Development buyout

[kmrr]

Hi all

I'm looking for some advice here because I am definitely a little out of my depth here.

A family member has an industrial property in Sydney that is one of about 10 complexes inside a mini 'business park.'

they have been approached, along with the other property owners, to be bought out by persons looking to develop a large residential tower.

They have received a formal offer and have called for a first meeting next week. Would i be correct in assuming the initial offer received is likely a lowballed offer?

they have received an initial offer of 8 figures to be split between the 10 entities. each valued within appx 500k of each other based on size.

Each person will likely receive 2.5x-3x the current value.

They are asking a 2% commission and then a 10% incentive based commission in order to achieve a better result.
There is also a 12 month leaseback period + advertising costs

Has anyone been involved in any multi owner deals where they have been bought out by developers/investors?


To me one thing that stands out is their 10% incentive based commission. im sure they would be low balling this figure and how would one go about making this figure more favourable, by bringing downt he % or increasing the floor at which this incentive begins?

Have you any tips as to what would be some good questions to ask and what some sticking points might be?

Thanks in advance! I'm hoping i can learn a few things from the experienced and savvy ones of you out there!

 

[Scott No Mates]

Get independent advice for the collective and separately again for yourself (tailored to your situation).

As the developer is purchasing a brownfield site they aren't interested in the existing improvements so your own valuations will only consider highest & best use. Having your own plans will not add value if the zoning is already appropriate to high/medium density.

Is the agent working on behalf of the purchaser ie. being paid by the developer to source the deal? If so, they cannot be paid by you as well

If the agent is independent of the developer then they haven't even got a legitimate offer to bring to the table.

Is the so called offer unconditional or is it an option? On what terms?

 

[kmrr]

All parties in the park were approached by a large property consultant firm with an offer.

the offer is $x to be sold as going concern
5% purchase price released on exchange
12 month settlement
12month leaseback

From what i have gathered the agent has already received an offer from a developer and has now called a meeting with all the owners.

Given they our selling 'our' properties one would assume/hope they are working for us! however i am wondering how a developer could just come to an agent with X dollars and say i'll buy that site when its not even on the market. Thoughts on this situation?

do you think it a likely strategy that the initial floor on where there 10% incentive kicks in would be a low ball to the vendors collectively?

We're from melbourne and as such do not have any good contacts in sydney. i am pressing my family member to discuss it with a trusted melbourne agent for their advice.

given the premium location of the site we're hoping it puts us in a stronger negotiationg position going forward.

 

[belvoir]

Ahh the old developer approached us to buy our land for x amount more than what its worth. In a hot market usually the first offer is the best offer because there is no point low balling and missing out. If its a slow market the risks are higher so the developer will try to secure as cheap as possible.

Give me the suburb, FSR, height limit and size of the entire block and I will give you a rough valuation of what it is worth.

 

[kmrr]

forgive me for being a little apprehensive in giving out too many details, particularly given its not my property, but..

its inbetween the airport and the city
land area is appx 5500sqm
offering suggests the ability to build appx 165 units @ avg size 75sqm

im not sure what the FSR or height limit is. perhaps these are questions i could ask in the meeting next week?

is this useful enough to start?

thanks for the responses so far!

 

[belvoir]

Ahh the Mascot/waterloo area, if its Meriton get ready for big bucks.

At 165 units its an easy $200k per site or $33,000,000.

here are some examples of raw sites that have been purchased for residential conversion under the new re-zoning laws. Below are two recent examples, follow up with the agents and ask how much it sold for and what are the expected number of units.

http://www.realcommercial.com.au/property-land+development-nsw-mascot-501103567

http://www.realcommercial.com.au/property-land+development-nsw-waterloo-500947095

The one in Waterloo sold for $43,000,000 to an asian party called JQZ. It was 7 industrial unit lots.

What you need independent advice on is simply the number of of units on the site. They might tell you 165 but in reality it could be 200+.

 

[kmrr]

you are very sharp! both of those properties were given to us as comparables..

re: getting independant advice

what can questions can i ask, to whom, and how can we leverage this for a better personal return?

What are your thoughts on the Agents motives given it is a similar situation to the 2 previously listed properties?

is there anything in particular we should know about the way Meriton operate? (i'm going to do a quick google now) I think it is aimed at asian investors though

 

[belvoir]

Thank you, I am based out of the Alexandria area.

If you are close by we can meet at the Grounds Cafe and we can speak in person.

PM me your contact details if you wish to meet and we can organise a time.

 

[kmrr]

In peoples experience with these how did you find the division of compensation to be calculated.

there is a strong push from 6-7 parties to divide the land evenly using the strata title. these people generally have slightly smaller land areas. only taking into floor surface area and no improvements.

the other 2-3 parties want to go by the land size because they own slightly bigger lots.

the smaller lots do however have the more desirable positions/orientations and more control over the common property areas.

everyone has a ball park figure that that would automatically accept and they are all very similar except the 1 person with the biggest lot who wants somewhat more. obviously if a higher sales price is achieved everyone can be satisfied.

how have people generally handled these negotiations and split up the remuneration. the base figure (strata title or size) and any sum beyond everyones desired sale number?

 

[Scott No Mates]

Engage a valuer - in this instance the entire lot may well be more than the sum of the parts ie if everyone was to sell their strata on the open market they would realise less than if they sold in one block as a purchaser of one lot would pay less than someone looking to redevelop to the highest and best use.

As to how to value the parts - complex issue however as a guide you'd value each lot for separate sale then the common area. Unit entitlement is possibly one methodology however it is likely that you'd likely base it on the capitalisation of net rent of each unit as a % of the total value of all of the units to establish the % that each might be due. Then negotiate the sale price and distribute the spoils based on each owner's %. This gets away from unit entitlements or other non-monetary measures.