Harnessing disruption in commercial lending
The time is ripe for brokers to take advantage of opportunities in the commercial lending market, which is seeing steady growth and has the potential for much more
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COMMERCIAL LENDING is often seen as countercyclical to the residential market due to its diversity and the different cycles of the products involved.
Disruptive factors such as inflation, higher rates, consumer uncertainty and supply chain issues impact commercial in different ways to residential, but the underlying message from non-bank lenders is that the best opportunities in such an environment lie in non-traditional options.
“We expect private lending to continue to flourish as the [commercial] sector offsets the tightened credit appetite of traditional lenders,” says Aquamore head of distribution Matthew Porch.
Like in overseas markets, particularly the US, Porch expects major banks in Australia to batten down the hatches and focus on residential, driving commercial opportunities to alternative lenders.
“The corresponding opportunities for brokers are to be in tune with market movements and become familiar with alternative commercial finance providers,” he says.
Cory Bannister, chief lending officer at La Trobe Financial, explains why more commercial clients are likely to shift to non-banks as turbulence increases.
“A rising interest rate environment can often cause headaches for commercial borrowers, particularly if they have ongoing review clauses and covenants attached to their loans, a common feature of commercial loans provided by the major lenders,” he says.
“Each year, and in some cases more regularly, key commercial loan ratios are reviewed for compliance.”
Other sectors face headwinds.
“Hospitality is expected to fall as the cost of living continues to rise and discretionary income continues to be squeezed. Similarly, retail is being squeezed by online sales and is expected to keep falling, which will also be compounded by the lack of discretionary income,” says Porch.
“Construction has been hard hit by supply-demand pressures and labour shortages. Many projects are starting to struggle, and those well managed with sufficient cash reserves and cash flow management are in a more stable position to survive.”
Some expect construction to recover quickly if the conditions allow. “We expect the construction sector to pick up, particularly once the official cash rate reaches its terminal level and consumers regain confidence in the market,” Bannister says.
Other non-banks report the same trend away from restrictive terms and towards simpler lending options.
Thinktank loans allow refinancing to 30-year terms, which can reduce monthly loan repayments and improve cash flow. “This overcomes the restriction of those commercial property loans that have been limited to a short amortisation period that matches or is less than the WAULT [weighted average unexpired lease term] or WALE [weighted average lease expiry] associated with the related security property,” says the non-bank's general manager partnerships and distribution, Peter Vala.
Thinktank is seeing a similar lift in refinancing of existing commercial loans to more flexible set-and-forget facilities as borrowers seek certainty and peace of mind.
“[This is] even more so if the borrower’s current loan might be short-term, subject to annual reviews or covenant compliance measures,” Vala says.
“There are already strong signs the commercial property market is positioned for growth,” says Pepper Money’s general manager for mortgages and commercial lending, Barry Saoud.
Drilling down into various sectors reveals a mixed bag of fortunes.
“Demand for warehouse and logistics property continues to be strong, with no let-up in the demand for longer-term financing solutions,” Vala says.
More operators are looking to increase onshore production capacity to boost resilience against supply chain weakness revealed by the pandemic, and there’s been an immediate uplift in demand for greater storage space to maintain higher levels of inventory.
“Wholesalers are increasingly turning to domestic production to offset offshore supply-chain lags,” says Porch.
“Mining is always steady, especially with lithium remaining in high demand. Tourism appears to be steady, despite steep airfares deterring some travellers.”
Aquamore is an established private lender that provides commercial finance to SMEs, property developers and investors. Launched in 2016, Aquamore provides institutionally backed property-secured commercial loans (business and property), bridging loans and land bridging finance. The group has no industry or postcode restrictions and will consider credit-impaired borrowers. The company distributes exclusively through brokers and has a suite of Full Doc, Lite Doc, Low Doc and No Doc options. Aquamore is renowned for delivering quick, competitive and flexible lending solutions to support business growth nationwide.
