Disciplined approach forges new path in non-bank lending

Government action to address the national housing shortage is intensifying competition in the mortgage trust category of Australia’s rapidly expanding non-bank lending sector, with funds of all sizes and risk profiles stepping in to finance property developments that the banks won’t.

For Centuria Bass Credit Fund (CBCF), winner of the Mortgage Trusts category at the Financial Newswire/SQM Research Fund Manager of the Year Awards 2024, success in this crowded space has come from ‘sticking in their lane’, according to Yehuda Gottlieb, Managing Director, Funds & Distribution.

He said by focusing on a sweet spot of middle market deals between $20 million to $50 million, typically too small for institutional investors but too large for family offices, the fund was building a reputation among SME developers as a preferred supplier of credit.

‘We’re working out a solution with the borrower where they don’t have many alternative options,’ Mr Gottlieb said.

This disciplined approach has also attracted attention from the big end of town. In July, Centuria Bass welcomed UBS as a financing partner, with an initial $100 million senior secured commitment from the global investment bank, bringing funds under management to $1.9 billion.

Centuria Bass was established in 2016 by joint CEOs, former UBS co-head of corporate debt capital markets, EMEA, Giles Borten and former Wingate managing director Nick Goh. Mr Gottlieb, also ex-Wingate, joined in 2020 as partner and managing director.

The business is 80 per cent owned by ASX-listed property investment manager Centuria Capital Group.

CBCF lends to medium density, or boutique, residential real estate, a segment of commercial property that investors find easy to understand and that state governments are working to stimulate.

The fund is open to wholesale investors, with SMSFs and retirees making up most of the investor base.

‘People who have made a bit of wealth and are looking to preserve it, but still get some good income flowing off the portfolio,’ Mr Gottlieb said.

It has delivered annualised returns of 9.08% since inception, returning 9.4% net over 12 months to July 31, 2024. The manager is targeting 10% per annum.

The rapid expansion of non-bank lending in Australia has brought with it warnings that not all private credit providers are the same. The Australian Securities and Investments Commission has warned it would be scrutinising fees, loan structures and valuations that appear opaque.

Mr Gottlieb acknowledged there were issues within the broader sector but that CBCF’s approach was to provide investors with full access and transparency.

‘If they call up and want to go through the portfolio from A-Z and run through every loan and any potential issues or how it’s tracking and what the borrowers are like, we’re happy to do that,’ he said.

‘Our portfolio is 100 per cent first mortgage (with) very conservative LVRs across the board.’

He said the team was an active manager of the loans, meeting at least weekly to understand how they were tracking.

‘The testimony to that is the fact we’ve done 140 deals since inception in 2016 without a loss of capital,’ he said.

His advice to investors was to ‘go with players that have been in this market for a long time that have managed money throughout the cycle’.