Liberman family-backed Monark Property Partners has made risk management the major focus of a new construction financing fund after warning of looming investor losses for some non-bank lenders making “poor lending” decisions.
The Melbourne-based fund manager expects to raise an initial $250 million for its new flagship prime credit fund that will provide loans to residential and commercial developers of projects in its inner urban target market, where off-the-plan demand has remained robust during the pandemic.
All loans will be senior debt-only facilities – the fund manager will avoid any mezzanine or other “exotic” credit exposures, where the risk to investor capital is higher.
“When you include [lower-ranking] mezzanine debt, there is a level of uncertainty which is hard for investors to get their heads around,” Monark CEO Michael Kark told The Australian Financial Review.
He said the non-bank lender needed to be “very risk aware” in an environment where a growing wall of capital was “becoming increasingly less choosey about the risk that it is prepared to take on”.
“Many participants in the market are being rescued by the cycle – an environment where the consequences of poor lending (and subsequent investor losses) are masked by ever-increasing property values,” Mr Kark said.
“This a result of the current aggressive fiscal and monetary policies employed in Australia, arguably since the GFC and certainly after the onset of COVID.
“At some point the property cycle will reassert itself and investors with more aggressive exposure are likely to be hurt,” Mr Kark said.
Backed by Jagen, the Melbourne-based family office of venture capitalist Justin Liberman (son of family patriarch Boris Liberman) Monark is targeting annual returns of 7 per cent for its new fund.
Alongside its staple of inner suburban apartment projects, Monark’s new debt fund will also expand the non-bank lender’s exposure to boutique office projects. In May, Monark agreed to fund the construction of four office projects worth a combined $90 million and make one of them its new corporate premises
Mr Kark said the fund would primarily provide construction loans of between $5 and $30 million, but could go higher or lower depending on the project.
The maximum loan-to-value ratio will by 65 per cent on terms of about 15 to 18 months. Interest rates will be determined on a case-by-case basis and depend on factors like pre-sales, the pedigree of the developer and the project’s builder.
The new fund will provide an opportunity for investors in Monark’s four close-ended funds to roll over their investments. Minimum investment in the prime credit fund is $250,000.
“The philosophy we bring to the prime credit fund resonates with investors who are concerned both with protecting their capital and making a decent return on it,” Mr Kark said.