Cash injection fuels Pallas Capital lending

Non-bank's funding deal with Credit Suisse strengthens broker offering

Cash injection fuels Pallas Capital lending


By Antony Field

Pallas Capital has settled more than $1.2bn in loans since 2016, and $820m of that total was in the last 12 months. The leading specialist property lender has just received a $530m funding boost from Credit Suisse, allowing it to offer more finance solutions to brokers and their clients.

It’s an exciting time for the team at Pallas Capital, which has grown rapidly since its inception in December 2016.

Specialising in commercial real estate debt, the non-bank lender has settled 181 loans and other funding structures with a total value exceeding $1.2bn. With 81 loans having been repaid, it has a current loan book of $808m across 100 transactions.

Last year, Pallas Capital appointed former La Trobe Financial chief lending officer commercial Steve Lawrence as its executive director of lending, aiming to boost its loan book even further and bring its expanding portfolio of flexible loans to more brokers and borrowers across the nation.

Pallas Capital offers five core lending products to quality borrowers seeking reliable and competitive funding for commercial and residential assets and development projects.

The loan types include residual stock, commercial/SME, pre-development, construction, and vacant land, with a preferred asset location of metropolitan Melbourne, Sydney, Brisbane, Canberra and Adelaide, as well as major regional areas on a case-by-case basis, for amounts generally ranging from $1m to $50m. They are secured against non-specialised property assets.

Now Pallas Capital’s ability to provide trusted and flexible funding for commercial brokers and their clients will expand via a $530m injection from Credit Suisse, leading to the creation of the Pallas Funding Trust (PFT).

Lawrence says PFT intends to lend this money on a range of pre-development loans, residual stock loans and investment property loans, with most of the loans in the $1m to $10m range.

PFT will target medium-sized CRE loan types and borrowers who are currently underserviced by the major banks.

“This market segment, whilst underserviced at present, features substantial lending volumes, given that most commercial properties have a value range of $1m to $15m,” Lawrence says.

“This is precisely where PFT has been designed to focus its lending business. In addition, the loan types that PFT has been designed to fund, such as value-add investment loans, residual stock and pre-development loans, are the loan types the banks have little appetite to fund.”

Lawrence says while other non-bank lenders will compete with PFT, generally they are funded by retail or “high net worth” investors, and these investment flows can shrink quickly if sentiment deteriorates, as it did in the first COVID-19 lockdown in 2020, and a significant pool of CRE borrowers can be left without commercially attractive loan options.

“With Credit Suisse as a funding partner, the PFT is protected from such pressures on liquidity and is well placed to continue lending through cycles that would sideline many of its competitors by virtue of their source of capital,” says Lawrence.

He welcomes the introduction of PFT as a significant new lender.

“Pallas Capital’s loan book has grown in recent years at about 75% per year, even though our cost of funding has been relatively high,” says Lawrence. “We have achieved this by ‘speed to market’ and by offering loan terms that are flexible and commercially realistic.

“PFT will have the same turnaround times and flexibility but a significantly lower cost of funding. By lending at lower rates to borrowers, we expect PFT will swiftly carve out a leading position in the CRE lending markets.

I look forward to taking these loan opportunities to our established mortgage broker clients.”

Although PFT will not undertake construction loans, these will continue to be offered through Pallas Capital, which is currently settling about $50m per month of new construction loans.

In his role at Pallas Capital, Lawrence says his focus is on expanding the loan book rapidly, bringing high-quality service, great speed-to-market, and flexibility in assessing and delivering loans to a growing client base.

“I have been in the banking, finance and property industries in Australia for almost 40 years, and I know that relationships are at the heart of success in this business and therefore in everything that I do,” Lawrence says.

“[Pallas Capital executive chairman] Patrick Keenan and Dan Gallen [chief investment officer] have a very compelling, ambitious and well-supported vision for Pallas Capital’s business, and it was an easy decision for me to become part of the team working to achieve this vision.

“I look forward to continuing to build on my strong relationships in the Australian lending industry to drive positive outcomes for brokers and borrowers looking to take advantage of one of the most competitive real estate loan product ranges in the Australian market, supported by Pallas Capital’s robust lending strategy.”

Gallen says Lawrence brings deep experience, trust and industry-leading relationships to Pallas Capital, and the team is thrilled to have him on board.

“We knew that we needed the right person to lead Pallas Capital’s lending team, and Steve’s reputation in the industry was one we could not look past,” he says.

Broker perspective

Matthew Paterson is the director of Partnership Finance Group (PFG), an independent commercial financial brokerage specialising in property finance transactions.

PFG provides a range of finance options, including senior debt facilities for construction and investment loans, highly leveraged facilities, mezzanine debt, and equity finance solutions.

It settled its first transaction with Pallas Capital in mid-2020, and the relationship has continued to grow, with PFG-originated deals recently passing $100m.

“We advise a strong core of key clients and regularly settle over $500m per annum, with deal sizes that typically range between $20m to $60m and above,” Paterson says.

“I originally met Dan Gallen some years ago. But my relationship with Pallas Capital really began with the appointment of Steve Lawrence, who I knew very well from his time at La Trobe Financial.”

Paterson says PFG’s first deals with Pallas Capital occurred during last year’s lockdown, in an uncertain market.

“The strong relationship I had with Steve, and the confidence I had in his ability to deliver, gave me comfort to recommend Pallas Capital to my clients.”

Pallas Capital always offers solutions and options, says Paterson.

“I find I’m able to work best ‘outside the box’ with Pallas Capital, certainly more than with other lenders in the market. There are currently a lot of lenders, so you have plenty of choice. However, I find Pallas Capital is the most flexible and commercial to work with.

“Every deal is different in its own way and never typically fits within the box of a lender’s mandate. This is where I’m able to present a scenario to Pallas Capital, identify the ‘issue’ and come up with a solution that benefits all parties.”

Paterson says settling more than $100m in transactions with Pallas Capital gives PFG confidence.

“It allows us to originate further transactions and opportunities to present to Pallas, knowing they will deliver on the terms we’ve sold to our client. This ultimately means we’re growing our business in partnership with our clients, and with Pallas Capital.”

Paterson says PFG’s success is based on strong relationships with lenders and clients.

“We’ve dedicated a lot of time and energy to developing these, and it’s seen us build deep levels of trust with our clients. Whenever I present an opportunity from Pallas Capital, they can always be certain the final approval will reflect the original indicative proposal.

“These three words best describe Pallas Capital: reliable, commercial, certainty.” 

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