Pallas Group posts just $22m of net assets with a growing number of loans on a watch list

One of Sydney’s hottest private lenders has wiped a string of bad debts from its books, as it boosts profits through fees from a string of property acquisitions.

Pallas Capital executive chairman Patrick Keenan.

Sydney property lender Pallas Group has wiped the slate clean on nine troubled loans and told investors none of its loans have ever gone bad, despite a rising pile of distressed debts.

Ruling off its fiscal 2024 accounts, Pallas Group revealed just $22m of net assets, with a growing watch list.

Pallas Group, which has been among the fastest-growing private lenders in the booming non-bank market, marked nearly 11 per cent of its $800m loan book as watch-listed, covering 13 different questionable loans.

But, in the months following its results, before filing them with the corporate regulator, Pallas Group “reclassified” a string of bad or doubtful debts, or removed a series of facilities from its watch list, after they were either repaid or refinanced.

The credit provider told investors there was “no loss anticipated” on the four remaining loans on its watch list.

In 2023, Pallas Group said 6.1 per cent of its lending limit, or nine loans, were on its watch list and disclosed one bad and doubtful debt that was “fully repaid in August 2022”, plus two other problematic debts “satisfactorily remedied” and returned as “performing loans”.

Pallas Group has consistently spruiked its success in attracting business while avoiding default, reminding investors in its most recent accounts that since its launch “no loan arranged and managed by its funding arm, Pallas Capital, has been completed without full repayment of all principal and full payment of interest, fees, and other charges”.

In his December letter to shareholders Pallas Group chairman Patrick Keenan also pointed to the lender’s track record, despite Pallas Group appointing receivers to some bad borrowers and straying into lending to bankroll home acquisitions by some of Australia’s wealthiest businessmen.

Mr Keenan told shareholders the group had booked $6bn in “cumulative transaction value across over 800 loan and other investments”, noting the group had “maintained our zero-loss track record” which he credited to the “rigour of our credit and loan management teams”.

Pallas Group executive Dan Gallen revealed the lender had tipped “about 0.9 per cent of loans written to-date” into receivership, leaving the bad borrowers to refinance or seize control of the ­project.

“In each case where a receiver has been appointed and has sold the security property, we have recovered all monies due (including all interest) and there has been a balance paid to the borrower and/or other creditors of the borrower,” he said.

Mr Gallen said the lender placed loans on its watchlist “if our credit team believes that … there is material risk that the borrower may default”.

He said Pallas Group would also reclassify loans “when they move into default or out of default”.

“Pallas Capital is a conservative lender, and generally our borrowers are able to refinance loans from us that are non-performing,” Mr Gallen said.

“In any case, we work with our borrowers to enable them to repay loans without taking enforcement action, provided the borrower is transparent and there is a realistic path to repayment.”

Pallas Group has bankrolled its expansion on the back of cash from investors and financial heavyweights Ares and Goldman Sachs. Financial backers have included several ­Macquarie bankers, Sydney family offices and business figures, Canberra property baron David Kenyon and Morgans principal Rob Fiani.

Pallas Group executive Mark Spring is a key figure in the Sydney sailing scene, which has led to the lender sponsoring events and recruiting from the yachting community.

The company also lends cash to property developers or its own development arm Fortis, run by director Charles Mellick, who previously headed failed unit builder Trico Constructions.

Fortis has grown rapidly in recent years, snapping up sites across Sydney, Melbourne and Brisbane, bankrolled by Pallas Group, but several of the developer’s projects have run into trouble, with delays or planning decisions going against Mr Mellick’s ­operation.

This includes a planning panel’s blocking of the demolition and rebuilding of a 20-unit tower development in Elizabeth Bay, one of several Fortis projects recently funded by Harvey Norman chairman Gerry Harvey.

Mr Harvey also provided $50m funding for Fortis’s purchase of a site at 2-10 Bay Street, Double Bay, in 2023.

Mr Gallen said Fortis “has never borrowed money from anyone” and none of the troubled loans in the accounts related to the group’s development arm.

Pallas Group’s accounts note $36.7m in loans to “related ­parties”.

The group insists the isolation of each Fortis project as a discrete company prevents a contagion risk within the group.

Delays in Fortis’s projects have restricted investor returns.

Pallas Group has also moved out of pure commercial property and development lending, extending finance to aged care heir Stephen Arvanitis for his $30m purchase of a Toorak mansion in 2023.

Areti and Peter Arvantis. Picture: Supplied

After borrowing $18.5m from Pallas to fund the purchase, Mr Arvanitis has relisted the house for sale after incurring millions in stamp duty and other fees.

Pallas Group accounts booked almost $117m in interest over the 2024 financial year, paying out almost $98.5m in the process.

On top of this, Pallas Group banked $55m in fees for the year, mostly from placing new loans or as charges for managing projects under the Fortis banner.

The company has bulked up its fees from a string of acquisitions in Double Bay. Fortis has 14 sites across Sydney, and last week bought 12 Cross Street in Double Bay for $24m from stockbroker Adam Blumenthal and wife Annabelle Shamir, which was $2.6m less than what the couple paid for it, coming after Pallas Group had been in discussions to fund a development at the site.

The company disclosed almost $1.04bn in assets in its last accounts, against $1.01bn in liabilities, leaving the company with just $22m in net assets.

Pallas Group posted a $16m profit before declaring $10m in dividends.