March 07

New Lenders in the Market

 

A common theme of my Global View newsletters over the last few months has been the huge amount of cheap money sloshing around the world looking for a home.

A consequence of this in the property markets – other than a shortage of commercial property to buy and historically low yields and cap rates – has been the emergence and abundance of non-bank lenders and sophisticated new products like the low-doc and credit impaired loans in the residential mortgage market.

In reality the number of lenders in the residential market is less than it appears. Many lenders rely on the same source of funds and/or insurers. So if you get turned down by one, chances are another won’t be able to help.

 

But I don’t want to dwell on residential borrowing here – call me if you want to know more – but in this issue of Global Update I’d rather talk about the changes in the commercial finance market.

Not so long ago the role and lending criteria of banks and non-bank lenders in the commercial markets was quite clearly defined. All banks were pretty much the same and the finance companies varied in the range of risk they were prepared to take on – with interest rates and fees varying accordingly.    

 

 But in more recent times we are seeing the following trends.
• The larger established finance companies are looking more like banks as they seek to establish their position as tier one lenders when the new regulations covering non-bank deposit takers come onto force.
• The commercial finance companies here have been amalgamating and consolidating over the last few years resulting in little difference in lending criteria within lending groups.
• As these amalgamations take place, new finance companies are emerging and taking up the places vacated. Many of these companies – like the residential non-bank lenders - are being funded from the excess funds sloshing around the world.

 

The good news is we are starting to see new products and services emerging in the commercial lending arena. Examples include.

1. Blended mortgages where a second tier lender lends up to 80% of the value of the property by having an arrangement with a tier one lender who takes on most of the loan at low bank rates. This results in an overall interest rate close to prime rates.
2. “Security” lending where loan servicing is not an issue as it capitalised into the loan. These work well in situations where resource consent, new tenants, or other matters which will increase the value of the property, are being obtained. Development projects and bridging finance fall into this category. These loans usually require a proposal where a take out by another lender at a later date is on the cards – something I’m able to help you make plans for.
3. Owner occupier financing. This was the subject of my first GLOBAL UPDATE newsletter last November. Since then more lenders have entered this niche in the market.
4. Financing development projects where the finance can be drawn down before the pre-sales are sufficient to cover the amount of the loan. This allows a large proportion of the sales to be made once the project is completed – resulting in easier and better priced sales.
5. Interest only loans.
6. Land banking – loans on bare land where no specific proposal for its development or sale is proposed.
7. Non-bank lenders funded from offshore – where interest rates are much lower than here – offering loans at New Zealand prime rates.
8. Quicker turn around for loan proposals, partly as a result of less information being required.
9. More players in the business lending arena. This has mainly been the provenance of the banks which require established businesses with proven cash flows and/or alternative security.
10. Isolating loans to specific properties. Banks have been notorious for taking collateral security over houses and all property and business owned. Those that remember the late 80s and early 90s will recall how one poor performing loan could bring down all businesses and properties owned, as the lender sought repayment.
11. I have private lenders who are willing to take the view that if the loan turned sour they wouldn’t mind owning the property. The point being these people do not have to rush to get the loan off their book and are more likely to come to some other arrangement – which could include a joint venture.

After the debacle of the recent finance company failures, funds from the public dried up. But now confidence has returned and these companies are anxious to get funds out into the market.  What’s really interesting is that many loan proposals are successful as a result of who you send a proposal to - rather than the proposal itself. This is a mixture of some financiers being flush with money at any one time while others are not. And the different views a lender will take on the location, or the particular security, depending on the spread of their book at that time. Then there’s always the view the various credit departments take. You’d be amazed at the difference.

 

The new lenders in the market are seeking to get a toehold – whether if to be make their presence felt, or because they don’t already have an exposure to a particular sector.

 

All in all it’s worth while giving me a call to see how I might be able to help you. You can call me any time on 021 902 004.

 

There are no up front fees. I work on a performance-based fee payable only on the satisfactory delivery of a previously agreed proposal.

Cheers

JP

 

 

John Paine B.Sc. Dip BIA
Global Pacific Corporation Limited
112 Gladstone Road, Parnell,
P O Box 3229, Auckland, New Zealand
Phone 64 9 303 3700, Fax 64 9 303 3031
Mobile 64 21 902 004
Email john.paine@globalpacific.co.nz
Web site www.globalpacific.co.nz