The holy grail of investing: "Stable returns under vastly different economic conditions"

Plenty is happening in the private credit and commercial real estate debt (CRED) markets. The space is growing quickly; new risks and opportunities arise when that happens.

For a deep dive into the opportunity set and how they’re navigating it, I recently sat down with three of the team at CRE Debt and Equity specialists, MaxCap Group; Bruce Wan (Head of Research), Bill McWilliams (Chief Investment Officer) and Haley Devine (Director, Wealth management).

The first instalment of our conversation, focusing on the big themes impacting the space now and in the year ahead, can be accessed below;

Private Assets

Risk, reward, and reality: What’s happening in commercial real estate debt

View

In the following wire, we focus on how MaxCap differentiates itself and the value that it endeavours to create for investors. 

Track record and expertise

Founded in 2007, MaxCap has established itself as a leader in CRED, leveraging nearly two decades of experience. The firm’s deep industry knowledge and commitment to risk management have made it a trusted partner for investors and borrowers alike.

With a team of seasoned professionals from banking, valuation, risk management, and quantity surveying backgrounds, MaxCap ensures that every transaction is handled by experts who "live and breathe" commercial real estate credit. This multidisciplinary approach allows MaxCap to comprehensively assess projects, mitigating risks while maximising potential returns.

"Our people have come from the major banks, are licensed quantity surveyors, licensed valuers, and individuals who have worked in risk departments both locally and internationally.

The quality of our people is very important to us," noted McWilliams

Local market knowledge with a national reach

One of MaxCap’s key differentiators is its extensive origination network across Australia. The firm maintains a strong presence in major real estate markets, with offices strategically located to provide real-time insights into local trends, challenges, and opportunities. This allows MaxCap to be highly selective, funding only the most promising and financially sound projects.

"We don’t operate in an environment where we need to deploy capital for the sake of deployment. We filter our pipeline down and really only go after the best opportunities," says McWilliams.

This disciplined approach ensures that MaxCap remains focused on high-quality transactions, strengthening its reputation as a preferred lending partner in the industry.

Relationships and reputation

In an industry where trust is paramount, MaxCap’s long-standing relationships with borrowers serve as a significant competitive advantage. Many of MaxCap’s clients have completed 20 to 30 projects, viewing it as their first and last call when seeking debt solutions.

"Over time, we have built a strong and robust reputation. Some lenders pull back their term sheets after issuing them, causing enormous disruption. We have maintained a pristine record of backing our borrowers and providing certainty," says Wan.

Consistency and reliability are key drivers of MaxCap’s continued success. The ability to provide certainty in an often volatile market has cemented its reputation as a lender that developers and investors can depend on for the long term.

Current market conditions and outlook

Despite current economic headwinds, including elevated interest rates and regulatory hurdles, MaxCap remains optimistic about the commercial real estate market’s future. The firm believes that even modest reductions in interest rates could reignite developer sentiment, increasing the feasibility of various projects.

"At the moment, interest rates are quite high, impeding the ability of developers to make projects stack up. With some modest rate cuts, that could reignite builder sentiment and increase activity," noted Wan.

MaxCap continuously monitors market trends and adjusts its strategies accordingly. While challenges exist, the firm’s risk-mitigated approach ensures that it is well-positioned to capitalise on emerging opportunities as market conditions evolve.

The Apollo Global JV: a competitive edge

MaxCap’s partnership with Apollo Global further solidifies its standing in the market. This joint venture not only brings additional expertise in governance and risk management but also provides valuable global insights, offering a unique blend of local knowledge and international intelligence.

"It’s a perfect union—local market expertise married with global insights and access to significant data,” says McWilliams.

This strategic alignment allows MaxCap to offer best-in-class risk assessment and capital deployment strategies. By leveraging Apollo’s expansive global resources, MaxCap enhances its ability to navigate complex financial landscapes and deliver suitable investment outcomes for investors and borrowers.

The MaxCap Investment Trust

The MaxCap Investment Trust (MIT) is a standout offering in the commercial real estate debt space. Designed with investor needs in mind, the Fund includes several competitive features, such as monthly distributions, monthly liquidity, and a minimum redemption commitment, all of which provide confidence and flexibility to investors, according to Devine.

An attractive feature of MIT is its revenue-sharing model, in which upfront borrower fees are split 50/50 between the Fund and MaxCap. This ensures that the firm’s interests remain fully aligned with those of its investors, fostering long-term trust and transparency.

"Typically, in Australia, these fees are retained by the manager, but in MIT’s case, we share them. This provides a performance boost and ensures there’s no incentive to churn the book,” says Devine.

Currently, MaxCap’s first mortgage sleeve (one of the two investment options) in the Fund is generating a return of 11.73% since inception - significantly beating its target of 9.35% (cash rate plus 5%).

Meanwhile, the second mortgage sleeve – the High Yield product - with return expectations of cash plus 8%, is currently delivering 12.28% since inception. Both sets of returns are valid as at 31 December, 2024.

Stability and sustainability of returns

MaxCap’s track record of delivering stable returns across various economic cycles highlights its resilience and adaptability. Over nearly two decades, the firm has successfully navigated recessions, interest rate fluctuations, and market disruptions while maintaining consistent investor returns.

"We’ve delivered stable returns under vastly different economic conditions. Whether rates are rising or falling, we have demonstrated consistency," noted Wan.

This ability to perform under diverse market conditions has earned MaxCap a reputation for reliability, whilst the combination of experience, local market expertise, global insights, trusted relationships, and innovative investment structures makes it a formidable player in the commercial real estate debt market. 

CRE Debt and Equity specialists, MaxCap Group

MaxCap Group, a strategic investment partner of Apollo, is a leading Australian Commercial Real Estate Debt investment manager. With $7 billion Funds Under Management and Advice, we have a long-standing reputation for pioneering financial investment products and a stellar track record of delivering strong and sustainable risk-adjusted returns to investors.