When you’re writing over half a billion dollars in loans a year, you can’t be intimidated by big deals. The average loan settled by George Giovas’ brokerage, Axius Partners, is for $34m, and the median loan is even higher. By his own admission, he is playing “at the larger end of the game” and lenders are struggling to keep up. “We might do more in the $10m–$20m range, as the banks are pushing us to do smaller transactions. That’s about as small as we’re going to go though.”
Giovas is not the sort of broker who started working from his garage. As ANZ’s global head of property he managed “in excess of 150 people, $40bn on the balance sheet, something near $1bn in revenue each year; it was a significant business”. In 2010 Giovas set up a funds management business that also provided advice to clients. Broking was an obvious next step, he recalls. “A friend of mine said, ‘Why don’t you broker some of these people?’ I said that I was happy advising them, as we get paid by the client, and she said, ‘Well, why don’t you try to get paid by the bank?’ ”
Axius Partners is an “old-fashioned merchant bank”, split between funds management and advice and broking. The team deals with development finance, including for apartments, hotels and ‘workouts’, a favourite of Giovas’, because “someone else has stuffed up and you’re there to fix it; banks really respect that and that gets you cross-pollination into the future as banks think of you to send clients to”.
There’s also ‘cross-pollination’ between the two sides of the business: Giovas provides advice on debt to high-net-worth clients who then often go on to invest through the funds management business. Giovas charges some regular clients a retainer but no success fee, as this comes from the commission, while others are charged only a success fee.
Giovas is not immune to the lending changes sweeping through development finance, but he has substantial advantages. While many banks are only dealing with existing clients, he explains, “we do newto- banks stuff; we’ve just taken a client from one of the big four to another, and they’ve had no relationship with that party, but we make sure we’re selling a total relationship … we put our bankers’ hats on and try to make the arguments we would if we were in the bank still, pushing it to senior management or to credit as to why we should do this transaction”.
The majors are still, Giovas insists, the best option for most clients, due to their lending and pricing capacity. “Our view is you extinguish as much of your needs with the big banks before you go elsewhere.” And he has taken clients elsewhere – having just wrapped up an $85m project with an Asian private funder, even though a bank had been willing to lend the money. While the interest rate was higher, the funder offered far better conditions, with some US and Asian funders willing to go up to an 80% LVR, while most banks are limited to 65%.
Looking to 2018, Giovas can’t see lending conditions easing. He gives three reasons, the first being that lacklustre corporate lending means property is actually growing as a proportion of the banks’ exposure, forcing them to step back. The second is the government’s use of banks as economic levers by limiting borrowing; and the third is APRA’s forcing of the banks to take a ‘cookie-cutter’ approach, by applying strenuous conditions to all deals. “Add all that together and you’re in a market where it becomes a self-fulfilling prophesy: the banks one way or another will reduce their exposure to property.”