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Speaker 1: Welcome to the Fear and Greed Business Interview. I'm Sean Almer.

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Speaker 1: We've talked a lot lately about property in Australia and

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Speaker 1: how it's been a mixed bag for investors across industrial, commercial,

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Speaker 1: retail and residential. But once you drilled into the sectors

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Speaker 1: there are some really interesting opportunities. Buck Oak Capital is

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Speaker 1: an Australian property firm that invests in and develops assets

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Speaker 1: across multiple sectors, including office and industrial properties. But there's

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Speaker 1: a growing demand for alternative real estate and buck Oak's

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Speaker 1: latest fund, Illuminate SDA Investment Trust Too, is deploying one

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Speaker 1: hundred million dollars into specialist disability accommodation. Remember this is

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Speaker 1: general information only and you should see professional advice before

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Speaker 1: making investment decisions. David Zimmerman is the CEO of black

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Speaker 1: Oak Capital. David, welcome to Fear and Greed.

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Speaker 2: Thanks for having me on. Sean excited to join you today.

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Speaker 1: Before we jump into disability, the investment trust and disability housing,

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Speaker 1: how a you seeing them market the commercial market more

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Speaker 1: generally at the moment, It's.

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Speaker 2: Been an interesting period of time, sort of post the pandemic,

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Speaker 2: we've seen a cyclical downturn in investment volumes in commercial

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Speaker 2: real estate, particularly in the office space and retail. Industrial

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Speaker 2: has been really trading extremely well, probably out of all

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Speaker 2: of the asset classes. And the real striking thing is

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Speaker 2: the rise of what we call the alternatives in commercial

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Speaker 2: real estate, which is a very broad sector that covers

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Speaker 2: everything from childcare, hotels, hospitals, student accommodation, etc. And is

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Speaker 2: a relatively small sector in Australia but growing rapidly.

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Speaker 1: Yeah, so just tell me about the growth, because we

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Speaker 1: have heard a little bit of particularly around student accommodation,

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Speaker 1: particularly around hospitals. The one we're talking about today, I

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Speaker 1: must say, is new to me. How fast is that

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Speaker 1: alternative market growing.

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Speaker 2: It's growing fairly rapidly. To put it in comparative terms,

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Speaker 2: give or take, there's about three hundred billion dollars estimated

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Speaker 2: of office assets in Australia, roughly the same size industrial market.

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Speaker 2: Retailer is about four hundred billion. Residential is by far

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Speaker 2: the largest asset class at eleven trillion. The total alternative

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Speaker 2: space is estimated to be about two hundred billion at

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Speaker 2: the moment and growing in relative terms. In the US, however,

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Speaker 2: alternatives make up just under fifty percent of listed rates

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Speaker 2: in the US market, So in the Australian market. That

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Speaker 2: is why institutional capital is so excited about the alternative space,

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Speaker 2: because we are really maturing as an economy and we're

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Speaker 2: seeing a lot of capital trying to access these assets

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Speaker 2: as they become more and more readily available.

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Speaker 1: How broad then can you go if you've got that

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Speaker 1: much money in the US, Presumably that alternative market is

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Speaker 1: extremely deep.

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Speaker 2: It is. The old analogy is that the Australian market

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Speaker 2: lags the US by about ten years, so you've got

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Speaker 2: to kind of decade to warm up and get ready

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Speaker 2: for it. But you've got student accommodation is a growing

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Speaker 2: sector that you hear more and more about. It's a

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Speaker 2: growing part of the austrain economy through education. Private hospitals

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Speaker 2: continue to grow as an asset class. Traditionally where our

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Speaker 2: owner operated, but now they're available on a traditional lease basis.

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Speaker 2: Then you've got childcare, You've got data centers which sort

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Speaker 2: of sit somewhere between alternatives and industrial and are really

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Speaker 2: getting a lot of attention in the media more recently.

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Speaker 2: And then you've got the sort of medical and ancillary

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Speaker 2: health space, aged care and specialist markets like the specialist

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Speaker 2: disability accommodation that we're involved in.

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Speaker 1: Okay, so let's talk about disability housing. It's part of

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Speaker 1: the property sector that we don't hear much about. Why

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Speaker 1: has it been overlooked? I suppose? And is it an

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Speaker 1: area that you think will.

