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June 2, 2017

Stamford comments on construction finance market

Project funding is coming on stream again after the banking market effectively ‘seized’ in mid-2016, but this new money is very choosy and comes at a price, says Stamford Capital’s executive director Michael Hynes.

“Towards the middle of the year the banking market seized, with APRA closely scrutinising lending to all sectors – commercial and residential,” he says.

“The big banks, concerned about fraudulent applications, stopped lending to a lot of foreign purchasers. However, in recent months we’re seeing liquidity easing. Projects that are well located and valued up to $30 million can find reasonable support.”

Hynes says money from non-banks, while increasing, is quite selective. “Projects need to be virtually ‘bullet-proof’, with strong pre-sales and all the approvals wrapped up with a bow.”

“Private lenders, some institutional money and even super funds are prepared to chase the higher returns – with interest on construction funding in the high teens – but they are conservative lenders and not prepared to take risks.”

Like many involved in the property market, Hynes is cautiously watching developments in the Brisbane and Melbourne apartment markets, where there is talk of over-supply.

“The real concern over these markets is there’s a lot of stock coming, and a lot of that was sold offshore,” he comments.

“That dynamic needs to play out. These two markets need to successfully manage completions to foreign purchasers before capital markets can stabilise.” He notes that there is concern some pockets will experience a major price correction.

“Site market values are coming under pressure – especially in Brisbane. We expect to see a number of projects abandoned in 2017, because the developers won’t be able to get the funds.”

Hynes says 2016 was a good year for Stamford, arranging $520 million in funding from various lenders and investors with an average transaction size of $11 million.

“This includes one refinancing deal through a major bank on a Melbourne CBD retail and commercial building valued at $109 million. We’ve done multiple deals where senior debt has been as little as 10 per cent, but up to 20 per cent… and one $60 million package had 20 per cent senior funding.”

He says they expect to write more in 2017 – and at higher yields.

“One opportunity we’re finding is increased demand to finance residual stock in apartments. We also have three to four deals, mostly funding existing assets, in Stamford Capital Investments.