Welcome to the Fear and Greed Business Interview. I'm Sean Almer. We've talked a lot lately about property in Australia and how it's been a mixed bag for investors across industrial, commercial, retail and residential. But once you drilled into the sectors there are some really interesting opportunities. Buck Oak Capital is an Australian property firm that invests in and develops assets across multiple sectors, including office and industrial properties. But there's a growing demand for alternative real estate and buck Oak's latest fund, Illuminate SDA Investment Trust Too, is deploying one hundred million dollars into specialist disability accommodation. Remember this is general information only and you should see professional advice before making investment decisions. David Zimmerman is the CEO of black Oak Capital. David, welcome to Fear and Greed.

Welcome to the Fear and Greed Business Interview. I'm Sean Almer. We've talked a lot lately about property in Australia and how it's been a mixed bag for investors across industrial, commercial, retail and residential. But once you drilled into the sectors there are some really interesting opportunities. Buck Oak Capital is an Australian property firm that invests in and develops assets across multiple sectors, including office and industrial properties. But there's a growing demand for alternative real estate and buck Oak's latest fund, Illuminate SDA Investment Trust Too, is deploying one hundred million dollars into specialist disability accommodation. Remember this is general information only and you should see professional advice before making investment decisions. David Zimmerman is the CEO of black Oak Capital. David, welcome to Fear and Greed.

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

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

Before we jump into disability, the investment trust and disability housing, how a you seeing them market the commercial market more generally at the moment, It's.

Before we jump into disability, the investment trust and disability housing, how a you seeing them market the commercial market more generally at the moment, It's.

Been an interesting period of time, sort of post the pandemic, we've seen a cyclical downturn in investment volumes in commercial real estate, particularly in the office space and retail. Industrial has been really trading extremely well, probably out of all of the asset classes. And the real striking thing is the rise of what we call the alternatives in commercial real estate, which is a very broad sector that covers everything from childcare, hotels, hospitals, student accommodation, etc. And is a relatively small sector in Australia but growing rapidly.

Been an interesting period of time, sort of post the pandemic, we've seen a cyclical downturn in investment volumes in commercial real estate, particularly in the office space and retail. Industrial has been really trading extremely well, probably out of all of the asset classes. And the real striking thing is the rise of what we call the alternatives in commercial real estate, which is a very broad sector that covers everything from childcare, hotels, hospitals, student accommodation, etc. And is a relatively small sector in Australia but growing rapidly.

Yeah, so just tell me about the growth, because we have heard a little bit of particularly around student accommodation, particularly around hospitals. The one we're talking about today, I must say, is new to me. How fast is that alternative market growing.

Yeah, so just tell me about the growth, because we have heard a little bit of particularly around student accommodation, particularly around hospitals. The one we're talking about today, I must say, is new to me. How fast is that alternative market growing.

It's growing fairly rapidly. To put it in comparative terms, give or take, there's about three hundred billion dollars estimated of office assets in Australia, roughly the same size industrial market. Retailer is about four hundred billion. Residential is by far the largest asset class at eleven trillion. The total alternative space is estimated to be about two hundred billion at the moment and growing in relative terms. In the US, however, alternatives make up just under fifty percent of listed rates in the US market, So in the Australian market. That is why institutional capital is so excited about the alternative space, because we are really maturing as an economy and we're seeing a lot of capital trying to access these assets as they become more and more readily available.

It's growing fairly rapidly. To put it in comparative terms, give or take, there's about three hundred billion dollars estimated of office assets in Australia, roughly the same size industrial market. Retailer is about four hundred billion. Residential is by far the largest asset class at eleven trillion. The total alternative space is estimated to be about two hundred billion at the moment and growing in relative terms. In the US, however, alternatives make up just under fifty percent of listed rates in the US market, So in the Australian market. That is why institutional capital is so excited about the alternative space, because we are really maturing as an economy and we're seeing a lot of capital trying to access these assets as they become more and more readily available.

How broad then can you go if you've got that much money in the US, Presumably that alternative market is extremely deep.

How broad then can you go if you've got that much money in the US, Presumably that alternative market is extremely deep.

It is. The old analogy is that the Australian market lags the US by about ten years, so you've got to kind of decade to warm up and get ready for it. But you've got student accommodation is a growing sector that you hear more and more about. It's a growing part of the austrain economy through education. Private hospitals continue to grow as an asset class. Traditionally where our owner operated, but now they're available on a traditional lease basis. Then you've got childcare, You've got data centers which sort of sit somewhere between alternatives and industrial and are really getting a lot of attention in the media more recently. And then you've got the sort of medical and ancillary health space, aged care and specialist markets like the specialist disability accommodation that we're involved in.

