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February 10, 2018

I’m a non-bank lender…get me out of here!!

2018 is shaping up to be a most interesting year for non-bank capital, particularly in the development finance space…well as interesting as real estate debt can be!

For those wanting to skip the details, the key comments from Stamford are as follows:

When it comes to debt funding real estate developments, we’ve seen a considerable increase in the supply of non-bank capital
Conversely, enquiry levels from borrowers has declined
We expect non-bank capital costs to reduce and credit conditions to ease
There is no better time to work with an independent and expert advocate in procuring debt capital…creating tension creates sharper results!
Currently we have a diverse commercial lending panel comprising of banks, non-bank financial institutions, foreign institutions and private lending houses. And this number has grown rapidly in the last 12 months. Since February 2017, we have seen a 23% increase!

Given the patent pull back of the major trading banks, a lot of new product we’re seeing to market is targeting development finance.

While capital can often use the three-card trick of pricing through a mix of establishment fee, line fee, usage fee and exit fee. (Well, four cards!) We’re seeing all up costs typically at low double-digit IRR…say 12%. But there are some exceptions.

Development has never been a game for the faint at heart and the last 12 months have been particularly challenging.

Developers used to relying on trading bank support are well aware of how fickle it can be. Various Federal and State-based policy changes have effectively killed the foreign pre-sale market, and the local market has weakened outside of prime precincts due to supply constraint.

As a result, we’ve seen the weighting of our origination swing back towards investment asset finance…the first time in nearly three years.

Given this supply and demand dynamic we expect the cost of non-bank capital to continue to reduce. We first sensed the pricing swing in Q3 2017 and as capital moves to meet the market, we also expect credit criteria to ease, particularly with respect to pre-sales.

More so than ever, we’re encouraging our developer clients to test the market and create tension in raising debt capital.

Recently we’ve collaborated with a number of sponsors and on each occasion, we’ve raised the bar. We would be more than keen to work with you.