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🎧 Real deals, real strategies, real results. Learn how to find, fund, and operate profitable property plays from someone who’s actually done it.
Hosted by Andrew Wright, principal of Professionals Southport and a commercial investor who rebuilt after losing a ~$15M portfolio during the GFC, this podcast gives you a straight-talking look at what it really takes to build wealth through property.
Each episode delivers practical frameworks, real deal breakdowns, and honest conversations with high-performing investors and operators across residential and commercial.
But it’s bigger than the episodes. The goal is to build a community of like-minded investors who share stories, swap insights, help each other grow and maybe even do deals together.
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Hi, I'm Andrew Wright, principal of Professional Southport, and this is the Andrew Wright Property Podcast. I've built a multi-million dollar property portfolio delivering a seven figure annual rental income, and led my real estate team through thousands of sale and lease transactions in each episode. I share real deals and strategies that will help you find, fund and operate profitable property deals.
The aim of this show is to provide education and build a community of like-minded investors who can collaborate, share insights, and help each other in each other's journeys. You can make excuses or you can make money, but you can't do both. So come and join us.
Welcome back to the Andrew I Property podcast. Today we're gonna talk about feasibility studies for property developments. Today's guest is a very experienced local Gold Coast property developer named Paul Younan. Paul's experience is also that he has a construction team of approximately 40 full-time building members in his construction team.
Paul. Welcome to the podcast.
Thanks for having me.
Can you tell us a little bit about your background and your business?
Uh, yes. Um, been in construction all my life. We currently run, um, three different businesses right now. So we do, um, uh, traditional building. We do, um, remedial, so, uh, construction, re remedial work, and also, um, form work.
Okay. So, um, sitting on 40 employees right now and servicing Northern New South Wales. In Southeast Queensland and just, um, yeah, those three, um, different disciplines.
Just, uh, getting off the agenda of the, uh, podcast for a moment. Do you feel a massive pressure to have new deals lined up all the time when you got 40 people on the payroll?
Do you, how do you. How far ahead do you need to book, book, uh, work to keep all those people on the books?
Um, the business has grown over a very long period of time, so we've built very sound relationships with clients. Um, there's a, a forward pipeline, so as you know, like projects don't start in five minutes.
Some of them, uh, you know, we'll know the project's gonna go ahead, but it could be six months before we're required. Yeah. So. The, the pipeline in front of us is very long. Yeah. And it allows us a lot of time to forecast what's happening. And the other aspect is that we can deploy the resource between the different businesses depending on what's going on.
Okay.
Um, so it does give us a lot of flexibility.
Okay. Very good. So we might go through, we've picked out five deals, uh, that we are hoping that we can educate the audience on some lessons that, uh, Paul's learned from his experience. So we'll start off with, uh, eight to 10 Badera Drive. I was, uh, the, uh, selling agent on that one.
And, uh, Paul. Bill bought that site for 3.8 million just two years ago. It was an old knockdown house and uh, one duplex pair. Um, Paul, can you tell us what you initially wanted to do with that site and what ended up happening?
Okay, so, uh, at the time we bought the site, we were doing some other. Duplex developments in Palm Beach.
Um, this particular site was a bit unique because even though it was two parcels of land, it was separated by a path. A council footpath.
An easement.
An easement. Yep. Yeah.
Yep.
So it was effectively, um, two separate developments and the sites were too big to do duplexes and obviously too big for a house.
So we end up having to look at, um, uh, triplexes and quadplexes. Um, when we looked at those. When we ran our feasibility and ran our, um, architectural analysis, um, the floor plans weren't working. If we followed the council requirements, the, the code requirements, um, we just weren't happy that the living rooms were big enough.
The bedrooms were big enough. Um, so that led us to go down the path of an impact assessment. So what that meant, um, under the code we're allowed three stories. Um, the first two could occupy 50% of the site, and then the third floor could only occupy 50% of that again, so 25% of the site. Um, with that modeling, the architectural plans didn't work.
We, we just didn't like the product.
Okay.
Um, the, the. The square meters work, the feasibility work, the construction worked. It's just that when we finally sat down and drew the apartments, we didn't like them.
So just under that code accessible situation. So how many dwellings could you have got on that site under the code Accessible?
Up to
four.
Up to four. Okay.
Yeah. So we modeled two were too big.
Yep.
Three worked well.
Yep.
Four also worked well 'cause we were able to get a six meter wide garage. Okay, so, so three and four worked well.
Yep.
And mainly because, um, you know, look, looking at double with Garage for me meant that the product would be able to compete.
Um, it's just that the room layouts were too small or too, um, uh, convoluted.
Okay.
So that's what led us to go down the path of the, um, of the impact assessment.
Okay, so just for the viewers, so a code accessible application is one where you basically got some predefined rules or codes that you need to comply with.
And by and large, if you comply with those rules, you're probably gonna get council approval. But if you're wanting to do anything more, uh. A higher density, for example, and you need to go for an impact accessible application. That's what can add a bit of risk to your application. Um, you have to invite the public for any objections and you have to advertise that you're doing it and it can be a little bit more risky, but maybe some more upside if you're successful.
Is that a fair comment?
That's correct. Yeah.
Yeah.
So in this instance, um, what you're able to do is take that third floor from. 25% cover to 50% cover.
Mm-hmm.
So in round numbers that increase the saleable area by 20% on the whole project.
Okay. And may I ask, is that, um, was that your idea or was it your architect or town planner that came up with a, that suggestion?
Paul?
