This article is from the Australian Property Journal archive
OVER 70% of developers, investors, fund managers and brokers have increased their level of private credit over the past five years, embracing faster decision making, higher loan-to-value ratios and more flexible terms compared to the offerings from the major banks.
A growing risk aversion among major banks to fund mid-market property development is also contributing to the rapid rise of private lending, according to research from Centuria Bass Credit.
The inaugural Centuria Bass Australian Property Development and Finance Index 2024, which surveyed 67 developers, investors, fund managers and brokers, also showed 72% of respondents’ loans are now sourced through private credit.
A further 95% of respondents agreed that the higher cost of non-bank lending is offset by the advantages – namely decisions being made faster, followed by generally higher loan-to-value ratios and flexible terms.
Nick Goh, Centuria Bass joint CEO, said property development debt market share has been shifting over the past decade, but now the pace has picked up.
“There’ll always be a place for banks at the lower risk end of the market where you’ve got well-capitalised developers who are operating with fairly conservative gearing,” Goh said.
“The banks will always support those borrowers, but that sector represents only a component of the industry, which is presently less active. Other borrowers are taking advantage of greater flexibility and higher risk appetite of private lenders to enable construction projects to start. This is a continuation of a trend in the development finance market that started in Australia, at least, post the GFC.”
Looking to take advantage of chronic undersupply in Australia’s residential market, global investment giant Warburg Pincus has just committed $490 million to MA Financial’s $1 billion Real Estate Credit Vehicle, in another boost to the local real estate credit market.
Australia’s real estate credit market has been gaining momentum in 2024. David Di Pilla’s HMC Capital, with ambitions to build a $5 billion private credit platform, acquired Payton Capital earlier this year in a $127.5 million deal, while $12.2 billion specialist alternative investment manager Regal Partners acquired Adrian Redlich’s commercial real estate lending business Merricks Capital for $235 million.
Centuria Bass – which has grown to circa $2 billion in funds under management – recently secured a new circa-$150 million warehouse facility with an initial $100 million backing from global investment bank UBS, and Centuria increased its interest in Centuria Bass in April to 80% for a consideration of $57 million.
Major players in the space also include MaxCap Group, which has more than $8 billion in funds.
According to the Centuria Bass survey, nearly four in five respondents said it is now more difficult to secure bank funding for projects, while 19% said there had been no change.
David Stone, head of capital at Bathla Group, which has a development pipeline in the growth corridors of Sydney, said all its funding is provided by non-bank lenders.
“Our business is predicated on speed. The speed we can get an approval, the speed we can start construction, the speed we can complete projects and sell stock.
“For us, private credit is just so much faster and so much more flexible. Private Credit also allows you to lever a little higher. For those reasons, it makes sense.”
The time it can take to get loan approval from banks is also a deterrent.
“The very long gestation period for an application means it can get to a point where credit parameters can change and you might find out that you’ve got to provide additional equity into a project or be subject to onerous conditions,” Stone said.
“Whereas with private credit you’re generally getting applications and approvals in a pretty condensed time frame so less likelihood for the deal metrics to change.”
