AFR – Property lenders tout pandemic collaboration

Published with the permission of The Australian Financial Review.

Jonathan Shapiro
Senior Reporter
Sep 22, 2020 – 5.20pm

Property lenders say they have no intention of sitting on their hands as the sector emerges from the depths of the COVID-19 crisis and touted their role in providing credit to worthy lenders as vital to the economic recovery.

With a heightened degree of uncertainty about the state of the economy, the value of underlying properties and the true health of tenants, there are questions as to why lenders would be willing to extend funds to new borrowers.

But Wayne Lasky, the managing director of non-bank lender MaxCap, said the lesson from the global financial crisis was that lenders that can support credit-worthy borrowers would be rewarded.

“It is absolutely vital to the Australian economy that lenders encourage the seamless transition of credit to creditworthy transactions,” he told The Australian Financial Review Property Summit.

“You can’t be a fair-weather lender and pick and choose when you come in and out of the market. If you are operating with equanimity through the crisis there is a lot of opportunity,” he said.

Commonwealth Bank’s general manager of property and construction finance Michael Bennett told the Summit the bank was prepared to lend money to the right clients.

“We will be selective on the asset classes we want to lend to, and have some views around uncertainty in some asset classes and asset sub-sectors.

“We are retaining that long-term view on office and industrial [property] and we can find a good residential development project to lend to, we will step in to that as well.”

Mr Bennett said the bank had no intention of repricing existing loans in its back-book unless circumstances had changed significantly.

“If the credit quality changes or the risk rate changes there will have to be an inevitable pricing change. But if nothing changes and our funding markets remain stable we wouldn’t be overtly repricing the back book,” he said.

Valuation game

As lenders and borrowers come to terms with the enormous effect of the COVID-19 pandemic one of the more interesting aspects across all sectors of the market is valuations.

One challenge has been a shortage of transactions. That has complicated the task of updating valuations.

There are concerns that if property valuations were reset, borrowers could find themselves in breach of loan to valuation covenants that require the property to be of a certain value relative to the outstanding debt.

There is a valuation moratorium in place until March.

Gilbert and Tobin’s special counsel Nicola Clayton said there is a spirit of collaboration between lenders and borrowers in this regard.

“What we have seen which is quite interesting, and is quite different also in the GFC, is that lenders haven’t relied on the provisions in their loan agreements which allowed them to call a valuation.”

“You are seeing lenders deferring obligations to provide valuations so that we don’t have a situation where borrowers end up in breach [of lending terms].”

Rise of non-banks

She said there was an enormous amount of financial and regulatory support which had helped the sector through the pandemic.

“It will be interesting to see certainly next year whether there is any sort of crisis, but hopefully not.”

Mr Lasky is one of the most prominent non-bank lenders in the property sector and has attracted funds from institutions, including superannuation funds, and high net worth investors. He said more institutions were prepared to invest in the property debt sector.

“There is a huge amount of demand for the large pension and super funds that have a lot of capital.

“Most of the world’s savers have been punished and been forced to take on more risk to eke out a reasonable return.”