As lending businesses failed, even developers that were compliant with their loan obligations found themselves caught in the down-draft with little or no surety of funding to meet project cashflows. Developers failed, builders failed and even key building trades were impacted.
The simple reality is that some projects shouldn’t be funded and shouldn’t proceed. This might be due to a lack of developer track-record/experience, lack of developer equity or that the viability of the project isn’t sufficiently robust to absorb the many risks inherent in property development. These are matters of due diligence.
Non-bank financiers play a valuable and legitimate role in the Australian real estate industry as an alternative source of funds to the major banks. This has been increasingly so in recent years as private capital has been directed into lending markets in response to low returns elsewhere and at a time when the major banks have had to adjust to new capital rules.
But borrowers from and investors in these non-bank lenders should be cautious. Not all gaps are opportunities and there are valid reasons why some projects are better left on the drawing board or to a new owner in the next cycle. Anyone considering investing in or borrowing from these businesses should satisfy themselves that the skills and experience of the managers and their application of proper due diligence and loan management processes are up to the task.
Archerfield Capital Partners is a corporate advisory business that specialises in real estate. Its three principals have a combined 75 years of property experience spanning development, construction, financing and funds management.