Merricks Capital provides innovative investment solutions that deliver consistent performance for its investors while operating with financial discipline and prudent risk.
Our investment strategies include private credit across commercial real estate, agriculture and infrastructure and specialised industrial.
Established in 2007, Merricks Capital delivers a truly differentiated multi-strategy offering, with extensive investment capability and global experience spanning multiple asset classes.
Greenfield land subdivision fundamentals likely to get harder before easier
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Last week the Merricks Capital Partners Fund (the Fund) received full repayment of a $35m loan facility secured by a 75-hectare greenfield development site in Victoria’s Western Growth Corridor. The development, 28km north of Melbourne, was refinanced at loan expiry and delivered an IRR of 10.2% to investors.
The repayment of this investment reduces the Fund’s allocation to greenfield land subdivision projects to <2%. Greenfield projects can be attractive senior credit where borrowers have purchased well and financing leverage is modest. However, in the current environment, projects without development consents have a long tail risk due to ever changing planning rules and holding costs.
Our recent discussions with property developers about greenfield projects reiterates that many sites are experiencing approval delays with state-based planning authorities and this is putting downward pressure on valuations with increased holding costs due to interest rate rises.
Anecdotally, authorities are prioritising infill development sites over greenfield sites due to existing infrastructure (transport, non-discretionary retail, health services, etc). Our continued focus for new lending opportunities in this sector is shorter term projects that have presales and delivering land subdivisions in the coming 1-2 years.
Our market research has highlighted a decline in house lot sales (down an estimated 25% YoY) and extended time on the market to achieve sales. Some contracted purchasers are also failing to settle due to their inability to get bank financing, but we don’t believe this to be a systemic risk. Despite these headwinds, we still feel that permitted projects with an equity buffer of 40-50% are well positioned to navigate this slower market and still achieve profitability.
Australia still has a significant shortage of new housing and we expect this demand to soak up the limited new supply that can be delivered.