I think it was just an evolution of the fact that, again, I keep coming back to the fact that we ran all our numbers and they worked. It's just that the floor plans were just, they didn't work, they weren't saleable. So. I think it was just an evolution with the whole team. Um, we ran the, um, the design options with the impact assessment and everybody thought that the apartments were, um, you know, significantly improved.
So, you know, things like we had a, an really good open plan kitchen, living dining.
Mm-hmm.
The outdoor living area was huge.
Mm-hmm.
Um, you know, we got really good bedrooms, good en suites, extra study rooms. Just all those boxes you could tick. Um, so in that instance, the impact assessment definitely not only improved the feasibility, but led us to a product that we knew would work.
And as part of that process to, to go for the, um, higher density or, or the, the bigger floor area. Were there a lot of additional consulting reports required, and were there extra time delays in meeting those extra requirements, or did it all run pretty quickly?
Um, new set of drawings from the architect, reports by the, um, the town planner.
Um, so that had to be done. It was probably, you know, a few weeks at most. Um, some additional fees, but the time is involved in the advertising, the public advertising. Council have to advertise it to the public. The public can make objections.
Were there any objections
in this case? No.
Oh, fantastic. So you got, you got approval.
Yeah.
And what was your exit strategy there, Paul?
Um, the intent was to build it. Um, there was a development, we were doing other townhouses in the, in the suburb. The, the sales of those were slightly delayed, um, which we didn't want to progress with Badera until we sold the other project. Um, in the meantime.
The family affairs had changed. So, um, there was two other family members involved in the project with me and by the time we got around to looking at starting, they had, um, other requirements. So they were looking to buy houses and do other things. So, um, they were happy to call it, take their money outta the deal and pursue a different strategy.
So you sold the site with a DA approval for an uplift, is basically how you ended up, uh, getting outta that project.
Yeah, so the uplift was there. Um, we had drawings for, um, triplexes, we had drawings for quadplexes.
Mm-hmm.
We'd proven up that the, the garage widths worked. The, the layouts worked. Um, we had our, um, obviously had all our paperwork in order.
Mm-hmm.
Um, all the analysis by the engineers. It was pretty much, it was, it was packaged up, ready to go. Um, and yeah, we were. Touch and go, whether to pull the trigger. And in the end we decided, um, based on the, the requirements of the other family members that they wanted to pursue other things and
okay,
we moved on.
Okay. Fantastic. So, in a nutshell, um, if we, before we go to the next deal, can we talk about, Paul, you are, you're an experience developer. What is the main process that you follow to come up with. A, uh, feasibility study and a due diligence. Do you have spreadsheets or software or is it back a napkin sort of stuff?
How do you, um, put together a feasibility when you first see a site online? Yeah. You have a look at it on RP data or whatever, and how do you process a feasibility?
Um, yeah. Very simply we run an Excel spreadsheet.
Yep.
Um, it's just income and expenses. Um, so profit and loss. Um, I've done enough over the years that I've got.
I guess templates or I've got a pretty fair idea about how to, how to present the information and do my calculations.
Okay.
But essentially, yeah, it's a, it's an Excel spreadsheet. We call it a feasibility, and it's a, it's a forecast, it's a, it's a prediction as to how the entire project is gonna work out.
Mm-hmm.
Um, to inform the numbers. You need some sort of town planning advice. Mm-hmm. And you need some sort of architectural design. So, you know, it could be as simplistic as saying that the code accessible rule says that you're allowed 50% cover for two stories.
Yep.
So you can work out the saleable area, you can run some numbers as to what you think that's worth from a retail point of view and from a build point of view.
Mm-hmm.
Um, without actually drawing a floor plan. Um, if you're going into medium rise and high rise units, the constraint that most often. Is the limiting factor is car parking.
Mm-hmm.
So if, if I'm looking at a site like that and I'm, I'm holding myself to a proper discipline, I would actually get an architect to, to actually cad draw the basement.
Okay.
Um, sketch plans are fine, but it doesn't address thicknesses of walls. It doesn't address services. You can catch yourself out. Two or three car parks could cost you one or two units.
Yep.
Um, so the discipline I adopt is that I will get a formal town planning advice and pay for it, and I will also pay an architect to properly cad, draw the basement and actually run a, a concept for the building.
Yep.
And then from there, when I build my feasibility. I can actually build it off those, off that design. Um, it takes, it's, it's more money, more time.
Mm.
More discipline, but it does allow you to get a much more accurate feasibility.
Mm. Just going off the topic again, I remember, uh, in the early years, maybe, uh, 15 or 20 years ago when I was selling new stock in Southport, a lot of the developers there, uh, used to sell these two bedroom, one bathroom apartments with only, uh, one car park.
And they'd actually structure it as. One bed and a study without a proper door because that way they got away with one car park instead of two. Does that sort of stuff still happen when, when you're, when you're looking, or are they a little bit more generous now with the car parking requirements when they're trying to increase density on the Gold Coast?
I think you see a bit of both. You do see that strategy occur, so. You do get that hypothetical second or third bedroom. Um, but also what's happening is with the trams and the increase in density, uh, council are open to, in different circumstances, giving developers concessions on car parking.
Mm-hmm.
It's just that, again, when you as a developer and you do your feasibility, you've got to look at your market and say, does my buyer require that car space?
Mm.
It's like saying I could build a multimillion dollar beachfront four bedroom unit and the code is two car parks, but the market might say that that buyer has a minimum requirement of three. So there's, there's what you can get away with. There's what council you may negotiate. Yeah. And there's also what accountability you have to have to the market.
Um, but yeah, with the tram and with, um, with the increasing in density, I would expect to see car parks per unit dropping.
