Non-bank lender Monark has raised $65 million from its wealthy private investor base for a new high-yield debt fund that will provide loans to developers seeking finance to kick off boutique residential and commercial projects in the inner suburbs.
The real estate financier, backed by the Melbourne-based family office of Justin Liberman, scion of the country’s third-richest family, expects to deliver total returns of more than 15 per cent for investors in the first iteration of its High Yield Debt Fund series.
Monark Property Partners director of funds management Dani Peer said the new fund would provide early project funding, with a focus on apartment developments with an end value of between $25 million and $75 million in the inner ring suburbs or “middle property markets” as well as boutique commercial projects and residential land sub-divisions.
“We targeted $60 million and raised just under $65 million. We only went out to our existing investors and strategic partners.
“I imagine we could have attracted a lot more capital. Capital is plentiful, but there is a scarcity of quality opportunities.” Mr Peer told The Australian Financial Review.
Of the $65 million raised, about $13 million (20 per cent) came from Monark’s shareholders and its management team.
Mr Peer said some investors had “dipped their toe” in the water, investing several hundred thousand dollars, while others had put in amounts from $1 million to $5 million.
Monark executive director Adam Slade-Jacobson said the new debt fund was designed to do the “heavy lifting” on projects to help get them to construction commencement.
The higher returns will come from the loans’ ranking as subordinated debt (also known as mezzanine financing) below first mortgages, which are typically provided by banks.
“We strongly believe that property values [in these middle markets] are stable and enduring and have proven to be particularly resilient in a post-COVID environment,” Mr Slade-Jacobson said.
While the collapse of tier one contractor Probuild has highlighted the risks to major projects that take many years to complete, Mr Slade-Jacobson said that in the sector it focused on – smaller, boutique projects – construction contracts were typically of shorter duration (12-18 months) which meant projects usually started and finished within the same economic cycle.
“At Monark we always embark upon a rigorous assessment of a contractor’s capability and financial solvency to undertake projects and provide ongoing management during the construction term,” he said.
Last year Monark raised about $250 million for its flagship prime credit fund which provides first mortgage facilities for developers to make land acquisitions or fund construction, also with a focus on inner suburban projects.
Mr Peer said Monark had identified a seed portfolio of eight inner urban residential and commercial projects to provide loans to through its high yield debt fund, equal to about two-thirds of the raising.