Metropole properties

[see_change]

The main comment I'd make is there didn't seem to be costing allowance for a Plan B.

ie the alternative to a long term hold which is what happened

While it wasn't the initial aim , worst case senarios should be looked at.

We've just got final approval for a Subdivision on our Dual Occ we're going to build in Sydney's North Shore ( Original application for dual occ April 03.... ) and while we hope to sell our existing house when the new one is finished, we're also in the position where we can keep both if we have problems selling.

Especially given the fact we're at the end of the property cycle and the sydney market is not healthy , the ability to hold is doubly important.

See Change

 

[always_learning]

AL
Was a contingency sum factored into the cost. Usually a 3.5% contingency is added onto the cost. (depending on the type of contract you sign)
From what I'm reading this sounds like a high risk development (Reference made to no ground investigation & contract not being tight enough). Therefore i would say between 7.5% to even 10% contingency.

The above is only my opinion

There was approximately a 0.4% contingency on the entire development, and in hindsight this was certainly not enough and certainly one of the lessons I learnt.

 

[ToGetProperty]

1)I would love to see the feasibility.
2)Wouldn't you follow a strict budget proceeding with a developement.
3)This may be a really naive question but why would you bother going through the whole process of development if GST / Sales commission hasn't been factored into the feasibility.
Sounds like a waste of time to me.

Hi, all:

Long time not in this forum and read through some messages from my old favourie names, Bill L, Sunstone, See Change and so on, plus excellent contributions by Peter Spann.

Well, I read this thread and would like to say that if the market is up 15% instead of down 15%, then no one would raise any more questions about this project.

Honestly, I can't see any major problem in this project. I have bought 8 properties in Sydney in last 5 years. Two of them are appartments bought at 2000. If I sell them today, I don't think I would be happy in terms of profit, very lucky if not losing money. Well, it does not stop me to go further and becoming a true millionaire. I have a property bought at Sep 2003 at A$210,000 and the neighbour (a government organisation) keep asking me, since the settlement of this purchase for almost 1 year, to sell it to them offering A$300,000. No, I won't sell them at such a low margin of profit! Is the margin low? Yes, in this case.

Let's look at this senario. Someone bought 3 new townhouses in Year 2003 for $305,000 each in Melboure. Sold them at Year 2004 at A$265,000 each. It will lost totally A$120,000 not including costs. Now, Alway Learning's project lost about A$50,000 ( my guess only). Who is a winner?

Look at how bad is the market in Sydney now - two RE sales from two different RE agents who sold two properties to me last year have left their companies already.

If someone reads through Peter Spann's messages, you can found out that even Peter Spann has made a lot of mistakes, up to 10% of his clients on option trading are not making money and some other unsuccessful stories.

Back to my own current strategies, in spite of the low of this market, I will still sell all my losers NOW, the apartments, and the one mentioned above which I can make a good profit definitely. And buy into more properties which I believe will be winners in the future.

It is my atitude "always learning", but never give up my own faith. And never overstretching as a bottom line - less than 30% of my family incomes are used for holding all my properties. If Michael Yardney starts business in Sydney, he will get my business which will see a total return 100%. How to achieve it? This will certainly be achieved if the development will not be started until many years after the property is purchased.

Cheers

TGP

 

[geoffw]

Just one point to add to this.

My understanding is that the process which has the higher reward and the lower risk, is the process of buying a property, and then getting the development applications.

I guess it's possible that the person who sold the property with the DA knew about some of the problems.

 

[Happy Days]

3. The land was purchased at a good price. 3 old houses on similar size blocks were sold without DA's in the following months for more tha we paid for a block with permits.

Dwellings were built as cheaply as we could and replacement cost for the project would now be 20% more than Al's cost. That does not mean the market will pay for it today.[/QUOTE]

That does not justify the price for land being valued at a good price. This is why a proper feasibility would have told you that the land value was too high. Who cares what was sold down the road. MY you do agree that any development is high risk don't you eg laten condition, variations delayed cost ect ect This is why a calculated risk assesment is done isn't it.
Can I ask you AL? What was the reason you sold. ( please do not answer this if you feel I'm intruding).

Sorry I'm just wanting to learn from this.

 

[geoffw]

Can I ask you AL? What was the reason you sold. ( please do not answer this if you feel I'm intruding).

