MaxCap backs A$400m deal as Australian banks withdraw

MaxCap Group, a Melbourne-headquartered commercial real estate investment firm, has backed a real estate project worth over A$400 million.

Eddie Law, a Sydney-based investment director at the firm told PDI the real estate investment firm has structured a senior secured debt facility to provide flexible loans to a borrower, alongside an industrial superfund in Australia. Further details on the commitment size of each party were not disclosed.

The borrower is Golden Age Group, a Melbourne-headquartered real estate developer. The loan was made to fund the developer’s latest mixed-use project called Park One in Macquarie Park, New South Wales, the latest statement from MaxCap Group shows.

“Developers [in Australia] generally cannot kick off development projects if they do not have a sufficient pre-sale in place to at least match the level of debt required in the overall financing,” Law noted.

He adds that MaxCap Group’s discretionary and non-discretionary financing platforms can provide more flexible terms, especially in requirements on ‘pre-sale level of debt cover’ compared to other institutional lenders such as large banks in Australia.

Australia and New Zealand Banking Group (ANZ), Commonwealth Bank of Australia (CBA), Westpac, National Australia Bank (NAB), and Macquarie Group are the five largest authorised deposit-taking institutions (ADIs) in Australia.

ADIs refer to corporates with authorised banking business, including banks and credit unions, according to The Australian Prudential Regulation Authority (APRA), the financial industry regulator.

In fact, pre-sale or pre-purchase is a well-known system among Australian real estate debt investors, noted Mark Harrison, a Melbourne-based managing director at Wingate Group, a real estate debt investment firm, speaking at PERE Asia 2018 in Hong Kong on 8 March.

Under the Australian pre-sale contracts, property buyers would typically pay down 10 percent of the total transaction value upon an exchange or an agreement and, later, would pay the remaining 90 percent upon settlement.

Australian banks have been wary of the commercial real estate area for years, particularly on the construction of the development side, according to Tim Roche, a Sydney based senior director and head of Australia and New Zealand for institutions at Fitch Ratings, a New York-headquartered credit rating agency.

According to the latest report released on 21 June by APRA, total commercial property exposures for all ADIs were $273.6 billion as at 31 March 2018 – an increase of $8.8 billion or 3.3 percent, year-on-year. The domestic exposures within Australia were sized at $235.2 billion, accounting for 86 percent of all commercial property exposures.

According to an APRA report, ADIs’ commercial property exposure growth rate has been declining since 2016, from about 12.5 percent in 2016 to 5 percent last year. The largest categories of property exposures were office property and retail property.

The decline in bank lending has seen the rise of alternative finance providers in Australia. Among real estate debt investment firms, PDI understands that Qualitas and Wingate Group have a presence in Australia for real estate debt strategy as of end-2017.

Although Roche at Fitch Ratings sees the potential growth of non-banking financial institutions in the real estate segment, he suspects that this growth will only continue up to a point.

“It [the supply] will tail away over the next 18 to 24 months,” Roche noted, adding that his team has already seen a peak in the supply side.