Hunt for yield turns more investors towards real estate debt

In June, the commercial real estate investment manager raised $85 million, its strongest month in 2021.

The funds were secured predominantly from Pallas Capital’s high net worth and family office investor base, which put in between $100,000 and $10 million.

Pallas Capital executive director Mark Spring said the substantial growth in investments was driven by the stability of real estate debt compared with other asset classes in a post-COVID-19 environment.

“Continued lockdowns and instability in the market has created an environment where it is increasingly difficult to generate yield, and investors are seeking newer avenues to divert existing investment funds and surplus income,” he said.

“A fixed income asset such as real estate credit is extremely attractive because it offers investors stable and consistent returns.

“We’re finding that through COVID-19, our investors are having a lot of confidence in the Australian property market now and in the future, but they’re not looking for the hassle of direct investments or risks associated with being a developer.”

The new funds have been allocated across a range of new and existing first and second mortgage investment products across Sydney and Melbourne.

Many of these include boutique residential projects in Melbourne’s inner-city suburbs, such as Glen Iris, Toorak, Brighton, Malvern and a commercial project in Richmond with end values that range from about $20 million to $50 million.

In Sydney, Pallas Capital is providing acquisition funding for future development sites for both residential and commercial uses in city fringe suburbs.

The end values of these projects in Double Bay, Rose Bay and Darling Point range from about $35 million to $70million.

In June, the non-bank lender said it would fund the acquisition and construction of a luxury apartment block in Point Piper, in Sydney’s eastern suburb by its sister company Fortis. The end product of the project is expected to be worth about $120 million when completed.

Investment in Pallas’ first mortgage fund typically yielded about 7 per cent for investors, and the second mortgages attracted about 11 per cent, Mr Spring said.

Of the 161 property investments managed by Pallas Capital to date, 72 have been fully redeemed and repaid.

“None of these investments have suffered any credit impairment to date,” Mr Spring said.

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