Zagga, a fully licensed mortgage-secured boutique lender and investment manager, has marked its four-year anniversary in the market with a deep dive into the rapid growth of the alternative lending market in Australia.
The white paper, ‘COVID, crisis and catalysts: the rise and rise of alternative lending’ outlines the key market drivers and trends in the Commercial Real Estate Debt (CRED) market and how the COVID pandemic is amplifying the appetite of borrowers and investors alike for alternative lending.
With private lenders predicted to provide more than $50 billion in commercial real estate lending by 2024, the white paper uncovers the two key factors driving growth:
Reduced lending appetite from banks. Given their strict capital requirements, banks have narrower parameters for providing loans to commercial customers. For borrowers seeking flexibility and certainty of funding, private lenders offer a more tailored approach to assessing creditworthiness.
Investors seeking income. With equity markets arguably overvalued and cash returns hovering close to zero, sophisticated investors are allocating their capital to investments that fall broadly in the ‘fixed income’ space, but provide more flexibility and higher returns than traditional bonds.
Alan Greenstein, CEO and Founder of Zagga, said, “When we wrote our first loan in 2017, we knew opportunities existed to compete against traditional lending platforms with new technology, a focus on speed of service and a bespoke approach. What we didn’t foresee was a significant reduction in the cash rate, coupled with a global pandemic, which has ultimately turned what was alternative into something increasingly mainstream.
“As the pandemic hit Australia in 2020, we experienced a huge surge in investor demand on the Zagga platform. We saw investment opportunities filling within minutes of opening and investors referring friends and family, attracted by average returns well in excess of any bank deposit rate.”
This increased appetite for alternative lending is evident across a range of Zagga’s metrics, with the number of loans originated through the platform increasing by more than 35% during 2020 and the total value of loan originations surpassing $0.5 billion at 30 June 2021.
Zagga saw its total originations increase 33.33% FY21 on FY22 to end the financial year at $0.5B in total originations since inception. In August alone, Zagga originated a record $62M+, more than it originated in its first year of business in 2017. Zagga expects this growth to continue into 2022, and indeed surpass the records set in 2021, and is targeting an active book in excess of $500 million by end 2022.
Greenstein added, “Uncertainty has become our new normal, and this is reflected in investment markets.
“As both investors and borrowers have been prompted to seek out alternative opportunities, their eyes have been opened to an arguably better way to do business; a way that doesn’t force them to fit into a box.”