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VM: [00:00:00] Today we're gonna explore what actually makes a good development site in today's planning and funding environment. How long sophisticated developers are prepared to hold land before turning soil, and what rezoning truly means from a feasibility and capital perspective. ~We'll also dig into the realities of amalgamating lots in New South Wales, Todd, and uh, Victorian Activity Centers.~
~Oh, now let me just get rid of that. Um. We'll also dig into the realities of amalgamating lots where policy, ambition, vendor, and fuck. ~We'll also dig into the realities of amalgamating lots to create a development site where policy, ambition, vendor expectations, and commercial logic don't always align.
We've invited Ryan Bennetts an acquisition specialist to join us in this discussion. He's got more than 14 years experience across commercial real estate construction management and acquisitions. Ryan brings a frontline perspective on how developers assess risk, price, potential, and exercise patients in a market where timing can make or break a project.
VM: [00:01:00] Our guest today is Ryan Bennetts, who spends his time identifying sites, negotiating with landowners, structuring deals, and deciding which opportunities are worth pursuing and which should be left alone. So this is gonna be a fascinating chat. Ryan, we've got so much we wanna learn from you. Thank you very much for joining us.
Ryan: Thanks for having.
CB: Absolutely. I think this is an area that I've got very little knowledge in. I'm sure a lot of listeners do, and. They can see this happening, right? A FR reporting week on, week out. A big site's getting amalgamated developments, you know, potentially coming down the line, but how difficult it is to actually find like a good site to develop and [00:02:00] you know, in your view, like what is that site you're looking for?
Ryan: Yeah, I appreciate your enthusiasm because I get a lot of questions day in, day out of, you know. How do you do your job, even from friends and family, like, you know, what does it take to put the ideal site together? How do I put a site together? That's what people ask me. ~Um, ~often it is something that I think everyone's got the ambition to do or the, you know, the desire to do, but there are layers of,~ uh,~ complications, complexities, and obviously.
~You know, vendors that, you know, maybe think one thing one day and another thing the next day. So~ it's, ~ uh,~ difficult game and, and difficult challenge. And, and that's why I think leading acquisition people are, you know, well sought after by developers because, you know, sending the right people in to do the right deal is, is very important.
I really believe that, you know, buying upfront sets a development up, you know. For a win from the outset. And if you don't buy well and chasing your tail through the whole project lifecycle, and there's an incredible amount that goes into these projects and they, you know, often when you're talking about multi-res apartment developments as an example, they can be, you know, sort of four to five year life cycles.
It's a, it's a long time to realize upside. If you buy well, you set yourself up really well. If you don't,~ um,~ then it can go the other way. [00:03:00] So I think to answer your question, some of the things that go into. Obviously putting together a site and the ideal site, you know, planning is obviously a key,~ uh,~ aspect and consideration, and that's really where it all starts.
You know, what areas and what zones, you know, are, are you dealing with in certain suburbs. So a lot of my,~ uh,~ time in acquisitions has,~ um,~ been spent through like sort of trolling through zoning maps and things like that and identifying pockets within,~ uh,~ prime suburbs that have development potential. The key thing you're looking for,~ um,~ when it comes to planning and planning controls is what locations and what precincts within any certain suburbs or pockets, can I develop in that actually allows a landowner, I should say,~ uh,~ to realize a upside on the value of their property by selling to a developer.
And that's a really important point upfront because. Talking to a landowner, they're looking at what they actually receive from the deal. But developers on the other hand, they don't want to pay that in four to six weeks like you would if you're buying an apartment or a studio. ~Uh, ~for example, developers are li uh,~ uh, ~typically looking to settle those properties in the future,~ um,~ [00:04:00] sometime around ideally development approval, and therefore that requires time.
And you know, from a landowner's perspective, that typically requires more of a premium. 'cause they're thinking how does the market catch up or take off between the time that I sell to a developer and the time that that developer actually settles. And that would be one of the key questions that I get upfront for landowners is.
What if the market moves? Do I get a higher price if the market moves between when I exchange with a developer and when I settle with the developer? And that's a key point to navigate. And that's probably the second thing outside of planning. It's, it's dealing with landowners and landowner, ex expectations, landowners questions, educating the landowners, actually, you know, what they're getting into, why the developers are looking at their land.
And then, you know, that sort of leads into the deal. What deal terms are there? What does the developer want? What does the landowner want? And then, you know, from there. Sort of structuring a development framework,~ uh,~ and, you know, so a deal framework and then going into, into more contractual items. Like how does a contract come together?
And because they're not, as, you know, standard and, and ordinary as a, again, a conveyance in contract for buying a unit. There's [00:05:00] things like option agreements and ~uh, ~and things like that. And then to get more complex, which I own right now is obviously joint venture arrangements and, you know, project delivery agreements and things like that.
So there, there's some of the key things that I'm, thinking about upfront.
VM: So typically how many owners might you be dealing with for each site? Do you have an average?
Ryan: I would have to go away and t out my average,~ um,~ I would say it's probably too many for me,~ um,~ because a lot of my time is being spent,~ uh,~ amalgamating, you know, strata blocks and, you know, that's a, that's been a really interesting space, particularly in the last few years as, as. Land. Land has got tighter.
~Um, ~it's, the strata. Strata, you know, amalgamations has been sort of a busy area, a busy space if you will. ~Um, um,~ you know, I've done a deal where I acquired 32 Strata,~ um,~ you know, properties across five different strata buildings to form a development site. ~Um, ~you know, you sort of think about sort of red brick strata blocks.
They might have six to eight owners each. The particular side I did, it was just over 2,300 square meters,~ um,~ five individual red brick brick blocks. You're not just dealing with, you know, 32 owners in one, [00:06:00] building per se. You're dealing with multiple strata schemes, multiple owners, committees, and corporations.
So one more complex.
VM: so the strata, you've only gotta get 75% to agree, right? If you're trying to deal with, say, four, houses in a street, or five houses in a street, you've gotta get a hundred percent of those owners to agree, or maybe the middle. Three, and then, you know, one or two of the other ones could drop off perhaps.
~Um, ~but with strata, so you, you've got 25%, it doesn't matter. You can override them, but you're trying to coordinate five different, say five different strata plans. That's a monumental negotiation feet, I would imagine, and, patience and psychology and all sorts of stuff that goes into that. How long did it take?
