A Big Deal: Adrian Lee

by 01 Aug 2018

When his client made an impulsive auction purchase, Adrian Lee leveraged his firms’ holistic services portfolio to get it over the line

THE SCENARIO

We’ve all done it – inspired in the moment and willing to take a chance, we jump on an opportunity that’s too good to miss. As brokers we all know that, when you see a good deal, walking away isn’t an option.

This is what happened to one of our new clients at Catalyst Advisers – a bank director in his late 40s who was successful at a weekend auction, exchanged contracts and paid the required 10% deposit. But the catch was that for the remaining 90% he had no pre-approval in place.

As an existing owner he already had a $6.5m property in Sydney, geared at 50% LVR, and wanted to unlock some of this equity to complete the new purchase. Taking advantage of the current buyers’ market in the city, his plan was to rent out the second property and sell when market conditions improved.

The peak debt requirement was $7m, which is higher than the maximum loan limit for banks offering bridging facilities. The client was a high earner, with a base salary in addition to short- and long-term incentives. However, for the previous three financial years he had been working from his bank’s head office in Asia and had next to no income showing on his Australian income tax returns.

Therefore, despite his overall remuneration package, the way lenders viewed the bonus components of his package meant that serviceability was not evident. Lenders were also uncomfortable about counting his incentives as part of his income, so he was effectively unable to access the funds required to complete his opportune Saturday morning purchase.

THE SOLUTION

There was only one clear solution. I arranged a capitalising private loan facility secured over listed equities, with gearing covenants similar to that of a bank margin facility. Its purpose was to allow the client to settle on the new property purchase while the existing property was being marketed and sold.

Once the existing property had been sold, a portion of the net proceeds could be used to reduce the private loan facility. Then, through a facility with Homeloans, we were able to provide take-out finance in the form of a traditional home loan to clear the balance of the private loan facility.

THE TAKEAWAY

The client didn’t want to walk away from an opportune deal, and as brokers neither did we. However, the outcome could have been very different if we did not have the approach and business set-up that we do at Catalyst Advisers.

Without the in-house wealth management and debt capital verticals, this client would have been stuck between a rock and a hard place, with two less-than-ideal outcomes. On the one hand he may not have been able to settle on the property purchase, and, on the other, he would have come unstuck with the interest rates.

Such a loan would also have been subject to double-digit rates and exorbitant establishment costs via an external private funder.

By bringing a holistic approach to how this deal was brokered, we were able to avoid both these outcomes. The debt capital and advisory team at Catalyst Advisers were able to connect the client with sophisticated family office capital and manage an extremely technical legal due diligence and documentation process. This scenario highlights the benefits brokers can provide clients when they incorporate the wider services and functions that people require when purchasing property. As a holistic financial servicing firm, we were able to incorporate mortgage broking, financial planning, investment management and debt capital advisory services and achieve the required outcome as a result.

We weren’t the first to do this, and crucially, we won’t be the last either. I believe that, in future, fewer and fewer mortgage brokers will operate small, standalone businesses, because it makes sound business sense to become a function within a larger, more holistic financial services firm, incorporating finance, advice and accounting. This type of consolidation is already taking place in the accounting and financial planning industries as clients continue to choose larger firms that can service all of their financial requirements.

Adrian Lee
Managing director
Catalyst Advisers