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Developers Shifting Their Acquisition Strategy – A Case Study

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A recent development opportunity launched at the end of March 2017 by Michael Giraldo, Real Estate and Development Sales Specialist at LJ Hooker Chermside has demonstrated a shift in the acquisition strategy for developers and investors alike. This shift in strategy is a result of the changing market conditions faced by the development industry in 2017.


It is no secret that the residential property market has seen significant activity levels across all localities in recent years.  According to Giraldo, talking more specifically about the Brisbane market, he attributes a number of factors to this heightened activity.

“In 2014 we saw a perfect storm come together to create favourable conditions for developers:

  • The first was regulatory in nature – Brisbane saw the release of the Brisbane City Plan 2014 in June of the same year that gave us large areas of Brisbane’s LGA rezoned for higher densities. Here in Chermside we are lucky enough to be categorized as a Principal Regional Activity Centre due to the regional significance Chermside has within Brisbane – a focal point for employment, administration, cultural, entertainment, retail and service activities;
  • Secondly, buyer demand - we saw investors wanting to park their money into residential property offering higher yields than the banks as well as a societal shift towards an acceptance to apartment living, particularly downsizers, which assisted in fueling this buyer demand;
  • Thirdly, lending - finance opened up to both sides, developers and end product buyers at record low rates.

  • This is a simplistic snapshot but these were certainly front and centre in creating favourable conditions for development,” says Giraldo.


    According to Place Advisory’s December 2014 quarterly report, this period saw “the highest unconditional sales volumes ever seen in any 3 month period as predicted”. The demand determined a notable increase in unconditional sales recording 1,621 transactions.


    “At the end of 2013 through to 2016 the strategy employed by many of our clients was to secure land and/or land that had the benefit of approvals whereby they could launch their project in quick succession from acquisition. Now in 2017 we have already seen a shift in our clients acquisition strategies due to a change in market conditions,” explains Giraldo.


    Fast forward two years, Place Advisory’s quarterly reports demonstrate that the December 2016 quarter recorded a substantial shift in market appetite with only 315 transactions. Despite the significant drop in transactions Place Advisory notes, “This brings the total sales for the year to 2,149, back in line with the long term ten-year average”.


    A Shift in Market Conditions Leads to a Shift in Acquisition Strategy


    Giraldo explains despite the shift in market conditions there are still many opportunities in the marketplace for the savvy developer.


    “When sourcing a development project in a changing marketplace it is important to stick to the fundamentals, assuming you have already done your preliminary due diligence on town planning constraints and opportunities; the fundamentals include proximity to key infrastructure public and private, access and proximity to all required amenities - unlike cyclical buyer demand, these don’t change.”


    In keeping with the fundamentals, Giraldo has noticed an increasing number of his clients looking for developable land bank opportunities with high holding income.


    “There are a number of opportunities that are coming across our books that align with the aforementioned fundamentals and we are seeing increasing numbers of developers nationally and in some cases internationally look to Brisbane for land bank opportunities. The commentary I get from my clients interstate and abroad is that Brisbane still represents great value for them and they believe that Brisbane is only going to increase in years to come.”


    Barn Wilson, Associate Director of Stamford Capital Australia, one of Australia’s leading commercial real estate finance brokers, gives his insight into why projects with holding income are being sought by developers.


    “Development sites with alternate uses and holding income are easier to finance. Where a greenfield or vacant site might be limited to a lower LVR from a lender's perspective, a property with holding income is a much more attractive lending proposition and hence can be geared higher. This allows the developer to drive a much greater return on their equity.”


    A Case Study – 23 Latham Street, Chermside

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    23 Latham Street, Chermside is a prime example of a development opportunity with an attractive holding income sought by developers. This project has just completed its second week of marketing and has exceeded the expectations of the lead marketing agent, Michael Giraldo.


    “So far we have had well over 50 enquiries on this site, primarily from developers and investors from the Eastern seaboard - all the way down from South Australia through to Queensland with a handful of international interest as well,” explains Giraldo.  


    The site is an amalgamation of 10 townhouses on approximately 2,375sqm parcel of mixed-use land with the ability to produce circa $200,000 gross rental income. Furthermore, the zoning and precinct allow up to 12 Storeys and 300% GFA giving the potential buyer an attractive upside.


    “We have sought planning and architecture advice from HAL Architects and we are being told that the site has the capacity to yield in the order of 130+ residential apartments across a two tower layout. I also expect the buyer to look into the commercial uses due to the location being in between Westfield Chermside and the Hospital precinct.


    “From the feedback we have received so far I do expect to be tabling serious offers to the sellers over the next couple of weeks; I have a number of parties who are conducting their due diligence and will be ready to submit their interest shortly.”


    As a result of the success seen from this project in only its first two weeks on the market, Giraldo says they are on the lookout for more opportunities like 23 Latham Street that have holding income and development upside.


    “We are searching for similar opportunities at the moment to satisfy our buyers’ requirements and already have a number of prospective sites that we are finalising and will be sending out to our database in due course,” says Giraldo.


    If you would like to find out more about 23 Latham Street, Chermside you can click here to view more – link https://chermside.ljhooker.com.au/search/all-property-for-sale/page-1

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    Michael Giraldo is the Real Estate and Development Sales Specialist at LJ Hooker Chermside, an office located in one of the most vibrant suburbs of Brisbane, which has seen an unprecedented level of regeneration and home to Australia’s largest Westfield.


    Michael specialises in development potential and development approved site sales.  He has quickly become the go-to agent for residential development utilising his town planning degree and his real estate knowledge to navigate and advise on the property market for his clients. If you would like to discuss anything property related, Michael is always happy to chat - click here to contact Michael 

      

    The Urban Developer is proud to partner with LJ Hooker Chermside to deliver this article to you. In doing so, we can continue to publish our free daily news, information, insights and opinion to you, our valued readers. 

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    Article originally posted at: https://theurbandeveloper.com/articles/developers-shifting-acquisition-strategy-case-study