Capspace’s Aaron Browne on why cash flow is king as lenders gravitate to owner-occupiers
Lenders have become more willing to extend more leverage against owner-occupied commercial property than against investment stock, according to Aaron Brown, head of origination at private lender Capspace.
It comes as commercial borrowers turn cautious across all lending classes amid a worsening economic backdrop, forcing lenders to take a harder line on leverage. But what is driving the divergence between owner-occupier and investment lending? For Brown, the answer comes down to one factor: cash flow.
"The answer is simple in that [lenders] know that there's a trading business which is going to pay the loan payments rather than simply rent," Brown explained. "They get better insight and oversight over how that [owner-occupier] business is performing and they can forecast its performance better. So it's much more predictable.”
On top of that, the income for the property is not then governed by external factors and changes in rent”. As a result, businesses that occupy the premises they own are likely favoured by lenders while lending appetite remains cautious.
Small business owners hold back
The caution in commercial lending starts at home. Most small and medium-sized enterprises (SMEs) borrow against their owners' residential property, which ties their business investment directly to their housing situation.
"Most of Australia's SMEs are underpinned by property security and residential property security… And where they see the value of their family home deteriorating, then they're thinking about that in their business and how they invest in their business,” explained Brown.
Some economists see Australian housing prices falling as much as 15% before the cycle is over.
Brown pointed to lower transaction volumes, reduced spending on plant and equipment, and fewer business acquisitions as proof of the pull back. And despite four cash rate rises this year, higher rates are actually a smaller line item than the knock-on hit to revenue as customers cut back.
A widening gap between buyer and seller expectations is also keeping deals off the table.
The SMSF sweet spot
Brown flagged smaller commercial assets as an emerging opportunity for self-managed super funds (SMSFs) looking beyond residential property.
"Commercial assets under $900,000 are in that sweet spot for SMSF investors," he said, highlighting smaller office and retail spaces, alongside industrial asset classes. "The stuff that's on the smaller end of the spectrum, I see it getting potentially, hopefully a little bit hot in the year to come."
It comes amid a highly controversial ban on residential SMSF lending which was announced following the May 2026 Labor Budget. That leaves commercial property as the main avenue for SMSF to invest in property. A Money.com.au survey found that 26% of respondents intend to buy commercial property through their SMSF.
The owner-occupier angle carries over. Under Australian Taxation Office (ATO) rules, business real property – land and buildings used wholly and exclusively in a business – is an exception to the related-party acquisition rules, provided the fund pays market value. That lets a business owner's fund hold the premises the business trades from.
Why private credit is gaining ground with commercial borrowers
Tighter leverage is pushing borrowers towards more creative structures, Brown said, with banks and non-banks alike taking a more conservative view of loan-to-value ratios (LVRs).
"Lenders, banks, private lenders, all of us are looking at LVRs a little bit more conservatively in the next little while. And that's off the basis of expecting values to come backwards, but also with interest rates being higher," he said.
That is where private lenders can fill the gap for borrowers with equity in other properties.
"I think that's where the world of private credit becomes more and more relevant. So a simple transaction of buying a commercial property and borrowing 65% against it might be a little bit challenging in the next little while. But where borrowers have got equity in existing property that they can leverage potentially through cross-collateralisation… they can be well placed with a good collaborative lender to take advantage of that," Brown said.
Private credit stress spreads
At the same time, the private credit sector is under close watch, and the past week has shown why.
Metrics Credit Partners has frozen withdrawals from two wholesale funds holding more than $9 billion and has stopped processing redemptions from its $6 billion MCP Wholesale Investment Trust and its $3.3 billion wholesale real estate debt fund, which is mainly exposed to property loans. The lender has not said when the pause will end.
Metrics is not alone. MA Financial has capped redemptions from its $2.3 billion secured property loan fund at 1% a month, while CVS Lane and Centuria Bass froze redemptions after Western Sydney developer Bathla Group collapsed owing roughly $3.4 billion to more than 40 lenders.
The regulator's tone has hardened. At a Commercial & Asset Finance Brokers Association of Australia (CAFBA) summit in September, Australian Securities and Investments Commission (ASIC) commissioner Simone Constant said "We are now well beyond warnings" and told the sector to prepare for enforcement action.
That followed ASIC's late-2025 review of 28 private credit funds, which flagged opaque fee structures, inconsistent default terminology and weak governance around related-party dealings.
ASIC estimates the sector at roughly $200 billion, with real estate making up an estimated 40 to 60% of private credit lending in Australia.
