Approached by Developer/Call Option

A Developer has approached us, asking if all unit owners would be interested in selling.

Mix of owner/occupiers and investors. Inner ring of capital city. Decision taken by owners to get block valued and appoint Solicitor to read contract.

How do we value the units? What premium is reasonable for OO? Current market price of units below most recent purchases.

The Developer wants a Call Option, but is not offering an Option fee. What is standard to hold the property for 12 months while DA is approved?

Also, I’m having trouble working out the town plan. Site is zoned HDR2, but also covered in a Neighbourhood Plan which limits the number of storeys to 1/3rd. But, it’s also a Major Node suburb in the Strategic Framework. The Hierarchy of Assessment Benchmarks seems to indicate that The Strategic Framework prevails.

Any insight appreciated. I’m totally confused.

 

What's wrong with just a single complex sale price and split it according to unit entitlement?

Why would there be a premium for OO?

 

Sorry, I didn't explain that clearly. I meant after taking into account current market price, then all costs of moving (that's if you can find anything in the suburb), what is a reasonable premium?

It would be a single complex sale.

 

The developer would be willing to pay $X per unit yield from the new development, the number of existing units, OO, leased or condition is irrelevant as they're going to be demolished.

A round table between a town planner and valuer will give the BC some guidance as to what the outcome could be and as @thatbum points out, the split of the $ would go down the line of the unit entitlements (unless they were particularly skewed).

 

I would try and avoid making the deal more complicated with things like extra payments to OOs. And presumably, there are similar hassles for IP owners in getting rid of tenants and timing that correctly.

Just get a sale price, and split it by unit entitlement. Was there any problems in just doing that?

 

The offer price would be divided equally.

The premium I want to calculate is received by everyone, both investors and OOs. An amount over the current market price, which has fallen since the most recent sale.

At what price should the OO's be prepared to leave? The offer is about $70k more than the highest price paid in the block years ago. Once you account for legals, valuation fees and if it goes through more legals to purchase another, stamp duty, inspections, time off for moving, etc what is reasonable?

 

Umm isn't this something you ask the actual owners? What's the point of coming up with some sort of hypothetical price if you don't have actual agreement.

Also, why would the offer price be divided equally? Unless each unit actually has the same unit entitlement.

Look if you're not sure what you're doing, its probably worth paying for a professional to assist with piecing together the deal.

 

Thanks for that.

The offer made was a lump sum, payable 30 days after DA received. Any ideas regarding a Call Option?

 

read the agreement first and then seek legal advice.

 

The fact they won’t pay an option fee for a call option rings alarm bells for me. Why would you tie up your property for essentially nothing?

You should make sure the option is properly drafted also. Obligation on developer to actively pushed development application and assignment of DA materials to you if the option is not exercised are two of many things to think about.

What State is the property located in?

 

Me too. We take the risk of missing out on market increases, for zero compensation.

I don't to be too specific about the State. We purchased the unit years ago for our Uni atudent kid who still lives there. We will have a lawyer and valuer, hopefully after a BC meeting this weekend.

 

That’s exactly right. A call option fee would usually be paid on signing or after due diligence so that you’re not wasting your time.

The reason I ask where the property is located is that this will impact on the option agreement and your planning question. You mentioned HDR2 which made me suspect Brisbane City Council. If so, feel free to pm me the address and I would be happy to provide further guidance on both points if you do not want this information to be public.

 

I think he's referring to what state of Australia is the unit located.

 

We deal with these a lot. I don't mind a small option fee each unit, eg $1k, if there are clear deadlines for lodging a DA and the agreement ensures that all consultants are paid so that the owners can use all reports etc if it falls over. Buyer is likely spending north of $100k on their DA for a HD site so it's not like the are not committed.