Challenger builds commercial property loan book

Challenger Financial Services Group has targeted large commercial property finance deals as an attractive asset and plans to structure and arrange up to $1 billion of deals in the sector.

Challenger, which is using its own balance sheet plus third-party mandates, has a view that commercial property offers high risk-adjusted returns.

It kicked off its high end commercial property lending strategy last September when it took up $95 million of the $305 million of debt securities issued by Macquarie CountryWide in a CMBS issue.

Since then it has contributed $155 million of a $355 million refinancing of Brookfield Multiplex, having structured and arranged the transaction.

In its latest deal, finalised in the past month, it was the sole lender to Goodman Group in a $250 million deal that will refinance a CMBS maturing September. Challenger is the arranger of that deal.

Challenger's head of fixed income Bob Sahota said interest from the loans is being used to support income payments to Challenger's annuity customers.

Sahota said: "There is a dislocation in real estate banking now, with foreign banks out of the market, specialist groups such as mortgage trusts unable to lend and the big four reducing their exposures.

"There is an opportunity to get the best covenants and loan terms. We are working on a couple more deals now and we see the opportunity being there for at least another 12 to 18 months."

Covenants include gearing lock-ups and triggers on LVRs and interest coverage ratios that are highly advantageous to the lender.

Sahota said Challenger was confident of getting into a market that still had an uncertain outlook because the group had the right mix of in-house skills - a fixed income team, a real estate investment division with $1 billion of assets and a commercial lending team.