February 2024 Newsletter

The momentum that we saw at the end of 2023 has certainly continued into 2024.

Ark has already settled 3 new facilities at the end of February and is preparing to close out the March quarter with a further 4 new investments.

The Ark Bedrock Mortgage Fund has delivered a net return to investors of in excess of 11% p.a. in its second month and continues to attract significant fund inflows as investors understand the benefits of investing in a diversified pool of Ark mortgages, enhancing return and reducing risk. Funds under management will increase to more than $20 million at the start of March. The fund metrics including diversification of investments are expanded on more in the body of the newsletter.

A New Monetary Order for Banking in Australia?

Has Australia entered a new monetary order with banks and private credit providers as we adjust to a new interest rate and economic environment, one very different to what we have been used to for the last decade and a half? This is a question posed by the financial services consultancy, Oliver Wyman in a new research report titled ‘The New Monetary Order’.

Australia has entered a new paradigm of higher interest rates following a decade plus of low interest rates and policy responses to the Global Financial Crisis (GFC). This has fundamentally changed how Australian Banks are funded and how they lend money. Having historically relied on volatile wholesale funding markets, Banks are now much more reliant on customer deposits to fund their lending activities. At the same time, Banks are re-weighting their loan books away from commercial lending to home lending. The reasons for this are simple. Capital Adequacy Requirements that are imposed on Banks and have been increased since the GFC mean that Banks are required to hold more capital on their balance sheets for commercial loans compared with home loans that have a different risk weighting applied to them. As such, returns on home loans are substantially higher than commercial loans, even though on face value the margins may seem lower.

Oliver Wyman points out in their report that there are a number of scenarios that are currently playing out that will lead to a new monetary order in Australian credit markets. One that is very apparent is that private credit is becoming mainstream and will continue to become a bigger component of capital markets. We continue to see this in private real estate debt. As reported late last year, non-bank lending in Australian Commercial Real Estate Debt (CRED) has grown from 10.4% of the market in 2020 to 16.0% of the market in 2023 and is forecast to continue to increase to approximately 23% over the next 5 years (Foresight Analytics, December 2023). This is still well short of North America and Europe where the non-bank lending makes up ~50% of CRED.

The ‘mainstreaming’ of private real estate debt is good for markets as the quality of investment opportunities increases with well-structured capital solutions for borrowers providing strong risk adjusted returns for investors. Ark will continue to be a major contributor to this continuing to grow our two core debt funds, the Ark Wholesale Mortgage Fund and the Ark Bedrock Mortgage Fund.

During February, Ark welcomed Raida Islam to the Finance Team in the role of Accountant.

We look forward to continuing to provide sound investment opportunities for investors throughout the coming year, and superior debt and equity solutions to our development partners.

Open for Investment Opportunities

The Moorings, Newport NSW

Term: 12 Months

LVR: 65%

Interest Rate: 10.50% p.a. (variable, linked to RBA Cash Rate)

Maturity: 11/03/2025

The Base, Oakleigh VIC

Term: 20 Months

LVR: 60%

Interest Rate: 9.75% p.a. (variable, linked to RBA Cash Rate)

Maturity: 01/01/2025

Morayfield, QLD

Term: 10 Months

LVR: 65%

Interest Rate: 10.50% p.a. (variable, linked to RBA Cash Rate)

Maturity: 01/01/2025

Investment and Performance

Deal Settled: 16

Funds under management: $301.7 Million

Weighted Average LVR (Current): 60.46%

Forecast Investor Rate: 11.20%

Investment Updates

Morayfield, QLD

Over the last month construction works have continued to accelerate and are nearing 96% completion on the site. These works include:  

– Internal wall linings now complete
– Internal tiling works to wet areas near complete
– PC fit-off to wet areas due to commence
– Installation of roller-shutters complete
– Waterproofing to external retaining / planter walls complete

The Borrower has notified Ark that it will repay the facility on maturity as an offer of refinance from a major bank has now been received.

