Perth-based private investment group Dorado has become an increasingly prominent player in the state’s property market, as banks’ hesitancy to lend to developers continues.
Since 2009, Dorado has been growing its property portfolio and now has an interest in 29 projects, as either an investor or lender, including key developments in North Fremantle and West Leederville.
Director Tim Moore said the investment house looked to branch into property when the outlook for equity markets looked weak, while property appeared promising.
“Three years ago I thought; ‘this is a hot market that has legs, I’ve got to get a foot in the door before it slams’,” Mr Moore told WA Business News.
While the initial driver for stepping into property was mining accommodation – Dorado has projects in Port Hedland, Karratha and Newman – it has since broadened its activity across a range of developments, in Western Australia and Queensland.
In West Leederville, Dorado has partnered with Built Environs to develop the $12 million McCourt Street Medical Centre, which Mr Moore described as a “safe” investment option.
“Over time there are certainly developments that resonate with you because you feel that the safety is good or the opportunity is good,” he said.
“Probably the sector that has been the least affected by the GFC has been medical … it felt for us like something that would be very unaffected if there was any further economic turbulence.”
The Match Group is another developer that has partnered with Dorado, to help fund its strata offices project on Tydeman Road in North Fremantle.
Mr Moore said the developer was investigating the site and wanted to acquire land but banks were unwilling to invest until pre-sales had been confirmed. That allowed Dorado to step in and act as the bank, funding and holding the land for the developer.
The Match Group managing director Lloyd Clark said the Tydeman Road development had benefited from collaboration with Dorado and differed from traditional funding models.
Dorado was a “flexible” funding option and worked with the developer to determine the best funding model – whether through providing equity or debt.
Mr Clark said obtaining loans from banks had become more difficult as the conditions developers were required to meet around pre-sales tightened.
“In 2005-06 it was an incredibly competitive financing market and as a result banks were becoming far more relaxed and flexible in terms of presale requirements,” he said.
“Certainly, over the last three or four years the banks have tightened up; their gearing ratios have reduced and their requirement for presales have increased.”
Mr Moore said developers had to work harder to achieve pre-sale requirements, which included conforming to factors such as cash buyers, overseas buyers and the spread of sales across a whole development.
He said those requirements had always existed, but banks had become stricter about enforcing the rules.
“The average developer would love to see things revert back to the ‘good old days’ and be in a situation where the banks had a checklist but weren’t that tough to enforce all of it, to get to the stage where it was easy to get high loan to valuation ratios on projects and where it was easy for them to raise money to get projects going,” he said.
However, Mr Moore believes the stricter application of lending requirements has actually benefited developers by forcing them to better manage project risk.
“The irony is that they’re actually doing the developers a favour,” he said.
The Dorado group’s foundation lies in its private equity arm but it has diversified to also provide consulting and managed investment funds.
The property expertise of key personnel made the market an attractive option but Mr Moore said developers could also benefit from Dorado’s experience in gaining agreements for allocations, such as water and electricity.
