Developer wants to buy our unit block

An agent has approached all the owners with an offer in writing on behalf of a developer. Does anyone have experience with this that could provide some information on what we need to do ourselves and what to look out for? Are there any other resources that we could have a look at?

 

Have you consulted a registered valuer
Have talked to another agent to appraise the whole block

 

No, I'm new to this and I'm probably still better informed than the other owners...

So any pointers would be very informative and useful.

 

Be careful of the form of the offer. Often its as an option for a certain amount of time. Obviously you want more non refundable money up front and a short amount of time.

 

Grab that paper with the offer on it and whack another zero on the end. Negotiate from that point. There’s no doubt in my mind that the offer made through the agent is low.

 

The offer appears to be a straight up purchase but with settlement over 3 years rather than as an call option (? that seems to what some others are offered). They're offering a small % at exchange, an additional payment after years 1 and 2 and then the balance after 3 years. Obviously, I think this is something we need to negotiate on.

 

So what are they offering you over what you would get if you just sold now?

 

I'd also ask the agent to explain why it is a better offer than selling individually when it suits the owners. Make them do the work

 

10 units in the block. In NSW, I understand that you technically only need 70% of the owners to agree to the sale which is likely if the price is right.

A premium anywhere from 20% to 40% depending on how you value each individual unit and how much of a hit you think covid-19 has had on prices.

 

DO remember that if the developer goes belly up then you won't get the year 3 payment -you may end up with a block with a partly constructed building on it (more likely their finance provider will) and an unenforceable debt. You need security to fully cover the sale price.

 

You will need to follow the process - good legal and valuation advice is required as you don't want to kill the deal (if 75% want to proceed) but not rip yourself off either.

Making a strata owner sell to a developer

New Strata laws collective sale or redevelopment of strata schemes – Owners options - Watson & Watson Lawyers Sydney

https://www.domain.com.au/news/what-you-need-to-know-before-you-try-to-sell-your-property-to-a-sydney-developer-789712/amp/

https://www.lookupstrata.com.au/nsw-developers-offer-buy-building/

 

I assumed you would want the deal to settle before any development was done ... Different kettle of fish if you were effectively a creditor for the development ..

 

So this is a land banking exercise which removes your ability to sell your property for three years regardless of any changes in your personal situation.

 

I have done dozens of these.
1 make sure the strata manager is on your side and not on the purchasers side.
2 Don’t make it too hard for the buyer, I have specialised in these deals and have made my fortune from them. more have been scuttled by the odd greedy owner than by developers not paying enough.
3. Try and shorten it to two years. Three years seems a little long.
4. Valuers while licensed to give a sworn valuation are usually less versed in the true value of the property than the busiest agent in town, who wants your listing.
5. Talk to a commercial agent about the square metres of your site and it’s value as a raw development site.
6. If you can’t do these yourself pay someone to do it for you. A town planner, architect etc, but be prepared to sink your hand into your pocket deeply as these guys rightly charge $100-$250 an hour for their work.

 

I've also been involved in some of these (both as vendor, and acting for vendors). A few observations:

• Don't waste your time until you can get agreement from all of the owners that they are prepared to sell
• Sales price will normally be based solely on unit entitlements, not condition of apartment
• Don't sign any selling agency agreement with the agent!
• If the owners agree to move forward (preferably in writing), get the draft sales contract reviewed by a lawyer. They are normally drafted heavily in favour of the purchaser
• I'd be wary of corporate purchasers (without any personal director guarantee), long settlement periods, and low upfront deposits

Good luck!

 

The final amount split to each unit could be based on agreed formula (by all owners)
based on factors such as
1) Unit entitlement or share in strata
2) Unit Size if unit sizes differ (1 BR vs 2 BR)
3) Market Value of each unit if sold individually ( improvements are generally not taken into consideration)

Ideally the unit owners have to agree to a fair and equitable split for all.
Most of these deals do not proceed due to a greedy unit owner holding out to squeeze more money out of the deal. However there is a premium for all if the sale goes ahead.
It takes a long time for the sales committee to get all unit owners to agree to the sale.
We did one sale overseas, which it took 10 years and 3 attempts as the unit block had about 150 owners.

 

The purchaser will use those views to maximise the value of the development, so they hold even more value on the potential views.

These points apply for the developer to determine what they're prepared to pay however for the vendors it'll be $x above what the property could achieve on the open market.

 

I couldn't agree more. It's a bit of a catch 22. Every vendor thinks their apartment deserves a higher price, but nobody will obtain that developer premium unless everybody can agree.