Entrepreneurial private lenders like
Chifley Securities have been quick to seize new market opportunities in 2016, and are convincing brokers they could be Australia’s ‘fifth bank’.
It was an impressive close to the 2015/16 financial year for Chifley Securities. Despite launching into the broker channel just 20 months ago, the non-bank finance group was able to assist investors and builder and developer clients with a total of $600m worth of commercial and residential development finance from its total capital pool of $1.1bn.
But Chifley Securities isn’t alone. When combined with the finance being channelled by the rest of the private lending market, it’s a sector looking a lot like Australia’s fifth bank.
“Private lending groups, including Chifley Securities, are becoming known as the fifth major bank,” says director Joe Morello.
“At a time when banks have been cutting back on lending, private lenders have been stepping into the gap. A lot of deals are now coming to private lenders that, not long ago, would have been going to the major banks.”
Until recently, private lending existed outside the mainstream. But with so much smart private capital now hunting competitive returns, Morello says professional private lenders have been able to move from major bank understudies to centre-stage lending roles.
“Private lenders have always been there, and brokers have used them when their clients needed to execute quality deals with a more innovative and flexible approach. But private lenders have now moved from being outside the circle to a more accepted pillar of the lending market. Together, we are not dissimilar from a new, fifth mainstream lender.”
A fifth pillar
Chifley Securities’ loan book of projects in progress is worth $230m, with loans valued between $1m and $50m supplied for first mortgages, mezzanine, bridging and construction finance. Morello says demand has been strong from commercial and residential property developers who do not meet tighter major bank presales and security requirements.
“We are fulfilling a demand from developers that are not meeting the banks’ latest demands for higher presales, especially where the majority of buyers have been foreign,” Morello says.
“We are able to provide finance for presales guarantees of 65% of total sales, in contrast to banks that are squeezing projects with a strong foreign sales component.”
The role of private lenders in similar deals is likely to increase. Morello says there has been a surge of private equity, hedge and superannuation funds chasing higher returns of more than 10% by providing funds in property finance through non-banks like Chifley Securities.
“We are continuing to see strong interest in our local market, including from overseas sources, such as US-based private equity firms. We have been able to help more high-net-worth groups and families, for example, find a home for money that will deliver them better returns.”
The situation points to the emergence of a ‘fifth bank’.
“As long as interest rates are low, we will see investors willing to commit funds to quality property development deals. On the customer side of the equation, clients left stranded by the caution of APRA-regulated institutions will continue to knock on our door. And that is good for us,” Morello says.
Channel of choice
Brokers have been pragmatic in placing non-bank finance groups like Chifley Securities right alongside mainstream lenders in their discussions with clients, thanks to the approach being taken by these willing lenders to establish and maintain real, two-way broker relationships.
Morello says the lender’s success with brokers has come down to giving them what they want, when they want it, including fast, transparent and informed decisions on deals, ultra-responsive client finance, and 1% broker commission upon settlement.
“Brokers need options when mainstream lenders tighten the purse strings, and our 2015/16 financial year success shows brokers are seeing us as a genuine partner. Brokers have been wanting a ‘fifth bank’ for some time, and in our market at least, now they have one.”
