This week, Merricks Capital placed the Melbourne Place project into Voluntary Administration following payment defaults by the borrower. It is important to note, the borrower default is not related to rising construction costs or supply chain issues but rather matters specific to the borrower. In fact, for this particular project the construction price was fixed in 2021 with a high-quality builder and has locked in a delivery cost that cannot be replicated in the future builds.
The administrator, McGrathNicol, is seeking expressions of interest (EOI) from parties wishing to purchase or recapitalise the project. The EOI will close next week on November 30th. Based on the number of parties requesting Merricks Capital to provide funding to finance a solution, we are confident that the administrators will manage a sensible outcome for the project and all relevant stakeholders.
The administration process needs to run its course, however we remain steadfast that underwriting good projects well below replacement cost is the first and best line of defence for our investors and our investment style and portfolio of private credit lending. On completion, the project is expected to be valued at $155 million and will comprise a 15-storey, 189-room boutique hotel on prime land in the Paris end of Melbourne’s CBD.
Our core team of experienced lending, restructuring and building professionals means we are prepared to occasionally step into any portfolio loan to protect investor capital and future returns.
Taking enforcement action against any borrower brings no joy to anyone but it is a required fiduciary responsibility that Merricks Capital takes seriously. As the economic cycle progresses, we believe the differentiated quality of senior secured lending funds will be highlighted by a manager’s ability and willingness to take advantage of dislocated credit markets while also delivering the repayments of the existing lending portfolio.
The decisive action taken regarding Melbourne Place is likely to ensure all attributes of one of Melbourne’s newest iconic hotels is delivered, which will in turn protect investor capital and the expected future interest.
We are not seeing any systemic issues in our portfolio of 60+ loans and overall borrower performance is in line with activity over the last five years.
