Tailoring Finance for Developers and Strong Returns for InvestorsApril 14, 2019

Published by The Boutique Developer



"Supporting those high-quality developers seeking an alternative to bank finance by deploying our investors’ money at the lowest possible risk for the return."
Paul Miron, Managing Director


Under sixteen years of John (JT) Thomas’ management, the former Howard Mortgage Trust rose to just under $3 billion in FUM – the largest and arguably best performing trust of its kind in Australia. Today JT acts as Chairman of Msquared Capital, one of Australia’s most astute private lending teams formed as a joint venture between Managing Directors; Paul Myliotis and Paul Miron, who have grown their respective award-winning financial services businesses for over 15 years.

The key themes that underpin Msquared Capital’s approach are those increasingly glossed over by the larger institutional funds.

Paramount to its model is the subject of tailoring, which encompasses the notions of relationship, track record of developers and Msquared Capital’s ‘contributory’ approach which allows their investors the freedom to select from any of the fund’s available loan opportunities.

"It is important to us that our investors have complete transparency over the transaction in which they’re participating. Generally, our sophisticated clients are capable of understanding the risks associated with each project - and the contributory model offers them a great degree of comfort."

Fundamentally, the proposition for developers in seeking funding through Msquared Capital is the accessibility to the decision makers who are renowned for providing bespoke solutions. Once the Msquared team have established that they are comfortable with the developer and that any risks are appropriately mitigated, they are able and willing to push the envelope more than other lenders on gearing and facility terms.

Reward versus risk

The risk reward equation is the bedrock upon which any decisions are made. With the aim of solid and secure returns driving their philosophy, the Msquared executive team are acutely focused on mitigating risk and ensuring all loans are repaid in full - with interest.

Their 2019 investor presentation in the private dining room of Martin Place’s Prime steakhouse was an intimate gathering of elite and, in many cases, renowned investors. The presentation itself was underpinned by a score of high-quality project opportunities spanning a cross-section of Sydney suburbs.

A unique insight in assessing developer risk

There are two defining factors that allow the executive team to assess the merits of each project with an exceptional degree of experience, insight and acumen.

The first being the strong relationship in each case with the developer, which brings with it a transparency and ability to structure solutions according to a unique set of circumstances.

Director Paul Miron goes on say that “The single most important factor in determining the success of a transaction is the developer’s experience. The developer’s process and market knowledge are priceless. Of course, the numbers must stack up - but ultimately, you’re backing the person-both in character and experience.”

The second factor is Msquared’s in-house expertise in respect to analysing the quality and risks associated with development, aided by director George Tisseverasinghe who holds Masters qualifications in Property Development and Town Planning. Paul Miron illustrates this by describing a recent case in which they chose not to take on a transaction which at face value presented as a quality opportunity to invest in an industrial development in Sydney’s South West with a 30% LVR.

“This initially appeared interesting, but digging a little further, a few points of concern quickly arose. Firstly, this was a first-time developer with a thin balance sheet. Secondly, the product, pitched as high-tech industrial, on further investigation was unsuitable for the local market and research demonstrated that comparable spaces in more suitable locations were left untenanted for prolonged periods. The security would have in effect been considered ‘specialised’. Finally, we were concerned that the builder wouldn’t enter into a fixed-price contract.” Some of these issues in isolation could be mitigated and dealt with but compounded together the executive team chose not to participate in the transaction irrespective that the borrower proposed a willingness to pay exorbitant costs for the funding.

In conversation, it becomes abundantly clear that the Msquared team would prefer to be more aggressive in its lending appetite for those developers who have proven themselves.

Three to agree; unanimous credit committee approvals

John (JT) Thomas, Paul Miron and Paul Myliotis-with combined experience over 85 years make up the credit committee and very importantly every loan submission requires unanimous approval to proceed. That is a real value add for Msquared Investors.

Developers need considered solutions

For developers too, the Msquared approach to tailoring solutions has proven an appealing one. By way of example, Paul Miron describes a loan recently settled for $10million where a developer had completed a fifty-unit development with a number of residual unsold apartments, a scenario all too common in the current environment for off-the-plan sales.

“Sure, the developer could have gone to one of the major banks for residual stock finance at 5%pa but the banks would have provided substantially lower gearing, been very slow at responding and essentially locked the developer into a term debt solution requiring them to end the sales campaign and work towards leasing up the stock.

