Aussie Commercial Property Market Lures Unorthodox Lenders
(Bloomberg) -- Money managers are looking to lend more in Australia to commercial property owners, as banks cut loans to the industry because of increased regulatory pressure.
Revolution Asset Management, a boutique manager co-founded by fixed-income industry veteran Bob Sahota, is seeking to raise as much as A$500 million ($358 million) for a fund that will invest partly in commercial property debt. Canada Pension Plan Investment Board’s CPPIB Credit Investments Inc. and Challenger Investment Partners have also set up a fund to provide alternative financing to property owners in Australia and New Zealand.
Stricter lending regulations put in place by Australia’s financial regulator require banks to hold additional capital against mortgages, derivatives and securitized assets. The rules have sucked funds from areas such as real estate lending that used to be a core part in bank loan books, according to Sahota, who previously helped manage a A$9.3 billion portfolio as head of fixed income at Challenger Ltd.
“Banks don’t get ancillary benefits in real estate lending like in corporate relationships where they might get swap lines, transactional banking or other ways to make money,” Sahota said in an interview in Sydney. He also sees investment opportunities in asset backed securities and buyout loans, where banks are “looking to move out of or reduce the amount of their commitments,” he said.
Australia’s office sector generated total returns for investors of 14.7 percent over the year to June, the most since 2008, driven by out-performance in Sydney’s office markets, according to a September report by Savills Plc, a global real estate services company.
Revolution Private Debt Fund I has secured a cornerstone investment of up to A$80 million from a mid-sized superannuation fund, and is waiting for approvals from several other parties, according to Sahota.
“We don’t see non-bank lenders displacing banks,” he said. “We still see us as being a co-lender, and effectively a participant in the market where the banks are marginally moving back because of regulatory pressures.”
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