“Permanently gone”: Bank mezz loans a thing of the past

An alternative funder of residential property developments is confident that Australia’s banks will never again offer mezzanine funding for real estate assets.

The pullback in property developer finance among the big banks has been well documented. Over the last few years, this strategic decision by the nation’s largest lenders has spawned a growing number of non-ADI lenders that provide mezzanine debt.

One of them is Sydney-based real estate investment management firm Qualitas, which has already financed 109 developments since it launched in 2008.

The group’s managing director, Andrew Schwartz, told Mortgage Business sister publication Investor Daily that we are now in an environment where there is a shortage of debt capital relative to the demand for it.

“I don’t think the banks are ever going to go back to the lending ratios they were doing 10 years ago,” Mr Schwartz said.

“I don’t think that banks will go back to doing mezzanine debt loans. That has permanently gone.

“But I do think that the volume of what they do can go up or down depending on what’s going on in their broader balance sheet over time. The flexibility that an alternative lender has will always see groups like us gain market share.”

Around 75 per cent of the assets funded by Qualitas are residential developments, particularly apartments along the east coast of Australia.

Mr Schwartz said that due to changing market forces, the group is “extremely mindful” of off-the-plan buyers settling on apartments but is confident that the risk is contained.

“We are very much an east-coast business. Ninety per cent is east coast. For us, it is about the level of pre-commitment to sales. Melbourne and Sydney have not had huge levels of defaulting purchases. To the extent that they have existed, you have found that there are replacement buyers for that property. The ability to find other buyers has been good.”

Problems have arisen with foreign buyers who signed up to buy an off-the-plan apartment and found they were unable to obtain a mortgage from Aussie banks.

“That has certainly been an issue,” Mr Schwartz said. “But the default rates are not that substantial.”

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