Sorry I'm just wanting to learn from this.

I'm obviously not AL- but from what AL has said (a lot of it in other threads), MrsAL did not like the debt and the risk, and wanted Mr AL to exit from the deal.

That was a huge pity imho. The Buy and Hold may have made it work a lot better- but it was no longer an option.

I have a cross cultural marriage myself, although I am not living in MrsW's culture. There have been issues, none quite as severe as AL's, but I can understand some of the problems.

 

[Happy Days]

There was approximately a 0.4% contingency on the entire development, and in hindsight this was certainly not enough and certainly one of the lessons I learnt.

To me a contingency of 0.4%. The contract should have been amended so far as for the builder to take most of the risk, eg laten conditions, variations, delayed cost, etc etc. By doing that he would have come back with a tender price factoring in all his risks, which would have help you decide whether to continue with the dev or flick the site. I'm sure MY would have explained to you that 0.4% is far too low for this site.

This is only my opinion

AL I'm sorry to hear of your bad luck

 

[always_learning]

I'm obviously not AL- but from what AL has said (a lot of it in other threads), MrsAL did not like the debt and the risk, and wanted Mr AL to exit from the deal.

That was a huge pity imho. The Buy and Hold may have made it work a lot better- but it was no longer an option.

I have a cross cultural marriage myself, although I am not living in MrsW's culture. There have been issues, none quite as severe as AL's, but I can understand some of the problems.

This is true, as I said MrsAL was very uncertain going into the development, but I wanted to do it. So at the start there I was positive to the development and wanted to buy, build and hold (Plan-A). Mrs AL was uncertain so I promised her at the end if she was not happy that I would sell (Plan-B).

Soon after purchase, soil problems, delays with the architect, increased costs.....rain delays, and the list of problems just goes on-and-on. Mrs AL is lets just say a person prone to worry...each problem was worried over. By the end of the development she had had more than "enough" (and that is an understatement) and wanted the whole thing sold. Of course the worst outcome for me that I cannot imagine a case where Mrs AL would permit me to invest again in property, shares are out for her too, so this leaves me with her farthers recommended form of investment "bank deposits".

 

[Happy Days]

This is true, as I said MrsAL was very uncertain going into the development, but I wanted to do it. So at the start there I was positive to the development and wanted to buy, build and hold (Plan-A). Mrs AL was uncertain so I promised her at the end if she was not happy that I would sell (Plan-B).

Soon after purchase, soil problems, delays with the architect, increased costs.....rain delays, and the list of problems just goes on-and-on. Mrs AL is lets just say a person prone to worry...each problem was worried over. By the end of the development she had had more than "enough" (and that is an understatement) and wanted the whole thing sold. Of course the worst outcome for me that I cannot imagine a case where Mrs AL would permit me to invest again in property, shares are out for her too, so this leaves me with her farthers recommended form of investment "bank deposits".

I'm sorry to hear that BUT I would like to say! how any one can tell you that this was a low risk project is beond me.
This has nothing to do with the market dropping. Its about the risk assoc with constrution. I can assure you that if your cotract read MAXIMUM LUMP SUM (ie price will not exceed the figure stated in the contract what so ever including laten conditions) your building cost would have been 50,000 to 200,000 thousand dollars more. And that would have been your risk profile.
Not to mention bad building practice.
This was always going to be a high risk project. Risked worn by you.
I'm sure MY would have explained this to you.


This is only my opinion
This has been a healthy discussion thanks AL for allowing us to learn from your experience.

 

[Twitch]

I would like to say! how any one can tell you that this was a low risk project is beond me. ......
This was always going to be a high risk project. Risked worn by you.

Give the guy a break, I'm sure AL is already feeling beat up by previous postings (let alone the project itself), no need to rub his nose in it. AL can speak for himself but I can't recall him claiming Metropole telling him it was low risk. He probably made an assessment himself on risk vs reward and thought the potential reward outweighed the risk.

I've found this thread extremely valuable in learning about the issues around developments, lets not discourage others sharing similar experiences.

 

[Happy Days]

Why I took offence was because of comments such as

me so much to consider that something smells awfully like an off trout.

"tax free" usually means equity locked up, or a financial dodgy scam or investment. Occasionally it means tax paid (as in the case of imputation credits). Be wary when you see those magic two words put together. The average person in the street loves to hear them, and hence, a lot of professionals love to spruik with them.


