Australia’s non-bank finance sector is significantly shaping the property development industry, providing much needed liquidity in a time of constrained capital.
The sector is large and fragmented with established funds, family offices, high-net-worth individuals, investment banks, superannuation funds, financiers and brokers providing senior debt, mezzanine funding, preferential equity and direct equity.
Non-bank financiers tend to operate according to a mandate that considers a range of factors including development location, property sector, project scale, stage and type as well as funding type.
In recent years, property fund manager Trilogy has built its construction portfolio to more than $400 million by providing short to medium-term construction and investment loans to developers of residential, commercial and industrial projects.
Trilogy specialises in construction loans ranging from $3 million to $20 million for developments such as apartments, townhouses, land subdivisions, commercial buildings and house and land packages.
“With a focus on smaller projects, we are able to mitigate risk for our 15,000 direct investors,” Trilogy head of lending Clinton Arentz said.
Investors into these pooled funds typically receive an annual return of around 7 per cent, while the funds are loaned out to developers at around 8 per cent. Developers typically also incur line fees of between 2 and 3 per cent and establishment fees of between 1.5 and 2 per cent.
“We have over 80 loans under management at the moment with an average debt facility of between $8 and $10 million,” Arentz said.
Trilogy’s flagship fund, the Trilogy Monthly Income Trust, has capital readily available to deploy for suitable projects across the eastern seaboard of Australia, including in major regional centres.
“We’re focused on working with developers to leverage their equity effectively so that returns on a project-by-project basis are optimised,” Arentz said.
“This is because we can provide generous loan-to-value ratios of up to 65 per cent of gross realisable value (GRV) inclusive of GST and for the right transaction we will consider lending with no presales or pre-commitments in place.
“This minimises the costs of project delays and hefty commissions associated with generating presales, so developers can choose when they start their projects, and timing in property development is everything.”
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