Warburg Pincus Makes $327M Commitment to Aussie Real Estate Credit Venture

Warburg Pincus on Thursday announced that it’s backing an Australian private credit strategy targeting the country’s residential real estate sector with a A$490 million ($327 million) commitment.

The investment by the US private equity heavyweight provides nearly half of the A$1 billion in capital target for Sydney-based MA Financial Group’s real estate private credit vehicle, with Warburg Pincus now the first investor to officially commit to the strategy since it was announced in August.

With Australia struggling to supply enough housing for its expanding population, Manhattan-based fund manager explained the investment as a bet on the country’s need for more homes.

“We have built a strong conviction in the secular tailwinds of Australia’s residential market, driven by the immigration-led population growth and the undersupply of housing primarily due to a tight credit environment and higher construction costs,” said Takashi Murata, managing director, co-head of Asia Real Estate and head of Japan at Warburg Pincus. “Over the next five years, the cumulative dwelling shortage is projected to reach approximately 254,000 units, alongside an anticipated 30 percent increase in annual population growth.

Filling a Funding Gap

A study published by JLL in August shows Australia’s existing shortage of housing worsening each year through 2027.

Pointing to a shortage of labour, rising construction costs and insolvencies among contractors, JLL found that, “As a result, housing completions remain well below pre-pandemic levels, despite the urgent need for more housing. This situation is likely to persist in the short to medium term, affecting availability and affordability of housing across the country, albeit potentially at a more moderate pace than recent years.”

This housing shortage coincides with stricter lending practices at banks, which Warburg Pincus sees creating opportunities for alternative financing.

“With traditional financiers tightening credit, there is an estimated $37 billion funding gap that needs to be addressed,” Warburg Pincus’ Murata added. “The new vehicle will help meet the demand from sophisticated borrowers as Australia tackles its nationwide housing shortage.”

The private equity shop is investing in the venture through its Warburg Pincus Asia Real Estate Fund (WPARE), which closed on $2.8 billion in commitments in December 2021.

MA Financial will manage the private credit vehicle while co-investing via equity and notes 2 percent of the total capital, or up to A$20 million, the company said at the time the venture was announced. The private credit strategy has been established to fund both developers and residential real estate projects in Australia.

With an A$4 billion real estate track record, MA Financial specialises in private credit, real estate and hospitality and, having backed A$4 billion in property deals, will originate and manage real estate credit facilities through the venture targeting the build-to-sell market.

First Closing By Year-End

MA Financial aims to reach a first close on at least A$700 million in commitments for the private credit strategy by 31 December, according to its August announcement, with Warburg Pincus assisting with offering notes in the strategy to investors in its network in addition to investing via funds under its management.

“Warburg Pincus’ investment serves as a strong endorsement of MA Financial and reinforces their confidence in our real estate investment and debt structuring capabilities,” said MA Financial joint chief executive officer Julian Biggins in the statement. “We believe that (the strategy) is well-poised to help address the housing shortage challenges in Australia while also providing compelling opportunities for investors. We look forward to leveraging Warburg Pincus’ investment experience and resources to support deal origination, management, and investment decisions.”

A major backer of rental residential strategies in Asia, much of Warburg Pincus’ existing exposure to Australia’s real estate market has come through companies in its portfolio, such as industrial giant ESR and self-storage provider Storhub.

Traditionally taking a platform approach over the 25 years that it has been investing in Asia Pacific real estate, the company has also backed a last-mile logistics joint venture with Sydney-based Hale Capital Partners and a build-to-rent JV with local player KIO.