Private Credit: The Secret Weapon of Successful Australian Real Estate Investors

Our next speaker is Matthew Appolito from Jamson TTB.

His presentation topic is Private Credit, the secret weapon of successful Australian real estate investors.

Jamson TTB is an investment manager specialising in private debt and structured equity.

with a focus on Australian defensive real estate backed transactions.

Their experience is in property investment, structured real estate financing and private equity.

Matthew is a distribution director at Jemisin TTV.

He has over 16 years experience in the financial services sector, previously working firms including Walker Whalen Advantage, PKF,

JB Weir and Australian Unity, and is also an avid private investor.

Matthew is a fellow of CPA Australia.

Welcome to the presentation, Matthew.

Thank you for the opportunity to join you and the viewers this afternoon, Angelina.

Most of you on the call probably haven't heard of Jamison TTV in the past, so I might just spend a little bit of time bringing everyone up to speed on

who we are, who we're backed by, and our areas of expertise.

So Jamison TTB has been around since 2015.

We're now in our eighth year of operation, and we have primarily raised capital from offshore to date, as shown in the chart in the bottom of the slide.

Primarily most of our capital has come from Southeast Asia, specifically Hong Kong, where we have a base.

And we've raised $400 million of equity in that time against realized assets of $1.75 billion in value.

Jamison's motto is the relentless pursuit of performance through private market transactions.

And we invest across the entire capital stack from senior secured first ranking mortgages all the way through to equity positions and everything in between.

We're very proud to boast a realised performance of 17% IRR in that time, which equates to a 1.18 times multiple on invested capital.

We have 10 employees, 8 based in Melbourne and 2 in Hong Kong.

I won't go through the following slides in song and verse.

This is effectively our team.

The team is made up of a variety of different experience from all around the world.

And some of the names that my colleagues have worked at before are Macquarie, Knight Frank Goodman Group, me personally, JB Weir, Australian Unity, Wingate, IFM Investors, vicinity centres, just to name a few.

So we are a very experienced team.

The two co-founders, Nick Brown and Jonathan Webster, both spent about a decade together at Macquarie Bank, Nick on the deal side and Jonathan on the capital raising side.

And they effectively came together and decided to found Jamison eight years ago.

In that time, we've then added some resources in Hong Kong, Peter Chapman and Mark Ferguson.

And we also have Charlie Buxton from the Buxton family on the board as well, providing

useful and unparalleled insights from the property development perspective.

This is the deal team and the capital raising team as well.

I won't go into too much detail on my colleagues but it's also important to note that we are backed by the Andrew Buxton family office which is

Andrew Buxton and Michael Buxton are co-founders of MAB Corporation, probably a name that's not familiar to a lot of people on the call, but if I say that they develop most of Docklands in Melbourne, that will hopefully put some context on who they are and the experience that they bring to the table.

TTB Real Estate are a financial advisory firm based in Hong Kong and London and founded by the son of ex

global chairman of HSBC, Jonathan Bond, and a Goldman Sachs partner, Theresa Teague.

What do we do?

It's very simple at a very high level, but very complex once you dig down it.

So effectively, we research

particular themes and develop investment strategies from that.

We identify suitable investors to invest in our products.

We manage those loans that we invest into or those investments that we invest into.

And ultimately, at the other end is the thing that's most important to our investors, which is investment performance.

The next slide is really a summary of all of the deals that we have done over our time.

You can see there that there are some very attractive returns and you can see in the strategy column that we invest from senior secured first ranking mortgages.

We do mezzanine debt, we do preferred equity, and we do equity as well in the capital stack.

So we play across the entire capital stack.

And then sectorally, we don't have any specific

concentrations, we are very unconstrained and we invest in residential office, industrial, medical assets, NDIS assets, hospitality, just to name a few.

Here's a few pictures of some of the developments that we have financed over time, just to give you an idea of the types of developments that we do fund.

I might just dig down now into what is real estate private credit for those on the call, because from my experience in financial markets, which is now going on about 17 years, I think what we can all acknowledge is that Australian investors are very well versed in investing in equities or shares.

They've come up the curve on

investing in fixed income and bonds to some extent and international equities as well.

But I believe that the next area that Australian investors will be focusing on is real estate private credit because of the returns that can be delivered in that space relative to the risk that you're assuming.

So in a nutshell, what do we do in real estate private credit?

Well, Jamison sits over here in the lenders and investors bucket.

We have a network of investors both globally and onshore who have capital to deploy and returns to generate.

What we do is we, once we have assessed and identified an appropriate investment opportunity, is then to lend that money out to secure it against real estate.

Typically to property developers, it could be for construction loans.

It could be for acquiring a block of land that they are looking to develop.

It could be for at the end of construction, where if they have any unsold units or apartments, we take security over those assets and lend against that.

And that is protected via registered first mortgage, which is registered on title with

the local land titles office of the jurisdiction that we are taking security over that asset in.

So that gives investors a significant amount of protection in the event that the borrower is unable to repay the loan.

On top of that, we also have personal and corporate guarantees against the borrower and their corporate entities and their assets in those corporate entities to secure our position further.

When investing in this space, it's important to identify where in the capital stack you are invested in because each has different return and risk characteristics.

