Another real estate insider taps out at the top

La Trobe Financial, which is an Australian lender specialising in non-conforming loans (i.e. if you are too risky for the big banks, you go to La Trobe) has decided that its time to cash in its chips (via the Financial Standard):

Melbourne-based La Trobe Financial, one of the largest non-bank lenders in the country, struck a landmark deal with New York-based private equity giant Blackstone.

In a deal announced this morning, Blackstone has taken an 80% stake in the privately-owned firm for an undisclosed sum.

Chief executive Greg O’Neill will retain 20% ownership and continue in his role while the existing management and executive team will also remain unchanged.

O’Neill said the opportunity for La Trobe to partner with Blackstone was the perfect fit for staff, customers and the business.

One more name to add to the list of real estate insiders who can see the writing on the wall.

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  1. If the real estate insider is seeing the writing on the wall then on what basis is Blackstone buying these assets?
    Are they paying 10cents to dollar or something?

    • Blackstone have USD$311 bn assets under management – a shock that would kill La Trobe dead would be too small to make their end of year report i.e. they can absorb losses that La Trobe can’t, so they can place a bet on profits into the future without worrying about the consequences if those profits aren’t there.

      • I suspect the mystery lies in this phrase “… for an undisclosed sum.”

        I am reading it as 30-40% discount!

    • Good question. KKR also recently bought Pepper, which I had on my watchlist as a disaster waiting for a housing market downturn. Could be that they are very good at laying off risk onto other investors. There’s still a lot of yield hungry types who don’t understand the fine print:

      “There are a few other things that you need to know about our Credit Fund. We’re not a bank, so an investment in our Credit Fund is not a bank deposit. You risk losing some or all of your capital. The return of your capital, if you want to withdraw your investment, is dependent on the liquidity of the Investment Account that you have chosen, and in particular, borrowers repaying their loans. You should also remember that past performance is not a reliable indicator of future performance. The rates of return from our Credit Fund are not guaranteed and are determined by its future revenue, so you may receive lower returns than you expected.”

    • Blackstone is setting itself to pick off distressed assets and rent them out as they did in the U.S. (Repo-to-rent)

    • Most likely the spread their getting on aussie RMBS. They’d be getting a still pretty fat margin – plus they have to put the cash from their inflows someone and this would be better than RMBS in the U.S. This trans would have been too big for a local but chump change for them.

  2. These guys are investing client capital, not theirs and earning a reasonable spread on it in the process (~1.5% pa for a standard, 1st RM deal).

    That being said, until more recently, as an investor you could still achieve high 6% to low 7% rates with 1st RM’s at (recently valued) <60% LVR's. Not a bad return considering what the high yield corporate markets currently yield!

    • Correct. And on the commercial front: 12’s for projects that really aren’t that risky. Basically credit from the majors has stopped in certain market segments and they have been the only game in two (no corp bond market of any significance in this country). Sydney house / commercial prices may be stupid, but these lenders are not really taking much price risk when you see their terms.

      • They are indeed getting a whopping spread vs their cost of funds (or just plain client equity in a lot of those mandates – there is no real cost to them). Also, the risk profile of what they are doing vs the developer / punter buying the finished product is not even close to the same.

  3. La Trobe Financial are currently offer 7% on 3 year term deposits…. surprised that it is only about 4% higher than the banks.

    • Not a ‘term deposit’ just a ‘deposit’ and that is the ‘from rate’ for their high yield investment option (a non pooled, contributory mortgage scheme which includes the ability to fund construction loans, also mez and distressed debt I believe). While they operate in a questionable space, to their credit, Latrobe are one of the few pre GFC operators still around in any major way. Balmain is still a player but beyond that, you will be talking about much smaller operators and your friendly solicitor mortgage schemes.

      If you are interested in their loan books, ASIC regulations re pooled mortgage funds now mandates a whole lot more transparency. take a look:

      • Indeed, apologies, Chino is correct. It was intended to read ‘just a term account’ not ‘just a deposit’

  4. Jumping jack flash

    Here, take our mortgages. Safe as houses, mate!

    Look at the LVR, just look at it! You’ve never seen LVR that’s as good as ours!

    • The La Trobe LVRs are backed by sworn valuations and they lend no more than 70%. They are much more conservative lenders than the banks. They are also postcode specific, unlike the banks, making the loan book more conservative. They reject 2/3 of their applications.

  5. reusachtigeMEMBER

    A smart move by Blackstones as they know Aussie housing will soon hit its next mega intense exceptionally brilliant massive boom after the current slight negative sideways movement. A great time to buy in all around.

    • The market is catching it’s breath, probably from too many relations parties.
      Not having a slight negative sideways movement.