Speaker 1: 0:10

Hello and welcome. Today I have the legendary Michael Trash from Southern Cross Partners. Hello, Michael, how are you?

Speaker 2: 0:19

Good thank you Glad to be here.

Speaker 1: 0:20

Thank you so much for coming over. We've known each other for a few years now.

Speaker 2: 0:24

Quite a few years.

Speaker 1: 0:26

I think from the start of me taking over this franchise.

Speaker 2: 0:29

really it was.

Speaker 1: 0:31

Yeah, I had a child number three with me. He was a baby when we first met. Yep and I met your mom and you met my mom and you met my brother before me, that's right.

Speaker 1: 0:40

Yep, so we go back a really long way. So, michael, today I wanted to have you in so we can share with our audiences about the fantastic work that you guys do and the place you have in the market and how you can help people to get ahead with their goals. So let's step back a bit and tell us about who you are, what you do, and we'll go from there.

Speaker 2: 1:02

So my name is Michael Tresh and I'm the business development manager for Southern Cross Partners. I look after basically the area of New Plymouth to the Hawke's Bay to Nelson. I'm based on the Kapiti Coast, have been for a number of years and we're in the market of that non-regulated, non-bank lending. And what I mean by non-regulated is that we do investment-based lending and what I mean by non-regulated is that we do investment-based lending. So all our lending is mortgage-based but it is all for investment purposes and it might be that it's to buy a rental property, do a buy-reno-flick, build spec homes, build turnkey property which will be on sold or rental properties. So it's anything of an investment nature.

Speaker 2: 2:10

And where we fit within that kind of realm is that the brokers will have spoken to their main lenders, their banks et cetera, and for whatever reason it didn't fit within that bank's criteria. So they would then come to us and that is the broker and we would look at providing funding, all our funding, short term. So it's just a short term fix where at the end of that term there's either a takeout, which could be the selling of the property, refinancing to the bank, et cetera, but it's just we're a short-term fixer of a problem one could say.

Speaker 1: 3:03

So when you say short-term, Michael, what do you mean by that?

Speaker 2: 3:06

How short is short-term, is it?

Speaker 1: 3:08

two months. Is it six months?

Speaker 2: 3:10

We'll do everything from three to 24 months.

Speaker 1: 3:14

Up to two years.

Speaker 2: 3:15

Up to two years. Up to two years.

Speaker 1: 3:16

Yep. Yeah, let's talk about some case studies and examples, so, without you know, obviously, saying people's names. I know I've done a couple with you where we had an investor from overseas. Yes, so this is where you guys were fantastic, because it was actually around COVID times as well and the bank wasn't really taking that income into consideration, but the clients really wanted to buy something here.

Speaker 2: 3:39

To come back to Yep, so a couple of case studies. So we've done as you said. We've done a few offshore borrowers and we're starting to see a bit of a spike in that. Again, there's a lot of interest from offshore borrowers or borrowers who have got entrepreneurial visas in New Zealand. So we've just done one recently which is an offshore-based person who has a property in New Zealand they own unencumbered. There's a property in New Zealand they own unencumbered. They needed about $800,000 to invest into a business, start-up business. We were able to provide that funding for a 12-month term. At the end of the 12 months he'll either refinance us or he'll repay it from some other offshore funds he's got coming available. We're really driven in all our deals by the. Security is probably our key.

Speaker 1: 4:49

So what is security for those that are listening? Okay, can we?

Speaker 2: 4:52

just so. Security in our case is always a first mortgage. We're happy to look at pretty much any location within reason Residential, commercial, beer land, and by commercial I'm talking about commercial units, commercial multi-storey buildings. Anything which we can get a first mortgage on we're happy to look at.

Speaker 1: 5:28

So you don't usually do second mortgages, right?

Speaker 2: 5:30

No, we're certainly. We're not second mortgages lenders, we're only first.

Speaker 1: 5:37

And who can borrow? Is it a company, a trust, or can it be under individual name?

