Private credit lenders, including Apollo Global Management-backed MaxCap Group and Pallas Capital, are targeting a bigger slice of lending to Australia’s commercial property sector, as banks curtail their exposure after tighter capital regulations.

“We are looking at a total commercial real estate market size of around A$500 billion and it’s a great opportunity for all the non-bank firms and private credit houses,” said Bruce Wan, head of research at MaxCap. “These avenues have helped non-bank lenders double their asset size in the last three years.” 

Australia’s property sector is growing as a source of deals for private credit lenders, as commercial real estate transactions rebound and local banks become more risk adverse to property exposure, after regulators last year imposed stricter capital rules for development and construction loans. Global investors including Warburg Pincus and PGIM are joining local funds in targeting loans to Australian property firms, helping to make the nation a hot spot for the booming private credit industry.

In a sign of market confidence, Pallas Capital, a Sydney-based private-debt lender received a A$280 million (US$184 million) loan from Goldman Sachs Group Inc to refinance its flagship fund, according to the Australian firm’s chief investment officer Dan Gallen this week. Ares Management and Pallas have also provided financing to the A$500 million fund.    

Goldman’s participation will lower the cost of funding for Pallas, Gallen said.

Double-digit returns have been luring investors. A senior property loan fund managed by MaxCap with most of its funds deployed in Australia, had net returns of about 12% in the 12-month period through June, data from the company shows.   

Still, like global peers, the rapid of growth of private credit is giving Australian regulators cause for concern. The Australian Securities and Investments Commission is setting up a specialised unit to engage with private markets, while the Australian Prudential Regulation Authority has repeatedly raised concerns about the frequency of valuations and disclosures for unlisted assets. 

For now, the real estate market down under is rebounding, as investors expect the sector to profit from lower borrowing costs in 2025, property consultant JLL said in a statement last month. Commercial real estate sales in Australia increased 48% to A$18.7 billion in the first nine months of the year, JLL said. 

  - Bloomberg