So for example, in the current market, a first ranking mortgage, which is typically the most secure investment, you are looking at 10 to 15% returns net to investors.

If you take a little bit more risk and do a second ranking mortgage, also referred to as mezzanine debt,

you're typically looking at returns of about 15 to 20% per annum.

Moving up the risk curve further again, we typically don't look at, you know, you come to preferred equity.

And in that space, we typically don't look at opportunities that are anything less than about 20% returns.

And if you're taking on the most risk, then you go to equity in the capital stack or common shares as they're commonly referred to.

When you're investing in equity, the minimum sort of hurdle that you're looking at there is, you know, 30% plus returns on your money for the risk that you're taking on.

Institutional investors have recognised the attractiveness of real estate private credit in the last sort of six to 12 months while interest rates have been, or maybe 18 to 24 months when interest rates were very, very low.

And you can see here the purple line represents the return that you can get on average on private debt investments, which is a quarterly index.

And this is published by Prequin.

On the right hand side of the chart is a poll that was conducted by Prequin.

And what that showed is that more than 50% of institutional investors are expecting private debt to outperform.

or perform better than it did in the past over the next 12 months.

And that is by far and away the most attractive space for institutions to invest in the next 12 months based on that survey.

So that was, we covered return there.

Obviously when you're talking about return, it's also important to talk about risk.

And there has been a lot written about in the papers over the past two to three years about the increase in construction costs and inputs, which have left a lot of, especially volume builders.

Unfortunately, they entered a fair few of them entered liquidation, unfortunately, because of those cost increases.

On the left-hand side is a pictorial representation of those cost increases which have been felt over the past two to three years since COVID started.

And you can see for a very long period of time, the annual percentage change was around about 2% to 4% per annum because of the supply constraints during COVID.

and the massive amount of fiscal stimulus that was pushed into the system to encourage house building, we saw the annual increase of those costs actually peak at around about 17%.

We're starting to see that normalise now with the increase in interest rates, which is a positive.

And we believe that development will be up and running again in Australia because developers' feasibilities are now becoming much more attractive as costs come down.

On the right-hand side of the chart, we've basically broken that down into individual supplies or inputs into construction.

Fundamentally though, Australia is in a very strong position.

Our population is growing.

We're expected to be about 30 million people by 2034.

And the yellow line there shows the number of building approvals or dwelling approvals, which is now at basically 2012 lows.

So you've got a situation where demand is increasing through population growth, but supply is declining.

Very quickly, in the interest of time, I'll put a deal that we're currently raising for at the moment to give you an idea of

of the types of deals that we do, this is up to an 80% loan-to-value ratio, which for a lot of lenders is a little bit on the high side, but we have built in a number of investor protections into this particular loan to reduce risk.

And that's ultimately what we're looking for at Jamison, is we're looking for attractive returns where we can take on a low or reduced level of risk.

And this is an example of one of those opportunities

in the flesh effectively.

That concludes my slide pack, Angelina, and I'll hand it back over to you.

Thank you, Matthew.

I've got some questions for you.

The first one is from a lender and investor perspective.

Can you explain to us some of the structural changes which are driving this increased penetration of real estate private credit in Australia?

Absolutely, and thanks for the question.

I suppose the key driver of this structural change, both from a borrower and an investor perspective, is to give you a bit of a history lesson, in 2014, APRA, the Prudential Regulator, came out with a guidance to the large banks in Australia and basically voiced some concerns on the concentration of their loan book in the property market.

APRA effectively put in place speed limits and caps on how much the banks could lend to the property market to reduce systemic risk in the banking sector.

That has spurred and created a very thriving non-bank lending market in the real estate sector.

And we have seen the non-bank real estate sector, the lending sector, grow exponentially over the past

five odd years.

And there's no stopping that, to be honest.

If we look at some stats compared to some other jurisdictions, non-bank real estate lending accounts for about 10% of all real estate lending.

That compares to a global average of about 46% market share and north of 60% in the US.

So

Globally, Australia is a bit of a laggard in the non-bank lending sector, but there is a massive opportunity to grow in this space.

And us at Jamison TTB would love to bring investors along on that journey in quality real estate opportunities.

And what manager attributes should prospective investors in real estate private credit look for before investing in this asset class?

Again, thank you for the question, Angelina, a good one.

There have been a massive influx of new lenders into this space and it is important to undertake a very high level of due diligence on any manager that you partner with.

I think one of the key questions that you need to ask any manager in this space is what their experience is around loan workouts.

So what happens when a loan doesn't go as you expected?

What's their experience in managing out of that situation?

us at Jamison TTB, we have a lot of experience in this space.

Nick Brown, as I said, who is one of the co-founders of Jamison actually spent three entire years of his career at Macquarie Bank doing loan workouts post GFC.

So he has a massive amount of experience as do other members of the team in managing and working through loan workouts to protect investor capital.

which ultimately then flows through to the investment performance that investors experience.

A lot of other players in this area don't have that experience from what I've seen.

Yep.

Well, thank you very much, Matthew, for the presentation, the Q&A.

Good to see you.

Take care.

Thank you again for your time, Angelina, and thanks for having me on the webinar.

Bye bye.

Bye.