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Speaker 2: Grow if you look at it in relative terms? Sean,

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Speaker 2: It's a new asset class, it's been around for less

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Speaker 2: than a decade, and the total market size at the

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Speaker 2: moment of available assets is estimated to be about three

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Speaker 2: point six billion, So it's all about relativity. You know,

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Speaker 2: if you look at office industrial at three hundred billion,

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Speaker 2: three point six billions, relatively small, but that's still a

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Speaker 2: lot of real estate. You're seeing a growth in the

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Speaker 2: sector from a zero base to three point six billion,

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Speaker 2: and it's estimated to grow north of fourteen billion over

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Speaker 2: the next ten years. So the reason that it's not

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Speaker 2: widely spoken about is just because it is relatively new

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Speaker 2: and it has been relatively small, but on a pretty

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Speaker 2: rapid growth trajectory, we believe.

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Speaker 1: So when I think about retail, I can understand that

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Speaker 1: on an office I can understand that, even data centers,

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Speaker 1: I kind of can understand that when you're talking about

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Speaker 1: disability property, just describe what you're talking about.

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Speaker 2: So this is housing, bespoke housing that has been built

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Speaker 2: for the most vulnerable people on the NDIS scheme. So

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Speaker 2: to put it in perspective, depending on what statistics you

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Speaker 2: look at, let's call it roughly six hundred and fifty

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Speaker 2: thousand participants are on the NDIS and within that there's

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Speaker 2: about twenty two to twenty four thousand people that are

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Speaker 2: eligible for specialist Disability accommodation funding. So these are people

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Speaker 2: with severe physical impairments and mobility impairments, and it's about

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Speaker 2: creating bespoke housing that meets regulatory criteria to enable those

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Speaker 2: people to reconnect back into society, to live in the

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Speaker 2: suburban environment like the majority of society. Move them out

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Speaker 2: of aged care, move them out of hospitals, move them

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Speaker 2: out of group homes, and into what looks like from

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Speaker 2: the outside an average suburban house, but it's about forty

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Speaker 2: percent larger typically than a normal home because of extended hallways,

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Speaker 2: larger bathrooms, larger bedrooms, larger kitchens, because you need a

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Speaker 2: lot more circulation space for wheelchairs and for medical equipment.

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Speaker 1: It's a fantastic idea. Stay with me, David, we'll be

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Speaker 1: back in a moment. My guest today is David Zimmerman,

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Speaker 1: CEO of black Oak Capital. Before the break, you was

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Speaker 1: talking about exactly what disability housing is. You mentioned the NDIS.

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Speaker 1: What's the relationship between specialist disability commodation and the NDIS.

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Speaker 1: Is it partly government funded?

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Speaker 2: So SDA is the actual rent is entirely government funded,

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Speaker 2: and it sits as a separate piece of legislation within

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Speaker 2: the NDIS pool of legislation, the SDA funding and again

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Speaker 2: Sewn it's about relativity. So of the NDIS budget, which

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Speaker 2: is around I think it is forty eight point seven

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Speaker 2: billion dollars in his current financial year which is drawing

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Speaker 2: to a close of that, there is seven hundred million

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Speaker 2: dollars allocated to fund rental payments for SDA housing. So

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Speaker 2: it's about one point five percent of the total budget

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Speaker 2: of the NDIS. So it's a relatively small part, but

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Speaker 2: still very material in terms of the total quantum of

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Speaker 2: housing and rent available. What's interesting when you look behind

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Speaker 2: the numbers, Shorn is that of that seven hundred million

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Speaker 2: that's been allocated, and you hear all the time about

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Speaker 2: cost blowouts in the NDIS and this rapid rate of

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Speaker 2: growth in the budget itself of SDA housing. Of the

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Speaker 2: seven hundred million, we're only seeing about four to just

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Speaker 2: down a four hundred and fifty million of that currently

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Speaker 2: being utilized due to a lack of appropriately built housing

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Speaker 2: stock that meets the criteria for the funding itself. So

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Speaker 2: it's a market that's dramatically undersupplied and it's a part

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Speaker 2: of the budget that's not being fully utilized.

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Speaker 1: Okay, So let's bring the investment aspect into it, the

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Speaker 1: illuminated SDA Investment Trust too. It kind of sounds a

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Speaker 1: bit like as an investor, it's almost like an infrastructure

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Speaker 1: fund or mean, because it's a government regulated well sorry,

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Speaker 1: income is regulated by government or at least paid by government,

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Speaker 1: am I.