Ryan: That particular scenario took me about 16 to 18 months from memory to put together,~ um,~ from initial conversations to, control of the properties. And,~ um,~ you know, you make an interesting point around the 75% like It's very helpful to the developers, and I will say it's changed the game. I, I recently looked at development sites, uh,~ uh,~ in [00:07:00] Brisbane,~ um,~ you know, for,~ uh,~ developers and, you know, they don't have the benefit of strata renewal policy. There is some, you know, proposed changes coming through, but in Brisbane, I know,~ um,~ from experience that it's very difficult to put strata buildings together because those final owners have a lot of leverage they can hold out The way that it's happened near, it has taken the leverage away from the last few, you know, it's not advantageous to be in the last few. So it's either sort of, you know, join the masses or be in the end and then sort of come down to the, you know, sort of log ahead developer.
And You're right Veronica, you do say like, you only need 75%. My perspective is probably a little bit different, and I'll challenge that for this reason. as an acquisition specialist, you do still need a hundred percent to develop the land. You know, it's, it's. That's how you get there.
So you can't turn soil until you have a hundred percent of that strata scheme. So yes, you need them to control the property and to commence strata in your proceedings in the land of environment court. But you do need a hundred percent to turn soil, and I've always taken the view that a hundred percent.
You know, [00:08:00] on an amicable basis and, you know, sort of working with them to do a deal,~ um,~ upfront,~ um,~ is always better than, than going through the Strat renewal process. 'cause you've, gotta put a proposal in and go through the land of honor court and that can take, you know, 12 to 24 months ~and it's not, you know, it's, it's, it's not a situation in let alone to sort of talk about reputational.~
~Um, and, and like reputational impacts and, you know, for.~
CB: when you're sort of like winding it back, 'cause then now you're at the point of putting a deal together, right? And you're starting negotiation. You've really. Narrowed in on this site, but you might be making multiple bets. Like I've got a 20% chance of pulling this one off, so we'll try and we'll try this one and whether I can get there, you know, you can't just put all your eggs in one basket.
But now the change is obviously happening in New South Wales. Like, you know, are all developers though, have we got an under, firstly, is there a lot of people like developers in this space, like, or is that a bit of a fallacy? Like, and two, they can actually wanna build and have got the capability of building.
Stock and purchasing all this land, et cetera. ~Um, ~and are you all sort of like, you know, looking at the, the best sites or is the way that zoning's been changed? Is that okay if you guys don't wanna sell, don't worry, I've got 400 meters here, I can just go down and get these six lots. [00:09:00] Like has it opened up the power for you to sort of try to look at a lot more sites?
~Um, ~and two, is that taken away a lot of the bargaining power for the owners though? Because then they're saying, well. Look, you know, if you guys don't agree, don't worry. I'm gonna do it up the road to that lot and you're gonna have apartments in your backyard. So like how has that changed it for you?
Ryan: I probably can't emphasize the change enough, like how much the market. And the environment,~ um,~ has changed over the last 12 to 18 months since the premier announced, you know, significant changes through the LMR reforms. ~Um, ~and more recently the HDA, you know, you know, the Housing Delivery Authority, that's been an absolute game changer in terms of supply of, homes in New South Wales.
~Uh, ~when you look at the, sort of the, the three tranches. Or or framework there and policy changes. It's been quite phenomenal how,~ um,~ areas have changed. And, and as someone who has spent, the last eight to 10 years sort of trawling through some of these blue chip suburbs in,~ uh,~ Sydney, for example, trying to find two owners in Mosman or Rose Bay that wanna sell next to each other at the same [00:10:00] time, like in form a, a 1200 square meter development site.
~Uh, ~you know. Just trolling through zoning maps, trying to look for maybe two houses that still another acquisition person hasn't noticed. that was my life. And you're trying to sort of, you know, ~uh, ~break through. And then you look at a suburb like Rose Bay today heard an incredible statistic,~ uh,~ uh, recently that I think, you know, some 60,000 square meters of gross floor area has sold there in the last 12 to 18 months.
If you say 60,000 square meters at an average of a hundred, you know, that's 600, a hundred square meter unit, that's 600 units in Rose Bay. And if I, I'll go back two years ago, I couldn't find two homeowners that wanted to sell, you know, next to each other at the same time. ~Um, ~and I think, you know, that's,~ uh,~ it's just incredible statistics coming out of an area like that.
and I think my peers in the industry would tell you they are completely surprised that Rose Bay was included as an LMR area, The infrastructure constraints and the, the amount of traffic. But it is what it is. And the, you know, the, the government already decided to include an area like Rose Bay, and all of a sudden the tap was on.
[00:11:00] Developers were there, you saw it on the news. There was, you know, real estate agency cars giving you tours of the street saying, I've got that one, that one, that one, that one, that one. ~Uh, ~and it changed overnight. And I think, you know, areas like Kaga Council, which is, you know, for the listeners that might be, you know, interstate, it's areas like sort of what we call that upper North Shore, which are more leafy suburbs,~ uh,~ where the train sort of comes, you know, out of the CBD up through,~ um,~ Chatswood and into the upper North Shore,~ um,~ areas where.
There's beautiful heritage conservation areas with homes that have been untouched, streets, which are untouched and they're sort of beautiful federation homes, all of a sudden being rezoned for,~ um,~ development that might accommodate 4, 6, 8, 10 story buildings. ~Um, ~and, and councils in those areas in, in uproar.
But developers moving very, very quickly,~ um,~ to do that. And I think, you know, what's been a, a key thing for me that I've just sort of seen over the years is like how social media has. Enabled, you know, announcements like these to get out so quickly. when I think back to when I started in agency, some 14, 15 years ago, we would look at zoning maps.
we would be trolling council websites to look at where, what areas we're gonna be [00:12:00] rezoned and when we were going through council meeting units, which was laborious to try and find any sort of mention of the word rezoning or precinct, you know, new precinct and stuff. But now I found, like with the Todds.
It got announced by the Premier and the, and the planning Minister Scully. ~Um, ~and we like that weekend there was news cameras like in Pley Avenue, in, you know, in those areas. And,~ um,~ Agents sort of door knocking developers door, like instantly. And I called it, I called it the circus because it was like the circus had come to town.
