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How a career in property development helped this broker write $340 million in loans

by Tamikah Bretzke32 minute read

The Adviser talks to Dan Holden about his business, HoldenCAPITAL, and how his role in property development differs from traditional mortgage broking. Here, he explains how the business operates without the guidance of an aggregator, the difficulties he’s experienced expanding the business interstate, and why he’s seen a large increase of non-bank funding to the business.

In this episode, find out how Dan:

  • Differs from the traditional mortgage broker
  • Operates the business without an aggregator
  • Is working to expand HoldenCAPITAL interstate



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Full transcript

James Mitchell: Hello, and welcome to Elite Broker. I'm your host, James Mitchell, editor of The Adviser, and we're joined once again by Annie Kane, our regular co-host. How you doing, Annie?

Annie Kane: Good. Thanks, James. How are you?

James Mitchell: Very good. I'm going to have to change up my intro. I think it's always the same.

Annie Kane: I know. I always say good, and I actually have a cold. It's just like reflex. I'm good, am I actually? I sound horrific, but I feel good.

James Mitchell: Yeah. That's alright.

Annie Kane: But I feel good.

James Mitchell: Annie and I are here, and we're joined by Dan Holden from HoldenCAPITAL. How you doing, Dan?

Dan Holden: Good, mate. Thank you.

James Mitchell: Dan's an award winning broker, and he's got a bit of a niche in the finance space in terms of the commercial and developer side of lending. He's got a growing business. He's Brisbane based, but I won't talk for him. I'll ask him a few questions. First of all, Dan, I want to get the growth story of your business in terms of... Because you run a very sophisticated operation now where you're going overseas to secure funding. We'll get into that in a little bit.

I just wanted to go back in time and ask you how you got into brokering and where that growth started to happen to where you are today?

Dan Holden: Yeah, sure. My background isn't actually a banker. I'm a property person. Probably seven or eight years ago I started in property development working for a property developer. I was there for five or six years putting together property projects and seeing them right through to completion. Integral part of that was financing them, so through that five or six years and delivering a handful of projects, I got accustomed with quite a few different both brokers funds providers both domestic and foreign and just kind of learned the ropes naturally through that from the developer I worked with.

Then about 2007, I think, I actually got approached by a company called Ashe Morgan Winthrop. They were the largest in Australia. They had 116 staff, offices in all the major cities. They settled about 4 billion a year in debt, and they had a balance sheet of about 300 million, which that would invest in the projects. That was 2007, so about 10 years ago I started into the mortgage brokering in essence. Then I was there for about five years, so it's actually just over... It was five years and two months ago that I started on my own. I guess that's the start of the growth.

James Mitchell: That's sort of a relatively short period of time to amount to the level of success where you are now. Tell us a little bit about your business as it is today in terms of what you're selling, what your volumes are, how many staff you have. Give us a picture of the operation.

Dan Holden: Absolutely. I think last calendar year we did about 340 mill of debt and equity. That was across 84 transactions. Out of that 84, I think we did about 28 or something that were just helping somebody settle the development site portion of the project. That might be the buying a piece of dirt for 3 or 4 million, and we'll lend them 50 per cent or 70 per cent of that value. I think it was about 50 – I'll get the math wrong – 56, 58, whatever actual projects that we funded. That's actually lending them the 10, 20, 50 million dollars to actually build the project, itself. That's, I Guess, in terms of the volume size and transactions.

In terms of the team, I think there's 11 people in Brisbane, 10 or 11 in Brisbane. We set up an office here in Sydney late or middle to late last year, so we've got one guy in Sydney and definitely going to grow that in the next couple of months. Melbourne we've been looking at, and we've interviewed about five or six people and we're just waiting to find that right person.

Interesting, I guess why the business has grown is that everybody that's in the business I knew before they joined the team, so we haven't put an ad in the paper or hired somebody that we don't actually know before. It definitely makes, I guess, the trusts easier. You know they're a good person, that they're going to make the right decision when they're faced with something. That's definitely harder to grow the business interstate when you don't actually know that person. That's a little bit limiting, but so far it's been good, and it makes for a really good team when you know everybody at least before they start work, that you can get along with them.

