The value chain.
By Peter Micalos
One of the great things about property is that there are so many areas and stages in the process where a developer and other collaborators can add tremendous value.
The questions that all property developers want to know is:
- How much in ?
- How much back ?
- How long ?
- What is the return on equity or ROE ?
Protecting developers equity and maximising the return on equity is critical in a game where liquidity is poor.
It all starts with the land.
Getting the cheapest block of land possible that has the highest degree of upside development potential.
This ensures initial upfront equity is reduced and maximum end GR is achieved.
To achieve the above, sometimes there is a trade off between an expensive "premium site" with less upside vs a cheaper "average" site huge upside.
Going for the cheaper average site is like "polishing a rough gem".
Going for expensive premium site is like "how much gold can we extract from the mine".
Both options are hard.
The other critical factors in the value chain are:
- How can we de-risk the project as effectively as possible
- How do we maximise GR
- How do we deliver at the correct cost
- How do we structure the capital stack to ensure appropriate risk adjusted returns for all parties
- What is the speed of the overall delivery
There is no right or wrong and its often about:
- The risk profile of the developer
- Acceptable ROE metrics
And most importantly successful execution.