Finding CRE loan solutions where others can’t

Kylie Speer  00:00:07 Hello and welcome to MPA TV. I'm Kylie Speer, and joining me today is Jason Arnold, Group Executive Origination at Pallas Capital. Welcome to you, Jason. And thank you so much for being here today. 

Jason Arnold  00:00:21 Hi, Kylie, thanks for having me. It's great to be here. 

Kylie Speer  00:00:24 Well, firstly, Jason, can you share an overview of your career in commercial broking, highlighting key areas of specialization and significant learnings along the way? 

Jason Arnold  00:00:37 I can. Kylie, I actually started in the broking industry around 22 years ago, with a large brokering firm at the time, in a credit credit analyst role. Over the first three or four years, I then moved into an origination role, and during that time, actually had great mentors that taught me a lot, not only about the finance industry, but more importantly, the commercial finance industry and the non bank sector, which is critical. So from there, after about 10 to 12 years, I decided to take the next step and start my own broking firm, the transition of which was quite smooth, predicated upon having great mentors, great learnings, and having strong relationships built over a long period of time those relationships not only with clients, but with lenders, with aggregators and with consultants such as values quality surveyors and lawyers. So having those relationships enabled me to provide some great solutions to my clients. I could lean on those relationships, and the learnings I had in the non bank sector proved to be very valuable for providing bespoke solutions to my clients at the time where the broking market probably wasn't as sophisticated in that non bank or structured finance market, so I was very fortunate. 

Kylie Speer  00:01:55 What motivated your transition from being a broker and business owner to leading Palace capital's growing origination team, and what had been the biggest challenges and rewards in this new role?  

Jason Arnold  00:02:10 Yeah, good, good question. I after 20 odd years of broking, I needed to further challenge myself and continue learning. So I was looking, in a general sense, for what opportunities, whether that be in the broking industry or not. But then I was approached by Palace capital, and I've had some really good experiences with Palace capital as a broker. They had provided or helped me provide solutions to my clients in commercial finance and structured finance, and with that, Dan gal and Alexis Holloway have been business and personal colleagues for a very long time, 20 odd years. So when I sat down with Dan and Alexis and learned about the I suppose, a growth journey that Pallas is on, it was actually quite exciting. So for me, I took go out of my comfort zone and took on that challenge. And look, it's been so far, terrific, fantastic. I mean, the challenges for me in this role now are building the brand name in the marketplace. I was fortunate enough to have the experience and provide bespoke solutions. So the challenge is building the palace brand name and letting the market know how good not only our staff are and then how technically capable they are, but also enabling our broker market, which is 80% of our business, to provide these solutions to their clients. So that was that was good. 

Kylie Speer  00:03:40 Yeah, Pallas Capital has grown significantly since its inception in 2016 Can you provide an overview of its specialization in commercial real estate debt and how it supports Property Investment and Development? 

Jason Arnold  00:03:58 Yeah, I suppose the unique part of palace is they have significant institutional funding lines, and that enables us to have a large product range in the non bank sector. So both construction and non construction products. Our construction product is, I would say, almost market leading in terms of our flexibility, our turnaround times. The construction product is supported well supported by non construction products such as commercial investment, land finance, pre development finance and also residual stock finance. And what that enables us to do is take the broker and the client on a journey. So if you're a developer and you acquire a site, we can provide a funding solution. We can then support that client whilst they get a development permit. And once they have that permit, we can actually switch that client from our pre development loan into a construction loan. Even better, once construction is finished, we have the ability to roll that construction loan into our residual stock loan so that journey. For the developer. We're on that journey, we take the broker on that journey, we provide that support right through the life cycle of a development. So I suppose that's the benefit of palace capital. And as I said before, 80% of our business is generated via the third party channel. And with myself coming from that background, I've got a high appreciation respect for the work that the brokers do. So one, we love our broker point experience, but when they don't possess that experience, I'm and the team are more than happy to provide the education and training for the brokers so they can sell our product and provide those solutions to their clients more effectively.  

Kylie Speer  00:05:41 Jason with commercial real estate primed for growth. What market trends do you see emerging, and how can brokers capitalize on these opportunities here? 