To lease eighteen apartments takes time and for a developer to be sitting on what is effectively “dead” capital, which could be deployed towards the next project, means missing out on opportunities for an extended period of time.”

The level of uncertainty posed at this critical juncture is turning developers away from traditional lending options. They are seeking a simpler, private solution albeit at a higher cost.

Our objective here is to establish a mechanism that works for both the investor’s capital and the borrower’s requirement. In this case the solution was a fixed term with an option to extend, allowing the borrower to sell down the residual units in his own time.

In ending our conversation, Paul Miron re-emphasised the regard Msquared Capital has for developers who have proven themselves time and time again. He picks up his copy of Boutique Developer magazine and closes with “This conversation about experience, reliability and knowledge is fundamental. It goes back to classic commercial banking of times gone by. This conversation has been lost to a large degree - but really it’s the one that most interests us.”

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Who are we?
‘We’, ‘us’ and ‘our’ refer to Msquared Capital Pty Ltd, and our related businesses.

Our commitment to protect your privacy
We understand how important it is to protect your personal information. This document sets out our privacy policy commitment in respect of personal information we hold about you and what we do with that information.

We recognise that any personal information we collect about you will only be used for the purposes we have collected it for or as allowed under the law. It is important to us that you are confident that any personal information we hold about you will be treated in a way which ensures protection of your personal information.

Our commitment in respect of personal information is to abide by the Australian Privacy Principles for the protection of personal information, as set out in the Privacy Act and any other relevant law.

Personal information
When we refer to personal information we mean information from which your identity is reasonably apparent. This information may include information or an opinion about you. The personal information we hold about you may also include credit information.

Credit information is information which is used to assess your eligibility to be provided with finance and may include any finance that you have outstanding, your repayment history and any defaults. Usually, credit information is exchanged between credit and finance providers and credit reporting bodies.

The kinds of personal information we may collect about you include your name, date of birth, address, account details, occupation and any other information we made need to identify you.

If you are applying for finance we may also collect the ages and number of your dependants and cohabitants, the length of time at your current address, your employment details and proof of earnings and expenses. If you apply for any insurance product through us we may also collect your health information. We will only collect health information from you with your consent.

Why we collect your personal information
We collect personal information for the purposes of assessing your application for finance and managing that finance. We may also collect your personal information for the purposes of direct marketing and managing our relationship with you. From time to time we may offer you other products and services.

To enable us to maintain a successful business relationship with you, we may disclose your personal information to other organisations that provide products or services used or marketed by us. The types of organisations to which we are likely to disclose information about you include other mortgage intermediaries, lenders, valuers, lenders mortgage insurers, surveyors, accountants, credit reporting bodies, recoveries firms, debt collectors and lawyers. We may also disclose your personal information to any other organisation that may have or is considering having an interest in your finance, or in our business.

How do we collect your personal information?
Where reasonable and practical we will collect your personal information directly from you. We may also collect your personal information from credit reporting bodies and from finance brokers and other people such as accountants and lawyers.

Do we disclose your personal information?
We may disclose your personal information:

Prior to disclosing any of your personal information to another person or organisation, we will take all reasonable steps to satisfy ourselves that:

  1. the person or organisation has a commitment to protecting your personal information at least equal to our commitment, or
  2. you have consented to us making the disclosure

We may use cloud storage to store the personal information we hold about you. The cloud storage and the IT servers may be located in outside Australia.

Credit information
We may collect the following kinds of credit information and exchange this information with credit reporting bodies and other entities:

We exchange this credit information for the purposes of assessing your application for finance and managing that finance.

This credit information may be held by us in electronic form on our secure servers and may also be held in paper form. We may use cloud storage to store the credit information we hold about you.

When we obtain credit information from a credit reporting body about you, we may also seek publicly available information and information about any serious credit infringement that you may have committed.

We may disclose your credit information to overseas entities that provide support functions to us. You may obtain more information about these entities by contacting us.

Notifiable matters
The law requires us to advise you of ‘notifiable matters’ in relation to how we may use your credit information. You may request to have these notifiable matters (and this privacy policy) provided to you in an alternative form.

We exchange your credit information with credit reporting bodies. We use the credit information that we exchange with the credit reporting body to assess your creditworthiness, assess your application for finance and managing your finance.