It is. The old analogy is that the Australian market lags the US by about ten years, so you've got to kind of decade to warm up and get ready for it. But you've got student accommodation is a growing sector that you hear more and more about. It's a growing part of the austrain economy through education. Private hospitals continue to grow as an asset class. Traditionally where our owner operated, but now they're available on a traditional lease basis. Then you've got childcare, You've got data centers which sort of sit somewhere between alternatives and industrial and are really getting a lot of attention in the media more recently. And then you've got the sort of medical and ancillary health space, aged care and specialist markets like the specialist disability accommodation that we're involved in.

Okay, so let's talk about disability housing. It's part of the property sector that we don't hear much about. Why has it been overlooked? I suppose? And is it an area that you think will.

Okay, so let's talk about disability housing. It's part of the property sector that we don't hear much about. Why has it been overlooked? I suppose? And is it an area that you think will.

Grow if you look at it in relative terms? Sean, It's a new asset class, it's been around for less than a decade, and the total market size at the moment of available assets is estimated to be about three point six billion, So it's all about relativity. You know, if you look at office industrial at three hundred billion, three point six billions, relatively small, but that's still a lot of real estate. You're seeing a growth in the sector from a zero base to three point six billion, and it's estimated to grow north of fourteen billion over the next ten years. So the reason that it's not widely spoken about is just because it is relatively new and it has been relatively small, but on a pretty rapid growth trajectory, we believe.

Grow if you look at it in relative terms? Sean, It's a new asset class, it's been around for less than a decade, and the total market size at the moment of available assets is estimated to be about three point six billion, So it's all about relativity. You know, if you look at office industrial at three hundred billion, three point six billions, relatively small, but that's still a lot of real estate. You're seeing a growth in the sector from a zero base to three point six billion, and it's estimated to grow north of fourteen billion over the next ten years. So the reason that it's not widely spoken about is just because it is relatively new and it has been relatively small, but on a pretty rapid growth trajectory, we believe.

So when I think about retail, I can understand that on an office I can understand that, even data centers, I kind of can understand that when you're talking about disability property, just describe what you're talking about.

So when I think about retail, I can understand that on an office I can understand that, even data centers, I kind of can understand that when you're talking about disability property, just describe what you're talking about.

So this is housing, bespoke housing that has been built for the most vulnerable people on the NDIS scheme. So to put it in perspective, depending on what statistics you look at, let's call it roughly six hundred and fifty thousand participants are on the NDIS and within that there's about twenty two to twenty four thousand people that are eligible for specialist Disability accommodation funding. So these are people with severe physical impairments and mobility impairments, and it's about creating bespoke housing that meets regulatory criteria to enable those people to reconnect back into society, to live in the suburban environment like the majority of society. Move them out of aged care, move them out of hospitals, move them out of group homes, and into what looks like from the outside an average suburban house, but it's about forty percent larger typically than a normal home because of extended hallways, larger bathrooms, larger bedrooms, larger kitchens, because you need a lot more circulation space for wheelchairs and for medical equipment.

So this is housing, bespoke housing that has been built for the most vulnerable people on the NDIS scheme. So to put it in perspective, depending on what statistics you look at, let's call it roughly six hundred and fifty thousand participants are on the NDIS and within that there's about twenty two to twenty four thousand people that are eligible for specialist Disability accommodation funding. So these are people with severe physical impairments and mobility impairments, and it's about creating bespoke housing that meets regulatory criteria to enable those people to reconnect back into society, to live in the suburban environment like the majority of society. Move them out of aged care, move them out of hospitals, move them out of group homes, and into what looks like from the outside an average suburban house, but it's about forty percent larger typically than a normal home because of extended hallways, larger bathrooms, larger bedrooms, larger kitchens, because you need a lot more circulation space for wheelchairs and for medical equipment.

It's a fantastic idea. Stay with me, David, we'll be back in a moment. My guest today is David Zimmerman, CEO of black Oak Capital. Before the break, you was talking about exactly what disability housing is. You mentioned the NDIS. What's the relationship between specialist disability commodation and the NDIS. Is it partly government funded?

