Pallas nails down $185m construction warehouse facility with big bank
A $7 billion non-bank commercial real estate lender that has backed some of Sydney’s eastern suburbs’ largest residential property developments is eager to get new projects out of the ground with a fresh funding pool.
Street Talk can reveal Pallas Capital has inked a $185 million construction warehouse facility with a leading Australian bank.
The terms of the facility allow Pallas to internally assess and approve construction loans up to a threshold without having to go through the painstaking process of seeking bank approval. This should give Pallas a leg-up in the sector, getting its funds quickly into the hands of developers.
The agreement will also allow Pallas to blend project funding from its new institutional warehouse facility with funds raised from private investors, lowering its overall cost of capital.
While many in the non-bank real estate sector focus on land bank facilities for future development sites and residual stock loans for completed projects awaiting sale – demand for construction loans from the non-bank sector has grown alongside the growing demand for housing and the retreat of Australian banks from the sector.
Funding has been harder to come by as developers grapple with higher interest rates and increasing construction costs, challenging project feasibilities and leaving them on hold.
“In an increasingly complex and challenging environment, the launch of this construction facility represents a major step forward in ensuring developers have the capital they need to bring projects to life,” Pallas chief investment officer Dan Gallen said.
The new facility represents Pallas’ sixth institutional warehouse, but this is the first one that will be used to fund construction loans. Previous loans, typically between $2 million and $50 million, were funded by monies managed by Pallas on behalf of its private investors.
The announcement comes months after Goldman Sachs closed a deal to refinance Pallas Capital’s $500 million Pallas Funding Trust No. 2.
Pallas has just recorded its most active quarter, finalising $807 million in new loan settlements in the December quarter. To date, the firm has settled 949 loans totalling $7 billion across Australia and New Zealand. Construction lending comprises over 40 per cent of its current $2.7 billion total loan book.
