Pallas Capital has announced that it has passed the symbolic $1 billion mark in transactions.
The commercial real estate lender, which was started in 2016, has grown rapidly in the last year, adding $653 million in transactions in the last 12 months alone.
“The $1 billion milestone is important to Pallas Capital for a number of reasons,” said Dan Gallen, Executive Director and CIO, Pallas Capital.
“Firstly, it is a vindication of our belief that private investors would support this asset class in rapidly increasing numbers, once they could see that their investments were stable and safe.”
“Private investment in CRE lending was established in Europe and the US many years ago, and has now come of age in Australia too.”
“Secondly, it is testament to our reach through the broker network where about 90% of our business is introduced from.”
“We have seen our average loan size increase to about $15 million with a real focus on construction lending, residual stock and pre-development loans.”
“The launch of our mezzanine debt fund has greatly assisted our ability to structure funding solutions that many of our industry peers cannot compete with.”
“Thirdly, as our reputation has grown our cost of funds has fallen, making us increasingly competitive with other CRE lenders.”
CRE lending as a category is exploding in Australia, as mezzanine finance roars back into the Australian marketplace. It was a hugely popular type of lending in the past, as brokers sought to get additional cash to help developers get over the line, and has come back into vogue in 2021.
“In 2020 Pallas Capital was lending about $30 million per month on average,” said Gallen. “By early 2021 this number had increased to and currently it is running at about $75 million.”
“Much of this volume is broker introduced loans taking advantage of our new product (ability to fund senior and mezzanine debt) combined with our reduced cost of funds.”
“CRE lending in Australia is growing at about 5% per annum, but with the Big Four losing market share, CRE lending by the non-bank lenders is growing at about 25% per annum. Lending by Pallas Capital is growing at about 75% per annum.”
“Our growth is always driven by the quality of our people. Pallas Capital grew quickly because it was built on a core of highly experienced and successful executives, with long careers in CRE lending.”
“As the company has grown, and its reputation been enhanced, we have been able to hire very high calibre additional staff from the banking and non-banking sectors.”
Brokers are vital to the process, as they can offer insights to clients who may not know about these forms of niche financing, or how to access them.
“Originally Pallas Capital’s business was built on direct relationships with CRE borrowers,” explains Gallen. “However, following a number of key hires, about 90% of loans are now originated through the broker network.”
“This network is increasingly important as a means by which Pallas Capital can keep writing high quality CRE loans so as to satisfy it’s growing pool of investors.”
“Having made a substantial investment in its manpower resources in recent months, Pallas capital is now positioned to increase its business volumes substantially from current levels. We expect to be relying more and more heavily on our relationships with these brokers.”
“To assist this, as Pallas Capital grows, its average cost of funds has been falling, and we are now competitive across a much wider range of CRE loans.”
“Combined with our market leading service proposition to our broker network we believe this will accelerate our growth in market share of loans originated by the brokers.”