Private debt on the rise as investors look for income and dial down risk: Zagga

A growing cohort of investors are looking to private real estate lending to provide property exposure with less volatility, according to a new white paper by Zagga. 

The paper by Zagga, titled, ‘The Power of Private CRED: Why the time is NOW’, charts the rise of commercial real estate debt (CRED), as investors tap into the higher interest rate environment.

Alan Greenstein, CEO, Zagga, said, “Traditional property investments such as real estate investment trusts have experienced significant valuation challenges in recent years. At the same time, higher interest rates - and therefore interest margins – have made it increasingly attractive to become a lender to the commercial real estate sector instead.” 

The rise of CRED comes amid a global shift towards private debt as an asset class, with global private debt assets under management are expected to almost double between 2022 and 2028. The Zagga paper explains that private lenders provide a differentiated offering from banks.

“With strict capital requirements and strong market dominance, Australia’s banks have less incentive to ‘go the extra mile’ when assessing commercial real estate borrowers. If a property developer or asset owner has more complex or ‘out of the box’ borrowing needs, the private lending market can be more suited to assessing the specific risk profile and structuring a deal appropriately,” Mr Greenstein said. 

The paper also looks at the key drivers for CRED, and their importance in addressing the Australian housing shortage. 

“A shortage of housing in Australia is exacerbated by historically low housing approvals and construction starts, and a stronger-than-anticipated recovery in population growth after COVID,” Mr Greenstein said.

 Currently, the Australian population of approx. 27 million people is growing at 2.4% annually – or an additional 624,100 over the period - while 13,000 – 15,000 dwellings are approved each month. The last time approvals were that low was 2012, and almost 4 million fewer people lived in this country. 

“There is one urgent conclusion we can draw from this: we need to build more housing. Access to capital should not be an impediment to that goal, and private, non-bank lenders are a critical link in the property development chain” Mr Greenstein said.

Click here to download your copy of Zagga’s latest white paper.