Toe in the water

Well I have talked enough! On Wednesday KPH and I joined the club - went in 50/50 shares on a mixed use block of land to construct office space and apartments/penthouse above. I am surprised how excited I am about it, maybe because it's just a nice change from resi. Have worked all our best case and worst case scenarios and the numbers seem to stack up... so off to find some cash and get the design in for approval... wish us luck!! will be an interesting progression for anyone looking to do similar so will provide updates as we go. First step is a resurvey of the block. Here's our pride and joy:

http://www.burgessrawson.com.au/ind...operty_number=2168&user=&office=Perth&source=
 
Wow looks good, congratulations to both of you.
How many storeys are you going to go up?
Did you manage to get it under the asking price?
 
Yep, I'll wish you luck...all the best of luck. This sounds like a wonderful venture, and one with plenty of learning and challenge involved. Please keep us in the loop...I'd love to learn from your experience with this.
 
Ausprop
Congratulations, and all the best with the construction.:)
Did you say toe in the water?
you have just put your whole leg in, me thinks..:D
Cheers mate
Bill
 
Is that what we bought ???:eek: :eek:
Thought it was supposed to be a building !!

In all seriousness, if our investigations and consultants opinions are correct, then the value add is far more significant than what was proposed by the agent.
Of the three development scenarios proposed so far, all are profitable but the best case scenario is hugely profitable.

As Ausprop suggested, first step is the contour survey to determine levels for basement parking, road entry etc, then its a prelim sketch of proposed building, then discussions with council as well as early discussions with an anchor tenant.
We hope to drag a substantial tenant off the Terrace, and relocate them to the friendlier climes of West Perth.

Biggest problem so far is who gets the Penthouse ???

KEvin..
 
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Wow looks good, congratulations to both of you.
How many storeys are you going to go up?
Did you manage to get it under the asking price?

Thanks Pablo,
Number of storeys is not yet finalised but potentailly eight.

The market in Perth is still very buoyant so no distressed fire sales yet, but happy to say that we did get it under the asking price.

The whole process went through very quickly and was finalised in a week from query, to homework/consult to offer to SOLD.

Ausprop did all the running as I am not in Perth, but it still amazes me how quickly you can get things done these days with internet/email/skype/mobile phone/faxes.

KEvin
 
Congratulations to both of you - a toe in the water indeed !!!!

I know this block of land very well, and was there at the public auction when the Main Roads Dept sold it off on November 15 2006. I remember it being a stinking hot day, with the auction being conducted under the big tree at the rear of the block.

Being 801sqm, with an odd tapered rear, but significant frontage to both Thomas Street importantly and Prowse street quiet entrance, it was going to sell at a good clip. Having Totterdell Park at the back is also a big attraction.

Back then (only 9 months ago), the rate for land closer to the city in West Perth was going for about $ 2.5K per sqm, but that had a designated plot ratio of 2:1.

This block that you bought has a max. office plot ratio of 1.3:1, meaning you can erect a building with a max NLA of 1,041sqm. With a plate area of 250sqm (31% site coverage, allowing for council imposed setbacks) the height of the building allowed would be 4 storeys max.

Given the lower plot ratio available, everyone thought it would go for about 2.1K per sqm = 1.68MM.

We were all completely blown away when it sold under spirited bidding for 1.97MM to a young guy who was going to develop it.

Nothing happened from Nov 06 to May 07, as it sat there forlornly. I assumed something had gone wrong, as Rob Selid had it back on the market 6 months later, with a pretty cheeky asking price of 2.97MM. Not bad I thought, wait six months and just up the number in front by 1. Happy days.

It sat there unloved and unwanted for 2 months, and finally after much negative feedback, they dropped the asking price back to a still unrealistic 2.7MM. ($ 3.3K per sqm for 1.3 plot ratio land).

Anyway, that's a short bit of history of the block.

Good luck in your new endeavours. Give us a call sometime. :)
 
Hi Dazz... yeh that history is pretty much it. Wish we had bought it at the auction. Rob was sayign tho that even if we had been there, the biddign would have kept going anyway.

