AFR - Lender MaxCap snags $600m funding from Dutch pension fund APG

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MaxCap Group has secured a $600 million commitment from Dutch pension giant APG, marking the asset manager’s first entry into Australia’s growing commercial real estate debt market.APG has already invested in its first deal, a $380 million end value mixed-use development on the fringe of the Melbourne CBD. Under its arrangement with MaxCap it will put in a first tranche of $300 million, with an option for a further $300 million subsequently.

It’s small beer for the €505 billion ($819 billion) APG, which already manages an €11.6 billion Asia Pacific real estate portfolio out of its Hong Kong office. But the deal shows the growing offshore interest in a commercial real estate debt market that is opening up as Australia’s big four banks reduce their exposure to the sector, in part due to requirements to build up greater levels of capital over the next four years.

“It’s very clear to both local and offshore investors that this is a scaleable opportunity,” MaxCap managing director Wayne Lasky told The Australian Financial Review.

“They can see there is a $50 billion funding gap emerging to take advantage of the non-bank sector by 2023.”

Last year banking regulator APRA boosted the total capital requirement for the country’s four largest banks by between 4 and 5 percentage points of risk-weighted assets. The banks said they would reduce their level of senior debt as they boosted their capital buffers by the target of 2023 to around 19 per cent from the current 14.5 per cent.The partnership, which bulks up MaxCap’s existing $3.72 billion under management, will target senior debt, or first-mortgage loans, across sectors such as residential, office, retail and hotel assets that meet APG’s wish to strike a balance between “security, ambition and price”, Mr Lasky said.

MaxCap, which has a lending pipeline of more than $2 billion-worth of deals to fund over the next 12 months, says it lends no higher than 65 per cent LVR (loan-to-value ratio) loans. Mr Lasky declined to identify the Melbourne project on which APG had lent as its first investment, but said MaxCap had already funded the first stage of it and the APG funding would be used for stages two and three.

He said it was not in his “direct control” when APG made its second $300 million investment.

“It’s the intention of both parties to trigger the increased commitment at the earliest possible moment,” Mr Lasky said.

APG’s head of private real estate for Asia Pacific Graeme Torre said MaxCap was a “strong long-term partner” for the fund manager that was continuously looking for suitable investments around the world.

“We see the structural shift in the Australian banking sector market dynamics contributing to a convergence of equity and debt returns,” Mr Torre said.

“A real estate debt strategy therefore offers us the opportunity to access this
asset class with an appealing risk-return proposition.”

A time of low interest rates globally has hastened the hunt by global investors for higher yields and Australia has been one beneficiary of money looking for a home. While that has inflated asset values and pushed yields down, Mr Lasky said the risks were greater for equity investors than debt investors such as MaxCap and APG.

“Equity is the first in and last out,” he said. “Relative to equity there’s been a convergence of returns, meaning you can make the same or better return in debt with considerably less risk.”

AFR – Lender MaxCap snags $600m funding from Dutch pension fund APG

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