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Thinktank is an independent non-bank financial institution specialising in the provision of commercial-property mortgage finance of up to $4m and residential-property mortgage finance of up to $2m in the Australian self-employed, PAYG and SME sectors. Since 2006, Thinktank has provided over $6.5bn worth of commercial, residential and SMSF lending solutions, which have enabled thousands of borrowers to achieve their goals of acquisition, refinancing and equity release. Thinktank offers a range of lending solutions, including Full Doc, Mid Doc (Alternate Income Verification), Quick Doc and SMSF loans.
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Refinancing, negotiating with the current lender and planning exit strategies are all part of the cycle ripe for brokers to expand their businesses.
“With interest rates in an upward cycle, borrowers will want to plan ahead,” says Dean Koutsoumidis, managing director at Equity-One. “There are opportunities to restructure their debt, and this can take many forms.”
With residential markets ebbing, more brokers are looking to commercial for opportunities to help smooth the chop. Brokers who are tuned into their clients’ current and emerging requirements, as well as the alternative commercial finance sector, will be well placed to harness the current disruptive environment.
Cory Bannister
La Trobe Financial
Industry experts
Cory Bannister is senior vice president and chief lending officer at La Trobe Financial. He has a rich understanding of both the loan origination process via the third party channel, as well as the approval and settlement of institutional and retail loans. Bannister’s portfolio management experience extends to the selection and allocation of assets for multiple wholesale mortgage portfolios in excess of $1bn. He has been responsible for the management, review, risk profiling and audit of wholesale asset pools, and has had conduct of the relationships with substantial wholesale and retail investors, with responsibility for overseeing related reporting.
La Trobe Financial
Cory Bannister
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Cory Bannister
La Trobe Financial
Matthew Porch
Aquamore
Industry experts
Cory Bannister is senior vice president and chief lending officer at La Trobe Financial. He has a rich understanding of both the loan origination process via the third party channel, as well as the approval and settlement of institutional and retail loans. Bannister’s portfolio management experience extends to the selection and allocation of assets for multiple wholesale mortgage portfolios in excess of $1bn. He has been responsible for the management, review, risk profiling and audit of wholesale asset pools, and has had conduct of the relationships with substantial wholesale and retail investors, with responsibility for overseeing related reporting.
La Trobe Financial
Cory Bannister
Equity-One managing director Dean Koutsoumidis has worked in the financial services profession for 30 years. Having commenced his career in financial planning, Koutsoumidis ventured into commercial finance broking in 1992. The synergies of the wealth management and commercial lending sectors led him to found Equity-One, a managed investment scheme managing over $1.7bn in transactions since inception.
Equity-One
Dean Koutsoumidis
Brokers stand to gain from this dynamic as borrowers look to the less rigid options available at non-banks for financing commercial property.
La Trobe Financial is seeing an uptick in this type of business of late. “We are finding an increasing number of brokers turning to us for assistance for ‘set and forget’ commercial property loans, particularly as our maximum loan size of $25m means we are one of a few non-bank lenders able to stretch to assist blue-chip commercial property owners,” Bannister says.
Cory Bannister
La Trobe Financial
Industry experts
“Demand for warehouse and logistics property continues to be strong, with no let-up in the demand for longer-term financing solutions”
Peter Vala, Thinktank
This can include a revaluation of the property to test the LVR threshold, reviewing the interest cover ratio to ensure the approved ratio is maintained, or assessing the borrower’s debt-to-income position, to name a few.
“All of these tests are likely to come under pressure in the current economic environment, which may mean commercial borrowers will need to seek alternatives,” says Bannister.
Economic sentiment is shaky of late. The Westpac-Melbourne Institute Consumer Sentiment Index rose in January this year but fell in February and March to near-historic lows of 78.5. Regardless of pundits attempting to call the bottom, sentiment remains well below the neutral level of 100.