If you fail to meet your payment obligations in relation to any finance that we have provided or arranged or you have committed a serious credit infringement then we may disclose this information to a credit reporting body.

You have the right to request access to the credit information that we hold about you and make a request for us to correct that credit information if needed. Please see the heading Access and correction to your personal and credit information, below.

Sometimes your credit information will be used by credit reporting bodies for the purposes of ‘pre-screening’ credit offers on the request of other credit providers.

You can contact the credit reporting body at any time to request that your credit information is not used in this way.

You may contact the credit reporting body to advise them that you believe that you may have been a victim of fraud. For a period of 21 days after the credit reporting body receives your notification the credit reporting body must not use or disclose that credit information. You can contact any of the following credit reporting bodies for more information:

Direct marketing
From time to time we may use your personal information to provide you with current information about finance, offers you may find of interest, changes to our organisation, or new products or services being offered by us or any company with whom we are associated.

If you do not wish to receive marketing information, you may at any time decline to receive such information by telephoning us on (02) 9389 1859 or by writing to us at Suite 1702, Level 17, 101 Grafton Street, Bondi Junction NSW 2022. If the direct marketing is by email you may also use the unsubscribe function. We will not charge you for giving effect to your request and will take all reasonable steps to meet your request at the earliest possible opportunity.

Updating your personal information
It is important to us that the personal information we hold about you is accurate and up to date. During the course of our relationship with you we may ask you to inform us if any of your personal information has changed. If you wish to make any changes to your personal information, you may contact us. We will generally rely on you to ensure the information we hold about you is accurate or complete.

Access and correction to your personal and credit information
We will provide you with access to the personal and credit information we hold about you. You may request access to any of the personal information we hold about you at any time. We may charge a fee for our costs of retrieving and supplying the information to you.

Depending on the type of request that you make we may respond to your request immediately, otherwise we usually respond to you within seven days of receiving your request. We may need to contact other entities to properly investigate your request.

There may be situations where we are not required to provide you with access to your personal or credit information, for example, if the information relates to existing or anticipated legal proceedings, or if your request is vexatious.

An explanation will be provided to you, if we deny you access to the personal or credit information we hold about you.

If any of the personal or credit information we hold about you is incorrect, inaccurate or out of date you may request that we correct the information. If appropriate we will correct the personal information at the time of the request, otherwise, we will provide an initial response to you within seven days of receiving your request. Where reasonable, and after our investigation, we will provide you with details about whether we have corrected the personal or credit information within 30 days.

We may need to consult with other finance providers or credit reporting bodies or entities as part of our investigation.

If we refuse to correct personal or credit information we will provide you with our reasons for not correcting the information.

Using government identifiers
If we collect government identifiers, such as your tax file number, we do not use or disclose this information other than required by law. We will never use a government identifier in order to identify you.

Business without identifying you
In most circumstances it will be necessary for us to identify you in order to successfully do business with you, however, where it is lawful and practicable to do so, we will offer you the opportunity of doing business with us without providing us with personal information, for example, if you make general inquiries about interest rates or current promotional offers.

Sensitive information
We will only collect sensitive information about you with your consent. Sensitive information is personal information that includes information relating to your racial or ethnic origin, political persuasion, memberships in trade or professional associations or trade unions, sexual preferences, criminal record, or health.

How safe and secure is your personal information that we hold?
We will take reasonable steps to protect your personal information by storing it in a secure environment. We may store your personal information in paper and electronic form. We will also take reasonable steps to protect any personal information from misuse, loss and unauthorised access, modification or disclosure.

If you are dissatisfied with how we have dealt with your personal information, or you have a complaint about our compliance with the Privacy Act and the Credit Reporting Code, you may contact our complaints officer on 02 9389 1859.

We will acknowledge your complaint within seven days. We will provide you with a decision on your complaint within 45 days.

Further information
You may request further information about the way we manage your personal or credit information by contacting us.

Change in our privacy policy
We are constantly reviewing all of our policies and attempt to keep up to date with market expectations. Technology is constantly changing, as is the law and market place practices.

As a consequence we may change this privacy policy from time to time or as the need arises.

You may request this privacy policy as an alternative form.

This Privacy Policy came into existence on 14 May 2018.