PROPERTY DEVELOPMENT is a tough space to be in this year, with fears of oversupply and cutbacks on lending by the banks feeding into an atmosphere of uncertainty. The last thing on people’s minds is expansion, but down in St Kilda you’ll find a brokerage that’s bucking the trend.
Jason Arnold’s volumes have gone up, from $85m to almost $97m, and so have his staff numbers. He’s taken on a number of young credit analysts without any banking experience – “raw, fresh, smart young blokes who we could teach our way of doing things”, as he puts it, as they “tend to have a crack a bit more at technology than I would and have ideas a bit left of centre to mine”. Having these credit analysts take on more of the process, and auxiliary areas such as residential lending, has freed up Arnold to find new clients. However, Quattro’s success has not just come from finding new leads; it’s come from picking those projects most likely to succeed.
For a broker, the main problem is that property development finance applications are taking longer, with the broker having to take a magnifying glass to every element of risk, from marketing to the choice of builder, in order to satisfy the banks. While the client’s situation is the main determinant of how long a deal will take, Arnold explains, “we’re doing more work per transaction ... we’re going that little step further on every element of the transaction”.
Better developers are now realising how much the game has changed. “The experienced clients have packaged up their development so they can start straight away,” Arnold says. “The holding costs aren’t there: they haven’t got the six-month lead-in period before constructing. They’ve hired experienced developers and experienced builders so they’ll get in and out a lot quicker. When you’re using very expensive money it means you’ve got to get in and get out a hell of a lot quicker.”
Quattro is still dealing with less experienced developers, because Arnold believes they give his young staff a chance to ‘cut their teeth’. The key is correctly sizing up the clients prior to taking on a project, he says. “We like to see them start on a lower scale and build up progressively. If they’re fly-by-nighters who want to shoot the stars on deal one and haven’t got enough equity, we’ll probably pass on that transaction.”
The queue at Quattro’s door is certainly getting longer. Having settled some complicated deals over the past two years, the brokerage’s reputation has been spread by word of mouth, which is why Arnold is optimistic. “We’re certainly looking at a growth model. We think the enquiry levels we’ve seen over the past couple of months will increase a fair bit. My challenge is to search for and find reliable non-bank sources of funding.” He’s been looking at non-bank funding – two deals worth $75m and $78m were recently done through non-banks – but also newer funds and larger funds that are starting to consider smaller deals in the $10m–$60m range. It’s still a work in progress. “That’ll continue to be the case over the next 12 months as I can’t see it getting any easier in the major bank sector,” Arnold says.