New non-bank fund launches for commercial property

Property lender Pallas Capital has officially established its new commercial property lending vehicle this week, with the initiative commencing its first loans from 15 November.

Coined Pallas Funding Trust, the initiative is intended to provide funding to a range of pre-development loans, residual stock loans and investment property loans.

Pallas Funding Trust was able to move ahead following the approval of a total funding figure of $530 million from funding partners Pallas Group and Credit Suisse.

According to Pallas Capital, they anticipate these loans will be between $1 million and $10 million.

The lender also expressed that it will target medium-sized commercial real estate loan types and “borrowers that lack liquidity as they fall between the lending focus of established non-bank lenders and the banks”.

However, this project specifically will not provide loans for construction.

As per a statement from Pallas Capital, Pallas Funding Trust is “in the process of negotiating with additional funding institutions to increase this funding”.

Pallas Capital chief investment officer Dan Gallen said: “This market segment, whilst underserviced at present, features substantial lending volumes given that most commercial properties have a value in the range of $1 million to $15 million.

“Pallas Funding Trust has been designed to focus its lending business in this borrower segment. In addition, the loan types that Pallas Funding Trust funds, such as value-add investment loans, residual stock and pre-development loans are the loan types the banks have limited appetite to fund.”

Mr Gallen added that, while there are other non-bank competitors, these lenders are generally funded by “retail or ‘high net worth’ investors”, meaning that these investment flows “can shrink quickly if sentiment deteriorates, as it did in the first COVID-19 lockdown in 2020”.

“In this case a significant pool of commercial real estate borrowers can be left without commercially attractive loan options,” Mr Gallen said.

“With Credit Suisse as a funding partner, Pallas Funding Trust is protected from such pressures on liquidity and is well placed to continue lending through cycles that would sideline many of its competitors.”

Pallas Capital executive director of lending Steve Lawrence added: “Pallas Capital’s loan book has grown in recent years at about 75 per cent per annum, even though our cost of funding has been relatively high.

“We have achieved this by ‘speed to market’ and by offering loan terms that are flexible and commercially realistic.

“Pallas Funding Trust will have the same turnaround times and flexibility, but a significantly lower cost of funding.

“By lending at lower rates to borrowers, we expect Pallas Funding Trust will swiftly carve out a leading position in the commercial real estate lending markets.”

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