Okay. I'd imagine if, given that you employ 40 people in your cons, construction crew, that you probably don't have to build in as much of a contingency when you're trying to work out your building costs on a project.
How do you work in your spreadsheets with, um, a buffer for mistakes or other things that. Something always crops up with additional expenses. How do you, do you just whack in 5% or what do you actually do with your spreadsheets there, Paul?
Okay. So two issues that you've raised. Um, firstly, if I'm analyzing the build cost, I would treat the building at arm's length.
I may or may not build it, I may engage a third party builder to do it. Okay. Um, but when you run your numbers, you have to run clean numbers. Mm-hmm. Um, the qss, the banks, they're not gonna sign off on your fiso if you fudge the building number.
Yep.
So when you put a building price in, it's gotta be a market arms length price, so it doesn't matter who builds it.
Um, the second question was. Contingency. Yeah. How do you, how do you build that buffer? Yeah. Um, as a rule, when we build our feasibility, we break the feasibility into the milestones of the project. So site acquisition holding DABA, et cetera. Um, a general rule is that you would apply a 5% contingency to the cost of construction, and that's the contingency that would sit in the da, sorry, in the feasibility.
Yep. Um, sometimes I throw a small contingency at the. The, um, the, the, the DA aspect because if it's an impact assessment, you often have to go through multiple RFI processes. Yep. So council will issue a request for information. You then go back to the team of consultants and you have to answer that request.
Um, so there's an element of time and there's an element of cost. So I will normally build in a, a hard dollar figure. It's not that big, but it's some figure into my, yeah. DA contingency. But the rule that the, the banks would generally expect in a QS would expect to see a 5% bill contingency in there.
Okay.
So 5% on the bill costs. We don't need any contingency on the land cost 'cause that's a fixed price. You know what that's gonna be. But some soft costs with consultants, if the length of time required to get an impact accessible application approved sort of blows out with more information requests. Yeah, yeah.
Okay. That makes sense.
Yep.
So. In your experience, um, in recent experience, let's just talk the last five years or so. Um, Paul, what sort of loan to value ratios have banks provided construction finance to you for and have they? Got a benchmark rate of return that they like to see a margin in a property development before they'll lend that LVR.
Yeah. So, um, in real simple terms, your starting point is 20% margin.
Okay.
So you add up your total development cost, um, and then there has to be a 20% markup on that for the project to be feasible. Yep. Um, the banks have a bunch of rules, but essentially it's, they will lend you, um. 80% of hard cost or 65% of gross realization, which is the total value of sales, whichever is the lesser.
Okay.
Um, if you ran a hypothetical set set of numbers on, let's just call it a million dollars worth of work.
Yep.
If you worked it all back and said there's a 20% markup that would generally tick the box for the bank's requirements, and if you ran the bank's numbers both ways, that generally comes in really close.
I'm just thinking through that, what you've just said there, how does that apply? Um, when you extrapolate the timeframes for completion of development, like 20% margin on a one year deal is certainly a lot different to a 20% if it takes you two years to build something. What are your comments on that?
Okay, so, um, I said the starting point was 20.
Mm-hmm.
So then what you then need to do is adjust that according to the deal. Yeah. So the towers that are running in, in town now, the higher density ones, they're not, they're not even five year deals, they're eight year deals.
Wow.
From concept all the way through to settlement and completion. Yeah. There could be multiple towers.
Yeah. So the margins have to be higher to build that contingency.
Yeah, that makes sense.
So if you, if you set a hard and fast rule, let's start with 20 and work your way from there.
Mm-hmm.
If it was a five year deal, I, I wouldn't really wanna be sitting at 20.
Acknowledge. So can you tell us just a, just a little bit, have you got any, um, experience dealing with private money partners as opposed to the, the big four banks or even in the middle there like, uh, second tier?
Lending institutions, how do you see their different roles?
Okay. So just, I'll just go one step back from that in terms of timing.
Yep.
Um, one of the components of your feasibility is your interest.
Yep.
And generally when we price interest, we, we, we price it as capitalized interest. So when you run your feasibility, you are, you are calculating the interest cost for the term of the development.
Yep.
Until it's complete and ready for settlement. So that's how you deal with the duration and the cost of interest. Um, in terms of funding, um, let's say the big four banks. Or what we would call senior debt. Um, that's the component of debt that hits that. Um, 80% of costs, 65% of gr um, that senior debt you want at the lowest possible interest rate.
Absolutely.
So let's say that's the big four or wherever it comes from that. The rest of the money is effectively the equity that has to go into the deal. So round numbers, if it was a, I dunno, a $5 million deal, you're probably gonna have to come up with a million, which is probably roughly the land value.
There's probably three give or take in the build, which leaves a million in margin and associated costs. Yep. Um, so the question is, how do you raise that first million? It can be your own money. You can form a syndicate amongst a group of private. Investors yourself. Um, you could do another system called Mezzanine Finance.
So essentially what it is, is it's a second registered mortgage. So the senior debt would take the first registered mortgage, they would have priority over the security. Um, the mezzanine financier would take a second mortgage. Um, that puts them at a significantly higher risk. Mm-hmm. So what ends up happening is the interest rate reflects that.
Yep.
Um, so you have the choice either your own money. Go and get some business partners sharing the equity, or you have to raise mezzanine, and then what you're doing is massively ramping up your interest rate. And because the Mez attaches to the land that the, the initial acquisition of the site Yep. The Mez actually sits there for the longest period that the shortest debt is the senior debt.
Yep.
The longest debt is going to be a Mez.
