Tim Gurner has called for settlements on two high-profile residential developments in Melbourne in the heart of Covid-19 pandemic.
The Melbourne-based developer mobilised ahead of the federal government's plans to lockdown, pulling staff from other developments to assist in closing out near-complete projects at Albert Place in South Melbourne and Hawksburn Place in Toorak.
As part of The Urban Developer's live webinar series, Gurner explained his concern and resolve when faced with the suspension in property inspections and auctions enacted by the federal government on 25 March.
“It is the biggest challenge we have ever had faced,” Gurner said.
“We were about a month from finishing [Albert Place and Hawksburn Place], sitting there as a developer with a couple hundred million dollars worth of debt with fully complete apartments that you cannot get valuers or purchasers through.
“There is probably no tougher situation for a developer and it's not a time to be lazy on settlements.”
Following prime minister Scott Morrison's announcement suspending inspections and public auctions, Gurner received an influx of calls from nervous buyers.
Gurner praised the work ethic of his team for talking investors around, reminding buyers of the developer's “point-of-difference product” and allowing them on-site to preview finished apartments.
Gurner said timing, hard work and luck were important factors in allowing the developer to collect 90 per cent of valuations on 140 apartments at Albert Place before the full extent of the crisis hit the state of Victoria.
At Gurner's Hawksburn Place Residences, a $90 million development comprising 21 apartments averaging $5 million, the downsizer-focused product meant buyers had already sold their homes and had the cash ready to settle.
“Hawksburn has been quite amazing, typically we don't receive a settlement within 14 days. We've had eight settle within three days.”
Gurner had originally planned for a large acquisition push at the beginning of the year following partial completions, including Spanish Club Residences on Johnston Street in Fitzroy, and construction commencing on St Moritz in St Kilda and sold-out Victoria and Vine in Collingwood.
“Any big buildings settling in the next few months you have to be really prepared.
“Yields and rentals have been incredibly good, any developers with good balance sheets will hold onto whatever has fallen over and turn them into a long-term asset hold.
“If you look at what Triguboff has done over the last 30 years, it's a pretty good example that it works.”
The developer's recently launched Atelier project in Collingwood, set to feature 50 apartments and a 90-key 5-star boutique hotel, was now feeling the heat from the stricken accommodation industry.
Hotel occupancy levels are currently between 10 and 20 per cent, compared with a three-year average of about 80 per cent during the early months of the year, and are expected to fall further over the coming weeks.
“The hospitality and retail sectors are non-existent at the moment,” Gurner said.
“The banks are now asking the question: 'What do you think about the hotel? Are you concerned about it? Are they going to be there in six months time?”
“Unfortunately these are very valid questions that we have to be very wary of.
“What it means for us is that it slows everything down, but I do think there are going to be some incredible opportunities that come out of this, unfortunately those opportunities are going to come through other peoples hurt.”
While construction sites are set to remain open across the country, a potential shutdown in order to curb the spread of Covid-19 could trigger rifts between contractors, clients and banks looking to cover costs of projects that aren't completed on time.
According to quantity surveying firm Slattery, monthly liquidation claims worth between $1 billion and $2 billion by builders against their clients could erupt if sites were to be closed.
Gurner said that each player was obliged to protect their contractual position, but noted that the banks would need to front up in a worst case scenario.
“There is a lot of shadow boxing going on at the moment with a lot of builders and developers talking nicely, but in the background there are a lot of legal letters flying around,” Gurner said.
“Whether it's small business, investor loans or construction, the banks get paid in interest to take a risk.”