Lenders step up to meet commercial property development demand

Our Lending Team has continued to see strong demand from brokers and developers for property development finance across the residential, commercial, industrial and retail property sectors.

Between 1 April and 30 June 2022, we settled new property development and construction loans at a total approved loan amount of over $150 million.

“We’re seeing continued demand for property development likely driven by low stock availability, expected increases in migration, record low unemployment levels and very low residential rental vacancy rates,” said Trilogy Funds head of lending Clinton Arentz.

As at 30 June 2022, there were 157 active loans in the Trilogy Monthly Income Trust loan book at an average approved loan size of ~$5.35 million, and funds are readily available to meet further demand.

Capital flows into property remain strong

Investor appetite is strong across a number of Australian property market sectors according to Dexus’ Real Estate Quarterly Review Q2 2022.

After a lengthy hiatus, overseas investors are returning to the office market, specifically in premium buildings in Sydney and Melbourne’s CBDs the Review states.

Growth prospects in the industrial and healthcare sectors are particularly positive. According to CBRE’s head of industrial and logistics research Sass J-Baleh, rising demand for warehouse space, driven by the growth of ecommerce and onshoring, has sent national industrial vacancy rates to just 0.8 per cent, making Australia the tightest logistics market in the world at the end of June 2022.

Health precincts are also currently among the most in-demand commercial assets in the world. In Australia, the market is growing exponentially as we prepare for our ageing population and a growing spend per episode of care, according to Commericalrealestate.com.au.

For the residential sector, the need for apartments is evident with search and page views listed on the rental market through Realestate.com.au showing marked increases for this property type over the year to June 2022.

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Vigilant brokers and developers to succeed

Experienced commercial brokers and developers are looking past current short-term pressures, such as rising construction costs and the tight labour market, and focusing on areas of opportunity with a hands-on approach.

According to CoreLogic’s Cordell Construction Cost Index (CCCI) for Q2 2022, national residential construction costs have increased by 10% over the 12 months to June 2022, the highest annual growth rate on record outside of the introduction of the GST over the year to March 2001.

In efforts to manage this, more cost escalation provisions are now evident in the building industry, as well as builder and developer partnerships.

“Developers and builders are teaming up in what’s called ‘early contractor involvements’ – the builder gets in early and is involved in design and approvals. It’s a more collaborative type of approach to completing the project,” Mr Arentz said.

He explained that it’s important for brokers to work with their clients on independent checks by quantity surveyors to break down the cost of the project and ensure they are in line with industry standards.

“Our team can also help brokers to stress test their clients’ project plans and put appropriate contingencies in place with the goal of setting projects up for success.”

Another element to consider when planning for a property development, noted by some commercial real estate experts as an ‘absolute necessity’, is the rising demand for ‘green’ housing.

According to Domain, home buyers are favouring sustainable, energy-efficient properties with solar panels, battery storage and sustainable features. These types of properties can, in turn, attract a premium and sell more easily.

The Trilogy Funds team has more than 20 years’ experience providing tailored finance for property development to the commercial property sector.

For more information on how Trilogy Funds could help you and your clients with property development and construction finance chat to a member of our team.

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This article is issued by Trilogy Funds Management Limited ABN 59 080 383 679 AFSL 261425 (Trilogy Funds) as responsible entity for the Trilogy Monthly Income Trust ARSN 121 846 722. Application for investment can only be made on the application form accompanying the Product Disclosure Statement (PDS) dated 11 April 2022 and by considering the Target Market Determination (TMD) dated 1 October 2021 for the Trilogy Monthly Income Trust ARSN 121 846 722 available at www.trilogyfunds.com.au. The PDS and the TMD contain full details of the terms and conditions of investment and should be read in full, particularly the risk section, prior to lodging any application or making a further investment. All investments, including those with Trilogy Funds, involve risk which can lead to loss of part or all of your capital or diminished returns. Trilogy Funds is licensed to provide only general financial product advice about its products and therefore recommends you seek personal advice on the suitability of this investment to your objectives, financial situation and needs from a licensed financial adviser. Investments with Trilogy Funds are not bank deposits and are not government guaranteed. Past performance is not a reliable indicator of future performance.

This article has been prepared for existing and prospective borrowers and brokers and provides information only about Trilogy Funds’ lending services. Trilogy Funds Management Limited (Trilogy Funds) ABN 59 080 383 679 AFSL 261425 is not a licensed credit provider and does not make loans regulated by the National Credit Code. The source of Trilogy Funds’ loans may include managed investments schemes registered with ASIC, as well as other private lending arrangements with high net worth investors. If you would like more details on our investment opportunities, please contact us.

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