Sounds all a bit New Age but if you are a property investor, and specifically an investor who owns property with government or institutional tenants….then ignore this New Age rubbish at your peril.

Part 1 – Design Vision

---

There are 3 separate but integrated areas when we talk about building “Wellness” that impact the overall wellness of a building. Those areas are -

1.     Design Vision

2.     Construction Elements

3.     Operational Monitoring

Design Vision is a loose term that can mean many things to many different people, however in the case of Building Wellness there needs to be an understanding of personal wellness and the evolving nature of the work environment.

Unfortunately the development industry automatically associates this vision with increased capital cost, but it doesn’t need to be this way. If you look at this from a personal wellness perspective, there are many areas that designers can incorporate that are not necessarily cost prohibitive. Some of these areas can include –

·        Fresh air access

·        Natural light corridors

·        Incorporation of green visual spaces

·        Open planning

·        Relaxed meeting spaces

·        And many other elements

There are many new office fitouts in recent times that are incorporating many of these features, but notice it is the tenant who is driving that design as they are the ones who understand that the personal wellness of their staff has a direct correlation to the “Wellness Vision” of the internal work spaces.

Hopefully in time this philosophy will become commonplace in the development industry…or at least those who resist will be left behind.

---

The implications of the GFC, followed by the Banking Royal Commission has lead to a rising demand from property developers, for second and third tier funding options. This is seeing the rise of the Private Equity Funder…..but what are the risks?

---

Traditional “Mezzanine” funders generally provide up to 90% of the equity required, over and above the funds raised through the senior debt funder, to make up the total development cost of a property development project. These funds are secured by second mortgages and liens and charges over all direct and indirect assets. The cost of this funding varies greatly but is often in the range of 18% to 25%. This type of mezzanine funding has been around for many years.

What has emerged in the last 2-3 years is that these private equity funds are taking the next step and starting to provide senior debt funding as well as the mezzanine, hence taking out the traditional big 4 banks. Funding is secured by way of first mortgage. Lending ratios are dependent on each project but often are in the range of 90% of total development cost. Again the interest rate can vary but we have been seeing blended rates ranging between 12% and 18% of late.

The demand for this private equity funding is being driven by the increasing regulations and lower risk stances of the major financial institutions. Private Equity lenders are quicker and are far less regulated (have no doubt that will change as the demand for this product grows, so will the scrutiny from regulators).

The key risk with private equity funding is that a default event can be triggered much sooner than a traditional lender, and that many private equity lenders have the ability to step in and complete projects themselves and work out of a situation, whereas the traditional banks are not interested in this form of risk work-out, and will tend to hold in longer with a development partner.

Having said that, Private Equity is a genuine and viable source of funding for many developers. In an age of over regulation and low risk profiling of the traditional big 4 banks, private equity funding seems to be the only way small to medium developers can compete in the Property Development space.

---

Over the last few decades Australian Urban Planning has been dominated by the “Village” approach. The idea that communities are broken up into small villages in which people can walk to get their daily needs from a neighbourhood store or gather together and socialise in the local park etc.

The original intent of this philosophy has been lost and it is destroying communities in regional towns.

---

Townsville is an excellent example of how this theory has been taken out of its original context and is spreading the consumer dollar far too thin and is not supporting local businesses or creating wealth for residents.

In European cities and regional towns they predominately all have a “Centre”. A place where people gather, shop, and socialise. It creates vibrancy through the number of people who gather together and through those numbers it creates a strong consolidated spending base which supports business and encourages further investment.

Using Townsville as an example, what has happened here and in many regional towns is that every new master planned subdivision has had a regional or sub-regional shopping centre approved as part of its overall plan. This means that people tend to use their local shop for their daily needs and to socialise, exactly as the Village approach dictates. BUT the ratio of these regional and sub-regional centres, to the people who utilise them, has dropped well below sustainable levels. The impact this has in our communities is that the only people who can sustain businesses in these areas are the large multi-national chains. The local entrepreneur and small business owner has been pushed out because there are simply not enough people in his “Village” to sustain a small business.

We need to look to increase the ratio of people in the ‘Village” to the associated retail and amenities, so that a greater concentration of spending can be achieved.

