Pallas juggles full list of projects

Sydney property player Pallas Group has moved to take funds from Harvey Norman boss Gerry Harvey’s family office to cover its $83m purchase in Double Bay.

Fortis is planning to redevelop the site on Bay Street, Double Bay.

Boutique property operator Pallas has moved to take funds from Harvey Norman boss Gerry Harvey’s family office as it juggles the addition of new projects to a bulging list of purchases made by Fortis, the firm’s development arm.

Fortis has turned to Mr Harvey to personally fund two projects through his family office, sources told The Australian, although Fortis said it would not “discuss the affairs of our investors”.

The deals include a $50m loan at 9 per cent interest to cover 2-10 Bay St, Double Bay, which falls due in June.

Fortis paid $82m for the site in February last year, touting it as a project that “seamlessly fits into our broader vision” for the area. The developer had planned to join 2-10 Bay St to its project at 21-27 Bay Street in a $130m ­proposal.

Lenders Qualitas and Metrics are understood to have been contacted about refinancing the debt.

Pallas Capital has a $1.63bn loan book across 213 loans while Fortis claims to be sitting on almost $2.25bn in projects in the pipeline, split almost evenly between Sydey and Melbourne.

Pallas Capital and Fortis are overseen by Pallas Group chairman Patrick Keenan and run from the Double Bay headquarters of Pallas House.

Mr Keenan said Fortis made a $12.8m pre-tax profit in the 2022 financial year on $45m in revenue.

He said Pallas Group projected pre-tax profits of $20m-plus this year on $65m in revenue.

Pallas Capital lends money to commercial developers, funded by a mix of wholesale money from major lenders including Credit Suisse as well as an array of Australian business backers.

Mr Keenan said the firm would not comment on its investors, but noted “we have about 800 active high net worth investors who lend monies across a wide range of property-backed investments”.

Pallas Group chairman Patrick Keenan said the firm has met all redemption requests made by investors, but admitted some trusts backing Fortis projects had seen delays.

These include the Harvey Norman boss, as well as several ­Macquarie bankers, Canberra property baron David Kenyon, and Morgans principal Rob Fiani.

Mr Kenyon, understood to be one of the biggest Pallas Capital backers, declined to comment “other than to confirm that entities representing our families do have a number of investments in projects managed by Pallas Group”.

“Pallas Group has always observed the terms of our investments and we are extremely happy with the performance and management of the investments by Pallas Group,” a spokesman for Mr Kenyon said.

Mr Keenan recently travelled to Singapore, Japan and South Korea to drum up interest in debt investing, with the firm ­applying for a CMS licence in Singapore.

Fortis has secured refinancing on three of its facilities, worth a total of $142m, for premium projects in Sydney since February.

But industry sources claim Fortis may struggle to meet redemptions to investors amid a cash crunch on the back of several new settlements on new purchases and the need to refinance projects coming to completion with stock sitting unsold on Fortis’s books.

However, Mr Keenan told The Australian there were “no outstanding redemption requests in any Pallas Capital managed investment”.

He said the lender had returned $409m to investors in the 2022 financial year and $576m “to-date in FY23”.

“Over 90 per cent of all redemptions occur automatically at the end of the investment term and over 75 per cent of all redemption monies are reinvested in Pallas Capital investments,” he said.

Pallas Group told noteholders in its Warehouse Trust 3 in December that despite the fund expiring, it would only seek to make 25 per cent capital distributions over the coming four months.

“During this period, the fund cannot make new loan investments and will progressively redeem notes as loan investments are repaid,” Pallas Funds director Dan Gallen told investors.

Mr Keenan confirmed there had been delays in redemptions on Fortis’s Chambers St project in Melbourne’s inner city suburb of South Yarra.

“The Chambers Street Capital Trust made a residual stock loan that had a final maturity date of May 2022 and was repaid progressively to investors with a final payment date of August 2022,” he said.

“The loan was extended to give time to sell the remaining apartments in the development with all investors agreeing to the extension. All interest and principal was paid and investors were provided updates at regular intervals.”

The Mona development by Fortis in Darling Point.

Pallas Capital has trumpeted several of its recent deals, including several loans in Sydney, Brisbane, and New Zealand.

Industry sources suggest as much as 80 per cent of the funds raised by Pallas have gone to fund Fortis’s breakneck acquisitions of sites across Sydney and Melbourne.

Pallas Capital is offering first and second mortgages for Fortis projects priced at 13 per cent or higher on some projects.

Pallas recently extended the facility on Fortis’s Mona project, which the firm told investors last year had seen 60 per cent of lots pre-sold. But company documents sighted by The Australian noted sales for only 30 per cent of lots.

Media reported property developer Michael Barakat purchased the penthouse for $13.75m, but records shown to The Australian showed no deposit had been taken at the time of the announcement.

Mr Kennan said Pallas Group had been advised by CBRE it had taken deposits for 60 per cent of apartments of the project.

“We advised investors of that fact,” he said.

“Subsequently (after our statement to investors) a number of purchasers pulled out and a number of sales were made to new purchasers,” he said.

“At no time did we misrepresent the status of the project.”

On several occasions Fortis has not been able to secure sales for its stock prior to completion.

Three of the nine lots at Fortis’s Marmont project in Double Bay were “acquired’’ by the principals of the Pallas Group in a move Mr Keenan said was “not unusual”.

“The same principals own other completed properties with a total value of $177m and intend to retain other properties (under construction) with an additional value of about $405m,” he said.

Among its mix of funders, Pallas Capital holds a $500m and $NZ300m warehouse facility with Credit ­Suisse.

Pallas has drawn down $267m from the Credit Suisse facility, which funds lending on sites up to $10m in value.

The terms of this facility preclude Fortis from funding its projects from the facility.

However, Fortis sought special dispensation from Credit Suisse to borrow $13.4m to refinance loans on six lots at its Pillar+Tide project in Melbourne’s Brighton that went unsold. This loan has since been repaid.

When The Australian contacted the Pallas Group regarding this story Mr Keenan said the firm would commence legal action against “an ex-employee” in response. “We ask that you don’t publish information supplied in breach of confidence and breach of contract,” he said.

Originally published as Pallas juggles full list of projects