Speaker 2: 5:42

Any of those three. So for AML side of things it's far easier to have it under their individual names. But we're just driven by what the borrower and the client want it, how they want it structured by way of name. So any of those are fine.

Speaker 1: 6:01

Because it's the purpose that matters, right? Yeah?

Speaker 2: 6:03

that's right. So the purpose has to be investment-based. In fact they can actually use their residential home for a loan, so long as it is for investment purposes. So we just did one. Recently, another one which was kind of business-related Individual, had a company which he hadn't been trading that well due to COVID. He wanted to buy another business to strip it of its assets and technology. So went to the bank. Bank looked at it and said you know, your financials are not all that good. Come back to us in 12 months time. That didn't work. He needed to buy the business now because it was on the market. So we provided the funding so he could buy this other business, strip it of its assets and technology and then within 18 months refinance back to the bank. Well, within 12 months he'd gone back to the bank. He'd turned the business around due to this new technology. So we're kind of just in that case again just a fix, short-term fix to get them back to a mainstream lender.

Speaker 1: 7:20

And if they can't get themselves out of that particular situation in the 12 months, do you extend their loan just to help them out a little bit longer?

Speaker 2: 7:28

So the broker would come back to us and say, look, we can't refinance this stage for whatever reason, and we'll basically then just review the conduct of the account and if it's been good and the security, we're still comfortable with it, happy to renew it. I should point out that all our loans are interest only, so over that 12-month term they'll be making monthly interest. We will look at capitalised interest, but we are quite selective on what we do as capitalised, but 90% of our loans are probably interest only.

Speaker 1: 8:08

So for those that are listening, capitalised interest is when we take the interest, calculate it over 12 months and lump it on top of the loan.

Speaker 2: 8:17

That's right. So they're really in. If they can afford to make the payments, it's far cheaper because they're really paying interest on interest each month. So you know it's an expensive way to borrow money. So certainly if they can afford to make the payments, it's worthwhile Talking about making payments with us.

Speaker 2: 8:40

Being a non-bank and non-regulated, we're a lot more flexible over our serviceability criteria, so we don't have a big manual which we have to go through and see if they fit our serviceability criteria. It's on a case-by-case basis. So a lot of our clients we actually see negative serviceability, so that means that they're actually they can't show on paper that they can service based on their income. However, a lot of our clients have other assets share portfolios, term deposits and other income, which is probably a little bit fluid, so long as they are able to confirm that they can meet our payments confirm that they can meet our payments. Normally we used to get a letter from them just saying that they can afford our monthly payments. We're happy with that. So we aren't governed by a criteria that says that they have to have so much surplus each month.

Speaker 1: 9:50

So, like the banks, they would have green light, red light. If the calculator says green, it means we're good to go, and if it's red, it means it's a fail, they can't. But in your case there is no green or red light in a way we can just push it through and this is what I really enjoyed over the years with you, Michael, is that I can pick up the phone and explain the case to you, and then we could get the feel for it whether it will fly or not.

Speaker 2: 10:12

Yep, and I think another big thing is all the BDMs. So we have three BDMs in Auckland who look after the Auckland area. We have a Christchurch BDM and myself in Wellington. All the BDMs have discretions so they can approve within their discretion alone. So a lot of the deals we see because they've come through a broker, the broker, rightly, has gone for the banks first to see if they can get it approved. The banks who can take a little while to approve things it's finally been declined. They need to settle that transaction reasonably quickly. So a lot of deals we're seeing come in where they need to settle within two to three weeks and that's fine because within our discretion as a BDM we can approve. I can approve probably 90% of the deals which come in without it having to go to our credit team in Auckland. So we pride ourselves on turning around a loan application to an approval stage within 12 hours.

