The Perth property investment house’s move into direct ownership is paying off.
James Khng describes Dorado Property as a “mini Primewest”.
And the Perth property investment house’s push into the direct ownership sphere in some ways mirrors the ethos of the ASX-listed funds group, which rebranded to Centuria in October.
Dorado Property formed in 2009 as a financier for developments across the country.
A decade on, the company added a direct investments arm, marking its move into the space by purchasing 12 Newcastle Street in Perth for $24.25 million in late 2019.
“Prior to 12 Newcastle, Dorado didn’t directly own property,” direct investments manager James Khng told Business News.
Mr Khng said most of his time was spent preparing the business for direct ownership of assets when he joined the company in late 2018.
“We put in a lot of offers and kicked a lot of dirt,” he said.
“And we worked on 12 Newcastle for six months from first offer to actually finalising the transaction; it was a long road.”
Dorado Property recently completed a $2 million refurbishment of the Newcastle Street building with IA Design, while anchor tenant Compass Group has signed a new long-term lease for the asset.
The 15-year lease across 2,800 square metres brings the occupancy rate of the four-storey building to 87 per cent, with a leasing deal for the remaining 627sqm second floor in negotiation.
Dorado Property direct investments manager Damon Verheggen acknowledged the difficulties around growing the building’s tenant base, given the timing.
“Within months, COVID hit, so it was probably unlucky with timing in the sense that a lot of tenants have gone from needing bigger spaces to starting to reconfigure what their office needs,” Mr Verheggen said.
“I think one of the things IA Design did was look at making this space basically somewhere that you want to stay.”
Dorado Property bought 12 Newcastle Street in Perth for $24.2 million in late 2019.
Mr Khng said given Perth’s competitive office leasing market, it was key to revamp office spaces to align with modern requirements.
“We wanted to create the best fitout in this part of town, and we think we’ve achieved that,” he said.
“With COVID, I think tenants haven’t made that big decision to relocate their premises from where they currently are, and obviously working from home has created a lot of uncertainty in the market.”
Mr Verheggen said another appealing factor in Newcastle Street was that the rents were about half the cost of the core CBD, yet it was close to transport networks.
In late 2020, Dorado Property bolstered its private equity arm with a 19,149sqm industrial asset in Naval Base for $9 million.
The Rockingham Road asset is fully leased to Mediterranean Shipping Company subsidiary Medlog for at least the next six years.
Mr Khng said the group was drawn to the asset for its proximity to the planned Westport facility in Kwinana, on which the government is spending more than $4 billion getting off the ground.
“That’s going to fuel demand for that part of the world,” he said.
In late 2019, Medlog bought Integrated Container Logistics, which previously occupied the Rockingham space.
Mr Khng said this strengthened the investment thesis for the asset.
“In addition, the major tenant recently acquired the previous tenant, which was a local operator,” he said.
“So, essentially, the financial covenant got a lot better because Medlog is a subsidiary of the second largest shipping company in the world, [which] made the deal attractive to us.”
The group then made a significant move in the childcare space, securing four Western Australian childcare centres from Jarra Property for a combined $18.41 million.
Dorado Property bought Harrisdle Nido as part of an $18 million childcare portfolio.
The centres, in Kalgoorlie, Brabham, Piara Waters and Harrisdale were at various stages of development.
At the time, Dorado Property director David Giles said establishing an early learning fund aligned with the company’s goals of targeting long-term assets with predictable returns.
“Dorado believe the early learning sector has a number of sustainable, structural tailwinds that will continue to make it an attractive asset class to own, including strong bipartisan political support, a social drive towards workplace gender equality and higher workforce participation rates in women,” he said.
Mr Khng said the group was also under contract for a fifth childcare centre in Canberra, which would add to its early learning fund.
The company branched out to hospitality through partnering with Nasdaq-listed hotel group Selina to fund the refurbishment of two Melbourne hotels and one in Brisbane, in May this year.
Essentially, the property fund is helping launch Selina’s brand in Australia, with the hotel group having about 150 accommodation facilities worldwide going into the deal.
This November, Dorado Property purchased a $5 million Magnetic Island resort, Bungalow Bay Koala Village, which it is rebranding to Selina.
Mr Verheggen described the Selina partnership as a hybrid structure.
“Selina goes into these assets, and they need to rebrand them, so we basically say we will fund the refurbishment for you for that facility and charge them an interest rate,” he said.
“Then we also get a profit share component to that as well, so it is a hybrid debt, equity mix; it’s a bit different.”
Bungalow Bay Koala Village in Magnetic Island is being rebranded to Selina.
Prior to 2020, Dorado Property’s private equity business consisted of the company acquiring portions of large vendors’ transactions, pairing with groups, including Centuria Capital Group, Quadrant Property and Argus Property Partners.
Dorado Property still owns stakes in what it describes as cornerstone assets, including Chester Pass Mall in Albany and Piabla Place Shopping Centre in Hervey Bay, which it owns with Centuria.
In addition, Dorado owns Malaga Home Centre with Quadrant Property Group and assets in Queensland and Victoria with Sydney-based Argus Property Partners.
Mr Verheggen told Business News the group wanted to continue its focus on direct control and build on its $100 million portfolio or directly owned assets.
“The business has pivoted in the last few years to move away from just having an interest to having direct ownership and having a bit more control,” he said.
“We will obviously still keep the relationship with Primewest [Centuria], and those assets will continue to sort of roll on through but moving forward we like direct ownership.”
Mr Khng said the transition represented the company’s shift away from a family office structure to a more typical private equity firm.
Dorado Property acquired a Rockingham Road asset in naval base for $9 million in 2020.
However, most of Dorado Property’s assets are in its debt arm, with an approximate 70/30 split between debt and equity.
On top of its Perth headquarters, it has offices in Sydney and Brisbane.
In terms of a preferred asset class, the pair said they preferred not to pick favourites.
“There’ll be certain asset classes that are sort of flavour of the month and make sense, and then those things sort of die down based on certain market factors and forces, and then other things get the spotlight,” Mr Verheggen said.
“I think, at the moment, it’s hard to find real value in offices … we’re finding it difficult to find the investment thesis behind it, because we obviously think about things long term.
“But what’s so important is obviously making sure that we buy at the right time.
“In the last 12 months, we’ve been focused on child care, hospitality, and in the next 12 months, we’ll … continue to be across the other asset classes.
“It’s hard to know if one particular thing stands out at this point in time, but at the end of the day we still look at off-market opportunities; if there’s something in industrial or if there is something in retail or in office that does make sense at that price, we’ll pursue it.”
