through COVID which presented its own risks that were more development in nature rather than related to operating performance. More recently, we’ve opened our buildings to a market that has been recovering strongly.”

Oliver says they have been ‘blown away’ by the positive feedback and high demand.

“So much so we are planning more buildings,” he says. “Lifestyle-led living is hugely popular for young people in Europe and the UK, and we have shown it is now loved by Aussies.

“There is an immense need for more residential purpose-built housing in Australia’s capital cities, with this situation not improving in the short to medium term.

“Given the quality of our pipeline and the performance of our existing portfolio we are aiming to double our properties under management in the next three years without compromising investment performance.”