AFR 9 JUL 2013 – Pepper hot for commercial sector

Pepper Property, formed a year ago when the Pepper Group took over Grant Samuel’s real estate advisory business, will launch a commercial property lending operation in 2014.

It is part of Pepper Property’s wider push into real estate capital raising in Australia and around the globe, particularly in Europe.

Pepper Property executive director Christian McKelvey said his group already had mandates to provide debt and equity funding to more than $2 billion worth of Australian commercial and medium-density residential projects.

“We are seeing substantial opportunities in capital raising and in the provision of independent advice in divestments and acquisitions,” he said.

“The plan is to substantially increase the assets under management in commercial real estate lending.”

A year ago, when Pepper bought the business it was a 20-strong advisory operation involved in capital raising, divestment advisory services but with a core strength in tenant representation. The tenant representation work has been maintained with Pepper advising Ashurst, Corrs Chambers Westgarth and KPMG, on moves in the year.

Executive director, Greg Smith, said lease incentives in office towers continued to rise.

EXTENDING SPECIALIASED LENDING SERVICES

But the Pepper Group, with more than $6 billion in loan and lease assets under management, is extending its specialised lending services, particularly in commercial property which accounts for less than $1 billion of the group’s assets.

In the past year Pepper Property advised on the funding, with equity and debt, of the Anka Property Group’s financing of the Union Balmain housing project in inner Sydney.

“We are advising a number of clients to raise equity ahead of mezzanine debt because of the complexity mezzanine debt creates with senior lenders,” Mr McKelvey said.

“Investors are keen to participate in Sydney, where the signs for medium density are relatively strong, but they are more cautious about Melbourne.

“We have benefited from Pepper’s global platform,” Mr McKelvey said.

In March, the group bought Citigroup’s $250 million small balance commercial mortgage portfolio. in a strategic, not opportunistic buy.

SMALL TICKET PROPERTY OPERATION

The portfolio, with about 730 customers with an average balance of $345,000, will form the nucleus of a small-ticket commercial property lending operation focused on transactions less than $2 million.

The group does have an eye on Europe which, according to Mr McKelvey, will have a “tail” many years long in distressed real estate opportunities.

Pepper Group stepped into Europe a year ago, and now has more than half its staff in the UK, Ireland and Spain and a global real estate services team led by former Credit Suisse director David Burton.

The group has taken part in the acquisition of a €380 million ($537.5 million) portfolio of Irish commercial real estate loans from Lloyds and is helping Danske Bank with a €600 million portfolio of distressed Irish property loans.

Pepper Group chief executive Patrick Tuttle said Pepper Property has given his group direct access to the commercial property from which to leverage its capital raising platform, credit, loan origination and securitisation expertise.

Article appeared in the Australian Financial Review, 9 July 2013

Article written by Robert Harley