DA Approved - Now Stuck and looking for options

[Daveh]

Hi everyone,

we recently got the DA and WAPC approval for a block in WA. It's to build 2 multi-dwellings, each holding 3 units each (2x2). Unfortunately the DA states we have to knock down the existing house and build all 6 units at the same time, yet the WAPC says we can keep the front house while building the rear. Due to the DA it stops us from using residential lending and into commercial (4 or more properties). We were always planning to build the rear multi-dwelling first then the front in stages.

Were paying for project management (PM).

However I've been told by my PM firm that because were going commercial we have to pre-sell 4 units and off load another to someone for a JV. Cash wise it works and leaves us with a healthy profit.

You see according to my PM we have to raise at least $525K in cash plus the 4 pre-sales before the lender will give us the loan to proceed. We have $200. Yet the PM doesn't know who to do a JV with.

We're kinda stuck and was wondering if any of you have any ideas.

Another thing we have to consider is my mum and dad invested cash into this, $150K. The deal was to finish the multi-dwellings then we buy them a house to live in rent free, using the rent from the multi-dwellings to pay for the loan. But now because it's getting harder and riskier (houses might not sell at right value, JV takes too long to setup) we might end up buying them a house, sit on the development until something comes up, or we change our plan and build a triplex site instead of the multi-dwellings (after we buy my mum and dad a place).

do we have any options? Anyone know someone interested in a JV? Should we just wait?

Dave

 

[LeoT]

" However I've been told by my PM firm that because were going commercial we have to pre-sell 4 units and off load another to someone for a JV. Cash wise it works and leaves us with a healthy profit."

1. Sounds like a very high percentage of pre sales.. can you renegotiate with another bank for a lesser amount of pre-sales?

2. Or you could wait to have the finance in place, depending on the market and how your sensitivity analysis is.

3. Find a JV as a money partner. A very viable option, especially if the feasibility numbers look promising.

4. Sell with DA?

5. Can you get a DA uplift after you revaluate now? Also with a commercial loan..perhaps if they are lending on GRV then less finance may be needed? Its hard to know without knowing your exact situation. Do you have a good commercial finance broker?

If you had to wait till you got more equity, how long will that take and what effect could waiting have on your return on TDC? If its not going to take you THAT long extra to get the equity, perhaps waiting a little is an option.

Good luck mate

 

[Daveh]

" However I've been told by my PM firm that because were going commercial we have to pre-sell 4 units and off load another to someone for a JV. Cash wise it works and leaves us with a healthy profit."

1. Sounds like a very high percentage of pre sales.. can you renegotiate with another bank for a lesser amount of pre-sales?

2. Or you could wait to have the finance in place, depending on the market and how your sensitivity analysis is.

3. Find a JV as a money partner. A very viable option, especially if the feasibility numbers look promising.

4. Sell with DA?

5. Can you get a DA uplift after you revaluate now? Also with a commercial loan..perhaps if they are lending on GRV then less finance may be needed? Its hard to know without knowing your exact situation. Do you have a good commercial finance broker?

If you had to wait till you got more equity, how long will that take and what effect could waiting have on your return on TDC? If its not going to take you THAT long extra to get the equity, perhaps waiting a little is an option.

Good luck mate

thanks for your time and reply.

1. We've not even started talking to banks yet, this is the PM's brokers telling me how many pre-sales we have to do.

2. We could wait, however were we need $300K cash, we'll never be able to get that kind of money.

3. The option were most interested in but we don't know where to look.

4. According to our PNM we would only get back what we've paid in. Not viable, in fact I would just land bank this instead of selling.

5. We've been told by my broker that the DA doesn't add any value to the land.

 

[LeoT]

I think its about time you speak to another broker.. at the very least to confirm what your position is on this. Also different brokers have varying levels of 'convincing power' with different lending institutions.

Please, please, please don't tell me its a residential broker. Its a commercial broker right?

