Haley Devine, the Director of Wealth Management for MaxCap Group, discusses why investors should consider adding an investment in commercial real estate debt to their portfolios.
Peter Milios: I'm Peter Milios from the Finance News Network, and today we're joined by Haley Devine, the Director of Capital Wealth Management at MaxCap Group, Australia's leading commercial real estate investment specialist. It's no secret that Australians love property, and today we're going to explore how investors can access commercial real estate debt investment opportunities and the benefits of investing in Australian commercial real estate debt. Haley, thank you so much for your time.
Haley Devine: Thanks for having me, Peter.
Peter Milios: Do you want to just start by giving us an overview of MaxCap Group, Haley?
Haley Devine: Sure. So, MaxCap has been around for 18 years now. We have roughly $7bn in assets under management, and over the 18-year history we've originated around $19bn total in loans. We have five offices, so boots on the ground across Australia and New Zealand. So, we're in Perth, Brisbane, Sydney, Melbourne and Auckland. And another important part about the MaxCap story is that we're in a JV or joint ownership with Apollo Global, who are one of the largest alternative investment managers in the world. So, MaxCap has a really unique position, being a domestic player, but with some global insights and benefits from that Apollo ownership.
Peter Milios: So, Haley, what are the benefits of investing in the Australian commercial real estate debt, otherwise known as CRED?
Haley Devine: Yeah, it's a great question because it's really topical at the moment.
Peter Milios: Yep.
Haley Devine: There's a lot of interest in the market, and I think what we see is that wealth managers are generally, particularly in Australia, are underallocated to private debt. Private debt's a great asset class for most portfolios. It provides good diversification because it's relatively low-correlated to both listed equities and listed fixed income. It's got an emphasis on capital preservation. It's also low volatility in the returns. So, it's a good stable income provider for most portfolios. Private debt can also be a great inflation hedge. So, in the current environment, it does make sense to explore having some private debt in your portfolio.
Peter Milios: And how can investors access commercial real estate debt investment opportunities?
Haley Devine: Well, I'm glad you've asked because MaxCap does have a fund. So, we have an open-ended pooled vehicle that's open to wholesale investors. The benefits of going into a fund is that we have up to 50 loans in the fund, so you've got some instant diversification. So, our fund has two investment options. There's a first mortgage, which, as the name suggests, is all senior secured debt. The second option is high yield, which is senior secured debt plus some second mortgage and some mezzanine. And the returns on those, the first mortgage is targeting a cash rate plus five, and the high yield is targeting a cash rate plus eight.
Peter Milios: And what is the typical loan profile? What sectors?
Haley Devine: So, our typical loan profile, the loans can vary anywhere between 6 to 36 months, and it's very diversified over commercial real estate. We do have a skew towards residential because there's sort of a well-documented thematic around housing undersupply in Australia. So, we're really comfortable with residential.
Peter Milios: And, Haley, how does the MaxCap investment trust benchmark against some of your competitors?
Haley Devine: It's very competitive in its space. We've worked really hard on the terms of the fund. So, for example, it's monthly liquid, so monthly for applications and redemptions, and we've just moved to monthly distributions, which was very welcomed by our investor base. Another point of differentiation of our fund is that it shares the establishment fees. So, that is when a manager originates a commercial real estate debt loan, there's typically some upfront or establishment fees that are earned on that deal. Most managers will keep those fees, but MaxCap made the decision to share them 50-50 between the manager and the fund. And not only does that give the fund a bit of a revenue boost, which you can see in our returns, but also it does promote alignment. So, there's no incentive for the manager to churn the book to earn those establishment fees because they're being split evenly between the fund and the manager. So, that's a real point of differentiation and does also help to explain the outperformance of the fund. So, on both the first mortgage and the high yield, we're exceeding target. So, the first mortgage is currently returning about 11.5 per cent and the high yield about 12.4 per cent.
Peter Milios: And, Haley, what are the platforms that MaxCap Investment Trust is on?
Haley Devine: So, for financial advisors, we're on a lot of the major platforms. So, we're on Hub, Netwealth, Praemium, Mason Stevens.
Peter Milios: Perfect. Thank you, Haley. Thanks so much for your time.
Haley Devine: Thanks, Peter. Thanks for having me.
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