Dutch pension giant APG has committed $600 million to MaxCap Group, which marks its first foray into Australia’s growing commercial real estate debt market. The investment has already been put into action through a mixed-use development in Melbourne valued at $380 million. APG will provide $300 million as the first tranche of the investment, with an option for an additional $300 million in the future. The move indicates growing offshore interest in Australia’s commercial real estate debt market, which is opening up as the country’s major banks reduce their exposure due to increased capital requirements. MaxCap’s managing director, Wayne Lasky, noted that both local and offshore investors see the potential for a scalable opportunity, with a $50 billion funding gap expected to emerge by 2023. The Australian Prudential Regulation Authority (APRA) raised the total capital requirement for the country’s four largest banks last year, which led to a reduction in their senior debt levels to meet the capital buffer targets by 2023.
The new partnership between MaxCap and APG will focus on senior debt, specifically first-mortgage loans, for residential, office, retail, and hotel assets. The goal is to strike a balance between security, ambition, and price, according to MaxCap’s managing director, Mr. Lasky. This collaboration will expand MaxCap’s existing $3.72 billion under management. MaxCap has a lending pipeline of over $2 billion-worth of deals to finance in the next year and will not lend above 65 percent LVR (loan-to-value ratio) loans. While Mr. Lasky did not disclose the specific Melbourne project that APG invested in as its first deal, he did mention that MaxCap has already funded its first stage, with the APG funding to be used for stages two and three.
Mr. Lasky noted that he did not have “direct control” over APG’s second $300 million investment. However, both parties intend to trigger the increased commitment as soon as possible. APG’s head of private real estate for Asia Pacific, Graeme Torre, stated that MaxCap is a “strong long-term partner” for the fund manager, and it is continuously searching for suitable investments worldwide. Mr. Torre also pointed out that the shift in Australia’s banking sector’s market dynamics is contributing to a convergence of equity and debt returns, which makes a real estate debt strategy an attractive proposition with a favorable risk-return proposition.
With interest rates at record lows worldwide, global investors are searching for higher yields, and Australia has benefited from this trend. Although this has driven up asset values and lowered yields, Mr. Lasky believes that the risks are greater for equity investors than for debt investors such as MaxCap and APG. “Equity is the first in and last out,” he said. “Compared to equity, there has been a convergence of returns, which means that you can achieve the same or better return on debt with considerably less risk.”