When governments want to stimulate an economy (or win votes depending on your level of cynicism) the go to method is Infrastructure spending. Build a road, build a bridge, build a stadium. Now I understand that governments are meant to provide infrastructure and essential services, to utilise our taxes in the provision of things that will support the economy. The problem I have is that infrastructure is a blunt hammer and does not create long term employment in and of itself. But do we have ourselves to blame…..?

---

There was once a thing called a Public Private Partnership (PPP). In theory it was a great idea, governments have land and assets that can be turned into income generating and job creating enterprises if the right strategies are applied and the right partnerships entered into.

Now governments should most definitely NOT be involved in running private enterprise business. They are cumbersome, inefficient and will pass laws to cover their inefficiencies which then destroys private sector motivation and creates monopolies. Even China has worked out this isn’t the best way to go.

However the PPP was an ideal environment in which government infrastructure spending was able to be partnered with private sector equity and efficiency, to produce not just infrastructure, but to produce long term employment prospects.

But of course political point scoring got in the way. Facts were twisted and the old adage “if you tell a lie long enough it becomes truth” came into play. The view that a PPP was selling “Our Assets” was perpetrated and sold as some crusade to save our country……and more than 50% of us (the voting public) believed this simplistic view of the economy, and what are we left with……PPP’s are dead apart from institutional Tier 1 roads and tolls, and governments are left with all those wonderful “Assets” that are inefficient, cost the tax payer enormous amounts of money, produce poor employment and economic stimulus outcomes.

But we haven’t sold out!!!!!

---

I’ve touched on this a bit lately but my rants are not over. What will it ever take for a Government to have tangible long term nation-building plans that can be agreed for the good of the nation and supported on both sides of politics, and that create long term jobs and national wealth for all…….a Benevolent Dictatorship seems to be the best possibility

---

Democratic governments around the world have become less a representation of the people than a representation of how easily the voting base can be bought, and how the short term focus of winning the next election has become the goal…..to the detriment of good long term planning.

Nothing says this better than the term “Shovel Ready”. This term has grown from governments in recent years when calling for the private sector to provide developments and assist with bringing infrastructure forward. It means projects must be ready to commence construction almost immediately if they are to be considered for selection. This criteria, which has become a prevalent selection criteria, is about one thing only, and that is making sure a politician can hang his hat on something tangible before the next election. On almost every occasion I have dealt with these types of tenders (which is quite a few now), significantly better, job creating projects are passed over because they can’t be delivered in the political term and are hence not deemed “Shovel Ready”.

Whatever happened to the vision of Nation Building? Creating long term plans that benefit the country as a whole. That open up opportunities to private industry to create long term employment. There are no great leaders left, it seems. But is that the politician’s fault or our own? As a voting base we tag onto whoever will give us what we want right now, who has the shiniest trinkets, and in the worst case, we tag onto the politician who simply tells us what to fear and who to blame.

Anyway it’s only a dream……Does anyone want a road built, shovel ready of course.

---

It is happening around the world, the race to urbanisation. People moving from the rural and regional areas to the bigger cities chasing employment and opportunities.

This trend is gaining in momentum and is fraught with major problems that are now starting to rear their heads in Australia and other countries.

---

When I was young, in the 1970’s I grew up in a small western Queensland town and I remember adults complaining that kids were not staying in the towns, that they were moving to the Coast to places like Cairns, Townsville, Mackay, Rockhampton, to find work and opportunities and as such the smaller towns were dying.

Now in the 2010’s with my own children reaching work age, the problem is the same except now they are leaving the larger regional towns like Townsville and moving to Brisbane, Sydney, and Melbourne to find work and opportunity, and the regional towns are struggling with this loss of population.

I understand that Australia is a big country and that we have an enormous cost of infrastructure delivery, and Urbanisation provides a significantly better return per person on the infrastructure dollar spent. However what is becoming frighteningly obvious in Australia is the loss of understanding of what our regional and remote, rural, mining and agriculture industries play in the wealth of our nation as a whole.

