MaxCap’s $300 million direct investment arm is making its first equity play in high-end Sydney residential development on a 16-level project in Sydney’s Chatswood with developer Central Element.
The financing company known primarily as a debt financier, with about $4 billion in assets under management, was taking advantage of pandemic-driven changes in the market to boost its newer direct equity investment arm, said MaxCap’s head of direct investment, Simon Hulett.
“There’s been a significant shift in the market,” Mr Hulett told The Australian Financial Review.
“A couple of things come out of that. One is the flight to quality and the fact that people are much more focused on the quality of their product that they’re purchasing – they want to know who the developer is, who the builder is, they want to know what the finishes are. They want all that detail.”
The retreat of investors – particularly foreign investors – had also created a gap and this, paired with the growing demand of local high net worth and other sophisticated investors wanting higher returns, was driving the push for a direct investment portfolio as big as the company’s debt assets, he said.
The business unit, which includes the MaxCap Industrial Opportunity Fund, has already invested in residential projects in Melbourne, such as ICD’s 65-storey Aspire tower at Flagstaff Gardens.
The current return across MaxCap’s $300 million direct investment portfolio was “around” 23 per cent gross, in contrast to a “single-digit” return on senior debt and a return in the “teens” on mezzanine debt, he said.
The project at 15 Ellis Street will include 55 luxury apartments, retail and wellness facilities and offer views of the Sydney CBD and Blue Mountains. The project has achieved a first-stage “gateway” approval from the local Willoughby City Council and is now undertaking a design excellence competition – the council’s first – to come up with a detailed design.
Architecture firms Woods Bagot, SJB and fjmt are competing and the winning design is due to be announced in coming weeks.
The budgeted construction cost is $40 million and the end value of the project is $150 million. A builder is likely to be appointed at the end of this year –about the same time as sales begin –with construction starting next year. Completion is due in early 2024, about the time of the expected opening of Chatswood’s new Sydney Metro train station.
“This luxury residential development will target the strong owner-occupier market in Sydney and appeals to what we believe is an underserviced local demographic,” said Central Element managing director Nathan Chivas.
“That is a segment of the market looking for premium product, mainly comprising generously sized two- and three-bedroom apartments.”
Mr Hulett declined to give a selling price for the apartments, saying they would be “looking to attract premium in the market for a premium product”.
The original article can be found here.