The clients of Bayside Residential & Commercial Mortgages are a mixed bunch, ranging from developers to manufacturers and some seriously wealthy investors, managing director Kevin Wheatley explains. “Our biggest client we do a lot of work for is a leading figure from a royal family in the Middle East; I’ve been his Australian financial adviser for several years now.”
While Sydney-based Bayside’s offering includes commercial real estate, SME finance and debtor finance, development finance takes the lion’s share. The average deal Wheatley writes is worth a staggering $14,191,618. Many are larger still, and the brokerage has a policy of charging fees when the deal size exceeds $20m.
Changing bank appetites
Wheatley doesn’t hold back when explaining what’s happened to development funding. “The changes APRA has made, the tighter lending criteria, are making it very, very difficult. We’re in a position today that’s not so dissimilar to where we were at the peak of the GFC.” Banks are demanding 55% LVRs, and up to 120% in debt coverage from presales, putting smaller developers “between a rock and a hard place”. APRA, in Wheatley’s eyes, has made a mistake in its targeting of development finance. “The stringent lending criteria really didn’t need to be employed in New South Wales in the current economic climate, because we still have an undersupply of development.”
Looking elsewhere for finance
Like other commercial brokers, Wheatley is being forced to look beyond the banks. “Fifty per cent of our construction funding now is coming from non-bank and private investors,” he says. The appeal of such lenders is not simply their conditions but their turnaround time: Wheatley has found the banks’ processing times have been getting much longer in recent months. Bayside utilises offshore funders, particularly from Hong Kong and Singapore, and has its own mortgage warehouse that is connected to a managed investment scheme it runs. “We lend out a lot of our own money, and the future for us is to expand our funds that we can lend out via our mortgage warehouse,” Wheatley explains.
Outlook for 2017/18
“I don’t believe they’ll get much tougher,” Wheatley says, “because it’s going to have a big impact on the economy. However, I do believe the stringent lending criteria will stay in place for the next couple of years.” Beyond tightening bank lending policies, APRA has set concentration limits on how much of a bank’s portfolio can be accounted for by development finance. This policy should be revised, Wheatley argues. “APRA as an industry regulator hasn’t done enough when it comes to consulting the financial industry experts.”