Speaker 1: 11:22

Yeah, and I've seen this in play many, many times where I'll call you in the morning, submit a deal by lunchtime, by four o'clock. You've got an approval back to me, and often that plays a role when we're dealing with investors who are fast paced if they need to secure property or if there is a developer you know and they need to know whether they can borrow money or not. You've come to the rescue many times. So thank you, michael, for that, thank you. Let's talk about interest rates, because I'm sure the listeners will be sitting there going all right, it all sounds amazing.

Speaker 2: 11:53

What are the interest rates? What are the fees involved? Okay, so we have various rates for different products. So our straight residential rate, and that's for purchase of a rental property, maybe an equity release for investment purposes against a family home, so residential, our rate starts at 8.1% and our fee starts at about 1.25%.

Speaker 1: 12:20

You're the lowest on the market right now in terms of fees. I must say.

Speaker 2: 12:24

Okay, that's good to hear. Market right now. In terms of fees, I must say, okay, that's good to hear. And then we have a $1,955 legal fee and that's basically it For our build funding. So that's as we talked about spec builds for investment purposes, our rate starts at 9.5% and our fee starts at around 2.25%. Now I should say all our fees and rates. There is some flexibility depending on the quality of the deal. So this is just giving you what our standard rate is. But if it's a really good deal, it's an existing client. We want the business. So there's a little bit of room to move For commercial property and we do a little bit of lifestyle kind of that unusual stuff. We've seen a few wedding venues and things like that come up recently. Our rate is slightly higher again. So for commercial property we're around nine and a half and for lifestyle property we're probably around nine percent%, just again, depending on location, what the property is and also regarding what the LVR is on the property.

Speaker 1: 13:55

That sounds awesome. So, in regards to LVR, now that you've mentioned LVR, what is your preferred option for LVR?

Speaker 2: 14:02

Okay For straight residential properties, we're happy to go up to 70%.

Speaker 1: 14:08

So people need to have 30% deposit.

Speaker 2: 14:10

That's right. Either 30% deposit by way of equity in their existing house or just, depending on the structure of the deal, and that's straight residential, residential For built. We will do up to 70% also on the end value of the build.

Speaker 1: 14:32

Aha, on the end value of the build?

Speaker 2: 14:35

Yep, so once it's completed. That's right. So what we'll do is, when the broker submits through an application, we'll make sure that they've provided us with an end value, an estimate at that stage of what they think the property is worth once it's completed and has CODA compliance. So we'll do 70% of that for the build cost. If we're just lending initially, we see a lot of developers who will see a bit of land they want to buy and they will want to land bank it, which means they're just going to sit on that land until they're ready to develop it further down the track. We'll look at 50%, maybe 60% of that, as is land value, so that will allow them to settle the land and then come back to us when they're ready to build on it. On commercial properties, we'll probably do up to about 60% and lifestyles again also around 60, maybe 65, depending the location.

Speaker 1: 15:48

Okay, will you take something that's being built halfway, for instance? We've got a client needs to settle on the land but he's already started building on it.

Speaker 2: 15:58

Yep.

Speaker 1: 15:59

And the code of compliance is a couple of months away.

Speaker 2: 16:01

Okay, so long as it's non-regulated. So in other words, they're not.

Speaker 1: 16:05

It's for investment. Yep to sell.

Speaker 2: 16:06

Yep, no issue whatsoever so long as we can get an accurate figure cost to complete and we can see that he's done, the progress inspections by the council being undertaken and there's no issues with that. We have done a lot of them in the past. Part completed what we've found and, it's interesting, we've done a couple of high-end renovations on properties which need earthquake strengthening. So what we've seen in the past the banks have provided the funding and then partway through there's been a slight change in costings due to maybe a blowout in the strengthening cost and that client's gone back to the bank and said, look, I need some more money to complete. Bank said no way, we want out. So we've done a few deals which basically fit into that criteria where we're being asked to take that project over part way through the transaction so long as we can see a clear cost to complete. The progress inspections are being done and we're really big on actually meeting the client on site to have a look at the development and the broker's still involved in the whole transaction and will always be the broker's client. But that kind of one-on-one us going on site and obviously with the broker meet the client Clients like it because they actually see who the lender is. It's not just somebody based in Auckland who they're dealing with. They're actually meeting and we can have a look at the project. I have an off-sider who's based in Wellington and he does all the site visits, meets the builders. He has a real expertise in that we can offer a little bit of advice. If there is a problem down the track, we're there, we know about it.