Annie Kane: Yeah. It's quite a leap as well going from mortgage brokering originally to construction finance and property development where you're having such big numbers coming through as you were saying like 10, 20, 50 million. Obviously the projects are going on for a much longer duration. How do you make that jump, like what were the learning curves for you in terms of going from just what sounded like taking a loan to something fairly complex?

Dan Holden: To correct that, I didn't start in the actual mortgage brokering all that time. I've always just been in construction. When I was in the property development side, I was working on projects that were always in that kind of 10 to 30 million dollar range. Then, when I started with Ashe Morgan Winthrop I did exactly the same thing, so I was working on projects in that kind of 10 to 50 million dollar space. That business was actually more in the structured lending space, so there's 25 mill of senior debt. There's kind of 5 mill of junior debt that we invested, and then the developers got kind of 5 mil of their own cash in the deal. I guess those numbers aren't really that... That's not a big jump because I've always been in that space.

Annie Kane: Yeah.

Dan Holden: Yeah, it's not been a massive kind of change. We do have some of our team are ex-bankers, but they also were in that construction finance space and had been for a long time, so a lot of the guys are pretty specialised in what we do. We don't do home loans, boat loans, car loans, anything. All we do is just construction loans.

Our clients are just late property developers. They're not kind of mom and dad investors building a duplex and such. It's more kind of the big guys who make a living out of doing property development. Most of them have got two to 20 staff. Some have got 50, but they traditional mid-tier product property developer, someone who makes their income out of doing it, not building them and keeping them as an investment or passive investment strategy. That's the type of client itself. Most of those guys play in that space with that dollar [inaudible 00:06:16]. I guess it can be daunting dealing with those bigger numbers sometimes.

Annie Kane: Yeah. If you mess up you really mess up.

Dan Holden: Correct. You've got to triple check everything. After a while you get a little bit desensitised to the big numbers. It just becomes part of the job.

Annie Kane: Does your team – sorry, James – does your team... You say most of them are up in Brisbane – are most of your clients up in that area as well or are they everywhere?

Dan Holden: I'd say probably at the moment maybe 80, 75, 80 per cent. We've definitely seen a big growth interstate in the last two years since we've started kind of marketing the business. The first three years we were pretty quiet. I had my existing clients. The guys that I brought on initially started helping me with my existing clients, and then repeat and referral. That's how the business kind of grew initially in marketing and new client sort of things.

Then there was probably maybe two years, maybe not quite, that we started to push the marketing pretty hard. It would have been over two years ago, yeah, that we started pushing the marketing a little bit harder, started pushing and driving for interstate deals both from clients that were based in Brisbane doing projects in Sydney and Melbourne, even Adelaide we did a few projects, up north in Queensland. We've done a couple in Perth recently. It's more repeat, referral, word of mouth that has really been the main driver behind our business.

Annie Kane: Alright, okay.

James Mitchell: In terms of the funding side, because this is really interesting, obviously over the last 18 months there's been a general reluctance among the major, sometimes even some of the non-majors, they all sort of like and fall together in terms of their pricing and their policy around construction deals and development deals. Also, on the presale side in terms of lending to mom and dads and people for new properties, that's changed as well. I know we've had a chat over the phone about where the funding's coming from. Maybe for those listeners out there who might just be doing resi deals and are sort of interested in the construction side, tell us a little bit about what's happened in terms of your funding mix, in terms of where deals are coming from, who's getting the deals in terms of the banks, and also that private funding site as well.

Dan Holden: Yup, sure. I think you hit the nail on the head. It was about 18 months ago – we mark it as November 15 – that we saw a massive shift. It was such a massive shift it was a pretty rough month for us because we had even approved construction loans of 20, 25 million dollars that the bank turned around and said, "Sorry, we can't do that anymore." That's not very nice when you go to somebody and say, "I know you thought you had 25 million, and you've already dug a hole, and there's a big crane on the thing, but the bank doesn't want to do it anymore."

That was a rough couple of months that reminded me of the GFC, which I obviously worked through where you've got to deliver bad news, and it's not very fun. Like you said, it's big numbers so people do tend to react differently. Where the business was or where the bulk of the business went prior to that was just across the aisle. Business was 64 per cent of our volume was with a major bank, so we very much built the business around being a major bank broker. Rather than traditionally where brokerage in commercial has been is a little bit over talk to your bank, and then if you have a bit of an issue come and talk to a broker. That's been the classical... It is definitely changing, which is great, but that's where brokerage was when I started.