~Um, ~and all of a sudden it's developers crawling over all over each other to find sites. So I think there's been that, huge change. And you know, I've always had that saying, you've gotta look at a hundred sites to find one. That statistic like now you can find a hundred sites so much quicker.
'cause there's so much more supply in the market. Like to your question and to your point. So it's gone away from like trying to find this really special site to, you know, which site do I actually want to buy because it's not gonna get built out by another property in front of me or another development.
'cause all rezoned around you. So it's just changed the dynamic completely.
VM: So in order for the, to free up [00:13:00] those houses to amalgamate and make those conversations a health a lot easier. I mean, greasing the pathway, right? How much more would. On average, what sort of multiple on these homes, you know, if they sold 'em on the open market beforehand to another homeowner versus now are we talking twice?
Three, four? I mean, what sort of multiples are they getting for these properties?
Ryan: You probably, you, you probably are talking about twice the day of the property. ~Um, ~I'll be up in shore to, if your, if your property, you know, it might be a four bedroom house on, you know, a thousand square meters and it might be worth three and a half to 4 million, like to be, you know, you, you're getting offers of eight, eight and half nine, like off the bat.
And you know, for the listeners, developers are looking at what the planning controls can allow on your property and they're simply working back, how many apartments can I achieve on that site? What are the values? Those are PA, that are concerning for, and then deducting their cost to deliver it, essentially to give a profit margin.
And then that will spit out what we call a residual land value. And that number in the feasibility [00:14:00] is, you know, you speak to any sophisticated developer, that is the number that you respect the most, that residual land value. Because once you look at your revenue and your cost. To maintain that margin, you can pay up to that amount Now, that amount, typically developers don't want to pay that amount.
That just makes that margin want to pay less than that amount to increase your profit margin. So it's working with the landowners,~ um,~ to try and find what that sweet spot is. Now that's a lot easier to do in these rezoning areas where they've been trying to sell their house perhaps, or they've been thinking about this own their house for $4 million, but all of a sudden, overnight to a developer might be worth $10 million.
So a developer might go in and say, well, can I sort of pick it up for seven to 8 million? So it's a premium to the. Landowner, but it's really good for my,~ um,~ profitability. That's where real estate edges come in and say, no, you can sell for $12 million, sell through us. And if they get $10 million, they're still incredibly happy.
So there's those sort of gains in the marketplace. So developers have agendas, agents have agendas, landowners have agendas, and we, you know, we're dealing with the, you know, the incredible, um,~ um,~ mid studies, you know, called the market,~ um,~ to try and do deals. ~Uh, ~it's quite phenomenal.~ ~
CB: ~um,~ let's just take like, ~uh, ~uh, Roseville for [00:15:00] example, right? ~Um, ~or up in North Shore suburb, you know, flat, leafy, et cetera. because if you've got access to lots of different sites, like you go, well, I'll give you two times, but I could do the site up here one and a half, and if you don't do it, then you're gonna get dealt with this.
So are you finding that that's compressing and better for the developer? Not so much good for the homeowner. Because they're going, well, there's not really a scarcity of sites and if I'm comparing your site's not that great, but I mean, there are always gonna be sites that have got the view that are never gonna be built out backing onto the park.
Like they're the ones who can really demand a real premium. But do you find that, you know, just an average site in the suburb isn't gonna get this premium because there's just so much choice for developers now. ~Um, ~so. It's not gonna be like everyone in the suburb wins. It's gonna be the ones with the real amazing, some unique sight.
Ryan: I ask myself the same question and I, I try, sort of try and think about this, this stuff, but you gotta put in perspective, like when the Premier announced these changes and the planning minister announcing changes, they're talking about. A number of housing, like they're talking about increased housing supply over 15 years.
Like [00:16:00] when I, when I look back over it, I, I see what's happened in 12 months, seeing how much has transact in 12 months. And not every land animal has won within 12 months, but the policies are designed for 15 years for that supply to come through over time. and, and acquire within 12 months, and it's not intended to be.
So, you know, the. The government has no qualms about someone is winning. Now they, in fact, they want owners to win now, but they don't have any crimes out. The landowners not winning now because things might settle down for the next 12 months now. What I've seen is every developer that's needed to buy site to keep staff employed, to keep, you know, like their building arm sort of going, they've all bought sites 'cause they need to replenish their pipeline and build up their pipeline.
You've seen a lot of those developers with those sort of needs already acquired. So they got in quite quickly 'cause they're like perfect. I've been looking for a site for the last 12 months in Mossman and now Imma, but now the whole suburb has been rezoned. So now I can find one. what, what we're seeing now is a tapering off of activity and a tapering off of transactions.
And a lot of agents are sort of scratching the head at the start of this year. You go and there hasn't many deals taking place. So yes, some owners won,~ um,~ early on. Owners are [00:17:00] still winning and getting and realizing it's an upside, which is what the, which is what the reforms are designed to do,~ um,~ to incentivize owners, to sell, to unlock land, to create more housing supply.
But I think you sort of gonna see now the ebbs and flows of the market. You know, things will change, interest rates might go up, and then, you know, developers like, sort of pull back a bit, interest rates might go down, developers like, yep, the tap's turning back on. So there's so many factors as we all know, as to what influences,~ um,~ developers sort of, you know, buying, pulling back and things like that.
VM: It's a fantastic perspective and it is interesting to think that, you know, that there was this flood of activity and then it's now we're sort of sitting back and will maybe normality if, or the new normal perhaps, is what we're gonna see. But obviously, you know, developer, once they, secure a site, they've got one opportunity to maximize the return on that site, right?
So how patient can they be? And, and How a deal structured in order to give them that flexibility around that as well. 'cause I imagine they don't wanna put too much cash up upfront. And how, patient will an owner be waiting for their [00:18:00] payday?
Ryan: That's such a good question. 'cause now you're getting down to like really the, the crux of. How a developer thinks. And this is where it gets really fascinating because you know, if I can sort of take everyone into the mind of the developer when, you know, or, or, or my mind sort of going about a new deal or trying to originate a new deal.
Like, you know, I, I try and see every deal, like a blank piece of paper in front of me with a landowner. And I'll say this to landowners, like, I've got a blank piece of paper in front of me. We can, create whatever sort of deal framework you want to because everyone think, selling a property is quite rigid and robust.
