Lender says risks are too great
Lending boss Tony Denny has landed a $100 million capital infusion to expand his non-bank lending business, but will avoid funding multi-unit construction where dwindling lender interest is shrinking the apartment pipeline.
Central Real Capital, which Denny launched two years ago with $200 million of his own money after stepping away from apartment development, has provided early-stage, short-term funding for more than 50 commercial and residential projects, according to The Australian Financial Review. The lender has advanced more than $500 million in total loans since its inception.
However, Denny said the risks were too great in apartment construction.
“Central Real Capital takes a conservative view around construction lending for residential apartment projects based on a mix of concerns with in-ground risk, supply chain issues and potential for builder failure,” Denny told AFR.
However, Central Real Capital’s new funding from Balmain Corporation will allow it to back residential land subdivision projects where “many of the key construction risks can be far more easily mitigated,” Denny said.
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He told AFR that Central Real Capital would also fund “select non-residential construction projects.”
“We prefer these to residential apartments as they are typically smaller, asset value is underpinned by a strong pre-lease commitment, and we aren’t dealing with subterranean construction,” he said.
Approvals for private-sector dwellings, excluding houses, tumbled 43.5% in July, hitting their lowest level in more than a decade, according to the Australian Bureau of Statistics. The falls came amid a flood of building-firm collapses, project cancellations and cost overruns.
The ABS said the sharp drop to 3,439 dwellings was driven by a lack of approvals for large apartment developments, AFR reported.
Central Real Capital’s decision to avoid apartment construction funding hasn’t stifled its growth ambitions. The lender expects to have $500 million of total finance capacity by July, including another $100 million from Denny’s own private wealth sources. The additional $100 million from Balmain doubles the warehouse lending facility provided to Central Real by the Sydney firm, AFR reported.
Central Capital specialises in providing short-term loans of between $5 million and $20 million for up to 12 months to finance developments in the early or pre-construction phase, AFR reported.
