Giga ultra spewing
Big industrial property came up for sale in Canning Vale in late 2006.
20 acres. Three titles. Vendor asking price was 18m.
First title was a 10 acre vacant block of land on the corner with about 300m of street frontage. Beautiful to carve up.
Second title was a 6.5 acre block with a 2 acre factory on it that the Vendor wanted to stay in. Vendor was prepared to sign a Lease for 5 years paying a starting rent of 1.14m nett pa escalating at 5% plus pick up the full outgoings.
Third title was a 3.5 acre vacant block of land with some Western Power easements.
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I went to the Bank and asked for the full amount to be loaned, setting out my business plan and carve up strategy, with likely sales etc which had been prepared by the Vendors sales consultant. Interest rate was 7.2% at the time. Total interest to hold the entire property was 1.29m, so I'd only have to chip in 150K pa to hold it whilst carving up the blocks.
Bank said "you've got to be crazy, no way, you're too young, come back in 10 years time. This is wayyy too risky".
A consortium of 20 Victorians came along about 2 months later and bought it for 18m, paying full asking price. They chipped in 900K each.
They hired a town planner and architect who carved up the 10 acre corner block within 18 months. Small road put through, divvied it up into 16 half acre blocks and whacked up signs saying "for sale" at 1m each. They sold like hot cakes. All wrapped up in less than 2.5 years.
They tried to sell the 3.5 acre block separately for 3m, but because it had big gas pipeline easements, it wasn't much chop....so they let it go for 2.2m
All up, they got receipts of 18.2m from the land sales. Don't know how much it cost to carve up - probably 1m ??
In the final wash up, they picked up the income producing factory on 6.5 acres for about 1m of holding and carve up costs, which is now pouring 1.45m pa nett rent into their pockets, and at a cap rate of 10% is worth 14m to them.
Each of the 20 Victorian investors has got their entire 900K investment back, and is sitting back collecting over 72K per year in hassle free nett rent mortgage free money every year.
When I showed the Banker last year the final result, he simply shrugged and said "Don't worry, it just wasn't your time - who could have possibly known it was going to turn out that well". I could have thrown him out of the car.