As post-pandemic upset looms in the national market, the share of debt with non-bank lenders is predicted to surge in coming years, potentially becoming a critical component in new ownership structures.
Analysis by consultancy firm Plan1 pits the market share of commercial real estate under non-bank lenders to reach $50bn by 2024, driven by pending regulation and a desire in the big four banks to reduce exposure to riskier asset classes, such as hotels and shopping centres.
The four previously controlled around 85 per cent of the commercial market, but their share has shrunk to a little over 70 per cent in response to the Banking Royal Commission and tightening regulation, particularly higher capital holding requirements to mitigate against failure.
This change in policy is expected to continue in coming years, likely reducing market share of the big four to the region of 65 per cent, with their focus instead falling on prime assets funded at low leverage levels.
It is thought non-bank lenders (NBLs) will primarily pick up the difference.
PubTIC spoke to Waratah Debt Capital (WDC) – the first non-bank lender to focus exclusively on the pub industry. The company arises from the expertise of Waratah Hotel Management, with a stable of ten pubs, and career hotel specialist Mark Anyon.
“There is a lot of activity in the non-bank lending market,” offers Anyon, who was previously hotels with CBA and Westpac.
WDC is exploring sector-specific financing arrangements in areas such as financing management and partnership buy-outs, funding tenants into their own freeholds, optimising syndicates for greatest returns, and strategic capex, in renovation or gaming room optimisation.
Capital sources outside conventional banks can see financing costs or rates higher than the big banks, but typically incorporate greater levels of flexibility, such as in loan-to-value ratios and pre-sales requirements, and in a record low interest rate environment cost-benefit can be viewed in different terms.
“It’s more about opportunity cost,” suggests Anyon. “What’s it going to cost you if you have an additional JV partner in your syndicate?
“Or what’s it going to cost you if you don’t buy the freehold, and keep paying rent versus paying interest cost and benefitting from upside.”
NBLs are not subject to the same capital requirements as banks, and beyond their traditional family trusts and high net worth individual backers are being strengthened by institutional capital looking to the sector for returns currently not easily found elsewhere. Their flexibility is seen as a key aspect of their suitability to the pub market in dynamic conditions.