Banks, ACT

The Borrower has received the signed 15-year lease with IGA. ARK has extended the facility for a further 90 days to provide the Borrower with additional time to refinance the facility.

Kingaroy, QLD

The Borrower has received approval for the first round of government grants expected in March 2024. The Borrower continues to await a response in regards to the second round of grants. A response is expected within the next 4-8 weeks.

ARK has granted the Borrower a 90-day extension until 5 May 2024 to provide sufficient time for an updated valuation to be completed and to refinance the facility which will either be provided by ARK or an alternative financier.

Canberra, ACT

The Borrower has secured the construction funding for the project. ARK expects the facility to be repaid on 1 March 2024, 4 days after the scheduled maturity date.

Oakleigh, VIC

ARK continues to monitor the progress of construction with the next PCG report expected in March 2024.

The Borrower has achieved $10.9m of pre sales to date and are on track to satisfy the remaining CP’s to the first construction draw by the end of March 2024.

Morwell, VIC (Mezzanine)

Loan settlements continue to occur at Mernda with 3 lots expected to settle over the next 4 weeks.

Stage 1 internal civils at Tatura are 90% complete with some external works to be completed. The Borrower is looking to enter into a 173 agreement with Vic Roads and are expecting to have an outcome and registration of this stage within the next 3 months. The Stage 2 bulk earthworks and sewer are complete. The Borrower is awaiting council approval to continue internal civils however they expect to be back onsite in the coming weeks and to have Stage 2 completed by August 2024.

The Borrower is working through the bulk earthworks tender for Stages 1, 2, and 3 at Morwell with several parties. A contractor is expected be awarded shortly who will be able to establish onsite in the next 6 weeks.

Ballarat North, VIC

Gazettal of the Ballarat North PSP is still anticipated occur in mid-2025. The Borrower continues to work through the planning process. 

As the facility nears maturity in June 2024, it will be refinanced or repaid prior to this date.

Mount Cottrell, VIC

Progress continues to occur with the town planning in relation to the Oakbank PSP as the due diligence phase from VPSA and council is expected to be finalised in the next 6-12 months. The PSP estimation remains as being 2-3 years from the completion of the due diligence phase.

As the facility nears maturity in June 2024, it will be refinanced or repaid prior to this date.

1383 Dohertys, VIC

Progress continues to occur with the town planning in relation to the Oakbank Precinct Structure Plan (PSP) as the due diligence phase from VPSA and council is expected to be finalised in the next 6-12 months. The PSP estimation remains as being 2-3 years from the completion of the due diligence phase.

As the facility nears maturity in June 2024, it will be refinanced or repaid prior to this date.

Leakes Road, VIC

The Warrensbrook PSP is moving towards adoption in the next 5-6 years. The Warrensbrook PSP is the natural progression following Plumpton and Rockbank North PSP’s which are now complete.

As the facility nears maturity in June 2024, it will be refinanced or repaid prior to this date.

Kyneton, VIC

The facility is set to expire in May 2024 and ARK is currently negotiating a refinance with the Borrower into a new 6-month facility.

The Borrower is continuing to work further design, leasing, and sales to be in a position to commence construction at the maturity of the extended term.

Grantville, VIC

The Borrower continues to progress through the planning phase and is expecting to obtain a planning permit towards the end of the first quarter of 2024 which ARK is closely monitoring.

ARK have started initial conversations about a possible extension or refinance ahead of the facility maturity in May 2024.

Mt Barker, SA

The construction of the project is in the final stages and the development has been fully sold. Titles are to expected to be issued by the end of February. ARK anticipates that the facility will be repaid several months early ahead of the expiry in June.

Gungahlin, ACT

The precinct within the area of the property has been rezoned. The development site has no height restrictions adding value to the site. The Borrower is now contemplating a new development plan with the extra value that can be added to the site.

