Meet the new crop of shadow bank property lenders
Updated: Aug 2, 2018
By Matthew Cranston, Australian Financial Review
Newground Capital's Daniel Erez and Scott Morgan are the latest to established themselves in Australia's booming non-bank lending space deploying $60 million worth of funds for property development with a further $80 million set to be executed in the next two months.
Newground joins dozens of other non bank lenders – from giants such as Blackstone and CBRE to other smaller privates – which have entered the market in the past two years filling the gap in lending made vacant by Australia's major banks.
"Banks are increasingly cautious in their approach to the market and have a preference to their long-standing, career clients whom they would prefer to ration their available capital for," Mr Erez said.
Primarily backed by family office investors in Hong Kong, Sydney and Melbourne, Mr Erez and Mr Morgan have noticed an increased number of approaches from offshore institutional investors looking for local managers to partner with and enter the Australian market.
But among the plethora of new lenders there is a pressure to be unique in the way they do deals.
We only look at around 10 to 15 new transactions per month, but at the end of the day, the product we sell – money – is largely a commodity and so it is difficult to be genuinely 'different' or unique."
Part of the difference for Newground is that its team come from so many different areas – development, advisory, "big four" real estate finance and funds management, and that means they can hold the hand of the client all the way through instead of just throwing money at them with a high interest rate.
"Our approach is one of partner and as such we try to add value by way of introductions of potential development sites, the right consultants, builders and sometimes even assist in generating pre-sales.
"This gives us a perspective that is much more than just financier."
The Newground team has had to spend a lot of time travelling and developing relationships with their investment partners to secure a low cost of capital. That has paid dividends with a pipeline of more than $200 million of "qualified transactions" that they are working on.
Newground currently has around $60 million deployed across 10 investments being a mix of residential, medical and retail projects.
Interest rates have been in the mid to high single digits and whilst the majority of their loans have been mezzanine and preferred equity there is an increased appetite to provide first mortgage loans.
"We lend across the capital structure with past transactions being a mixture of first mortgage land, senior construction, mezzanine, preferred and JV equity," Mr Morgan said.
"We tend to focus more on the sponsor and project dynamics before capital structure e.g. sales rates, rates per square metre, competition, etc."