1 00:00:04,170 --> 00:00:06,570 Sean Aylmer: Welcome to the Fear and Greed Daily Interview. I'm Sean 2 00:00:06,570 --> 00:00:10,770 Sean Aylmer: Aylmer. Despite the headwinds of inflation and interest rate rises, 3 00:00:11,039 --> 00:00:14,070 Sean Aylmer: there's still been plenty of activity lately in the development 4 00:00:14,130 --> 00:00:18,180 Sean Aylmer: and construction sector. Projects of all sizes are still underway 5 00:00:18,390 --> 00:00:21,870 Sean Aylmer: and increasingly they're being funded by non- bank lenders. It's 6 00:00:21,870 --> 00:00:24,480 Sean Aylmer: a fascinating space and one I wanted to learn more 7 00:00:24,480 --> 00:00:28,680 Sean Aylmer: about. Charlie Robertson is the Executive Director of Centuria Bass, 8 00:00:28,680 --> 00:00:33,150 Sean Aylmer: a leading Australian investor and alternative asset manager. Charlie, welcome 9 00:00:33,150 --> 00:00:33,960 Sean Aylmer: to Fear and Greed. 10 00:00:34,110 --> 00:00:34,680 Charlie Robertson: Thanks, Sean. 11 00:00:35,370 --> 00:00:38,910 Sean Aylmer: First, take me through what Centuria Bass does. 12 00:00:39,720 --> 00:00:46,380 Charlie Robertson: So, Centuria Bass is a private lender, so we specialize in 13 00:00:46,530 --> 00:00:52,440 Charlie Robertson: lending to predominantly development industry players and commercial real estate 14 00:00:52,440 --> 00:00:57,720 Charlie Robertson: owners. So, the three major types of lending we do 15 00:00:57,720 --> 00:01:02,820 Charlie Robertson: are construction lending to property developers, we do bridging finance 16 00:01:02,820 --> 00:01:09,479 Charlie Robertson: to developers and investors, and residual stock lending. So, that's 17 00:01:10,350 --> 00:01:15,300 Charlie Robertson: where projects have completed and they've still got apartments or 18 00:01:16,050 --> 00:01:20,040 Charlie Robertson: commercial units or industrial units remaining to be sold, and 19 00:01:20,040 --> 00:01:24,179 Charlie Robertson: they basically want to refinance out of their construction facility 20 00:01:24,569 --> 00:01:25,770 Charlie Robertson: into a term facility. 21 00:01:25,920 --> 00:01:30,690 Sean Aylmer: Okay. So, what's the trend in terms of, for private lenders 22 00:01:30,690 --> 00:01:34,949 Sean Aylmer: like yourselves versus, as many of us would know, the 23 00:01:34,950 --> 00:01:37,530 Sean Aylmer: big banks, obviously they're big lenders to that sector, but 24 00:01:37,530 --> 00:01:41,100 Sean Aylmer: there's also plenty of other banks or people with banking 25 00:01:41,100 --> 00:01:44,699 Sean Aylmer: licenses that lend to that sector. So, I'm just wondering 26 00:01:44,940 --> 00:01:47,550 Sean Aylmer: where we are in the cycle in terms of private lenders? 27 00:01:47,820 --> 00:01:52,620 Charlie Robertson: Well, the trend really started, I suppose post- GFC, where 28 00:01:53,340 --> 00:01:58,800 Charlie Robertson: you basically had most of the foreign banks left Australia 29 00:01:58,800 --> 00:02:02,400 Charlie Robertson: and retreated from their positions in the Australian market and 30 00:02:02,400 --> 00:02:07,410 Charlie Robertson: property market in particular. And the big four banks were 31 00:02:07,440 --> 00:02:11,309 Charlie Robertson: all looking to reduce their exposure to property lending. So, 32 00:02:11,880 --> 00:02:15,600 Charlie Robertson: a gap basically opened in the market there for private 33 00:02:15,600 --> 00:02:22,470 Charlie Robertson: lenders to fill that space. And that has grown since 34 00:02:22,470 --> 00:02:27,150 Charlie Robertson: then, since the 2010s, I suppose, and really took off 35 00:02:27,150 --> 00:02:31,230 Charlie Robertson: