Thinktank eyes further growth

Performance in Australia’s commercial-property sector has been mixed though the Sydney and Melbourne markets have been relatively robust. Jonathan Street, chief executive at Thinktank Commercial Property Finance (Thinktank) in Sydney, says the sector’s growth potential remains undiminished.

Thinktank hit the A$1 billion (US$672.9 million) mark in loans under management in April 2019. How do you view the opportunities for further growth?

Our story to date has been one of managed organic growth and we expect this to remain the case into the medium term as traditional origination conditions in the sector continue to present well for nonbank issuers. The backdrop is somewhat challenged by persistent uncertainty over the economic outlook, so it will be an interesting period with respect to inorganic growth opportunities – for banks and nonbanks.

Our securitisation programme has continued to evolve and mature with programmatic issuance over recent years. In the last year, we’ve introduced further domestic and international warehouse relationships and capacity in support of our extending growth profile, in anticipation of expanded future securitisation activity.

How do you assess the state of the commercial-property sector in Australia at present?

Our sector of the commercial-property market – up to A$3 million in loan size and around A$5 million in property value, with an average loan size of approximately A$700,000 – has tended to be stable-to-positive in major markets over the past year or two.

Office space and industrial property have led the way in Sydney and Melbourne with low vacancy rates and strong fundamentals. Retail has been soft in parts, though not as pressured as for larger-ticket property types as local retail has proved much more adaptable and in demand. Industrial and retail in other capital and regional cities bears close attention as vacancy remains elevated and demand is soft-to-weak.

What are the challenges and advantages in marketing commercial real estate to investors who are more used to seeing residential mortgage product from Australia?

Dating back to 2006, Thinktank has been able to demonstrate a close correlation in asset performance with residential mortgage-backed securities (RMBS). At the same time, we are lending to the types of borrowers who feature prominently in Australian RMBS and asset-backed securities issuance, we assess serviceability in a very similar manner and the ratings methodology is much the same as RMBS – with the assets also being repo-eligible.

We certainly feel there are genuine advantages for investors by way of the asset and name diversification on offer. Meanwhile, initial familiarisation with, and due diligence on, small-ticket commercial mortgage-backed securities is something with which our team can efficiently provide assistance.

The federal government announced the Australian Business Securitisation Fund in November 2018. Is this relevant to Thinktank either as a source of funding, a potential catalyst to greater investment in the sector or even a competitive threat?

We believe the programme is likely to be as relevant to existing issuers as it conceivably is to the fostering of new issuers – perhaps more so in the early stages.

The way in which the Australian Office of Financial Management is approaching the initiative is encouraging. The key motivating notion of expanding the market across assets, issuers and investors to facilitate greater competitiveness and depth in the provision of finance to Australian business should hopefully prove beneficial to all participants.

We see this as a potential source of funding and not as a competitive threat. Potentially there is also a role for us to play as a repeat nonbank issuer, by drawing from our established platform and track record alongside the efforts of government and related engagement with investors.

Is Thinktank exploring labelling loans for sustainability purposes?

We are watching this space closely as the market evolves. We feel it will become increasingly relevant with time, although the smaller-sized commercial-property market currently lacks signs of coordinated and consistent effort when it comes to sustainability. We are very encouraging of it and it will come – it is just a matter of when.