It's a fantastic idea. Stay with me, David, we'll be back in a moment. My guest today is David Zimmerman, CEO of black Oak Capital. Before the break, you was talking about exactly what disability housing is. You mentioned the NDIS. What's the relationship between specialist disability commodation and the NDIS. Is it partly government funded?

So SDA is the actual rent is entirely government funded, and it sits as a separate piece of legislation within the NDIS pool of legislation, the SDA funding and again Sewn it's about relativity. So of the NDIS budget, which is around I think it is forty eight point seven billion dollars in his current financial year which is drawing to a close of that, there is seven hundred million dollars allocated to fund rental payments for SDA housing. So it's about one point five percent of the total budget of the NDIS. So it's a relatively small part, but still very material in terms of the total quantum of housing and rent available. What's interesting when you look behind the numbers, Shorn is that of that seven hundred million that's been allocated, and you hear all the time about cost blowouts in the NDIS and this rapid rate of growth in the budget itself of SDA housing. Of the seven hundred million, we're only seeing about four to just down a four hundred and fifty million of that currently being utilized due to a lack of appropriately built housing stock that meets the criteria for the funding itself. So it's a market that's dramatically undersupplied and it's a part of the budget that's not being fully utilized.

So SDA is the actual rent is entirely government funded, and it sits as a separate piece of legislation within the NDIS pool of legislation, the SDA funding and again Sewn it's about relativity. So of the NDIS budget, which is around I think it is forty eight point seven billion dollars in his current financial year which is drawing to a close of that, there is seven hundred million dollars allocated to fund rental payments for SDA housing. So it's about one point five percent of the total budget of the NDIS. So it's a relatively small part, but still very material in terms of the total quantum of housing and rent available. What's interesting when you look behind the numbers, Shorn is that of that seven hundred million that's been allocated, and you hear all the time about cost blowouts in the NDIS and this rapid rate of growth in the budget itself of SDA housing. Of the seven hundred million, we're only seeing about four to just down a four hundred and fifty million of that currently being utilized due to a lack of appropriately built housing stock that meets the criteria for the funding itself. So it's a market that's dramatically undersupplied and it's a part of the budget that's not being fully utilized.

Okay, So let's bring the investment aspect into it, the illuminated SDA Investment Trust too. It kind of sounds a bit like as an investor, it's almost like an infrastructure fund or mean, because it's a government regulated well sorry, income is regulated by government or at least paid by government, am I.

Okay, So let's bring the investment aspect into it, the illuminated SDA Investment Trust too. It kind of sounds a bit like as an investor, it's almost like an infrastructure fund or mean, because it's a government regulated well sorry, income is regulated by government or at least paid by government, am I.

Right? Yeah, Look, we commonly refer to it as social infrastructure because of the government elements to it and the fact that you're creating housing and generally the tenants in your properties will be there for the longer term. You're trying to create faver homes. So it is an infrastructure like asset that we are creating for investors. However, we will always encourage people to look at getting involved with people such as ourselves who invest in portfolios rather than avoiding doing one off single assets, because that's where the real infrastructure part of it comes in, is having multiple assets with multiple tenants rather than a single property with one or two tenants.

Right? Yeah, Look, we commonly refer to it as social infrastructure because of the government elements to it and the fact that you're creating housing and generally the tenants in your properties will be there for the longer term. You're trying to create faver homes. So it is an infrastructure like asset that we are creating for investors. However, we will always encourage people to look at getting involved with people such as ourselves who invest in portfolios rather than avoiding doing one off single assets, because that's where the real infrastructure part of it comes in, is having multiple assets with multiple tenants rather than a single property with one or two tenants.

Okay, and so what in normal investment questions risks, returns, those sorts of things. So let's start with returns.

Okay, and so what in normal investment questions risks, returns, those sorts of things. So let's start with returns.

So the returns can be attractive. If you look at the actual NDIA literature itself, they expect real estate investors in a space to be making roughly around eleven and a half to eleven point eight percent internal rate of return. They are trying to encourage private capital to deliver the solution for government rather than the government having to outlay their capital costs. We would caution people against some of the people marketing in this space offering extremely high returns. You should be cautious. Some of those people are making claims that we think inappropriate. You should be expecting to see somewhere in the mid to low teen IRRs with relatively sensible amounts of gearing in the asset class. A lot of those returns will come through income from the government. A lot of our funds are generally delivering somewhere between eight to ten percent in annual income returns to our investors, and then capital growth looks fairly similar to traditional residential real estate because you are essentially building homes for people in suburbs with underlying residential land. You know, four walls and a roof, which.

