Australian property developers turn sights to non-bank lenders to fund their projects as tightening funding restrictions cause major banks to retreat.
Australia’s major banks have reduced their lending in the development finance market, which has provided the opportunity for non-bank lenders, such as Trilogy, to provide critical funding for projects that were otherwise unappealing to major banks.
Trilogy’s Head of Lending and Property Development, Clinton Arentz, discusses how the changing Lending landscape is setting up Trilogy for success.
“Uncertainty arising from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has driven the major banks to tighten their loan-to-valuation ratios and increase equity and pre-sale requirements. However, their new approval formula may no longer fit the mould for many developers.
“Across the eastern states we see a continuing trend of quality borrowers moving to non-bank lending alternatives, such as Trilogy, in the absence of support from traditional big bank options,” Mr Arentz said.
Developers who choose Trilogy benefit from a personalised service, timely approval process and limited pre-sale requirements as well as access to funding, industry expertise, and draw-down time frames to keep the project on track.
“Developers are realising that an accelerated speed to market, and ability to manage the sales process during construction can significantly enhance their return on investment and turnover”.
Learn more about the benefits of non-bank finance >
As one of Australia’s leading specialist lenders and experts in development construction finance, Trilogy provides personalised service and tailored loans to the residential, commercial, industrial and retail property sectors in Australia.
Trilogy has enabled the successful completion of hundreds of projects, including land subdivisions, townhouses, unit blocks, small commercial developments, industrial complexes, prestige residential buildings, service stations, apartment buildings, retail shops and childcare centres.
With a focus on personalised services and proactive management of key stages of the loan, Trilogy works with borrowers to ensure successful delivery of their project.
“We take a conservative view upfront. We’ll review a project and build in contingencies for delays or hiccups, which allows us to minimise the impact of anything that comes up later on. We’ll only go ahead with a project if we believe it is sound from start to finish, Mr Arentz said.
“We also obtain critical diversification by lending to a wide range of developers and projects spanning across three states.
“In a liquidity sense, since we don’t have the identical capital raising risk associated with contributory funds, we have always had funds available from the start of the project through the life of the loan,” Mr Arentz said.
Despite current economic conditions and impacts from COVID-19, Trilogy’s expert Lending team continues to proactively source loans secured by first mortgages held over Australian property.
“We’re expecting the market to rebound relatively well, and we’re geared for that with a heavy focus on quality new loans,” Mr Arentz said.
“If you provide a quality product that will add real value to people’s lives, then there will always be demand for residential construction projects. Confidence may fluctuate, but the need for property rolls on.
“With our agility and flexibility as a lender, we are currently looking at a range of good propositions nationally, and we have portfolio managers ready and waiting to respond,” Mr Arentz said.
Between 1 March and 31 August 2020, Trilogy settled 18 new loans with an average approved loan amount of $3.6 million and an average Loan-to-Valuation Ratio of 54.73% on an as-if-complete basis, in key locations across Brisbane, Sydney and Melbourne.
As at 1 September 2020, Trilogy currently funds 86 loans, ranging in value from $3 million to $20 million.
Loan in Spotlight
One of Trilogy’s current loans is a construction loan provided to a third-time Trilogy borrower to refinance an existing private mortgagee and construct 49 three-story townhouses in Narangba, Queensland.
- Loan term: initial term of 13 months and extended for subsequent stages of development
- Loan amount: approximately $11.4 million
- Repayment source: sale of completed townhouses
- Loan-to-Valuation ratio: 60.58% on an ‘as-if-complete’ basis (including GST)
In January this year, 7 townhouses were completed and sold. In March, 9 townhouses were completed, and a further 10 completed in July with a strong ongoing sales program in place. The final 23 townhouses are forecast for completion in October 2020.
The three-bedroom townhouses are an affordable, contemporary living option, designed to provide natural sunlight in a spacious living, dining and kitchen area adjoining a balcony. Each home offers a secure, low maintenance courtyard, with a variety of amenities available, including a pool and BBQ area. The development is ideally located close to the local train station and shops.
Trilogy is not a licensed credit provider and does not make loans regulated by the National Credit Code. The source of Trilogy’s loans may include managed investments schemes registered with ASIC, as well as other private lending arrangements with high net worth investors. If you would like more details on our investment opportunities, then please contact us. The material on this website is intended only to provide a summary and general overview on matters of interest. Trilogy is only licensed to provide general financial product advice on its own products and does not consider your objectives, financial situation or needs when providing any information or advice. You should consider whether the advice is suitable for you and your personal circumstances and we recommend that you seek personal financial product advice on your objectives, financial situation or needs and obtain and read the relevant product disclosure statement before making any investment decision.