While the rise of the builder-developer has been meteoric during the past few years, developers are looking for further opportunities to vertically integrate, and it’s returning dividends.
Incorporating sales into Salvo has been a game-changer for the developer, according to managing partner James Mailtand.
“If I was starting again, I would always in-house sales,” Maitland told attendees at The Urban Developer’s leaders lunch with MaxCap this month.
“We’ve obviously been able to monetise it, we run it as a project marketing business. Last year we sold 421 apartments, of which only 50 were for ourselves. So that’s 380 apartments for third-party developers across seven or eight projects.
“It means we’ve got our fingers on the pulse 24/7. We’re doing it every single day, we know who is selling and what for.”
And in-housing sales was a trend that MaxCap Group head of direct investment Simon Hulett said was highly successful.
“In terms of the partners that we work with … groups that have in-house sales functions are the groups that we’ve seen outperform the market, relative to groups that rely on external functions,” Hulett said.
“I think the singular focus is the key. It’s the detail that sits behind understanding the pricing and sales strategy for every apartment because it’s so dynamic and it’s so bespoke.”
Riverlee development director David Lee agreed, saying “sales is a frontline role”.
“If you don’t have an internalised sales team, developers need to get on that front line. Developers need to be more involved in sales and pricing,” Lee said.
Riverlee has a diversified portfolio of projects from office to hotel, apartments, and house-and-land projects across Victoria. Lee said because of their diversified strategy, an in-house sales team didn’t work for the Riverlee business.
“Everything is harder, revenues are low across the market, even in industrial. The cost to produce makes it hard. Commercial has been the standout loser over the last few years.
“People are back in the office but vacancy rates are still low, rent has been stagnant and cap-rates have gone in the wrong direction.
“Derisked long WALE assets have been more stable.”
Samuel Property managing director Illan Samuel runs a much leaner team with a team of three managing in excess of $600 million in development projects, including his project Louise in Melbourne (pictured at top).
Samuel said that because he spent less on internal overheads, he was instead reliant on high-performing consultants, including external sales agents to deliver quality outcomes for his projects.
“We have opted to outsource sales and marketing in an effort to gain specialised expertise, objective insights and ensure flexible scalability over time,” he said.
“A good sales agent will ultimately become an extension of the team and just like a team member, will always have skin in the game and their eye on the prize.”
Samuel also took a “customer-first” approach from the outset of every project.
“The key to a good sales rate in a tough market is to understand the customer intimately,” Samuel said.
“It’s about doing the research from the outset of the project so that the product you’re delivering is based on what the customer ultimately values.
“In a challenging landscape, being able to speak to multiple customer segments is also critical.”
As part of this approach, Samuel focuses on brand and taking his customers on the journey from day one.
“In an effort to drive sales we commit to building awareness every step of the way, which is why we brand and name our projects even before we lodge the plans.
“The more invested customers we have to sell to when we launch, the better. We used to talk to 20 to 25 leads to get a sale. Now we have to talk to 70 to 100 people.”
Samuel said while he didn’t have an in-house sales team there was another area they heavily focused on.
“Agents are still very ‘see ball get ball’, but really you’ve got to understand where the ball comes from,” Samuel said.
“We’re very hands-on from the marketing side for that reason, to generate the leads.”
And while conversions from lead to sale could be slow, Samuel said he thought about the sales process from the outset of a project.
“When you find a project, you’re starting from the sales and the exit first, not thinking about it later … doing a lot of research on what would be the right product, and on the channel and retail side.
“I probably don’t look at sites that have a narrow buyer type anymore, and we also create that brand really early. We brand it and name it before we lodge the [plans].
“Retail sales agents used to talk to 20 to 25 leads to get a sale and you would pay them 2 per cent. Now they have to talk to 70 to 100 people to get a sale, and they want 2.5 per cent plus a marketing [fee]. So that’s gone up.”
But for Samuel the major cost input is time.
“My biggest bugbear is productivity … it’s really ordinary,” he said.
“With Louise, we’ve had 13 price lifts, floorplans have been amalgamated. Nothing stays the same, and it’s my internal and external teams working on getting the project right, which is significantly impact the cost of sales.
“We’ve got to do more sales to get the gross realisation value and the projects out of the ground. I build in 50 per cent channel sales from day one, and that gives me a buffer on sales commissions, but it hurts your internal rate of return a lot.”
Taking a hands-on approach with construction is also paying off for Salvo, which is incorporating hi-tech innovation to sequence and deliver projects on time.
Managing partner James Maitland said it all came down to risk mitigation.
On its $220-million 57-storey Southbank tower, the developer is splitting supply and installation, purchasing concrete and rebar and getting a third-party subcontractor to provide installation.
“We don’t want to find that if the structure subcontractor went bust that we’re left holding all these unpaid bills and, from their side, they’re saying they can work sharper,” Maitland said.
The tower has been sequenced in two stages, which would enable occupancy of the lower half while the second half is completed.
“We’ve said rain hail or shine we’re handing over the first stage in December 2026,” Maitland said.
“We’re effectively saying that wherever we’ve got to, somewhere between level 35 and 40, we can do the temporary lift motor room, get it going, get occupancy, and settled and then finish the rest.
“Now, we’re doing an interim lift motor room, and literally when you’re ready and you’re finished you dismantle it and you move it up. Previously you would have to throw it in the bin. And you can’t afford it on projects of this size.”
As hands-on developers continue to outperform others in the market, MaxCap head of research Bruce Wan said he expected the non-bank lender would be scooping up more deals in the near term.
“Borrowers because of better feasibilities will knock on the door looking to do a deal,” he said.
“As real estate developers will see better return prospects.”
