Goldman Sachs partnership a major funding boost
Non-bank commercial real estate lender Pallas Capital has received an impressive big funding boost, with Goldman Sachs successfully refinancing its flagship Australian lending facility, Pallas Funding Trust No. 2, in support of the $500 million facility.
Pallas Capital, which is headquartered in Sydney but has offices in Melbourne, Brisbane and Auckland has enjoyed major lending growth in the last few years – it’s on track to complete more than $2 billion in transactions in the current financial year.
Since the initial launch in December 2021, PFT2 (and its predecessor vehicle) have funded 175 CRE loans with a total value of approximately $918 million.
Pallas Capital chief investment officer Dan Gallen said PFT2 lent money to borrowers across a range of CRE loan products including pre-development loans, residual stock loans and investment property loans.
Most of its loans are between $2m and $20m in size, although it is able to fund larger loans if they meet credit criteria. The CRE lender works closely with brokers and targets medium-sized borrowers who can find it challenging to work with established banks.
It offers borrowers five core loan types – acquisition, pre-development, construction, residual stock, and vacant land loans, along with the flexibility to negotiate LVRs and the required level of pre-sales for construction loans.
Earlier this month, Pallas Capital reduced its commercial rates by 0.50% to 0.70% across its loan portfolio.
Building on the success of PFT2, Pallas Capital launched a corresponding New Zealand facility in December 2022, Pallas NZ Funding Trust No. 1, which has since provided over NZ$400m ($361m) in loans to medium-sized SMEs in New Zealand. The facility was refinanced in July this year, with Westpac NZ providing senior funding.
“We are delighted to announce our collaboration with Goldman Sachs,” Gallen said. “Supported by such strong and experienced funders, we look forward to expanding our suite of lending products and building on our successes in the local market.”
He said the the Goldman Sachs investment in PFT2 significantly enhanced Pallas Capital's offering for brokers and their clients by:
- Lowering the cost of capital – enabling the company to pass these savings directly to borrowers, making loans more competitive and accessible.
- Providing liquidity certainty – the committed funding line assures a reliable capital flow, allowing brokers and clients to access CRE finance confidently.
- Tailoring to broker needs – PFT2 is structured specifically to support loan types that traditional banks often overlook, such as residual stock, development sites, and transitioning investment assets, providing unique options that serve brokers and their clients more effectively.
Gallen said some other non-bank lenders offered similar CRE loan products but many of these lenders were mainly funded by retail or high-net-worth investors, whose investment flows would be volatile.
This volatility can make it challenging for them to consistently compete with lenders such as Pallas Capital, which is backed by available institutional capital, he said.
“The significant growth of this institutional support in recent years has enabled Pallas Capital to fund over $5.1 billion in total lending to-date.”
Goldman Sachs APAC head of mortgages and structured products Nicola Dondi said the financing facility to Pallas Capital represented continued innovation and growth of its structured credit financing business in Australia and across the Asia Pacific.
Bright future for CRE lending
So what does the 12 next months hold for the CRE loan sector?
“If the RBA introduces rate cuts in 2025, we expect a wave of new residential projects as buyers gain easier access to home loans, enabling more people to transition from renting to owning,” Gallen said. ”This improved development environment will likely drive an increase in development site sales and new project commencements, marking a strong rebound after a subdued two years.”
Gallen said CRE loans provided brokers with an excellent opportunity to diversify their income streams.
“Working with CRE lenders that have been established to serve the introducer market ensures brokers receive upfront payments and trail commissions on these loans. Furthermore, our originators are experienced in working with the aggregator and broker network, making the process seamless for brokers that may have less experience with CRE debt lending.”
PFT2 does not undertake construction loans but these are offered through other Pallas Capital funding vehicles.
Pallas Capital also manages funds invested in commercial real estate loans secured against property assets with values between $1m and $50 million in major metropolitan areas.
Wholesale investors are offered investment opportunities providing fixed or variable rate returns supported by loans on single property assets or through “warehouses” that invest in a pool of such loans.
Are you seeing more customers interested in CRE loans? Comment below.
