q & A
Co-Founder & Managing Director, Tas Costi sits down with Jordan Zubani, Macquarie Business Banking Associate Director – Property, to hear his insights into the lending world and the effects that these recent economic changes have on the Australian Commercial Property market.
Q: In terms of the property lending space, in the current environment, where are you seeing the main impacts?
Macquarie Business Banking has been supporting clients in the property industry for many years. From individual property investors, family office groups, through to corporate and institutional funds, and have traded through numerous economic cycles. In the current environment, interest rates have been the focus and how they will impact asset values in the short to medium term. Equally, in a rising interest rate environment, the focus tends to be on defensible and sustainable cashflows.”
Q: Despite some negative publicity in the media regarding residential property prices, Costi Cohen are seeing a wave of commercial buyers with active mandates. Where does Macquarie Business Banking see forecast loans for the next 12-18 months?
Whilst there has been some uncertainty recently around interest rates, buyer activity for commercial assets has remained relatively stable. Australian property is still an attractive asset class relative to its global peers. There is still capital in the market looking for a home and we find there is usually a flight to quality when there is uncertainty. Anecdotally, June earnings result for some of Australia’s largest property firms remained positive indicating no falls in value (as at that date). Whilst there is still activity in the market, there will be clients needing support from their banking partners.
Q: How do you find Macquarie Business Banking clients are reacting to the current economic environment?
The usual considerations are and will always be paramount. For example, how strong, defensible, and sustainable are the cashflows. Is the yield fair, reasonable and comparable with similar assets? How will I hedge against future interest rate rises? These are the conversations we continue to have, to ensure we are supporting our clients to achieve their overall objectives.
Q: You touched on quality assets. Is there a preference from a lending perspective on which asset classes the bank would be more inclined to provide funding for – for example non-discretionary retail shopping centre vs. industrial logistics warehouse investment?
If we look at the performance of each sub-sector over the last few years, demand amongst our clients for industrial property has increased exponentially, underpinned by the growth in e-commerce and logistics sectors. Equally, neighbourhood centres and large format retail assets have been highly sought after, given the resilience of non-discretionary retailers trading through the pandemic. We are in a transitionary phase for the office market, while employees and employers find the balance of hybrid working. There have been some strong views as to how this this was going to impact occupancy levels and therefore asset values, however there is still very strong demand for quality office assets.
Q: In terms of current activity, we understand you service clients ranging from mum & dad investors through to institutions. Which part of the market is most active?
We look to work with growth minded clients who tend to be relatively active, and we are seeing a good balance of applications across the board. Whether that be investors looking to purchase a commercial asset for investment purposes or business owners with property assets looking to release equity to fund their growth plans.
Q: What does Macquarie Business Banking’s Property strategy look like moving forward?
We will continue leveraging our expertise to support all clients achieve their goals. There are a lot of great businesses looking for a growth minded bank. Provided a business has sustainable and stable cashflows and have property assets, either off or on balance sheet to support it, we can use the property to unlock further opportunity for clients.
Q: Costi Cohen also has a national reach as we represent Owner Occupiers, Investors, and developers across the board. We are finding there has been quite a lot of transition, particularly for Owner Occupiers, moving from leasing a space to owning the property they operate in. Where do you see the value-add is for Macquarie Business Banking back to these clients?
Macquarie Business Banking can support businesses to unlock opportunity in a range of different ways. Firstly, assisting clients with acquiring or refinancing commercial property they intend to or currently operate from and leveraging existing property assets, either on or off-balance sheet to fund business growth or for further investment. We add value by taking the time to understand the unique needs of every client, their goals and objectives. We draw upon the capability of the broader group to provide clients with insights, research and data to help them make the best possible decision for their financial future.
Q: Costi Cohen are working with several Residential and Commercial Developers/Reposition clients. We are seeing a huge increase in demand for Build to Rent (BTR) sector. How does Macquarie Business Banking service these clients?
We would ordinarily look to participate, on a selective basis, once a project is complete. There is an opportunity at that point to provide takeout finance, where a financier refinances (in full or partially) the construction loan and can secure the new facilities against the individual complete assets with cashflows.
Q: We’re seeing more and more residential developers coming out of completed projects with stock that they were not able to resell. How does Macquarie Business Banking support these developers that aren’t able to sell new stock?
We are finding that clients are looking to de-risk their business by building an asset base to smooth out their cashflow. As mentioned previously, takeout finance is an option. We have also consolidated portfolios of properties and provided funding for further investment.
Q: Costi Cohen are involved from the outset providing an end-to-end service, from the very beginning of an individual or group’s property journey. How does Macquarie Business Banking service their clients and keep them in the eco-system?
We take the same approach, we aim to be involved in the early conversations, in some instances, well before a buying decision being made, to discuss potential opportunities, so we can provide guidance around potential funding solutions. We see a lot of value in taking this approach. Understanding what an individual client is trying to achieve, how it fits within their broader strategy and then working with them and their advisors and partners, to get the best outcome.
Q: Another component of our business is Commercial Property Management where we have the privilege of managing our client’s property portfolios across every asset class. Where does Macquarie Business Banking see value in a property portfolio?
In these scenarios, we can assist clients unlock the equity in their portfolio for further investment, which allows them to continue building their asset base and income profile.
Macquarie Business Banking is a division of Macquarie Bank Limited ABN 46 008 583 542 AFSL and Australian Credit Licence 237502. This article doesn’t take into account your objectives, financial situation or needs, nor is it intended as a substitute for any accounting, tax or other professional advice, consultation or service – please consider whether it’s right for you.