'cause we've all, you know, if you've bought. An apartment or a, it's a standard contract and you know the terms of the terms and it's in a six week settlement, you might have a three month settlement. But in the development world, I think like where it gets fascinating is, you know, lawyers are great at sort of helping a developer to carve out or structure any deal they want to.
for example, if a developer wants to, do something different with it. So it might be zoned for,~ uh,~ six stories and they go, well, I think it's in a good location, you know, close to a dinner where, you know, there's buildings nearby, which are 20 stories in their office buildings and things [00:19:00] like that.
You know, I don't think stories is enough. I, I do believe it's probably because it's on the proof roof of the town center. It should be 12 stories in. And they wanna take a longer term view and they wanna challenge the planning controls with, you know, the largest deal with the state government. You know, then they might look at a different sort of deal.
So they say the landowner, you know, you're zoned for six stories, but you know, we want to get more. And you know, we want a flexible deal where we're gonna try and pursue more upsides through planning and use our expertise to navigate the planning system. Go for more and you know, we'll pay you more of a premium.
So instead of like two times your value, we might pay you two and a half to three times your value, but that developer knows in the back of their mind what they can potentially get. And if that developer structure, something flexible with the landowner and say, look, give me three years to do it.
I'll put down 1% now of the property value. So let's use some real numbers for fun. If the property's worth 4 million and, and two times it's eight, and I'll say, I'll pay you 12 million, but they're gonna go and double the density. They might say, that's a risk. I'll give you 1% of the $12 million now, and I'll give you [00:20:00] 1% of the $12 million in one year, and I'll give you 1% of the $12 million in two years and gimme three years.
And if I don't get what I want approved, I can walk away. and I'll forfeit the 3% that I've paid, you know, that I've fed you, and then the landowner might come back and say, I'll do that. But it's gotta be 2% per year, every year or 2% every six months. then it's on, right.
And once you've got that engagement with landowners. you can dream up the deal together and it's very collaborative with the landowners. 'cause you've gotta work out what works for both sides. And then they, all three years is too long because, you know, we're an elderly couple and we, we, we simply can't of, you know, do that.
And then the developers, like on the back foot, there's a deal there that, you know, can I do that in two years you know, then I'm, then I'm stretch and then we go, well let's do three, two years. And then if I need a extra year extension, I would put it down another 5% at that point in time. or they'll pay you an extra million dollars for an extra year.
there's no one formula. It's an incredibly creative space in the deal world when it gets to that point.
CB: Who's advising these owners? cause you one little bad move and you could have like shot yourself on the foot and it's like not, like you say, it's not as fair as listing and putting on domain and picking a good [00:21:00] agent and just knowing, well that's gonna be pretty close to what the best price is.
Like it's so difficult and like where does it go wrong? 'cause you look at these sites and it's like. It's not always a perfect rectangle. and then sometimes there's an alleyway attached and it's like that person held out. so like where does it all sort of blow up? Is it the owner getting greedy?
Is it developer going in too hard? Like where does it fall out? And do they really know that their site, sometimes the key site, like you might know it, they don't know it. And should they be asking for more money? Like so there's so much going on here for the owner that I just wonder who's even helping them.~ ~
Ryan: ~uh,~ great question. Like the landowners in areas where you're zoned for apartments, they are often getting approached by developers and real estate agents quite often, and I think you said earlier in one of your questions like, is there as many developers out there as we think like.
there's more is the answer. ~Um, ~and there's more agents, than you can even think of that want to be involved in the development space. 'cause they're typically selling like an apartment or a home. ~Um, ~but to sell a development site to a developer that's [00:22:00] more lucrative, right?
So the agents like to get involved, you know, local agents are fantastic and they'll get around and they'll, they'll build relationship with people and say, you guys are zone to do townhouse apartments. It's the three people together. So. Landowners are a lot more educated than you would think, like particularly in these areas because of the approaches they get and they gather information over time.
I actually always find it easier when landowners are educated, and I know the, question that you're asking the Tony you're asking in this right way, it's like, can they be difficult? Can they be. You know, like how much do they actually know where? I think sometimes a little bit more education is a good thing because what I've found in experience is sometimes you go in there and you spend a lot of time.
It could be you might spend 12 months educating someone on what a option agreement means, what the deal structure means, and talk to your solicitor, and time kills all deals. So. if you're the educator, then another developer will just buy pure, like come along at the right time and go, Ryan, you annoyed, you're an, you're annoying me because you've told me that I can't do this sort of deal structure.
And then another developer will come along at the perfect time and we're just, we're just said, let's just take a breather for five minutes, which I mean five days. And then another developer will waltz along and [00:23:00] say, you ever thought about selling to a developer? And they're just like.
Absolutely, that's all I wanna do. And, you know, it's often about timing, but they tend, they tend to have a good feel of like, you know, are they the middle property between like a, a group of three or four? Like, do they have leverage and things like that. ~Um, ~but at the same time, if they're getting a good upside, they typically, you'll typically see that they're not trying to.
Be super greedy. ~Uh, ~Uh, and I'll try and sort of just realize a premium as soon as possible,~ uh,~ like there's absolutely, there's people that are beyond greedy and, you know, they, they, they like to get in the way and they like to have, all the cards and, you know, I've got enough experience,~ uh,~ personally that happens and you move on to the next one.
Like I said, you've gotta look at a hundred deals to get one. So if you, if someone wants to dig their heels in, it'd be difficult. I'll, I'll leave that to the next car.
VM: which is a problem for the other owners, isn't it? 'cause they're stuck with, you know, bugger lugs up the road. Who, who's a total deal killer? ~Uh, ~we actually, I bought,~ um,~ three houses some years ago for a,~ um,~ a client was a nursing home and they wanted to extend and they, wanted four, ~ um,~ the one that they wanted the least was the biggest pain in the neck.
