Expanding Direct Investments

Dorado’s direct investment business was set up in 2018 to offer investors access to equity exposure in property, in addition to the debt investment opportunities across first mortgages and subordinate finance. Leveraging our deep property knowledge and networks around the country, Direct Investment is a logical extension of Dorado’s business. This extension has been in progress for several years, facing initial difficulties to find pockets of value in an ever-changing market. “However, with patience and thorough analysis, we have now identified a curated set of very compelling opportunities,” comments Director – Property David Giles, “It has been very rewarding to develop our strategies, grow the team and observe our investor base embrace this opportunity to diversify their investments.”

From facing the global financial crisis over a decade ago to operating through the COVID-19 pandemic of the last few years, agility is critical for any business looking to thrive in the Australian property industry.

For Dorado, agility takes the form of careful diversification to keep ahead of the curve in 2022 and beyond.

Expanding Direct Investments

Dorado’s direct investment business was set up in 2018 to offer investors access to equity exposure in property, in addition to the debt investment opportunities across first mortgages and subordinate finance. Leveraging our deep property knowledge and networks around the country, Direct Investment is a logical extension of Dorado’s business. This extension has been in progress for several years, facing initial difficulties to find pockets of value in an ever-changing market. “However, with patience and thorough analysis, we have now identified a curated set of very compelling opportunities,” comments Director – Property David Giles, “It has been very rewarding to develop our strategies, grow the team and observe our investor base embrace this opportunity to diversify their investments.”

The direct investment business is able to leverage the knowledge gleaned from Dorado’s wide diversity of first mortgage loans provided over twelve years. For example, the business gained deep exposure and learning in childcare and lifestyle hospitality assets by providing debt across a number of transactions. These were both areas that the direct investment business have since made purchases in since late 2021 with the Early Learning Asset Trust and Selina Asset Trust, and which we will look to expand upon through 2022 and beyond. “We are very selective about the strategies we pursue,” David continues, “Childcare continues to appeal given the strong social and governmental support in this area, as does hospitality given the severe disruption dealt by Covid-19, and we expect to continue to add assets to our portfolio in those areas.” Central to this diversification is careful assessment of the best geographies and asset classes for investment, which shift and evolve over time. While childcare and hospitality are very appealing now, Dorado also monitors the market for opportunities in other asset classes as they present themselves.

Evolving from insights identified from past debt investment opportunities, Dorado’s direct investment division could integrate with debt investments in future, leveraging Dorado’s debt business to acquire assets via a fund-through model to provide developers with both development funding and a guaranteed buyer for their asset.

Diversifying Across Geographies

The economies of Australia’s capital cities do not all cycle together; often they move quite differently. While Dorado is based originally in Perth, since inception it has operated nationally to diversify around the country. Having a national presence has allowed Dorado to allocate capital to the best opportunities around the country as they exist at any time, but also offer investors opportunities in locations that they would otherwise not have access to. This approach has paid off, with the East Coast now responsible for the majority of Dorado’s investments. In recognition of this, we continually assess which locations would be worth diversifying into further. In 2021, this resulted in exploring the ACT. In 2022, we focus on expanding our presence in South Australia.

The Adelaide market is attractive, with strong fundamentals, less of the volatility that Perth experiences, and less of the reliance on international tourism and students than Sydney and Melbourne. Adelaide has several defense programs including military vehicle programs, space agency and frigates, which all support economic growth. Median house prices increased by 15.9% and unit prices by 4.2% in FY21, an oversupply of apartments, shift in preference for detached housing and thin investor demand all provided a backdrop for lagging unit prices. Despite SA’s population only increasing by 3,000 people during FY2021 because of the drag in net overseas migration, the latest population forecasts suggest population will rise by 6,100 persons in FY 2022 before rebounding strongly in FY 2023 with an increase of 19,900 persons driven by net overseas migration.

Evolving lending style

Traditionally, Dorado has offered opportunities to investors on a standalone basis, relying on investors to individually assess the specific investment and invest each time. While this works for some, there has been a global shift in how, where, and when investors like to invest over the past few years, with a growing interest in digital investment platforms for easily making and managing investments. Recognising this, Dorado has focused on developing alternative ways of investing to remain responsive to investor needs. This included two closed-end first mortgage funds, offering a structure that embodies simplicity and diversification, by allowing investors to set-and-forget and gain curated exposure to several first mortgage opportunities around Australia. 

Off the back of the learnings gained from these funds, Dorado has developed proprietary software known as the Dorado First Mortgage Mandate System, which allows investors to make an initial capital commitment which is then allocated to underlying first mortgage investments that meet the investors particular First Mortgage Mandate criteria. The investor can monitor and update their own First Mortgage Mandate at any time. “The Mandate System allows Dorado to be more nimble with respect to funding mortgages,” notes Peter Packer, Dorado’s Co-Founding Director and Head of Capital, “as well as reducing admin and over-subscriptions/scale-backs for investors.”