Investor Apollo lands on half stake in non-bank lender MaxCap

Published with full permission of the Australian Financial Review.

US giant Apollo Global Management has taken a half stake in non-bank lender MaxCap in a deal that gives the unlisted company a value of more than $300 million, and which MaxCap’s founders say will propel it to become the biggest player in Australia’s commercial real estate credit market.

Neither Apollo, a $US471.8 billion ($634.4 billion) asset manager, nor MaxCap would comment on the value of the transaction under which founders Wayne Lasky and Brae Sokolski each sold down to a 25 per cent stake of the Melbourne-based company they founded in 2007.

But the deal, likely the country’s largest to date in non-bank lending, shows global investors are keen to tap new opportunities as banks retreat from a sector into which they expanded after the GFC, but in which they lack the appetite or capacity to meet the increasingly complex financial services needs of real estate owners, investors and developers.

It would supercharge MaxCap’s role in this country’s $300 billion commercial real estate lending market, managing director Wayne Lasky said.

“We see no reason to think why MaxCap, with a strategic partner with the capability and capacity of Apollo backing us and the full weight of that ecosystem, why we cannot be challenging for leadership in the Australian commercial real estate lending markets,” Mr Lasky told The Australian Financial Review on Tuesday.

For Apollo, which in July acquired through subsidiary Athene a 15 per cent stake in annuities provider Challenger for $720 million, the acquisition follows deals in the UK and US with businesses creating opportunities to deploy capital into real estate, as it sought to find higher-yielding assets, and came after searching for some time to find a suitable partner in Australia.

“In an environment where there just is no yield, there is no spread in publicly tradeable securities, the way to earn that excess return, that excess spread for our investors, is through direct origination platforms like MaxCap,” Apollo co-president Scott Kleinman told the Financial Review.

“You have some embedded expertise to understand a particular market very well and can directly originate loans, as opposed to having to just go to the market and buy traded loans where all of that excess return has been traded out of the market.”

The alternative asset manager’s real assets allocation rose to 11 per cent of total assets under management in the June quarter from 9.6 per cent a year earlier.

The Financial Review’s Street Talk column in December reported MaxCap had hired bankers at Grant Samuel to find a deep-pocketed partner.

The unlisted MaxCap, which industry sources said posted EBITDA earnings last year of more than $30 million would likely be worth at least $300 million in a financial services sector with 10-times-plus price-earnings multiples.

In time, Australia, the big four banks still account for about 70 per cent of the commercial real estate lending market but due to regulatory requirements such as holding more tier 1 capital on their balance sheets, their exposure would fall until it was about a 50-50 split with non-bank lenders – in line with the US market, Mr Lasky said.

The increased market share of non-bank lenders will also be boosted by the development of new products that alternative lenders would be better placed to develop, he said.

“What you are going to see is far more products being delivered across the full spectrum,” Mr Lasky said.

“What happens when you’ve got an existing asset that maybe is beyond its economic life and some value-add, it needs to transition? Or, through the dislocation that will come through COVID, in different sectors, what about assets that need to transition their built form, their use, to meet the market?”

Apollo’s partnership was not going to change MaxCap’s strategy and the US giant’s capital was not going to displace its relationships with existing investors such as domestic super funds and overseas pension funds, he said.

“We have every intention of continuing to service all those clients, and to grow our business with the existing clients,” Mr Lasky said.

“But in addition, supplement capital from Apollo and Apollo’s ecosystem and their investor partners.”

Original article can be found here.