It’s fair to say that the construction sector has seen brighter days.
Rising materials costs, inflation and supply chain issues have disrupted the industry in the midst of a construction boom, leading to the collapse of multiple high-profile builders.
And while this situation might be causing anxiety for traditional lenders, the founder of specialist construction investment vehicle Holden Capital, Daniel Holden, says his unique model protects the firm from ongoing calamity.
“As a private lender, the uncertainty creates more opportunity because banks and lower risk lenders are more concerned and conservative in their approach, particularly for things like owner-builders like Oracle,” Holden told Business News Australia, referring to the recent $14 million collapse of Oracle Building Corp.
“But it’s definitely something to be more mindful of, and so we’re putting the ruler over borrowers, builders and projects more intensely; particularly around the borrowers to make sure they’ve got the skill set, track record, experience and also financial capacity to see through a project not going 100 per cent as planned.
“We’ve seen heaps of projects be delayed massively time-wise due to both labour shortages and delays in materials. But if the borrower is strong, smart and savvy they can keep things on track and keep everyone focused on the outcome.”
Founded in 2011, Brisbane-based Holden Capital gets building projects off the ground via its unique platform that enables sophisticated investors to tailor their portfolios.
Investors on the platform can ensure schemes are built by selecting which developer and project they’d like to back. These are a mix of developments, from larger apartment towers to smaller land subdivisions for family homes.
On the platform, investors can see the anticipated net return, the loan term and whether a project is ‘fully subscribed’, or in other words fully funded. By taking this approach, Holden Capital is opening up the opportunity for high net worth investors to fund the current Australian construction boom.
Recently, Holden Capital announced it had surpassed a major milestone after the company cracked $250 million of loans advanced to property developer clients. In writing $250 million of new business, the company assessed more than three times that in loan submissions.
According to Daniel, the company’s investment in its fintech platform that also manages investor communication by project has helped the company to get where it is now.
“To get to $250 million is a pretty good achievement because a lot of that is via as low as the minimum of $100,000. Our average investment is about $400,000 per person per deal, so it’s actually a fairly decent effort to get there,” the founder said.
“I think what has helped us is we invested a lot of money up front in a fintech platform that manages a lot of the investor communication on each of the projects that we fund. They can log in to view the project that they’re investing in and get monthly updates of the project as its being built.”
This funding model means Daniel expects the business will keep growing, despite inflationary pressures giving builders myriad headaches.
The founder says that because of the structure of the fund - whereby investors pick projects and Holden raises money per transaction - that Holden Capital is shielded, and more developments can be funded simultaneously.
“If we commit to funding a project for, say, $6 million, we then go to the investors and raise that money - so it’s done based on the market rate at the time as opposed to locking in the whole money for a year in advance and then you’re chasing your tail,” he said.
“The other way that we’ve managed to continually grow by way of our structure is that because we raise per deal, each project that we fund is not reliant on us getting money back from another project to fund the next project.
“Last financial year we lent out or raised and invested $135 million - we only repaid $38 million so we had $97 million for the year. Whereas other investors, if they only had a finite amount - say it was $200 million to lend - once it's lent you can’t lend anymore until you get it back.”
Daniel says this flexibility in Holden Capital’s corporate governance structure has enabled the company to continually grow, and puts a bit of distance between projects, shielding each build from each other in the event that one goes belly up.
That doesn’t mean Daniel plays it fast and wild. In the current economic context, the founder says Holden Capital is ramping up its checks and balances to make sure borrowers are as clean as a whistle before putting proposed developments out to the high net worth investor base.
“We’ve got some investors that do have a higher risk appetite. So if there is a transaction that we kind of like but doesn’t tick all of the boxes then we package that up for a particular investor group who are comfortable to take on that higher risk,” Daniel said.
“It’s also helped us to get some transactions done that our peers can’t because we have experienced investors. A lot of our investors are property people themselves - they’re not just general investors who have money. A lot of them are retired property developers or owners and so they’ve got their own view on locations, sectors and market risk.”
As for Holden Capital’s approach to which projects get the nod, Daniel says it is less about the build itself, but more about the borrower.
“One of the things we’re looking for is whether they have done similar projects in the past. It’s one thing to do a duplex or a six-pack of townhouses and then to jump on to do a 20-storey tower - obviously there’s a different set of problems that come up along the journey and different ways that you can overcome them,” Daniel said.
“The ideal borrower for us is somebody with more projects and opportunities than they have capital; they have four projects on the go and enough capital to do two or three of them, but they’ve got a pipeline that they need to keep progressing along. That’s where we become a capital partner and help them deliver that pipeline.”
With scale in mind, Daniel says the firm is looking to partner with more projects based in Melbourne and Sydney. Currently 80 per cent of the company’s loan book is Brisbane-based, but he’s looking on taking that down to about 50 per cent.
“I’d say the next big opportunity for us is just that geographic expansion,” he said.
“We’re an 11-year old business, but we’ve kind of just had a lot of repeat clients, and now we’re expanding into the southern states.”
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