The nation’s leading non-bank commercial property loan operation, Balmain, has launched a mortgage fund for a new era of self-managed super fund investors.
The financial crisis hammered the $30 billion mortgage trust sector of old. Many trusts collapsed; the rest will struggle to gain new funds.
But Balmain executive chairman Michael Holm said the time was right for a new style of mortgage fund.
The second-tier banks, the mortgage funds and the foreign banks have all quit the market, leaving commercial property lending to the big four.
“These structural changes have resulted in higher returns, and lower risks from first mortgage lending than has been the case for many years,” Mr Holm said. At the same time, “self-managed super funds are crying out for fixed return investments they can choose themselves”.
“So we have developed an online model where they can choose the asset in which they invest,” he said.
The new product is the Balmain Discrete Mortgage Income Trusts.
The chief executive of Balmain Funds, Stephen Tunley, said the aim was to provide “the opportunity to invest in individual, stand-alone, first mortgage secured commercial property loans”.
“It will enable investors to participate in the higher returns available in this sector by choosing to invest in individual loans that might best meet their risk, reward and term needs,” he said.
The product is two-tiered.
Investors must first place at least $50,000 in a cash trust invested with the NAB.
Mr Tunley calls it a “no-risk look see”.
With one click, investors then see a range of commercial mortgage investments available individually.
At the moment, 10 are available, with the figure soon to be 12.
Returns are from 6.05 per cent to 8.1 per cent a year, paid quarterly, on terms from three to 24 months and loan-to-valuation ratio of 23 per cent to 70 per cent.
Properties are located in Queensland, NSW and Victoria and include the key sectors of office, industrial, retail and residential.
All are first mortgages and all are completed investments. (The residential property is residual stock in a completed development.)
Mr Tunley said the product had been “soft launched” to 1000 selected clients.
“About 50 per cent are interested,” he said. “The first investment was $600,000 and we are talking to people considering investments of $100,000 to several million.”
Minimum investment in any one mortgage is $10,000.
Fees vary with each transaction but are around 1.4 to 1.6 per cent of the investment. Half is paid during the term of the mortgage and the balance at the end, but only if investors gain their money and their target return.
“Our advice is to diversify the risk and build a portfolio over time,” he said.
Balmain has originated and settled more than $30 billion of commercial property loans since 1979.