Okay. I, I asked my lawyer about this, um, uh, sort of concept, uh, with the, the second mortgages. And, uh, he, he told me at one stage that he didn't think there was any, um, regulations that would allow a first registered mortgage from a bank. They wouldn't, wouldn't actually allow, a bank couldn't stop you from getting a second mortgage, but in principle, there are some banks that just won't allow you to have a second mortgage, isn't it?
No. No. The bank has to consent to the second mortgage. Yeah.
But is there any legal, legal reason why they, they, they may not consent to it.
No. They've got the
right, just their, it's just their own policy might
say. Yeah. It's a, it's like a, it's like a contractual agreement.
So some banks will just say, no, we're not gonna allow a second mortgage.
Other banks will say It's okay. Is that what happens in practice?
Yeah. It's, it, it comes back to your relationship with your finance career.
Yeah. Right. Okay.
And again, it's How many deals have you done? What, what's the traits of this particular deal? What's the risk aspect? Um, it, yeah, it's, it's essentially relationship driven.
Yep. Fantastic. So yeah, you, you, you obviously have a good track record. You're gonna have a better chance of getting the. Uh, one of the big four banks to agree to a second mortgage. If you've can show the last two or three deals, that's how you've structured the deal and you, you still did it profitably and exited.
Okay.
The type of projects I do, we don't deal with mezzanine.
Mm-hmm.
Because they're smaller deals and, um, in order to get the support for the senior debt, we need to show substantial equity.
Gotcha.
Um, and also from my point of view, when you start entering that space, the risk gets higher. Um, so you're starting to deal with people where they're looking at, they're not looking at margin, they're looking at return on capital.
Yeah. It's an entirely different animal to the space we work in. Okay.
Fantastic. Well, let's move on to another deal now. So I've written down here 3 97 and 405. Yep. Golden four Drive in ch
Yep.
Can you tell us a little bit about that deal and, um, are there any lessons that you, you learned from, uh, from that development?
They were, um, they were really, really interesting deals because they were some of the first ones that we did. Um, that's when we undertook that sort of evolution from being building contractors to pulling syndicates of investors together, um, and basically buying sites and putting up unit blocks. Um, yeah, really good memories.
They were absolute beachfront in GaN. Um, we put together some nice buildings. Um, back then, do you
wish you had kept them?
Um, actually we raised our kids in one of them.
Oh, there you go.
Yeah. Good idea. That's all. They sort of grew out from a space point of view.
Yeah.
Um, we kept one of the ground floor apartments, so we had the, the outdoor area on the podium.
Beautiful.
So yeah, really good memories. Um, back then construction times were a lot shorter.
Mm-hmm.
And construction prices were way more certain. Mm-hmm. Um, there were some issues there. Um, 4 0 5 had a. Um, a refusal from council to do with the height. Um, that was a full, um, land and environment court case, um, which we ultimately won.
Um, it was on the concept of gradation, um, which triggered the council, um, planners to, um, send the refusal. Um, the second project was a lot simpler 'cause it was a DA on it already. Um, so we bought it with the da. Um, what, what we learned through those projects was when we. When we did, um, 4 0 5, a three bedroom unit was seen to be acceptable about 125 square meters.
Mm-hmm. And we're doing two per floor. When we got to 3, 9 7, that had grown to about 155 square meters.
Okay.
And we started to introduce the concept of a whole floor apartment and also, um, multi-floor penthouses. So the, my memory of those deals was that. The market started to take off and that high-end luxury, um, unit, apartment product was growing.
So from when we were doing that project and the other developers were comparable sizes. And then as time went on and we're looking at the other projects, we were starting to see these large format, um, homes as opposed to small apartments.
But you also learned from. Having a win in court. I mean, I, I had a pre lodgement meeting with the development in Ipswich and my town planner said, oh, Andrew, we can take him to court over this as a present.
I said, mate, I, I couldn't be bothered gonna to court. I I'm going to do something else with that site. Mm-hmm. And I just walked away 'cause I didn't want the stress. But tell us through your, your process, your thinking there, why did you decide to press the trigger and say, no, we're gonna go to court and we're gonna fight over this.
What made you do that?
Essentially the, the refusal was political. The couple of the counselors had got into an argument about it. Okay. And, um, they basically, um, rejected it at the meeting so that it put the onus back on us. Um, the other factor was that that was a syndicate of six partners, and the, the six people had a strong desire to retain their apartment.
I see.
So it was, um, I think it was 12 apartments. So the, the idea was to sell six, keep six. They wanted to keep their apartments, they wanted the taller building. Um. And, you know, the numbers back then were nowhere near as, um, significant. You know, the land values were a lot less. Okay. So the, the risk in pursuing the, the land environment case was significantly less than it would be today.
Was this a six month delay or two year delay? What sort of timeframe? Do you remember how long that took?
I'd say about nine months.
Nine months,
okay. And in that period, the market was well and truly in our favor. At the time there was market was growing. It proved our concept that the subsequent land sales were for significantly higher dollar per square meter values.
So the, I guess the owners had an appetite because they could see that the land was becoming more valuable and that one way or another that it would work out
okay.
It was a, it was a 1400 square meters of absolute beach front with a 20 meter frontage.
Um.
And you know it, one way or another, we're gonna get an amazing project on there.
Yeah. It's interesting, like we, I just mentioned before how we, you want a 5% contingency on your build costs, but you seem to be building a, a lot of these residential either townhouses or apartments. Like you'd know your numbers pretty well from the last project you've just done, so I'd imagine you'd. You don't get caught out too much on your, on your contingency costs there, unless it's materials going up or something that
Yeah.
