Superannuation funds back Centaur residential lending

Superannuation funds have tapped into the burgeoning residential lending business with Local Government Super and Fire & Emergency Services Superannuation Fund taking a stake in Centaur Property’s real estate debt funds.

With major banks cutting down residential development lending and construction finance – especially to lower-tier developers – the private lending industry has stepped in to fill the gap left by banks as demand for residential investment continues. House prices in both Sydney and Melbourne have grown 18 and 13 per cent respectively in the year to February, according to Corelogic.

The Australian Prudential Regulation Authority also urged lenders on Tuesday to exercise more caution in their commercial property lending books.
However, record low interest rates have also led the $2 trillion superannuation industry to search for higher yields.

LGS and FES Super have tipped more than $90 million in boutique fund manager Centaur’s Real Estate Debt Funds 1 and 2. Other investors such as Canberra fund of fund manager Continuity Capital Partners, family offices and high-net-worth investors make up the rest of the total $200 million investments in both funds.
The two funds have financed 70 development projects in Sydney, Melbourne, Brisbane and Perth.

“LGS has been an investor with Centaur for the past four years. We recognised the opportunity to achieve strong risk-adjusted returns in the alternative real estate debt market here in Australia, and are very pleased with the performance of the two Centaur funds that we have backed,” LGS chief investment officer Craig Turnbull said.

“Centaur’s focus on affordable housing and the owner-occupier market is attractive to us.”
Mr Turnbull said LGS’ contribution to Centaur has enabled the creation of 1000 housing lots and more than 1000 apartments across Sydney and the other major capital cities.
And while there was no specific mandate to invest in development loans or construction finance, LGS would consider opportunities as they arise, Mr Turnbull added.

“We see it as an opportunity … especially with changes in the lending market,” Mr Turnbull said.

“The Centaur funds have been very successful … with all projects we have gotten our money back.”

Centaur, run and owned by Joshua Rowe, Mark Darling and Rosemary Nolan since 2012, is similar to other real estate financiers like Qualitas or Wingate except that it focuses only in the sub $10 million to $20 million bracket.

“Certainty of funding and speed of turnaround [is our expertise]. This gives developers the ability to execute deals and focus on their core business. Our responsiveness is particularly relevant in the land subdivision market where projects range from nine to 15 months,” managing partner Josh Rowe said.

“The other major point of difference that Centaur has is that there are very few alternative lenders who can provide construction finance, particularly in the sub $10 million space.”

Focusing on the $10 million space is lucrative even if banks return to development lending, Mr Rowe said. “The sub $10 million market has always been poorly serviced by traditional lenders and this is our core market.”

Centaur said it mitigated lending risks by working in tandem with each developer throughout the life of a project. Each project loan has been individually considered, at loan-to-value ratios about 60 to 75 per cent.

About 90 per cent of Centaur’s loans were first mortgages and the rest in mezzanine loans. While the Centaur funds allowed up to 40 per cent in mezzanine loans, Centaur said there were “stronger risk-adjusted returns in the senior space”.

Centaur charges low double-digit interest rates for first mortgages with development approvals and sufficient presales.

“They have a good buffer,” Mr Turnbull said.

“The assets generated from each development more than cover the development loan issued.

“Centaur has consistently delivered strong returns for our fund in a low interest rate environment.”

Mid-tier developers GMR and Clearstate which focus on housing projects in growth areas such as Sydney’s north-west have used Centaur.

“Centaur is integral to our treasury strategy with an unsurpassed commercial approach underpinned by understanding of our needs and more importantly ensuring that our customers achieve their dreams of home ownership,” a Clearstate spokesperson said.

“To us what sets Centaur apart from other funders is the absolute honesty and commerciality of senior management, a fair cost of capital, ease of operation of the facility and the certainty that when theunexpected occurs, that we always have their decisive support,” GMR managing director Kim Ni said.

Other well-known players in the growing private or alternative lending space include Balmain Capital and Chifley Securities.

Large superannuation funds aren’t the only ones dabbling in the housing market, self-managed superannuation funds are also amassing real estate investments directly and by investing in real estate unit trust platforms like BrickX.

About 10 per cent of its investors are now SMSFs, the group said.

Read more: http://www.afr.com/real-estate/superannuation-funds-back-centaur-residential-lending-20170306-gurh3f#ixzz4cl2yTi1A
Follow us: @FinancialReview on Twitter | financialreview on Facebook



Leave a Reply