So the returns can be attractive. If you look at the actual NDIA literature itself, they expect real estate investors in a space to be making roughly around eleven and a half to eleven point eight percent internal rate of return. They are trying to encourage private capital to deliver the solution for government rather than the government having to outlay their capital costs. We would caution people against some of the people marketing in this space offering extremely high returns. You should be cautious. Some of those people are making claims that we think inappropriate. You should be expecting to see somewhere in the mid to low teen IRRs with relatively sensible amounts of gearing in the asset class. A lot of those returns will come through income from the government. A lot of our funds are generally delivering somewhere between eight to ten percent in annual income returns to our investors, and then capital growth looks fairly similar to traditional residential real estate because you are essentially building homes for people in suburbs with underlying residential land. You know, four walls and a roof, which.

Is pretty good if you're in Perth, where you are at the moment.

Is pretty good if you're in Perth, where you are at the moment.

That's for sure.

That's for sure.

Okay, So what about the risks.

Okay, So what about the risks.

Look, the risks are this is a highly regulated space. If you are working with someone in the sector who hasn't been evolved in the construction process, they don't fully understand how tightly regulated it is. You know, if your doorways are a millimeter out, they have to be ripped out. If the hallways are wide enough, you have to take walls down. There's a lot of compliance that goes into the design and consideration. The second biggest risk, the golden rule in real estate always is location, location, location. If you haven't done the research and you are building these assets out in brand new subdivisions where the other social infrastructure has yet to be developed shops, schools, public transport, etc. The demand isn't there, the tenants, your customers aren't there, That customers are living in suburbia where the infrastructure is that services their needs day to day, and so it is really important that you do the homework on where you're actually building housing.

Look, the risks are this is a highly regulated space. If you are working with someone in the sector who hasn't been evolved in the construction process, they don't fully understand how tightly regulated it is. You know, if your doorways are a millimeter out, they have to be ripped out. If the hallways are wide enough, you have to take walls down. There's a lot of compliance that goes into the design and consideration. The second biggest risk, the golden rule in real estate always is location, location, location. If you haven't done the research and you are building these assets out in brand new subdivisions where the other social infrastructure has yet to be developed shops, schools, public transport, etc. The demand isn't there, the tenants, your customers aren't there, That customers are living in suburbia where the infrastructure is that services their needs day to day, and so it is really important that you do the homework on where you're actually building housing.

This is also an altruistic part to it as well, and then you can as an investor, potentially you can feel for one of a bit of term that you are actually putting money in a good place.

This is also an altruistic part to it as well, and then you can as an investor, potentially you can feel for one of a bit of term that you are actually putting money in a good place.

Absolutely. Look, we are a for profit organization and as a management team, we co invest into all of our funds. Does give you a fantastic feeling to create some of the outcomes that we do for our customers, and we will often in our internal meetings share stories of the tenets that are moving into our properties where we have just created fantastic outcomes for their families who have been through years of inappropriate housing. And you're just creating really fantastic feel good moments. And that's part of that whole kind of impact investing and you get to see it, touch it, feel it. It's great.

Absolutely. Look, we are a for profit organization and as a management team, we co invest into all of our funds. Does give you a fantastic feeling to create some of the outcomes that we do for our customers, and we will often in our internal meetings share stories of the tenets that are moving into our properties where we have just created fantastic outcomes for their families who have been through years of inappropriate housing. And you're just creating really fantastic feel good moments. And that's part of that whole kind of impact investing and you get to see it, touch it, feel it. It's great.

David, thank you for talking to Fear and Greed. Thank you, Sean as David Zimmerman, CEO of Black Capital, which is a great supporter of this podcast through Blue Chip Communication. This is the Fear and Greed Business Interview. Remember this is general information only, and you should seek professional advice before investing. Join us every morning for the full episode our Fear and Greed daily business news for people who make their own decisions. I'm Sean A. Elmer. Enjoy your day,

David, thank you for talking to Fear and Greed. Thank you, Sean as David Zimmerman, CEO of Black Capital, which is a great supporter of this podcast through Blue Chip Communication. This is the Fear and Greed Business Interview. Remember this is general information only, and you should seek professional advice before investing. Join us every morning for the full episode our Fear and Greed daily business news for people who make their own decisions. I'm Sean A. Elmer. Enjoy your day,