Our Chairman, Steve Wiltshire has penned his thoughts on HoldenCAPITAL Partners activity in 2018 and looks ahead to 2019.
2019 - The Year Ahead
So how do we see the year ahead? As expected, the banks continued their retreat from the construction sector and with investors well and truly retracting their exposure to the resi sectors across the eastern seaboard developers have been reassessing their strategies. In SEQ, the focus shifted to smaller owner-occupier focused product and infill subdivisions which is the usual direction taken by the market at this point in the cycle. There were no real surprises in this and we expect more of the same in 2019 as the projected improvements in the Queensland economy combined with the affordability gap, particularly as regards Sydney,leads to an improved net interstate migration flow that will drive an improving development landscape.Conversely, in Sydney we witnessed a rapid slow down in the rates of sale and demand for new project sites, with many developers now faced with projects that are no longer stacking up. While we expect that opportunities in Sydney will continue, there will be a need to exercise caution with an increased emphasis on the demand fundamentals and ensuring that the delivery process is robust.Melbourne is lagging Sydney in the cycle and with strong international migration and better infrastructure support is likely to enjoy a softer landing. We have seen a steady flow of sound opportunities and expect this continue through 2019, albeit with the market continuing to slow from its highs but at a more manageable rate than Sydney. Again the focus will be on the product meeting market demand with an increased requirement on proving the value proposition.There is some debate as to the likelihood of interest rates rises with the general consensus being they would begin in 2019, however the recent hint by the RBA that a further decrease was not off the table indicates that the market could remain relatively flat for at least another 12 months. Given we continue to see an influx of new lenders to the sector with many beginning to look at the low interest gap being left by the banks, it is our view that it is unlikely that we will see any significant increases in the foreseeable future.With all that in mind our focus will continue to be on deals that satisfy the common sense test with a good cross section of location,sector and capital stack risk levels to ensure something for everyone. But at the end of the day, the market dictates what is sensible and we will always limit the risks accordingly.
Reflections On 2018
Well, that all went by very quickly. When Dan, Gary and I sat down this time last year to set ourselves some targets and mapped out how we saw the prospects for 2018 we felt fairly comfortable to set ourselves a target of 9 to 10 settled transactions and we figured an average of $1.5M at a time was a fair target for a small fund just starting out with a small network of potential investors. However, your strong interest in the types of deals we are able to procure has seen us write some 13 transactions for a total of some $18.5M to round out an exciting first year. When I consider that our underlying mantra has been to take our time, be selective and not write deals just because we can, I think we have achieved an excellent balance of risk weighted opportunities that have provided our investors with real choices according to their appetite.
Loan Updates
We are pleased to provide you with an update in relation to each of HoldenCAPITAL Partners' Select Loan Investments launched in 2018.
Commenced: 19 January 2018
Loan term: 15 months
Projected IRR: 24.8%pa
Actual IRR: 23.82%pa
Loan Purpose: This loan was to assist with the development of Stage 1 (of 3) of a land subdivision, being 58 residential lots.
Update: This loan was repaid in full on 6 December 2018. Investors achieved a net IRR of 23.82%pa.
Commenced: 22 March 2018
Loan term: 9 months (plus rollover option)
Projected IRR: 10.4%pa
Actual IRR: 10.54%pa
Loan Purpose: This loan was to assist the Borrower with the purchase of land which he intended to achieve DA for 44 townhouses.
Update: This loan was repaid in full on 19 December 2018. Investors achieved a net IRR of 10.54%pa.
Commenced: 27 April 2018
Loan term: 3 months (plus rollover options)
Projected IRR: 12%pa
Actual IRR: TBC
Loan Purpose: This loan was to assist with the purchase of a site.
Update: This loan has been extended until 31 January 2019, at which point the loan will be repaid by a construction finance facility arranged by HoldenCapital.
Commenced: 3 April 2018
Loan term: 7 months
Projected IRR: 28%pa
Actual IRR: TBC
Loan Purpose: This loan was to assist with the acquisition and construction of a service station with a head lease to United Petroleum.
Update: The service station has been completed and the occupancy certificate has been granted. The completed service station will be sold at auction in early 2019.
Commenced: 18 May 2018
Loan term: 21 months
Projected IRR: 22.5%pa
Actual IRR: TBC
Loan Purpose: This loan was to meet the difference between the cost to complete and the approved senior construction loan.
Update: A summary of works completed on site to date comprises; Hydraulic Drainage to pits and tanks, Basement reinforcement steel placement, DGB placement for basement slab, Concrete Placement for Basement Slab, Columns reinforcement steel placement, Retaining Wall (Dincel Wall) steel placement, Formwork Ground floor Slab.
Commenced: 9 August 2018
Loan term: 6 months (plus rollover option)
Projected IRR: 10.42%pa
Actual IRR: TBC
Loan Purpose: This loan was to refinance five unsold completed two- bedroom units in a complex of 14 apartments.
Update: There is an unconditional contract on one of the units which is due to settle on 21 December 2018. The net proceeds will be used to make a principal reduction to the loan amount and investors will receive a pro-rata capital return payment.
Commenced: 23 August 2018
Loan term: 6 months (plus rollover option)
Projected IRR: 10.42%pa
Actual IRR: TBC
Loan Purpose: This loan was to assist with settlement of the land, pending amended Development Permit approval for the childcare & medical at which point the Borrower would seek construction finance which will repay the loan facility.
Update: In consultation with the pre-committed Childcare and Medical tenants the Borrower is now proceeding with the original DA. They are currently in the tender process for the build.
Commenced: 1 November 2018
Loan term: 11 months
Projected IRR: 22.30%pa
Actual IRR: TBC
Loan Purpose: This loan was secured by a Second Mortgage over a project that is 3 months into a 10 month build program, providing the client with a reverse equity solution to assist with securing his next project.
Update: November/December has seen some great progress with relatively good weather enabling the team to track to schedule.Timber framing & cladding is complete for Buildings C & D (Units 14-27)with Building B (Units 9-13) nearing framing completion. BuildingA's (Units 1-8) framing is expected to be complete prior to Christmas.Roof & Windows have been installed on Buildings C & D and our painters are now on site making good progress.This week will see the Electrician finalize wiring for Buildings C & D and insulation to walls/ceilings.
Commenced: 19 November 2018
Loan term: 6 months (plus rollover option)
Projected IRR: 22.30%pa
Actual IRR: TBC
Loan Purpose: This loan was to refinance existing loan facilities secured against The Property and provide additional funds (progressively drawn upon receipt of invoices) to advance the Master plan Approval and building approval for The Property.
Update: The loan settled on 19 November 2018. We will provide regular updates throughout the loan term.
Commenced: 29 November 2018
Loan term: 7 months
Projected IRR: 28%pa
Actual IRR: TBC
Loan Purpose: This loan was to assist with the acquisition of the site and construction of a service station with a head lease to United Petroleum.
Update: Site acquisition occurred on 29 November 2018. HoldenCAPITAL are currently finalising construction finance for the Borrower, with site works expected to commence early January 2019.
Commenced: 21 December 2018
Loan term: 12 months
Projected IRR: 8.89%pa
Actual IRR: TBC
Loan Purpose: This loan was to refinance 15 completed one and two- bedroom units in a complex of 83 units.
Update: The loan is fully subscribed and settled on 21 December 2018.