What we build HoldenCAPITAL on was very much around come to us first. We're the experts in our field. We get great results. We've got a good list of clients. It was very much have us part of your project team so that we can help structure the finance correctly from the start. Then we'll manage the bank process for you. It almost became like project managing the process of the finance rather than the classical brokerage of competing bank to bank and creating that kind of process. It was slightly different, so we saw that our effort to grow the business as a major bank brokerage, be successful by having 2/3 of our volume with the major banks, but then they turned around and not closed the doors but drastically reduced their appetite.

2015 was interesting because you kind of had the feeling that things were going a little bit too... People were having too much fun, and as the saying is someone took the punch bowl away and the party stopped, which is potentially a good thing long-term when you look back at it that that did kind of slow down a little bit.

Since November '15 we've seen a massive increase in non-bank funding. Non-bank funding is really anything outside of the six or seven banks that provide capital to property developers. We're seeing that shift in probably two ways, one is that the banks will provide money, but it's at a drastically reduced LVR, so if you're doing a 20 million dollar project the bank previously would have lent you, say 16 million, 80 per cent of total development cost. Now they're turning around and saying, "We'll lend you 12," and that leaves a massive shortage in capital. The second, like you say, is pre sales and just the other terms and conditions that the bank changed pretty drastically.

I guess in '14, '15 we were seeing projects get up with 50 per cent debt cover in the biggest space as in 15 mill plus. In the sub 15 mil debt space we were seeing projects get up with less than that just because it was a good project in a good location with a good sponsor. The bank would say, "Yeah, look, we're going to take a little bit for a view on this one." They were so competitive amongst each other that they would fight on terms and conditions to get the deal, which was great for us providing these fantastic terms that sometimes surprised ourselves. But the banks were just really competitive in trying to get money out.

The two things that we're seeing is the reduction in capital and the increase in terms. In some cases it's just the bank just won't provide any money. We've seen that. Some suburbs have just been blacklisted by all the banks where they just go, "No, I won't touch that suburb even if it's the best deal at a 50 per cent loan to cost ratio with a great guy, I still can't do it." There's policy mechanisms that can't get money out. We have seen a massive influx in non-bank money, and it's interesting.

James Mitchell: A lot of that seems to be coming from overseas as well. This is another thing, which is interesting is your traditional mortgage broker has to aggregate a panel of lenders, and they do that. What you're doing is sort of... It's a different type of financing that you're actually getting on a plane, flying overseas, speaking to whether it's sovereign wealth funds or high net worth families and things like that securing funding for your clients back in Australia. Tell us a little bit about how that whole process began and how it's been going.

Dan Holden: Yeah. That's, I guess, an interesting way to look at it. We don't use an aggregator. We haven't. Like you say, the numbers are a little bit bigger that we meet the criteria to just get direct accreditation with all the lenders. When I was at Ashe Morgan we didn't use an aggregator at all either. We dealt direct, so I didn't really know too much different. Rather than, I guess, relying on that aggregator to discover new lenders and bring them to us and bring that solution to help us solve deals, it has been us fighting and fending for ourselves to find these solutions.

Also, I guess in that corporate space or construction development in that kind of dollar size, particularly with the high net worth families. They are very hard to find. There isn’t a Yellow Pages of billionaires that you can just go have a chat to.

Annie Kane: Unfortunately.

Dan Holden: A lot of it is through word of mouth referral that you can actually get in front of them and then obviously tell them who you are so that when you present a deal they'll actually want to look at it, let alone invest in it at one point in time. The hedge fund space is obviously slightly different. It is a little bit less opaque. You can find who's who in the zoo to go and have a chat to, but their appetite for real estate debt in Australia has been very limited post UFC. We are not seeing a little bit of activity, but it's really only on a pretty unique criteria of deals that they're getting involved.

