Are Centuria Bass exposed to Probuild?
The question on every investor, lender and developer’s lips right now is what is the impact on our investments following the recent news of Tier 1 building contractor Probuild appointing administrators. It is not surprising to see major builders go under within a background COVID-related supply chain delays, material cost increases and subcontractor shortages. Combined with industry practice being low margins and fixed price contracts, this has conspired to push an industry giant to the brink of bankruptcy.
At Centuria Bass Credit (CBC), we are pleased to advise that across 46 loans which finance over $500m of property development, we have no exposure to Probuild or any subsidiaries in any investment. In fact, we have never had a builder go into receivership or even materially default. So on the face of it we are not directly exposed. However this event is symptomatic of a building industry under duress, and this event is likely to see multiple sub-contractors also pushed under and cost pressures hit many projects. To this end, all construction lenders are to an extent indirectly exposed. Our success in avoiding these events comes from building a ‘Rolls Royce’ loan management and due diligence regime to manage builder risk and maintain a high level of proactivity in our investments. This system has ‘builder risk’ at the forefront of assessment in four phases for each project;
- Initial builder DD and assessment – who we approve as builder
- Buffering and contingencies – how we assess the quantum of risk and what funds are retained aside for problems
- Ongoing monitoring and quantity surveyor review – our fortnightly assessments of how performance is proceeding, onsite attendance, and interviews not just with the developer or builder, but project managers, consultants and major sub contractors
- Intervention and enforcement – how we detect issues early and secure additional commitments, collateral, and focus from all stake holders.
No lender is immune from this risk, but some lenders will manage this risk better than others. While there may be challenges along the way, CBC is confident in its processes, structures and experience to manage these risks to ensure optimal outcomes for our investors.
You should also appreciate by now that the tactical position of our fund has left us less exposed to the Probuilds. We focus on major project builders and developers who are not spread across multiple projects. If we are funding a developer and builder on their largest project, we understand that with our financing, we are funding and supporting their profitability. It’s a simple proposition, but we believe in it.
We have had huge enquiry in the last 24 hours from developers wanting to lock their finance down and work with a player backed by the strength of Centuria. The credit disturbance we’ve been patiently waiting for is upon us again now so we are expecting to see more deals which have the potential to out-perform the market.
Centuria Bass will continue to support all of our developers and investors in this challenging period for the industry. Please reach out to my partners and management team if you have any concerns – we are here to help.
CEO / Fund Manager