And he agitated and [00:24:00] he got the rest of the owners basically, you know, we could have had a deal with the other owners at a lesser price and, and included them all, but because he agitated them and got them all wound up, they all had their expectations increased through the process. He ended up get pricing himself out of the deal, And the, client came back saying, we've actually reworked the plans and it's actually better without his property anyway. And so he got stuck being left behind. but yeah, but you could certainly see how even though his was the weakest site, it didn't matter. The favorite fact that he was the last one to.
commit or the, the last one to agree meant that he had the greatest leverage. And, you know, if we really needed that was a real problem,~ uh,~ negotiating with someone like that. But if you can't walk away, a nursing home can't work, walk away, you know, they need to buy next to their existing facility.
Whereas the developer obviously can, they can say those other sites. So I love that. It's quite funny.
CB: So just on the developer thing though, like. to, there's always this idea that, you know, we haven't got the capacity in Australia to build, right? We're at a, [00:25:00] capacity restraint? Right? and we can only build so much per year. Do you think though, like, let's say in Sydney it's attractive for developers, right?
A lot of 'em got burnt, a lot of 'em went, you know, some went under, I dunno how much actually went under. Do you feel like that There is quite a lot that will shift from other states, you know, go from building. Greenfield estates or high resi, high density resi in the fringes and or you know, instead of building Western Sydney, they build in upper North Shore.
Like, do developers just look at it and go, well, I know we'd love to build in this. We've got experience here, but we're just gonna shift no matter where it is in the country. That. We can actually make a profit right now. ~Um, ~and people will be surprised about all the new entrants in, say, the Sydney market.
We're talking here. That'll come because they can make, you know, feasibility stuck up.~ ~
Ryan: ~uh,~ it's really interesting, you know, over the years I've spoken to developers in different parts of Sydney as to what they're looking for. And, you know, during my agency. Days I'd sort of trying to iron out with what they would buy. And, you know, is it greenfield?
Is it, brownfield? Is it,~ um,~ you know, multi [00:26:00] res,~ um,~ you know, is it high density? Like, depending on what it is. So, it's really interesting how, how people think. I, I think a lot of the,~ um,~ developers, particularly the, the, the most savvy, they sort of might run things in parallel.
So they might have, a big focus on apartment development in more inner city locations. And at the same time, in parallel, they might sort of like do subdivision development and, and sort of buy land, you know, out in the western suburbs and look to, you know, subdivide because that can be quite a, a, a lucrative business.
~Um, ~you know, that subdivision sort of buying old lands that are being rezoned or, you know, whether it's serviced or not serviced. And then, you know, like the ability to sell. through stages and in a structured deals where you can sell through and then, you know, there's house and land packages and you know, you're sort of not getting involved in the delivery side and the delivery, the focus is on,~ uh,~ the apartment,~ um,~ side of the business.
there's a lot of that. Developers from Melbourne have always, you know, from, from my experience,~ uh,~ they've always found it a little bit harder to get their heads around construction costs in Sydney. ~Um, ~and looking at the percentage of land value to,~ um,~ total revenue in the project.
So when I was speaking earlier about, you know, your feasibility, where you work out, what are your [00:27:00] apartments will sell for at the end of the day, and then it comes land value. The other big, the other big sort of factor in that cost bit that I talk about is construction. So. I know that from experience developer in Melbourne have said like, you know, your percentage of land relative to the total project value is so high, where, Sydney,~ um,~ that can be as high as sort of 30 to 40%.
Where in Melbourne that, you know, land might be 10 to 15% of your total project value. you know, so they, they, they feel like there's a lot more fat at the, in the, in the feasibility, if you will, to, to put it crudely. But,~ um,~ you know, so they, that interstate sort of, you know, places interesting. A lot of the developers recently,~ uh,~ are going up to Brisbane.
~Um, ~so there's been a shift from Sydney developers, you know, are going up into Brisbane and you'll, you'll see a bit of. ~um, ~diversification,~ um,~ particularly because construction has been so hard in Sydney, and when you talk about people going sort of under, it's been a lot of the building firms go under, unfortunately,~ um,~ they just haven't been at five and they're probably,~ um,~ you know, committed to, to fixed price contracts.
And then, you know, during COVID, like costs have gone up, they've been sort of involved in fixed price contracts and there's been a, like, sort a number of other issues in terms of like rising costs. And then, you know, that's been really hard for them. So unfortunately that's happened and [00:28:00] we've lost a, a big number of buildings in Sydney.
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CB: I mean, yeah, obviously there's ~uh, ~you know, developers, right? And then there's builders, but there has been a bit of a move, right, for developers to sort of partner with builders as well, right? And like actually bring building in house because that hasn't been great for the developers, right?
Like often that, you know, the, if the builder goes under, it's not good for their developer as well. Like, is, is that the trend? Do you think that we're heading more in that way and you're gonna see a lot of builder and developers partner up?
Ryan: Yeah, it's a great observation. There's been a, massive push, I would say, towards developers bringing construction in-house. ~Um, ~the reliance on external builders has,~ um,~ been something that. Developers are sort of trying to, to move away from, and that's, that's for a multitude of reasons.
~Um, ~but one of the reasons is undoubtedly because some people have being, you know, caught at the end of a project trying to finish the project to realize,~ uh,~ profit. And there's, you know, troubles with the builder. Either you know them financially or. There's some, you know, dispute in terms [00:30:00] of cost because, you know, again, cost of increase for, for different reasons through the course of the project.
And the developer wants, you know, to be,~ um,~ squared up and, and paid more than what the, the contract may have been to move on because otherwise they're losing. So, you know, development, it is like, ultimately it does sort of, you know, you want it to be win-win for everyone involved, right? And that's when things like end amicably and, you know, that's, that's, you know, you wanna see everyone winning in, in.
A project. ~Um, ~but so a lot of developers looking to bring that in-house and have more control over that. ~Um, ~then they're not just biding with the, you know, with external, they're sort of working it through themselves internally. ~Um, ~so that's been a, that's been a big shift. ~Um, ~and you know, to your earlier question, some of these groups that operates build a developers, what I've seen and what I've noticed is since the Todds have been announced, since the lrs have been announced, I've actually seen a migration of developers from some of the Western suburb.
Where you might call 'em, you know, sort of western suburb builder developers who are doing things, you know, in a revenue ban, which might be, you know, a lower revenue ban where it's being sort of more cost effective construction. They're actually used at Todds and [00:31:00] LMRs as an like opportunity to step up into a more mid-market or higher market.