The, I mean, look, the, the, the COVID period was pretty full on in terms of, um, your margin being eroded. Mm-hmm. Um, cost did get away pretty quickly. Mm-hmm. But if I go back to the, the, the, the hard and fast rules, um, the developer's gonna have 20% margin on the entire. Land and construction and so on. So that's the biggest margin.
The second biggest margin is gonna be the builders, because the builders are probably looking for something in the order of 10% on the build component.
Yep.
Um, so the builder itself has that buffer, I guess, in their price. And if the builder's doing the right thing, there should be. A lot of data to support the quote, um, a lot of quotes from trades that you've worked with.
Mm-hmm. Um, so that should, that should insulate the builder, the 5% contingency on the build that belongs to the developer. That's a form of insulation. Yep. But to be honest with you, what happened with COVID, um, I don't think even those numbers would've protected too many sites.
Mm-hmm.
Um, the circumstances were, um.
They were probably as difficult as what we went through when we were building in the lead up to GFC. Okay. Yeah. So the, the, the market was so overheated that we were, we were losing trades. Um, insolvencies were happening, um, costs were escalating. We, we couldn't keep up with the escalation. Mm-hmm. Um, so it was a matter of survival.
I'd say the COVID escalation was probably, uh, I'd say worse than the escalation we went through in, in GFC.
Okay, Paul, I'm, I'm about to get approval for 15 units out in, in a regional area, and I'm, I'm, I don't have a lot of experience, but based on what's happened in the construction industry in the last few years with all these builders going broke, I'm, I'm actually pretty scared to actually go ahead with a bill rather than just maybe flick it with a da.
Do you have an opinion on whether it's still feasible to get fixed, build cost contracts for small developments of units, or do you think. Builders are going to be, um, very hesitant to offer a fixed cost solution when all their mates are going broke.
My experience is that if, if you're going to get a fixed component to a building price
mm-hmm.
You might get fixed margin or fixed preliminaries.
Mm-hmm.
Having an entire fixed price.
Impossible.
I haven't heard of a lot of that happening.
Mm-hmm.
Um, the, the landscape has changed significantly. I can speak to the Gold Coast 'cause that's where I've got my experience. Mm-hmm. Um, I dunno what's happening regionally, but.
What you're seeing on the Gold Coast is developers are self delivering, so they've effectively formed their own building companies to do their own work.
Mm-hmm.
Um, so it's essentially an, an open book situation with the builder. Yeah,
yeah, yeah. If you've got your own construction crew, that question doesn't, doesn't even matter.
Yeah. I mean, you still, you still have to pay the price to have it built. Yes. So if, if there's escalation, it's coming out of your pocket.
Yes.
It's just that you may not have to deal with. Um, if you have to deal with an insolvency, that will then trigger a breach of the finance, it could unravel the whole deal.
Yep.
Um, but in the regional areas, I'm not sure of the situation, but you may be able to find a stable builder who's got a, a solid track record. Mm. Um, it might be a case of what we've done in the past is build significant contingencies into the builder's price. Yep. And then we just do shared savings.
Okay.
So there's strategies. It's just a matter of, um, having a look at, and if you, if you're talking a, a townhouse project. That's a really different animal to doing a luxury beachfront tower. Yeah. Where the finishes are a lot more complex. The durations are a lot longer.
Mm-hmm.
So if the workmanship is simpler, the durations are shorter.
Yep.
Then the, the risk component becomes a lot less.
Okay. Well I think I might shout your lunch when I get the approval for these 15 units. If I get a couple of building tenders in, I might come and shout your lunch and show you, show 'em to you, and
yeah,
you can pick 'em apart because, uh, um, I don't wanna make a mistake on, on that build.
Okay. So another deal we got here, um, Archer Street, Bellinger. Paul, um, when, when was that deal? And, um, can you tell us how it worked out?
Yeah, so that was around 2015 or 16. Um, my memory of being in business was that the, the haul out of GFC was really slow and very long and painful. Um, when we started to look for a site around that 15, 16 mark, we started to see a bit of movement in the market.
Um, er street was, we were looking for a two bed, two bath, one car, 120 square meter. Sorry, 110 square meter model. So it was just basically a, a, a center of the market, two bedroom offering. Um, er street came up. The land value was within the parameters of what we wanted. Um, it was an irregular shape block 'cause it had frontage to Archer, but a battle ax to Golden for, which meant that the shape of the basement was tricky.
Oh yeah.
So it was a very inefficient basement. So we went to council and we negotiated. A verbal deal to have one car space per two bedroom apartment, and there was 16 apartments.
Okay.
Um, the DA process was six to eight months. It wasn't impact. It was a cossible da. Um, pretty much on the eve of the issuing of the da, we got a call from the town planner who said that.
Council have changed their mind in relation to the density of the car parking. Um, it's gotta go back to the code accessible one is to 1.25. Um, you either have to introduce more car parks or you're going to get a refusal. So that happened literally, you know, we were ready for construction. The deal was packaged.
We had all the sales team ready to go, and that, that hit us like at the, you know, 11th hour.
Wow. I remember I built a rooming house in Southport above my old office. Um, eight bedrooms. Eight bathrooms. And before I pressed a button, I spoke to my town planner. He said, oh, Andrew, the, the, the, I've had a, a meeting, I chat on the phone to the, the council and they said They're gonna give you x amount of infrastructure charge credits because you, you're changing an existing office.
