Mortgage investments offer a fixed interest return for a known term, so you know what you can expect to earn on your investment when you make it. Holding a registered mortgage over ‘real property’ allows you to invest in the loan that the mortgage secures with the knowledge that if the borrower reneges on their obligation to pay, there are legal rights to sell the property to recover the debt.
Payton only accepts investments from wholesale, sophisticated and professional investors (as defined in the Corporations Act (Cth) 2001). A wholesale investor includes a person (either a natural person or a corporate entity) who is the subject of a current certificate from a qualified accountant certifying they are a wholesale client. To receive this certificate, the accountant must attest that the person:
- had a gross income of $250,000 or more per annum in each of the previous two years; or
- has net assets of at least $2.5 million.
Alternatively, if the initial amount invested is equal to or more than $500,000, the person is considered to be a wholesale client and an accountant’s certificate is not required.
Payton only approves loans to borrowers who are using the funds for a commercial purpose, and who otherwise satisfy Payton’s lending criteria. Payton does not offer loans that are subject to the National Consumer Credit Code. Our credit criteria focuses first and foremost on capital protection.
Payton sources and assesses loans on behalf of both the Payton Select Investment Fund (the Select Fund) and the Payton Pooled Investment Fund (the Pooled Fund). Upon acceptance of your application form and receipt of investment funds, Payton will issue you with either cash units in the Select Fund or pool units in the Pooled Fund, depending on your chosen investment.
If you choose to invest in the Select Fund, we will offer you investment opportunities that align with your preferred product type. Once you select the investment you wish to invest in, your cash units will convert to loan units in that specific loan investment. Payton will take care of all the work for you by dealing directly with the borrowers, valuers, solicitors and other consultants.
If you choose to invest in the Pooled Fund, you will the retain pool units in the account you choose until they are redeemed by you. The Pooled Fund is open-ended, meaning there is no fixed maturity date.
Yes, $100,000 and thereafter in multiples of $5,000.
Mortgage investments are secured by tangible real estate assets that you can ‘see’. Typically, the loan amounts are based on a percentage of the current appraised value of the real estate security, also referred to as the Loan to Value Ratio (LVR). By combining a lower LVR with short loan terms (the length of time the loan is outstanding) the likelihood of the value of the real estate security dropping below the value of the mortgage is, in a normal market, considered minimal. Furthermore, investments are usually secured by corporate and personal guarantees from the Borrower and its Directors, and a floating charge over the other assets of the Borrower.
LVR (Loan to Value Ratio) is the loan amount compared to the valuation amount of the property offered as security for the loan. The higher the LVR, the less equity the borrower has in the property used as security for the loan. It is generally safe to say that the higher the LVR, the greater the risk, all other things being equal. The higher risk will usually be reflected in a higher interest rate.
Nothing. All upfront costs are paid by the borrower at the application stage of the mortgage and there are no investment entry fees. You as the investor do not pay any establishment fees in relation to your investment. All establishment and loan management fees are paid by the borrower.
No. However, should you request a withdrawal from one of the pool accounts during the minimum term period, you will be charged an early withdrawal fee equal to the greater of 1.5% of the withdrawal amount, and $500.
Payton employs qualified banking professionals and property specialists who bring a knowledge of mortgage products and a standard of service to meet your investment needs. Our role is to find and structure deals that are suitable for mortgage financing. Once the loan is approved by our investment committee, we usually reserve an allocation for the Pooled Fund, and make the balance of the investment opportunity available to the Select Fund members. Payton is the trustee of the Fund and its panel solicitors hold custody of the assets on behalf of Fund investors.
The key difference between the Select Fund and the Pooled fund, is that in the Pooled Fund your capital and income return is linked to the performance of a diversified pool of mortgages which are chosen by Payton. Furthermore, once the Pooled Fund minimum investment term is met, you can maintain your investment for the longer term, or redeem it on any one of the quarterly redemption dates. In the Select Fund, your capital, income and investment term are linked exclusively to the performance of the specific loan (or loans) in which you choose to invest. So, if you prefer to take a more active approach in selecting and building your mortgage loan portfolio, then you may consider the Select Fund. If you prefer to invest in a diversified pool of mortgages selected by Payton, then you may consider an investment in the Pooled Fund.
We can offer you products within your preferred product category, but we do not take into account your objectives, financial situation or needs. Before acting on the information or deciding whether to acquire a product offered by Payton, you should consider the appropriateness of the information based on your own objectives, financial situation or needs or consult a professional adviser. You should also consider the relevant Information Memorandum (IM) or Supplementary Information Memorandum (SIM) (collectively, Disclosure Documents).
Mezzanine debt is the middle layer of capital that sits between secured senior debt and equity. This type of capital is usually secured by a second ranking mortgage over real property. It is a way for developers to bridge the gap between what conventional banks will lend against assets, and the total cost of a new project, without issuing equity and diluting the ownership of the business. Mezzanine debt is more expensive than senior debt, but less expensive than equity.
Collateral – Strength of the security, including value, location, nature and saleability.
