Metrics takes control of Melbourne site to rescue $750m development
Metrics Credit Partners, one of the country’s largest non-bank lenders, will take over the development of a $750 million real estate project after its client defaulted on a loan and the firm failed to sell the inner-city Melbourne site.
The private credit firm, which has a loan book of about $20 billion, was last year forced to take over the operations of the former Rockpool empire founded by high-profile chef Neil Perry after its owner, Quadrant Private Equity, walked away from the struggling restaurant business.
More than $205 billion has been lent through the private debt market in Australia – outside bank debt and bonds – with the largest share, some $85 billion, allocated to commercial real estate. That means that about 17 per cent of loans to property development is through private credit, according to new analysis published by consultancy Alvarez & Marsal.
But the surge in lending has also led to a growing number of non-performing loans, leading to private credit firms increasingly taking on the operations of assets, whether they be entire businesses or developments.
Metrics has developed a small number of projects itself. It appointed receivers to the 1.4-hectare North Melbourne development proposed by Orb Property last year. After an unsatisfactory sale process, Metrics has now decided to keep the site, redesign the project and develop it.
The major housing project was originally set to provide more than 500 homes in North Melbourne. The site received development approval for a low-rise urban village, including commercial assets such as an office, spread across six boutique buildings. Metrics will now look to revise those plans and only focus on building housing.
The number of developments that non-bank lenders will have to take on will only grow over the next 12 months as workforce shortages and a rise in material costs make more projects unviable, according to CBRE’s debt and structured finance managing director, Andrew McCasker.
“It will be more common as the market reprices. Private credit lenders will do what they can to protect capital if there is no equity,” Mr McCasker said. “It was certainly prevalent during the global financial crisis, and we will see it be more obvious as valuations continue to reprice.”
Year-long volatility in the construction sector shows no sign of abating. Last month, Bensons Property Group, which had $1.5 billion in its development pipeline, collapsed amid what it said were “extremely difficult” conditions.
Metrics acquired the Melbourne site days before Christmas for more than $50 million, to cover the amounts its investors provided for the development loan. While Metrics investors will get all their money back, other creditors that are ranked lower in the debt stack will not. About $6 million was owed to another lender, Ark Capital, which provided mezzanine funding.
Debt funding also came from a group of regular Orb investors who have all placed caveats over the site. They include former BlackRock Australia chief executive Maurice O’Shannassy, accountant John Kennedy, builder Brett Behmer and CBRE Victorian executive Jarrod Frazer. About $2 million is owed to creditors including consultants, engineers and architects.
Receivers – KordaMentha was appointed to the project’s holding vehicle, Boundary3051, in June – had attempted to sell the site for $70 million.
“We don’t have restrictions around our mandates that prevent us from developing. The decision to buy the asset is about ensuring that our capital is protected, preserved, and we maximise the value for our investors,” Metrics managing partner Andrew Lockhart said.
“Unfortunately, subordinate lenders are the ones that have suffered loss, which is the owner and mezzanine debt provider.”
Orb Property declined to comment.
The Australian Financial Review reported earlier this month that another private credit major, MaxCap, was facing difficulties with its real estate fund after several projects had gone sour. Some of those were tied to Melbourne developer APH Holding, which collapsed late last year.
APH has put more than $200 million worth of sites on the market and given up control of another site in Box Hill that had been earmarked for a Novotel-branded hotel. That project was repossessed by Metrics.
