Last week, following the announcement of Goldman Sach’s landmark $120 loan to Kokoda Property, we wrote about the resurgence of investment banks funding Australian property developers.
And it appears the resurgence is well and truly upon us with another major investment deal being struck this week…
Abacus Property and the Mystery Investment Group
This time, it was Abacus Property Group who succeeded in teaming up with an unnamed global investment group to help fund three property development projects.
Their initial deal is worth $121 million and will be spread across three property loans. Two of the loans are existing loans from Abacus’ balance sheet but one new additional loan has also been funded by both parties.
Abacus Property Group is a $2.2 billion diversified property trust led by Dr. Frank Wolf. It was established in 1996 and listed on the ASX in 2002. Rental income from Abacus’ investment portfolio of office, storage, industrial and retail properties is the largest contributor to earnings.
Abacus has built a solid reputation following the completion of numerous residential and commercial projects. In 2017, Abacus Property Group had a total of $448 million in development and financing projects on their balance sheet.
As a result of this deal, Abacus can reduce its existing residential development book while increasing its total loan management book.
Abacus has previously stated that the new partnership will seek to focus on funding opportunities in development projects located in capital cities across Australia.
The majority of funding will be provided by the global investment group while Abacus will manage transactions and earn asset management fees. Any profits from the completion of future projects will be shared.
Growing competition to fill the void left by big banks
Over the past few years, experienced Australian property developers have sought project funding from other lenders, partly due to tighter regulations and higher capital requirements imposed on the big banks.
And together, Abacus Property Group and their investment group backers hope to capitalise on this trend by providing alternative funding options to property developers.
“This provides Abacus an excellent opportunity to capitalise on the ongoing contraction in funding avenues available to property developers,” Abacus Managing Director Dr. Frank Wolf told The Australian.
And they are not alone…Far from it.
On top of the Goldman Sachs entry to the Australian property market, non-bank mezzanine financiers like Wingate and Qualitas have ramped up lending to property developers by channelling funds from high net-worth investors, family offices and institutions, and promising returns as high as 20 per cent.
And some of the smaller, local listed property groups like Balmain, Alceon & Gresham are turning to the unrated corporate bond market for financing at relatively affordable interest rates.
Meanwhile, TH Real Estate, one of the world’s largest real estate investment managers, has announced ambitions to play a bigger role in Australia.
All of these indicate that the void left by the big banks’ tightened lending controls is being filled, and rapidly.