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It’s no secret the property industry is undergoing one of the most significant periods of change it has experienced in recent memory. Contributing factors to such change include; unparalleled construction cost-escalations, increased regulatory pressures, declining presales market strength and a recovering immigration environment.
As a result of the changing industry, it seems that conventional banks have responded by making borrowing for property developers harder than ever before, for example, requiring 110 per cent debt cover in presales where the sophisticated buyer is nowadays more reluctant to buy property off a piece of paper to achieve that presale hurdle.
A general reduction in banks’ desire to provide development and construction finance is being anecdotally felt across practically all sectors of the property markets.
Even if a developer is able to secure bank funding, the terms that they sit on are typically underwhelming, being; immensely slow approvals, low leverage, high presale hurdles and a mountain of paperwork.
As conventional banks fail to adapt quickly enough to a changing market, alternative debt sources are quickly growing across Australia. No more is this better illustrated than by the meteoric rise of private lenders in the property development industry in the past few years.
What was once considered “lending of last resort” is now a bona fide industry that is largely in competition with conventional sources of bank finance. However, as the private debt markets grow, so too does the confusion amongst property developers who are interested in dealing with well-intentioned ‘real’ private lenders and to avoid the unsavory types.
Property developers are enticed by the high-leverage, low presales and flexibility that private lenders offer. However, they are not interested in trying to navigate a relatively niche private debt market alone. They are seeking, and in need of, a specialist private lending broking firm that understands that private debt and bank debt are very different and require a different approach.
It was with this in mind that two men with a wealth of experience in their own aspects of the industry came together to create a service that mitigates that uncertainty and makes partnering up with a private lender who actually suits the purpose easier.
Welcome Private Lending Brokers (PLB), a team of finance brokers that specialise exclusively in sourcing private lending finance options for property developers across the lifecycle of the property development: settlements (higher leverage), construction finance (lower presales and higher leverage) and residual stock (higher leverage).
Private Lending Brokers (PLB) is the brainchild of Brett Macartney and Nathan Khoury and was founded to fill a niche the pair saw in financial services for property developers.
As their name almost cheekily suggests, Private Lending Brokers are just that—finance brokers who specialise exclusively in private lending.
Specialisation and focus is what really sets the PLB team apart from other generalist finance brokers. They are very quick to remind their peers that they only have one product and one client. Their one product is a panel of hand-selected private lenders they deal with daily and their one client is property developers. PLB deal only in private lending and only for property developers. They can’t help with bank loans, home loans, car loans or anything in-between.
With this extremely niche approach to focussing exclusively on such a narrow end of an already narrow market, the team at PLB are very well-known amongst private lenders and represent a significant portion of debt volume in the private space. As such, it’s not surprising to hear that PLB regularly achieves impressive commercial finance terms, on account of the special treatment they are afforded by private lenders.
The team at PLB work with some of Australia’s most well-known and sizable property developers across multiple sectors, including land subdivisions, residential development, luxury boutique developments, industrial, commercial, retail and specialised real estate sectors such as pubs, hotel and aged-care facilities.
Smart developers are chasing smart money. Similarly, smart money is chasing smart sponsors. PLB enjoys connecting smart developers with smart lenders hence their company slogan, “Borrow Better, Borrow Private”.
Macartney has more than 20 years’ experience in real estate and real estate finance industries, as well as holding an honours degree in real estate economics (UTS) and diploma in mortgage broking. His strengths are quick credit assessments and a depth of lender product knowledge providing bespoke financial solutions for each client and their property development situation.
Khoury is a former solicitor holding a double degree in law and accounting, who moved into the private lending sphere, working with private developers and lenders, as well as experience as a property developer himself.
Khoury said the business name was as accurate a description of the business as it appeared.
“We’re very, very, very focused on what we do,” he said.
“We are brokers who specialise in facilitating private debt on behalf of property developer clients. Nothing more, nothing less.
“We don’t do home loans. We don’t do car loans. We don’t do anything but development and construction lending—and we only deal with private lenders.
