Banking sector structures and regulatory intervention over the past 10 years have created a funding gap as the major banks have been unable to meet the needs of quality borrowers.

The major banks tend to have more rigid lending criteria due to:

1. Australian Prudential Regulation Authority (APRA) regulation that restricts their ability to provide flexibility on their loan terms, and therefore may not always be able to meet a borrower’s specific requirements.
2. Basel III regulatory framework reforms (which required banks to maintain certain leverage ratios and keep certain levels of reserve capital on hand). This resulted in Australian major banks withdrawing further from commercial real estate (CRE) debt as they focused on other parts of their funding operations (e.g. residential mortgages). Whilst major banks are still funding CRE transactions, it has been far more suppressed and on more restrictive terms.

This tightening by major banks means quality bank clients are seeking alternative funding solutions as they require offer more flexible lending criteria, faster turnaround times, and bespoke solutions.

At Zagga, we pride ourselves on our ability to provide tailored solutions to meet the unique needs of each borrower and deliver a commercial, flexible, and responsive outcome, whilst always maintaining our rigorous and thorough assessment of the loan.

Download our Capability Statement here.

Market dynamics indicate that the Australian CRED market is on a growth trajectory. The Australian CRED market is estimated at $450bn and growing at c.2 – 5%p.a. underpinned by attractive fundamentals centred on urbanization and population expansion.

The two key driving forces behind Australian CRED growth are:

1. Further regulatory pressures on the major banks leading to structural dislocation in their lending capacity and practices. This is projected to reduce major banks’ share of CRED from the current ~80% to ~60% by 2025 due to their inability to provide best service to their clients.
2. Population growth underpinning continued demand for housing as well as industrial growth as new, larger facilities are being built to accommodate the growth of e-commerce.

Zagga’s latest white paper explains how commercial real estate debt (CRED) can tap into the current market conditions.

Similar to our Investor base, our roster of Borrowers has grown steadily through personal relationships and word of mouth, with our track record allowing this to continue to occur organically.

Over 40% of Zagga’s loans come from repeat borrowers.

Zagga may also originate loans from commercial brokers, accountants, lawyers, quantity surveyors, and consultants within the property industry.

Each loan we fund is supported by a clear and achievable ‘exit strategy’, typically including at least one or two alternative exits.

Given the largest allocation of our portfolio relates to residential construction, a number of our facilities are self-liquidating, meaning at completion we are either cleared by sales on the project, or a refinance from a major banking institution.

In other circumstances, the loan may have a clear exit strategy in place, such as, a cash event from an external matter, or an uplift in planning due to development approval that takes out our facility.

We always want to ensure we are working on worst case scenarios in order to be comfortable going into any new transactions.