The Borrower will engage with ARK in relation to a possible construction facility for the overall development or alternatively the facility will be refinanced by another lender on or before maturity. ARK continues to monitor the process. 

Burpengary, QLD

Works on site continue to progress well over the recent months.

The key milestones achieved to date are:
– The site was established with temporary fencing and sediment control in place
– Roadworks are progressing with sub-base placed to the internal roadway
– Kerb and channelling works are nearing completion
– Crossover water reticulation services are complete
– Stormwater drainage works are progressing
– Electrical conduiting to crossovers commenced.

Baldivis, WA

Following settlement in November 2023, the Builder has commenced construction in early February, with works progressing well.

Margaret River, WA

The sales and marketing for Stage 1 continues to track well with only 7 out of the 75 individual lots remaining unsold. ARK will continue to monitor the timing of settlements to assess the suitability of the termination date of the residual stock facility.

Sellicks Beach, SA

Borrower continues to negotiate with a civil works contractor and intends to commence construction in Q2 2024. 

ARK has been mandated to provide the Borrower with a construction facility for the development which will be fully assessed once a contractor has been appointed.

North Melbourne, VIC

The sales and marketing of the project has been tracking well with the Borrower achieving 5 presales to date. The Borrower is expecting to achieve a further 2 sales by the end of February. ARK is actively monitoring progress towards refinance via a construction facility. Discussions with the preferred builder under an ECI process continues to develop.

Mont Albert, VIC

Planning amendment for the boutique hotel scheme on the site is progressing well and the Borrower continues to negotiate a lease agreement with the preferred hotel operator.

Toowoomba, QLD

Works on site have been progressing well:

Construction
– Bulk earthwards for the road and 70% of the lots  have been completed whilst lots 14-19 will be completed in the coming weeks.
– Stormwater infrastructure is due to start onsite in the coming week.
– Electrical work/ road crossings will commence in the coming weeks.

Sales and Marketing
– 13 out of the total 23 allotments are now subject to an expression of interest ($5.14m out of the total $9.4m).
– 2 additional blocks are expecting to be secured imminently.

Box Hill, VIC

The Borrower continues to work through fully leasing the first stage of the project as the top priority. Leasing and marketing activity has been ramped up and there has been a high level of interest from multi sized medical groups, including doctors and specialist services.

Bedrock Mortgage Fund Update

Following it’s launch in December 23, the new Ark Bedrock Mortgage Fund followed up it’s maiden distribution of 0.96% (11.26% annualised) with a return of 0.95% (11.24%) in January 2024, paid to investors on 9 February.
 
The Fund ended January with $7.9m in FUM and investments in 7 mortgage investments across Melbourne, Sydney, Adelaide and regional QLD. A further $6m+ in funds is committed for February and March unit issues.
 
The portfolio analytical breakdown at the end of January 2024 is as follows:

Ark Bedrock Fund is a unit trust, formed by Ark Capital in response to demand from existing and prospective investors seeking a pooled mortgage fund option.

Investments made by the Bedrock Mortgage Fund will initially be 100% in Loans originated and settled by the Ark Wholesale fund, in syndicate alongside other contributory investors.

This ensures Ark Bedrock can offer a diversity of loan types, sectors, tenors, borrowers and geographies, hence reducing investment concentration risk.

The projected returns of the Bedrock fund for the period to December 2024 are in the range 10.75% to 11.25%

Available to: Wholesale investors 
Min invest: $50,000
Distributions: Paid Monthly
Redemptions: Quarterly after minimum initial term of 6 months
DRP: Distribution Reinvestment IS available
Unit Issues: First day of each calendar month
Updates: Annual distribution statements and quarterly updates of the Fund’s performance
Investments: At least 85% in registered 1st mortgage securities with up to 15% potentially invested in registered 2^nd mortgages
LVR: Average 65% across the 1st Mortgage investments
Fees: 0.75% Fund Manager fee
Direct Costs: Up to 0.25% direct costs