Oct 12 2018Add to Favorites
In an ongoing low-interest rate environment on savings and with banks withdrawing from property and construction financing, investment groups like Centennial Property Group are seeing value in providing first mortgage funding for property development, recently settling a $48m loan for a mixed-use retail/residential development in Sans Souci, NSW
The $48m loan was syndicated across Centennial Property Group’s sophisticated investor base
“We believe there are compelling opportunities to provide secured debt funding to the commercial sector with the potential to achieve risk-adjusted returns to investor portfolios”, says Kim Kitchen, Director – Marketing & Distribution.
“The strong investor interest is as a result of the withdrawal of first-tier banks from the commercial lending landscape over recent years”.
“CPG is targeting an Investor annual rate of return in the double digits and an approximate 1.1x multiple net of fees over a 21-month term”.
With the project located on Rocky Point Road, Sans Souci, the loan was provided by CPG to construct a five-story mixed-use retail/residential development accommodating 95 residential apartments above 472sqm of retail space with basement parking for a minimum of 167 vehicles.
The first mortgage loan terms provided by CPG reflected a Loan to Total Development Cost ratio of 78% and an ‘On Completion” Loan to Value Ratio of 66%. The funding was supported by minimum presales to debt covenant of 75%.
CPG’s commercial lending division is headed by Mark Zukerman, who joined the Group in November 2017 after having worked for Australian Unity in their Commercial Mortgage Trust business for more than 10 years. Mark has worked in the commercial lending and corporate banking sectors in Australia and overseas for the past 26 years.
“The developer has a compelling track record in property development in Sydney and the suburb of Sans Souci is one that we are particularly comfortable with based on the strong local owner-occupier buyer profile”, says Zukerman.
Centennial Property Group has completed more than $1 billion of transactions and produced an average internal rate of return across the portfolio of over 25%.
The current investment landscape in Australia is driven by a range of factors, not least the 2019 federal election, and the view is that the result of the Wentworth by-election, a seat that has historically been monopolised by the Liberal Party, will be the foreshadowing of the federal outcome. The Australian equities market is experiencing volatility, with a 200 point drop last week in the S&P ASX index, the largest drop this year and potentially the result of sentiment surrounding geopolitical headwinds with the latest developments relating to the trade war between the USA and China. Global bond rates remain low, and despite incremental increases, interest rates are too low to be attractive from an investment perspective.
With the combined influences of a cooling residential property market and heightened bank scrutiny on all aspects of real estate lending, traditional debt sources are, in many cases, closed to developers and commercial real estate investors, particularly where circumstances require a specific funding solution.
Investors via Balmain Private's digital platform have rushed to a recently offered Trinity Point Drive investment, with the investment oversubscribing within 4 hours of being listed on the platform. The investment forecasts a 9.15% annual return for a term of 18 months with a Loan to Value ratio (LVR) of 43%, with distributions paid monthly.
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