Over banks? But what can I do about it?

One of the things that some of my clients have a moan about is their bank.

They may simply want to refinance to purchase another property, do some upgrades or draw on their equity. They have been with the same bank for many years, never missed a mortgage repayment and have a high level of equity.

They are finding their history with the bank and loyalty counts for nothing. They are being put in contact with a person that doesn't know them, who is asking for a whole lot of information the bank often already has and having to pay for a lot of bank requested reports.

Often they say 'flag it - don't bother'.

We see in the residential market that more and more people are using mortgage brokers to arrange mortgage finance.

What are the options in the financial sector for commercial developers, add value players and those wanting to grow their portfolio?

More and more people are now starting to use the services of companies such as Navigation Financial Partners.

I sat down with Rachael Wise, a partner in Navigation Financial Partners, to find out why people use their services and what the cost is.

Continue reading about the interview with Rachael.

It is well known in the Wellington commercial property market that, for a number of years now, you have arranged funding for many of the city's leading property investors, developers and add value players.

Thanks Kevin.

For over 20 years, I have been in Wellington working in finance, specifically in property finance largely for mainstream lenders, but most recently, in my own capacity, working across all sectors of the market. Five years ago, I set up Navigation Financial Partners with Scott Menzies. We saw a gap in the market, new forms of capital were coming in and investors and developers needed help to access it. A number of borrowers struggle to access capital across all the varying banking channels, and we help ‘navigate’ that process.

Why do developers and investors engage you?

It’s my experience, time in the market and passion for what I do, I know the market and all the funders. I really like what I do and enjoy working with my clients and I think together we have achieved amazing things – I look around Wellington and I feel proud of the projects I’ve been involved in. A number of my existing clients have worked with me for many years, and they trust me. I operate with integrity and try to deliver the best results and I think they see that. I lose sleep thinking about ways to make deals work, so my clients don’t need to, and I feel they see the work I put in on their behalf. Also, acting for so many investors and developers helps, and I can leverage off the knowledge I gain on each deal for the benefit of the next client. Experience has shown to me there is normally more than one way funding can be achieved.

In terms of new clients, they are normally referred to me. They come to me initially because they are either fatigued by the process, they don’t know who to talk to, or they don’t understand what their bank is telling them. But they keep coming back because I can quickly tell them what they can and can’t do and within what timeframes and what they will need to provide. I try to make the process easy or at least easier.

As you know, Kevin, some developers struggle with completing forms and providing the information in a format the lender requires. They are brilliant at what they do but not necessarily at methodically recording it. I take care of this for them, freeing up their time to focus on projects and pursue new opportunities.

How do you charge?

Residential mortgage brokers get paid by the banks. Commercial mortgage brokers and advisors typically get paid directly by clients. I am 100% independent and I prefer it that way. I don’t charge for initial advice. If I believe I can secure the client a better deal or just get the finance approved, I will issue a fee proposal that is only payable on the successful conclusion of a transaction.

If the purchase is subject to finance, amongst other things. You arrange the finance, but the purchaser does not proceed. Would the purchaser have to pay your company a fee?

No 😊 not unless they want to, and often I get clients asking to pay me anyway as they see the time I put into their deals.

What information do you commonly require from a borrower?

That really is dependent on the situation, but for a commercial property refinance or acquisition, I would need to understand the value of the asset (via valuation or SAP Agreement), income and expenses for the property (leases and schedule of outgoings/ OPEX), seismic / BWOF/ maintenance/ CAPEX obligations, title and encumbrances, ownership structure (supported by Trust Deeds etc.) and detail on the experience of the sponsor and their wider position.

How can you save the borrower money?

Knowledge of the industry. Knowing how to structure a loan and making the process easier for both the client and the bank tends to result in the best outcome – it can be saving them money in interest / fees, but it can also be in accessing additional capital or structuring the repayments in a more favourable way. Value is different to different people.

How long does the process take, on average?

For me to initially assess what a client could or couldn’t do, it would take a few days following receipt of information. For a bank to formally approve a transaction it can take up to 6 weeks. However, they can be very quick too when presented with all the right information and in the right format and I think that is the value I can add.

Can you give some examples of deals where you have assisted a client to get finance?

I could give you a lot - I think I have arranged around $500-800 million of loans over the last 4–5 years since we started Navigational Financial Partners. Those loans range from $500k to $150 million. I act for people buying their first property to those with much larger portfolios. I also act for investors and developers. In recent years, I have also acted for property owners financing the strengthening of their building and owner operators either buying or de-leveraging their portfolios.

An average request might be someone who has had a long standing banking relationship with one bank and is looking to leverage off their portfolio to buy another property, and they get told no, or they can’t find a person with experience in the industry to talk to.

Often, I can facilitate by referring them to the right person in an organisation, but sometimes I need to help them to better present their position in terms of existing portfolio and present it in a way to ensure the bank can understand what the client is looking for and what they currently have.

A recent example of that was for a client who had been managed by the same bank for over 30 years and couldn’t understand why the bank was struggling to lend them money. However, it was really just due to the structure of the loans, which were secured over a multitude of commercial properties and the bank wasn’t including all the income, which caused them to think the position was worse than it was. I just helped them tidy up the information they were providing to the bank and present it in a more logical manner.

Another example was a client who was a passive investor, had a single building, leased to a few tenants which had a low seismic rating and needed to be re-strengthened. They knew from tenants and their insurer they needed to undertake work to improve the rating, but securing the funding to do it was a daunting prospect for an owner who had been building equity through repaying the debt since acquisition. They didn’t know how to approach their bank and whether they could borrow, especially given there was not going to be a substantial value uplift. The strengthening in the end was done, but they had to commit to selling the building on completion as the income no longer was enough (with rising interest rates) to service the interest and repay principal on the increased debt sum. It was only sustainable in the short term. But doing the work did make the building marketable. It was an interesting process and the benefit for them was that we could sit down and chat the options through and model it up, and it was through this process that the reality of their situation became apparent. For a number of borrowers they just want to understand the options from an impartial person, they might have reached the same conclusion, but working it through with someone with no vested interest is helpful.

I also help developers fund residential subdivisions and townhouse developments, which requires a lot of expertise. Criteria is constantly changing, and it's important to stay in touch with lenders to ensure you're on top of each bank's requirements. The funding I arrange is from small scale, 3–20 townhouses, to much larger developments, 180 lot subdivisions, while typically in Wellington I also have a couple of Auckland and Nelson-based clients.

I do many deals, and I’m involved in lots of acquisitions, refinances, developments, restructuring etc. Normally, they are for clients with large portfolios, but I also enjoy helping out first-time developers or investors. I operate in the mainstream bank sector, secondary and equity. In terms of pricing, it really varies and depends on the risk associated with the transaction. If it’s a mainstream bank, it might range from ~8% for a floating rate commercial loan and in the non-bank sector it ranges from ~9% and goes up from there. The non-bank sector can be a great option for clients who want to secure longer-term interest-only loans at higher LVR’s for a short term, i.e. while they go through change or use or release vacant space, for example.

I think, with property, I have discovered there is no one solution that suits everyone. It’s about creating bespoke solutions and being expansionary in your approach. Most of the time there is a solution, it just takes time to methodically work through the opportunity and present a solution.

Thanks for your time, Rachael, and for teaching us more about how you can assist investors and developers with funding. It is clear to me that we are starting to follow the international trend where more investors and developers will use the services of people such as yourself.

If you would like to contact Rachael her details are below.

Navigation Financial Partners

rachael@navfp.co.nz

Phone: 021 773 649