Mortgages

Fund opens housing development options

Second tier lender Pearlfisher Capital has launched a new first mortgage fund for lending to property developers.

Thursday, March 18th 2021

The non-bank lender says its fund is for developers who are finding it more difficult to secure funding from banks.

Pearlfisher director Tony Abraham says the fund gives borrowers an opportunity to access non-bank funding for well-considered projects that are at the low to medium end of the risk spectrum. And which meet Pearlfisher’s investment criteria.

Abraham says developers will need to have consents and a construction contract in place and have pre-sold a percentage of the development before funding is considered.

“We will only lend at a level that meets our criteria and we are comfortable with.”

He says finance for developments outside the fund can be considered – on a project by project basis – but the fund will have first priority.

The fund is being targeted to help address concerns about the supply of residential housing. And the challenges faced by many borrowers in raising flexible debt for projects.

“It provides a committed line of capital for Pearlfisher to expand its first mortgage lending.”

Abraham says inquiries about developer finance have increased 50% since the fourth quarter of last year.

“Banks’ increased capital requirements and strict lending conditions mean many developers are shifting to non-bank first mortgage funding, which is already well established in offshore markets – including Australia, Europe, UK and the US.

“We are looking to step in and provide debt for housing projects that have been finding it challenging to access finance from banks.”

The fund’s first transaction is a terrace house development that is 100% sold to Kāinga Ora. Abraham says this is a good example of the type of activity the fund expects to participate in.

It is targeting developers who have two to three-level projects of eight to 20 units.

“At this size the cost of obtaining non-bank funding compared to bank finance is of not much concern to developers. They just want to get on with their projects,” says Abraham.

Investor returns from the fund are expected to be 6-7.5% yearly (pre-tax, net of fees) on invested capital.

Pearlfisher has funded a variety of developments since its inception 11 years ago. Including numerous residential land subdivisions, multi-unit townhouses, high rise apartments and suburban retail developments.

Until recently funding had been on a deal-by-deal basis. During the past 12 months, Pearlfisher has settled more than $100 million of property development and investment transactions – despite the challenges and uncertainty caused by Covid-19.

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