Sixteen years of experience and contacts in the industry are helping Arnold respond to changes in development funding
Jason Arnold and his brokerage, Quattro Finance & Advisory, have moved two places up the rankings this year, with a client base built on both the lucrative but increasingly difficult area of development finance and the more stable field of commercial property broking. “We have a property-orientated clientele, whether that’s high-net-worth listed entities or experienced property players who have been on the property market for a long time,” Arnold says.
Quattro’s development projects are mainly residential but also include industrial projects, with many developments around 5–20km from Melbourne’s CBD (the brokerage is based in St Kilda). Fees are charged depending on the size of the debt, Arnold says. “If it’s over $10m–15m we’ll charge the client directly, and if it’s under that we’ll split the fees with the lending institution … I’ve never had and never will have a reputation for charging fees if we don’t perform.”
Changing bank appetites
Arnold says the banks are making development funding harder, “both via a deleveraged appetite, so lower gearing, and a lack of appetite overall – so it has been tougher to get deals set in the development space with the lenders”. The ‘right deal’ can still get through, but its definition is becoming increasingly narrow. “When you’ve got at least 100–120% of debt coverage, when you’ve got gearing that hovers at around 60% of end value, and if it’s sub-$15m–$20m, then the appetite is there for the experienced developer,” Arnold says.
Looking elsewhere for finance
Second-tier lenders and non-banks have taken up a lot of the slack, and the favourable conditions they offer can balance higher interest rates, Arnold says. “If they can cut down on the six months of presales that the banks want, that’s six months of holding costs that you’re saving there, and they can start earlier.” Arnold also deals with offshore funders, but only if they have a track record in Australia. “There’s a US hedge fund that’s provided a substantial loan facility to one client; they were more expensive than the banks, but they’ve provided more money and more certainty.”
Outlook for 2017/18
While Arnold believes that banks will still lend to the right development deal, “anything outside of that – and there’s a lot outside the perfect deal the banks want – they will find it tougher”. The outlook for commercial property is more favourable, however. “I think there’s still a good appetite there from a bank perspective for investment-grade assets.”
“There’s a US hedge fund … they were more expensive than the banks, but they’ve provided more money and more certainty”