Sovereign wealth funds, like you say, we have had discussions with them. Their appetite for Australia is good. Their appetite for small deals is not at all. Unless they can get a billion dollars plus out in a single deal or a single bunch of deals, they're just not interested, but they don't want to manage it themselves either because they've got so much money in so many things to look at. They don't want to get involved in managing twenty 20 million dollar deals. They just want to write one big check and expect that money back in five years whereas construction projects are a lot smaller than that. Most of them are kind of 20 to 50 million, and they draw out progressively and pay back at once.

It's a lot of management and it's a lot of money in and out. It's very hard for them to manage, similar to why hedge funds don't have as much appetite for that space whereas a small family office might be managing one ultra-high net worth or a dozen kind of mid-tier, still managing a couple hundred million dollars. For them to kind of... Most of them sit on a fair bit of cash anyway. For them to kind of put out 3 million a month for 12 months and then get 40 million back at the end, they're a little bit more agile that they can do that, but it's actually getting in front of those people.

Navigating that and finding that is definitely through a lot of hard work but also being in the game for a long period of time. There's not a Rolodex of who's who in that space, which is an interesting thing.

Annie Kane: Are there any obstacles to actually bringing the money into the country in terms of like once you've got these overseas buyers are there any sort of problems that you're coming across or any changes in the last year or so?

Dan Holden: A lot of them would have existing investments in Australia or have an understanding of how the process works. In the last... I can't remember the exact stats, but I think we've had over 200 meetings and over 200 flights or whatever we've done in the last 18 months to help find this capital. We have had a lot of meetings, and some of them have been with people that aren't already in Australia, so we had to kind of do that whole story around why's Australia good – but a lot of them if they've invested in Australia they do understand that process.

We haven't really had to do much handholding in that kind of currency Forix type space or with the Ferb type stuff as well. I don't think Ferb applies because they're just investing in a mortgage scheme, not buying an actual real estate asset. Luckily we haven't had to deal with a lot of that firsthand. It's been dealing with people who already understand it.

James Mitchell: Did you have to sort of upscale or was there any mentors during this process in terms of... Obviously you're dealing with sophisticated investors and you're selling yourself, you're selling the country sometimes like you said and the opportunity in Australia. Was there any training or was it just learning on the job?

Dan Holden: I guess when I was at Ashe Morgan there was still a little bit of involvement in, obviously we had our lender list that we could pitch deals to, but there was very often a case where you'd have to go outside of that and find others. For example if you're looking to put debt or equity, subordinate debt or subordinate equity into a deal or into another project, a very good match to find that capital if you need 5 million for a deal to get the project happening.

Like I was saying before, if you got 20 mill of bank debt, 5 mill subordinate, or 5 mill from a developer, a very good source of capital is actually another developer who's sitting on a bit of coin because they already understand the process. They understand the risks. They understand the reward, so it's a little bit of...not like hanging fruit, but just to go and have a chat with other developer, so kind of being nimble and going out and finding your own kind of pocket capital was something that's always been a little bit a part of the job.

In terms of the overseas side of it, definitely it was initially quite interesting and sitting down with some guys who are worth tens of billions of dollars and having a coffee with them in a Starbucks is a pretty interesting experience, nerve racking for sure, particularly when you've kind of got a couple of minutes to impress them while I'm sure they've got other things to do with their time and money. Yeah, definitely that was an interesting process for me.

Particularly when you're almost going to junkets or roadshows you're doing six to eight meetings a day and you've got to do the same pitch time and time again, and it's got to be on point, and you've got to kind of navigate it a little bit to them depending on if they own property in Australia already or if they're investing in Australia already how much they understand about real estate debt, how much they understand about subordinated debt structures, all that kind of stuff you've got to be a little bit nimble in your pitch and do it multiple times a day generally for 10 days or whatever in a row to make it worthwhile. There's a big learning curve there in terms of that side of it, but it was fun. It was exciting, many goosebumps and sweaty palms talking to some of those big shots, that's for sure.

James Mitchell: It is exciting, and it's very different than the typical mortgage broker experience that we've sort of-

Annie Kane: How did you prepare for that? You saying that it's sort of obviously just a lot of trial and error, but did you test it out on your colleagues or did you go and talk to anyone else about how do I do this?

James Mitchell: Elevator pitch.