Tier and those western suburb builder developers, all of a sudden, you know, looking into those areas like, you know, might be the lower and north shore of Sydney or the, you know, even sort of trying to get into parts of the, the, the eastern suburbs of Sydney. So there's been that migration from out west of the builder developers because they can build cheaper than everyone else.
They can still build a good product, but when you're building cheaper than anyone else, you are acquiring a lower cost base in your feasibility. And when we speak about revenue minus cost, residual land value, they're actually building for less than everyone else. So they're in what they can pay for the land.
CB: I mean, I think the consolidation of builders, right? That's your, the mercy of that, right? Like. You know, if you're had too much exposure to resi, maybe you went underwrite and you had a couple of bad jobs, but if you had like doing, building some schools, I'm building some hospitals, I'm building a bit for the universities and maybe you weren't as exposed or, or you had a cost pass like, ~um, ~contracts and, you know, have you seen that, that the ones that you know, went too hard down a resi route have sort of.
Been burnt [00:32:00] and they're like, well, I'll build a bit of resi, but I'm not gonna take on jobs just to buy work as much 'cause I'm worried about the risk and I'll go to potential to build things that are maybe a little bit less risk. so the supply builders for you is probably less, I don't know. Is that, is that the way developers think?
Ryan: I've
seen one of the more prolific,~ um,~ builders up in South Queensland. I won't name who they are, but you know, they're definitely one of the more prolific ones. You know, I think when, conversations I know have been had with them about, you know.
Would you do like a residential project? And they've, they,~ uh,~ previously were focused on residential, but they've,~ um,~ either shied they, they've shied away from residential and they've more focused on government and,~ uh,~ with contracts and things like that. And with the Olympics coming up there, you know, the focus is, is on that.
And, you know, that's, that's great for the builder, but you know, in terms of the market and the development market for residential and put more pressure on. The residential market because there's less built, there's lot less building in the marketplace. And when there's a prolific builder, you know, that takes out a chunk of the market in terms of who, who can actually build it.
And Southeast,~ uh,~ Queensland have always had challenges with, with builders. So that's, one interesting [00:33:00] thing. But I think, um,~ um,~ in Sydney, yeah, builders like naturally they like to diversify, but I think there's a, there's gonna be a fascinating. ~Um, ~there's gonna be a fascinating, thing go on when it comes to the delivery of, of all these LMR sites.
And I wanna put this like to your listeners as a, as a example, if you can visualize this so, you know, pre LMR, we're going back sort of 12 to 18 months ago. Let's draw a horseshoe from Mossman. Mor right around to Rose Bay. And if you draw a horseshoe coming out the upper bridge and think about all those suburbs, I think if you're looking at those developments, which were typically, they were say, let's call it on average for multi-residential, 10 to 40 apartments.
Once you bought two or three houses, like 40 apartments would probably be a maximum. Forget things like Bondi Junction and, and things like that. But when you're talking about like what, well, the, the, the leafy suburbs from Mossman through to Rose Bay. And then I think, you know, there used to be maybe 12 to 15 builders that could do that maybe 3, 4, 5 years ago in recent times before LMR, I think that number diluted to, I think I counted [00:34:00] once, um, Eight builders that could probably service that. Now those eight builders were competing to develop those projects through that ring, through that horseshoe before the low and midrise controls came out where there wasn't as much supply. So it was very hard, like I said earlier, to find a site in Mosman to find a site in Rose Bay now with Elmar on through and think about how many sites I sold.
I gathered example of Rose Bay alone, 600 apartments where previously before El Ma, probably 60 apartments, a sale in Rose Bay maximum. And all these, like those eight builders were probably doing those eight projects. Now what we're gonna see is all this land has transacted and it's all transacted on 24 month settlements.
So it, everything's gonna settle in 24 months, and every developer's gonna need to look for a builder if they don't have that in-house. So those eight builders. they need to build all of that. That's Rose Bay alone. You know, 600 units. They've gotta build right through to Mossman. Where you gotta think, Mosmans been Ned Neutral, Bay's been rezoned, Creon, Kamare, rose Bay, double Bay Edge, cliff Darling Point.
It's all been rezoned and it's all unlocked land that needs to be developed at the same time. [00:35:00] So I think something's gonna happen in terms of build cost. Because when you're finding a builder, it is. It's all about supply and demand. You need to find a building. You need to pay them and make it worthwhile for them to come into your project to build it when they're competing with other,~ um,~ you know, projects and other developers that want their time and attention.
So I think that's gonna be quite fascinating to see what happens there. And that's why I was just talking about earlier, there's been a, a shift from developers being just pure developer model to and what integrated model where they have builder,~ um,~ cap building capability in-house because. I, I think everyone knows this is coming, and I do speak of it with, you know, people in the industry, but it's quite fascinating because there's one thing you can't do and that's create builders overnight.
You know, so it, the start of building, you can't just, you know, it doesn't like just to find manpower. To find the labor, to find, yeah. You know? Yes. You, you can see guys like sort of seeing you guys coming out of a building firm and wanting to start up a building business, but between, you know, Having that idea and actually getting on site there, like there's obviously a big setup and finding the right people to do that.
VM: they've got access to working capital that they have to get, like, [00:36:00] it's not simple, you know, and, and the ability to take all that risk as well. there's enormous, ~um. Uh, ~complications if you like, or, or complexities in setting up a building company that can build apartments at that sort of scale and at that sort of standard, because those areas are expensive areas.
And so you need to have a skill set that can deliver a a quality products gonna sell for the sort of price to make all this stuff stack up,
Ryan: I say this for a reason because it goes back to some of the first questions around like, what are the key things you're thinking of when you're going into a deal today? I'm trying. To give a really broad sort of view of everything that needs to be considered in a marketplace.
'cause the thing that's going on is everything that I need to consider in a feasibility when I'm assessing the value that I can pay for a site. So all of these things I speak about when you have a feasibility. There's a line item for all of these things. So when I'm looking at sort of like market fundamentals, I'm looking at dynamics, I'm looking at supply and demand of, of, you know, both apartments, but you know, even builders.
Because if I'm buying a site that I need to settle in two years time, when I get da, I need to, [00:37:00] well, what's the build, what's the construction market gonna be like in, in two years time? Because if I'm, if I'm relying. A then I might make a mistake and I might pay too much for the land. If construction costs are gonna increase over two years time because there's not enough builders to build everything and everyone else that bought a low,~ uh,~ a, a lower midrise or a TOD site before me has snagged that builder, then I'm gonna be paying a premium for that builder.
