Commercial private mortgages on the East Coast: what we're seeing in Sydney, Melbourne, Brisbane, the Gold Coast and Canberra

A commercial private mortgage is a short-term loan secured by commercial property, like shops, offices, industrial units, hotels or specialised buildings, and it's usually used when a business needs money faster, or on different terms, than a bank can offer. Most of the commercial deals that reach us are refinances, often with a tax debt or an expiring facility behind them, and the question is nearly always the same: does the value support the debt, and is there a believable way out in 6 to 36 months?

Here's what we're seeing across the East Coast. The examples below are based on real enquiries, but the numbers and details have been changed so none of them can be identified.

Sydney: a retail refinance with a tax debt

A business owner wanted to borrow about 65% of the value of a retail property to refinance the existing loan and pay down a tax debt, while also selling another property to help.

They wanted to pay the interest monthly, but our view was the interest should be capitalised, because rent from a single tenancy doesn't always cover a private loan's interest, and the last thing you want is a borrower in arrears in month three. The funder's first questions were how big the tax debt was and whether it was in default, which is exactly what you should have ready.

Sydney: when the loan doesn't clear the payout

A borrower wanted to refinance a couple of commercial strata units and release some equity for another project. Once capitalised interest and fees were included, the maximum loan the value supported fell short of the existing payout, so the borrower would have needed to contribute cash, and it didn't proceed.

The lesson: the first test on any commercial refinance is whether the maximum loan, after interest and fees, actually repays the existing lender. If it doesn't, the conversation has to be about more security or a contribution, not a different rate.

Melbourne: a low-risk refinance decided on price

A client with a well-located commercial property wanted to refinance a bank loan and release a modest amount for cash flow, at a conservative LVR. It was a good asset and a low-risk loan, and the broker was comparing lenders on price, so another lender took it, which is fair enough, because on low-risk deals the rate often decides it.

Brisbane: a specialised building

A broker brought us the refinance of an existing private loan over a specialised property. Buildings like this don't fit every funder's box, so we confirmed how our funder would treat the asset before sizing the loan, and we sized it to a set LVR cap rather than capitalising everything, with the client covering the shortfall.

Gold Coast: land valued as land, and unfinished buildings

On the Gold Coast we've seen purchases where the plan depended on a future approval or lease. Without the approval in place, the site had to be valued as land, which limited the loan.

We've also seen requests to refinance buildings that weren't finished. We don't fund construction or completion works, so we decline those and point the broker to a specialist.

Canberra

We've seen fewer commercial deals from the ACT so far. We lend in Canberra on the same basis as Sydney, and we'd like to see more.

Larger operating assets

We also see larger refinances of operating businesses' property, like hotels and accommodation, where the existing loan needs to be taken out. Deals of that size can be considered through our funding partners.

What gets a commercial private mortgage approved quickly

• A value backed by comparable sales. We'll accept a valuer we don't normally use if the comparables stack up.
• A payout figure and a clear purpose. Refinance, tax, working capital or purchase, with numbers for each.
• The tax position, if there is one. How much, whether there's a payment plan, and whether it's in default.
• An exit with evidence. A sale campaign, a bank's indicative approval or a lease that's about to be signed.
• Entities that line up. The borrowing company, the registered owner and the guarantors should all match across the documents, because a mismatch stops a deal faster than anything else.

We lend $1M to $20M on commercial property across Sydney, Melbourne, Brisbane, the Gold Coast and Canberra, for business and investment purposes only, and we normally settle in 5 to 10 business days once the valuation is in. Send us the scenario and we'll tell you quickly whether it works.