aenspire delivering developmentprofit.com

When it comes to selecting an agent, you are really selecting a lead Real Estate agent and the brokerage they work for. Depending on the number of sales required and how the agent operates they may also have partners or even a team of agents that will work on your project. Usually the agent is more important than the branded agency except where your development is boutique or in the luxury bracket. In that case the caché and reputation of the agency may also be very important.

Ideally the agent you select should have extensive experience with your product type, be a notable and respected figure in your effective real estate neighbourhood, have personal and agency branding that compliments your target market, have completed a tonne of sales in recent months, and not already involved with every one of your competitors so they can focus on your project![1]

Ask for referrals from your contacts and look through the local online and published real estate listings and find those agents that stand out. Typically they are the ones selling similar developments or have the most listings comparable in price, product and location to your project. The top contenders in any market will become obvious very quickly. Remember your market is your effective real estate neighbourhood, so geographically the most appropriate agents may not have current listings near your site’s location. Make contact and interview at least five agents, both to see if they are an appropriate fit that you can work with hand in hand (during design and pricing) and to ascertain if they have what it takes to sell your product (although this takes time to figure out). Ask the agents to follow you up with further information. How they follow up will give an indication of how good they will be at communicating if you do decide to engage them. Make a shortlist of the best two or three and have them submit proposals to market your development. 

Whilst you are selecting an agent, the agent is also selecting you as a potential developer client, so you are both selling to each other. Agents don’t typically get paid all their commission until your project is real and construction is complete. This can be years after they first start selling and no agent wants to embark on a long voyage with a developer whose project (and therefore commission) never eventuates. You should also be selecting your agent very early into the development process so you can leverage their input into the design and pricing for your feasibility. Achieving commitment from the best agents — who are well experienced with developers — when your project is just a concept, may initially be challenging. It is up to you as developer to cultivate the long-term relationships necessary. You may find the best chance on your first project is to engage an agent who is enthusiastic and talented with some experience (but not so much that they are already too busy with other developers) and still has access to the experience and mentorship of some old hands in their agency. 

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[1] Of course they are not mutually exclusive, the good agents will already be involved with the active developers.

Andrew Crosby
+64 21 982 444
andrew@xpectproperty.com

In boom times almost anyone will do, properties will pretty much sell themselves. During a bust no agent will be any good. It is every other time where the value of your agent comes into play, especially at the fringes of a changing market. They can be instrumental in launching your development in the early stages of a rising market or completing those final sales that deliver you a profit during the flattening inevitable before a downturn.

Developers in small scale house and land developments typically engage the services of a professional real estate agency. Some smaller agencies will have agents that primarily deal with new subdivisions. Larger agencies often have dedicated project marketing teams focusing exclusively on new subdivision projects.

Experienced developers with a pipeline of projects often bring real estate sales people in-house. The reasons for in-housing agency is to reduce total commission payable and have more control over the selling process. The individual agent may end up getting the same per property commission, but there will be no agent head office brokerage fee payable which ranges from 30–50% of total commission. Control is about brand exposure, brand protection and marketing consistency — elements more important for large developers and large projects.

I advocate to maximise profitability, focus on generating the highest income rather than shortcutting sales costs. At least for your first few projects you should use a professional real estate agency and harness their experience, exposure and branding to sell down your development. If are a real estate agent come developer then don’t underestimate everything else you have to do besides selling, and go hire someone else to do the selling.

Andrew Crosby
+64 21 982 444
andrew@xpectproperty.com

“To my real estate agent, Chernobyl is a fixer-upper.”

Yakov Smirnoff

Income represents just a few lines on our financial feasibility but unless you can sell your product and generate the income you won’t have a project nor any profit. Selling a new house and land development is quite different from selling existing real estate. Most likely you will want (need) to sell sections or house and land packages in advance of completing construction to secure funding. With these pre-sales you are expecting people to buy before they can touch. That can both help or hinder sales. On one hand people are not sure on the details and may be hesitant whilst on the other you may sell them into a vision they simply can’t wait to buy into. The alternative is when you speculatively develop houses or sections with the intention of selling them once you have completed construction. This can put your product in an attractive position to sell (as you will be brand new compared to existing homes), but exposes you to significantly more timing and funding risk.

