AFR – Wingate pushes into hotels, offices, but warns on rising risk

Larry Schlesinger, November 11, 2021

Wingate founder Farrel Meltzer has sounded the alarm bell about rising risk levels in the non-bank sector after guiding the Melbourne finance and investment house through the pandemic, and pushing a diversification strategy that includes funding office, hotel and industrial projects in addition to residential developments.

Backed by its ultra-high net worth investor base, Wingate grew its debt book 25 per cent to more than $2 billion over the 12 months to June and boosted its operating profits 11 per cent to $23.8 million, full-year accounts lodged with the corporate regulator show.

Statutory profits fell 62 per cent to $5.9 million due mainly to the investment made in a new specialist residential and commercial mortgage business called Orde Financial.

The strong growth is this new business supplemented a modest uplift in the Wingate property loan book – from $1.48 billion to $1.53 billion – after it adopted a “deliberately cautious approach to writing new property loans” at the start of the financial year due to the onset of the pandemic.

Mr Meltzer said the group returned to normal operating levels in the second half of the 2021 financial year “after clarity began to emerge” about the COVID-19 situation, bringing with it a corresponding uplift in interest revenues. These ended the year down 6 per cent at $190 million.
Mr Meltzer forecast “double-digit growth again” in Wingate’s debt book this financial year and said the group was “cautiously optimistic about the year ahead” for the property sector.

“While there is a weighting towards residential land and apartments across the major markets, Wingate continues to review opportunities across a number of property sub-sectors including office, hotel and industrials,” he told The Australian Financial Review.

“In the past year, Wingate has financed a number of iconic developments including the recently opened Ace Hotel in Sydney and purchased several industrial/retail and office equity positions in Melbourne,” Mr Meltzer said.

However, he said the influx of a number of new entrants into the market was an “indicator” for increased caution based on Wingate’s experiences of past cycles, noting that there had been significant rate compression over the past few years, which had an effect on interest revenues in the non-bank sector.

“The Wingate ‘risk-first’ approach is to be ‘fearful when others aren’t’. It is this perspective that carried us safely though the GFC as most of our competitors disappeared,” Mr Meltzer said.
Despite this risk-first approach, Wingate did not come through the past financial unscarred.

The non-bank is still extricating itself from the $500 million collapse of Sydney-based developer Ralan Group, for which it was the principal finance partner, as well as the more recent implosion of Darwin-based developer Gwelo.

Wingate head of property Mark Harrison said the group had made good progress over its multiple Ralan exposures, including selling 209 of the 354 apartments at the former Orchid development in Arncliffe (renamed Bloom) which has now been completed.

Of these 209 apartments, 190 had settled, resulting in the senior debt on the project being fully repaid, Mr Harrison said.

“It is expected that dividends will start flowing back to Ralan investors later in the 2021 calendar year,” he said.

Mr Harrison said Wingate’s lending book, which historically had been almost 100 per cent invested in residential development, was now diversifying into other commercial sectors of the property market.

“What we’ve seen in the last 12 months are a lot more office, hotel and industrial transactions coming across our desk,” he said. “Predominantly because the banks are not really keen to lend in the space because they’ve been the hardest hit by the COVID pandemic.

“Once borders do open up there will be a flight back to offices and also, with the resurgence of international and domestic travel, hotels will benefit from this also.”

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