Mm
uh, into some residential rooming accommodations. So they're gonna apply a whole heap of credits and you're gonna have to pay hardly anything in infrastructure judges, and I specifically remember thinking, I don't trust anyone. I said, Phil, can you get that in writing? And took me about three phone calls to him.
Oh, have you got that in writing in an email from the council yet? Oh, no, Andrew, I'll chase him up. It was only when I got that in writing that I actually pressed the button and went ahead. Now, I wonder, in that case, could the listeners maybe learn that? Um, should someone have asked that person in your pre lodgement meeting to send you an email confirming won only one car park?
They won't. They wouldn't do it.
Won't. They won't. They won't. They, what they say is that they'll, um, with those meetings, they'll have a discussion around the general requirements. They'll, um, they'll point you out to the different. Traits or the characteristics they look at. Yeah. But the pre lodgement is not an approval.
Yeah.
And they're, they're quite particular about what they will and won't put, if you look at the minutes of any pre lodgement.
Yeah.
It's, it's a, it's a, a discussion around the indicia. They'll look at,
okay,
so you, you're not gonna get it in writing until you get the da.
Gotcha.
I think what happened at the time, again, we were coming outta GFC.
Um, we could see a lot of movement in the, in the values of land. So my suspicion is that council had been inundated with approvals and they went, right. We, we were we generous with car parking to get things going. It's probably overcooked. We just need to pull it back a little bit. Yeah, that's what I think happened.
Um, but yeah, the reality is that we were confronted with a decision, do we stop? Reset and go again. Or do we, um, adopt the alternative solution, which was to put cast stackers in.
And how, when you were trying to sell those properties, were there objections from the market looking to buy at cast stackers?
Did the people say they didn't like them or were they okay with them?
There was no resistance to the cast stackers. No
resistance at all?
Yeah, because what we ended up doing was offering, we, we basically didn't allocate them to any apartment. And if, if one of the more higher end value apartments, um, we were basically using that as a negotiating tool to get the sales away at the higher price.
Mm-hmm. Um, the stackers we used were really high quality product from, I think it was from Germany. Mm-hmm. Um, they worked really well. They're very safe, they're very sturdy.
Mm-hmm.
Um, yeah. I mean, the other, they worked well. Like, it was, it was, if anything, it was a bonus to the, to the owners. Mm-hmm. The other issue too is that you could have just had the stack of sit.
In the lower position and just treated it as a car park, you didn't actually need to use it.
Oh, okay.
So if you wanted the second spot, you could treat it as a bonus. Mm. But if you didn't like the stacker, you could just treat it like everybody else's one car.
Okay.
Yeah.
But that, that curve ball, you know, that's something that you can't control.
But what's the lesson there? Is it to make sure that you do have a contingency for something like that? Is that the lesson to come out of that? Or is there any other lessons?
I mean, we tore up margin. We had to effectively do dig a basement to house the underrun, and we had to raise the building Okay. To allow for the overrun.
Yep.
Um, plus we had to buy the stackers themselves. Um, so yeah, it, it took a decent chunk of the margin out of the deal, but at the time, we could see that the market was lifting, but we'd just come out of a five, six year post GFC period. Mm. So we took the view that. Because everything was set. We had our pre-sales, we could just turn the deal over, make a bit less margin and, and, and move on to the next.
Um, we weren't, I guess we weren't super confident that the market would continue to go.
Mm-hmm.
Um, so at the time my business partner and I didn't want to take on any additional risk. We were happy to discount margin and just move through and work on, um, getting through it and moving on to the next deal.
Okay. Fantastic. Uh, the next one we've got on the list here. Norte at Burley Heads. Yep. Tell us about the deal, Paul.
Yeah, that's, um, another one with really fond memories. It's a really beautiful building. Um, Esplanade, Burley heads, super proud of it. It's, um, still looks amazing today. Um, had some really good business partners in there.
Um, enjoyed working with 'em. Um, yeah, I got to put some really good design into the building as far as not just the aesthetic, but the actual, um. The quality of the structure of the waterproofing and so on. Um, the, the interesting thing with that deal is that we went for code accessible, which meant 50% cover over four floors.
Um, there were other developers at the time that were going for 45%, cover over 10 floors, um, and were doing it. So there was an opportunity to get really significant uplift on the site. Um, the partners we had at the time were intent on keeping the stock. Um, we were selling some, keeping some, the scale of the building we were doing meant that we could have a really quick turnaround.
We could have got a, you know, like a six month da 12 month build mm-hmm. And built really beautiful apartments. We were happy with. If we'd have gone impact, there would've been a little bit more time in the da, but what it would've done was meant that the, the, the significantly larger building would've meant way more debt funding and a, a, a far bigger position in the market.
Which was probably beyond the capacity of the group that were involved.
Yep.
Um, so we opted for a smaller deal that we could control, that we could turn over quickly, as opposed to a bigger deal, which would've meant borrowings, that would've made all of us uncomfortable. And a, um, it would've, it would've extended the duration of the project.
Um, as it turns out, the, the building was finished about July, August. And GFC was, I guess, in the public space around that sort of December, January period. Uh, I think Kevin Rund was elected about sort of September, October, somewhere around there.
Okay.
Um, we were fortunate that we're able to get all our settlements and quit all the debt before the ramifications of GFC hit.
Okay.
Had we have gone for the bigger deal
mm-hmm.
Obviously you wouldn't have known at the time, and it's just sheer luck or chance. Mm-hmm. But we would've spanned that GFC period. Um, and with that significant debt, it probably, it would've had the potential to wipe us out.
