Navigating Commercial Real Estate Debt

How reputable finance brokers select the right investment managers for their clients in times of uncertainty

In the Commercial Real Estate Debt (CRED) sector, stakeholders grapple with myriad challenges. Addressing these concerns, a recent panel discussion hosted by Zagga and moderated by Tom Cranfield, Zagga’s Director of Investments, delved into the pivotal role of investment managers in guiding investors, borrowers, and finance brokers through these issues. Industry experts – Jean-Pierre (JP) Gortan, Managing Director of Simplicity Loans & Advisory, Bill Moskovich from Stamford Capital, and Chris Hall, Founder of Blue Crane Capital – representing top Australian finance brokerage firms, shared invaluable insights into navigating the non-bank lending landscape, especially during periods of economic uncertainty.

Challenges in the current economic climate

The escalating impact of rising interest rates has rendered once straightforward deals increasingly challenging to secure. JP highlighted the growing difficulty in meeting Interest Cover Ratio (ICR) models, foretelling more hurdles ahead. This backdrop underscores the critical need for astute decision-making in selecting investment managers.

Bill emphasised the conundrum developers face, with traditional banks adopting heightened conservatism, pushing borrower clients towards non-bank lenders like Zagga.

Chris echoed this sentiment, pointing out the substantial movement in the cash rate over the past 12 to 18 months, which has affected the borrowing capacity of retail businesses, although its full market impact is yet to be realized.

The panellists reflected on the market’s evolution over the last five years, witnessing a shift from a bank-dominated landscape to a more diverse arena with numerous non-bank players. Predictions were made for a continued shift towards a market resembling the US, where non-bank lenders claim a substantial market-share. Initial hesitations towards non-bank solutions among clients have evolved into greater acceptance, driven by the benefits of speed, transparency, and flexibility.

Strategies for capital preservation

The unanimous agreement among the panellists underscored the criticality of selecting the right assets. JP stressed the need for borrower adaptability, citing non-bank lenders’ role in offering flexible solutions. Providing various options allows clients to self-select based on their preferences and needs, as outlined by JP.

Bill highlighted the non-bank space as an avenue for developers to optimize returns by focusing on return on equity and holding costs.

Educating clients early in the process emerged as a pivotal strategy, according to Chris.

Experience, robust sponsor relationships, and a disciplined approach to deal selection were highlighted as paramount in this process.

Key criteria for selecting investment managers

The panellists emphasised relationships, consistent service, and a track record of successful deliveries as fundamental criteria when choosing investment managers from a growing pool of providers. Dealing with new entrants lacking requisite experience posed challenges, further emphasising the importance of trust in the lender-introducer-borrower relationship.

Drawing from their experiences, the panellists discussed common pitfalls and red flags detrimental to relationships. Instances of poor communication and process inefficiencies were highlighted, emphasising the significance of lenders with a reputation for consistent delivery and transparency.

Partnership and trust: Zagga's approach

Tom underscored Zagga’s commitment to comprehensive analysis and transparent communication with investors, introducers, and borrowers. The emphasis lies on the quality of the book and a profound understanding of assets and sponsors.

Takeaways for success in an evolving market

The panel highlighted the pivotal role of investment managers in offering tailored solutions amidst an evolving landscape. Strategic decision-making, informed by insights from industry experts, emphasises the centrality of relationships, consistency, and transparency in nurturing successful partnerships. Collaboration between finance brokers, investors, and reputable investment managers emerges as essential for optimal outcomes in a transforming market landscape.

Why Zagga?

PARTNERSHIP

We treat our borrowers, investors and service providers as partners in our business.

TRUST

We operate with an ‘investor first’ approach and will not compromise credit quality over increased return.

RELATIONSHIP

We intrinsically understand that sustainable business requires long-term relationships.

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This article is for information purposes only. It does not take into account your objectives, financial situation or needs. Any opinion expressed in this article are of the author and is subject to change without notice. Readers are reminded to exercise caution and use their own judgment when interpreting and applying the information contained in this article.

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