Real Estate Private Debt Shines Brightly Amid Volatility

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Key Points

  • A growing cohort of investors are looking to commercial real estate debt investment to tap into the higher interest rate environment, with lower volatility.

  • As traditional real estate investment trusts have faced a storm of volatile pricing, and residential property yields are compressed by high purchase prices, commercial real estate debt is providing property exposure, without the challenges of ownership.

A growing cohort of investors are looking to private real estate lending to provide property exposure with less volatility, according to a new white paper by Zagga. 

The paper by Zagga, titled, ‘The Power of Private CRED: Why the time is NOW’, charts the rise of commercial real estate debt (CRED), as investors tap into the higher interest rate environment.

Zagga chief executive Alan Greenstein said, “Traditional property investments such as real estate investment trusts have experienced significant valuation challenges in recent years. At the same time, higher interest rates—and therefore interest margins—have made it increasingly attractive to become a lender to the commercial real estate sector instead”. 

The rise of CRED comes amid a global shift towards private debt as an asset class, with global private debt assets under management expected to almost double between 2022 and 2028. The Zagga paper explains that private lenders provide a differentiated offering from banks.

“With strict capital requirements and strong market dominance, Australia’s banks have less incentive to ‘go the extra mile’ when assessing commercial real estate borrowers,” Greenstein said.

“If a property developer or asset owner has more complex or ‘out of the box’ borrowing needs, the private lending market can be more suited to assessing the specific risk profile and structuring a deal appropriately.” 

The paper also looks at the key drivers for CRED, and their importance in addressing the Australian housing shortage. 

“A shortage of housing in Australia is exacerbated by historically low housing approvals and construction starts, and a stronger-than-anticipated recovery in population growth after Covid,” Greenstein said.

Currently, the Australian population of about 27 million people is growing at 2.4 per cent a year—or an additional 624,100 over the period—while 13,000-15,000 homes are approved each month.

The previous time approvals were that low was 2012, and almost 4 million fewer people lived in this country. 

“There is one urgent conclusion we can draw from this: We need to build more housing. Access to capital should not be an impediment to that goal, and private, non-bank lenders are a critical link in the property development chain,” Greenstein said.

To find out more, or to download your copy of the white paper, visit the Zagga website

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About Zagga

Incorporated and licensed in 2016, we are a well-established, Australian boutique investment manager and non-bank lender, specialising in the private credit real estate (CRE) sector.

A leader in our chosen niche of mid-market loan sizes ranging from $5 million to $50 million, we boast a team with more than 200 years of combined experience in credit, property and investment management. 

Our investor base spans high-net-worth individuals, family offices, and quasi-institutional funders from Australia, China, Hong Kong, Israel, Japan, Mauritius, Singapore, South Africa, Switzerland, the UK and the USA.

We focus on generating stable, fixed-income style, risk-adjusted returns through CRE investments secured by high-quality Australian assets. 

To date, we have returned 100 per cent of all investor capital.