Stocked and Loaded: Residual Stock Facilities

• Over the past three years, Merricks Capital has financed over $350m of Residual Stock Facilities (RSF) investments and currently has a mandated pipeline for $180m expected to settle over the next 90 days.
• We prefer the defensive features of RSF credit with senior mortgage security over newly completed residential apartment stock. The Merricks Capital’s RSF fund delivered investors a net return of 9% with a 2% quarterly distribution in 2023. Additionally, the self-liquidating nature of RSFs provides a defined exit as the net sale proceeds of residential units are repaid, reducing the loan and the LVR.
• The Australian Bureau of Statistics (ABS) five-year forecast for Australia’s capital cities indicates there will be an under-supply of residential properties; there’s a clear dislocation between forecast supply for apartments and migration-fuelled housing demand.
• Construction costs remain high for multi-family residential projects, and builder profit margins continue to be compressed by the ongoing shortage of skilled trades. The under-supply of newly built housing is expected to exceed at least 175,000 homes by 2027 across major cities in a market where vacancy rates have held <2% (ABS).

Source: ABS

Our current preferred RSF opportunities are inner-city locations with a mix of stock available in key capital cities, credible sales strategies and an equity buffer of at least 30% (our target Loan-to-Value ratio is typically <65%). In addition to the $180 million of mandated deals currently in due diligence, our pipeline includes over $250m in completed apartment developments in the inner suburbs of Melbourne, Sydney and Auckland CBDs, with proven sales velocities for the assets.