Pallas Capital, a specialist Australian commercial real estate investment management firm, has successfully closed the first A$30m tranche of their Australian-first tradeable wholesale bond issue.
The Pallas FM Trust is a four year, fixed-rate bond, which provides an innovative way for investors to earn a high yield underpinned by a diversified portfolio of commercial real estate debt assets. The bond is an Australian-first as it is a tradeable wholesale bond, issued through the Australian Bond Exchange and BGC Securities – a first for the asset class.
Pallas Capital’s fund is offering investors a 7.5% p.a. yield, payable quarterly in arrears, over a four-year term. The funds raised by the bond issue will be invested in a mortgage loan ‘warehouse’ facility comprising registered first mortgage loans secured over premium, inner-city Sydney and Melbourne land, investment and development assets, with a maximum loan to value ratio of 65 per cent.
Pallas Capital, via the Australian Bond Exchange and BGC Securities, has now raised A$30m in the first tranche, with the capacity to raise up to $100 million. Strong interest is expected to continue from high net worth individuals, family offices, wealth advisers and institutional investors.
Investors are protected by a ‘first loss investment protection’ mechanism, equivalent to 5% of the aggregate amount invested in the issued bonds. This amount is held as a reserve to be drawn upon by Pallas Capital if needed in order to meet its financial obligations to noteholders. Pallas Capital has never had a default on any loan arranged by it.
Mark Spring, Executive Director of Pallas Capital, said the transparency, protections and liquidity offered to noteholders by Pallas Capital is what investors were finding most appealing.
“We are proud to have reached our first milestone of A$30m in our Austraclear bond issue, and predict that interest in non-bank lending will continue to grow in popularity. Secured investment in commercial real estate debt is still a new asset class in Australia, but well established in more mature financial markets overseas, such as Europe and North America.
“The structural dislocation of global and domestic credit markets during the GFC and more recently COVID-19, together with APRA’s increasing regulation of the big four banks, continues to provide a significant non-bank lending and mispricing opportunity and lends itself to private capital participation on favourable terms.
“With interest rates at record lows, Pallas Capital is aiming to remove as many barriers as possible for private investors wishing to participate in a diversified portfolio of registered first mortgage loans that provide attractive risk-adjusted returns and income yields,” Mr Spring said.
Dan Gallen, Executive Director of Pallas Capital, said that Pallas Capital takes a meticulous approach to analysing each property loan opportunity, underpinned by the executive teams’ 150 years of combined experience in structuring and managing loans.
“Pallas Capital’s success has been built on the simple fact that the provision of finance to experienced developers, secured against well-located assets, remains undersupplied. We are proud of the developments we have helped bring to market in suburbs like South Yarra and Toorak in Melbourne, and Double Bay and Rose Bay in Sydney, and we will continue to focus on lending to high-end, boutique developments.
“Our Australian-first move to issue this type of investment brings the additional peace of mind of settlement through Austraclear and improved liquidity through secondary trading via the connectivity between the Australian Bond Exchange and the IRESS trading platform. We are also able to offer noteholders superior transparency through real-time prices and data on the security,” Mr Gallen said.
Australian Bond Exchange CEO, Bradley McCosker commented, “The Pallas bond issue is a great example of a quality investment that is now available to the investing public. Before any product is admitted to trading status it must first meet ABE’s strict admission criteria. We commend the Pallas team for undertaking the admission process to achieve a great result for both Pallas and Australian investors,” he said.
Pallas Capital has a strong track record as a specialist commercial real estate financier and investment manager. In the last quarter of 2020 alone, it originated A$208m across 17 investments, and continues its exemplary track record with no defaults incurred on any transaction.
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