Speaker 2: 18:08

We had a case a while ago where it was a Vestment client building an existing property with a rental at the front was putting I think it was three or four townhouses at the rear going to be subdivided. He was selling the four townhouses, retaining the rental. Got partway through the build builder went bust. Our guy had prepaid for a few things because it was around that COVID time we were, because we'd built up a relationship obviously with that developer and investor, we were able to actually give him some guidance. In fact we found him another builder, yes, he did take a bit of a hit with what he'd prepaid the existing builder, but we got the project finished pretty much on time. He didn't lose, he made a profit on the sale and he's now going to move on to his next project. So it's kind of we're there to obviously make sure the project runs smoothly, but also to give advice.

Speaker 1: 19:25

Yeah, and I think that's very important for those that are dealing in that space. So we talked about all the great and wonderful. Now let's talk about what can go wrong. So we've just briefly touched on that, but what can go wrong for people that are taking those higher risks? Have you had any cases that things went terribly wrong for people, and what should they be wary of?

Speaker 2: 19:48

Yep, Okay. So one of the big things is we're seeing at the moment a lot of the buy-reno flicks. So that's where an investor buys a property at hopefully a sharp price, they'll do a renovation on it and then they'll sell it at the end for a profit. The market is starting to warm up again, with investors getting back into that market. I think one of the big issues is just to make sure you have actually done your numbers and looked at the property properly to make sure there isn't any hidden costs. We've seen a couple of buy-reno flicks where there were underlying problems when the deal had settled and that blew out the cost of that renovation. One of them was needed repiling, Another one they found there was some water damage to some of the framing. So I think in those cases there was a problem but all we had to do was obviously provide we provided some more money to get the development completed.

Speaker 2: 21:06

But I think those are the type of things you have to look at and be quite careful with. If you're looking at doing a build, it's really picking a good builder who's reputable, looking at their kind of reviews, making sure that their budget. We've seen a few cases where, when the builders have been quiet, they've under cost their build and then our clients come up with having to come up with extra. Yes, we didn't allow for this and other bits and pieces. So I think it's just really digging into those issues and look, when we look at a deal, we will look at the cost to build and make sure that it is or can be built for that value. So we're kind of there. We're not just approving it because we don't want the deal to go bad, we want it to flow through, settle, be taken out and then look at the next hopefully the next deal. Yeah, we've got some by Renault Flix, people who we've done multi, multi properties for, and they still come back.

Speaker 1: 22:21

Yeah, and I mean, you know, we've had some clients together that do that and if you've done it well, if you've planned it well, you know you can benefit from it. But like anything in life, there's a high risk. You just sometimes don't know.

Speaker 2: 22:35

I think the big thing with the buy-reno-flex is being realistic over what you expect the sale price once you've renovated. We've seen a few cases where people have expectations on what they're going to earn on the sale of that property on it being renovated has not been realistic property we have to roll it over because they haven't sold it and they probably can't go back to a bank. They've got the cost of that rollover, they've got the cost of the additional interest and in a lot of cases they'd already had an offer and maybe that first offer was the best offer, wasn't quite what they wanted. So they've held on and in one case the property it took another year to sell.

Speaker 1: 23:31

Wow.

Speaker 2: 23:32

So by the time they probably added in all those extra costs holding costs they would be better to have actually sold it at that initial price.

Speaker 1: 23:42

Yeah, exactly, and I think sometimes you know people get lost in their own mind of oh I need to make 100K on this property without realising that, hey, it's better if you actually make 50K on it and then do another one quickly and then you could make another 50K.

Speaker 2: 24:00

That's right.