With regards to DA adding no value to the land. yes and no. Some banks are more 'business minded' than others. Its really important to have a good commercial finance broker. Regardless..I'd definitely be talking to another broker just to be certain. Also give your project manager a kick up the butt! Just to keep him on his toes and proactive to do the best for you!

 

[Daveh]

I think its about time you speak to another broker.. at the very least to confirm what your position is on this. Also different brokers have varying levels of 'convincing power' with different lending institutions.

Please, please, please don't tell me its a residential broker. Its a commercial broker right?

With regards to DA adding no value to the land. yes and no. Some banks are more 'business minded' than others. Its really important to have a good commercial finance broker. Regardless..I'd definitely be talking to another broker just to be certain. Also give your project manager a kick up the butt! Just to keep him on his toes and proactive to do the best for you!

Hi LoeT,

our brokers are experienced in commercial lending, not sure how much experience, they often deal with larger projects than mine. They have explained to me that they are using examples of recent loan applications to justify their reasoning to me. However I may ask around and see what others think.

Our PM is also very good, he's pushed through many hurdles when dealing with council, I take my hat off to him.

Dave

 

[LeoT]

Sounds good mate. Im just wondering if perhaps other lenders may be more 'on your side' then the current one..

Yeah councils have an annoying habit of being...well..bloody illogical *******, You get the picture.


cheers

 

[Daveh]

Does anyone know of good commercial brokers in WA? If they're good I suppose it doesn't matter where they are

 

[MTR]

Dave
What a pain, is there anyway around it with Council, have you tried to meet with them on this.

I just sourced a resi loan for 4 townhouses, there are lenders that now do 4, I do suggest you contact a few brokers for their advice. Elite Finance, Shahin from SS is who I use.

Also if you do have to go commercial, I also know that some lenders will want to ensure you have experience and will want to know how many projects you have already completed.

Hope some experienced Perth developers can come up some other options.

Cheers
MTR

 

[Daveh]

Dave
What a pain, is there anyway around it with Council, have you tried to meet with them on this.

I just sourced a resi loan for 4 townhouses, there are lenders that now do 4, I do suggest you contact a few brokers for their advice. Elite Finance, Shahin from SS is who I use.

Also if you do have to go commercial, I also know that some lenders will want to ensure you have experience and will want to know how many projects you have already completed.

Hope some experienced Perth developers can come up some other options.

Cheers
MTR

Thanks MTR,

tried to sort it out with Council, it's a no go, only way would be to go to SAT.

I'll give Elite a ring, get an idea of where I stand.

This is my first development.

thanks
Dave

 

[Tano]

HI Marisa

Do you use shahin for all your finance needs including deals in WA? If so is it easy to deal with an interstate broker ?

Dave
What a pain, is there anyway around it with Council, have you tried to meet with them on this.

I just sourced a resi loan for 4 townhouses, there are lenders that now do 4, I do suggest you contact a few brokers for their advice. Elite Finance, Shahin from SS is who I use.

Also if you do have to go commercial, I also know that some lenders will want to ensure you have experience and will want to know how many projects you have already completed.

Hope some experienced Perth developers can come up some other options.

Cheers
MTR

 

[HD_ACE]

I can understand council wanting to demo existing building before starting construction. But whats their reasoning behind constructing all at the same time?

From memory you were going to build two seperate dwellings so that it could be staged so could you maybe subdivide land into two lots first then re apply for the da on two seperate lots?

I would assume you would be quite heavily invested in the MD concept already with all the fees and design costs etc so i can see how you want to get it accross the line.

Whats the $$ situation by selling it with the da and using funds for an easier project?

 

[knightm]

Does anyone know of good commercial brokers in WA? If they're good I suppose it doesn't matter where they are

You suppose correct.

I just had this thread which answered my/your question with 3 good options.

http://somersoft.com/forums/showthread.php?t=102148

 

[Daveh]

I can understand council wanting to demo existing building before starting construction. But whats their reasoning behind constructing all at the same time?

From memory you were going to build two seperate dwellings so that it could be staged so could you maybe subdivide land into two lots first then re apply for the da on two seperate lots?

