The risks associated with funding well-located, boutique apartment projects have not increased in the current down cycle, according to the chief executive of Liberman family-backed real estate financier Monark Property Partners.
Left to right: Adam Slade-Jacobson - Chief Investment Officer, Justin Liberman - Director, Michael Kark - Chief Executive Officer.
“Is it more riskier then usual? No, I don’t think so, because the fundamentals are still strong,” said Monark boss Michael Kark, after the non-bank lender secured an additional $60 million from wealthy investors to lend to developers.
“The overarching driver for property is immigration,” said Mr Kark who forecast the property market to start to strengthen again in the next 12 to 18 months.
“The reason I am so optimistic is that the basics are still there: strong net immigration, interest rates are low and unemployment is low. These are all factors that support a strong property market,” he said.
The new $60 million in senior debt funding, secured through a new rights issue, has grown Monark’s Secured Debt Co-Investment Fund to $200 million of funds under management.
Monark, a joint venture between Mr Kark, co-founder Adam Slade-Jacobson and the Boris Liberman family office, Jagen Pty, contributed $30 million in fresh capital with another $30 million secured from cornerstone investors.
With lower-risk senior debt and net returns offered of between 8 per cent and 10 per cent, the latest offering was oversubscribed by 20 per cent.
The fresh funding injection will be lent to select developers of boutique projects of between 30 and 100 apartments in “high-demand locations” that cannot secure bank funding because of insufficient pre-sales, a market segment targeted by an ever-growing pool of non-bank lenders.
“Sales rates on projects that are pre-selling are right down so its a lot harder for developers to procure sufficient pre-sales and the banks are more reticent to fund them,” said Mr Kark.
“We see an amazing opportunity to fund developers with lower pre-sales,” he said.
Alongside Monark, various branches of the Liberman family – one of the country’s richest with a net worth of more than $2.5 billion – have tapped into the bank funding gap through a number of non-bank financiers they back that specialise in real estate.
They include Impact Investment Group, founded by Danny Almagor and his wife Berry Liberman, CVS Lane Capital Partners established with the support of the Josh Liberman Investment Group and Merricks Capital backed by Boris Liberman’s Jagen in 2013, has deployed the first $100 million raised in 2017 across about 15 projects.
It will offer its fresh $60 million of funding to development projects of between $15 million and $30 million with an average loan size of $20 million to $25 million.
Mr Kark said the funding would help a developer settle a site by providing them with a senior debt facility (secured against a first mortgage) at a higher loan-to-value (LVR) ratio then offered by the banks.
This, he said would allow the developer to get their plan approved and secure pre-sales. Monark will then provide constructing funding as well.
“We’ll get a project going with a lot lower pre-sales by taking a view on the value of the end product,” Mr Kark said.
“The reason we’re so deep in this strategy, is that it responds to a real need among owners and renters. [Housing] product is always in demand in the inner ring [suburbs],” he said.