Solido Capital funds developers as banks withdraw

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Solido Capital’s Michael Corcoran and Beau Quarry aim to back small and medium developments.

Michael Corcoran, a veteran developer and the national president of the Urban Development Institute of Australia, has joined with wealthy private investor Gavin Donnelly to form Solido Capital and provide finance for development site acquisitions, construction and residual stock funding.

“We see the opportunity over the next two to three years to fill the void created by the banks,” Mr Corcoran said.

“Longer term we see a sustainable business model in supporting small to medium size developments, especially in the middle-ring suburbs of Melbourne, Sydney and Brisbane, which we believe the big banks will not be nimble enough to service.”

The tightening of bank credit for development has spawned a plethora of non-bank commercial property providers.

“We are not a broker, we are a fund, ” Mr Corcoran said.

Mr Donnelly seeded the business with $50 million.

“We have already placed over half of the first $50 million on acquisition finance to well-known developers who had established relationships with banks, but who have not been able to meet the bank’s financing or LVR [loan-to-valuation] needs late in the process,” Mr Corcoran said. 

Early next year Solido plans to raise a further $300 million through a wholesale fund for high-net worth-investors. Initial returns to investors are expected to be about 10 per cent, though that would be reviewed as credit markets stabilise. Mr Donnelly, South African but now a resident in the US, is one of the founders of the insurance distributor Greenstone, which operates the Real Insurance brand and in which the giant Canadian pension fund Caisse de depot et placement du Quebec recently took a 44 per cent stake.

His Solido partner, Mr Corcoran, has worked in residential development and funding with Stockland, Mirvac and AV Jennings, and more recently advised AMP Capital and Proprium Capital Partners. Their managing director at Solido, Beau Quarry, started in corporate treasury but moved through private equity and distressed lending to development, most recently in London housing.

Their business model is to provide funding within four weeks. First-mortgage LVRs will be 65-70 per cent, pre-sale covenants will be assessed on a project-by-project basis and current interest rates are about 12-14 per cent, which Mr Corcoran described as “very competitive”.

Mr Corcoran said the market for development finance would change over the next five years.

“In the UK 40 per cent of development finance is through non-bank lenders.

In the US, it is 60 to 70 per cent. But in Australia the figure is only 20 to 25 per cent,” he said. “I think the alternative financing model will provide 40 per cent of development finance within five years.”

Mr Corcoran said the “robust” middle-ring suburbs would need much small-scale infill development, which the banks would struggle to fund.

“I am a huge fan of the middle-ring markets in Melbourne, Sydney, Brisbane, which are supply-constrained and backed by well-heeled owner-occupiers and investors,” he said.

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