Against this background, the latest Thinktank monthly market snapshots continue to show commercial property markets remaining stable in 2023, with industrial property in various locations demonstrating strong outperformance. And MFAA data shows the value of commercial loans settled by mortgage brokers hit a record figure of $16bn for the October 2021 to March 2022 period, up 55% year-on-year.
Cory Bannister is senior vice president and chief lending officer at La Trobe Financial. He has a rich understanding of both the loan origination process via the third party channel, as well as the approval and settlement of institutional and retail loans. Bannister’s portfolio management experience extends to the selection and allocation of assets for multiple wholesale mortgage portfolios in excess of $1bn. He has been responsible for the management, review, risk profiling and audit of wholesale asset pools, and has had conduct of the relationships with substantial wholesale and retail investors, with responsibility for overseeing related reporting.
La Trobe Financial
Cory Bannister
Dean Koutsoumidis
Equity-One
Equity-One managing director Dean Koutsoumidis has worked in the financial services profession for 30 years. Having commenced his career in financial planning, Koutsoumidis ventured into commercial finance broking in 1992. The synergies of the wealth management and commercial lending sectors led him to found Equity-One, a managed investment scheme managing over $1.7bn in transactions since inception.
Equity-One
Dean Koutsoumidis
Dean Koutsoumidis
Equity-One
Equity-One managing director Dean Koutsoumidis has worked in the financial services profession for 30 years. Having commenced his career in financial planning, Koutsoumidis ventured into commercial finance broking in 1992. The synergies of the wealth management and commercial lending sectors led him to found Equity-One, a managed investment scheme managing over $1.7bn in transactions since inception.
Equity-One
Dean Koutsoumidis
Barry Saoud joined Pepper Money in July 2021 as general manager, mortgages and commercial lending and is responsible for its strategic direction and operating performance across product, credit and settlements sales functions for Australia and New Zealand mortgages, commercial loans, personal loans and direct sales. With over two decades’ experience in financial services, Saoud has worked in numerous areas across legal, company secretary, sales and product management roles with the likes of Aussie Home Loans, GE Capital, HSBC and Norton Rose Fulbright. Saoud is a passionate leader with proven ability to grow businesses and exceed targets through innovative strategy and effective execution.
Pepper Money
Barry Saoud
Peter Vala has extensive experience in residential, commercial and development finance. He specialises in strategic implementation, leads the Thinktank relationship manager team, and works closely with brokers and aggregators.
Thinktank
Peter Vala
John Mohnacheff is Liberty's ebullient and charismatic group sales manager. With over 30 years of insurance, banking and finance experience, he is committed to improving the sales habits and disciplines of the entire group sales team. Before joining Liberty, Mohnacheff held executive roles at Westpac and Bank of Melbourne. He has a Bachelor of Business and a Marketing Master’s from the University of New England, and a Postgraduate Diploma in Organisational Behaviour from the University of NSW.
Liberty
John Mohnacheff
“A rising interest rate environment can often cause headaches for commercial borrowers, particularly if they have ongoing review clauses and covenants attached to their loans”
Cory Bannister, La Trobe Financial
The attraction of non-banks
It’s the economy, stupid
The attraction of non-banks
It's the economy, stupid
Published 03 Apr 2023
Dean Koutsoumidis
Equity-One
Barry Saoud
Pepper Money
Peter Vala
Thinktank
Matthew Porch is a financial services professional with extensive experience in the banking industry. He held corporate banking positions at Lloyds Banking Group and HSBC in the UK, then joined the ANZ corporate banking division in a credit role in Australia before becoming a relationship manager in small business lending. After a short stint as a finance broker, Porch joined Aquamore as a national sales manager and is now head of distribution. He has a Master’s in Applied Finance, as well as qualifications from the Chartered Institute of Bankers in Scotland and the Chartered Institute of Securities and Investment in London.