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Speaker 2: Right? Yeah, Look, we commonly refer to it as social

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Speaker 2: infrastructure because of the government elements to it and the

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Speaker 2: fact that you're creating housing and generally the tenants in

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Speaker 2: your properties will be there for the longer term. You're

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Speaker 2: trying to create faver homes. So it is an infrastructure

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Speaker 2: like asset that we are creating for investors. However, we

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Speaker 2: will always encourage people to look at getting involved with

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Speaker 2: people such as ourselves who invest in portfolios rather than

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Speaker 2: avoiding doing one off single assets, because that's where the

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Speaker 2: real infrastructure part of it comes in, is having multiple

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Speaker 2: assets with multiple tenants rather than a single property with

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Speaker 2: one or two tenants.

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Speaker 1: Okay, and so what in normal investment questions risks, returns,

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Speaker 1: those sorts of things. So let's start with returns.

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Speaker 2: So the returns can be attractive. If you look at

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Speaker 2: the actual NDIA literature itself, they expect real estate investors

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Speaker 2: in a space to be making roughly around eleven and

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Speaker 2: a half to eleven point eight percent internal rate of return.

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Speaker 2: They are trying to encourage private capital to deliver the

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Speaker 2: solution for government rather than the government having to outlay

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Speaker 2: their capital costs. We would caution people against some of

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Speaker 2: the people marketing in this space offering extremely high returns.

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Speaker 2: You should be cautious. Some of those people are making

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Speaker 2: claims that we think inappropriate. You should be expecting to

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Speaker 2: see somewhere in the mid to low teen IRRs with

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Speaker 2: relatively sensible amounts of gearing in the asset class. A

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Speaker 2: lot of those returns will come through income from the government.

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Speaker 2: A lot of our funds are generally delivering somewhere between

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Speaker 2: eight to ten percent in annual income returns to our investors,

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Speaker 2: and then capital growth looks fairly similar to traditional residential

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Speaker 2: real estate because you are essentially building homes for people

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Speaker 2: in suburbs with underlying residential land. You know, four walls

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Speaker 2: and a roof, which.

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Speaker 1: Is pretty good if you're in Perth, where you are

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Speaker 1: at the moment.

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Speaker 2: That's for sure.

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Speaker 1: Okay, So what about the risks.

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Speaker 2: Look, the risks are this is a highly regulated space.

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Speaker 2: If you are working with someone in the sector who

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Speaker 2: hasn't been evolved in the construction process, they don't fully

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Speaker 2: understand how tightly regulated it is. You know, if your

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Speaker 2: doorways are a millimeter out, they have to be ripped out.

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Speaker 2: If the hallways are wide enough, you have to take

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Speaker 2: walls down. There's a lot of compliance that goes into

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Speaker 2: the design and consideration. The second biggest risk, the golden

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Speaker 2: rule in real estate always is location, location, location. If

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Speaker 2: you haven't done the research and you are building these

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Speaker 2: assets out in brand new subdivisions where the other social

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Speaker 2: infrastructure has yet to be developed shops, schools, public transport, etc.

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Speaker 2: The demand isn't there, the tenants, your customers aren't there,

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Speaker 2: That customers are living in suburbia where the infrastructure is

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Speaker 2: that services their needs day to day, and so it

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Speaker 2: is really important that you do the homework on where

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Speaker 2: you're actually building housing.

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Speaker 1: This is also an altruistic part to it as well,

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Speaker 1: and then you can as an investor, potentially you can

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Speaker 1: feel for one of a bit of term that you

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Speaker 1: are actually putting money in a good place.

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Speaker 2: Absolutely. Look, we are a for profit organization and as

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Speaker 2: a management team, we co invest into all of our funds.

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Speaker 2: Does give you a fantastic feeling to create some of

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Speaker 2: the outcomes that we do for our customers, and we

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Speaker 2: will often in our internal meetings share stories of the

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Speaker 2: tenets that are moving into our properties where we have

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Speaker 2: just created fantastic outcomes for their families who have been

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Speaker 2: through years of inappropriate housing. And you're just creating really

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Speaker 2: fantastic feel good moments. And that's part of that whole

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Speaker 2: kind of impact investing and you get to see it,

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Speaker 2: touch it, feel it. It's great.

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Speaker 1: David, thank you for talking to Fear and Greed. Thank you,

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Speaker 1: Sean as David Zimmerman, CEO of Black Capital, which is

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Speaker 1: a great supporter of this podcast through Blue Chip Communication.

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Speaker 1: This is the Fear and Greed Business Interview. Remember this

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Speaker 1: is general information only, and you should seek professional advice

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Speaker 1: before investing. Join us every morning for the full episode

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Speaker 1: our Fear and Greed daily business news for people who

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Speaker 1: make their own decisions. I'm Sean A. Elmer. Enjoy your day,