Dutch pension fund giant APG Asset Management has entered the Australian real estate debt market, partnering with local asset manager MaxCap.
The Melbourne headquartered MaxCap has secured an initial $300 million for construction funding, with an option for APG to increase its total commitments in the market to $600 million.
The partnership will target first-mortgage or “senior debt” loans across all real estate asset classes. APG’s first investment vehicle is in a residential mixed-use project in northwest Melbourne, six kilometres from the CBD.
MaxCap managing director Wayne Lasky said commercial real estate debt as an institutional asset class is still in its early stages in Australia.
MaxCap has sized a $50 billion funding gap until 2023 in the $300 billion commercial property sector, as the big four continue their retreat.
APG, which manages a €11.6 billion real estate portfolio across the Asia Pacific out of its Hong Kong office, said it was making the investment on behalf of its pension fund clients.
“We see the structural shift in the Australian banking sector market dynamics contributing to a convergence of equity and debt returns,” APG Asia Pacific head Graeme Torre said.
“A real estate debt strategy offers us the opportunity to access this asset class with an appealing risk-return proposition.”
The continuing trend of institutional capital moving from buying real estate equity to participating in real estate debt is unsurprising, KPMG director of corporate finance Tony Moussa told The Urban Developer.
“Their prior experience in real estate equity investing highlights both their ability to understand real estate risk as well as their commerciality in negotiating reasonable financing outcomes.”
The fallout from the royal commission and APRAs credit curbs has created space in the more secure first mortgage or senior debt lending market, with non-bank lenders reporting significant growth in lending to developers over the last financial year.
Moussa said KPMG is increasingly awarding financing to non-bank lenders.
“We seek to engage both banks and non-bank alternate financiers in the processes we run for our property borrower clients.
“[KPMG] has, for some time now, awarded financings to non-bank lenders given their greater flexibility and risk appetite relative to traditional bank lenders.”