Speaker 1: 24:00

Holding on to it as you say and then have all that additional cost.

Speaker 2: 24:03

That's right. It's just churning it, constantly churning it, not sitting on that property, just renovating it and then moving it on. I think one of the big things is, yes, loans do go wrong, but it's communicating with the lender, whoever it is, either via the broker or ringing us directly just saying, look, we've hit a bit of a snag, what can we do? And look, the last thing any lender wants to do is mortgagee, sell a property or place it into default. We're there to work, we understand things happen. So it's a matter of kind of coming to us through the broker and let's work through what we can do to get it achieved, get us repaid and move on to the next transaction.

Speaker 1: 24:58

Yeah, exactly, I think that's the most important bit that sometimes people forget and they bury their head in the sand and they go. Well, if nobody knows about my problem, maybe it will go away.

Speaker 2: 25:09

That's right and it doesn't, and it's right across. We've had high-end deals. One thing I should cover off is what we lend from. So our lowest amount is probably around $100,000. We'll get up to about $4 or $5 million we'll lend on a deal. So we're a reasonable size player and that's for. You know, investments builds subdivisions, whatever so long as the investment purpose sorry, the purpose of the loan is for investment.

Speaker 1: 25:44

So I can't just go and build myself a new house for $4 million.

Speaker 2: 25:47

No, or build your dream holiday home.

Speaker 1: 25:50

No, no, okay. So what are you seeing on the market at the moment, michael? Are you seeing more developers coming back and looking to build, or more flips, as we've just talked?

Speaker 2: 25:58

about. Certainly we're seeing more developers coming back. In Last year probably this is, I'm talking about Wellington, greater Wellington Certainly there was a few developers who were just pulling back to see what was happening in Wellington. We're certainly seeing a bit of a change in what's being built in Wellington. Yeah, there's been a lot of that two-storey townhouses, a lot with no off-street parking. We're seeing a bit of a move back to off-street parking being part of that build. But certainly in the last couple of months we've noticed a surge of developers coming back into the market looking to do new builds. We're also seeing the buy Renault Flick guys back into the market looking to purchase Bit of an issue at the moment trying to get stock.

Speaker 2: 26:59

There's the house in that right price range. But certainly we're noticing an improvement in the greater Wellington market Few subdivision deals, a few more land bank deals. And the land bank deals we're seeing are not necessarily just land, they're actually they might have a house on it. They might. So the developer will just leave it as a rental until at what stage they're ready to develop the site. But so we're starting to see that come back in that they're wanting to sit on bits of dirt until they're ready to develop it. So you know it's pretty positive this year.

Speaker 1: 27:41

Okay, well, that's good to know because, looking at the property prices data, it looked like Lower Hutt took the greatest hit. Yes, yep, in terms of house values.

Speaker 2: 27:51

Certainly some of the areas have taken a hit and that's reflected, obviously, what we're seeing in valuations. But I think if you're buying in this present market, the developers and our investors are buying sharply and a lot of our developers will go in and say, right, here's the offer, we can settle in three weeks' time. And for some of the sellers that's a bit of an incentive. You know, quick settlement might be an estate where they want to divvy up the money. I'm also pretty enthusiastic about some of these other locations New Plymouth, nelson, the Wairapa I think there's going to be a reasonable growth. Palmerston North so you know I do look after Greater Wellington. That's the bulk of our business, but we're certainly looking to develop business in New Plymouth, hawke's Bay, wairapa, palmerston North, nelson so you know we think there's some really great potential.

Speaker 1: 28:55

Yeah, absolutely In those areas In regards to the company itself. Just as a wrap-up, can you just give us a brief about Southern Cross Partners and where did they come from, and obviously not to confuse the name with the insurance provider.

Speaker 2: 29:08

Yep, so nothing to do with the insurance provider. I think Southern Cross was founded about 25 years ago Before.

Speaker 1: 29:16

I was born, yeah.