into 2012 and beyond, when the development market had started 36 00:02:31,530 --> 00:02:33,720 Charlie Robertson: opening up again and you saw more activity in that 37 00:02:33,720 --> 00:02:38,880 Charlie Robertson: space. Then you had APRA bringing in controls and trying 38 00:02:38,880 --> 00:02:43,980 Charlie Robertson: to basically reduce banks' exposures to property development. And that 39 00:02:43,980 --> 00:02:49,020 Charlie Robertson: coupled with Basel IV and the international banking regulations has 40 00:02:49,020 --> 00:02:52,560 Charlie Robertson: also made lending by the big banks into the development 41 00:02:52,560 --> 00:02:54,000 Charlie Robertson: sector, a lot more expensive. 42 00:02:54,060 --> 00:02:56,430 Sean Aylmer: Charlie, I've got to interrupt, anyone that mentions Basel IV 43 00:02:56,700 --> 00:02:59,310 Sean Aylmer: on our show gets a rap on the knuckles. Right? 44 00:02:59,520 --> 00:02:59,940 Charlie Robertson: Right. 45 00:03:00,270 --> 00:03:03,000 Sean Aylmer: So, basically what you're saying is that ... APRA, of course, is 46 00:03:03,000 --> 00:03:09,240 Sean Aylmer: the regulator and it's the regulator's regulator. So, Basel oversees ... Well, no, 47 00:03:09,240 --> 00:03:12,600 Sean Aylmer: it's a forum for central banks to get together, but 48 00:03:12,600 --> 00:03:15,359 Sean Aylmer: they set the rules for lending for banks. 49 00:03:15,690 --> 00:03:16,080 Charlie Robertson: That's right. 50 00:03:16,080 --> 00:03:19,830 Sean Aylmer: So, what you're really saying is, the regulator's regulator has 51 00:03:19,830 --> 00:03:23,190 Sean Aylmer: made it harder for banks or more expensive for banks 52 00:03:23,639 --> 00:03:26,880 Sean Aylmer: to lend money to some areas, such as construction, in 53 00:03:26,880 --> 00:03:27,630 Sean Aylmer: some cases. 54 00:03:27,960 --> 00:03:32,100 Charlie Robertson: That's right. So, they basically view construction as higher risk 55 00:03:32,100 --> 00:03:35,790 Charlie Robertson: and therefore, they want more balance sheet and capital reserved 56 00:03:35,790 --> 00:03:36,870 Charlie Robertson: on balance sheets for it. 57 00:03:37,110 --> 00:03:40,050 Sean Aylmer: Okay. So, in a sense, there's an opportunity for private 58 00:03:40,050 --> 00:03:46,110 Sean Aylmer: lenders like yourself. I mean, you said construction, bridging finance, and I 59 00:03:46,110 --> 00:03:50,880 Sean Aylmer: think it was residual stock lending. Whereabouts do you play 60 00:03:51,090 --> 00:03:55,260 Sean Aylmer: mostly? Because construction, I get. Bridging financing, I get. I 61 00:03:55,260 --> 00:03:57,360 Sean Aylmer: hadn't thought much about residual stock lending, but I'm sure 62 00:03:57,360 --> 00:04:01,290 Sean Aylmer: there's developers out there who might build 12 units, sell 63 00:04:01,290 --> 00:04:03,960 Sean Aylmer: six, still need some money to get themselves while they're 64 00:04:04,440 --> 00:04:09,119 Sean Aylmer: selling those other units. So, whereabouts do you play mostly, 65 00:04:09,120 --> 00:04:11,250 Sean Aylmer: construction, bridging or residual stock lending? 66 00:04:12,120 --> 00:04:16,560 Charlie Robertson: Well, we really reflect what's going on in the market, 67 00:04:16,589 --> 00:04:20,430 Charlie Robertson: in terms of what the space is demanding. So, in 68 00:04:21,990 --> 00:04:25,650 Charlie Robertson: 2022 for example ... Or, 2021, sorry, I'll probably go back 69 00:04:25,650 --> 00:04:29,250 Charlie Robertson: there to start with, we were doing probably 80% of 70 00:04:29,250 --> 00:04:33,270 Charlie Robertson: our book was construction funding. So, that reflected the fact 71 00:04:33,270 --> 00:04:37,529 