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Commercial loan originations have fallen from record highs, but the non-bank lender has struck an upbeat tone on its quarterly results.
Commercial real estate (CRE) financier Pallas Capital has reported a “solid start to the year” in its first quarter of trading, despite commercial mortgage originations slipping from the record highs achieved in the previous two quarters.
In its first quarter financial results for the period to 31 March 2025, Pallas achieved commercial mortgage settlements of $602 million, down comfortably from the $807 million of new loans settled for the record December quarter.
Pallas described the financial performance as a “pleasing result” given the industry shut down over January for the summer holidays and amid a challenging market.
New loans settled for the quarter were made up of 43 first mortgage loans and 13 second mortgage loans.
Looking ahead, Pallas said it remained on track to settle loans totalling more than $2.75 billion this financial year.
‘Pent-up’ market demand
Commenting on the biggest contributors to growth, Jason Arnold, Pallas group executive – origination, told The Adviser: “We’re seeing the market adjust to the current rate environment, and construction lending has become a real driver of growth.
“Thanks to our experienced team and strong broker relationships, we’ve nearly doubled our lending volumes, and we’re just getting started. With new institutional funding lines in place, we’ve launched products, such as our latest construction facility, that let us move faster and more flexibly than ever, giving brokers and their clients a genuine edge and the ability to get off the ground faster.“
Alexis Holloway, group executive – head of credit at Pallas Capital, noted that the residential property market continued to be flat, with new investment activity remaining subdued.
“Our read is that there is a level of pent-up demand in the Australian residential market, but buyers are waiting for that interest rate relief before they move forward,” he said.
“With the major bank economists all predicting multiple interest cuts over the course of 2025, we should see gradual improvement in sales activity, which will bring some life back into the development market as previously shelved project starts are regenerated, and developers will be looking for new sites.
“Whilst we’re not in the business of predicting markets, at this point a recovery in the residential market seems to be slow and steady; the two factors that could accelerate a recovery are interest rate reductions and access to credit.”
Holloway noted that across its loan product range, investment loans (on stabilised assets) and pre-development loans (for development sites) had attracted the most demand.
He also flagged rising demand for residual stock loans, as developers grow more confident that improving buyer conditions will lift the value of unsold stock over the next year.
The latest quarterly financial results cap off a strong period of growth at Pallas, which has expanded its team amid the broader growth of non-bank lenders in the commercial real estate sector. Over $14.8 billion of private capital was invested in Australia’s commercial market in 2023, the highest share on record, according to Knight Frank.
[Related: Pallas Capital launches $185m construction warehouse facility]
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