THE continued reticence of Australia’s major financial institutions to lend on property is providing opportunities for the syndicated funds sector to become a source of capital, fund managers and developers say.
THE continued reticence of Australia’s major financial institutions to lend on property is providing opportunities for the syndicated funds sector to become a source of capital, fund managers and developers say.
Nedlands-based developer QUBE Property Group’s managing director, Mark Hector, said despite Western Australia’s strong economic fundamentals, major banks would only lend on projects where the developer could demonstrate a strong track record and sound equity position.
“They (major banks) want to know that the parties they are dealing with have been in business for quite some time and have the ability to deliver,” Mr Hector told WA Business News.
“Now there are plenty of developers out there at the moment that I think may be struggling from an equity point of view, who may have bought a development opportunity with a higher gearing ratio, which just doesn’t appear to be acceptable for banks now.
“I’m not seeing any appetite from the banks to step back into the funding pattern that was around in 2004, 2005 and 2006. It appears that they are looking for well-established, strong balance sheets, with projects in the right locations.”
That lending criteria, Mr Hector said, has led to new entrants joining the land development market, and low- to mid-tier developers chasing private syndicated funds to fund developments.
“There certainly has been the emergence of a few new funds offering a mezzanine-type product, and it would appear that they are focused on assisting the developer that might be struggling to find equity,” Mr Hector said.
One such new fund is Otan Property Funds Management, which was launched in April this year and has raised just less than $20 million for syndicated development projects at Subi Centro North, South Fremantle’s South Beach and Queens Park, near Cannington.
Otan Property Funds Management managing director, Mark Butler, said he believed the property investment cycle had changed, with major institutional investors, such as ISPT Super Property, with which Otan has a partnership agreement at Subi Centro, and high-net worth investors returning to the market.
“The sector has consolidated, the bigger players are starting to move; but we’re not like the US, where the whole thing fell apart completely,” Mr Butler said.
“What we’ve found here is there are better opportunities for better properties at reasonable prices.
“Most of the funds have now gotten finance issues sorted out and the bigger super funds are investing in the sector.
“The private individual is also now looking for opportunities. It’s probably only been in the last six months, but you can see the cycle has just changed.”
Harts Financial Solutions director Greg Hart confirmed there had been renewed interest in privately syndicated property development funds.
He said his firm had been approached by a large number of developers, both established and new entrants to the market, that were seeking to raise capital for existing and new projects from Harts’ high net worth clients.
“The capital markets have changed substantially from the heady days prior to the GFC,” Mr Hart said
“The challenge today is in better matching the agendas of developers with investors who are being asked to put up their capital.
“Investors will no longer accept developers taking substantial fees in advance from projects, and expect a much greater level of transparency and accountability regarding the projects they are being asked to invest in.”
