Lease bond provider challenges bank dominance

A provider of commercial property lease bonds underwritten by a global insurer says it is starting to build momentum in a market dominated by banks issuing guarantees.

eGuarantee was launched three years ago, claiming to be the only provider of lease bonds in Australia. 

In October last year, it signed an agreement with HDI Global Speciality, which is rated A+ by S&P. HDI is the underwriter of the lease bonds and eGuarantee is the exclusive distributor.

Assetinsure, which is eGuarantee’s major shareholder, is HDI’s managing agent.

eGuarantee co-founder and chief executive Shaun Sergay, said the A+ rating has given landlords confidence in its lease bonds and business has picked up strongly since the partnership was formed. eGuarantee is now issuing more than one lease bond a week.

Sergay estimates that the market for bank-issued lease guarantees is worth $13 billion to $16 billion.

While eGuarantee’s pitch to landlords is that its paper has an A+ rating, its value proposition for tenants is that the structure of its lease bonds frees up capital.

Sergay said: “Banks take collateral when they issue a guarantee. Our solution does not require that. The underwriting is based on an assessment of the tenant’s performance.”

An accounting firm that moved into a new office owned by a large real estate investment trust used a lease bond in preference to a bank guarantee. It estimated that the change unlocked $240,000 of working capital.

Sergay said another selling point is that the approval process is online and is much faster than bank processes.

Sergay said he is confident the business can double its volume this year.

“This product is not new. It is well-established in commercial property leasing transactions in the United States and Europe. But it is new in Australian and New Zealand. Since the change to our issuing arrangements in November, the product is fit for purpose and we are building relationships.”