Alternative lenders will play an increasingly important role in Australia’s property construction as the major banks continue to pull back on lending, according to David O’Connor, Investment Director at MaxCap Group.
Mr O’Connor, speaking this week at the Property Fund Association’s 2019 Conference in Hobart, said Australia’s commercial lending market is undergoing a period of adjustment after being out of kilter with global debt capital markets. “Australia’s alternative lending market is relatively immature.
“Globally the share among alternative lenders is approximately 37%. In the North American market it is approximately 48%. Yet in Australia alternative lending currently only accounts for approximately 10% of lending.”
Mr O’Connor said ongoing change was expected due to an increasing weight of capital chasing strong risk adjusted returns in Australia. “This is happening while our local lending environment has become more cautious post Royal banking commission.” He said local banks have been forced to moderate on the higher yielding portion of their Books. “The initial and most significant segment impacted was residential construction.
“This has created a significant demand for alternative lending.”
He said alternative Lenders are now prevalent in construction finance and subordinated finance, increasingly prevalent in valued add and core plus, and will ultimately move more heavily into investment finance. “We are now seeing demand for mixed use and commercial construction, and value add/transitional lending – this might include mixed use developments combining residential, hospitality and commercial, or existing commercial assets which require CAPEX and incentive to re-lease or reposition the asset.”
MaxCap Group was founded in 2007, and has originated and managed more than $6.6 billion of Australian CRE debt since that time, with current funds under management and advice in excess of $3.2 billion.
The Property Funds Association 2019 Conference was themed Critical Change: Crisis, Challenge or Catalyst for Property Investment.
About Property Funds Association
The Property Funds Association of Australia is the peak body representing the Australian unlisted wholesale and retail property funds sector, currently worth more than $125 billion.
As the professional association for Australian Financial Services Licensed (AFSL) property fund managers, their advisors, consultants and representatives, we support and promote investment into unlisted property trusts, funds and syndicates, and assist members in developing and operating their businesses.