We have the natural resources and the available land to be one of the world’s great food producers, and as a by-product, manufacturing. We have heard the talk about Northern Australia being the food-bowl of Asia, but as I related in a previous blog, we simply do not have the population (voters) above the Tropic of Capricorn to concern our political leaders, who are solely focused on being re-elected in the next 3 year term.

As a country we have the potential that almost every other country in the world would kill for….but as Urbanisation continues we, as a collective, forget that food and essential products are not actually made at Woolworths and Coles, but rather on the land in remote and regional Australia.

---

When we talk Stakeholders the definition often stops at the property owner, or the Board, or your immediate manager. But Stakeholders does not simply refer to a physical or financial stake in the property, it extends to those who have influence over the outcomes…..ignore these influence stakeholders at your peril.

---

When identifying stakeholders, break them down into two categories –

1.     Key Stakeholders

These are people and organisations who have a financial or physical interest in the property, as well as authorities who have decision making responsibilities for the proposed development. These are stakeholders who have the ability to approve or decline any aspect of the project.

2.     Influence Stakeholders

These are people and organisations who do not have the ability to approve the project, but who have the ability to influence outcomes through indirect issues. These stakeholders can include advice agencies, neighbours, political influence, tenants, users etc.

To manage stakeholders, firstly create a Stakeholder Matrix that lists all identified stakeholders, then split them into Key and Influence.

The next step is to identify each and every particular issue that each individual stakeholder has, relating to the project either directly or indirectly.

Once all issues have been identified, then you need to provide a solution or mitigant for each issue. You need to clearly understand the impact each issue has on the project (Time Cost, Scope etc.) and what actions can be taken to mitigate that risk issue.

The final task is to put an action plan in place for each of the Stakeholders issues, based around your identified solution or mitigant.

This all sounds complex, but it really isn’t. It is simply a method to help you to identify and manage risk…..and if you choose to ignore risk…..well good luck with that.

---

The Project Vision is too often simplified to a financial return. There is ALWAYS much more to the Stakeholders Vision than this. Financial return cannot come at the expense of reputation and future opportunity…..although unfortunately there are many especially in the property development industry, who run this business model.

---

The Project Vision is essentially a business Vison Statement that is applied to an individual project. Remove the financial return component and then ask your stakeholders what they want to achieve and why they are doing this. There can be many stakeholder visions for the project including –

·        Developing a long term reputation for reliability and service

·        Affordability for the end buyer/user

·        Sustainability and energy performance

·        Image (Ego)

If you are finding it difficult to identify any Vision other than financial, then identify who your end buyers/users are, and identify what they would want from this product. Their satisfaction will drive the financial returns, and their requirements will become the Vision for the product.

Remember it is important to understand the Project Vision and the Stakeholder motivations, because it is these high level parameters that will dictate how you make decisions on Risk, Time, Scope, and Cost throughout the project.

---

One area that causes major problems in any project, is the interpretation of communication between stakeholder and project manager. Like “Chinese Whispers”, information is transferred from Stakeholder to Project Manager, to team leaders, and what something started out as, may turn out to be very different once it reaches the trenches.

But there is a method to overcoming this and mitigating this risk and it’s called -

Decode, Recode, Respond

---

You need to understand how the transmission of information works. When someone (Stakeholder) wants to convey a message (Project Plan) they select a method of delivery (Email, PDF, etc.), they then code the message (Put the message in their own words and terminology), then transmit the message to the receiver (Project Manager). The Receiver then decodes the message based on their own interpretation of the wording.

Normally this is where the process stops, but there is a key element missing and that is INTERPRETATION. As a Project Manager you may come from an engineering background, and your Stakeholders may come from a finance background and hence the meaning and interpretation of messages can vary dramatically between the two parties. This is how miscommunication happens. This is what people call ambiguous messaging.

I can’t stress enough…BE CLEAR.

The way to do this is when you receive and decode the message into your own interpretation, you should always summarise your interpretation of the Project Plan, in your own words, and send that summary back to the Stakeholder for confirmation that you are all on the same page. You will be amazed how many times this exposes issues that if left unresolved, lead to major problems down the track.

---

An Assets Life Cycle is something that is rarely considered in the property development industry. The value of Life Cycle management only comes into play when an asset becomes a longer term investment and only then do the owners whine about the developer and why they didn’t think about it when they built it.

