A Melbourne-based brokerage is seeing an influx of funding from private lenders as developers continue to be locked out by the banks.
Steller is an integrated property development and mortgage broking group headed by Nicholas Smedley, a former M&A banker with UBS and KMPG.
Mr Smedley told The Adviser that Steller Home Loans, previously known as Capital Home Loans, is securing finance from private lenders for medium-sized developers – borrowers that had easily secured funding from the majors just a few years ago.
“Last quarter alone on the private book we wrote close to $100 million in loans,” Mr Smedley said.
“Our brokers still go through the same due diligence process. It’s a lot easier in many ways because you are speaking directly to the person holding the purse strings, rather than through a credit committee,” he said.
Sourcing private money can be a challenge, but Mr Smedley’s background in investment banking has been a major bonus for Steller Home Loans.
“We’ve been able to secure funding from private institutions in Hong Kong, Singapore and a number up the East Coast of Australia,” he explained.
“The ones that we have done out of Asia we’ve been able to get 6.5 per cent interest rates out of them. We’ve been giving that to the customer in the low 7s, which for a developer who can get an 80 per cent LVR lend, they’re jumping at it because it is only about 200 basis points above what their local bank used to give them. But that avenue has obviously closed in the current market.”
Mr Smedley understands that private funders and some non-bank lenders have been busy raising funds to cater specifically to this niche market of mid-tier developers.
“Two years ago, these clients were bankable by the majors. They are now only going for the A-grade or top tier potential borrowers. It is giving a good short-term arbitrage for private money,” he said.
Securing funding comes down to the track record of the developer, rather than the size of the project, Mr Smedley says.
“It’s the medium-sized developers who are doing one or two projects every three or four years who have really been frozen out of the market. They are the ones looking for alternative funding.”
In addition to running Steller Home Loans, which boasts a loan book of $250 million, Mr Smedley currently has 22 developments under construction in Melbourne.
His brokerage aggregates through Connective and is now in its third year in business.
James Mitchell has over eight years’ experience as a financial reporter and is the editor of Wealth and Wellness at Momentum Media.
He has a sound pedigree to cover the business of mortgages and the converging financial services sector having reported for leading finance titles InvestorDaily, InvestorWeekly, Accountants Daily, ifa, Mortgage Business, Residential Property Manager, Real Estate Business, SMSF Adviser, Smart Property Investment, and The Adviser.
He has also been published in The Daily Telegraph and contributed online to FST Media and Mergermarket, part of the Financial Times Group.
James holds a BA (Hons) in English Literature and an MA in Journalism.
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