Procuring suitable debt capital for real estate has never been more challenging for borrowers as the Australian market continues to suffer from inflationary pressures, ongoing pandemic risks and rising interest rates whilst operating through one of the toughest periods for the construction industry.
However, it is often during times of uncertainty and increased market risks when non-bank lenders steadily remain active capital providers of commercial real estate. The ability to lend through market cycles and the asset-life stages is due to a sophisticated and astute understanding of both the supportive property fundamentals and the underlying risks.
This allows experienced non-bank lenders to pivot very quickly to respond to changing conditions. When the industry started facing construction cost escalation, non-bank lenders lowered pre-sales hurdles for good quality projects and experienced borrowers to reduce holding costs and lock in construction costs, accelerating the project timeline.
Non-bank lender YieldStack Capital Partners was established by experienced property professionals to provide borrowers with flexible, bespoke funding, sourced from a network of wholesale and institutional investors. Non-bank lenders provide value-added and unique debt capital solutions to borrowers, such as higher leverage, lower pre-sale hurdles, and the ability to take on planning risks.
YieldStack has assisted developer Podia and their capital partner Centennial Property Group with a number of projects, most recently the financing of a 41-luxury serviced apartment project in Byron Bay.
YieldStack v bank terms
| Bank | YieldStack | |
| Leverage | 55%-70% (LTC) 40%-65% (LVR) | 70%-95% (LTC) 50%-80% (LVR) |
| Pre-sales debt cover | 90%-120% | 0%-80% |
| Interest cover | Minimum 1.5x | Vacant possession, trade up acceptable |
| Residual stock lend | No | Yes |
| Land financing | No appetite or only DA approved | DA, non-DA and unzoned land |
| Approval process | 6-12 weeks | 24 hours to credit decision |
Source: YieldStack. The bank terms are reflective of those observed by YieldStack in the current market environment. The YieldStack terms represent its lending terms in the current market environment.
YieldStack chief executive and co-founder Adrian Lee said the current state of play was conducive for non-bank lenders to rise to the challenge and show how they could add value as market conditions changed. “For YieldStack, this means being a reliable and flexible capital partner of real estate who is very much invested in the success of the project or strategy.
“Importantly, we take an agile, commercial and forward-thinking approach to solving our client’s capital requirements at any point of the cycle.”
Podia co-founder and director Michael Grassi said YieldStack had assisted them with multiple transactions and they were their trusted adviser in raising and managing their debt facilities. The facility arranged by YieldStack allowed Podia to settle on the land with flexible funding terms and provided ample time to meet conditions to trigger construction funding, something that would not be achievable with a bank.
In an environment of heightened risks, it can make all the difference for a borrower to establish a capital partnership with an experienced non-bank lender to gain access to flexible alternative debt solutions and to mitigate the risk of procuring debt capital.
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