The Market and its Makers

The players in the estimated $380 billion* CRE debt sector in Australia are in the business of delivering one product exceedingly well in order to thrive…that product being CRE private debt.

During a large major bank merger over a decade ago, the CEO of traditional Australian bank ‘A’ described the merger approach as being one of ‘multiple dining rooms served out of the same kitchen’. Essentially it referred to multiple product lines being administered by the same back office. It made sense. Efficiencies are built on revenue going up whilst cost reduces and the larger the institution, the greater the opportunity to find those cost efficiencies, with the least impact to service optics.

In stark contrast to the traditional bank, the CRE private debt manager deploys one key product (with a few colour options) and resultingly, must retain a sharp line of sight on the two parties that matter the most, the investor and the borrower. There are no alternative product lines to hide the performance of key investments and the investment managers are singularly held to account.

As Payton Capital Ltd.’s Head of Lending, Jamie Westlake states intently, “Our role is to make sure that capital is working as hard as it can. This means clients’ money is moving forward at all times. It’s not stagnant.”. It’s this type of investment approach, which has propelled the CRE private debt industry onto the main stage when it comes to providing a deeper client value proposition than its trading bank counterparts. Interestingly, this is also what banks used to do, however with scale and diversification comes competing priorities, so whilst CRE debts past belongs to the traditional bank, the future may be more effectively invested by the private market.

The Payton Capital Approach

As mentioned above, CRE private debt is about two distinct parties, the investor and the borrower. The relationship between these two parties is complex but complementary and particularly in the current low yield environment, it makes sense that they learn to play nice. As well managed as investment funds might be, ultimately it is the investment manager’s choice of borrower and project that will deliver stable underlying investment returns.

That choice is made by people like Westlake, who brings 32 years of traditional banking experience to the table at Payton Capital and whose philosophy is complementary to the client centric approach required by the sector, “While it takes time, skill and asking appropriate questions, to get the development community to open up about their wider business, the benefit is that Payton Capital can provide more targeted guidance on effective ways to deploy equity and potentially enhance project returns through investment partnership.”

The Payton Capital model of holistic thinking exists at the core of every deliverable, from the Board strategy to individual loan structures.

Traditionally, property lending has focused on the deal “…what is being built, who’s building it and what is the profit margin on the project.”. Westlake believes, “this misses the point and presents an opportunity for us to make a difference. If you just focus on the profit in the discrete project, as opposed to the profit from the development organisation’s wider business, you miss the main opportunities as a funder.”

Further, “as a borrowing client we can quote on their one specific deal, but that’s not our main driver. We want to talk about how hard their money is working in general. We’re capital partners, not just lenders.”

Importantly, for the entire Payton Capital business, this approach facilitates the multivariate outcome of increasing Payton Capital’s range of investment offerings to its investment clients whilst enhancing value and utility to  tightly held book of borrowing clients. Ultimately, in CRE private debt there is no correct loan structure, there is only a need and a solution.

The Need for Speed

The Payton Capital approach focuses on projects starting and finishing efficiently. It is about getting the equity and profit in and out, in a way which enhances the return metrics but manages the risk. This means a developer can start the next job earlier and over the medium term, they will have done one or two more jobs than previously contemplated under a traditional bank structure.

If we like the product, the location is good, we have a relationship with the developer, understand the wider developer’s business and they satisfy our lending criteria then we may give the developer the approval to start quickly. This means they can avoid inertia during the pre-sale phase, save on the cost of pre-sale commissions and produce a faster return on investment.” says Westlake.

The other benefit of acceleration is that the developer can potentially achieve a premium on sales due to the certainty of a finished product as opposed to selling a set of plans. Whilst acceleration can pose risks and care needs to be taken when managing market and investment risk, the benefits can outweigh the risks. The velocity with which the developer gets its invested funds back can often substantially trump forecast market movements.

Quality and Quantity

As a complementary approach, Payton Capital also assists clients via an enhanced leverage model. In a traditional bank model, a developer needs 35 cents in equity for every dollar of project cost. For the right project Payton Capital will look at providing 90% of the total development cost, so a developer only needs 10 cents in that dollar.

“What this means for the developer, is that instead of doing one job at a time, they can spread the equity invested into multiples. Subsequently, their equity return increases on every dollar invested and risk is spread across a portfolio of projects.”

To deliver an appropriate risk adjusted leverage model, the client needs a clearer exit via pre-sales however “The more we know about a developer’s strengths, financial capacity and competitive advantage, the more flexible Payton Capital can be with conditions. We may fund 90% of a project’s total costs with minimal pre-sales because we know the developer has a pipeline of projects settling shortly and therefore that holistic understanding of the developer leads to greater opportunities to assist with that particular project.”

An Investment in Time

It has been said that it takes many years to be an overnight success and given Payton Capital was born in the 1960s, that notion could certainly be applied to them. It takes time to build a well-functioning enterprise and the hurdles are ongoing but an ongoing dedication to the investor and borrower, through the lens of risk management, has proven to be the key to longevity at Payton Capital. Whatever the future holds for the CRE private debt market, Payton Capital will be a substantial player in an evolving and growing landscape, which continues to successfully hold the traditional banking sector to account.

Payton Capital Ltd

Payton Capital is a rapidly growing boutique private debt lender, funding construction developments in Victoria, NSW and Queensland. Funding projects ranging from $5m to $50 million, Payton Capital takes a holistic approach to lending, to keep their borrower clients moving forward.

Payton Capital is also a boutique investment manager specialising in investment products delivering risk adjusted returns without compromising capital security. With more than 50 years’ experience in property finance and investment management, Payton Capital is driven by a desire to see their clients succeed.

Payton Capital is also driven to make a meaningful difference in the lives of those less fortunate, which is why the company is 20% owned by the Payton Foundation, delivering significant dividends to its partner charities.

If you’d like to learn more about borrowing from Payton, please visit us at

*Source: Money Management May 2021