Aquamore
Matthew Porch
Barry Saoud joined Pepper Money in July 2021 as general manager, mortgages and commercial lending and is responsible for its strategic direction and operating performance across product, credit and settlements sales functions for Australia and New Zealand mortgages, commercial loans, personal loans and direct sales. With over two decades’ experience in financial services, Saoud has held numerous roles across areas ranging from legal to company secretary, sales and product management at the likes of Aussie (Home Loans), GE Capital, HSBC and Norton Rose Fulbright. He is a passionate leader with proven ability to grow businesses and exceed targets through innovative strategy and effective execution.
Pepper Money
Barry Saoud
Peter Vala has extensive experience in residential, commercial and development finance. As general manager partnerships and distribution at Thinktank, he specialises in strategic implementation, leads the non-bank's relationship manager team and works closely with brokers and aggregators.
Thinktank
Peter Vala
$BN
0.9
0.6
0.3
0
Mar
Apr
May
Jun
Jul
Source: Reserve Bank of Australia Bank Lending Classified by Sector – D5 data, Feb 2022
2021
2022
+7.9%
+8.3%
+9.9%
+11.2%
+11.8%
+11.3%
Steady year-on-year growth in value of commercial lending
1.2
1.5
$1.017
$1.098
$1.118
$1.032
$1.129
$1.028
$1.142
$1.027
$1.161
$1.039
$1.166
$1.048
Feb
$1.209
$1.089
$1.207
$1.083
$1.210
$1.074
$1.200
$1.061
$1.195
$1.059
$1.178
$1.052
Aug
Sep
Oct
Nov
Dec
Jan
YoY change
+12.1%
+12.8%
+11.3%
+12.6%
+11.4%
+11.1%
As one of Australia’s leading credit asset managers specialising in asset management and credit, La Trobe Financial is committed to making a positive impact on its community. With seven decades of proven credit management behind it, La Trobe Financial has funded over $36bn of investment for more than 229,000 customers. Its investors include large global institutions, Australia’s major banks, family offices, fund managers and 55,000 everyday investors in its award-winning credit fund. La Trobe Financial is driven by one cause – to place “others before self” and make a positive impact by helping people create wealth with specialist and investment solutions.
Find out more
Matthew Porch, Aquamore
“We expect private lending to continue to flourish as the [commercial] sector offsets the tightened credit appetite of traditional lenders”
Getting to know the granular detail of various sectors is part of a broker’s job, enabling them to meet a client’s current needs and anticipate future ones, Saoud points out.
“What type of commercial property does your client want?” he says. “Is it a shop, office, industrial warehouse or something purpose-built such as a childcare centre or a service station? Is this an existing business, and if so, what’s happening around the business? What are they looking at in terms of expansion?”
While there are a lot of spinning plates when it comes to commercial property, this is no reason for brokers to avoid the area – in fact, quite the opposite. The overall number of brokers writing commercial loans in addition to one other type of loan is rising but still under 30%, according to the MFAA.
More opportunities likely in commercial
Brokers taking growing share
of commercial market
Number of mortgage brokers also writing commercial loans
2023
6 months to Mar 2018
Number of brokers
Year-on-year change
Proportion of total broker population
6 months to Mar 2019
3,668
3,481
6 months to Mar 2020
4,486
4,727
6 months to Mar 2021
5,396
6 months to Mar 2022
+38.6%
-5.1%
+28.9%
+5.4%
+14.2%
21.9%
20.1%
27.4%
27.8%
29.0%
It’s also well known that the broker share of the commercial lending market is much lower than their share of new loans for residential, at 38% versus over 70% respectively. This underrepresentation is ripe for change.
“We believe the next two years could provide brokers with an opportunity to make significant inroads in rebalancing this ratio, and it’s likely to require the assistance of non-bank lenders,” Bannister says.
Brokers have a chance to diversify away from overreliance on residential. “There’s a lot of opportunity for brokers who do want to step it up, expand their knowledge in the commercial lending space and diversify their business and income streams,” Saoud says.
Source: MFAA
Pepper Money has made changes to amplify the business opportunities available. “In addition to removing clawbacks on commercial mortgage loans, we’re also expanding our ability to fund commercial properties across Australia, including non-metropolitan and regional areas.”
