The strong growth in banks’ exposure to commercial property will increase pressure on lending standards.

APRA’s ADI property exposure statistics for the March quarter show that the banks’ property exposure grew by 7.4% for the year to March 2016. And the RBA’s financial aggregates data for April record this same figure of 7.4% growth in credit for business investment.

This will add to the pressure on banks to tighten their lending standards, both for developers and property investors.

The trend has been growing over recent months, with Stamford Capital’s executive director Dominic Lo Surdo telling The Australian in February that banks were increasing margin pricing on both property investment loans and loans for development and construction. Amid concern that the risk of settlement default is rising for off-the-plan apartments, banks are also requiring higher ratios of capital provision from investors. The convergence of these factors opens up an opportunity for non-institutional lenders.

Good developers are unable to find senior debt to make their projects viable.

Projects that could previously attract finance are now not able to be banked.

In a low interest rate environment, with stock market volatility and negligible returns on fixed interest investments, private equity is looking for the yields that banks are giving up in this segment of the commercial property market.

Backed by the Liberman family office, Monark Property Partners has provided over $100 million in first mortgages for middle-market projects over the last four years.

The big institutional lenders need credit policies and blanket rules to manage their exposure, but anyone who’s bought a house knows that you can’t apply a blanket rule to a postcode. Property is a very localised investment.

You need to evaluate the risk–return metrics of each opportunity on its own merits.