Well it’s a simple answer to why they didn't think about it….Capital Cost. It costs money to use better and longer lasting products, or implement measures that will save on operating costs. Of course operating costs are not the domain of the developer, it’s his role to reduce capital costs and bring scope to the minimum requirement so as to maximize return on equity.

Really……????

---

Whilst I understand the reasoning behind building the cheapest product for the maximum return, I find it extremely short sited, is a poor image for the development industry, and creates unnecessary operational and especially energy costs in the future. But as an industry we all seem to strive for the lowest common denominator because that’s what our economic system dictates.

The Green Building requirements are the best example. Things like the utilisation of recycled concrete are a great idea but are just not economically viable and only governments can afford to enforce these requirements because they are the only ones who will pay double the going market rent. But this is not what I’m talking about. I mean just simple things like...

·        Take some time to explore new materials that    provide enhanced operating efficiencies

·        Technology in Building Management Systems

·        Simple structural efficiencies

---

Over the last few weeks the federal government has made changes to the North Australia Infrastructure Facility (NAIF) to make it easier for projects to access funding. There have been more wonderful politically correct statements about developing Northern Australia and how committed all levels of government are to this process.

As you probably well know, in 5 years there has been ONE project funded under this facility. Northern Australia is the most wasted and untapped resource we have in this country…..but the inability of all our levels of government to get anything moving come down to two simple issues –

1.    Developing Northern Australia is a long term project, a generational project. Political terms are only 3 years.

2.    There are not enough people (read voters) in Northern Australia to create a voice against Brisbane, Sydney, Melbourne.

 Following is a Newsletter I wrote in March 2013 about the brand new NAIF proposal….makes interesting reading in hindsight.

---

Newsletter No. 38 – March 2013

Tony Abbott’s Northern Australia…….

Finally….a vision for Northern Australia!!!

Even though the coalition was quick to say this was a draft, of a draft, of a draft, that was for discussion purposes only, the fact that a bold vision such as the development of Northern Australia has even been put on the political agenda should be music to all Australians ears….not just us northerners.

However it was almost comical to see the reaction of southern politicians, (and some northern ones as well), that all this development in Northern Australia would be to the detriment of the average suburbanite in Sydney and Melbourne, and besides who on earth would ever want to move to Northern Australia.

I don’t have to explain to my readers what we produce in Northern Australia, our contribution to GDP in straight dollar terms let alone on a per capita basis, yet still we see politicians pandering to the lowest common denominator to get votes, rather than leading with vision.

Back in the early 1990’s I used to work for the Queensland Industry Development Corporation, and I remember the Mayor of Richmond at the time, Fred Triton, showing through actions and his own money, that crops (in this case cotton) could not only be grown, but thrive, on the soils of the western downs country……as long as irrigation was available. But sadly that vision did not gain the support of our southern masters.

We live in one of the lowest per square kilometre populated countries on earth, and we have minerals, agricultural, and water sources, that many countries around the world look at with great envy, and can’t understand why we are so underdeveloped. Now development doesn’t have to be development for the sake of it, it must be sustainable, with a vision for the future of the country as a net exporter.

 …………..Now I’ve had a little rant, the point of all this is the development of Townsville as the Capital of North Queensland not just in name but in reality. We have the lifestyle, the resources and the access to facilities that we could not have dreamed of even 10 years ago. We are poised to take advantage of the next generation of growth in our region, but we need some critical things-

 ·        Base load power

·        Irrigation water and infrastructure to open up the agriculture areas

·        Controls on mining to ensure the minimization of loss of high quality agricultural land

Sometimes it seems in Australia that mining is the be all and end all, like the sheep was in the 1950’s. But food and water will lead us into the 21st century and we have the opportunity to genuinely be the ‘food bowl’ of Asia…..and with that comes population growth and all the services and development that it generates.

………………………nothing changes.

---

Project Management Styles

As we’ve stated, Project Management is about the management of people and personalities. Because there are different types of people there are of course different types of project managers and different styles of management. Some of these are as follows –

---

Reactive

Otherwise known as crisis management. Lurching from one problem to another with never enough time to get on the front foot. This is caused by not taking the time to set the project basics in motion at the start. It is compounded by a lack of proactive follow up of tasks that require completion by stakeholders.