Our worst case scenario has development at the ratios you indicate, however there may be a twist. Keep you posted!
 
Thanks Rix,
If/when we build it, we will have drinkies on the sky garden.

Dazz,
What would you cap the rent up at in the current market?
ie.... new building CBD, is 6% achievable ?

I am hearing existing commercial is selling on yields as low as 5% and 5.5%
 
Hiya,

You should be able to get close to $ 400 nett / sqm of NLA once it's constructed for the office area. That'd get you $ 416 K p.a. nett rent and let your tenant pay all of the outgoings.

If the Council allows you to pop on ressy stuff on top, obviously the rents will be cr*p in comparison, but better than nothing. Are you looking at flogging that stuff off to pay down some of the debt incurred ?? For a comparison, have a look at # 10 on the same street that you just bought, they are just finishing what you are proposing. Have a chat with them if you can for real on the ground, up to date data.

Cap rates depend on the "develop-ability" of the dirt, if you know what I mean. I've seen great big sites go for as low as 4.5% and newish 'boutique' nonsense go as high as 7.3% of late, but then god forbid having them as your tenants....you'd never hear the end of them.

The wife and I might join you in West Perth later. We have our eye on a nice chunk of dirt that we are having an argy-bargy with the Owners over. If we secure the site, I'll definitely need to sit down with you guys and have a chinwag.

Keep in touch, and congratulations again. Good to see a couple of blokes stop talking and pontificating about the risks and dangers, and actually get out there and have a crack at it. All the best, if I can be of some small assistance, give us a hoy.
 
Well Done Gentlemen.
How exciting for you and it will be of great interest to follow the project through.
I for one, look forward to your progress.
Maybe we could have a P.I.G meeting in the penthouse:D
Do keep us posted on your project.
cheers yadreamin
 
thanks for the kind words guys..

"If the Council allows you to pop on ressy stuff on top, obviously the rents will be cr*p in comparison, but better than nothing. Are you looking at flogging that stuff off to pay down some of the debt incurred ?"

I will do some more modelling on the payback time if we hold the resi. My preference will be for the entity to attack it's debt with the positive cashflow until such time it is debt free and just providing an income stream. The rent from the commercial would be a nice passive income but there is the downside of losing some control of the building when the resi is sold off. Decisions decisions! WIll do some numbers now actually.
 
Hiya,

The wife and I might join you in West Perth later. We have our eye on a nice chunk of dirt that we are having an argy-bargy with the Owners over. If we secure the site, I'll definitely need to sit down with you guys and have a chinwag.

sounds good... blocks of dirt in west perth arent too abundant, at the right price even more so!
 
.....but there is the downside of losing some control of the building when the resi is sold off.

If you plan it correctly right from the start with the right lawyers and consultants by your side you won't lose any control.

Do some research on Part Building Strata Subdivision

Do keep us all updated on your progress!
 
Thanks to all you guys for the good wishes.

I am quietly confident we're in for a pleasant surprise ( Aus continues to crunch numbers!!)

Happy to share details as we progress, for better or worse as a learning exercise.
Its my biggest venture so far, but not the biggest I plan to tackle ( will also post details of that one soon if we pull it off)

The bottom line is that both Ausprop and I have our plates full with other projects and this one in itself will not sink either of us if it doesn't go 100% to plan.

Can't wait to get stuck into it though !!

KEvin
 
well it took about a year and we learnt some lessons, but KPH and I can proudly announce that last night we finally had DA passed thru council!

times have been fortuitous for us. since buying, rents have gone from $400sqm to just touching on $600sqm. the land value has gone from $3300sqm to (arguably) between $5000 and $6000sqm. Kinda makes my resi portfolio look like a speculaitve share gamble the way they have performed in comparison.

stories such as this give me a warm and fuzzy too...

http://www.thewest.com.au/default.aspx?MenuID=359&ContentID=89372

we are now attempting to add significant value to the site via another means which shouldn't hold up our project time frame - will post that when achieved!

onwards and upwards - literally!
 
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