These opportunities will allow brokers to really appreciate what makes the wider economy tick, because the intensity of the broker–client nexus is higher with commercial, leading to deeper relationships and a stronger bond.
“Commercial contracts tend to have shorter terms than consumer loans, so the contact between broker and client is higher – there are more touchpoints for brokers to capitalise on,” Koutsoumidis says.
Dean Koutsoumidis, Equity-One
“We are unashamedly traditional when it comes to how we support our brokers. We simply are available for them any time”
Commercial is probably easier than it used to be. Technology has progressed quickly in the finance sector during the pandemic, with most processes now digital.
“Borrowers can physically be anywhere and still be able to execute documentation for their loan,” Koutsoumidis says.
Even so, people remain central to helping brokers navigate areas like commercial lending.
“We are unashamedly traditional when it comes to how we support our brokers. We simply are available for them any time,” he says. “The best remedy is to have a chat, and we use that opportunity to help our brokers become fully adept in the transaction they are participating in – it’s not rocket science.”
Changing the idea that commercial is complex
Equity-One is a managed investment fund (MIS) specialising in commercial lending to SMEs and investment management for retail and wholesale investors. The company began operations in 1996 and became an MIS in 2006. To date, it has successfully procured and managed over $1.7bn in transactions.
Find out more
Pepper Money is focused on countering the image that commercial is a tricky area. “We are laser focused on developing broker confidence working in commercial lending,” says Saoud. “We realise the way to achieve this is to make commercial lending as accessible as possible, which is why we’re investing in support, education and tools to make the product easy for brokers and their clients.”
The perception of commercial as difficult to understand is slowly changing as a result. “As more and more mortgage brokers turn to commercial lending, word is spreading that it’s not as difficult to do as some brokers think. In fact, it’s as simple as doing a home loan – or even simpler,” he says.
“Essentially, all brokers are doing is moving money, and all that changes is the security. If a mortgage broker could gather the information for a home loan from a self-employed customer, they would find commercial lending not that different.”
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Saoud has come across quite a lot of brokers who deal with commercial exclusively and think the residential market looks time-consuming and complicated.
“It goes to show that the only obstacle is flawed perceptions, but when we unlock a new level of confidence with commercial lending, we open up new opportunities for brokers,” he says. “It’s about helping the broker realise what they are capable of doing.”
Education can be as informal as a chat with a non-bank BDM. “We do sessions on real-life case studies, and even a simple ‘coffee with credit’ – having a coffee with our credit managers and talking about how they look at a transaction,” Saoud says.
Education is key to success
Barry Saoud, Pepper Money
“As more and more mortgage brokers turn to commercial lending, word is spreading that it’s not as difficult to do as some brokers think”
Thinktank offers a range of face-to-face education sessions designed to empower brokers to branch into new areas such as commercial. Relationship managers (RMs) support brokers with transactions from inception to settlement.
“It’s why there are no minimum volume or experience requirements to commercial loans with Thinktank, as our RMs are there alongside the broker every step of the way,” says Vala.
Many alternative lenders host regular education workshops and seminars to upskill brokers on commercial lending. “This includes how to spot opportunities, along with helping implement strategies brokers can implement to support their client base – which was the genesis of the Commercial Market Update live webinar held on March 24 in collaboration with Lumi, Accendo Financial and VeloxCapital,” Porch says.
Pepper Money is one of Australia and New Zealand’s leading non-bank lenders. Established in 2000, Pepper Money first launched as a specialist residential home loan lender in Australia with a focus on providing innovative home loan solutions to customers who were being underserved by traditional lenders. Today, Pepper Money has a broad product offering of residential home loans, personal loans, asset finance, novated leases and commercial real estate loans across Australia and New Zealand.
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Developing links to the commercial sector through networking is also a good strategy.