Wow. So just, um, as far as structuring, when you said you had, um, four other business partners in that one, how do you structure a joint venture when you're raising equity from people contributing equity as opposed to private money lending?
How, what, was it a company structure or unit trust or what, how did you actually structure that one?
It was basically a company, but most people would've had a, um, some sort of discretionary trust sitting under it. But fundamentally, as far as, um, dealing with the public and the banks mm-hmm. They were, they, they were dealing with a company.
Okay.
So the, um, each of the partners entity would've been a shareholder.
Mm.
It's just that some of the shareholders might have been corporate trustees of fixed or discretionary trusts. Um, but from a, from a strict. On the face of it, legal position, it was a company.
Okay. Not sure if you can add any value on this next question or not, but I, I did see a podcast, um, a little while ago about a, a builder who was, uh, giving advice around when people are building small duplexes or three townhouses, how to structure it so that if you're keeping one, you don't have to pay stamp duty.
When it's finished and you actually buy the end product when you're doing an apartment complex like that, I guess there's no way around that that they'll end up just having to pay stamp duty on the full, full build cost. When, when the partners buy. I
think there's some concession because if you are, let's say you're a one quarter owner.
Mm.
Of the entire site.
Yeah.
When finish the deal, I think you're conveying three quarters. Of your parcel.
Yep.
There may be some stamp duty, duty concess,
there might be some stamp duty concession. Okay. That's interesting. One for the lawyers anyway.
Yeah, that's from my point of view, when we do business, we try to treat all aspects of the deals at arm's length.
Mm-hmm.
And that way if you start getting cute, then what happens? 'cause you've got multiple partners. Mm. If one person has any form of incident
Mm.
Um, you know, there can be deaths, divorces, insolvencies. Mm. Um. Tax, investigations, whatever, all of that can come in and contaminate the deal and therefore contaminate the investors.
Yeah. So in my experience, it's best to do business at arm's length.
Yeah.
And that way you insulate that deal so that. You're not taking additional risk by having a business partner. The idea of having partners is to reduce your risk, not to increase it.
Yeah.
Yeah. So I would try to make sure that the structure, um, is insulated from Yeah.
Everyone's affairs. I
just wanted a really interesting topic because, you know, a lot of the, um, small house and land package marketeers will always. Say one of the advantages of going down that track is you only pay stamp duty on the land and you don't actually have to pay stamp duty on the build cost of if you're actually building it yourself.
Yeah.
So, um, it's just an interesting discussion. The final deal wasn't so good, Paul, but I love talking about deals that don't go to plan because we've all had bad deals before, whether investments or developments. So broken Head Road, Suffolk Park, I dunno if that's how you pronounce it, but. Tell us about this disaster.
Um, yeah, that was,
I'm glad you're smiling about it too. That's great, Paul.
It was pretty, um, it was a very challenging one. That one. Um, yeah. So, uh, Byron Shire, new South Wales. Um, we end up with six houses on a lot. Um, the, as of right zoning was for 49 bedrooms, and we end up with 18. Um, so the, the issue there was, I think, I think the DA was something like six years.
Um, then by the time we got the construction certificate to build, we then had to do a civil subdivision to create the lots. Getting that approved through council took another year. That's after it was built. Then there was the build process. Yeah. Um, that was a case of being, um, being held up in bureaucracy.
Um,
so this is not a, a fault of your, you, it's not a fault of your town planning team. You're saying nearly all of these delays were from the council
Yeah. The planning process. Yep.
Right.
And I'm not, um, there were different layers of, um, the bushfire regulations are quite strict. There was some bush fires in Canberra that, you know, led to loss of lives, um, that led to a tightening of the requirements.
This particular lot was subject to that and the width of it. Added challenges, which then had to be designed into the, um, into the, the fire ratings of the buildings. Um, there was a sensitive tree on the site. Um, so, you know, there was surveys of individual trees. It was just a, and it wasn't like we could run all of those processes simultaneously.
They had to run consecutively. So we, you know, we resolve the fire. Right, that's done. Now let's resolve ecology. That's done. Now we need to resolve stormwater and sewer. Um, it just, it just took a long time and the market was pretty flat that whole period. So we had our money in the deal. We were just continually sinking funds into consultancy fees.
And by the time we finally got through the deal, you know, it was a case of hoping to get your money back rather than making any profit. And it also hamstrung us because your, your money's tied up in that deal, which meant that you couldn't look at any other opportunities.
Paul, I'm, I'm just having a giggle to myself here, but I'm hoping I'm wrong.
I just looked at my notes and it said nine years. Yeah. Is that correct?
Yeah, that's about right.
Nine years on that development.
Yeah, and we also, because the market was soft, we had to raise more cash to build some dwellings because we had a better chance of selling a completed home. Then we did selling a residential lot.
So that just increased the pain and the duration and the, and the amount of money we had to throw at it. But in the end, it's, um, it got done. Um, my business partner at the time managed to retain one of the houses and he's got a very healthy uplift. So from his point of view, it's worked out okay from my point of view.
I was happy to, uh. To finish off and, uh, move on to other things.
So like, let's not, I want to drag you through the mud here on this one, so I am gonna, um, I'm gonna make it painful. So are there any other lessons that you can learn outta that one, like nine years of frustration? Is there anything else? Or could you have done something better in that, or was this purely the council caused all of that?
I think in hindsight, I probably should have done more research. In terms of, that was my only deal I'd done in that council.
Mm-hmm.
So I hadn't had the experience with those different requirements.
Mm-hmm.
My experience has been more Gold Coast. I haven't had a lot of experience in the tweed.
Mm.