Charlie Robertson: that we had a huge spike in development activities during 72 00:04:37,529 --> 00:04:42,540 Charlie Robertson: that period, as the COVID demand built up and you 73 00:04:42,540 --> 00:04:45,510 Charlie Robertson: had lots of cheap debt around, people were buying lots 74 00:04:45,510 --> 00:04:47,070 Charlie Robertson: of property and we had the big run- up in 75 00:04:47,070 --> 00:04:51,630 Charlie Robertson: property prices, and developers were obviously chasing that. So, that 76 00:04:51,630 --> 00:04:54,359 Charlie Robertson: was the majority of our book during that period. And 77 00:04:54,360 --> 00:04:58,740 Charlie Robertson: then as we moved into 2022, we saw the book 78 00:04:58,740 --> 00:05:03,720 Charlie Robertson: swing towards more of a balance between construction and bridging 79 00:05:03,720 --> 00:05:06,779 Charlie Robertson: finance. So, that mainly reflected the fact that you had 80 00:05:06,779 --> 00:05:10,920 Charlie Robertson: developers having to hold their sites before they could activate 81 00:05:11,250 --> 00:05:14,730 Charlie Robertson: their projects and go into construction. So, we've done a 82 00:05:14,730 --> 00:05:18,779 Charlie Robertson: lot more of that since then. The residual stock piece, 83 00:05:18,839 --> 00:05:22,619 Charlie Robertson: that reflects a down market, if you like. So, you 84 00:05:22,620 --> 00:05:27,900 Charlie Robertson: basically have developers who have completed their projects, they've got 85 00:05:28,110 --> 00:05:32,460 Charlie Robertson: enough pre- sales to start construction and get the funding 86 00:05:32,460 --> 00:05:35,400 Charlie Robertson: away, but the market has fallen away and they're left 87 00:05:35,430 --> 00:05:37,860 Charlie Robertson: with fewer buyers when they complete the projects. So, they 88 00:05:37,860 --> 00:05:40,920 Charlie Robertson: need to refinance, and that's where the residual stock lending 89 00:05:40,920 --> 00:05:41,339 Charlie Robertson: comes in. 90 00:05:41,730 --> 00:05:43,500 Sean Aylmer: Say it with me, Charlie, we'll be back in a 91 00:05:43,500 --> 00:05:52,650 Sean Aylmer: minute. My guest this morning is Charlie Robertson, Executive Director 92 00:05:52,650 --> 00:05:58,469 Sean Aylmer: of Centuria Bass. I'm sure you are very across the 93 00:05:58,529 --> 00:06:03,660 Sean Aylmer: market, Charlie Robertson from Centuria Bass. What is the market 94 00:06:03,660 --> 00:06:07,320 Sean Aylmer: looking like? What is the development and construction sector looking 95 00:06:07,320 --> 00:06:10,080 Sean Aylmer: like? There's been plenty of headwinds, inflation, rising interest rates 96 00:06:10,080 --> 00:06:13,860 Sean Aylmer: obviously is the big one. Supply chain issues, labor shortages. 97 00:06:14,310 --> 00:06:16,350 Sean Aylmer: What is the health of the sector generally? 98 00:06:17,820 --> 00:06:21,029 Charlie Robertson: Well, we're in a phase now that we really haven't 99 00:06:21,029 --> 00:06:23,039 Charlie Robertson: seen for a long time, which is where we've got 100 00:06:23,220 --> 00:06:27,989 Charlie Robertson: supply constraints, which is leading into material shortages, labor shortages. 101 00:06:28,650 --> 00:06:32,040 Charlie Robertson: So, that's pushing up all of the construction prices. So, 102 00:06:32,040 --> 00:06:34,859 Charlie Robertson: we've got rising prices and inflation and at the same 103 00:06:34,860 --> 00:06:39,839 Charlie Robertson: time, we've got falling demand. So, it's a real double 104 00:06:39,839 --> 00:06:43,080 Charlie Robertson: whammy, if you like. You're getting hit both by a 105 00:06:43,170 --> 00:06:46,440 Charlie Robertson: lack of buyers for your product, as well as rising 106 00:06:46,440 --> 00:06:49,440 Charlie Robertson: costs for your product. So, getting squeezed at both ends. 107 00:06:49,440 --> 00:06:53,310 Charlie Robertson: So, developers are finding it very difficult to make their 108 00:06:53,310 --> 00:06:56,820 Charlie Robertson: projects stack up and be viable in the current climate. 