Since our last portfolio update in April 2020, we have continued to work closely with borrowers to ensure we understand the impact of the current economic situation on their loan performance. Our current loan investments have continued to perform within the terms set out in our documentation, which is consistent with expectations derived from our initial stress-testing assessment at the beginning of the health crisis. Our ongoing discussions with borrowers regarding servicing and repayments has not led to any expected changes in loan performance.
Since our last update we have:
- fully redeemed investor funds of $1.9M plus accrued interest for a loan secured by a R1M over retail shops in Essendon, Victoria;
- fully redeemed investor funds of $2.9M plus accrued interest for a loan secured by a R1M over 3 town homes in Taringa, Queensland;
- settled a loan of $3.9M secured by a R1M over retail and residential properties in Fitzroy North, Victoria; and
- settled a loan of $2.5M secured by a R1M over 6 residential town homes in Burwood East, Victoria.
By the end of August, we also expect to redeem principal of $1.5M plus accrued interest for a loan secured by a property in Morningside, Queensland. In addition, it is anticipated that we will be redeeming investor funds of $3.9M principal plus accrued interest for a loan in Gosford West, New South Wales.
Lending Approach
We continue to gain access to bank quality lending opportunities which are perhaps even more prevalent in the current environment given the protracted bank timelines to both consider and process loans. Fortunately, TierONE Capital has the ability to respond quickly to borrowers who are seeking certainty around lending interest and settlement dates.
Our loan appetite continues to focus on both asset lends and construction facilities. For construction we have the skill set to assess and manage the process and we are therefore predominantly focused on project end values which are supported by recent valuations provided by our panel valuers. We also maintain strict adherence to our loan to value (LVR) ratio which is typically maximised at 65%. We believe that our LVR and valuation approach significantly mitigates market risk given the loan terms in question.
Given the relatively high proportion of lending opportunities at the moment we are highly selective of the opportunities we choose to participate in. One of the key determinants is our vigorous assessment of the sponsor. Whilst the primary security is typically a first mortgage over property, we also focus on the experience of the borrower and their ability to service loan interest and equity to complete construction.
Current Environment in Victoria
Our construction loans have continued to perform in line with expected drawdown schedules and work on job sites is uninterrupted to date. Despite Stage 4 restrictions coming into effect on 7th August, work on construction sites in Melbourne can continue albeit with strict controls in place and limitations on the number of workers on site. Given the size of our projects (sub 3 storey residential construction), the restrictions are likely to have less of an impact than on larger developments. With the exception of one site, we expect our borrowers’ construction sites will be able to work within the parameters of the restrictions. The one potentially impacted site is currently in the late stages of development for which higher numbers of tradesmen and sub-contractors are usually on site. The developer is managing these workers closely to ensure they are complying with the regulations and ensuring limited disruption. We believe this loan will still perform within loan parameters. New construction loan opportunities in Melbourne will largely fall outside the current 6 week lockdown period.
In conclusion, whilst the economy is largely in uncharted waters, we believe the need to stimulate the economy will act as a cushion to any significant downturn in the broader property market in Victoria and NSW where we have focused our attention.
If you are a sophisticated investor and would like to find out more about the TierONE Capital offering, please contact us here.
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