Since commencing lending in 2017, HoldenCAPITAL Partners (HCP) has seen an array of market shifts and fluctuations.
During the past few years, we have seen a proliferation of new non-bank lenders filling the gap left by the banks.
Equally, we are now seeing this current climate result in teething problems for some of those lenders as they deal with the rapidly shifting cost of funds versus borrower and investor expectations.
At HCP every facility is tailor made for the individual transaction.
As well as being carefully priced and structured before asking the potential borrower to commit thus minimising any surprises, and we also test the appetite of our loyal investor base of family offices and sophisticated investors, to ensure that there is a match of expectations from both sides.
Our custom-built fin-tech platform engages our investors quickly and communicates effectively the deal metrics once it has passed our credit criteria.
For each transaction funded by HCP, funds are raised specifically for each loan and deposited into our solicitor’s trust account. This latter point is particularly relevant for developers at the moment with reports of some non-bank lenders having to renege on loan offers due to liquidity issues leaving developers at the altar.
Coming off the uncertain times and lockdowns of 2021, the past 12 months have felt far more predictable but still managed to throw up their fair share of challenges for HCP and the broader non-bank market.
From March onwards, it felt like we were constantly looking to justify increased interest rates as the RBA rolled out regular if not always predictable rate hikes.
This was overlaid with fierce competition from other lenders, many of whom seemed to have little or no methodology in terms pricing for risk.
In the latter half of this year, we have seen this change with some lenders seemingly struggling with the results of those earlier policies and having to spend time sorting out problem loans.
Lending was further complicated by rising material and labour costs coming on top of those rate increases along with slowing demand as inflation began to bite and the residential markets reacted to bad news in the press.
The increasing or stable housing prices that helped maintain project viability in 2021 started to flatten out in 2022 and, as a result, while the flow of deals across the desk increased dramatically, so did the fall off in deals that met our risk requirements, with more borrowers seeking higher-than-normal leverage to solve their cost and time problems.
All of these factors often made it challenging to maintain project viability in a market that has been pulled from pillar to post.
The time delays experienced by many projects have also caused a funding strain as many lenders experience funds taking longer than expected to be repaid, reducing their ability to fund new loans and maximise the returns on investor funds.
To date our own experience has been more positive and while there have been instances of deals lagging on achieving milestones, our investors have benefited by having their money invested longer in a well-progressed and further de-risked project receiving additional returns for little or no extra work or risk.
HCP was also able to maintain a good flow of investment opportunities, which resulted in us achieving several funding milestones this year.
Our loans advanced to our property developer clients surpassed $200 million in February, $250 million in June and we are pleased to announce that we have ticked over the $300-million mark in November.
The portfolio mix continues to be dominated by projects delivering residential product, principally non-complex construction loans of houses (duplex/splitter blocks), land subdivisions and townhouses.
The balance comprises site acquisitions and residual stock loans.
Whilst HCP’s appetite is predominantly senior debt up to 65 per cent LVR, in the appropriate circumstances we regularly provide developers with stretch senior solutions up to 70-75 per cent LVR with a reasonable blended interest rate on offer.
Looking towards 2023 we are expecting things to remain testing until such time as inflation and job security return to some level of normality or at least something the markets can accept as such.
We are comfortable that we can continue to meet the expectations of borrowers and investors, by diligently reviewing the structuring needs of each transaction and then applying the risk analysis criteria expected of us and not blindly following the pack who see growth as a measure of success rather than maintaining the risk profile of their portfolio.
For Borrowers interested in HCP’s lending options, you can find out more here.
For Investors interested in joining HCP’s investor group, you can register here.
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