Plenary Uses Mezzanine Finance for Cut of DFO

DEVELOPER Plenary Group has turned to mezzanine financing to help fund the purchase of a slice of South Wharf DFO operator Austexx affected.

The most indebted of the South Wharf development is a catalyst for the crisis, which led Austexx knees, forcing it to land three DFOs.

A plenary session has raised its share of the South Pier DFO from 25 percent to 50 percent, Colonial First State, taking the middle of two other centers.

Under a deal announced yesterday, $42.5 million of Plenary’s $160 million investment will be financed by a hybrid loan-equity facility provided by private investment outfit Wingate Group and JPMorgan’s Global Special Opportunities Group.

In addition to earning interest, Wingate will share in profit on sale of the centre.

”It’s got features of equity from a return point of view, but it’s got features of mezzanine from a security point of view,” said Wingate joint head of property Ryan Levin.

The mezzanine finance ranked second to Plenary’s bank borrowings, and Colonial First State’s stake was fully equity funded, he said.

Mr Levin said the global financial crisis had increased opportunities for mezzanine financiers. ”Even though Australian banks weren’t hit hard, there was a substantial tightening of their lending criteria,” he said.

”In many cases banks won’t take on new customers, at least without very strong referrals. They’ve also tightened up their loan-to-valuation ratios and increased debt covenants. There’s a much bigger gap for us to fill.” Mr Levin said South Wharf sale was at a ”substantial discount” to Austexx’s development costs, providing plenty of opportunity for profit.