Established in 2016, Pallas specialises in the provision of structured debt and equity products to experienced Australian real estate asset owners and developers, providing good risk adjusted returns to its investor base.
Pallas Capital employs 18 dedicated real estate professional staff across its Sydney and Melbourne offices.
Pallas has an strong track record providing in excess of A$415m total investments since inception across 73 debt and equity transactions (55 debt) and a range of real estate sectors. Pallas have in excess of A$260million in single asset and diversified trusts Funds Under Management (FUM) as at 30 September 2020. Of those 73 transactions, 39 are first mortgages.
Loans in which Pallas FM Trust participates will be introduced, arranged and managed by Pallas Capital, also part of the Pallas Group. In each case the lender will be a special purpose vehicle controlled or co-managed by a member of the Pallas Group.
Pallas Capital has established a strong track record, with a total of about $85 million in loans written to-date (about $60 million written in 2018). All of these loans have either been repaid in full (together with all accrued interest) or are performing in accordance with their terms.
Pallas Capital targets the following underlying assets:
eastern seaboard cities with a focus on Sydney and Melbourne;
secured property values in the $5 – $20 million range, where buyer and refinance liquidity is relatively deep;
non-specialised property assets including land with residential use, completed apartments, generic commercial property and construction loans.
Each loan arranged by Pallas Capital is secured against one or more quality property assets with a recent valuation.
These investments are further supported by:
detailed due diligence in relation to the experience, financial position and reputation of the borrower and guarantors;
a clear and achievable exit strategy, typically including at least two or three alternative exits;
experienced third-party legal firms engaged to document all loans to ensure each loan is correctly secured;
active management of all loans by the Pallas Capital team throughout the term, including asset recovery if required.
The risks listed below are not all of the risks associated with the activities of PWT or with an investment in Senior Notes.
Credit Risk: Defaults on loans in which PWT holds a Participation may result in a loss of principal invested in Senior Notes and/or interest due under those Notes. This is more likely where there is a substantial fall in relevant property markets.
This risk is mitigated by:
(a) the experience of the PWT/Arranger teams;
(b) the requirement that principals behind the borrowers generally give guarantees and that borrowers and/or principals are experienced;
(c) the requirement for a recent valuation of underlying property by a reputable valuer;
(d) the short term nature of loans in which PWT holds Participations;
(e) the prudent LVR parameters governing PWT;
(f) the guarantee of all Interest payments by the Arranger; and
(g) the availability of the Bank Guarantee.
Property Market Risk: A material decline in the value of properties in relevant market segments will erode the value of the property against which the loan is secured.
This risk is mitigated by:
(a) the factors referred to under ‘Credit Risk’ above; and
(b) the requirement for a recent valuation of underlying property by a reputable valuer.
III. Interest Rate Risk: A general increase in interest rates may lead to a reduction in the value of properties and/or increase financial pressure on the borrowers/guarantors.
This risk is mitigated by the factors referred to under ‘Credit Risk’ above.
Loan Concentration Risk: It is likely that, at any point in time, PWT will hold Participations in a small number of loans.
Exposure to the Pallas Group: Both the Trustee and the Arranger are members of Pallas Group, and these entities share management teams.
This risk is mitigated by PWT being established as a separate, special purpose vehicle. If necessary, PWT could source new Participations without the assistance of the Arranger.
Liquidity Risk: There will be no formal secondary market in Senior Notes.
This risk is mitigated by the Arranger undertaking to attempt to identify buyers of Senior Notes if a noteholder wishes to sell prior to redemption.
VII. Negative Carry: PWT may be unable to identify Participations in Qualifying Loans, or be able to do so only at rates of interest to PWT lower than the rate payable under the Senior Notes.
This risk is mitigated by the right of PWT to discontinue taking up new Participations and allowing the pool of Participations to run off, applying the proceeds in early redemption of the Senior Notes