Thinktank thinks commercial

Australia’s commercial-property market is, in the main, performing well even as the residential sector goes through a correction. Jonathan Street, chief executive at Thinktank Commercial Property Finance (Thinktank) in Sydney, says the market and the lending opportunity it offers nonbanks make for an appealing combination.

How is the opportunity set for nonbank lenders in Australian commercial property shaping up?

Although the size of the overall commercial-mortgage market is considerably smaller than residential, the penetration rate of nonbanks and of the third-party channel, which supports the majority of nonbank flow, are extremely low by comparison. This offers Thinktank and others great potential to grow from a low base.

We estimate the size of the up to A$3 million (US$2.2 million) loan size market at roughly A$100 billion per year with broker-introduced loans standing at approximately 17 per cent. In the last 2-3 years, intermittent shifts in demand, credit policy and risk appetite by the major banks, which have historically dominated the commercial-property space, have been contributing to a lift in penetration by other lenders including new market participants. The signs are this is part of a continuing upward trend.

Our natural ability to compete is assisted by some of the underlying principles of rated securitised transactions. The major banks don’t typically offer longer loan terms, of up to 25 and 30 years, but in a rated environment these benefit from the same assessment as for residential mortgage-backed securities (RMBS). This helps Thinktank offer a comparably attractive ‘set and forget’ type of product proposition, which suits a high proportion of borrowers.

The residential-property market tends to create all the headlines, but the commercial-property sector has been relatively robust particularly in Sydney and Melbourne. Can you give an update on your sector?

The macro fundamentals underpinning the commercial market are generally quite strong at present and our conversations with investors will typically explore this theme in some detail. While economic growth, interest rates, employment and, to a lesser extent, business investment remain well placed, we in turn see the commercial-property market as broadly sound to positive.

However, we do take the time to run through where current and future issues might reside with investors as there are always additional currents below the surface. There are numerous pockets of geographic and industry-related weakness around the country. Therefore, there are numerous places in which we have not been active and will not be lending in any time soon.

Thinktank also offers an income trust and a high-yield trust for private investors. Does investor engagement with these fluctuate with the commercial-property market?

Thinktank’s wholesale and sophisticated investment trusts are still in their early stages of life, having only been on offer for around 18 months. Investor interest has been consistently robust since launch, while the interaction itself has been instructive in a variety of ways.

It is reasonable to say the widely reported health of the commercial-property market has supported a good level of engagement. However, while the general knowledge of investors when it comes to commercial property as an investment class is rising, it is still limited and coming off a low base.

As part of our marketing presence, we are consequently aiming to elevate awareness and appreciation of what a discrete level of indirect exposure to commercial property – as part of a balanced investment portfolio – can contribute to a longer-term wealth-management strategy.

What kind of engagement and participation does Thinktank currently have with offshore securitisation investors?

While our transactions to date have been predominantly supported by domestic investors, we have also enjoyed good participation and engagement with offshore accounts.

Since earlier this year, we have been turning our attention much more in this direction. Most notably, since the Australian Securitisation Forum investor event in London and the global asset-backed securities conference in Barcelona, we have been in close contact with an increasing array of offshore investors that have been demonstrating a genuine and immediate interest in small-ticket commercial mortgage-backed securities – and are not solely restricted to public term transactions.