Force

My way or the highway. The project manager who tries to get what they want by threatening and contractual coercion. Whilst I acknowledge there comes a time when a good bollocking of a stakeholder is well deserved and has the desired effect, it is very rare. Generally this style of Management is a symptom of the Project Manager who has difficulty accepting change. As a Project Manager if you can’t accept and deal with change in such a dynamic industry….then find another career. 

Responsibility  

This one is my favourite. The old ‘It’s not my problem’ attitude. Sorry to say but as the Project Manager EVERYTHING is your problem because you have been engaged by the client to make sure the project is delivered. I recently was in a meeting where a Project Manager from a national company, working on a very large retail project, said to the builder “I don’t mean to be harsh...but not my problem”. So instead of working with the stakeholders to get an outcome, he just looked to lay blame at the end of the project on who didn't do their jobs. What a waste of time and money. 

Big Picture 

It’s important as a project manager to keep your eye on the big picture. It’s easy for some to get caught up in a particular area of the project they like or know well and forget about the ‘Big Picture’. However there are also the project managers who take such a ‘helicopter big picture’ view that they are so far above the project they can’t see what is going right and what is going wrong. This then leads to Reactive management.

Proactive 

It seems logical to say a good project manager is a proactive one, but being proactive to many PM’s seems to mean addressing an issue as soon as it arises and getting a resolution quickly.  No…being proactive means understanding the process, understanding the scope of works every member of your Team is required to perform, having a clear and detailed program of critical milestones, and a system of project management that identifies Risks before they become problems, and actioning a system of Mitigants that aim to reduce the risk to the overall project before any risk events occur.

As a Project Manager you can’t do all this on your own, you need specialists in each field to bring all this together, but it is your job to manage those specialists in a proactive manner, ensuring that what they are delivering is on Time, within Budget and Scope, and is all aligned with the ultimate goal of the Project outcomes.

---

Project Management is such a broad term. It covers all sorts of jobs and scopes of work. In its broadest sense it reflects a stakeholder who requires a specific outcome, in a specific time, against a specific budget. That stakeholder then appoints a person (the Project Manager) to deliver that outcome. However this is where the problems begin and they can be tracked back to two key specific issues –

 1.    The absence of a clear scope of works and understanding of the role and responsibilities of the project manager and;

 2.    A lack of Project Management experience and the absence of appropriate training in the skills of Project Management

---

As is often the case, the person chosen to be the Project Manager for a specific project is normally a very good employee who is very good at their current role in a specific area of the company. One of the most common appointments is the Engineer who is an extremely good engineer, is innovative and a problem solver in their field. However being a great engineer is a vastly different set of skills to being a skilled Project Manager who can manage people and resources to achieve a desired outcome.

What often happens is when a specialist is tasked with managing a major multi-disciplined project, it becomes difficult for that specialist to remove himself from his area of expertise and remain focused on the ‘big picture’.

Project Management is about managing people and personalities first and foremost. You are managing a team, and as such you must give your team freedom to create and solve within the bounds of the project parameters. As the Project Manager your key role is to keep the project driving in the right direction, on time and on budget, and as such the understanding of human nature, people and personalities, becomes a critical skill that needs to be developed if you want to be successful.

---

Property is a cornerstone of the Australian economy. Did you know it is the largest industry in the Australian economy in terms of GDP and it is the second largest employer in Australia behind the Health Care sector? Its development, construction and investment provides for over 1.1m full time jobs and over 1.5m flow on full-time jobs.

But over time, property development and investment has become a complex minefield of legislation, compliance, funding structures, investment vehicles, and analysis methods. However it never ceases to amaze how little knowledge is often applied by even those considered ‘experts’ in the industry; Investment decisions made with a distinct lack of qualified due diligence analysis; Development feasibility analysis that covers tangible but ignores all the intangible risks; and Construction procurement methodologies that continue to perpetuate a combative working relationship as the only way to do things because “That’s the way it’s always been done”.

