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What We Think



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Australian real estate debt has been awash with activity in recent years, with a number of high-profile entrants and new funds launched into a revered marketplace for global investors. In a market where momentum appeared unremitting, I was keen to deep dive into the impact of a global pandemic upon real estate lending here in Australia.


With the wide-reaching impacts of COVID-19 evident across the real estate investment sphere, debt has arisen as an attractive asset class as a result of low cash rates at a time where equity markets are considered too precarious. “With historically low cash rates, there’s no return in banks and equity markets are perceived as too risky, so debt has emerged as an attractive asset class and we expect will remain favoured by investors,” explained Stamford Capital’s Michael Hynes, in their recently released Real Estate Debt Capital Markets Survey.

Throughout 2020, non-bank lending has proved instrumental for developers with low pre-sales, as well as those undertaking refurbishment programs. Data from the abovementioned Stamford Capital Real Estate Debt Capital Markets Survey 2020 (involving over one hundred participant active lenders, nationally, and acting as a barometer for lending sentiment) showed that 93% of major and second-tier banks require 60-100% pre-sales, with 17% expecting this to further increase. Conversely, non-bank lenders continue to underwrite developments with limited pre-sales, with half of those surveyed requiring no pre-sales whatsoever.


Mark Yates, Head of Debt Finance and Risk Management at Pro-Invest Group, spoke of the never-before-seen challenges which met the Hotel and Hospitality sectors throughout COVID-19.  In a period where contracts had to be restructured as a result of asset shut down and ICR/EBITDA requirements pushed out, he commended lenders, both bank and non-bank for their cooperative approach.

Despite continued activity, it would appear that non-bank lenders are nevertheless looking to the new calendar year and greater fiscal policy steer from the government to assess gearing, leverage, and risk, echoing Chifley Securities Principal, Dominic Lambrinos’ sentiments in a recent article by the SMH, that certain asset classes were “no-go” areas for his group whilst the impact of the pandemic is still felt.

The banks appear to be following a similar pattern of review. Appetite for accommodation financing is lower, with a number of banks pulling back given current leasing profiles, ultimately awaiting further statistics and direction.


For those keen to be at the vanguard, joining an alternative lender holds significant appeal, with Matt Duncan from JLL Australasia describing these groups as “filling the gap” left by banks carefully managing their balance sheets with lower risk property deals.

With unanticipated challenges presenting throughout the pandemic, originators have become increasingly important in sourcing capital deals; such that over 60% of lenders are expecting originators to grow in importance in the next 12 months.

We observed increased interest in the sphere by superannuation firms and private equity houses, with many super funds adding to their specialist in-house teams throughout 2020 and continuing to partner with non-bank lenders to finance selective developments.

Exposure to non-bank lending and connections in this sphere continues to be sought after. Perhaps once a trajectory which would mean exclusively operating within the property finance domain now offers opportunities to segue into the wider funds and investment management market- certainly at the junior to mid-market level- with domestic operators keen to leverage the connections and expertise of those having worked for an alternative lender. Encouragingly, there’s also movement into non-bank lenders from varied investment management backgrounds, diversifying the talent pool in this niche.

With Qualitas’ Andrew Schwarz envisaging in 2018 that “banks will form a lesser share [of the market] over the next decade,” it looks possible that COVID-19 has only served to accelerate this. The quiet confidence of the non-bank lender endures.


Referenced material

How is Australia’s capital debt market weathering the pandemic? Property Council of Australia, 2020

Australian real estate debt: Coming of age, IPE Real Assets, 2018.