16th May 2019 /
investment

A structural shift is occurring in the real estate lending space

Non-bank lending markets grew rapidly in Australia back in 2015-16 and the early signs in 2019 show a borrower demand for Non Bank Lenders (NBL) who are concurrently demonstrating a healthy appetite to lend, including White & Partners.

Private debt markets are thriving in a domestic credit environment where regulatory restriction is keeping banks from meeting demand for sub-investment grade loans including residual stock loans for instance, and non traditional borrowers. The stringent credit conditions APRA have imposed on our major banks has further deepened the need, demand and opportunities for private lending, particularly in real estate deals. As a result non-bank lenders like White + Partners are becoming crucial. The good news for borrowers in this market is that they now have multiple options to facilitate loans. And the great news for investors is the diversification opportunity in this high-yield asset class.

Despite being only four months into the 2019 calendar year, our debt book at White + Partners is currently sitting at over $300 million and has been active across all fronts, including origination, repayments and refinances. For instance on our land banks at Dural (NSW) and Ashfield (NSW), our loans have been and are being repaid via other NBLs, while another project in Sydney is being partly repaid from settlement of apartments in additional to a residual stock loan from another NBL. We have also been active in origination, including a $25m facility for a Greenfield Pub project in Sydney, a $20m commercial facility in Double Bay as well as extension of an existing loan in Bankstown for an additional 2 years.

Non-bank lenders, super funds and largely private equity firms, are filling the gap created by the increased constraints on the four major banks who once facilitated 85% (as at 2013 according to CBRE ) of commercial and residential real estate lending in Australia.

A number of private lenders, like White + Partners, with the ability to navigate and price complex deals, as well as competitively originate and service lender demand have increasingly occupied the private real estate lending space, taking advantage of the illiquidity of this asset class and the superior returns it delivers to investors.

A healthy private debt market is good news for investors. In an environment where yields are plummeting and investors are searching for attractive risk-return investment options away from equity markets, private debt is becoming an increasingly popular high-yield asset class.