109 00:06:56,820 --> 00:07:00,870 Charlie Robertson: So, a lot of projects have really been put on 110 00:07:00,870 --> 00:07:06,029 Charlie Robertson: the back burner. Having said that, it's a very fragmented market 111 00:07:06,029 --> 00:07:10,740 Charlie Robertson: and you really have to look at every location and 112 00:07:10,740 --> 00:07:15,330 Charlie Robertson: individual project on its merits. So, there are always pockets 113 00:07:15,330 --> 00:07:18,840 Charlie Robertson: where the fundamentals all work together and you can make 114 00:07:18,840 --> 00:07:22,830 Charlie Robertson: a viable project. And so, we're picking those, I suppose, 115 00:07:22,830 --> 00:07:25,680 Charlie Robertson: and seeing them emerge. And at the same time, we're 116 00:07:25,680 --> 00:07:28,530 Charlie Robertson: seeing a lot of demand from developers who want to 117 00:07:28,530 --> 00:07:33,240 Charlie Robertson: actually defer their projects in the hope that conditions improved 118 00:07:33,420 --> 00:07:36,270 Charlie Robertson: into the back half of this year, which is what 119 00:07:37,080 --> 00:07:37,950 Charlie Robertson: we're expecting. 120 00:07:38,520 --> 00:07:41,850 Sean Aylmer: Is it a better time to be a private lender, 121 00:07:41,850 --> 00:07:44,970 Sean Aylmer: I suppose? I mean, I think overseas the figures, like non- 122 00:07:44,970 --> 00:07:49,200 Sean Aylmer: bank lending in US and Europe makes about 50% of 123 00:07:49,200 --> 00:07:53,190 Sean Aylmer: property lending. I'm sure it's a lot less here. Are 124 00:07:53,190 --> 00:07:56,100 Sean Aylmer: these the sort of times counterintuitively, that it's not a 125 00:07:56,100 --> 00:07:59,580 Sean Aylmer: bad time for private lenders, simply because they just don't 126 00:07:59,580 --> 00:08:02,429 Sean Aylmer: have those Basel guidelines that you were talking about, and there's 127 00:08:02,430 --> 00:08:06,239 Sean Aylmer: opportunities for them where they may not be otherwise when 128 00:08:06,240 --> 00:08:07,500 Sean Aylmer: the banks are all over the place. 129 00:08:08,100 --> 00:08:10,980 Charlie Robertson: Yeah, well that's right. I mean, commercial real estate debt 130 00:08:10,980 --> 00:08:17,250 Charlie Robertson: market in Australia, it's obviously unregulated, so it's very difficult 131 00:08:17,250 --> 00:08:21,540 Charlie Robertson: to find exact figures on this, but most commentators and 132 00:08:21,540 --> 00:08:24,870 Charlie Robertson: most of the analysis that you'll read says that the 133 00:08:24,870 --> 00:08:29,070 Charlie Robertson: size of the market's around about 400 ... The total market 134 00:08:29,190 --> 00:08:32,340 Charlie Robertson: I'm talking about, with the major banks and foreign banks, 135 00:08:32,340 --> 00:08:36,599 Charlie Robertson: et cetera, is probably about 400- odd billion. And non- 136 00:08:36,600 --> 00:08:40,770 Charlie Robertson: banks make up at the moment, we think around about 137 00:08:40,770 --> 00:08:47,010 Charlie Robertson: 10% of that, so 42- odd billion. And in the 138 00:08:47,010 --> 00:08:51,929 Charlie Robertson: US they're roughly 60% in non- banks. And the EU 139 00:08:52,470 --> 00:08:57,390 Charlie Robertson: and UK it's probably about 53%. So, you can see 140 00:08:57,390 --> 00:09:00,900 