Dan Holden: I don't know. I don't know that we did. It was definitely nerve racking. I probably should have, and then I wouldn't have been so nervous. It was just interesting. What I did find interesting about it is that once they understand your story and I guess the opportunity that's created here with the tightening of debt, it makes it interesting for them. They then do get interested, and they go, "Yes, this makes sense," then the final question is always like, "Anyone else that we should be talking to?" Quite a few of them get out their phone and say, "Yeah, you should be talking to Bob and Jim and Frank and these guys. They also have bucket loads of money, and they like Australia, and they'd be worth talking to." It is interesting, once you kind of get the momentum going that it does-

James Mitchell: You get a referral network just like anywhere else.

Annie Kane: Yes. You get your foot through the door.

Dan Holden: Yeah, but you had asked the question. It's been a really good process for the last 12-18 months that we've been pounding the pavement and facilitating that investment, which is good.

James Mitchell: Which of the Asian countries, whether it's Singapore or Hong Kong or Mainland China or what have you, what has been the most successful in terms of their appetite for Australian debt?

Dan Holden: Yeah, sure. Obviously Singapore and Hong Kong are the main because they've got a lot of Aussies working over there, a lot of experts that understand the space. A lot of people understand the banking system. It's very easy to communicate, and a lot of the wealth managers, the family office managers are either Poms or Yanks or Aussies that have a pretty good understanding, so you're not trying to explain the whole story to them. You can quickly narrow down into actually what the requirements are.

We have done some varied trips. We've been to the States, we've been to Japan. We've been to, obviously Sydney and Melbourne regularly talking to high net worth guys there. We're about to do New Zeeland. It's got a pretty decent collection of old school generational money. It's just getting out there and understanding who's got an appetite for it.

Annie Kane: How do you sell the projects? I'm assuming that these clients are not just funding one project. They're going to have money in things in lots of different pies. Is there something in particular they're looking to get on board with in your pitch that you're sort of doing in Starbucks? Is there something in there like, "I love that. I want to do this particularly," that they're really drawn to?

Dan Holden: Yeah. I'd say probably the best phrase or way to capture that is that we've been saying, "You're doing bank replacement debt that the banks would've done 12 months ago, but you're getting double digit returns for it." People hear that as lower risk with higher return. That's probably what is the main motivator for them to go, "Oh, this sounds interesting. I'd like to get involved in that."

Also, just the check size as well is a big barrier for quite a few people. Trying to facilitate an investment of only 5 million dollars just doesn't make sense for them. A lot of them have benchmarks that they'll only do a deal at a minimum of 30 million and there's kind of my maximum, which is scary but for them it's just not worth them mobilising a group of people to understand a particular project if they're not going to get-

Annie Kane: A huge amount back.

Dan Holden: Yeah. In 18 months 12 per cent, 15 per cent per annum return on 30 million makes it worthwhile them spending their time and understanding doing that risk analysis themselves.

Annie Kane: Yeah, okay.

James Mitchell: It's interesting to hear you talk about this because from our point of view as journalists and people covering this space all the time, we always see the regulatory change happen. We see the bank appetite change, the pricing policy announcements, all that sort of stuff, but you've now got the opportunities that the gaps in the market are creating and you're obviously filling one yourself.

As soon as the banks started pulling back did you see that there was an opportunity there or were you literally just you were looking for a solution?

Dan Holden: I think it was, like you say, once the banks started retreating, pre GFC we have a really healthy non-bank market of construction lenders. Unfortunately, a lot of them got decimated in the GFC because they had a business model in a poor mortgage fund, borrow short, lend long is the way that I'll explain that so it can be talked about. Borrowing short is you're raising money, it might only be 100 grand chunks from retirees or those kind of retail investors, and they've got the ability to withdraw their money with a couple days' notice, so you're borrowing short. Then you're lending long, so you're lending on a fixed term 12-18 month construction loan to a developer, and the first month's draw you can't get back until you get the whole loan back on completion from repayment buyer pre sales or on completion sales.

