MaxCap warns of real estate fund return slump and asset fire...

MaxCap warns of real estate fund return slump and asset fire sales

MaxCap, a major private credit firm backed by Apollo Global Management, has warned its investors that they may have to wait nine months to get their money back from a real estate fund after several projects went sour.
MaxCap has $7 billion of funds under management but has been squeezed by the collapse of a big Melbourne developer, APH Holding, that it was backing. Other projects have also failed to proceed, as development costs rise, forcing some sites back onto the market.

An artist render of the Hyde Park apartment project that MaxCap is hoping to sell. Supplied
In a letter to investors, MaxCap said the forecast return on its $147 million Diversified Opportunity Fund had dropped from the 18 per cent it initially advertised in 2022 to 3.3 per cent. The note, dated September, warned of an “extended period of high market volatility”, which had “seen the viability of multiple investments within the fund being heavily impacted”.
“The earliest a distribution may occur is Q3 2025, however, the quantum and timing of any distribution will be subject to a detailed assessment of the fund’s forecast liquidity and the status of fund investments,” it said.
The document is a rare insight into how troubles facing property developers from rising construction costs and interest rates have begun to squeeze the returns of private credit providers, hurting their overall performance.
Lending to real estate has long been the focus of the fast-growing private credit sector, which includes a range of non-bank firms from those supported by major institutions to small operators. Apollo took a 50 per cent stake in MaxCap in 2021, valuing the firm at $300 million. The New York-listed alternative asset investment giant handed another $1 billion to MaxCap one year later. The firm has also picked up mandates from European pension funds and worked with Australian Unity.
Year-long volatility in the construction sector shows no sign of abating. Last week, Bensons Property Group, which had $1.5 billion in its development pipeline, collapsed amid what it said were “extremely difficult” conditions.
MaxCap had also lent APH more than $200 million for a range of projects, including a health precinct and an office development in Melbourne’s east.
In its note to investors, obtained by The Australian Financial Review, MaxCap warns that the Diversified Opportunity Fund faced a $10 million loss if another developer, Time & Place, failed to finance an inner-city Melbourne office site, and it was placed back on the market.
“A sale of the site indicates a high risk of capital loss on this asset, however, on a risk-adjusted basis is preferred to activating the development,” MaxCap told its investors, saying the project had a significant funding gap. The development made up 15 per cent of the fund’s capital commitments.
On Thursday, Time & Place said it was proceeding with the construction of the office project, and had appointed LU Simon to build the tower.
MaxCap is also planning on selling the site of a planned Gold Coast apartment project – a $120 million, 22-storey luxury tower announced in 2022 – that it was financing for Melbourne developer Tim Gurner.
“The change in development strategy has reduced the forecast returns since the last report, however the fund manager notes this strategy is the most likely to preserve the fund’s capital and is currently preferred on a risk-adjusted basis,” MaxCap said in its note to investors.
The fund’s largest investment is a student accommodation project on Little Bourke Street in Melbourne’s CBD. MaxCap said the fund had taken a “significant write down” on the project and was working with Savills to sell the site in a deal where it would receive an initial payment for the land and further payment if the project were to be completed.
In Sydney, MaxCap said the firm and its development partner Central Element wanted to sell another major project near Hyde Park. Last year, the two companies announced plans for a $450 million residential tower on the site, but are now reviewing offers that had come in below expectation.
“The joint venture is continuing to progress complex negotiations with the existing landowner to formalise a pathway for the proposed divestment strategy of the site on an ‘as is’ basis,” MaxCap’s note to investors said. “Based on the offer pricing received and preliminary feedback from agents, the fund manager has reduced its forecast exit pricing assumption.”
In response to questions about the fund, MaxCap told the Financial Review: “We have chosen to shift our approach on a few assets and return capital to investors sooner, which is resulting in lower than expected forecast returns.”