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A reduced appetite from the big banks to fund developers is creating a new breed of lender happy to work with brokers to finance deals rejected by banks.
Gieldan Capital, a joint venture between fixed income dealer FIIG Securities and private equity firm MH Carnegie & Co, is one of many new lenders entering the developer finance space after the banks began closing their doors.
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The boutique lender’s most recent deal for $16 million was arranged on behalf of an experienced Sydney-based property developer and will be used to support the client’s existing finance facilities to fund a residential development at Kellyville, in Sydney’s north-west.
Gieldan Capital managing director Neil Sutton told The Adviser that there is an opportunity for new lenders to enter the mortgage space, provided they can partner with a platform provider.
“The mortgage angle is an opportunity. With banks pulling back from lending, the key thing in terms of getting into that space is you have to partner up with a platform that actually writes the mortgages, writes the credit, does the assessment and deals with defaults,” Mr Sutton said.
“We are not necessarily dabbling in that space just yet, but we are having some discussions with potential platforms where we would provide the capital and they would provide the platform and operations.”
Developers struggling to obtain finance from the banks have caught the eye of private lenders in recent months. These lenders see an opportunity in financing deals the banks are turning down.
Mr Sutton said Gieldan Capital goes through the credit process in the same way a bank would.
“We provide all of the structuring and credit skills and monitoring that a private debt financier probably doesn’t have the bandwidth to do.
“While we find our own deals, some deals are intermediated and introduced to us,” he said, adding that the group is interested to hear from brokers working with developer clients.
Gieldan Capital’s primary goal is to identify these opportunities and de-risk the transaction through due diligence, credit analysis and strong credit and security controls.
Tighter credit presents opportunities
“The opportunity to provide bespoke debt solutions for borrowers and high yield for investors will continue to grow as the major banks put a freeze on the sector,” Mr Sutton said.
“We think there are plenty of high-quality developers in the market who are being left high and dry by their banks despite the underlying strong property and secure credit fundamentals of their projects.”
Australian banks now typically want to see at least 100 per cent pre-sales on a development in order to support senior debt lines. While non-bank providers like Gieldan can often charge higher interest rates, Mr Sutton said flexible policy around pre-sales is an attractive proposition to developers.
“If the banks are saying they want 120 per cent in pre-sales but someone else offers a more expensive deal with 85 per cent pre-sales, then the developer is probably going to go for the latter because overall it means they can get on with it,” he said.
“It means they don’t have to sell off-the-plan, they can sell on a completed basis, which means that they get a better price.”
[Related: Non-bank lender launches website to track construction projects]
