The Australian commercial real estate debt (ACRED) market is experiencing significant growth, driven by a confluence of factors such as regulatory changes and increasing investor interest, according to investment executives.
The ACRED sector is reportedly valued at some $450 billion, with $373 billion attributed to traditional lenders and $74 billion to non-bank lenders.
Indeed, as Tom Cranfield, Zagga’s chief investment and risk officer, explains, stringent regulatory requirements have seen traditional banks exit the space and non-bank lenders step in to fill the void.
“Private capital has always been there, but we’ve only just seen it emerge, essentially stepping in to fill the void,” Cranfield said.
“I think the dynamic that led to the establishment of the market and its sophistication is that over time you saw more capital entering the space in the corporate, institutional, offshore, private funds, high net worths. walk. »
Cranfield noted that while banks “will always have a role to play”, given the immense size of Australia’s property market, they do not pose a challenge to private credit providers.
In fact, according to AltX co-CEO Nick Raphaely, who joined Cranfield during the webcast, there has “never been a better time to invest in the sector.”
“And I think there are probably two main reasons for that, in my opinion. The first is that after a decade you have companies that have a proven track record,” Raphaely said.
Expanding on this point, he noted that companies like AltX have, over the past decade, made “thousands and thousands of loans, billions of dollars in volume” and not just in benign lending environments.
In addition to the very strong track record spanning years and volatile economic times, Raphaely emphasized that market operators like AltX “really understand” the industry.
“There’s not a lot of conceptual leaps of faith as to where the money is, how the money is, how to get it back,” he said.
“I think this looks to me like a golden period for investors, you know, even though we’re in a period of… a little bit of uncertainty because rates have gone up. I think the economy is going to start to get a little bit tougher, but in terms of the asset class and how investors are accessing it, there are a lot of entry points… So I think there are a lot of opportunities for investors.
Adding that CRED does not exist to “replace your stock portfolio,” Cranfield said the sector offers “stable, defensive and safe returns based on a well-understood underlying or underlying security.”
“If you look at professional managers, wealth advisors, financial planners, fund managers, they deploy their clients’ products there because they believe in them,” Cranfield said.
Also speaking during the webcast, Andrew McVeigh, Managing Partner at Remara, added that he too expects CRED to continue to evolve and grow despite continued economic uncertainty.
“I think from our perspective we still see a very good, strong position in Australian real estate. It’s a position that is now rooted in the fact that it is a major pillar of the Australian economy… We see the benefits of property debt in someone’s portfolio as allowing them to sleep easy at night,” McVeigh said.
“You don’t have the volatility of a price, you don’t have the volatility of your capital… your ability to open your wallet in the morning and you haven’t seen a 20 percent drop or increase. certainly has value for investors… and it just gives you a little more certainty in a time that is still quite uncertain.
To learn more about the webcast, click here.
