As Australia’s lending landscape continues to evolve, non-bank real estate credit has become an increasingly important component of a diversified portfolio. Within Barwon Investment Partners’ First Mortgage Fund, two key loan types, residual stock loans and bridge financing for value-add commercial properties, are contributing to the fund’s ability to generate attractive returns while maintaining a measured risk profile.
Residual stock loans: Liquidity and stability
‘Residual stock’ lending provides financing against completed but unsold residential units or land lots. Unlike construction finance, these loans are secured by finished, saleable assets, removing exposure to build-phase risks.
Because each unit or lot can be sold individually, these loans have a natural liquidity advantage. As sales settle, the loan balance progressively reduces, with each transaction typically occurring at a value greater than the debt secured against it. The result is a steadily declining loan-to-value ratio and an improving liquidity profile, both of which enhance investor protection.
This segment is further supported by structural tailwinds in Australia’s housing market. Chronic undersupply and consistent demand have kept vacancy rates low and rents rising, ensuring that completed stock continues to find ready buyers. While yields are typically lower than for construction loans, the risk-adjusted returns remain highly attractive. For these reasons, residual stock loans have become a growing area of focus within Barwon’s first mortgage strategy.
Bridge financing: Controlled exposure with defined exits
‘Bridge’ loans on income-producing commercial properties undergoing light refurbishment or lease-up also represent an appealing niche. These short-term, interest-only facilities, generally 6 to twenty-four months in duration, allow property owners to implement value-add initiatives such as renovating floors, upgrading amenities or re-leasing vacant space.
Importantly, these are operating assets that usually generate at least partial income during the term. That cash flow can offset a portion of the interest expense, supporting both the borrower’s servicing capacity and the fund’s distribution profile. The risk profile is correspondingly modest, with incremental improvements rather than speculative redevelopment.
Each facility is structured around a clear exit strategy. Once income reaches a stabilised level that meets bank criteria, borrowers typically refinance into cheaper, long-term debt, creating a predictable and near-term repayment horizon. With banks remaining selective toward traditional assets, non-bank lenders such as Barwon that are able to accurately underwrite, and price transitional risk, provide an effective source of capital in this segment while achieving attractive risk-adjusted returns.
Strategic positioning in a shifting market
Non-bank lenders now play a crucial stabilising role in Australia’s capital markets. As regulatory capital requirements continue to constrain major banks, alternative credit managers like Barwon are filling the funding gap for quality borrowers. This shift has created a structural opportunity: disciplined, asset-backed lenders can earn a premium for liquidity provision without assuming undue risk. The result is a more resilient ecosystem in which borrowers maintain access to funding, while investors benefit from the steady income and diversification traditionally associated with core real estate, but through a credit lens.
Both residual stock and bridge finance loans illustrate the broader evolution of non-bank real estate credit. They provide borrowers with the flexibility to complete sales or reposition assets in an orderly manner, while offering investors exposure to defensive, income-generating collateral with clearly defined exit pathways.
Current market dynamics further reinforce their appeal. Australia’s housing shortage and constrained construction pipeline underpin residual stock values, while conservative bank lending standards continue to create opportunity in commercial bridge lending.
For Barwon, these segments form an integral part of the First Mortgage Fund’s ongoing strategy. By combining prudent loan structures, disciplined underwriting and exposure to real, income-producing assets, the fund continues to deliver on its objective: consistent income and capital stability for wholesale investors in a changing credit environment.
Jonathon Pullin is a partner at Barwon Investment Partners and head of real estate credit