A lot of codswallop, in my opinion. Shouting AT COST, but who's cost?

why haven't other clients sprung to your denfence

Are we being a little evasive on the hard questions, and answering the littlies?

Other clients have not sprung to my defence becuase I do not know of any other of our clients who are members of the forum. I have contributed to this foum for 4 years to be part of a community, not to gain clients.

There is no doubt that this project did not go as originally planned and was very disappointing for all concerned.

In property development if the project is more risky we would expect to see a higher reward.

In this particular case the brief was the clients (AL and his partner) wanted to develop a property to keep as a long term investment. This is why we allowed a lower margin and did not include holding costs after construction or GST on sales. If you purchase land at below market cost in a good area and build at a fair price and intend to hold in the long term, this is not a risky venture in my mind and allows for a lower profit margin.

There are other offers I made to AL to assist his plight which have not been mentioned and will probably remain so.

I hope everyone has learned some lessons from this. I don't think showing a 30 page feasibility which contained a sensinsitivity analysis and lots of assumptions would add anything. It was a feasibility - that's all not a strict budget.

mdk92
I apologise.
My comments or criticism was not intended to rub AL nose in the dirt. It was not even directed to AL. I may be geting a little carried away with this issue.

 

[always_learning]

mdk92
I apologise.
My comments or criticism was not intended to rub AL nose in the dirt. It was not even directed to AL. I may be geting a little carried away with this issue.

Dont worry, if you want someone to rub my nose in it...Mrs AL is doing a extraordinary job at it.

I suppose there are three key areas

• Things I knew about and expected/accepted the risk. For example if end value of the development dropped due to market conditions.
• Things that didnt know ( or know enough ) about and expected/paid Metropole as project managers to handle. For example I believe that Metropole had responsbility for the execution of the development (permits, builders, the "process" as such).
• Things that I should have known about but didnt. For example the impact of trying to get finance on a "tenants in common" ownership of a property...ie join liability of 100% of the finance for each owner (ie my friend would have had to take 100% of the finance risk for 1/3 or so of the value).

As a learning exercise maybe this is a better to separate the issues with this development into these 3 key areas. For example it is not Metropole's responsbility that the Market dropped from the first feasibility study to the final sale values achieve (even if I dont agree that we sold at a "fire-sale" prices).

 

[Happy Days]

Dont worry, if you want someone to rub my nose in it...Mrs AL is doing a extraordinary job at it.

I suppose there are three key areas

• Things I knew about and expected/accepted the risk. For example if end value of the development dropped due to market conditions.
• Things that didnt know ( or know enough ) about and expected/paid Metropole as project managers to handle. For example I believe that Metropole had responsbility for the execution of the development (permits, builders, the "process" as such).
• Things that I should have known about but didnt. For example the impact of trying to get finance on a "tenants in common" ownership of a property...ie join liability of 100% of the finance for each owner (ie my friend would have had to take 100% of the finance risk for 1/3 or so of the value).

As a learning exercise maybe this is a better to separate the issues with this development into these 3 key areas. For example it is not Metropole's responsbility that the Market dropped from the first feasibility study to the final sale values achieve (even if I dont agree that we sold at a "fire-sale" prices).

Part B
All my comments were based on part B. If the risk associated to construction + cost (contingency) were explained to you, would you have gone ahead with the project. Developement can be a exciting thing providing you limit your risk profile.
Mrs AL go easy on the man.

You always limit your risk when paying proffesionals :

 

[always_learning]

Well the development is now completely over: all but the accounting and GST (BAS).

To my great relief, the sale of the unit I sold was settled 2 hours before the rescission notice took effect.

The solicitors are not going to give me my money until the legal bill is settled, but of course they have yet to give me the legal bill, I was told to expect it will be "significant" and "I wont like it". I have no doubt this will be true!

The development was of 3 units, 1 unit for my friend who sold, 2 units for me. I sold one of the units and rented the other out at a low rental.


The side drama (not really an issue with metropole) to the sale of the unit I sold was a legal nightmare. Remember at the completion of a development to sell the units two legal events must happen:

• The single title of land the development was sitting on must be split into 3 separate titles (units 1, 2 and 3 in my case)
• The units can then be transfered to there new owner.

