September 2023 – Same, same but different

Newsletter

An aspect of the GPS business which keeps me engaged is that there is always an issue to solve. I note that if you believed everything you read in the media then it would be that we crash from one crisis to another!

The reality is that business isn’t straight forward. My view is that if someone says that there aren’t any issues to solve then they either don’t have much business on their desks (if they even have a desk these days) or they are lying.

It has been made abundantly clear to me by GPS investors that it’s my role to deal with the inevitable issues so they can better enjoy their well earnt retirement. GPS does this by being a team member in the development, identification and resolving of issues before they become problems.

GPS is in the process of successfully finishing the loans we wrote during COVID. Not having any “legacy” (bad) loans assists all of us.
We have now moved on to the latest issue which is the “housing crisis”. The solution to this issue for GPS is relatively straight forward. It’s a “the more things change the less they really change”. We stick to our tried and tested business model. This involves looking after our investors, borrowers, and builders. My father drilled into my comprehension that business isn’t that hard. If you look after your clients and apply some tight management, then the rest should look after itself.

I see the market conditions for the next few years to be favorable for the GPS business. The Government won’t solve the problem. Productivity is required. History should have taught them that you can’t regulate your way to improved productivity.

An undersupply of new residential dwellings reduces the sale risk for projects funded by GPS. The issue I see is the physical delivery of the completed new dwellings. The direct relationships GPS has developed over the past 30 years assists us in these market conditions. We will continue to support our tried and tested borrowers and builders.

The only real change I see is that there will be an increase in the average size of loans. The GPS loan book needs to have an optimal number of loans to reduce liquidity peaks and troughs. Owing to inflation, building and sale prices have increased. To stay the same GPS must write larger loans to fund similar size projects.

Another aspect of increased loan sizes is that GPS would prefer to continue to support our tried and tested development teams, rather than take on new and unknown borrowers to keep our loan sizes the same. GPS will however, stick to our niche of loans which are too big for the bank manager but are too small for the property departments at the banks and other institutional lenders.

When working with our borrowers in assessing potential new projects, I have seen that there aren’t many smaller projects which are viable. I will write about this at another time. This also contributes to an increase in the average size of GPS loans.

The next two loans which GPS will be offering to our Select Fund investors are at the top end of GPS lending. Both are loans to multiple repeat borrowers with builders who have a long association with GPS.

The first project is the third loan in Wynnum which GPS has funded for the Integer team. The builder is the son of a repeat GPS builder/developer. I have known him since he cut his teeth working on previous GPS funded projects. He built the last project (Bay Street, Wynnum) for the Integer team before being involved in this new one.
The second project at West End is also for a multiple repeat GPS borrower team. I have known the builder since another multiple repeat GPS borrower took him “under his wing” and gave him a start at larger projects.

Relationships got GPS through the issues associated with COVID, GFC, and everything else life has thrown at us. We aren’t deviating from our tried and tested business plan. GPS will continue as a relationship-based business.

I look forward to the continuing support of our ever-loyal investor base. It has, is, and will continue to be appreciated.

Richard Woodhead
Managing Director

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