Qualitas: The need for housing supports strong returns

This article is sponsored by Qualitas

What were your firm’s key events in 2023?

For us, 2023 was really about continuing to grow and focusing on being more efficient and scalable. One of the reasons for our 2021 IPO was to raise co-investment capital and we raised A$335 million ($218.6 million; €203.1 million), which has boosted fundraising.

In 2023 we received an institutional investor mandate which will invest up to A$1 billion in Australian commercial real estate private credit, secured a second A$700 million commitment from an ADIA subsidiary for the existing Qualitas Diversified Credit Investments strategy, and secured an additional A$750 million from an institutional investor for the Qualitas Construction Debt Fund II.

We also established the Qualitas ESG Advisory Group, comprising specialists in environmental, social and governance issues, to help shape best practice and guide us as we continue to embed ESG considerations in our business.

What has the operating environment been like?

The key factor for real estate in Australia was rising interest rates throughout the year, ending up at 4.35 percent. So, there was an environment where asset prices were recalibrating because of the rising cost of capital and more uncertainty in the market, due to geopolitical issues around the world.

There were also particular difficulties for the office sector, which is a more unloved sector of the market at the moment. We also saw rising levels of migration into Australia – 500,000 during the year, which is a lot of people when you have a population of only 27 million – so that meant a swelling of demand for housing. Construction costs also continued to rise, which was an added pressure on pricing.

What key challenges did you have to overcome?

Our debt focus means our fund returns go up with interest rates, but we have undertaken portfolio reallocation like any good manager, looking at things and deciding we are happy to be refinanced out of certain positions because we have better opportunities elsewhere.

We were able to exit the positions we wanted to exit because there is plenty of liquidity. Around 80 percent of everything we do is residential, so the tailwinds have been considerable. There is very low vacancy, very high demand, impediments to supply and limited capital, all of which combine in aiming to generate attractive returns.

What is responsible for your success?

We have maintained a very strong culture of discipline around our investments, because groups like ours live and die by our track record. Because of our discipline and asset management approach, we have had no credit losses and the returns on the underlying funds have been really good.

We also have a team which has been very stable and most of us have been doing this for multiple decades. We are one of the few groups with people who worked through periods like 1991, which was a pretty devastating time in Australia. That cyclical experience is important.