Subordinate Finance investments generate an enhanced return to investors through the deployment of capital subordinate to a senior lender but ranking ahead of the developers equity throughout the development phase of a property development project. These types of investments will typically run over 12 – 24 months, and generate returns of between 14% and 25% p.a., depending on the security package and LVR of the investment.
Subordinate Finance investments are considered higher risk than a first mortgage investment, as its rights and security are generally subordinated to those of the first mortgage lender. There are many different factors that go into measuring the risk of a transaction, however for like-for-like loans a common measure is what is known as a Loan-To-Value Ratio (LVR); the lower the ratio the more secure the investment. Dorado assesses many aspects of a development to determine an appropriate LVR for that specific loan. For subordinate finance loans, LVRs range up to 75-80%.
After careful due diligence by Dorado’s origination team, our investors make the final decision to invest in each deal. Single asset investment is suitable for an investor with a higher risk profile who is prepared to lock up funds for a longer time period, and who prefers hands-on decision making.
Dorado was approached by the developer to facilitate the development of 48 apartments, three levels of car parking, and one ground floor cafe in the suburb of Maroochydore on Queensland’s Sunshine Coast. Dorado provided mezzanine funding secured by second-ranking mortgage over the project, representing a loan to value ratio of 78%.
Dorado provided funding to the developer to assist with the development of a wastewater pump station situated within a large multi-stage residential lot subdivision project at the suburb of Dayton, 13km north east of Perth CBD. The loan represented a 83% loan-to-value unsecured debt loan covered by Water Corporation reimbursement.
A developer approached Dorado in 2019 for funding to assist with the development of 32 residential apartments in a five storey building in the beachside suburb of Cronulla, 28km to the south of Sydney. Dorado provided a preference equity loan secured by the project, representing an 82% loan-to-value ratio.
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