The biggest opportunity cost in property – missed projects!

Marius Grobbelaar • June 24, 2020

Non-Bank Funding Offered to the Finance Broking Network to Fast-Track Projects

Perth is experiencing a mini-boom in certain market segments and locations – most notable the land sales and entry level apartment market. Market participants, such as developers and investors, are scrambling to secure their slice of the opportunities presented by the Federal and State Government stimuli to the construction industry via home and apartment buyer incentives.

The incentives have an expiry date in December 2020 and will likely favour those property players with existing stock on the market or close to market release. Crest Capital Asset Management has released additional funding, now offered to the finance broking network, to help fast-track these projects in time for the December deadline.

Some property developers will miss this unique market opportunity. Admittedly, it’s a short, sharp stimulus and property is a longer-term product - it takes time to conceptualise, acquire, design, obtain planning approvals, raise equity and debt, secure pre-sales and then bring the product to market.

Missed opportunities frequently trigger introspection and sometimes a review of business practices and models. Crest Capital has previously commented on the funding gap in the development finance market caused by bank disintermediation after the GFC (Global Financial Crisis) a decade ago, and the need for smaller developers to reconsider traditional approaches to development finance.

Non-bank lenders have emerged as the new source of development funding to small-and mid-tier developers. This trend is here to stay – in the US and UK non-bank lenders represent a much larger percentage of development funding.

Chart: Share of US Private Sector Finance Provided by Banks

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Chart: Mortgage lending by type of institution

Trust and Opportunity Cost

The most recurring objections to non-bank lenders by developers are the perceived higher cost of non-bank lenders and their lack of visibility and transparency, essentially a trust and reliability issue:

Do they have the money to lend? Are they lenders, or intermediaries presenting as lenders?
Why are their rates and fees so much more than the banks – it reduces the profit margins substantially?
Lenders secured by a first mortgage exert a lot of power on a project – can they be trusted or will they act in a predatory manner?
How will they behave in a difficult situation often encountered in development projects?

We have a series of case studies that demonstrate to our introducers and clients the true opportunity cost of a non-bank lender at higher rates vs a major bank at lower rates, taking into account the comparative timing of a project and its impact on prices of completed stock vs off-the-plan prices.

This comparison does not even take into account the greatest opportunity cost of all; not being in the market at all…especially in boom times.

The other most prominent fear, a lack of trust in non-bank lenders, is not as easy to dispel. Trust is a currency developed over many interactions and several transactions. At Crest Capital we clearly communicate our values, and prospective clients can do their own due diligence in the market about our ethics and conduct toward our clients. We are fair and remain pragmatic when things don’t go according to plan and will always work with our clients to find a commercial solution together.

We are determined to separate ourselves in the marketplace from predatory financiers.

We would welcome an opportunity to look at a existing or prospective transaction and assist with a funding solution – in doing so we can often demonstrate the biggest opportunity cost to our clients – not being in the market at all because of an inability to secure adequate capital at the right time.

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Discounting pre-sales to meet bank requirements come at an unexpected cost

By Marius Grobbelaar • October 23, 2020

The non-bank industry is often ignored when brokers and advisors make funding recommendations to their clients. The cost of capital available to non-bank lenders is substantially higher than the major banks and an assessment on funding costs only will more often than not favour the majors. But what about the opportunity cost? Crest Capital Asset Management (Crest Capital) has compiled a case study of a transaction that involved one of its clients to illustrate the opportunity cost:

A capital partner in the Perth property development market

By Marius Grobbelaar • March 31, 2020

Non-bank lenders and mortgage funds are proving increasingly popular alternatives in the Perth property development landscape, as well as capital partners such as Crest Capital Asset Management (CCAM), who offer unique project-focused solutions.