Jason Arnold  00:05:51 It's been a tough market over the last 24 months for anyone in the commercial real estate game, for property investors, for property developers. So I mean, the higher the growth or increase in construction and development costs, the interest rates and holding costs have increased, and the lack of bank funding, to be completely honest, has made it really tough. So you know, with that in mind, borrowers have had to either find more equity or find solutions, and through Pell capital or the broken market, we've been able to help. I suppose the trend of increasing non bank exposure, I think that trend is here to stay. So there is a larger presence for non banks, and I suppose that's providing enabling markets to provide solutions for their clients. We provide, on that basis, a slightly higher leverage than what banks would. So our products typically allow a lower level of equity into a transaction, and we're a lot more flexible in terms of pre sales, pre leases and ICR covenants. So the way we calculate the required income to service interest is a lot more flexible than the banking sector. So I would previously have said that we typically provide a short to mid term solution for clients in a tough environment like this, and then enable them to go back to a bank once everything has, I suppose, improved. But people say that the cost of capital is coming down in the non bank sector, which is great for us and everyone else in the non bank sector. So we're probably taking a more long term view with clients now. So not only providing that solution for them, initially to get them out of a bind with the banks, but also provide a long term product to benefit them moving forward. So for brokers, that creates an opportunity for them, and I would suggest that for brokers, diversifying into commercial, but not just commercial, but the commercial, non bank sector is an amazing opportunity to provide more solutions for their clients. 

Kylie Speer  00:07:54 Pallas Capital has doubled its origination team to support brokers better. How does this expansion benefit brokers, and what specific support does Palace capital offer to help brokers succeed in the commercial real estate lending space? 

Jason Arnold  00:08:12 Yeah. So we fortunately, at the present time, we have offices in Melbourne, Sydney, Brisbane and also Auckland. We are increasing our presence on the ground. And as I said earlier, the challenge, a great challenge for us, is spreading the message of our products and getting the benefits our product out to the broker and direct client market. So we have been particularly in who we have hired in that growth strategy, and our front line staff are technically very capable. So when it comes to all spectrums of the products that we have, the construction and non construction of structured finance, our staff that know consultants that can benefit not only our products, but the brokers and their clients, is critically important. So with that one, we've got to educate our broker market so those that don't know the non bank space, we can help teach them where our funding sources are and and how stable they are as well. We can provide them with education in terms of learning about commercial finance in general, and whether that's construction and total cost on end value ratios, whether it's senior debt, mes debt, for our good and existing clients, we've got preferential equity options for them, so it does take a little bit of time to learn that, and we are happy to provide training. We have a really solid relationship with our loan market group. So through loan market group, we have a greater reach to the broker market, and we can also, through their professional development days and their webinars, teach brokers more about non bank and about the palace products in particular. 

Kylie Speer  00:09:55 And finally, Jason, what key pieces of advice would you offer to commercial brokers working with Pallas Capital to ensure a seamless and successful outcome? 

Jason Arnold  00:10:06 I think in the early days, really important to find a mentor, a mentor that's got experience in the space that you want to be in and learn as much as you can. So again, non bank is growing in their prevalence in the marketplace. The cost of capital in the non bank space is coming down. The flexibility that is there does provide great solutions for brokers and their clients. So for us moving forward, you know, I just want to get the products out there more, reach out to the broken market. And what I would suggest is reach out to one of our many relationship managers and originators that can help you structure a transaction, or help the broker market structure transaction that suits the client's needs, not only in the short term, but also in the long term. So we are there to help the broken market. I've got a solid background in the broken market, so understand it back to front, and I know how important it is to build really strong relationships and build trust, and that comes via the experiences that you have and going through that process a number of times. So reach out, ask as many questions as you can the team and myself are always willing to help, and we just want to provide some great solutions for brokers and their clients across the board. 

Kylie Speer  00:11:29 Well, thank you so much for your time today, Jason and for sharing your insights with us. It was so great speaking with you. 

Jason Arnold  00:11:36 Thank you very much, Kylie, it was a great experience, and thank you once again. And I look forward to chatting in the future, also catching up with a lot of brokers over the next period of time. 

Kylie Speer  00:11:46  And thank you, of course, to our viewers for watching the latest episode of MPA TV. We look forward to seeing you again soon.