According to investment executives, Australia’s commercial real estate debt (ACRED) market is witnessing significant growth, driven by a combination of factors such as regulatory changes and growing investor interest.

The ACRED sector is said to be valued at around $450 billion, with $373 billion attributable to traditional lenders and a substantial $74 billion to non-bank lenders.

Speaking in a recent InvestorDaily webcast, three professionals operating in the space explained that the surge in non-bank lending has significantly contributed to the sector’s growth, with non-bank lenders said to hold a 16 percent market share as of June 2023.

Namely, as explained by Zagga's Chief Investment and Risk Officer Tom Cranfield, strict regulatory requirements have forced traditional banks out of the space with non-bank lenders stepping in to fill the gap.

"Private equity has always been around, but you've just seen the emergence of it actually stepping in to fill the gap," Cranfield said.

"I think the dynamic that has led to the establishment and refinement of the market is that over time you've seen more and more capital come into the space in the corporate, institutional, offshore, private wealth, high net worth market."

Cranfield noted that while banks "will always have a hand in the space", given the sheer size of the Australian property market, they do not pose a challenge to private credit providers.

In fact, according to Nick Raffaelli, co-CEO of AltX, who joined Cranfield on the webcast, "there's never been a better time to be an investor in the space."

“And I think there's probably two main reasons, I think, for that. The first is to have businesses on file in a decade,” Raffaelli said.

Elaborating on this, he noted that businesses like AltX over the past decade have made "thousands and thousands of loans, billions of dollars in volume," and not just in a favorable credit environment.

Besides the all-important experience spanning years and a volatile economic period, Raffaelli stressed that market operators like AltX "actually understand" the sector.

"There aren't too many conceptual leaps of faith in terms of where the money is and how the money, how to get the money back," he said.

“I think it feels like a golden period for investors, you know, even though we're in a period of ... a little bit of uncertainty because interest rates have gone up. I think the economy is going to start to get a little more difficult, but certainly in terms of what the asset class is and how investors can access it, there's a lot of access points... So I think there's a lot of opportunity for investors .”

Adding that CRED does not exist to "replace your equity portfolio", Cranfield said the sector provides "stable, defensive, safe returns based on an underlying or supporting security that is well understood".

"If you look at professional managers, wealth advisors, financial planners, fund managers, they're putting their clients' products into it because they believe in it," Cranfield said.

Also speaking on the webcast, Andrew McVeigh, managing partner at Remara, added that he also expects CRED to continue to develop and grow despite continued economic uncertainty.

“I think from our perspective we still see a very good, strong position in Australian real estate. It's a position that's now embedded that it's a major pillar of the Australian economy... We see the benefits of real estate debt in one's portfolio as providing that aspect of a good night's sleep,” McVeigh said.

"You don't have the volatility of the price, you don't have the volatility of your capital ... your ability to open your portfolio in the morning and you haven't seen a 20 percent drop or a 20 percent increase certainly has value for investors ... and it just gives you a little bit more certainty in what essentially it's still a pretty uncertain time.”

To hear more from the webcast, click here.