Speaker 2: 29:17

Yeah, by an Auckland-based couple. I've worked for them probably about 20 years, so I came on when there was basically just the three of us. It's now grown there's probably about 40 staff.

Speaker 1: 29:34

Wow.

Speaker 2: 29:35

Our main office is in Auckland and, as I said, we've got three BDMs in Auckland, one in Christchurch and myself in Wellington and it's basically grown. So it's always been a non-regulated lender but we've kind of evolved over the time, doing bigger loans. It's all first mortgage and I think over the next few years there'll be some new products we'll launch coming up. I know the owners of Southern Cross are very keen to continue that growth and it's, you know, as I said I've been there nearly 20 years it's a really, really Great business. Got a real family orientation to it.

Speaker 1: 30:21

They're great people I met them. We met them together and I was just blown away by the human beings and real, real, humble people, yeah, real humble people. I was really blown away.

Speaker 2: 30:35

And everyone's like a family. So we've just got such a great team Behind me. I've got a team based in Auckland who just kind of run everything, because a lot of my time is spent out on the road catching up with brokers, catching up with developers and brokers developing new business. So if I'm out of the office, things will still happen because there's such a great team behind me who just put everything together so we can get those loan offers out.

Speaker 1: 31:06

That's what they want to know.

Speaker 2: 31:07

Yeah, really important. It can be a really stressful time for the borrower Settlements coming up, they've got to confirm finance and for us the key is to get it out there. The offer is quickly popped. Or if we can't do it, is there another solution? So I always kind of think, you know, I look at the deal and say, okay, we can't do it this way, but maybe there's another way we can put it together. Or if we can't do it, maybe there's another lender. Because I've been in the game for so long, you know I know all the other lenders.

Speaker 2: 31:42

Maybe there is another lender which will fit that criteria. Rather than just saying no, we can't do it, here's some other options we can look at.

Speaker 1: 31:47

No, I love it, I absolutely love it. And can you just tell me quickly where do they get their funds from?

Speaker 2: 31:53

Okay. So we have investors, as we've involved. Initially, when we first started out, it was basically funding through a bank facility and non-bank facility, but as we've evolved we now have investors. So they're mum and dad investors and wholesale investors. So how we settle? So what happens is when a transaction is ready to settle, we settle the deal from our own funds. We have a bank funding facility and then we go out to the market and say we've got a property in Waikea. We don't give the address, there's no details regarding the borrower, it's just very general property 65% geared $200,000. And we then see if any of our investors are interested in putting money in and it's all backed by first mortgage, and if there's not, we just wear the deal ourselves because we've already paid on it. But our fundings are kind of mixed, either through investors mum and dad or wholesale or bank funding.

Speaker 1: 33:07

That's awesome. Thank you so much, michael. I think it's important for listeners to understand the strength of this company and, if they are borrowing with you, whether you can settle, because, as you say, it's really important to make sure you can settle on the day. Look, it's been fantastic chatting with you today and uncovering a little bit more about what you do and what your company is, and hopefully those that are listening will go ah.

Speaker 2: 33:32

I could do that.

Speaker 1: 33:34

So this has been really, really cool. Any parting words before we wrap up.

Speaker 2: 33:40

We've got plenty of money, so we want to get it out there. So this year we're really looking for another leap up in growth. So, you know, I think it's a really good. This will be a good year for those people to start looking, or borrowers to start looking at. Maybe, you know, we've got a family home but we want to do something else, invest in a buy-reno flick or a rental property or something else. So you know, certainly we're open for business and we've got plenty of money to lend. So you know, we want to make it an exceptional year.

Speaker 1: 34:15

That's awesome, Michael. That sounds amazing. The year of the snake, that's the year to make it happen. So thank you so much for coming along today and sharing your knowledge, and I look forward to working more with you in the years to come.

Speaker 2: 34:29

Great Thank you very much.

Speaker 1: 34:30

Thank you.

Speaker 2: 34:31

Have a lovely one, cheers.