Property investment management firm Qualitas to provide $200m ‘gap funding’ in Australia's real estate market

Real estate investment management firm Qualitas on Monday announced the successful first close of its $200 million Opportunity Fund, which will provide equity and mezzanine debt for residential and commercial projects in Australia.

Focusing on the mid-market segment, the company that boosted GEOCON’s $140 million Wayfarer Apartments – the tallest residential building in Canberra – with mezzanine finance believes the property market’s reliance on the big four banks will continue to weaken, as the big four focuses on increasing their capital requirements.

This opens up the currently shallow market – where the banks control 90 percent of commercial mortgages – to alternative capital providers like super funds and Qualitas who offer ‘gap funding’ and more flexibility, explains the firm's Group Managing Director, Andrew Schwartz.

“Australian core real estate has reverted to the prices and momentum seen in the pre-GFC period, and is heavily dominated by large-scale institutional and public capital,” said Schwartz.

“However, those sources have yet to turn their attention to the value-add and development spaces, and this is where we see significant opportunity for value creation by private capital investing.”

Qualitas’ investment vehicle will focus on “high quality commercial, retail and residential projects”, and its first close drew in “strong interest” from local and offshore investors, which it says is credited to continuing low interest rates, a weaker Australian Dollar, and good governance.

Schwartz also points to the firm’s history as a credible provider of debt and equity, as well as its access to knowledge, deals and contacts that many ‘fly in, fly out’ global investment managers don’t have.

Founded in 2008 by Schwartz and Mark Fisher, Qualitas has financed or invested in over $2.6 billion worth of property assets. Apart from the Wayfarer Apartments, it has dealings with Leighton Properties on Bondi Junction’s Aqua Apartments, Consolidated Properties Group on Spire Apartments in Brisbane’s CBD, and a consortium led by Citta Property Group in the Parliament Square redevelopment in Hobart.

The Melbourne-based fund has two years to establish opportunities to provide equity or mezzanine debt for projects, and according to the AFR has already identified a $100 million pipeline of potential opportunities.

Schwartz also told the publication that Qualitas would not be looking at development sites, whose prices have peaked at the current cycle and will soon fall.