Private credit giant Metrics takes on housing project after loan sours

Non-bank lending has surged to $200 billion or more, with a large chunk of that devoted to real estate, as the major banks reduce their exposure to riskier real estate lending. But as developers grapple with high interest rates and construction costs, cracks are appearing in the private credit boom with lenders stepping in when loans default.

Late last year, Metrics acquired the APH site, in the heart of Box Hill, for about $14 million as part of a growing focus by the fund manager to make more equity investments. Metrics’ Income Opportunistic Trust, for example, held about 20 per cent of its assets in equity-linked investments as of December, up from less than 4 per cent five years earlier.

The Box Hill acquisition was finalised less than a fortnight before the non-bank lender separately bought a separate 1.4-hectare North Melbourne development site owned by developer Orb Property.

Under Metrics’ helm, the Box Hill site was expected to become a residential development, sources said.

At both those sites, Metrics was originally a lender before it appointed receivers to repossess and sell the assets after the loans it provided went into default. The non-bank lender then decided to buy the APH and Orb Property sites under plans to build redesigned projects itself.

Not a ‘material investment’

The defaulted loans for both projects had been funded by Metrics’ debt-only investors, who were fully repaid as it bought out the assets through its hybrid debt-equity funds.

Following the acquisitions, only Metrics’ hybrid debt-equity investors have exposure to the former APH and Orb Property projects. Among the funds with exposures to those projects is the listed Metrics Income Opportunistic Trust.

The fund manager did not publicly comment on the Box Hill acquisition until contacted by The Australian Financial Review. The Box Hill site was not a “material investment” and did not affect the fund’s daily unit price, according to Metrics managing director Andrew Lockhart.

“The asset is very, very small in the context of our funds and the asset is held at an appropriate independent valuation,” he said.

Mr Lockhart said Metrics operated under an independent governance structure where independent parties were provided with “information to ensure the daily unit price disclosure to the market is correct”.

“We don’t disclose the assets we hold because they are commercially sensitive investments and disclosure may adversely impact investor interest just the same way private equity funds don’t disclose the sensitive information about acquisition or divestment values,” he said.

“In any case, the Metrics Income Opportunistic Trust is a very well-diversified fund and provides investors with exposure to over 170 individual investments and the risk is not in any way concentrated because of diversification and low single counterparty limits.”

Beyond real estate, the private credit firm last year took 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.

Metrics hasn’t been alone among non-bank lenders undertaking debt-for-equity swaps. Private credit platform Merricks Capital developed and sold a $150 million boutique Melbourne hotel, after taking charge of the project two years ago when its developer defaulted on payments to its builder.

Outside its debt-for-equity swaps, Metrics acquired a half stake in a site overlooking Sydney’s Hyde Park for about $500 million. The lender, in partnership with developer Billbergia, plans to turn the site into a two-tower, mixed-use development with an end value of about $3 billion.

Novotel hotel plans scrapped

The Box Hill site now owned by Metrics was once part of a landmark deal between APH Holding and Accor to be transformed into a $100 million Novotel Hotel.

But APH shelved those plans due to construction challenges and considered turning the site into a residential development instead, before it fell into administration, according to sources.

Metrics is expected to turn the Box Hill site into apartments. It has appointed planners and is currently assessing how many homes will come out of the project.

“The Box Hill asset is a land site with a development application which we intend to seek approval to amend and increase the yield over time,” Mr Lockhart said.