“We are proud that most of our work comes from word of mouth, so keeping the conversation going with our network is key,” Koutsoumidis says. “We help our brokers walk through the transaction and try to deal with obstacles before they crystallise.”
As major banks continue to offer less-flexible products in a tougher economy, demand for knowledge and service in the non-bank commercial lending arena is only likely to grow.
“Who better to help navigate that transition than brokers?” Bannister asks. “This is where we see significant opportunity in the years ahead.”
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Matthew Porch
Aquamore
Peter Vala
Thinktank
Barry Saoud
Pepper Money
Aug-Jan
Feb-Jul
2021
2022
2023
YoY change
Matthew Porch is a financial services professional with extensive experience in the banking industry. He held corporate banking positions at Lloyds Banking Group and HSBC in the UK, then joined the ANZ corporate banking division in a credit role in Australia before becoming a relationship manager in small business lending. After a short stint as a finance broker, Porch joined Aquamore as a national sales manager and is now head of distribution. He has a Master’s in Applied Finance, as well as qualifications from the Chartered Institute of Bankers in Scotland and the Chartered Institute of Securities and Investment in London.
Aquamore
Matthew Porch
Barry Saoud joined Pepper Money in July 2021 as general manager, mortgages and commercial lending and is responsible for its strategic direction and operating performance across product, credit and settlements sales functions for Australia and New Zealand mortgages, commercial loans, personal loans and direct sales. With over two decades’ experience in financial services, Saoud has held numerous roles across areas ranging from legal to company secretary, sales and product management at the likes of Aussie (Home Loans), GE Capital, HSBC and Norton Rose Fulbright. He is a passionate leader with proven ability to grow businesses and exceed targets through innovative strategy and effective execution.
Pepper Money
Barry Saoud
Peter Vala has extensive experience in residential, commercial and development finance. As general manager partnerships and distribution at Thinktank, he specialises in strategic implementation, leads the non-bank's relationship manager team and works closely with brokers and aggregator
Thinktank
Peter Vala
Thinktank is an independent non-bank financial institution specialising in the provision of commercial-property mortgage finance of up to $4m and residential-property mortgage finance of up to $2m in the Australian self-employed, PAYG and SME sectors. Since 2006, Thinktank has provided over $6.5bn worth of commercial, residential and SMSF lending solutions, which have enabled thousands of borrowers to achieve their goals of acquisition, refinancing and equity release. Thinktank offers a range of lending solutions, including Full Doc, Mid Doc (Alternate Income Verification), Quick Doc and SMSF loans.
Find out more
Matthew Porch
Aquamore
Barry Saoud
Pepper Money
Peter Vala
Thinktank
Matthew Porch is a financial services professional with extensive experience in the banking industry. He held corporate banking positions at Lloyds Banking Group and HSBC in the UK, then joined the ANZ corporate banking division in a credit role in Australia before becoming a relationship manager in small business lending. After a short stint as a finance broker, Porch joined Aquamore as a national sales manager and is now head of distribution. He has a Master’s in Applied Finance, as well as qualifications from the Chartered Institute of Bankers in Scotland and the Chartered Institute of Securities and Investment in London.
Aquamore
Matthew Porch
Peter Vala has extensive experience in residential, commercial and development finance. As general manager partnerships and distribution at Thinktank, he specialises in strategic implementation, leads the non-bank's relationship manager team and works closely with brokers and aggregators.
Thinktank
Peter Vala
Barry Saoud joined Pepper Money in July 2021 as general manager, mortgages and commercial lending and is responsible for its strategic direction and operating performance across product, credit and settlements sales functions for Australia and New Zealand mortgages, commercial loans, personal loans and direct sales. With over two decades’ experience in financial services, Saoud has held numerous roles across areas ranging from legal to company secretary, sales and product management at the likes of Aussie (Home Loans), GE Capital, HSBC and Norton Rose Fulbright. He is a passionate leader with proven ability to grow businesses and exceed targets through innovative strategy and effective execution.
Pepper Money
Barry Saoud