Looking for income? Consider real estate credit investing

Many investors are turning to Australian commercial real estate for compelling investment returns.  What is so interesting about this market segment?

1. As part of the alternative investment universe, this private debt product offers reliable and stable returns which are uncorrelated to listed markets.  With many Australians already exposed to listed equities via their superannuation funds, real estate credit is a way to diversify investment portfolios and hedge against listed market volatility.

2. First registered mortgages offer stable income profiles, with the potential for higher returns than traditional fixed income products.  Real estate credit has strong structural protections including independent certifications during construction, information requirements and other covenant protections which help protect against loss. 

3. The attractiveness of first mortgage security if loan performance does not go to plan cannot be underestimated.  Whilst the sale of security is never the preferred plan, the performance of Australian real estate and the fact that loans are typically made at fairly conservative loan-to-value ratios can give investors comfort in the event of default.

Dislocation in Bank markets is creating opportunity for private real estate credit lenders

Banks in Australia have historically been dominant providers of loans, but regulatory pressures following the Global Financial Crisis in 2008 have forced banks to rethink the way they lend money.  In addition, the Australian Prudential Regulatory Authority (APRA) keeps a close eye on the volume of real estate exposure held by Banks to ensure that there is not a significant concentration risk.  

In 2016 we saw APRA actively limit the amount of commercial real estate credit exposures that Australian banks could hold, leading the way for the non-bank commercial real estate lending space to fill the void.

Borrowers are also looking for ways to diversify away from banks to financiers that can:-

• React or reach a decision more quickly than a bank;
• Provide flexible capital and bespoke loan structures; and 
• Provide higher leverage than a bank is willing to fund.

The number of non-bank commercial real estate lenders has exploded over the past 5 years.  Corval Avenue is celebrating its 25^th year of operation in 2024 and we are seeing more and more opportunities to assist borrowers with flexible capital solutions.  

Our knowledge of real estate credit combined with our property and construction pedigree means we understand the ‘how’ of real estate development and have a unique ability to structure capital solutions to assist developers in achieving their outcomes.

For investors, the combination of expertise in construction and asset management is unique in our industry.  We know how to assess the loan before we lend, how to monitor it effectively during the life of the loan and how best to manage it if things don’t go to plan – all with the goal of ensuring we are protecting our investors’ capital.