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Kudos and credit: Thinktank ready to weather the next storm
Thinktank – One of Australia’s leading specialist commercial property lenders – launched in 2006 after its founders identified a gap in the traditional banking sphere for small and medium-sized enterprises (SMEs) looking to purchase, refinance and release equity from small-ticket commercial property. It secured major-bank funding, set up a debt warehouse and began funding loans. Then came the global financial crisis (GFC).
The business began in the aggregator and broking space, thanks to one of the founders’ mortgage-broking background. According to Thinktank business development manager Lauren Ryan, the attendant focus on relationships – including with Thinktank’s institutional funders – has played an essential role not only in the company’s growth, but in its ongoing ability to withstand challenging markets.
“Less than two years in, the GFC happened,” Ryan tells The Inside Investor. “We still lent during that period; we were obviously very cautious with what we did, but we were able to lend because we had the liquidity and funding lined up.”
Secure funding and liquidity have always been central to Thinktank’s business model and adaptability, and it has worked to evolve its funding capabilities from the start. After further ramping its strategic relationships and the broker/aggregator and lending side of the business, it expanded into institutional funding in global capital markets, issuing its first private placement rated by Standard & Poors of A$114m in 2014.
Thereafter the company began issuing public commercial-backed mortgage securities (CMBS) deals in 2016, subsequently opening a residential warehouse facility and expanding its product range to include standard residential loans to SME and self employed borrowers well as commercial. In 2017, it started its income and high-yield trusts, which it has since expanded into the private market for high-net-wealth and wholesale investors.
Thinktank is now the largest CMBS issuer in Australia, and it recently surpassed $5 billion in loan assets under management.
“Because we’ve always specialised in commercial lending, our credit officers and relationship managers understand complex property secured deals, and we’re well regarded in the lending space because of that,” Ryan says, noting that Thinktank does extensive broker training on what deals are suitable and how they need to be structured. “That has generated us a lot of kudos in the space.”
Filling the gap
While Thinktank’s residential lending has continued to grow at pace, now comprising 55 per cent of the loan book after getting a boost during COVID-19, Ryan is clear that the company has always been predominantly a commercial lender.
That helps differentiate it from its competitors in the nonbank space, which have typically focussed initially on residential lending. “In the business real property lending space, we’re one of the few lenders of scale out there,” Ryan says.
When Thinktank started, she notes, the rationale for business owners to own commercial property was limited to business owners or niche property investors. “There was an opportunity in the market to offer a product to people generating income that wasn’t pay-as-you-go who wanted to buy a small-ticket commercial property as an investment and form part of an a compelling longer term wealth creation strategy.”
In 2013, Thinktank began lending to self-managed superannuation funds (SMSFs), and those loans now make up 30 per cent of its originations. Its average loan size is $650,000 with an average security property value of $1,000,000.
On a broader scale, Thinktank has also benefitted from the changing lending landscape, with banks’ preferring to focus on home lending to PAYG borrowers creating several gaps for nonbank lenders.
“We very much target that small-ticket commercial space where the borrower could go to the bank but instead prefer how we approach things,” Ryan says. “Every time the banks make it a little bit more difficult, that’s our sweet spot – and we are taking on the same asset risk.”
Prepared for a turning market
As an established nonbank lender that has steadily grown following the GFC, Thinktank is in a stronger position than many newer market entrants during the current round of volatility and as the Australian economy slows down and possible recession fears gather steam, according to Ryan.
“At the moment, we’re seeing the benefits of having established funding lines and having been in the market for quite a while,” she says. Pointing to Thinktank’s most recent RMBS and CMBS deals – for $750 million and $500 million, respectively – she said transactions are usually heavily oversubscribed, reflecting the company’s strong relationships with Australian and global institutional investors. The deals always carry an S&P rating with a second Fitch rating on the residential transactions.
“We are seeing consistent monthly originations, which is a nice change to the madness that was the last few years,” she says.
As the opportunity cost of the market shifts, and deals that previously went through become more challenging to execute, that consistency has allowed Thinktank to consistently generate sufficient net income to invest back into its warehouses, ensuring continued growth. More important, it sets the company up to survive any ructions to come.
“The relationships we’ve spent 17 years building and the conservative credit policies we have are coming to the fore now, and our book is performing really well,” Ryan says.
“Our international transactions are well received, our funding lines and relationships with our warehouse funders are strong, and our relationships with our aggregators and borrowers are strong. We’ve always been conscious of being well prepared to manage market cycles since we started and we are certainly well placed now.”
