Is now a good time to borrow? It definitely is for some!
While many of us believe that we are in control of our own destiny, this current pandemic period has made that a little harder to follow through.
Unlike the 2008 GFC, the market’s response to the pandemic was initially difficult to account for. Many of us, the world over, have had our movements restricted, our jobs impacted, and our futures shaken. We haven’t ‘been through this before’, as we have with economically/politically caused downturns. Many have taken a step back to wait, assess and react in due course. While this is completely understandable, it has resulted in more room opening up at the front for those willing to seek new opportunities.
David Lovato, Managing Director at lending broker firm Crowd Property Capital, believes that right now is abound with opportunities for both lenders and developers.
“I’m getting a higher level of enquiry from developers, as the banks are closed to new business and paring back existing lending relationships. Most of my enquiry comes from professionals transitioning from banks to non-banks as they want to take back control of their business through this period.”
As developers turn from big lenders to alternate funding channels, Mr Lovato has also noticed a large inflow of capital into the private senior debt markets.
“This is due to sophisticated investors chasing stable and strong yields. This translates into more competition and in turn lower rates and fees,” Mr Lovato added.
Yet while rates and fees may have reduced, it remains a difficult task for some to find the right lender for their project. In Mr Lovato’s eyes, it depends on the client and the project their pursuing.
“Lenders are open for business for quality sponsors and projects. If you are experienced, have a project in a good location, your project is small to mid-size and you have sufficient equity, lenders will fight for your business.”
Someone who isn’t letting the pandemic slow him down is luxury eastern suburbs developer Rafi Assouline, who recently splashed out $185 million for a 5,000sqm site in William Street, Wooloomooloo. Mr Assouline intends to transform the property into 200 ultra-luxe apartments, with high-end ground-floor food and retail outlets and possibly a small boutique hotel.
Mr Assouline said there had been a lot of competition for the site, which suited him well as he was not too worried about COVID-19.
“I have a three-year-plus settlement agreement — I have a lot of time. With the worst estimate, surely we will be out of this situation in that three-year-plus period of time. There’s a big lack of stock.”
Developers are starting to come to terms with the new world they live in and are adjusting their strategies accordingly. As with any market changes, it’s often the first-movers and the intuitive strategists that find the most successful pathways.
Mr Lovato thinks that walking the non-bank line could be the saving grace that many developers are looking for. He has spent a considerable amount of time curating a small panel of trusted non-bank lenders that are Sydney based but fund nationally.
“Our lenders provide funding where loan attributes may prohibit the loan conforming with covenants required by traditional banks. Non-banks will also fund projects on low or zero presales. This effectively provides a developer with an experienced reliable development partner who has more buy-in regarding your project.”
Non-banks are a great source of capital during a time of market uncertainty, but there is a note of caution that Mr Lovato believes that needs to be heeded.
“I personally know my lenders and understand the source and reliability of their funds. If I take them a deal, they know that it’s been properly vetted and worthy of approval. If developers are talking direct to private lenders, my advice would be to be wary of low interest rates, high upfront non-refundable fees and heavy penalties for breaches of loan terms. Unfortunately, there are many dodgy lenders out there who try to take advantage of developers.”
For developers who continue to seek new opportunities, but can’t meet the big banks rigid conditions, the funding is out there. Lending brokers such as Crowd Property Capital can connect you with the right people and hold your hand through the whole process. Ultimately, the stronger the deal the better the offer – and putting your best foot forward can make all of the difference.
*Sponsored by Crowd Property Capita