Bigger development or few medium ones?

Fantastic site if the numbers are correct, amazing. How much would the land be worth now? Roughly estimating how much equity will you need to put in? So you already have the DA approved?

 

Yes, I've already got the DA approved. We've an offer of 16M few months ago after DA approval but the market dropped a bit in last few months, so I think it probably worth 15-15.5M now. The site was fully paid off many years ago.

We are planning to use the land as the security for the construction finance. I talked a commercial mortgage broker and my project manager and it seems we should be able to keep all the units even after the APRA changes. In the worst case we are happy to sell some of the units.

 

Good stuff. Do the banks require anything more from you besides the finance part, like employing an experienced PM or any other conditions for the finance. You must be putting in a huge amount of equity for the banks to wave presales?

 

I definitely need a PM as I haven't done something like this before. The only equity we put in is just the site. It's still in an early stage with the bank so it's not finalised yet. In the worst case we are ok even with 30-50% presales. Alternatively my family should be able to inject some capital into the project.

 

Sorry yes I should have not used ROI as a term there. Return as in gross profit and is therefore total cost not equity.

 

Correct. It really depends on the site. If you are building a single level retirement village then it's quicker than a 10 level apartment building you don't have DA for or a rezoning urban land and creating a land estate.

The higher and the more compex it is the longer it will take. I would assume at 5-10 mill we are looking pretty complex but as I example above a retirement village would be less complex than an apartment block. 3 years should cover most projects.

 

cool gotchya.

 

i guess it is horses for courses scenario.

Bigger projects takes time , have few more hurdles to jump and requires large sum of cash
see link Property Development Tip 4: Timelines!

Small/Medium projects can be quick turn around, lesser hurdles!

If you can multiply few Small/Medium projects, you may be able to achieve similar ROI as bigger projects in some cases.

Example:

• 1 X $10M TDC @ 20% @ 3 years = $1.3M a year (commercial finance, Presale, Greater IVR, etc)
• 3 X 3.3M TDS @ 20% @ 3 years = $1.18M a year (may be residential finance, no presale, 80% LVR,etc)

Each deal is different and may have variable ROI figure.

 

I guess another factor to consider is the time frame on returns.

Lets assume a $20mil development takes 4years and returns 30% TDC. Profit of $6mil ($1.5mil/year).
Assume a $5mil Development takes 2years at 20% return TDC. Profit of $1mil ($500k/year).
Cetarus Parabus - you can do 4of these at a time and complete 8developments in 4years. So over a 4year period you are banking $8mil.
(I know - its not as simple as this... I use it as an example...)

As WM said - you need to adjust your acceptable returns based on individaul projects and timeframes.
I dont think I would be accepting the well documented 'rule' of 20% for a large, complex and long lead time development. The risk for return doesnt add up.

Leo - you need to be aware that Im well away from being in a position to do a $20mil development. My 'experiance' only comes from watching others do it.

Blacky

 

[QUOTEBlacky, post: 129342, member: 1029"]I guess another factor to consider is the time frame on returns.

Lets assume a $20mil development takes 4years and returns 30% TDC. Profit of $6mil ($1.5mil/year).
Assume a $5mil Development takes 2years at 20% return TDC. Profit of $1mil ($500k/year).
Cetarus Parabus - you can do 4of these at a time and complete 8developments in 4years. So over a 4year period you are banking $8mil.

Yes this is the exact dilemma I am facing…trying to work out what would be the best combination that would also put my risk at acceptable levels for me but not waste time eigher.... The tricky part is 'all things being equal'..as they never really are..


As WM said - you need to adjust your acceptable returns based on individaul projects and timeframes.

Yep trying to come to some conclusion here on this and also be realistic.

I dont think I would be accepting the well documented 'rule' of 20% for a large, complex and long lead time development. The risk for return doesnt add up.

Definetly agree @Blacky. I would want to get a good compensation for the level of risk involved. I like WM's way of estimating returns on a per year basis, or at least use that as a starting point.

Leo - you need to be aware that Im well away from being in a position to do a $20mil development. My 'experiance' only comes from watching others do it.

I'm more than happy to get all advice and help from anyone who is kind enough to impart it mate. Obviously i've never done a dev this size before but realistically we should be in a position to do something like this, perhaps 3 devs of roughly a couple of mil each or similar in the next 12 months. Just trying to get my head around ideas others have. I really appreciate your feedback mate.

 

Hi All, Out of curiosity how much equity/cash would you want to have to undertake a project size 5/10/15/20M?

 

Would think around 35% give or take would be needed. How much you want to put in above that is really up to you. Other things they may look at are:

Your experience as a property developer
Financial strength of the property developer
The location of your proposed development
The profit potential of the development
Builder experience and capacity
Project management team experience
Level of pre-sales
Ability to cover cost over runs
Exit strategy