Capital Funding

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The Australian Prudential Regulation Authority (APRA) announced temporary changes to its expectations regarding bank capital ratios, to ensure banks are well positioned to continue to provide credit to the economy in the current challenging environment.
Over the past decade, the Australian banking system has built up substantial capital buffers. The highest quality form of capital, Common Equity Tier 1 (CET1) capital, reached $235 billion at the end of 2019. As a result, banks are typically maintaining capital levels well above minimum regulatory requirements.
In 2017, APRA set benchmark capital targets for banks to enable them to be regarded internationally as unquestionably strong (which was a recommendation of the 2014 Financial System Inquiry). These benchmarks are well above current minimum regulatory requirements. For the four major banks, for example, this benchmark equated to having a CET1 ratio of at least 10.5 per cent of risk-weighted assets. A lower benchmark applies for smaller banks. In comparison, the actual CET1 ratio of the banking system by the end of 2019 had reached 11.3 per cent. 
APRA is advising all banks today that, given the prevailing circumstances, it envisages they may need to utilise some of their current large buffers to facilitate ongoing lending to the economy. This is especially the case for banks wishing to take advantage of new facilities announced today by the Reserve Bank of Australia to promote the continued flow of credit. Provided banks are able to demonstrate they can continue to meet their various minimum capital requirements, APRA would not be concerned if they were not meeting the additional benchmarks announced in 2017 during the period of disruption caused by COVID-19.
APRA Chair Wayne Byres said, “APRA has been pursuing a program to build up the financial strength of the system for many years, when banks had the capacity to do so. As a result, the Australian banking system is well-capitalised by both historical and international standards.
“APRA’s objective in building up this capital strength has been to ensure it is available to be drawn upon if needed in times such as this. Today’s announcement reflects the underlying strength of the system: even if the banking system utilises some of its current large buffers, it will still be operating comfortably above minimum regulatory requirements,” Mr Byres said. 
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Temporary changes to expected bank capital ratios: APRA

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Hmlet, the Singapore headquartered co-living operator, has raised $55 million in a Series B round of funding.
It will allow the company to accelerate expansion across the Asia-Pacific.
The round was led by Burda Principal Investments, with participation from existing investor Sequoia India and new investors Mitsubishi Estate Co, Reinventure Group, and angel investors. 
It follows the company closing a Series A round of $9 million Series A in November 2018, and AU$2 million seed round in 2017.
The fresh capital from Series B will allow Hmlet to expand its presence across the company’s existing markets of Singapore, Hong Kong and Sydney, Australia. 
Plans for launch in Melbourne, Brisbane and Tokyo, Japan are also in the pipeline.
Since launching in Australia in February 2019, Hmlet has opened four co-living spaces in Sydney, with immediate plans to launch four new properties in Sydney and new locations in Melbourne and Brisbane shortly.
Founded in 2016, Hmlet's goal is to provide affordable and flexible housing solutions for a mobile workforce.
Today, Hmlet manages over 1,500 rooms and is looking to build a network that spans across 10 cities in 5 countries within the next two years. 
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Co-Living operator Hmlet secures AU$55 million funding for APAC expansion

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Australia’s largest credit union, CUA, announced that it has raised $700 million in wholesale funding from its latest securitisation.
The follows just six weeks after a successful Medium Term Note issuance for the member owned organisation.
CUA Deputy Treasurer Tim Moore said that they had committed to going to the investor market with these kind of Residential Mortgage Backed Security (RMBS) deals at least once per year. CUA’s last RMBS deal in June 2017 raised $900 million in funding.
Mr Moore said the Series 2018-1 Harvey Trust RMBS had attracted a good mixture of domestic and offshore investor interest, particularly from the UK and Australian Capital Cities.
“CUA has demonstrated strong financial performance over the past year, including strong home loan growth through both mortgage brokers and organic channels, and the performance of our home loan portfolio has a solid track record," he said.
Mr Moore concluded, “the funding raised from this RMBS deal will help support the strong lending growth we have seen over the past 6 months, and which has continued into the residential property market’s peak spring season."
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CUA raises $700 million in latest round of wholesale funding