Borrowing short, lending long was the business model in the mortgage fund manager world that really as soon as the market kind of tanked, it fell off a cliff overnight because they didn't have the ability to cover their redemptions, and all of a sudden they didn't have enough to continue funding the projects that they had already committed to. That's how that non-bank market really just got sucked up into a vacuum of it didn't exist overnight, which was unfortunate because pre-GFC and some of the projects that I did as a development manager on the property development side and some of the projects I funded as a mortgage broker on the debt side were really good projects funded by good non-bank lenders.

Come 2009 most of them are gone, and it then really became a bank centric property development landscape. Developers had to be doing feasibilities based on the bank's criteria. They could obviously look at shortfall pieces like subordinated debt or equity joint ventures, but it became a field day for the banks to go out there and really dominate the market. I'd say '09, '10, '11 almost through to November 2015 was just a heavily bank driven real estate debt market, which is an interesting space.

Seeing it now kind of evolve back into what it is, it's not starting from scratch definitely, but it's just those investors who were involved in that previously getting comfortable again to do that. We have seen a few, not come back to life, but definitely post GFC if they're only managing say 70 million or 100 million and doing just 15 deals a year they've kind of increased now to 200, 300 million, they're doing a little bit more.

As the investors get more comfortable, we're in a low interest rate environment, so getting a couple percent in the bank's boring. They put it with these mortgage money managers, fund managers, and they're getting eight and a half, nine percent, now it's actually creating an investment proposition that's worthwhile to take that risk again, and they're seeing a buoyant real estate market. They're seeing cranes in the sky. There's no catastrophes of presales not settling yet. There's all these good things. Those retail investors coming back into the space is definitely helping.

The wholesale investors coming back into the space I guess is more where I focus on, and we are seeing more comfort from those capital providers. They've just got this traditional mindset that they want double digit returns, and they want to get big chunks of capital out in a single transaction. Trying to provide a mortgage solution

To explain that better, if you're looking for a construction loan of 5 mill and below there's probably 30 to 40 lenders that we can broker that transaction to, once you go above 5 mill it drops off pretty quickly, and then once you go above 10 mil it drops off even further. Then it's pretty slim pickings until you get to probably about that 30 mill space where you can then start attracting some of the bigger corporate investors at probably a 12 per cent top return, which is obviously substantially different to borrowing from the bank at five percent. Even that in itself, trying to get a developer comfortable to pay more for their money, that's an experience also.

James Mitchell: Oh, yeah. We're almost out of time, but I wanted to ask you one final question. That was about the oversupply, under supply argument because it's not in the papers as much as it was like late last year, but there was the sort of fear. I know CoreLogic does its sort of settlement risk report, so it's been enough for them to come out with their own reporting on it. Brisbane apartment market, Melbourne in certain pockets, not too much Sydney, but that's been the sort of rhetoric is there's a potential over supply on the cards. Things won't settle in a few years' time, all this sort of stuff. How much truth is there in that, and how is it playing out for your business and also for the conversations you're having with developers and also funders for that matter?

Dan Holden: Definitely. It's kind of hard when you put yourself in a developer's shoes, and you look at that question and try and answer it. As a developer your generally working on a project for six, 12, 18 months before you actually take it to market in terms of identifying the sort, negotiating purchase, amending or getting an approval from counsel to builder, looking in your [inaudible 00:28:40], your construction process, and actually getting it to work. By the time you see the holding go up and the sales offers go up that developer's been pregnant with that project for quite some time.

Definitely, like you said, before Christmas last year there was a lot of talk about over supply, and the world's going to stop turning, and doom, doom, doom. Then we come back this year and it definitely kind of disappeared pretty quickly, which is great.

To answer it from a developer's point of view just because in September, October, November the Fin Review published every day that the world's going to stop doesn't mean that they can be half pregnant with a project and go, "Oh, I'm going to just wait until the Fin Review stops panicking until I keep doing my big project." It's very hard for them. It's a long gestation period.

In terms of lenders, there's definitely a lot more reactionary kind of week to week, month to month, how they feel about the market and particular pockets of the market. Like I say, the major banks sometimes have a bit of a blanket approach to certain suburbs or geographical places where either we've got too much money out in that pocket, therefore we can't do that deal, or we just think that suburb's got a bit of an oversupply, a bit of a smell about it for the time being, and we'll readdress it later. It's definitely more short-term adjustments of view for a lender, but it's hard for a developer to kind of change so quickly.