You have to determine who will be doing the selling. This will most likely be a real estate agent. With the help of your agent you need to arm yourself with a sales strategy to penetrate the market. Plan to be successful rather than just list and hope. Your real estate agent may have success in a certain type of sales strategy or have experience in tailoring custom strategies for different market circumstances. The sales strategy will be influenced by the target market you identified, the product you designed and how you are to maximise project profitability. For your project there may be many strategic options to choose from, each with positives and negatives. Alternatively, your product may lend itself to a sole particular selling strategy. The sales strategy is your plan to sell down your development to purchasers by addressing three fundamental questions:

1. What are you going to sell?
2. When are you going to sell?
3. How are you going to sell?

Once you have sold your product, you have now inherited a group of purchasers. They need to be managed (loved) throughout the development period, on settlement and post settlement.

In the next part of this series, let’s look at selling your house and development in more detail……

Andrew Crosby
+64 21 982 444
andrew@xpectproperty.com

When repositioning is not enough, and the project you have inherited simply has no profitable (or sufficiently loss minimized) way forward then you may have to replan it. That means a completely new start. Replanning for a completely different use, throwing out the current consents and demolishing what has been built might be the most profitable strategy. Blue sky thinking.

There could be dozens of options and hundreds of permutations if you decide to replan the project. Two critical features will dictate the range of options available to you: 1) planning constraints, and 2) the current real estate market.

If you plan to rezone the property to make allowance for an alternative use, then all the luck of the Irish to you — I’m not about to embark on the limitless opportunities your project site may have. However, if you are going to plan within the current planning rules (perhaps with a few infringements) consider the following first three steps that often have the most impact on profitability:

• Can you increase density, or floor area and put more of the same or similar product on the site? This will reduce your land cost per unit. It can be especially effective if you are not significantly increasing per unit construction costs at the same time.
• On less expensive land where construction costs are increasing, can you do less density and lower height to take advantage of comparably cheaper rates? There is typically a reasonable difference in dollars per square foot construction costs for five-story condos (high) versus two-level terrace homes (lower).
• Does your planning and zoning allow what is in hot demand in the current real estate market? For example, residential may no longer be profitable but the office market is. You can then concentrate on this use.

That concludes our series on Restarting Failed Property Development Projects.

Restart #1: Intro
Restart #2: Continue As-Is
Restart #3: Clean Up and Dump
Restart #4 Renegotiate and Continue
Restart #5: Clean Slate and Continue
Restart #6: Consolidate and Segment
Restart #7: Restructure Existing
Restart #8: Reposition
Restart #9: Replan

Andrew Crosby
+64 21 982 444
andrew@xpectproperty.com

Buy the book from Amazon: https://www.amazon.com/dp/1790590884?

The property development project has flaws preventing it from working in the current market, but they are not terminal if it can be suitably repositioned. Repositioning often includes some redesign and a new approach to sales and marketing. There is no 11 herbs and spices recipe to reposition a development project in trouble. The idea is to find a more profitable feasibility and action its delivery without throwing everything out and starting again. Probably the best way to explain repositioning is to give some examples that I am familiar with across the real estate spectrum:

Residential

• Down spec’ing (reducing specification of mainly fittings and fixtures to a less expensive alternative) to reduce cost to appeal to a lower price point.
• Up-specifying to increase desirability for those at a higher price point.
• Decreasing home or apartment size to appeal to a lower price point and/or a higher investment yield (a smaller unit could cost much less to build than the corresponding drop in rental).
• Increasing home or apartment size to appeal to a higher price point.
• Joining homes together by duplexing or terracing to reduce cost or add homes.[1]
• Combining or splitting apartment units to create dual key opportunities (live in one, rent the other).
• Selling groups of sections or super-lots rather than individual sections, appealing to larger developers and builders.
• Joining sections to make suitable for larger homes.
• Subdividing sections into smaller ones, to make more affordable.
• Selling sections rather that house and land packages to appeal to owner builders and small-time spec builders.
• Reconfiguring homes or units to have more bedrooms in the same space, increasing rental income.
• Converting garage space into liveable area or vice versa.
• Adding commercial opportunities to residential developments. Include a home office. Make the ground floor of a multi-level home suitable to lease for retail or office. Create a gym space that can be leased. Include a valet and carwash service in the parking garage.
• Converting part of the residential to a hotel or serviced apartments, for example the top floors of an apartment building, with a separate lobby on the ground floor. Conversely, converting a hotel or serviced apartments to residential units for sale or long-term rental.
• Converting residential to student accommodation, student accommodation to a hotel, and vice versa.

Industrial

• Cutting larger industrial premises into smaller sellable or leasable areas.
• Turning industrial premises into managed self-storage facilities.
• Joining smaller areas to create larger premises.
• Increasing or reducing the office space provided with the industrial.
• Adding a residential use to the industrial premises, such as an apartment over light industrial units.[2]
• Partially converting to retail use; for example, on a main road frontage.
• Lifting the roof to increase stud height — effectively repositioning to a larger tenant market.

Office

• Decreasing or increasing contiguous areas to attract a larger or smaller (or more varied mix) of office tenants.
• Convert to serviced office space, rent by desk and business incubator type office space.
• Install exclusive stairs to join levels of a prime office internally — to reposition to larger multi-level tenants.
• Adding a retail presence to the ground floor of an office building either because it attracts a higher rent, or it helps to provide additional amenity to office tenants.
• Adding naming rights and signage opportunities to increase revenue.
• Adding a residential use to the office premises, such as an apartment over office units or making the upper levels of the office into apartments.
• Increasing common area spend (lobbies, elevators, toilets lighting, artwork, furniture, size space, luxuriousness of materials) and amenities (onsite gym, showers, roof deck) to attract higher class (higher paying) office tenants.
• Decreasing common area spend and amenities to decrease operating expenses to attract more cost sensitive tenants.
• Spending more capital upfront on low maintenance plant and equipment to lower ongoing tenant expenses.
• Embracing latest ‘hot issue’ for specialist or socially conscious tenants; sustainability, high technology or alternative transport.

Retail

• Decrease per unit size to allow for smaller tenancies at higher rents.
• Include different sized spaces to attract a varied tenant mix.
• Adding a residential use to the retail premises, such as apartments above, or live-work combination terrace home.
• Converting space to an office use to absorb areas where retail does not lease well (like the second level of most suburban retail centers). Offices, for example, can add retail patronage.
• Providing internal access to link harder to lease upper or basement space to ground floor retail.
• Adding naming rights and signage opportunities to increase revenue.
• Turning every surface and opportunity into an advertising revenue stream.
• Increasing common area spend and amenities to attract higher class retail tenants.
• Decreasing common area spend and amenities to decrease operating expenses to attract more cost sensitive tenants.

It’s all about repositioning the project in line with current demand and supply.

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[1] This overlaps with the re-planning option we discuss in the next chapter.

[2] This will more than likely be constrained by planning rules when placing a residential use into an industrial zone.

Restart #1: Intro
Restart #2: Continue As-Is
Restart #3: Clean Up and Dump
Restart #4 Renegotiate and Continue
Restart #5: Clean Slate and Continue
Restart #6: Consolidate and Segment
Restart #7: Restructure Existing
Restart #8: Reposition
Restart #9: Replan

Andrew Crosby
+64 21 982 444
andrew@xpectproperty.com

Buy the book from Amazon: https://www.amazon.com/dp/1790590884?