Character – Credit worthiness / credit rating of the borrower, assessed by a credit check, their previous experience, and any references.
Capital – Ability of the borrower to repay the loan, and their access to liquid capital from their own sources should additional capital need to be contributed to the project.
Capacity – Ability of the Borrower to service the loan. Servicing could be achieved through their salary, other business income, prepayment of interest, or a provision within the project. In the absence of loan service capacity, then there must be a firm and reasonable exit plan.
Conditions – both borrower and investment specific, considering sector and external influencers.
No. Payton Capital Limited as Trustee of the Fund will be named on the title of the security property as Mortgagee. The underlying risk in respect of a mortgagee is no different whether you or Payton are named on the title.
In the Select Fund, each loan will detail the specific payment terms that applies to that loan (whether upfront, ongoing, or deferred interest payments, or a combination of these). Once Payton receives the interest, it will remit your return within 3 business days.
In relation to an investment in the Pooled Fund, monthly returns are distributed within 14 days of the end of each month.
Yes, you can re-invest your interest from Select Fund investments into your Payton Cash-Plus Account. Alternatively, upon maturity of an investment you may instruct us to reinvest the total of principal and interest earned from that investment.
Income distributions from the Pooled Fund may be reinvested into the Pooled Fund account from which the return was paid.
Yes, you can invest in both the Select Fund and the Pooled Fund, and subject to the satisfaction of minimum term requirements, you can transfer your investment between the two Funds.
In terms of the Select Fund, diversifying your investment across a range of ‘Select Mortgages’ can reduce the risk associated with individual assets.
Mortgages are generally considered low risk investments in a stable or rising real estate market because they are backed by real property. In a declining property market, the value of the underlying real estate must drop to below the value of the mortgage registered against the property and recovery costs before the investment is at risk. Based on the expected changes in the market, the LVR at the time of the initial loan is set conservatively to reduce the risk of loss.
Our Information Memorandums outline risks and our risk management processes. However, in particular:
The risk that the security obtained and other accessible assets of the borrower will not be sufficient to fully discharge a loan. Factors which influence credit risk include: declining property markets; movements in interest rates; general market conditions and investor sentiment; location of security; the local real estate market; and increasing default rates of borrowers.
The risk that withdrawals (unit redemptions) may exceed funds available to be withdrawn and may prevent you from redeeming your investment in a timely fashion. Factors which influence liquidity risk include: level and diversity of liquid assets held; pricing structure of the mortgage portfolio; maturity profile of the asset portfolio; credit risk; our internal policies for liquidity management; a decline in investor confidence; and the number of withdrawal requests at any given time being greater than the amount of liquid funds held.
The risk that the expected rate of return is not achieved. Investors should be aware that any target returns provided are targets only and there are no performance guarantees. Income distributions to investors in the Pooled Fund primarily depend upon the net return that each Sub-Fund receives from the underlying mortgage investments. Income distributions in the Select Fund may be impacted by a failure or delay by a borrower to pay the interest or repay the principal, resulting in a default on the loan.
Investors receive electronically (and by post at investor choosing) the following regular reports:
- Monthly investment summary
- Financial year income tax statement
- Account statement upon request
- Periodic progress updates on project development loans
Select Investment loans are treated as fixed term investments. Payton is under no obligation to process a withdrawal request during the agreed term of the investment. Payton may at its discretion consider requests for withdrawal, only if a substitute investor is available.
Each of the Pooled Fund products has an initial minimum term, during which you do not have a right to withdraw your funds (although Payton has discretion to consider any special requests). Upon satisfaction of the minimum term, redemption requests will be satisfied on the last day of each quarter (31 March, 30 June, 30 September, 31 December), provided a redemption request has been received no less than 30 days prior to the redemption date, and subject at all times to the liquidity of the Pooled Fund. If the request has not been received in time, the redemption will be scheduled for the next redemption date.
Payton has the right to suspend or postpone redemptions in whole or in part if it considers this is in the best interests of investors due to a major financial or property market disruption, similar to the GFC.
Where redemptions are suspended, any redemption amounts payable pursuant to a redemption request will be payable within 90 days of the date the suspension ends, or such other date at Payton reasonably determines.
Although Payton exercises due care and caution with respect to making investments and managing Pooled Fund cash flow, a suspension of redemptions may be used to protect the Fund assets and to ensure the stability of investor distributions and capital.
If a loan goes into default, Payton will work with the borrower to rectify the default as quickly as possible. If the default is not rectified within 30 days (or a work-out plan not agreed), it is referred to solicitors, who begin the recovery process. If the legal notice to pay is not complied with, we will move to sell the security property in order to recover your investment and any other outstanding interest and fees. During this period you will earn a higher “default” rate of interest.
In the unlikely event that Payton is unable to discharge its duties as the Trustee, or in the event it is not exercising its duties appropriately, investors in the Fund may vote to remove and replace Payton as the Trustee. Furthermore, any one investor may seek a court order for the removal and replacement of Payton as the Trustee (pursuant to the Trustee Act 1958 (Vic)).