---

Prior to the GFC in 2008, property development and investment delivery methodology had remained largely untouched for decades. Since then the world of investment, development and construction has changed dramatically. No longer is the old way the right way and is in fact very far from being the best way. As players in this game of ‘Property’ it is important that we understand the changes, adapt our methods, and continually keep ourselves at the forefront of cutting edge analysis and investment methodologies, or we will find our properties and projects left behind to flounder in mediocrity with diminishing returns and lost value.

With over 30 years knowledge of and experience in the property industry, we have been extremely fortunate to have experienced and learnt from some of the best. Through finance, development, construction, and investment analysis we have seen the changes and have adapted and produced new and exciting delivery methodologies and analysis processes.

It is our goal to keep our clients ahead of the evolving property game through a growth in KNOWLEDGE, achieving best practice OUTCOMES, and by providing a platform for future growth through EMPOWERMENT.

---

So much commentary has been made about the future of the retail Shopping Centre as a viable asset. It is threatened by generational and technological change through the rise of on-line shopping and giants like Amazon over the last few years.

Have no doubt there is a great threat coming, and certain assets will become extremely vulnerable, but as with all great events others will thrive in this new era, provided they have a few essential ingredients in place.

---

The following are some of the key elements I see to surviving the coming Retail Shopping Centre Asset extinction. Each one is a whole debate and analysis on its own, but there is no doubt they need to be addressed.

Convenience or Social Engagement – Is your asset focused on inelastic products (i.e. products that are seen as daily needs not wants and as such are less subject to price point competition. Fuel is the classic example of this type of product but it also includes daily food and living essentials).

Or is your asset focused on the social engagement of the customer rather than on the actual product itself? It’s the social engagement that the customer is buying….not the actual dress they bought.

You must be clear on what your asset is designed to achieve. Forget about getting tenants to fill spaces…..get your asset aligned with what the market wants and your tenants will follow.

What is Social Engagement? – There is a lot of talk about what this actually means and to date it seems to be limited to ‘let’s put in cinemas’. In my opinion those who embrace technology to provide the experience will be at the forefront of attracting customers in the new era.

Embrace the on-line revolution, don’t fight against it - Retail outlets may become smaller with less physical stock held in-store, but they focus on the experience. This will involve the development of technology including such things as the ‘Augmented Reality Mirror’ currently patented by Amazon.

Smaller Shops is actually a Positive - The impact on lettable area of these changes means smaller shops, however on the back of creating a socially engaging asset, this will mean increased demand for smaller areas, which in turn will ultimately mean more rent per square metre across the board.

3D Printing – This is not far from being a commercial reality and that is when the requirement to have stock in store will reach a critical threshold. You order the stock in store via the Social Engagement factor and by the time you get home it’s printed out on your home 3D printer.

Discount Department Store (DDS) – With the coming technology how will the DDS survive? Well I don’t believe it will in its current format. It will be a critical part of the change process and whilst floor areas and stock on hand will reduce, technology will provide opportunities for income growth. The DDS will expand its offering of products into areas they currently don’t engage with, and their standard large format footprints will be unrecognizable in 10 years.

Autonomous transport by 2030 – Car manufactures are well advanced in the autonomous car revolution. Like it or not it’s coming, and faster than we think.  Shopping Centres that work on Social Engagement will have vehicles that pick up and deliver customers to the centre, just like the old RSL and Casino bus pick-ups from the aged care facilities today.

Tenant mix will evolve and change – With the traditional product based tenant taking less space, shopping centres will engage with very different and diverse tenancies that are currently not often contemplated. This will be a challenge for Town Planning Schemes to keep up with.

The key to take from all this though is….The Future is NOW. Some of these changes seem a long way away but never forget that property is a slow and cumbersome beast, it takes considerable time and considerable capital. Changing an assets position in the market place is like turning a large container ship, you have to take action well before the change in direction is actually needed, and if you don’t your asset will sink.

---

In this brave new post-GFC world, where does one invest? Property? Shares? Private Equity? Bury cash in tins in the backyard?

Being a property expert I can easily argue for property. If I was a share broker I would have as strong an argument for shares. Sometimes it seems easier to take a Trifecta at Randwick on a Saturday.

So what to do…..?