Charlie Robertson: we're only a fraction of what's going on globally, and 141 00:09:01,530 --> 00:09:04,200 Charlie Robertson: we think that that trend is going to continue over 142 00:09:04,200 --> 00:09:07,859 Charlie Robertson: time and will move, the non- banks that is, will 143 00:09:07,860 --> 00:09:11,880 Charlie Robertson: move to something more closely aligned with where things are 144 00:09:11,880 --> 00:09:17,700 Charlie Robertson: in the US and Europe. So, there's huge growth potential 145 00:09:17,850 --> 00:09:21,480 Charlie Robertson: and I think as we were talking about earlier, the 146 00:09:21,480 --> 00:09:24,809 Charlie Robertson: retreat of the major banks out of property development and 147 00:09:24,809 --> 00:09:28,260 Charlie Robertson: construction funding in particular, is just going to continue. I 148 00:09:28,260 --> 00:09:32,970 Charlie Robertson: don't think they have a huge appetite to come back 149 00:09:32,970 --> 00:09:36,630 Charlie Robertson: in and regain massive market share in that part of 150 00:09:36,630 --> 00:09:40,290 Charlie Robertson: the market. So yeah, I think, we'd be looking to 151 00:09:40,380 --> 00:09:44,040 Charlie Robertson: the market to increase significantly and trend towards that 40- 152 00:09:44,040 --> 00:09:46,229 Charlie Robertson: odd percent of the total market over time. 153 00:09:46,710 --> 00:09:49,620 Sean Aylmer: So, where do you access your capital? Where does Centuria 154 00:09:49,620 --> 00:09:53,400 Sean Aylmer: Bass access your money to lend? 155 00:09:54,270 --> 00:09:57,630 Charlie Robertson: We've got a number of different sources of capital. We 156 00:09:57,630 --> 00:10:03,000 Charlie Robertson: run an open- ended fund, so that's for wholesale investors. 157 00:10:03,330 --> 00:10:08,010 Charlie Robertson: So, that's available for wholesale investors to access at any 158 00:10:08,010 --> 00:10:11,699 Charlie Robertson: time. They can invest funds in there. And then we 159 00:10:11,700 --> 00:10:15,810 Charlie Robertson: place that into a pool of commercial mortgages, that'll be 160 00:10:16,260 --> 00:10:19,980 Charlie Robertson: across a range of different properties in those three different 161 00:10:20,040 --> 00:10:23,790 Charlie Robertson: types that I mentioned earlier, the residual stock, construction, and 162 00:10:23,790 --> 00:10:28,230 Charlie Robertson: bridging loans. Then we've got a network of high net 163 00:10:28,230 --> 00:10:32,010 Charlie Robertson: worth and ultra high net worth investors that will come 164 00:10:32,010 --> 00:10:36,330 Charlie Robertson: in and form various syndicates as part of our lending. 165 00:10:36,990 --> 00:10:40,200 Charlie Robertson: And then, we've got access to balance sheet lending via the 166 00:10:40,290 --> 00:10:42,600 Charlie Robertson: Centuria parent company. 167 00:10:43,110 --> 00:10:45,750 Sean Aylmer: Of course. Charlie, thank you for talking to Fear and Greed. 168 00:10:46,320 --> 00:10:47,100 Charlie Robertson: Thank you very much. 169 00:10:47,700 --> 00:10:51,630 Sean Aylmer: That was Charlie Robertson, Executive Director of Centuria Bass. This 170 00:10:51,630 --> 00:10:53,880 Sean Aylmer: is the Fear and Greed Daily Interview. Remember, this is 171 00:10:53,880 --> 00:10:57,059 Sean Aylmer: general information only. You should seek professional advice before making 172 00:10:57,059 --> 00:10:59,970 Sean Aylmer: investment decisions. Join us every morning for the full episode 173 00:11:00,000 --> 00:11:02,880 Sean Aylmer: of Fear and Greed, Australia's most popular business podcast. I'm 174 00:11:02,880 --> 00:11:04,229 Sean Aylmer: Sean Aylmer. Enjoy your day.