Westpac has walked away from financing the “world’s biggest brothel”, the proposed 42-room megaplex on Parramatta Road opposite Sydney University.
The bank had come under pressure to abandon its role financing the brothel project when BusinessDay revealed an investor presentation two weeks ago showing Westpac as the senior financier on the deal. National Australia Bank was also a financier.
In a release to the Australian Stock Exchange today, Delecta, the company behind the development controlled by adult sex toy and porn kingpin Malcolm Day, said it was in the process of seeking alternative funding arrangements.
“The company has been notified that the offer from Westpac Banking Corporation to fund the acquisition of Dalway Enterprises … has been withdrawn.”
Dalway was the registered owner of the property operating the Stiletto brothel, which is earmarked for expansion under Delecta’s proposed capital raising.
Earlier in the year, Mr Day had struck a deal with Stiletto’s owner, Sydney racing identity Eddie Hayson, to build the complex, which included spas, lounges, restaurant, underground car park and a number of “multi-bed rooms”.
Westpac was to have been the senior financier, providing $12.1 million to redevelop 84 and 86 Parramatta Road in combination with the existing brothel controlled by Hayson companies on the adjacent site at 82 Parramatta Road.
It is back to the drawing board now for Mr Day. He had begun marketing Delecta’s $5 million convertible note to sharemarket investors. His plan had been to revive Delecta, a wholesaler of adult toys whose shares trade at 1.6 cents, by expanding into a prostitution business with annual revenues of $20 million.
Westpac declined to specific why it had withdrawn its offer but it had come under substantial pressure for its involvement with the deal since it was made public on August 1.
There are also questions over the claims made in the investor materials about the prospective size of the assets.
Delecta claimed that the project would be the largest “short-stay bordello in the world”.
While it may be the case that Mr Day has relied on a definition of “short-stay” that differs materially from the meaning in other jurisdictions, BusinessDay subsequently learnt that there are far larger brothels overseas.
According to Barcelonareporter.com, for instance, the Paradise Club near the border with Spain “measures 2700 square metres and boasts 80 rooms with rates of €120 [$165] per hour”.
And this is only one of 11 so-called “macro-brothels” in this Catalan region of Gerona, near the Costa Brava. The Paradise club employs about 150 prostitutes, many more than had been envisioned by the Delecta proposal.
Mr Hayson’s existing brothel at 82 Parramatta Road made $7 million in revenue last year and earnings before interest, tax, depreciation and amortisation (EBITDA) of $3.6 million – a profit margin of more than 50 per cent.
Under the estimates in the broking presentation obtained by BusinessDay, however, revenue is forecast to rise to $17.8 million in 2013 when the project is complete while EBITDA is tipped to increase to $11 million.
Real estate group Colliers estimates the value of the average room at $800,000, an average which will have been lifted by the “multi-bed” layout.
According to reports, the top floor of the new wing would include seven suites with pool tables “and two sets of beds for parties and group bookings”.