So you thought your mortgage rate was expensive. Spare a thought for the big end of town where the companies that develop your next apartment or office are facing stiffer borrowing costs as a consequence of a flight of capital out of the construction sector, due in part to growing perceptions the market is over cooked and a crash in prices, inevitable. Think Grocon, the iconic brand behind such Australian landmarks as Melbourne’s Rialto, the Eureka Tower and Sydney GPO who recently, in an effort to secure funding for its stake in the Barangaroo Central project have recently tied up a $40 million loan with non-bank lender; understood to be Maxcap at an annualized interest rate of 37% that’s about 10 times the cheapest home loan rate today.
Further north and Maxcap have recently taken out Invesco’s debt in AMP’s Skytower apartment project in Brisbane. The US funds giant Invesco lent about $160 million in 2016 to develop the city’s next tallest tower. We understand the high cost of debt charged by Invesco to the developer was the primary factor behind the refinance albeit about 15%. IN yet another sign the big four are pulling back, Wingate has stepped in to help Melbourne developer Resi Ventures proceed with the construction of a Melbourne housing estate after the majors said no.
In my humble opinion, the planets are aligning for a seismic shift in property values and availability of credit generally. It’s all about cycles if your older enough to remember the property crash of 1991.
By Richard Aulsebrook