Anyway:

• I was told by the solicitor that the title separation A) should be completed by the end of june.
• I sold with a settlment day of July 2nd. B)
• There was "problems" with the title split A), more documents required, huge amounts of time wasted.
• Couldnt settle on the 2nd of July, nor the 2nd August nor the 2nd September.
• I was served with a rescission notice first week of Septmember giving me 14 days to settle or the sale would be recinded and I would have had to pay up big time (legals, 14%PA interest to the buyer, REA) without a sale.

Anyway the curtain is closing on a very disappointing performance for all the players.

 

[noddy]

AL and MY, thank-you both for continuing to share the information you do. My desire to develop has certainly gone back to the learn-much-more stage.

On Part "C", why was the obviously more difficult "Tenants in common" finance required and why should you have known this? (I've never heard it mentioned in any development threads as something needed to consider).

Noddy

 

[always_learning]

AL and MY, thank-you both for continuing to share the information you do. My desire to develop has certainly gone back to the learn-much-more stage.

On Part "C", why was the obviously more difficult "Tenants in common" finance required and why should you have known this? (I've never heard it mentioned in any development threads as something needed to consider).

Noddy

No so complicated. Let's take an example

You and your mate want to by 123 Main St for $500K and for the sake of simplicity you will go 50/50. The purchase is made and the title is registered as 50% owned by Noddy and 50% owned by BigEars, Noddy contributes 250K (plus $10costs) and BigEars contributes $250K (plus $10K costs).
Easy if you have the full cash amount.

But what if you want to use the same 50/50 structure but want to use the Toyland Bank because you dont have $250K cash plus the costs of development. Now the Toyland bank will say "Sure we will give you guys a loanto buy 123 Main St Toyland, but since you have joint ownership the loan will be jointly and severally liable". What does jointly and Serverally liable mean, well you are both legally liable to pay the full amount!!! If your mate BigEars cannot pay up for ANY reason the bank will come knocking on your door and say "since BigEars cannot pay....please pay his share" and vis-versa! Thus you are taking in effect the full risk of the project but each will get 50% of the rewards. Naturally you can seek money out of Bigears personally...but the bank will go to whoever will pay!

Anyother twist to this problem is the case in which if Noddy has 100% cash and BigEars wants to use finance! Most likely the cashed up Noddy and Noddy's wife wouldnt be so impressed by signing up for any loan!
Another twist what about if Noddy has asked another mate Mr Plod as a persoanal favor to act as director of his holding company, this would mean that PayTown bank would then start asking for Mr Plod for his legal liability on the loan....Mr Plod wouldnt be happy at all, Noddy would feel that it would be completely unfair to Mr Plod (which it is), Bigears would feel that it was only his part of the development that needed finance and it is morally wrong to expect another party to be liable for his 50% part of the deal!

 

[wrappack]

AL, wouldn't the units be strata titled, like a flat/hotel suite/townhouse, etc?

Wouldn't that avoid the ugly words 'jointly and severally legally liable', and all that that entails?

Hope Mrs AL goes easy on you. Just remember, sometimes in life you can put a huge amount of time, effort and money into something that can majorly backfire. Yes, you would have been better off emotionally, financially, and happiness by sitting on the couch, but that does not mean that your decision to do something was fundamentally flawed.

It all comes down to 'its not if you win or lose, but how you play the game' philosophy. Unfortunately in life, sometimes we put little effort into something that brings great reward. Other times, we put a shitload of effort (in all terms) and we end up with a massive headache on all fronts.

Try to remind mrs AL (in the quieter moments) that, yes, things did not go to plan, but try to remember all of the effort that was put in, (most likely predominantly by you-but don't tell her that!) in order so that both of your futures would be brighter.

Hope all turns out much better in the future. Maybe in the future you could be on the lookout for a small site, and do a buy and hold strategy, and develop it in 10 years time?

All the best

Paul

 

[ToGetProperty]

It all comes down to 'its not if you win or lose, but how you play the game' philosophy. Unfortunately in life, sometimes we put little effort into something that brings great reward. Other times, we put a shitload of effort (in all terms) and we end up with a massive headache on all fronts.
Paul

Well say. It is my experiences as well. Trying too hard in order to get the maximum benefits in my early stage of investments often ended up with very disappointed results. And the most successful IPs are the easy ones.

