Boutique commercial property investment manager Pallas Capital has written $1.1 billion in transactions over the past year, more than doubling the group’s total loan book since it was founded six years ago.
The Sydney-based group has now clocked over $2 billion in cumulative transactions amidst a tightened lending market for developers.
“It took Pallas Capital five years to transact its first billion dollars of investments, and less than a year to transact its second billion,” says Pallas Capital’s chief investment officer Dan Gallen.
Despite cracks emerging in the development industry, Pallas Capital says none of the investments it has managed since 2016 has been hit by credit impairments.
The group raises funds for lending from a network of high net worth, family office and institutional investors, offering first and second mortgage loans on assets largely located in Sydney, Melbourne, Brisbane and Adelaide. These investors are accessing returns from 6 to 13 per cent.
Pallas Capital executive chairman Patrick Keenan says the current banking environment has created significant opportunities for the group to meet demand for development and investment finance.
“The long-term factors driving this growth are the advantages which non-bank lenders have over traditional banks in writing commercial real estate (CRE) loans, which include speed and certainty of execution and commercial flexibility in formulating loan parameters,” says Keenan.
“For example, in construction loans, non-bank lenders may accept a lower level of off-the-plan pre-sales or leases if they are satisfied with the track record of the borrower and the quality of the security property.
“Traditional lenders are operating in an increasingly restrictive environment, which precludes them from competing effectively across a wide range of CRE loans.”
While Pallas Capital’s development arm Fortis has traditionally accounted for a significant portion of loans issued by the group, Keenan says this has diminished following a broad-based increase in the company’s lending portfolio.
“The tie up between Pallas Capital and Fortis not only gives Pallas Capital a unique in-house resource to assist in analysing loan applications, but also allows it to offer to its investors a steady stream of investments backed by high-quality Fortis projects,” he says.
“In the early days of Pallas Capital, loans to Fortis projects were a significant part of our total loan book. However, as the Pallas Capital loan book has grown over the years, the proportion of loans to Fortis has reduced, and we expect this to represent about 20 per cent of Pallas Capital lending.”
Among the recent transactions approved by Pallas Capital Pallas are a $2 million loan on an investment property in the Sydney suburb of Putney, a $7.5 million residual stock loan to refinance a completed residential project in Adelaide, a $15 million construction loan to deliver a medium density residential project in Sydney’s northwest and a $90 million loan to fund a large mixed-use project in Melbourne’s inner-east. Pallas Capital is also extending its activities to include major regional areas.
Of the 280 transactions managed to date, the company says 121 have been fully repaid, with the rest continuing to perform satisfactorily.
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