The confidence of APG, the largest pension provider in the Netherlands, in its approach to investing in the commercial real estate market in Australia has gone up a notch.
It has increased its Australian Commercial Real Estate Debt mandate with MaxCap Group to A$600 million ($417.37 million) with a further re-up option to increase total commitments to A$1.2 billion ($835.68 million).
The Dutch pension fund, which manages over $560 billion in pension assets, committed A$300 million ($208 million) to the partnership when it started in 2019. It has now executed its previous re-up option to double its total allocation. The partnership will continue to target first-mortgage loan lending across all real estate asset classes in the country.
“There is a continued convergence of equity and debt returns which has become more evident in an increasing base interest rate environment,” said Graeme Torre, managing director and head of real estate for Asia Pacific at APG, referring to the appeal of commercial real estate debt as an institutional asset class in Australia.
“A senior position in the capital structure, in particular for development projects, is providing robust risk-adjusted returns when comparing to straight equity positions,” Torre told AsianInvestor.
“A debt strategy is also relatively more defensive in nature and therefore compliments well with APG’s broader real estate equity investments, especially during the current increased uncertainty in the global macroeconomic outlook,” he said.
The real estate debt strategies APG has pursued in Europe and the US over the past seven years have been successful and, in 2019, its partnership with MaxCap Group began the deployment of capital into similar strategies across the Asia Pacific region.
“The partnership with MaxCap has also been a successful one with strong deployment of capital to date and a re-up into the venture will allow APG to further gain exposure to this attractive asset class with immediately executable pipeline deals already secured by MaxCap,” said Torre.
Institutional investors around the world are looking to commercial real estate debt strategies more and more as they look to diversify their portfolios amid volatile macro-economic conditions. Torre believes several factors make Australia’s real estate sector more attractive than other markets in the Asia Pacific region.
“We continue to witness a funding gap in the Australian banking sector due to a withdrawal from commercial real estate debt exposure by the four major Australian banks. This has been more significant than other markets in the region and this has allowed the emergence of a more institutional non-bank lending sector in Australia,” he said.
Australia also has a very well-established rule of law and enforceability risk is lower when compared with other markets in Apac, according to Torre.
“As such, it is still one of the most preferred markets for real estate debt investments in Apac,” he said.