Morgan Stanley is betting on Australia’s commercial real estate mid-market, throwing its weight behind a new $500 million lending vehicle for ambitious non-bank lender Pallas Capital and becoming the latest Wall Street house to back the Double Bay shop.
The facility, dubbed Pallas Funding Trust No. 5 (PFT5), will lend between $15 million and $35 million to mid-size commercial real estate borrowers seeking pre-development loans, residual stock loans and investment property loans.
Morgan Stanley has signed on to become the majority funding partner. The remainder has been put up by Pallas Capital’s family office and high-net-worth investors.
It comes on the back of Pallas closing almost $3 billion worth of transactions in the 2025 financial year. This includes a $25 million residential residual stock loan in South Yarra, to give the developer time to sell down the property and a $45 million construction loan for an inner-west Sydney development comprising about 80 apartments.
Pallas was established in 2016 to plug the gap between sub-$10 million players and larger non-bank lenders like Qualitas. It’s since arranged more than 1000 transactions exceeding $8.7 billion in total value. Pallas has historically been funded by wholesale investors, but has shifted its funding book towards institutional warehouses since 2021. This allows it to bring down its cost of funding, offer more flexibility around transaction terms and increase its average loan size.
Pallas’s $500 million Funding Trust No. 2 was put up by NYSE-listed Ares Management Corporation in 2024 and refinanced by Goldman Sachs earlier this year. Pallas Funding Trust No. 3 was a $185 million construction warehouse facility with a leading Australian bank, signed in February. Pallas Funding Trust No. 4 is still in the works, and Pallas Funding Trust No. 6 is in the offing. Pallas also lured Westpac NZ to refinance a $NZ400 million facility focused on Kiwi small-to-medium-enterprise borrowers in the vein of the PFT2 in July 2024.
Pallas Funding Trust No. 5 is almost identical to Pallas Funding Trust No. 2, but is seeking to dish out larger loans, the latter writing loans between $2 million and $25 million.
Real estate non-bank lenders have carved a niche as large, established banks tighten their loan books and pull back from the mid-sized borrower market. In their place, Pallas has risen alongside the likes of MaxCap Group, Balmain, Metrics and MA Financial.