Super and pension funds fill commercial property void

One of the country’s biggest superannuation funds, n Super, is poised to intervene in the n property market, with more than $100 million allocated to fund individual projects.
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The retreat of the big four banks from financing commercial property projects is set to be filled by a raft of new sources including superannuation and privately backed funds and Asian and US institutional capital.

Last week’s warning from the banking watchdog, the n Prudential Regulation Authority, on the major banks’ commercial property exposure has added to the pressure.

Wingate director Mark Harrison said: “We are talking to private funds in and Asia. There’s going to be more capital in and the development sector in the next 12 months because there’s a gap to fill.”

“Players like ourselves are stepping up and filling the void. Our volumes have increased and we are looking at different products to fill the void,” Mr Harrison said.

Maxcap Group’s chief investment officer Brae Sokolski said his firm, which deals exclusively in commercial real estate debt, is managing a growing number of institutional sources of funding, including n superannuation funds such as the $2 billion n Super and Incolink.

“We are getting approaches from US and Chinese institutional capital who want to put more money in the space,” Mr Sokolski said.

While he declined to comment on n Super’s funding capability, he said “local funds are more risk focused”.

The retreat of the banks is healthy for the market, creating an opportunity for other institutions to enter, he said.

The gap in the commercial real estate debt market is reckoned to be $30-40 billion, he said.

Before the global financial crisis, major n banks accounted for 63 per cent of commercial real estate debt but the withdrawal of overseas banks and the failure of non-banking lenders left bank portfolios over exposed to the market at around 85 per cent.

Qualitas managing director of real estate finance Tim Johannsen said the property funding markets in North America and Europe were more evenly split between banks and private funds.

“There’s a way to go before private sources of funding catch up to that,” Mr Johannsen said.

Developer Tim Gurner, who has a $3 billion pipeline of 4500 apartments in Melbourne, Sydney and Brisbane, said it was important to maintain a relationship with the banks – if you have one.

“A move away from the majors isn’t worth it,” Mr Gurner said, noting it was important to know the ultimate source of the funds.

Banks had reduced the loan-to-valuation ratio for funding projects to between 55-57 per cent – down from 60-65 per cent, he said.

While non-bank sources could offer a higher LVR, he was wary about going to second-tier lenders for finance, although mezzanine finance is already used at the end of very big projects.

Banks are already scrutinising the profile of apartment buyers before they sign off on deals, whether they are repeat buyers, owner occupiers or investors, he said.

“They go right through the business and the buyers. It’s good for us,” he said.

“Developers with a good track record who are developing stock that banks like are alright. It’s tough for new businesses but they’re not stopping lending for everyone.”

And it’s not in every jurisdiction. Banks are no longer lending in the Brisbane market and they’re cautious about Melbourne. The Sydney market however is still “confident and bullish”.

“It’s a very tricky climate. It’s the worst I’ve ever seen – worse than the GFC,” he said.

n Super declined to comment on its lending practices.