Article written by Sam Richardson, Editor MPA Magazine
Published in the Sep 2016 edition of Mortgage Professional Australia Magazine
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In today’s third party channel, experience is welcome, but niches are not. Expansion is generally equated to diversification – tapping additional revenue streams in order to shield yourself from market downturns.
The HoldenCAPITAL team are doing the opposite: building a giant within the niche construction space. They are brokers but also lenders, mortgage managers and fund managers, a combination that has been recognised by the industry and beyond: director Daniel Holden was a finalist at the Australian Mortgage Awards and his brokerage also made Business Review Weekly’s coveted BRW 100 Fast Starters list. HoldenCAPITAL is an innovative business working in a niche space, and is also an example of just how far disciplined specialisation can take a brokerage.
“There are other revenue streams we could pursue if we wanted to balance out the ups and downs of the property cycle,” says Holden. “However, all of our guys are long-term operators in the development space, whether they’ve come from property or traditional banking … we only do construction loans and we only deal with developers. In that way it’s knowledge an inch wide and a mile high in the construction sector.”
Holden’s clients – multi-unit developers – are a group with a natural need for brokers in order to secure finance for long-term, complicated projects. Moreover, this need has increased sharply in recent years as banks have tightened criteria in this space.
Whether willingly, through limiting lending for apartments amid concerns over oversupply, or unwillingly, through taking months to process applications, banks are losing out in the space to more nimble and specialised non-bank operators. Holden has seen this first-hand: “FY15 we did $224m of loan settlements for the year, and 64% of that was major banks. FY16 we did $340m and 28% of that was major banks … we’re seeing a massive shift in the market over the last 12 months.”
“We only do construction loans and we only deal with developers. In that way it’s knowledge an inch wide and a mile high in the construction sector”
Credibility
Understanding HoldenCAPITAL’s appeal to the developer community requires an understanding of Holden’s background. Holden first worked as a development manager before joining property finance group Ashe Morgan Winthrop. It was here, during the worst of the GFC, that he received a salutary lesson in the benefits of being a specialist in development rather than banking.
With a near freeze on all funding, the company began letting employees go, Holden recalls. “That was possibly a good thing for me, but my skill set was in property rather than in banking. I was one of 116 employees hired; I was the last one hired but I wasn’t the first one back out of the door!”
Going out on his own wasn’t an ambition of Holden’s, but the firm he had been working for had moved out of the space he was working in, so HoldenCAPITAL was born. Although Holden started with a number of contacts in the industry, building credibility was nevertheless a slow process. “Ultimately, the first couple of years was working with those existing clients that I had, working on their projects, and then the team grew from there: we took on one extra guy, support staff and more people grew after that.
“The property developer looking for a broker is seeking someone who is at the top of their game and has been doing it for a long time,” Holden explains. “We do see people not from this sector trying to enter it, and there’s that old saying: ‘If you think a professional’s expensive, try hiring an amateur’… there’s been occurrences of when a developer has taken on someone who’s not an expert and the pennies they save cost them the pounds.”
Those clients frequently end up at HoldenCAPITAL’s door, Holden adds.
Holden counters doubtful clients through a combination of hiring and evidence. He has until now only hired people he knows. Construction finance being a specialised sector, talented people will generally appear on Holden’s radar.
“For us it’s not about diversifying by service or sector, away from construction finance … the growth for us is Sydney and Melbourne and enjoying what we do”
Like many operators in this space, HoldenCAPITAL charges a fee, which Holden is careful to justify: “We offer people a list of client testimonials, projects we’ve done, which provides them credibility, and I do ask people to ask for the same from other providers.”
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Products
Working with sophisticated clients with complex demands in a market lacking in trust, HoldenCAPITAL’s approach to lending is correspondingly different to that of a normal brokerage. It can finance projects in three different ways: packaging deals to send to lenders, white labelling products, and lending from its own fund, which currently has $74m invested in various projects.
But the traditional brokerage side is still the biggest part of the business. Given the complexity and varying timescales in construction finance, broking means more than understanding lenders’ credit appetites. “We’ve always seen a benefit to the extra cost of non-bank funding, and most of the time the outcome is a massive saving of time,” Holden explains. “It comes down to starting a project sooner, finishing it sooner, getting the profits sooner and moving on to the next project.”
White labelling products allows the brokerage to be highly specific about what the mortgage process involves, when and what costs occur, and how this compares to a bank, by displaying charts and graphs where appropriate. It’s important to be open about the terms of business, Holden argues, because this means there won’t be any shocks for the client further down the line.
Finally, HoldenCAPITAL runs its own fund, in which high-net-worth individuals invest in projects on a case-by-case business. Fund management has relatively high barriers to entry, observes Holden, and beyond the regulatory requirements he places further emphasis on credibility. “We’ve been doing it for a few years now; if you were trying to get it up and running from a standing start today, it probably would [be difficult]. We’ve got a good team of people who’ve been operating in that space for a long time, so it was easier for us as an established business.”
Expansion
HoldenCAPITAL may not be interested in diversifying, but that doesn’t mean it’s not expanding. Satisfied clients remain “our best marketing tool”, says Holden, as well as recommendations from builders, quantity surveyors, solicitors and accountants. On top of that, HoldenCAPITAL is building a distinctive brand in its own right, which Holden advances along several fronts. First of all there are the awards, of which Holden has a growing cabinet-full. Then there are the above-mentioned podcasts and videos, freely available on the website and promoted through LinkedIn. Holden is also a regular expert commentator in the media, quoted not only in broking trade publications but also developer publications and regional newspapers, including The Courier Mail.
The brokerage is also expanding in a literal sense: they’re about to open an office in Sydney and have been interviewing people with a view to setting up another office in Melbourne. While Brisbane has seen some development, Sydney and Melbourne provide a much larger hunting ground for HoldenCAPITAL.
“We’re already funding deals in Sydney and Melbourne, but we’re now at the point where we need local representation,” Holden says. “For us it’s not about diversifying by service or sector, away from construction finance; we’re very happy being construction finance-centric. The growth for us is Sydney and Melbourne and enjoying what we do.”
Holden is hiring, and he’s looking for a very specific type of broker, in keeping with HoldenCAPITAL’s ethos. Experience is, unsurprisingly, a big consideration, namely “an understanding of the development process and whether that means a couple of years in the trenches on the property side versus the banking side, or having worked on the banking side but having done at least a few years specialising in property”. Any new recruit needs to understand what’s at stake, Holden adds.
“There are a lot of variables: the quantity of money is higher; the borrower is more savvy; the ramifications for getting it wrong are more catastrophic.”
Above all, Holden wants someone who can step up in a challenging but rewarding sector. “You’re dealing with big bucks and you need experienced guys who know what they’re doing. You’ve got to be able to back that up with a good skill set and a good knowledge to execute and get an outcome.”
MPA Magazine has been the key business intelligence resource for mortgage brokers and the wider industry for 13 years.
Read the article on their website here: http://www.mpamagazine.com.au/sections/features/daniel-holden-redefining-the-specialist-brokerage-222820.aspx