Sydney-based developer Fortis has secured $142 million in bank funding since February for three projects worth a combined $284 million, defying tight lending conditions among major banks and showing that off-the-plan sales are no longer a prime imperative for some developments.
Fortis, which is part of the Pallas Group which includes funds manager Pallas Capital, has revealed that the three Sydney projects have been supported by ANZ Bank (ASX: ANZ), St George Bank and Macquarie Bank.
Among them is a completed commercial building in Double Bay, Sydney anchored by fund manager TDM Growth Partners which occupies three levels.
The $42 million project, originally funded by Pallas Capital to the tune of $29.25 million, has secured $25 million in refinancing from Macquarie Bank.
The property, located at 2 Guilfoyle Avenue, also benefits from the long-term tenancy of ground-floor tenant Baker Bleu, which is the first interstate location for the Melbourne-based bakery chain.
Fortis director Charles Mellick says despite the challenging lending environment for developers, major banks are still backing premium projects in Sydney.
“Although the commercial real estate finance market is more demanding at the moment, these recent facilities from ANZ, St George and Macquarie Bank demonstrate that the major banks are still looking to lend and to take a commercial approach, displaying a strong preference for premium assets and experienced borrowers,” Mellick says.
Mellick reveals that the strength of the lease covenants for the Double Bay building helped get the loan with Macquarie Bank over the line.
“Although we were still required to make a substantial equity injection, we appreciated the commercial attitude taken by the bank,” he says.
St George Bank and ANZ have provided a combined $117 million in funding for two Fortis construction projects worth a total of $242 million.
The $52.4 million construction loan from St George has been secured for MONA, a $103 million mixed-used retail and residential project at Darling Point. MONA will deliver about 500sqm of ground-floor retail and 24 apartments to the market when completed at the end of next year.
Fortis has revealed that with eight apartments pre-sold in the development, including the penthouse which went for a record $13.75 million, the new construction loan is 60 per cent covered.
Meanwhile, ANZ Bank is backing the construction of a $139 million apartment development at Point Piper planned by Fortis.
Fortis has presold six of the 14 apartments in the development, known as Piper and designed by Luigi Roselli, meaning that the construction loan is about 55 per cent covered. Piper is expected to be completed in late 2024.
Mellick says the two construction loans represent conservative loan-to-value ratios of about 50 per cent, which compares with an appetite for a much higher LVR of about 60 to 65 per cent early last year.
“Accordingly, each project is more equity intensive than it would have been in that environment,” he says.
“On the other hand, in earlier times the major banks would have required that the net value of off-the-plan sales represented 80 to 100 per cent of the construction loan limits, so in this respect they will show commercial flexibility for the right project if the developer has a strong track record.”
Pallas Group comprises real estate financier and investment manager Pallas Capital and property developer Fortis, which earlier this year expanded into the Brisbane luxury residential market with the acquisition of sites at Kangaroo Point and Newstead.
Fortis’ expansion on the eastern seaboard has been supported by Pallas Capital, which has a current loan book of $1.6 billion across 213 loans to a range of developer clients.
Pallas Capital wrote about $1.1 billion in transactions in FY22, more than doubling the group’s total loan book since it was founded in 2016.
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