So the. There's allowances that you may need to make in your feasibility if any of the listeners are looking to buy their own development site, you know, to allow for escalation in pricing costs and things like that come in. And then, you know, you might say, well, at the same time, you know, Chris gave me an example of Roseville.
What if there's a lot of apartments coming through in Roseville? You might escalate construction costs, but you might have to put a sensitivity scenario on your revenue because if there's gonna be eight different projects available in the same street in Roseville, you've gotta compete against each other.
And if they all have 80 apartments in those projects, Are there 640 purchases ready to go across the projects? You know, so you might
CB: You've taken it outta my mouth. for our listeners might get a bit over these conversations, but I do think it's one of these things that, you know, is a huge change and. [00:38:00] Way more complex than people think it is. And we are trying to learn just as much. And hopefully you are too listeners.
But,~ um,~ I, we haven't ended up getting, getting anyone on who's from the sales side yet. And, you know, I'd love to get someone like SRM on, which we probably will. And yes, people actually are selling, seeing the number of buyers. Right. I, lots of different developers 'cause I'm not sure whether there's enough bias for all these things as well.
Right. And can they get finance for these things, you know, because it's finance is hard. ~Um, ~but like when you're buying that site. I think your options and like, I don't know any of this stuff, so is the option to you have to settle if you get council approval, but what happens if you get council approval but building prices go up 40% Again, like can you walk away from the site?
Ryan: back to like probably our deal structuring conversation we had a little bit earlier. This is where deal structuring for a developer can be used as a protection mechanism. When done wrong, it can also put you in a lot of, like in, in a world of hurt ~and, and,~ and pain and trouble because you're locked into an unconditional deal.
So it's probably the right [00:39:00] time in this conversation to use the word conditional and unconditional. And from a deal maker perspective, there's a, that's a really important distinction. Like what sort of deal are you looking to do? When I spoke about that blank piece of paper earlier, in terms of like the deal structure and things like that, it's whatever you and the landowner can agree to.
So a developer. If I talked about an ideal scenario or a bit of a wishlist,~ um,~ and I said to the developer, what sort of dealer do you want to do? They would always start with, I want conditionality. I want time, I want low payments, and I want the, I want the land as as cheap as possible. On the other end of the spectrum, for your listeners, if I was a developer that wasn't sort of super savvy and I was just like, I just want my first side, and I'm not really thinking, I just want, I just want the land locked in.
I'll just pay, I'm happy to pay market price. I'll give 'em a 10% deposit and I'll settle in six to 12 months. So that's probably the, if I can sort of. You know, like it, they're our bookends. And then in between is what we can do. So the conditionality is something that developers like, but landowners don't like because they [00:40:00] don't want a deal to be conditional and have it all in the developer's favor.
And that's where the, like, that's where a conditional deal will cost you more. So that as a developer, you, you, you better hope you get a little bit more out of the planning or you better hope that the market moves But if it's unconditional, then the developer's locked in. So, to your question, it's not. So much da there, there is, there is like the basis, you know, for a subject to DA type deal. So you, you, you can say, you know, subject to the council approval, I'll, I'll settle, you know, 14 days or 30 days or 45 days after the council approval.
~Um, ~Um, but again, there's no, there's no sort of one particular way. ~Um, ~so conditionality is really important, particularly for,~ um,~ a deal. Like if the, if the market is move, it's gonna move or move backwards or construction costs increase. Because it gives the develop developer flexibility. If it's unconditional, you are typically, you, you will sometimes see a developer go back and say, look, I know I'm in a gun unconditional deal.
It's gonna be incredibly messy for us to, you know, like to complete the deal. You know, we, the market has moved. Here are the reasons why. And just 'cause you've done an unconditional deal, it doesn't mean the landowner yourself [00:41:00] can't change the deal at a later point in time, in 12 months time after signing.
You can amend the contract by a deed of variation to the contract and say, look, the landowners agree, instead of taking $8 million, they're gonna take $7 million. ~Um, ~and the developer's gonna, you know, release an extra, you know, 3% deposit or 5% deposit, or, you know, something like that. ~Um, ~or ~they, you know, they're gonna give me, you can, whatever you want.~
~You, they,~ they're gonna gimme an apartment at the end of the project and I'm, instead of $8 million, I'm gonna take $2 million and I'm gonna keep a unit ~like you can. There, there, there's,~ again, in this world, ~there's, ~there's deal creativity that you can,~ uh,~ that you can work with.
VM: So in a situation where you've had ~these,~ these blanket rezonings, it doesn't automatically translate into they're gonna be able to get the development approved. So obviously that is still another hurdle in the whole process. Right? Are they finding it easier to get developments approved than before?
Ryan: Yeah, it's really interesting because, you know, just 'cause an area is rezoned. It doesn't guarantee approval outcomes. Every rezoning area is, you know, still requires a developer to lodge that, like lodge an application with council,~ um,~ so that the DA can be assessed on its merits. ~Um, ~and, you know, council still has a say in these Todd [00:42:00] areas, in these LMR areas.
They're, they're still the approval authority. ~Um, ~so. That's something that a developer needs to consider. What's happened is with the Todds and with the LMRs,~ um,~ the earlier that a developer was buying to those announcements and those changes being implemented, the more risk they assumed and the more condition wanted.
In the, in the contracts with the landowners, they're saying things along the lines of landowner. These are really new planning changes. These are brand new planning reforms. no one's got a development approval under these reforms. We're gonna be the first, we're pioneering in this space.
~Um, ~they're untested at council. So we need a conditional deal where if we don't get the DA approved, we can walk away. Or importantly, if we don't get as much density as the planning controls say on paper, then we want to have an adjustment price in the contract. So we want to get, like, we want a mechanism.
And that's a really important point because, ~um. ~the changes, like for example with the LMR, they're statewide, so they go all across New South Wales. So you know, if you're in [00:43:00] Wollongong, you all got the same planning control applicable to your property in Wollongong as someone does in Newcastle or Double Bay or Rose Bay.
it is actually one size fits all in that, in that regard. So like a town plan would tell you if you had them on that. It's really important to,~ um,~ sort of assess your individual sites on its individual merits because, just because an FSR, which is a floor space ratio. 2.2 times your land area, you know, is your control.
