The $1 billion apartment development Queens Place in central Melbourne is the latest project to seek offshore and non-bank financing as local lenders shut their doors to ambitious residential development plays.
The move by the developer comes just as the Australian Prudential Regulation Authority this week renewed its warnings to the big banks about lending to developers and shoring up capital buffers.
The project at 350 Queen Street, controlled by a syndicate of expatriate Chinese investors, has approval to deliver 1800 apartments in twin 79-storey towers, making it one of the largest residential developments in the city.
The first stage of Queens Place, one whole tower, is almost fully accounted for in pre-sales to a mix of local and foreign buyers.
However, local banks are wary, forcing the owners of the spectacular project, the 3L Alliance, to investigate financing from offshore or the non-bank sector.
3L Alliance general manager Gavin Boyd said the group had brought in advisory firm EY to run a process on finance options.
"The financial market is pretty tight at the moment, especially locally," Mr Boyd told The Australian Financial Review.
"For a lot of developers of larger scale and even of smaller scale, the opportunities of funding externally, outside Melbourne and Australia, to find the right funding package to match the development outcome is where the market is at.
"There are opportunities overseas. That's what we've looked at and we're looking at our options at the moment to see what the best proposal is.
"We hope to start as soon as we tie up the funding. It's been a major issue across the industry for the last six months."
Mr Boyd and his investors are not alone. Non-bank finance and offshore lenders are moving swiftly to plug the funding gap left by local banks.
Superannuation funds are coming to the party too. This week it was revealed that Local Government Super and Fire & Emergency Services Superannuation Fund will take a stake in Centaur Property's real estate debt funds.
Gresham Property is also expected to launch its sixth developer lending fund soon, with market sources suggesting it could be as large as $500 million. Gresham declined to comment on its plans.
The funding gap helped another non-bank finance group, Chifley Securities, to book record levels of loan applications worth $1.1 billion for the 2016 calendar year.
The second half of the 2016 calendar year saw Chifley lift its lending to property developers and investors by 140 per cent over the previous corresponding period.
"We are witnessing property developers being squeezed by very restrictive loan-to-valuation ratios now being imposed by the major banks," said Chifley Securities' principal, Joe Morello.
"Meanwhile Chinese property developers and owners are also being squeezed by new foreign capital outflow restrictions being imposed by the Chinese government, presenting a great opportunity for second and third-tier lenders to fill the vacuum."
The group now has $880 million in current loan applications for projects, with loans ranging in size from $5 million to $60 million in first mortgages, land banking and construction finance.
