Unlocking equity for a major property investor

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How one skilled broker helped a large Melbourne-based property firm find a path to release equity from an investment and further expand its portfolio

GETTING A commercial property deal over the line can sometimes seem like a mountain to climb. One thing successful mountaineers have in common is knowing the terrain and using a strategy that takes into account the many variables that can impact an ascent. The route can be treacherous, filled with dead ends and false promises. It takes a skilled guide to navigate the optimal path to success, one that requires creativity as well as intimate knowledge of the client and the lending tools available. For Eddie Sretenovich, director of Sydney CBD-based broking firm Balmain, one such challenging ‘ascent’ arose when a long-term client approached him with a unique request. “The client had purchased a regional industrial property in Queensland in 2020 and had seen its value increase,” says Sretenovich. “They were looking to release some equity to reduce the gearing on a larger property that had recently been added to their portfolio.” The property in question was no small affair. Located in an industrial area just a two-hour drive from Brisbane, it boasted 68,000 sqm of floor space, including a large warehouse facility attached to an office. Originally purpose-built for an ASX-listed company, which remained a tenant, the property was producing annual rental returns in the millions of dollars. “In addition, when the subject loan was approved by the previous lender, it was established as one loan secured by numerous properties, including the Queensland distribution centre. After paying down a portion of the loan, the client was looking to refinance this property as a single asset.”

Uniting Financial Services (UFS) is a non-bank with a long history of working with brokers and providing competitive financing solutions for commercial property investors. Whether you are seeking finance for a commercial, retail, office, residential or industrial property, UFS is happy to discuss your client’s requirements. UFS offers fixed or variable rate commercial loans ranging from $500,000 to $10 million, with amounts outside this range considered on a case-by-case basis. Its activities are governed by ethical investment principles and the United Nations’ Sustainable Development Goals.

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Eddie Sretenovich, Balmain

Despite the property’s impressive credentials, securing finance proved to be a complex task. The main hurdle was the remaining lease term of the blue-chip tenant. “The challenge in obtaining finance was that the lease for the blue-chip tenant only had three years left to run,” Sretenovich explains. “As a result, when discussing the deal with the major banks, they were prepared to offer a loan-to-value ratio of 50–55%.” Given the client’s desire to maximise their borrowing, Sretenovich decided to look beyond traditional banking options. This decision led him to explore alternative lenders, leveraging Balmain’s extensive network and reputation in the industry.

Eddie Sretenovich, Balmain

Balmain’s size and scale, with over 400 staff, offices across the eastern seaboard and $9 billion in group commercial loans under management, provided Sretenovich with a diverse range of lending options. But as a specialist in large commercial, industrial and retail investment loans, along with development finance and complex structured lending solutions, Sretenovich often turns to trusted partners that he knows will be up to challenge. “Given our size and scale, we are accredited with a range of lenders, from the banks to the more boutique players. Yet while we deal with many lenders, there are some we always come back to when we have a more complex deal,” Sretenovich says. “One of these is Uniting Financial Services [UFS].” UFS, a non-bank lender with a strong ethical focus, has been a reliable partner for Balmain over the past 30 years. Its quick responses to broker enquiries and willingness to assess complex deals make UFS an ideal candidate for such a deal. Sretenovich’s confidence was not misplaced. His contact at UFS was proactive in helping Balmain find a solution that suited the client’s needs and timeline. “While the rates on offer from UFS were slightly higher than those of the major banks, they were prepared to assess the deal to see whether they would be able to offer a higher LVR.”

UFS took a comprehensive approach to assessing the property’s value and potential risks. “UFS looked at both the current market value of the property subject to the lease with the existing blue-chip tenant, and the vacant possession valuation,” Sretenovich explains. This thorough assessment led to a favourable outcome for the client. UFS agreed to provide a loan of $17.5 million, with quarterly amortisation over the three-year term. This structure allowed for a “full” finance term against the remaining lease term, with the LVR reducing from 58% of the current market value at the outset to 38% at the expiry date of the facility. “UFS also took into consideration the sizeable portfolio and track record of my client, a business which is a long-term investor in a range of commercial properties and has a history of adding significant value to its properties. This helped to offer comfort from a risk perspective,” says Sretenovich.

The approach also paid off in terms of customer satisfaction, ensuring that Balmain will likely remain a loyal client when any future financial mountains need climbing. “The client was extremely happy with the result, which was done seamlessly and on time and helped them to reduce their gearing on another property,” Sretenovich says. As stubborn inflation looks set to keep interest rates high for a while yet, the ability to reduce gearing in this way is a significant positive in the current economic environment. Releasing equity for investment is likely to become a more important play in the months ahead as prime yields in areas such as the industrial sector have lifted off lows seen two years ago.

“While we deal with many lenders, there are some we always come back to when we have a more complex deal – one of these is Uniting Financial Services”

“The client was extremely happy with the result, which was done seamlessly and on time and helped them to reduce their gearing on another property”

How one skilled broker helped a large Melbourne-based property firm find a path to release equity from an investment and further expand its portfolio

3.50%

5.46%

3.50%

5.50%

4.10%

6.25%

4.25%

6.38%

4.25%

6.33%

Sydney

Melbourne

Brisbane

Perth

Adelaide

Q1 2022

Q1 2024

Prime yields rising in industrial sector

Sretenovich attributes the success of this deal to his long-standing relationship with the client. “I have a 20-year relationship with this client,” he states. “I was aware of their key drivers and could answer specific questions from the lender about their objectives, assets and financial position.” This deep understanding of the client’s business and financial situation allowed Sretenovich to present a compelling case to UFS, highlighting the client’s track record as a successful investor.

The UFS deal

Source: Balmain

Source: Knight Frank Australian Industrial Review reports

In the world of commercial property finance, the ability to navigate complex deals and leverage long-standing relationships can make all the difference. Sretenovich’s success in securing a high-LVR loan for his client demonstrates the value that experienced brokers bring to the table. As property markets continue to evolve and financing landscapes shift, the role of skilled broker guides in facilitating deals and unlocking value for their clients remains as crucial as ever.

IN Partnership with

Navigating the challenges in commercial property

The power of relationships in finding the solution

Crafting a solution with UFS

Importance of knowing your commercial client’s business

Crafting a solution with UFS

Value of broker expertise

Crafting a solution with UFS

Published 19 Aug 2024

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Authors

E-newsletter

Australian Broker Talk

Events

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Australian Broker Talk

Resources

Sector Focus

Power Panel

Independent Feature

Executive Team Profile

Exclusive Leader Profile

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Business Focus

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Premium Content

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Investment Loans

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Loan of

$17.5m

3-year term

Quarterly amortisation over

58%

LVR of the property to reduce from

of current market value to

38%

at expiry date of the facility

(or 58% against the vacant possession valuation)

Importance of knowing your commercial client’s business

Value of broker expertise

While this case serves as a testament to the power of expertise, relationships and creative problem-solving, perhaps more valuable than the equity that Sretenovich and UFS were able to unlock is the promise that in the ever-shifting landscape of commercial real estate, there is always a route to the top with the right partners.

Industrial yields by capital city

Value of broker expertise

Source: Balmain

The UFS deal