MaxCap Expert Commentary: PERE Oct ’15 Magazine
Australian commercial real estate debt is increasingly carving its place as a stand-alone asset class in institutional investor’s portfolios as traditional lending sources dry up, writes Wayne Lasky, managing director at MaxCap Group.
There exists a significant opportunity for institutional investors to fill a growing funding gap down under.
Disciplined capital deployed with specialist manager skill will find relative value financing residential development, commercial real estate assets with value-add strategies and non-traditional real estate sectors such as hotels and student accommodation.
The four major Australian banks remain the dominant lenders with 86 percent of $193 billion in Australian commer-cial real estate (CRE) debt exposures and less than 0.3 percent provisions (funds set aside to pay for anticipated losses).
This has been described as the ‘goldilocks period’ for the major banks, but as the singer Bob Dylan opined, ‘the times they are a changin’.
The banks are now being forced to increase their Common Tier One equity to risk-weighted assets ratio up to 7 percent by 2019. In response, they have retracted further down the risk curve and thereby are increasing the pre-existing funding gap.
With a shallow pool of lenders, borrowers often face aggregation issues as banks are restricted by how much they can lend to any borrower.
Talking at a MaxCap Group event, the former Prime Minister of Australia, Paul Keating pointed out that: “Other institutions will have to do things in the spaces traditionally left to banks, such as property development, and we will see a shift in the balance in financing this industry.”
There is little doubt the current one-size-fits-all CRE debt approach cannot prevail much longer; a view supported by MaxCap. I recently stated at an industry event that real estate is idiosyncratic in nature and requires diverse bank and non-bank lenders to provide a robust finance system to support real estate activity in Australia.
MaxCap was among the first investment managers to introduce institutional capital to mezzanine debt strategies in the post-global financial crisis (GFC) era and we have built on this recently by introducing a market leading whole loan offering. We have found that institutional investors have been attracted to these conducive market conditions and to those firms that can demonstrate deal velocity with high-calibre borrowers.
To download the full Expert Commentary article click here.