Goldman Sachs starts commercial lending to developers

Investment bank Goldman Sachs wants to fill the gap in commercial lending created by a tightening by major banks, and will finance $1 billion in loans to residential developers.

The loans could range across a mix of residential and commercial lending and will centre around construction and development loans, but not mortgages.

Ever since local banks tightened their lending for development and construction loans about 18 months ago to cut down their exposure to the housing boom, many developers were left stranded without funds for their planned apartment projects.

Goldman Sachs wants to use this opportunity for lending, but would charge a higher interest rate, according to The Australian Financial Review’s Street Talk column.

Goldman plans to operate at the same level as banks, exercising the same credit review and due diligence as major lenders.

Street Talk cited sources close to Goldman Sachs saying all prospective deals would be carefully examined, and only high-quality projects and experienced developers will be considered. The global investment bank is eyeing deals above $100 million.

The bank will also consider non-real estate commercial loans.

Sources said millions of dollars have already been committed towards senior, stretched senior loans and first mortgages over projects. Mezzanine funding is also being considered.

Many groups such as Balmain, the largest commercial lender outside the major Australian banks, Wingate, Chifley Securities, Alceon and Qualitas have been active in this space.

Also in the game are more "shadowy" lenders such as high net worth clubs, with funds obtained from local and foreign sources as well as various foreign banks. 

The surge in this sector, though still small at 6 per cent of the entire financial market, had prompted the Reserve Bank to say in its last financial stability review that increased non-bank securitisation especially in mortgage related products warranted "ongoing attention".