Qualitas strikes $1bn real estate debt mandate as banks retreat

Global institutions are stepping up to finance big property projects as the big four banks pull back.

The strength of private debt markets has been put on display as alternative real estate investment manager Qualitas has struck a mandate worth up to $1bn with a global institution, which it will pour into Australian commercial real estate private credit deals.

The move comes as big banks slash their commercial property lending, partly due to dodge higher risk developments and low-margin construction, and also as the returns on offer to institutions from debt increase as interest rates spike.

Big institutions are also switching their focus to debt deals, which are perceived as safer, even as the value of owning passive commercial properties is uncertain.

Qualitas group managing director Andrew Schwartz called out the attraction of local commercial real estate on a global scale, particularly as banks retreat and big institutions get more sophisticated.

“We see this new partnership as an endorsement of our business and testament to our expertise in the Australian commercial real estate private credit market and confirmation of our strategy,” he said.

“As the alternative lending market continues to grow, so does the breadth of product available from alternative financiers,” he said.

Aura in North Sydney. Picture: Supplied

Qualitas has struck residual stock loans with developers looking for a way to back their unsold stock. On high quality projects, Mr Schwartz said this presented compelling risk adjusted returns “given the exposure level is typically at a material discount to underlying valuations with a backdrop of strong residential demand dynamics”.

“The security, stability and quality of Australia’s commercial real estate sector is continuing to draw strong interest from global institutional investors and there is an expanding pipeline of commercial real estate private credit opportunities with an income focus as traditional sources of finance reduce their lending in this sector,” Mr Schwartz said.

He said a partnership worth up to $1bn required a manager with a proven track record of delivering strong returns, which the firm had built over 15 years, through multiple real estate cycles.

Qualitas is currently bullish about the opportunity to grow by backing experienced developers, particularly as they again look to expand as the residential cycle turns. “The market environment is currently placing a premium on the provision of liquidity and Qualitas is a party with the scale of capital to provide this much needed liquidity,” Mr Schwartz said.

“The new mandate means we can continue to capitalise on the continuously increasing opportunities in the market by deploying into attractive risk return investments for the benefit of our investors,” he said.

The mandate is available to invest in tranches, with $220m activated and available for deployment. The balance of $780m is subject to further approvals. Qualitas will co-invest up to $30m

The mandate will be seeded by two residual stock loans for about $109m of immediate deployment, with a remit to lend across all commercial real estate sectors. The deployment of the remaining $111m is subject to usual investment criteria.

The mandate takes Qualitas’ total committed funds under management to $6bn, of which 72 per cent is commercial real estate private credit and 77 per cent is invested on behalf of local and international institutional investors.