The Art of Property Development: A Peek Behind The Curtain Wall - Part 2

Introduction

Are you an aspiring property developer?

In this brand-new series, I interview three leading property developers to gain experience-based insight into the lucrative Australian property development industry. The purpose of this three-part interview series is to help you get started on your development career and set yourself up for success

Whether you are an aspiring developer or a seasoned professional, this series has valuable content you won't want to miss.

Interview 2: Illan Samuel - Managing Director at Samuel Property

Illan?Samuel is the founder and Managing Director of Samuel Property, a family-owned, Melbourne-based property developer, specialising in the high-end multi-residential sector. In just over a decade, the company has quickly emerged as one of Melbourne's progressive new contributors to the contemporary residential landscape.

What attracted you to a career in property development?

I grew up around property. My father was a developer builder, so Saturday mornings, before basketball games, were spent at sites. He always seemed important and busy and to me, that seemed like a positive thing. I also noticed that he was always around people, and I've always loved being around people.

After finishing school, I took a degree in business property and a subsequent degree in property valuation. I worked as a property valuer in the commercial space for about 8 years before making the difficult decision to go out on my own and begin my development journey. Looking back, I was incredibly na?ve to start a business at 27 years old with little actual experience in development. It's been a 13-year overnight success. From the outside whilst it is now thankfully very successful, it sure has been a journey.

2. How has the development environment changed since you started your career?

It has gotten a lot harder. Planning is harder, sales are harder to achieve, funding is harder and securing a builder, particularly at the moment is harder. There are lots of reasons why things are harder. I think there's a lot more scrutiny on developers from a local and state perspective, in terms of the guidelines and targets we have to hit, the details, the reports, contributions etc. Despite all this, it's not something that I shy away from but I do think that the hobbyist developer would be very wary to play in the space these days, given how much harder it is to do what we do.

The market is not as strong as it was in 2016, in terms of sales, funding is at a higher cost now than it was previously, construction prices have gone up significantly and they're not weakening. A large portion of people that are interested in apartment living has been absorbed so you have to dig deep to find opportunities that make commercial sense.

3. What trends are likely to shape the development environment in the future?

Buyers have gotten a lot smarter. Previously, you could easily have a development on the main road and people would buy the apartments, whereas I think now people are a lot warier. In any buying decision, people have a confidance, whether it's the kids, their lawyer, accountant, banker, architect or agent. You need to have no Achilles heel, no reason for somebody to say no, and sometimes the main road is a reason to say no or a location that backs onto a train line. Whatever it might be, you must have a strategy to navigate it.

Another trend is that we're seeing that location really matters, and there are locations within locations. Take Brighton, Vic as an example. It's a great suburb but there are bad locations within Brighton, just like there are bad locations within all suburbs. You cannot change the location. It is the start of anyone's buying search, the first thing they type into realestate.com. That's the first thing they think about when they're looking for property. You can change the oven, but you can't change the location.

4. What is the greatest mistake emerging developers should avoid?

Being unrealistic. And that can be with the sort of size project you think you can undertake, the revenues you can achieve, or the build price. Not knowing your numbers is a recipe for disaster. With development, it takes a long time to understand whether you are right or wrong. Development is a long arduous process filled with emotions over several months, or years. Only then you might realize if you've got things wrong, so if you're unrealistic with your numbers, it's going to be very hard to correct those mistakes down the track. There's no one else that is trying to correct them for you. A rising market can fix that. But we haven't been in a rising market for some time, if anything, we've been in a falling market. If your numbers aren't right, you'll find that very quickly, you don't have a project.

5. Describe the core qualities of a successful developer?

Two things. Problem-solving being a great communicator.

Problem-solving is very much at the heart of the job. It's not as simple as finding a site, getting funding, a permit, sales getting it built hen riding into the sunset. There might be 1000 things in between and you need to be able to problem-solve those things by communicating effectively. If you can't rally the troops and get people to want to work and help you, you will have a hard time getting the best out of them and solving those problems. You need to clearly articulate to people what you're looking to do to make them feel good about helping you get the outcome that you're seeking.

6. If you were starting out today, what would be your first steps?

Crawl before you run. Get the best team that you can afford around you and pick suitable developments. In my opinion, it shouldn't be about prestige, the brand and what the perception is in the outside world. In the beginning, it's just about getting experience and turning a good profit. If your first job is 40 kilometres from the city in a suburb that no one's ever heard of, but you can make money, do that. Be realistic about what you can afford to do because development is extremely capital-intensive. Find ways to get small wins to then turn them into big wins in the future. It's a marathon, not a sprint.

7. With the snap of your fingers you can alleviate one challenge in the development process, what is it?

Planning.

The system is fundamentally broken. There should be guidelines in place, but the weighting between applicants and objectors is not equitable and the timing does not give developers any certainty. In my opinion, objectors have far too much input. I understand the place for objectors, I think in many cases they do have merits but we can't have a system where design and planning are dictated by objectors with no actual credibility. I heard an example of an application the other day for 24 townhouses that received 624 objections. Now, there are not 624 people that should be aggrieved by that application.

I am not aggressive when it comes to planning, I essentially lodge to the letter of the law. I don't come to locations and neighbourhoods to pick fights with people. I respect the location, I do my research and I tick the boxes to work with the council. However, when that is not good enough, it gets frustrating. I believe the affordability crisis can be solely tied back to the issues that result from planning in terms of time and cost.?

We arrive at a situation where supply and demand are out of kilter because we haven't created enough supply for the demand that's coming. The planning system being broken means you can't flick the switch because there's going to be this significant lag based on the red tape that exists. Councils are under-resourced, and VCAT is six to nine months delayed to have a hearing application. As a result, you are faced with a situation where you can't get something through to be able to meet the market.

I think Brisbane probably has the best practice. If you are code compliant, then it's Council assessable, and there is no objection process. The system rewards developers. If you do the right thing, you can get more out of the site. It's very clear. I want to buy this site in Kangaroo Point, this is what I can do and this is what I have to go through. In Victoria, you make an application only for the council to ask you for all this stuff that wasn't required in the first place. In my opinion, there's no real way of fixing it outside of privatizing the process, which isn't going to happen.

8. From a developer's perspective, what makes a great architect?

A great architect is someone who understands the client's brief. I think there are architects out there that want to win awards and design amazing buildings, which has a place if it fits the client's brief. It is fundamental therefore to formulate a clear brief based on a deep understanding of what is suitable for the location in terms of size, mix, quality and amenities. If the architect can understand the brief, then they can provide the right outcome.

A good architect provides service in terms of value for money, communication and clear timelines. I think an architect should be just as engaged in parts of the market as a developer or real estate agent. They should be seeing what's selling, what's not selling, what's worked, and what hasn't worked and also understand the financial aspect of it the market. If we're doing an apartment building, yields might be really important in certain locations, or NSA is more important than so therefore we can have fewer apartments, but they're bigger and it's more efficient etc.

Having a strong network adds significant value. For example, if there's a big tree at the front of the site or in the middle, you want to have an arborist you can call and get an opinion on quickly, or you might want to be able to have a heritage advisor or town planner etc.