---

Investment in any medium, be it Property or Shares, requires careful consideration. I’m of the opinion that whilst you don’t need to be an expert in that field, you should know enough to know what you don’t know. Simply put, don’t be ignorant. The latest investment craze in Bitcoin and digital currencies is similar to the tech boom of the 90’s and is reflective of emotion not intelligent investing. When it comes to investment the majority of the world are sheep, following what is shiny and bright at that moment in time.

Now this doesn’t mean people don’t make money when Bitcoin is the flavour of the month, when residential apartments are in demand, or when shares are rebounding. However if you don’t have a basic understanding of what you are investing in, then it’s my opinion it is simply gambling, and you may as well take that Trifecta at Randwick.

I’m no Warren Buffett, but as a small independent business person, I have survived the ravages of the GFC and I put much of that down to two simple rules –

1.     What don’t I know about this investment class and do I have people who know what I don’t know who I can turn to for advice?

2·    Whatever you invest in, ask yourself before signing off, if the world turns pear shaped can I, and am I prepared to, hold this asset for the next 10 years?

3·    Keep your debt position to that of the individual asset. This doesn’t mean that Margin Lending or Mezzanine Debt funding is bad, but your overall asset portfolio should be able to withstand at least a 30% downturn in value without having to reach for 3rd party assets to survive.

Now this all quite easy and if you follow my simple rules you can’t go wrong…..right?

Good….now I’m off to Randwick. No.4 race 8 is a certainty…..my broker told me.

Energy and water, availability, usage, and sustainability have become critical risk criteria of modern property asset values. The cost of energy as a percentage of overall property outgoings and tenant expenditure budgets, has grown exponentially in the last decade and will continue to grow.

Are you an innovator in this area? If not you’ll be left behind in the value race.

---

In line with Energy risks is the rising impact of Environmental Quality on tenants and customers that interact with your property asset. From the quality of the indoor working environment, to transport forms, to materials used in construction and fit-out, the fabric of the work environment is critical to the longer term value and cash flow of the property asset.

The energy sector is changing rapidly and it is critical for property owners to understand the implications of energy costs and energy opportunities, not only in respect to their own cash flow, but how those costs are impacting their tenants. Without being ‘Energy Proactive’ property owners will eventually find themselves with assets that underperform financially and are positioned poorly against competing properties that have been proactive, which all leads to lost value and balance sheet problems. Rosel Sherwood has over 30 years’ experience in the Assessment, Development, and Management of property assets. Energy and Environment has become such an important issue that it now stands alone in our Group as a specialist division in which we have engaged with leading edge experts in the field who have pioneered some of the most effective initiatives in Australia.

Our leading edge consultants have developed in-house modelling software  which allows them to evaluate the energy flows of each separate system in the whole of property asset, and allow fine tuning, adaption, and implementation to achieve energy and demand savings to meet asset and client specific requirements.

The Energy, Water, Environment – Audit & Opportunity provides a 6 step process -

1. Audit

2. Critical Risks

3. Opportunity

4. Recommendation

5. Implementation

6. Review

---

Development Managers talk often about signing off on a feasibility, or firming up the numbers. Often this becomes a problem as once the feasibility is ‘signed off’ or the numbers are ‘firmed up’ then its put in the bottom drawer and forgotten. They then wonder why an element of the project got away from them financially.

Your Feasibility Analysis must become a “Living Document" from the inception of the project through to completion of construction and handover.

But is your Feasibility Analysis covering everything it needs to cover?

---

The Feasibility Analysis is the cornerstone of any property development or investment. At Rosel Sherwood we have developed our bespoke software with understanding that the strength of any feasibility analysis lies in two key components –

1.     The  comprehensiveness and accuracy of the inputs and;

2.     Its use as a ‘Living Document’

In the first instance the inputs must be comprehensive. Feasibilities that offer a simple percentage of construction cost to cover large components such as ‘consultants’ or ‘finance’ are high risk and are open to financial manipulation. These may be sufficient for high level assessment to see if a project is worth looking into further, but after that they provide little value and increased risk. Our detailed approach allows for individual cost centres to be analysed in ‘Fee Compartments’ that align with actual consultants scopes of work and are able to be confirmed through competitive market analysis.