“We don’t deal with banks at all—our lenders are conventional private debt funds, high-net worth individuals, solicitor funds and superannuation-linked funds.”
PLB has a minimum loan size of $2 million and no maximum, Khoury said, with the majority of loans in the vicinity of $30 million to $80 million.
“Most of what we do is land subdivision, high-density construction, commercial and build-to-rent,” he said.
Khoury said the bespoke list of lenders they worked with offered several advantages to developers.
“These lenders offer a competitive advantage to conventional bank debt, insofar as they can offer higher leverage, much faster and more flexible turnaround and a lack of or much lower presales—so low or no presale construction funding,” he said.
The rise of PLB comes at a time when the evolution of lending in the development space has been profound and accelerating.
Khoury said that a decade ago, private lending was seen as more of a back-up plan than a first port of call.
“It wasn’t quite a last resort,” he said. “More a, ‘I can’t get bank money, so I’m going private’.
“But today, the quality of developers we’re dealing with are top shelf—tier one and tier two, and they’re electing to go private because they don’t want to presell (which involves discounting your price), they want the higher leverage (reduces your equity contribution which can be stored for new acquisitions and growth) and they are finding banks hard to work with (construction loans with a private typically settle within 4 weeks once commercial terms are agreed).
“It’s common for us to source private debt solutions for property developers who already have a bank approval but aren’t willing to tip in so much equity or presell to the level the banks demand.
“There’s been a real shift in sentiment amongst property developers.”
Given the number of private lenders in the market, finding the right lender for a project is potentially needle- in-a-haystack stuff. This is where PLB brings clarity as well as options that are tailor-made to the developer and their project.
Banks tend to have “fit it in the box” style lending products—largely based on ticking boxes for approvals. This makes for rather inflexible and rigid debt solutions for property developers. Private debt on the other hand is more bespoke and tailored to each specific property developer’s needs on any given unique property development.
A real edge that PLB brings, when compared with ordinary generalist finance brokers, is that they deal with private lenders exclusively and daily. This means they know exactly which private lenders are suitable for specific property development loan scenarios.
Macartney said: “There is nothing worse for a loan or a developer sponsoring the loan than for a deal to be shopped around town to multiple private lenders—it puts a foul taste in the lenders’ mouths as to the quality of the loan and its sponsor”.
He said: “Our approach is much more targeted. Our process sees us fully understand the loan scenario, prepare a loan submission and then run a credit application process with only private lenders that we are confident have an appetite for the loan, specifically—the loan type, size, asset-class, loan term, presale coverage and so on”.
PLB are proud to assert that they don’t seek to add a huge number of property developers to their client-list. Khoury said: “Our business model is predicated on establishing, nurturing and repeating relationships with our clients. We typically work with the same clients over-and-over again, as property developers of any significant size tend to have solid future developments in their portfolios.
“To that end, we are very serious about service provision and we work 24/7 to meet our property developer client needs. We like to think of ourselves as being similar to old-school merchant finance managers, meaning we place top-shelf service at the core of all we do.”
This commitment to service seems to be shared with private lenders that PLB work with, who are keen to strike up repeat-business relationships and avoid party-risk on bringing on new borrowers.
Khoury said their lending partners were keen to work with developers that suited their parameters on more than one project.
“If a developer and their projects suit their parameters, they’re very interested in developing more of a partnership than a simple loan process,” he said.
“The thing is, bank money, with all due respect, is old-fashioned money that is not willing to adapt to how property is sold these days where buyers prefer low-risk finished product.
“Private money is smart money. You’re not dealing with a loan officer who’s basically ticking boxes on a loan application, you’re dealing with sophisticated, mature, experienced lenders who understand the industry and the sectors within it.
“They’re interested in the industry and developments—and being a part of it, which brings huge advantages to developers in finding finance that really works for them. Beyond the first deal, a private lender is always looking to back the same borrower again and again.”
The Urban Developer is proud to partner with Private Lending Brokers to deliver this article to you. In doing so, we can continue to publish our daily news, information, insights and opinion to you, our valued readers.