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The Western Australia-based The Agency have finally secured the funds to secure Top Level Real Estate, run by the east coast McGrath rebel agents.
It is via a complicated $8.4 million share placement, along with $5 million of Top Level debt to be converted into shares at $0.01 per share.
The extensive documentation advised total debts of Top Level currently sit at $26,993,812, and immediately following the deal will be $18,760,100.
It's less than the simple outright $10 million capital raising being sought to fund the purchase, which they <a href="https://www.urban.com.au/news/87898-the-agency-secures-two-month-extension-to-find-funds-for-the-mcgrath-rebels-acquisition" target="_blank">continually delayed</a>.
John Kolenda emerges as the key player, with his share holding rising from his initial 5.4 percent on the initial 684 million shares on issue.
After the latest deal the non-executive director John Kolenda will have a 19.9 percent stake, subject to shareholder approval. On Monday The Agency announced the <a href="https://www.urban.com.au/news/89535-the-agency-halt-share-trading" target="_blank">acquisition was imminent</a>, with a trading halt put in place for the listed company.
The Agency have all up secured $13.4 million in new equity.
Shares were last trading at $0.11, and rose to $0.12 in early trading today.
There will be 103,808,962 shares on issue, along with 6,558,092 options.
Matt Lahood, who set up Top Level with fellow former McGrath agents, is set to be executive director and on The Agency board.
He said he sees many benefits linking the two businesses.
"The past 15 months has been a period of exceptional growth for both businesses, and we look forward to continuing on this upward trajectory with The Agency to become Australia's leading disruptive, high-growth real estate agency," Lahood said.
"The whole industry is watching and talking about us, because of what we have achieved, and I expect that interest to only intensify as the combined, well-funded, entity continues its growth momentum."
The document ts affirm the 75%-25% commission split for its agents.
"I am delighted to be supporting a business such as The Agency and I'm excited about its potential as a significant disruptive force in Australian real estate," Kolenda said.
Post fundraising and completion of Top Level acquisition, The Agency market capitalisation, at $0.30 per share, will be $30 million.
The Agency will comprise a national real estate business with two prominent brands (The Agency and Sell Lease Property).
They will have 300 sales representatives across Perth, Sydney, Melbourne and the Gold Coast, +4,000 properties under management and a mortgage book of over $1.1 billion.
The Agency's managing director Paul Niardone said the firm funding commitments was an important move for the company.
"This placement is a major step forward for The Agency, strengthening our balance sheet while providing us with the funds to progress the Top Level acquisition and expand The Agency and Sell Lease Property businesses nationally," Niardone said.
"It also provides funds for further acquisition opportunities in Western Australia and Sydney, where we have attracted a number of enquiries from Real Estate businesses wishing to merge into The Agency."
"The acquisition of Top Level will result in the addition of a highly experienced east coast real estate sales and project marketing team, significant property management portfolio and extensive sales pipeline.
"It is a game-changer for The Agency and will further cement our position as the fastest growing disruptive real estate group in the country.
"Top Level, which has been trading as 'The Agency' on the east coast of Australia since launching in March last year, has established, with our support, a significant business in a short period of time, surpassing our recruitment and sales targets.
"Combined, its founders - Matt Lahood, Ben Collier, Steven Chen, Shad Hassen and John Kolenda - bring over 100 years of real estate and finance experience to the business."
"Post the Top Level acquisition, the Company will have a strong footprint in the Perth and Sydney residential property markets, with offices in Melbourne and on the Gold Coast and plans to expand into Canberra, South Australia and further expand its Western Australian options."
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The Agency secure McGrath rebels Top Level with $8.4 million share placement