Um, so I guess the lesson is that just because something works somewhere, it's not gonna work everywhere.
No. Your council
know, your council, know your consultants. Like we've built relationships with different architects, town planners. Um, you know, civil, structural, all the different types of engineering disciplines. If I need to make a phone call and get proper advice mm, I know I can get it.
Mm.
And I know it's advice that's, um, of value.
Um, the development on the Gold Coast is probably less controversial than developments in other areas. You know, we are pushing up high rises. We've got huge population growth. Mm-hmm. As much as people are against what's going on.
Mm-hmm.
There's a general acceptance that that's what's going to happen. Um, so definitely yes, the Gold Coast market is, I would say, easier.
Um, but the lesson is you need to know your market and you, you need that. You need that team.
Yeah. Fantastic. So we've gone through a couple of things that you've learned there and challenges that you've had to overcome. So. Developers that might be listening to the podcast. Paul, what do you think the biggest mistakes that they might make doing feasibilities is, and what do you, what advice do you have for them?
Um, I guess a few points. Um, firstly what I would say is that over the years when I've been trying to acquire sites, I do go through a lot of sites. I might succeed at one outta 50, one out of a hundred. Um. Because I've done a few projects, I've got a rough set of rules around how I do my feasibilities. If a, if someone puts a site in front of me, I can run a basic set of numbers fairly quickly.
So that might rule out a decent chunk of the sites, um, if we have to go further down, um, into investigation. But yeah, I guess the first lesson is don't think you're gonna analyze three sites and pick up a deal. It's probably more like 50. Okay. Um, so that's one issue. A site that works for you. May not work for somebody else, and a site that works for somebody else is not gonna work for you.
So there's other aspects that go into it. Um, the other thing I'll say is that, um, you live and die by your feasibility. So it's a forecast, it's a, a projection of what you think's gonna happen in the future. Um, there's a bunch of numbers in there. There has to be some data that goes into those numbers.
You've got to do your research and you've gotta support those figures. Um. Real basic rule. There's three numbers that matter. That's the land price, the build price, and the, and the sale price of the apartments. Those three numbers are gonna have the biggest impact on the deal. Um, the hardest, the easiest number to get right is the sale of the, the land price.
You're gonna get that within in
the contract. Yep.
That's pretty clear. The build price is the second easiest number to calculate because with a, even with a basic sketch from an architect, you're gonna have it plus or minus a few percent.
Yep.
The revenue's got enormous amount of play in it.
Mm.
Um, and you can, you know, you can put numbers into a spreadsheet that work.
Um, and as I was saying before, I would cad draw my basement to calculate my car parks to be sure of the number of units. I would also, if they were typical units, I'd get the architect to sketch and lay out of one, how do the bedrooms work, how do the bathrooms work, et cetera. Mm-hmm. You can at least prove up the concept of that apartment with an agent and get some data.
Um, so getting significant data to support your feasibility is absolutely critical. And, um, you've gotta be very disciplined in doing that. Um, the other thing I'd say is that in my experience, most developers are incredibly strong at one, if not two of those three disciplines. Um, you know, you might see people with lots of money and flash lifestyles and all the rest of it, but I can assure you every single developer I've dealt with, uh, razor sharp intellectually, they're.
Incredibly, um, hardworking, they're disciplined. They know their markets, they know their products, and they put the time and effort into those numbers. It's not by chance. Um, that's my experience. Um, and they are, they are seriously experts at at least one, if not two of those three areas.
Fantastic. Given you have a fair bit of, uh, capacity there with a team of 40 construction workers, Paul.
Are you able to do me a favor and spend time with any of the listeners, if they have any deals they wanna run by you and seek your advice on what they're proposing to do?
Yeah, I'm always happy to sit down with people. I, um, you know, in my time doing construction, I've worked for developers, I've participated in developments.
I've always reached out to people for advice, be it real estate agents, be it, um, property developers, um, guys that have retired. High net worth investors. Um, you know, I've always put the time and effort into if, if I can help them, I will do it. If they can help me, I'll, I'll always call on that advice. Um, it's something which I'm happy to continue with.
Um, obviously, you know, the people have to be genuine if they're going to approach, um, and. There may be an opportunity where we participate. It may be that we can help with the advice, um, and look at doing some deals together in the future. Um, but yeah, it might absolutely reach out if you want to sit down and have a coffee and discuss some numbers.
Um, but yeah, absolutely you need to independent advice and a second set of eyes. Um. It's something which I'd strongly recommend. Anybody looking to do a deal should, should be going through that process actually.
Well, I'll be doing that. I can tell you now, once I get my approval for my 15 units, I'll be you.
Shout him lunch. If you're asking him for advice, you have to pay for lunch. I'm gonna pay for lunch wherever you want to go on the Goal Coast. I'm gonna get you to have a look at, uh, my final drawings and approvals and just at least point me in the right direction. It's a couple of hours drive away from here, so you might not want to help me out with the bill, but yeah, at least you can point me in the right, right direction.
Paul Yan, thank you for your time, your experience, your wisdom, your education. For the audience, thank you for joining the podcast.
Yeah, thank you. It's been a pleasure chatting.
Thanks, Paul. Thanks viewers. Uh, please, uh, if you haven't subscribed yet to the podcast, please do so and also, um, forward the, this, uh, podcast onto anyone else you think might be interested.
See you in the next one. Thanks for listening to the Andrew Wright Property podcast. This is all about building a community of like-minded investors who can share real life stories, experiences, and collaborate with a view to helping each other join us. Get in touch through the link in the show notes. I look forward to you joining me on the next episode.