I would assume you would be quite heavily invested in the MD concept already with all the fees and design costs etc so i can see how you want to get it accross the line.

Whats the $$ situation by selling it with the da and using funds for an easier project?

So we have DA approval to build all 6 units, with a Vacant Strata. I've been told even if we demo the front house we wouldn't get a loan as the rear block isn't a green field site as the sewerage runs across from the rear block to the front block. Plus add to that the loss of rental income.

Yeah we've easily spent over $25K on this already, pretty committed, but not enough that I'd be willing to take chances and risk more (family house, stress etc.). Whatever happens with this development it has to be pretty solid. Even if it means less profit.

 

[Aaron Sice]

Hi Dave,

Happy to help out where I can. It sounds like the condition is onerous and if the proposal mentions staging etc and the condition nullifies the likely success of the outcome then you *may* have a case.

Call me - oh four two three nine seven two three five nine.

Cheers.

 

[MTR]

HI Marisa

Do you use shahin for all your finance needs including deals in WA? If so is it easy to deal with an interstate broker ?

Hi Tano
I am not concerned where the broker is located I use Shahin Elite for all my business. Location is not an issue, I need to have the right broker who gets the deals over the line its irrelevant where they are located.

Cheers
MTR

 

[westminster]

Ouch I feel for you Dave, this is a hard place to be in.

I'm curious if there is anyway around this to satisfy the Council conditions. For example once you have Building License you have xx time to start construction - I think it's 2 years and you have to have started a certain amount. I'm wondering if you can do the rear 3 pack then in 18mths start the front 3 pack

That seems like an incredibly high amount of presales for 6 apartments. You say presell 4 and offload 1 to a JV - so 5 out of the 6?!?!?!?

I would expect no more than 2.

I think your best chance is working on the Council so you can stage it and go resi. If that means SAT then do it, it's not that expensive and will be worth it rather than going with a less than satisfactory rushed alternative.

 

[nhg]

As above.

1. meet and chat with council, many things can be changed by following this process in a courteous manner.

2. pre-sales seems high, may want to discuss options with bank. I wouldn't think more than 2 would be required.

 

[Daveh]

Hi all,

thanks again for all your replies.

I've just been given the DA paperwork from council given to my PM. One thing I didn;'t mention as I didn't think it was important is that we got the DA back in July. Unfortunately after reading the DA it says we have 28 days to appeal. I don't know how hard and fast this is.

Also from the DA -

Condition 1. This approval is granted on the condition that both proposed buildings be constructed simultaneously.

And note 1. Compliance with condition 1 will require simultaneous building permit approvals for the purchased development.

Do we have any options?

thanks
Dave

 

[Daveh]

Ouch I feel for you Dave, this is a hard place to be in.

I'm curious if there is anyway around this to satisfy the Council conditions. For example once you have Building License you have xx time to start construction - I think it's 2 years and you have to have started a certain amount. I'm wondering if you can do the rear 3 pack then in 18mths start the front 3 pack

That seems like an incredibly high amount of presales for 6 apartments. You say presell 4 and offload 1 to a JV - so 5 out of the 6?!?!?!?

I would expect no more than 2.

I think your best chance is working on the Council so you can stage it and go resi. If that means SAT then do it, it's not that expensive and will be worth it rather than going with a less than satisfactory rushed alternative.

Tyhans Westminster for your reply,

Yeah I'm trying to think of a way round the simultaneous builds, see the info from the DA I received on previous post to cast light on why we may no be able to do it. I'm now way an expert at this so don't know from the wording if we have any options.

Yeah the number of pre-sales does seem high, but I'm being told that's just the way it is now.

I'll call Council on Monday, see if we can meet to discuss.

thanks
Dave

 

[sanj]

Your PM is doing you a disservice re the presales, get a second opinion.

It sounds like you got a DA for the whole site when you prob should have got a DA for rear lot and then a separate one for the front. Did the PM advise you to do the whole lot at once? Did they know of your intention to do the development in 2 stages?