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<img src="/images/2015/10/07/Holdencapital_banner.jpg" alt="" width="413" height="87">
SPONSORED POST
The seven different types of property developers
1. The back of the ute developer – This type of developer is typically a former or current tradesman who has a lot of mates who will help out with the build job. Pricing and feasibilities are very flexible and tough to pin down, which makes financiers nervous; bankers much prefer firm construction quotes from a recognised firm. As we all know, the biggest cost risk associated with a development is construction, so it’s important to get this right. 
The market generally allows for a 5% contingency in construction costs, but sometimes banks insist on a higher % if they are concerned about the builder, any specialisation involved, the quote or issues raised by the QS report. Banks are always cautious about the potential for costs overruns, and we often hear the question “how is the Developer going to fund any cost overruns?” The back of the ute developer often has issues in these areas but there are solutions if you know how to package the deal and where to look.
2. The extended family developer – Sometimes we see developers who comprise an extended family with varying levels of experience. Often the kids have inherited their parent’s property(s), which are located in a development hotspot, and the family agree that they will band together and try to develop the project themselves, rather than sell the site to a developer. Potentially this can be a recipe for disaster with emotions and other motivation outweighing pragmatism. 
Whenever the extended family group gets together, the lack of a cohesive goal and the competing motivations make achieving a quick resolution difficult and generally speaking, these types of developments lacking a clear and concise plan, combined with an inability to make quick decisions translate into disasters. The extended family developer is hard going for all the obvious reasons and their project rarely achieves its full potential without a preparedness to compromise and work with the right advisers.   3. The Phoenix developer – We are currently seeing a prolific return of phoenix developers who were very successful developers pre-GFC, entered into somewhat rapid declines during the GFC due to unfortunate dealings with their creditors but are now rising again Phoenix-like. Typically this type of developer is very experienced, but unfortunately misjudged both the state of the market and their level of exposure to it during the GFC. Now they are back out there trying to do deals again, but with limited equity. These guys know what they are doing, and are full of confidence and unlikely to make the same mistakes, for now. They are more conservative with their own limited capital and are looking for equity partners to leverage their position and are moving forward using their experience and contacts to good advantage. They will most likely be successful in the coming years.   4. The $1,000 option fee developer – These guys are always out there pounding the pavement trying to tie up development sites for a very small option fee over an extended period. If they manage to convince the vendor to agree to this strategy, they then have to work out how to develop the site with limited or no equity or take a fee for selling it on to someone who can deliver on it. A challenge indeed! 
We know of a number of high net worth investors who will assist these would be Developers by providing the required equity shortfall, but they need to be prepared to give away a good chunk of the profit, to reflect their real level of risk/reward.     5. The second generation developer – “Dad was a developer, so I’m a developer”. Hopefully dad was a successful developer and taught them well. If so, their chances of success are pretty good. Property development is a pretty tough business and a sound knowledge of the industry is a key advantage, but just because you’re a second-generation developer doesn’t guarantee success. It can make it somewhat easier, especially on the equity side of things! The smart second generation developer learns from their father’s mistakes, and expands on their successes.   6. The “know it all” developer – The know it all cant be told. They are an eternal optimist and believe that all property developments will work, regardless of the market, location or type of development if they are doing it. They also don’t need to do the proper research or employ specialist consultants who could assist with the development, especially in its formative stages. This type of developer don’t need help on any level and believe that property development is easy (for them at least), and a way of providing a top up to their superannuation fund/lifestyle. It’s important to understand that property development is a skill, and just because you have been successful in other areas of business, doesn’t necessarily translate to becoming a successful property developer. This type of Developer can also be likened to “The Debut Developer” or “The Genius” and the “Dreamer Developer”.   7. The cautious developer – The cautious developer is the one who identifies risk up front and finds ways to mitigate these as much as possible. This type of developer believes that the success of each development is based on the success of their risk management plan. They also realise that they don’t know everything, and won’t hesitate to utilise the skills of others, where there is a gap in their knowledge and skills base. In reality, they are the “Smart Developer” and we love working with them because we know they will be doing deals for a long time to come.
In summary, our experience has indicated that the most successful property developments are those who:
<ul>
<li>Have a robust risk management plan;</li>
<li>Have employed the relevant experts to undertake specialist reports where necessary;</li>
<li>Have put a sound marketing plan in place;</li>
<li>Have properly researched the market, price point and location of their product; </li>
<li>Are experienced and knowledgeable in what they are doing;</li>
<li>Have engaged a reputable builder with sound financials and a strong track record.</li>
</ul>
 
This article was written by Dan Holden of HoldenCAPITAL, who are a bespoke construction finance firm, they arrange construction finance and invest in projects through their equity fund, Queen Street INVEST. 
To discuss your project finance requirement please call (07) 3171 4200 or <a href="https://www.holdencapital.com.au" target="_blank">click here</a>.
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