The ‘Living Document’ approach is perhaps the most important. Once a detailed feasibility and cash flow has been completed in Due Diligence then often it is forgotten. Our analysis of ‘Fee Compartments’ allows a co-ordinated full project life cycle cost control centre that keeps track of variations, changes in scope, and aligns with project programing changes, to provide real time snapshots if the projects performance at any time.

Download a copy of our internal comprehensive Feasibility Analysis Check-List, by going to our website by clicking the link below.

---

Missed opportunity and lost value. Is your property performing to its highest possible capacity? Rental Income and outgoings costs are only a small part of your assets value.

---

Property Asset Performance is an analysis that requires a multi-disciplinary approach and must be a bespoke process for each individual property as each property has its own unique risks and opportunities.

How is your property positioned in the market place? Do you understand what your competition is doing? What generators shape your assets value?

Do you understand the impact of a changing market place on the future value of your asset?

Do you understand your properties energy footprint? Energy is becoming a critical performance criteria and those who stay ahead of the game will benefit through cash flow maximisation and added value.

Have you reviewed your financial structure? Are you maximising your return on equity based on the assets current market position?

Never set and forget your property asset. Be proactive and make sure you understand the changing nature of property as an investment class.

 Rosel Sherwood takes a whole of life perspective of your asset and puts in place processes and actions that will maximise the value of your asset not only immediately but ensure its continued growth into the future.

---

Due Diligence is an oft utilised term and seems to be a prudent and standard process to complete when purchasing or developing property. However when you drill down to the core of what is required for a Due Diligence you more often than not get the generalised responses of, do all the searches, get the lawyer to have a look at it, and see if the numbers stack up. Great, but how do you get there and what is the detail?

 Due Diligence is a complex bespoke process that needs to be built for each project or property investment decision individually because each property has its own unique risk elements.

---

No one person has all the expertise to complete a comprehensive due diligence on their own. The ROSEL SHERWOOD Due Diligence Tool is a checklist that alerts potential investors and developers to the numerous issues that encompass a comprehensive due diligence process, and highlight the necessity of engaging a team of qualified professionals to undertake their various specialist investigations. This team may include but is not limited to, Valuers, land economists, structural engineers, civil engineers, geo technical specialists, solicitors, architects, financial and taxation consultants, quantity surveyors, urban consultants, own planners, etc.

 What is critical though is to have one ‘Captain of the ship’. That is a Project Manager who co-ordinates the whole team and delivers on all the required outcomes of the Due Diligence process. With an experienced professional driving the Due Diligence process, educated and informed investment decisions can be made that reduce risk and improve financial returns and value management.

 One Size Does Not Fit All - Types of Due Diligence

 1.     New Property Development

 Primarily involves the assessment of a ‘green-field’ site for development. A vacant parcel of land or land with improvements that are of little future value and will be mainly demolished. There are no existing tenancies and the site is either newly developed land, or existing improvements have reached the stage if their life cycle or gentrification, where demolition and redevelopment is the highest and best use.

 2.     Existing Asset Investment

 Where an existing improved asset is being assessed for investment purposes. This includes existing residential, retail, offices and shopping centres. The property has existing improvements that have existing income streams that require assessment against required rates of investor return.

 An existing income producing asset may also have available land for further development, or an opportunity to reposition the existing asset to improve the return and overall asset value.

 3.     Tenant Site Selection

Commercial and retail businesses often have specific location criteria that dictates where they establish new outlets. This is referred to as a ‘Tenant Driven’ opportunity and requires an alternate and different set of due diligence and selection criteria. Satisfying location, sight lines, access, demographics, financial capacity, competitors and generators and some of the specific criteria that are required to be addressed in the Due Diligence for Tenant Site Selection.

 4.     Other

 Due Diligence is a broad term that covers any investment decision. The focus of this Tool is on Property Development and Investment but understand that DD also covers terms such as Cost Benefit Analysis and can be applied to refurbishment decisions, redevelopment decision, capital expenditure and maintenance budgets.

 The key is to have a clear methodology and a comprehensive understanding of what knowledge is required to make the best financial decision possible.

---