AMP Capital is bringing its US partner in real estate debt, PCCP, into the local market, as the well-known Australian investment house looks to diversify its opportunities.
While AMP Capital has a long-established infrastructure debt business, the effort to create a property debt portfolio in this market is driven by a search for returns as the market peaks and turns, according to global head of real estate Carmel Hourigan.
Already the first moves are in place with the hiring of the well-regarded Rebecca Smith, the former director of property at the Future Fund.
“We like the real estate debt story,” Ms Hourigan told The Australian Financial Review.
“As equity values start to come off you’ll start to see that people can take a position in debt to get similar type returns but it’s safer because it’s a debt position. “
The house view on the opportunity in real estate debt began forming more than three years ago as values in the commercial property market began to peak.
In December 2017, AMP Capital took a minority stake in the Los Angeles-headquartered PCCP, which provides commercial real estate debt and equity capital for middle-market real estate investments throughout the US.
Other owners of PCCP include US pension fund CalSTRS, while the LA platform taps investment funds from some of the top US banks and pension funds.
“We’re taking a long-term view that there are structural changes going on in the Australian debt space where there will be new non-bank lenders coming into this market,” Ms Hourigan said.
“We’re saying ‘let’s start building this business now’. Particularly since we have really committed to it in the US. We have put a lot of capital into our US business with PCCP. We are very happy with it.”
While it is still early days, AMP Capital’s new property debt business, under the guidance of Ms Smith, will invest across the capital stack including into project finance, value-add opportunities, established commercial property and even potentially special situations style investments.
It will initially revolve around separate accounts, although that could eventually lead into larger pooled debts fund down the track.
“We’re taking a five-year view on where we think debt can be as part of our platform,” Ms Hourigan said.
AMP Capital’s real estate business has $28 billion in funds under management while the investment house oversees $187 billion overall.
The size of its real estate separate accounts business is at $12 billion, including cross holdings where clients are also invested in AMP Capital’s flagship funds.
The platform’s traditional strengths include office and retail while it has been “taking some value off the table”, according to Ms Hourigan, with some divestment of its logistics holdings, including a recent $120 million three-asset portfolio sale to GPT.
The move into real estate debt is part of a broader view Ms Hourigan and her team are taking on, including where to place capital and how to identify opportunity.
“Retail is a case in point. There is going to be movement in retail values but we question whether we’re going to see some over-shooting in that in terms of negativity.
“It’s an asset class we still believe in and we’ll be looking for the right opportunities for clients as well.”
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