AFR Article by Michael Bleby - Full Transcript (with approval and licensing rights) 17 October 2019

MaxCap has expanded into commercial real estate equity investment and seeks to make higher-risk, higher-yielding direct investment account for as much as 10 per cent of its loan book within the next three years.The non-bank lender, which has about 6 per cent of its $3.4 billion loan book in equity investments, is seeking to attract new investors and offer existing ones a wider range of options with a greater emphasis on equity investments that offer double the high single-digit return of debt.  
While MaxCap made its first equity investment two years ago with a $15 million investment that saw it passively partner with developer Too Build to develop the now-complete Mantra Hotel in Melbourne’s northern suburb of Epping, which it now owns, the company has set up a direct investment team headed by former Charter Hall development director Simon Hulett.
“It is about having a spread of investments when super funds, who will have a heavy weighing towards more defensive investments, are also wanting to have a certain proportion of their portfolio invested in higher-risk, higher return assets,” MaxCap chief investment officer Brae Sokolski said. The global demand for higher-yielding investments is creating opportunities for MaxCap, which last month expanded into New Zealand. This product expansion gives MaxCap, with a 70-30 weighting of local versus overseas investors, a way to appeal further to the large pool of offshore funds that are looking for higher-yielding investments in a time of low returns globally.

“We are operating in a global capital market,” MaxCap managing director Wayne Lasky said. Even so, there were no rules about whether the capital would come from onshore or offshore investors, he said. “That is going to be fairly evenly represented by both domestic and offshore investors,” Mr Lasky said.

Other equity investments include a partnership with developer ICD on Melbourne residential development Aspire, due to begin construction this year, and a luxury car dealership with an unidentified partner in Melbourne’s eastern suburbs on a site with a 15-year lease.

The decision to expand into equity investment came after actively deciding not too earlier, Mr Lasky said. “We deliberately have avoided or declined to participate in equity investments several years ago. We felt that the returns weren’t commensurate with the risk and there was an overweight level of capital investment,” Mr Lasky said. “But there’s been a huge retreat of capital from equity that wants to deploy into debt and there was a vacuum and a real opportunity to capitalise on a very selective basis across all asset classes. This isn’t residential-development focused, it’s across all real estate classes.”