Try to remind mrs AL (in the quieter moments) that, yes, things did not go to plan, but try to remember all of the effort that was put in, (most likely predominantly by you-but don't tell her that!) in order so that both of your futures would be brighter.
Paul

I recommend you to think another way. Firstly, free up your own mind first from this project. Think this way. Most of us have a (capital) loss in IPs, if the IPs are in Sydney/Melbourne, in year 2004. If your porfolio is large, you should lost more. I loss more than A$200K. Well, I know it, but never tell my wife the fact (lossing) in this way. I tell her that the market is down. It could be the time of getting into the market in order to make massive capital gain in 10 years. Well, say the same thing, but the mind is very different.

Hope all turns out much better in the future. Maybe in the future you could be on the lookout for a small site, and do a buy and hold strategy, and develop it in 10 years time?
Paul

Again, this suggestion could worth millions dollars if implemented properly.

 

[always_learning]

AL, wouldn't the units be strata titled, like a flat/hotel suite/townhouse, etc?

Wouldn't that avoid the ugly words 'jointly and severally legally liable', and all that that entails?

Of course the units at the end would be strata titled but at the start of a development we are talking about a cr*p house on a big block of land.

Mrs AL has not gone easy on me....I just had to sell another IP to pay for "my loss" (it was "my precious" ...that I purchase prior to marriage...so it was a kind of punishment for me for trusting "them" rather than listening to her)....another $30K lost in agents and CGT. As I said the most loss in this project was the in the act of selling. On the first page of the development and IP IP investor manual it should say "Dont Panic, Never Panic".
..

 

[Mrs Bird]

Hi Everyone,

It feels that this thread is slowly winding up.

Before I start writing about my own experinces with Metropole properties, I would like to take the opportunity to thank all posters for their questions and opionions for this thread alone has been such a valuable resource for anybody who has thought about developing. My biggest thanks and appreciation of course goes to AL who has been generous beyond belief in sharing his journey on a public forum.

Back when this thread first started, we had dabbled with the idea to buy a block and develop etc. Mr Bird was not keen at all I must add but finally managed to convince him to look at the idea. He had already been burnt by one IP mistake therefore did not want to go down that road again.

Then came along the thread about Metropole Properties.
Perfect, I rang up Metropole Properties for an appointment to discuss what services they offered etc.
I did not go into this blind at all, to me reading about MP on the forum gave me a resource to look at. It is totally up me to do my Due Diligence.

Anyway, I dragged Mr Bird for our 'Developers Meeting' We met with one of the consultants who would have dealt with our development from start to end. He spent 3 hours with us explaining the services they offered, fees, areas in Melbourne they would recommend, different strategies we could look at ...the one we had talked about was buying a property for 220k, get permits, sit on it for a few years and possibly sell with permits without even building.

These different scenarios impressed me because they wernt just interested in building if there was no profit or too risky...Ironic that at the same time AL's dev was having difficulties Our consultant was very generous with information he gave to us and he gave us a very detailed feasibility study done for a previous client in a area and price range we were looking at.

Ironically, it was this feasibility study that influenced our decision to not go ahead.

Our consultant also made it very clear that it was not a good time in the property cycle to start a development because Melb house prices were adjusting after the frenzy in 2003.

At no time were we pressured into signing up and I felt the experience was a positive one. Our consultant made a courtesy phone call one week later and I explained the only reason we were not going through MP because the profit margin was too tight( going by the feasibilty study for a similiar project) and there was no room for error. He excepted this gracefully. No pressure or sales pitch etc exactly the way you should do business

We had decided that there was just not enough profit in it. Yes, there was alot of money to be made in dev 3 or 4 years ago, but inner city, land was much cheaper and building as well. I would have to make at least 100k on each town house for us to go ahead with a project. This is my "sleep at night factor" the 100k is a buffer zone to allow things to go wrong

Thankyou to the posters who asked the hard questions about soil tests and other development issues. Inexperienced investors need to be aware of the immense risks they are taking on when considering such ventures.

I must admit after reading AL's experiences has put me off the idea for quite a while. However, I admire AL for the courage he has displayed in taking action and not just always dreaming what if....

All the best AL

Mrs Bird