In answer to just the timing of that, like you say, late last year there was a lot of talk about over supply. We experienced a lot of lenders really retracting pretty quickly, and saying, "Oh, look, we're going to wait and see what happens." An interesting thing that we had, before Christmas we issued a lot of approvals for large trench residual stock lines, so that might be... They've built 150 apartments. They've sold 110, and we get a finance approval to refinance maybe 60 or 70 of them because developers were being prepared and saying, "If I've got 110 of 150 under contract, let's assume there's a full override of worst case 20 or 30 per cent, so therefore I need to be in a position to refinance the existing construction loan and the unsolved product."

We settled quite a few of them. We did about four or five of them that were anywhere from 20 to 40 apartments in a single trench, but there was a big run-up just before Christmas where we issued a bunch of approvals for bigger tickets like 20, 30 million dollar residual stock lines. None of them have yet settled because the pre sales that have come in have settled better than expected, and the sales rate has actually increased, so I guess that's my little anecdote firsthand that I've seen in our business. We were ready to settle some pretty big ticket residual stock lines there. Those five anyway just before Christmas. Not one of them has yet settled. Three of them have formally been withdrawn, and the other two I'm pretty sure they're going to find that the sales are there, and they don't need it, which is good.

James Mitchell: The market's still strong, basically.

Dan Holden: I'm saying that definitely September, October, November kind of doom and gloom in the press was probably a little bit of a knee jerk, and thankfully a lot of those settlements that were concerned about when the cranes were in the sky, and now that there's actually settlements happening that there's a lot more comfort in both the developers and the lender space. I've seen some developers that were looking at parking projects are now are going, "Look, we think it's alright," and definitely I've seen lenders because they can change their mind a lot quicker than a developer, more comfortable to get back in the market and get the money out the door, which is great.

Annie Kane: Before we close down on you, I just want to ask obviously a lot of our listeners are mortgage brokers. They might not be in the commercial space, but I know that in the last year or so lots of people were looking at diversifying. Would you recommend that people break into this space, and if so what are your tips for trying to start doing this because it sounds like you need...?

James Mitchell: Do you welcome competition?

Dan Holden: Yeah, kind of tricky question, right? I think it's definitely exciting, definitely, like you say, the numbers probably look bigger and, now scarier, but more intimidating to get involved in.

Annie Kane: And attractive, though, in that way.

Dan Holden: It is, in a sense. I'd probably say just tread carefully because the numbers are bigger if you make a mistake it has pretty big repercussions. If you get somebody a home loan of 450 grand instead of 480,000 they're probably going to be pretty pissed off, and three days later they'll probably find the extra 30 grand and it'll still go ahead.

If you go to somebody and say, "Mate, that approval for 16 million is now 12 million," and they're already pregnant with the project, it's shovel ready or they've already dug a hole, it's just a little bit more impact because of the bigger numbers. For that kind of point, I'd just say that it's something that may be progressively step up into that space. Do some duplex, little blocks type stuff. Understand the terminology. Understand there is a lot more variables to a construction loan than a home loan or an investment loan. There's a lot more things to negotiate, and when you don't have the knowledge to negotiate them sometimes it can end up impacting the developer quite substantially.

It's not just about LVR cost of funds. There's a lot more things, there's probably at least 10 more than just those two drivers that actually make the deal good or bad. I wouldn't say don't do it because that sounds silly. I'd say just baby steps and progress up to a point where you're involved in it. Even working for a bigger firm who's already in that space for six to 12 months to kind of cut your teeth and make some mistakes and then kind of go into it rather than just quitting your day job and going and having a crack I'd say just be careful. You start making mistakes with other people's money, particularly when it's millions of dollars there's definitely repercussions.

I wouldn't say run out and do it tomorrow. I'd say just ease into it. It is fun. It is enjoyable, but there's definitely mistakes that can be made quickly

James Mitchell: Good stuff and sound words of advice there. I think that's all the time we've got, so thanks very much for joining us, Dan.

Dan Holden: Thanks very much.

James Mitchell: Thanks, Annie, once again. That was Dan Holden from HoldenCAPITAL, and I've been your host, James Mitchell. Join us next week for another episode of Elite Broker. Catch you then.


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