That's not as of right. And the wording as of right, is important just 'cause it's 2.2. You don't, automatically get 2200 square meters of building area approved. If you need to apply further setbacks because you've got a heritage item next door for something like that, you might have an extra setback requirement under the apartment design guideline or under the, the, the local controls.
And therefore you might only be able to get. Two times. But if you've got two times, you can build 2000 square meters as opposed to 2,200 square meters. ~If you've paid that,~ if you've paid that landowner based on 2,200 square meters, your feasibility is gonna be really hurting from day one. And that's what I was talking about earlier about buying badly.
So, approvals are really important, and developers always use that to their advantage upfront. [00:44:00] But the more approvals that go through Veronica in the, in the council. Over time, under these new controls, you'll see more unconditional deals happening.
CB: what's your belief on the number of, like, is there enough buyers for this stuff? Like, yeah, I know you're working at a big, I don't wanna give you insights for them, but just your broad perspective. You know, like, has it been tough going, I know the government's, you know, you mentioned the housing delivery authority.
Obviously that was a. A lot around trying to speed up this approval process. But there was also that pre-sales guarantee helping developers, if they do pre-sales, the government would step in if they haven't got the nut pre-sales. Like do, do the big developers, if they're building like a really good quality product, have they got a lot more buyers than properties or is it really quite hard for them to still shift it?
~Um, ~because you're talking four, five plus mil, often the purchase price on these things, ~um. ~Well, you know, even if it's three, it's still tough in this market, right?
Ryan: Yeah, I mean there's, there are so many different market segments and the short answer and the honest answer is it's been [00:45:00] difficult of late and then sewing off the plan. ~Uh, ~for most developers, the sales have been slower and it's something that developers need a, considering their feasibility. So if we go back to the feasibility considerations.
Time is a really important factor and developers will need to allow upfront and assuming their feasibility. How many apartments are gonna sell before construction? We often call presales, and that presales relates to like getting construction finance from the bank. ~Uh, ~and then we talk probably about, you know, balance of sales, you know, during construction, like during the construction period, like how many apartments do you think you're gonna sell?
And then there can be residual sales post-construction. That's not ideal for a developer, but there might be other units still, you know, still available for sale post-construction. And you'll often see developers advertising for, you know, building finish moving immediately. So there's all different scenarios and there's the different market overlays.
~There's, you know, sort of like there's,~ there's mid markets, there's, you know, more high end markets. There's the ultra premium luxury market. ~Um. ~Which I know some of ~those,~ those phrases get used on projects, which probably aren't ultra luxury premium. like if, if we do think about that, [00:46:00] we're, I'm, I'm probably more thinking in my head just for everyone's, you know, everyone listening like ultra, ultra premium would be more like sort of departments, you know, like, which are 10 million bucks.
~Um, um,~ so, you know, there, there's been sort of different things, but people often say that, you know, when interest rates are going up. get into the ultra premium market because,~ um,~ that those people are cash buyers, you know, at 10 million plus, like 10 to 15 to 20 million plus.
So sometimes that's a good space to be when interest rates are going up because they've got the money in the bank. They're incredibly wealthy people. Interest rates don't affect them as much. They affect the know the average Joe, like myself. ~Um, ~and Mid markets sometimes when there's, more activity from foreign,~ uh,~ like countries and stuff like that, looking to invest into Australia, that can be incredibly good markets to be in.
'cause there's just, you know, and we saw that back in probably 2014 when buildings were selling out in four hours. And, you know, back in my agency days I was, you know, taking,~ um,~ developers from, from China, Singapore, et cetera, around in, you know, full drives looking at development sites and wanting to buy whatever they could because there was just.
Like what appeared to be an insatiable appetite for, you know, development and apartments in, in Sydney. So, there's so many different things [00:47:00] that sort of going on, but, you know, are there enough buyers for all the departments? ~Um, ~I think, you know, some developers would be certainly based on,~ uh,~ recent times, hesitant to say yes there is.
So I think,~ um,~ you've seen the, the rise of the build to rent developer as a result of this. A lot of developer. Bring that rent sort of lens over it. And you've actually seen some of the, the big more institutional developers like sort of have BTR projects. Now those, some of those projects, you know, I know for a fact started as build to sell projects and then they got rebranded as BTR, not because they wanted to keep them, but because they potentially couldn't sell more.
So then they convert 'em into BTR put sort of, you know, like great, you know, rental units in these great projects by these, by different developers. And then they sort of hold it. But, you know, but that, that being said, that that sort of happened early on. But now BTR is becoming more and more of a exciting, sophisticated space and a lot of developers are actually pure BTR focus.
So, you know, it's been incredible to see some of the. You know how progressive BTR developers sort of really make a stamp on the land, on the developments landscape in Sydney. And some, [00:48:00] developers are, yeah, again, purely focused on that and,~ uh,~ they're very sort of area based and, and where that works, where that model works.
But, ~um. ~I understand they're, they're sort of still working through structuring and, and, and sort of tax relief and all sorts of stuff to get that get that model really working in Australia. So there's still change required there to make that perform, but that would definitely help bring sort of housing supply and housing affordability,~ um,~ yeah, it's been interesting.~ ~
CB: ~um,~ Adam Hurst on years and years and years and years ago, way before he started Novus, when he was at Mirvac. And you know, Murdoch was one of the firm's, you know, developers I guess you'd call it that went in down and just built to rent. And they're doing lots of great projects now and, ~uh.~
He's got his own build direct company now and ~um, ~yeah, it's, it's very crazy space, but it's, you know, it's gonna be hard for them to build any type of scale that'll move any affordability metrics. We've got 11 million dwellings, but it's definitely one of those things that is part of the solution. ~Um, uh, uh, ~Ryan, thanks such for coming on.
I mean, I learned a lot,~ um,~ and I feel like I still dunno much in this space, so I appreciate you coming on. ~Um, ~it's a very,~ um,~ interesting part of the overall,~ uh,~ development cycle.
Ryan: [00:49:00] Appreciate it. It's ~ uh,~ been super fun. ~Um, Um, uh, ~
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