Dexus on path to redefine opportunistic real estate investing

Opportunistic real estate investing is no longer about simply buying cheap and hoping for a rebound. Instead, it is about pairing scale with executional depth, and capital with operational capability.

Being ‘opportunistic’ in investing might go a bit deeper than you might have thought.

Jason Howes, executive general manager, Fund Capital & Product Development at Dexus, argues that success in opportunistic investing now hinges on a dual focus: acquiring assets wisely and creating value within them.

Historically, the opportunistic model rested on acquiring distressed or undervalued assets at a discount. But Howes believes that this single-limb model is no longer enough. With more capital chasing fewer mispriced opportunities, the premium now lies in what an investor can do with the asset once acquired. “To create value, you need operating capability. It is no longer just about buying well. It is about doing well,” he says.

Nowhere is this clearer than in Australia’s living sector. Demand is robust across the board, from student accommodation to retirement communities. Yet new supply is severely constrained. “We have a supply-side problem, not a demand-side issue,” says Howes. “Residential starts in Sydney and Melbourne, particularly vertical apartments, are at their lowest point in a decade.”

This disconnect between supply and demand creates an opportunity for investors with the right access and platform. Dexus leverages its scale and sectoral breadth to pursue these opportunities wherever they arise. “We are built to move between sectors and through the capital stack. That flexibility is underpinned by our platform’s deep capability,” says Howes.

One recent transaction exemplifies this strategy. Dexus’s DREP funds (a closed-end opportunistic fund series targeting unlisted Australian real estate opportunities, aiming to deliver enhanced returns for wholesale and institutional investors) have invested in the redevelopment of a vacant B-grade office building on George Street in Brisbane. This deal was struck on favourable financial terms, reflecting the building’s poor office leasing prospects in a soft office market. Rather than simply refurbishing and re-leasing the building, Dexus is converting it into purpose-built student accommodation. “That is how we define success: buy well, then create value,” says Howes.

Student accommodation is just one part of the firm’s broader living strategy. With more than 1,000 beds under development, the Dexus platform is also active in retirement housing, land-lease communities and build-to-sell residential. “Each of these segments shares the same supply constraints. Seniors living is particularly attractive right now because of the development margins on offer,” explains Howes.

These margins matter because Dexus’s DREP funds are structured for absolute return, not long-term asset management. “This is about capital gains. We are targeting vintages that follow dislocation, which historically deliver the highest returns,” he says.

The firm’s ability to source deals at scale also gives it a competitive edge. Howes says Dexus prices hundreds of opportunities but executes on fewer than five per cent of these. “Scale allows us to maintain a stable deal pipeline and apply strict pricing discipline. That is a key driver of alpha, or market outperformance,” he notes.

Discipline extends to risk and reward. With the first DREP fund having generated 15 per cent internal rates of return (IRRs) from credit positions, equity deals must exceed that hurdle. “If we can get 15 per cent in senior secured credit, we will not do an equity deal at 12 per cent. The risk needs to be compensated,” says Howes.

This is possible because the firm has the operational skill to manage both equity and credit positions. “The best lender in real estate should be a REIT. We have the capability to step in and manage an asset if required. Most financial sponsors cannot do that,” he says.

The emergence of institutional-grade living assets also offers private capital a new way to invest. Rather than buying a single property outright, investors can gain diversified exposure across living sub-sectors. “It allows for risk-adjusted returns, diversification, and access to themes that were not institutional in Australia until recently,” he says.

The DREP2 strategy is designed to fit within private equity allocations. With a focus on capital gains and opportunistic returns, the fund is positioned alongside other high-return, high-risk strategies. “This is real estate private equity. We are not aiming for income; we are targeting absolute return,” says Howes.

At the core of the approach is a simple but powerful phrase: ‘capital and capability.’ Traditional private equity firms bring capital to solve balance sheet problems. Dexus brings operational capability alongside capital, enabling it to act across a broader range of scenarios and price a wider set of risks.

“We believe this is the right time, with the right strategy, and the right manager,” says Howes. “We have scale, executional depth, and a track record. That combination is what sets us apart in the opportunistic investing landscape.”