Pallas Group taps lenders as cash for nation’s developers dries up

Double Bay property player the Pallas Group is expected to announce a new wholesale financial lending facility from a major financier, rumoured to be US investment bank Goldman Sachs.

An artist's impression of the proposed Fortis development at Elizabeth Bay.

Sydney property and financing house Pallas Group is close to securing a new financier for its lending arm, but the Double Bay developer is also looking to lock in funding from backers for its own projects as other operators face a cash crunch.

The Australian understands the Double Bay headquartered Pallas Group is soon to announce a new wholesale financial lending facility from a major financier, rumoured to be American investment bank Goldman Sachs.

Pallas Group sought to hose down rumours of the yet-to-be announced facility, with a spokeswoman noting “we are constantly in conversation with a number of financiers”.

“It’s not true Pallas Capital has a new wholesale facility from Goldman Sachs,” she said.

“Our business model is that we raise monies from financiers and other investors, and then deploy that money in commercial real estate loans.”

However, sources indicated Pallas was likely to make an announcement soon, noting the lender had been scouring Australia for new funding to bankroll its capital-hungry development arm Fortis and lend to developers clamouring for cash.

Sources indicated the new facility was likely to mirror other recent cash lines secured by Pallas, with lending to be restricted to third parties on a loan to value ratio of about 50 per cent.

Fortis director Charles Mellick.

It would probably require Pallas to stump up first loss capital for these loans, leaving the Double Bay lender to face any capital loss on its assets before the other financier took a hit.

The rumoured new financing facility would see the new lender join a stable of banks and non-bank financiers who have handed Pallas cash to lend through its funding arm Pallas Capital.

New York listed private credit giant Ares Management extended Pallas Capital a $350m senior funding facility in February, in a move Pallas pitched at the time as a ”classic marriage of international capital partnering”.

Recently Pallas secured a refinancing deal from Westpac NZ for its New Zealand financing ­facilities.

The deal saw Westpac step in to support a $NZ360m ($328m) financing facility in late July.

Pallas Capital has already lent almost $NZ300m in New Zealand.

Private credit industry sources noted new funding lines were drying up across Australia’s property development market. Lenders are demanding higher rates of return, while developers are facing hardening markets.

Building costs have soared, while borrowers have seen their debt limits trimmed by a rise in interest rates.

MaxCap stepped in to take control of LuxCon’s $200m Byron Bay site in January.

Lenders to Sydney pub baron Jon Adgemis have faced a major haircut in a $400m debt deal to rescue his Public Hospitality Group.

Pallas’s development arm Fortis is also chasing cash, with the group seeking to finance new and existing sites.

The Australian understands some lenders baulking at handing Pallas capital after revelations of an Australian Securities & Investments Commission investigation.

As revealed in March, the corporate regulator dropped its probe into Pallas late last year, despite concerns by investigators over it operations.

ASIC investigators were concerned about Pallas’s disclosures to investors, with the regulator looking closely at the group’s disclosures around loans to Fortis and sales of its properties.

The Australian is not alleging wrongdoing, and ASIC made no findings.

Pallas has been seeking to refinance lenders Metrics out of Fortis’s Bronte townhouse project, announced in mid-2022.

Fortis has been attempting to get the site, purchased for $44m, going for months after clashing with council over the luxury townhouse project, which was shaved down from 10 units to nine.

Property industry sources said Fortis was struggling to sell the townhouses for about $15m each.

But a Pallas spokeswoman said the group was not facing a “reduction in total sales value” after Waverley Council modified its permit to add a further 210sq m of net saleable area.

Fortis is also grappling with a number of other projects, including two major sites in Melbourne’s Richmond.

The company recently bought a site in Swan Street for $13.6.

Fortis is also pushing through on its big build on Brighton Street, Richmond, which the group paid $53m for in 2022.

Fortis had planned a $300m project, with a spokeswoman saying 22 of the 57 apartments on site had been sold.

“We have also signed agreements for lease, or heads of agreement, to lease approximately 1980sq m of retail premises, with a total value of approximately $25.2m,” she said.

“We do not need any further pre-sales or pre-leases to trigger construction funding, and in fact construction has commenced on site, with completion expected in late 2026.”

Pallas previously told The Australian the group “doesn’t own any property assets”, noting its development arm Fortis was “a development manager, ie a consultant on a fee for service basis”.

“Fortis does not purchase or own properties or hold options on property and it is not a developer. Its business is providing development services to parties external to Pallas Group,” a spokeswoman said. “As Fortis doesn’t own property, it doesn’t require funding.”

Any hiccups for Fortis could flow through to Pallas directors Patrick Keenan, Charles Mellick, and Dan Gallen, who have offered personal guarantees.

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