Positive Financial Headwinds Propel Pipelines

Heightened competition for lending is proving fruitful for developers as the market share for non-bank lenders continues to grow.

Last year, property stock increased in value by more than $1 trillion for the residential sector alone, according to the Australian Bureau of Statistics, and demand during the pandemic has only increased across many asset classes.

To meet this demand and take advantage of increasing property prices, many developers have opted for higher leverage loans to secure sites and bring projects forward.

Payton Capital is one non-bank lender capitalising on this increasing demand, forecasting it will grow to $1 billion in assets under management by the end of June, after expanding from its Melbourne stronghold to Sydney and across the eastern seaboard.

Payton chief financial officer Kelly Jarrett said there were still positive headwinds in the market and no indication of a major slowdown from a development perspective in the near-term, or for lenders.

“Payton has experienced growth of around 50 per cent year-on-year, which is a result of both a proactive strategy for growth, while also riding the wave of favourable market conditions for non-bank lenders, and the real estate credit asset class more broadly,” she said.

Developers are also benefitting from the heightened competition in the non-bank space, due a flood of capital into this asset class over the past year. “There’s a significant amount of dry powder across the industry, with private lenders competing for opportunities to deploy their capital and deliver returns to investors. There’s no doubt pricing has sharpened as a consequence.,” Jarrett said.

Payton head of lending Jeremy Townend believes the non-bank commercial real estate industry in Australia is likely to follow the lead of Europe and the US.

“You look at the market share of the non-bank market here in Australia, and it’s significantly smaller than it is in Europe and the US, and we expect that to change over the short to medium term,” he said.

“Non-bank lenders can provide a couple of things—higher leverage than you can get with a bank, and lower or even no presales.

“The lower pre-sales requirement means developers can activate projects sooner, and the higher leverage means equity can potentially be redeployed into other projects or to put their foot on another site.

“The combination of these factors will ultimately increase developer’s return on equity.”

Payton's NSW and Queensland manager for property finance Brett Brisco said where Payton differs as a firm was an appetite for different regions and project types, rather than just fulfilling quotas based on cities, asset classes or outdated data.

“A number of transactions we’ve completed recently are in major regional or semi-regional locations,” he said.

“By engaging with our internal property specialists we can form a view on a particular region and take strategic positions in those areas, where a traditional bank may not have appetite.”

Brisco said that Payton could offer loans from $5 million to in excess of $100 million across all stages of a project, from site acquisition through to construction and then residual stock financing.

“We have the capacity to grow with our customers; we're not just a singular transactionally focused organisation,” Brisco said.

“It’s a relationship that’s built through supporting our clients across multiple projects—as they grow, we can partner and grow with them, and that’s been well received.”

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