- Mr Lawrence has over 40 years of experience in the banking and finance industry, first introduced to non-bank lending at LaTrobe
- Joined Pallas Capital in 2020, where he focused on creating growth in the company's loan book
- Says Pallas takes a unique investor-focused approach to ensure investors are looked after just as well as borrowers
In our latest edition of Real Story, a series focusing on the property sector’s most influential people, The Property Tribune spoke to Pallas Capital Executive Director of Lending Steve Lawrence.
With a career spanning over 40 years in the banking and finance industry, Mr Lawrence
brings an experienced eye to his most recent appointment at Pallas.
Mr Lawrence shares with us a glimpse into his career journey and the current challenges faced by the lending industry and provides a unique insight into Pallas’ lending process.
Supporting non-bank lenders to achieve portfolio growth
Mr Lawrence hails from London, where he began his career at The Reliance Bank, which is the Bank of the Salvation Army.
He made the move to Australia in 1984, working for several banks before being introduced to the non-bank lending sector by joining La Trobe Financial in 2007.
Over the next 13 years at La Trobe Financial, Mr Lawrence focused on creating growth in the company’s commercial and construction lending book.
“La Trobe had a mortgage fund, and my recollection is it was about $290 million when I joined in ’07 and was in excess of $5 billion by the time I left in 2020,” he said.
In addition to driving the resurrection of La Trobe’s construction lending book, Mr Lawrence said one of his main priorities as Chief Lending Officer – Commercial was to ensure the monies placed into the mortgage fund by its investors were looked after as best as possible with the quality of assets placed into the Fund.
“In that 10- or 11-year period before I left, we had probably settled a few billion dollars’ worth of transactions and the loss ratio was very minimal, which would have been pleasing for the investors and gave them the comfort to invest in those types of loans.”
Mr Lawrence was approached by Pallas Capital in 2019 and offered an opportunity to become their Executive Director of Lending, which he accepted in April of 2020.
Growth in the months after joining was slow, a sign of the times says Mr Lawrence.
“We didn’t do much volume in the first months – not many people did. It was Covid times and there was a bit of nervousness in the market.”
It wasn’t long before confidence in the market recovered and Pallas’ loan book began to grow exponentially.
“We really started to hit our straps in November and December 2020, where we settled about $250 million in those two months.”
Since December 2020, Mr Lawrence and his lending team have settled another $1.35 billion, bringing funds under management now to approximately $1.36 billion.
The impacts of the pandemic have continued to persist, along with recent concerns around inflation and recent interest rate increases.
These conditions have required more intensive management of the loan book, particularly in one of its major products, construction loans.
“There are two main risks in construction lending that have been ingrained into me over
many years of lending and that is the marketing risk and construction risk.
“The marketing risk, of course, is being able to sell the properties, prior to, during and at the end of construction and a lot of lenders, especially banks, want 100% of their loan amount covered by pre-sales,” Mr Lawrence explained.
Non-bank lenders take a bit more of a risk in asking for less than the banks.
While he says borrower developers have not had many issues selling properties in recent times, changes to the market could make pre-sale requirements more difficult to meet.
Mr Lawrence expects that this factor will see the more flexible non-bank sector picking up more of this type of lending.
Construction risks are a much larger concern for the industry however, driven by labour and supplies shortages that have impacted costs.
“[The builders] have got a bit of a double whammy at the moment. There’s a shortage of supply and materials, which is of course pushing the costs up, and the shortage of staff is causing issues as well,” said Mr Lawrence.
Mr Lawrence said that the tie-up between Pallas and Fortis, a leading developer in Melbourne and Sydney, was a real aid to Pallas in assessing construction loan risks.
An insight into the non-bank lending process
Non-bank lenders have grown in popularity, particularly over the last few years,
revolutionising the traditional loan process for borrowers.
These institutions are typically much smaller than a bank and rely on either wholesale funding from local or overseas financial institutions or retail and wholesale investors to finance loans.
Pallas finalised its first institutional tie-up with a facility from Credit Suisse signed in November last year.
The lending vehicle funded by Credit Suisse had quickly established itself as the fastest growing vehicle in the Pallas stable.
According to Mr Lawrence, non-bank lenders must be quicker in assessing loans and offer borrowers greater certainty, reliability, and a better return on equity than their bank counterparts to gain a competitive edge.
“It’s probably one of the most, if not the most, competitive non-bank lending markets I’ve ever worked in.”
With the rise of several new non-bank lending institutions, Pallas Capital is trying to set
themselves apart with speed to market from an origination viewpoint, commerciality,
certainty and reliability from a credit viewpoint, and an investor-focused approach which ensures investors are looked after as much as borrowers.
Mr Lawrence said the majority of Pallas’ loans originate from mortgage brokers, who
approach Pallas with a deal on behalf of their borrowers.
If Pallas are interested in lending, an indicative terms sheet is issued to the broker/borrower, which if accepted is forwarded to Pallas’ credit team to commence formal the loan assessment process.
This process is very thorough, typically including credit checks, character and financial
assessments, and a property valuation.
Once credit approval is received, a formal letter of offer is issued to the borrower and the loan is settled and managed by Pallas.
“We’re hands-on in all that we do and our aim is to help borrowers meet their requirements, but also and probably more importantly is to look after our investors, earn them a return, and to limit any losses for them, which to date we are pleased to advise that we have not lost any principal or interest for any of our investors,” Mr Lawrence concluded.
