[+] View From the Top: ‘Something Needs to Break’

“Something needs to break” in the constrained property development industry of New South Wales. Dislocation of the market, price discovery and planning constraints are all dogging the industry in Australia’s most populous city—but those stark words from Abadeen managing director Justin Brown resonated with most in the room. Speaking at The Urban Developer and MaxCap Roundtable , Brown said the storm on multiple fronts was difficult to weather in the current market. But Brown says he is optimistic. He says he is starting to see “green shoots” in the luxury end of the residential market. Brown says investors are returning to the apartment market, which he says will generate “activity in the apartment space”. “During the past 18 months, regulations, supply chain, time constraints and then you add the factor that your development costs in terms of funding have gone up—it’s moved it 50 per cent,” he says. ▲ Abadeen managing director Justin Brown says there are green shoots emerging in the luxury residential market. But putting on his chairman hat for CBRE, Brown says they recently capped off $1 billion in sales on One Circular Quay after just a few months in market. “You’ve got the two icons, One Circular Quay and Barangaroo 400m away, it’s generational,” he says. “There will never be anything like it again.” READ MORE FROM THIS SERIES: [+] Risk and Reward: Construction Crunch Keeps Developers Up at Night JLL NSW senior director of valuation advisory Bill Fatouros says it is “unbelievable” how deep the luxury residential market is in Sydney. “You see a lot of multi-million-dollar buyers, and you think how many buyers could there actually be at an average of $85,000 per square metre and above,” Fatouros says. “Circular Quay is a once in a lifetime opportunity.” Fatouros has his work cut out for him at the moment trying to price up projects and assess whether feasibilities will stack. ▲ JLL NSW senior director Bill Fatouros says it is challenging to make feasibilities stack up in the apartment market at the moment. But finding a builder seems to be the bigger problem, which Growthbuilt co-founder Colin Rahim acknowledges. Rahim says fewer builders are willing to take on the risk in the high-density residential sector due to increasing costs and extended timeframes. “The cost escalation piece will eventually stabilise and return to a 5 per cent annual increases,” Rahim says. MaxCap head of direct investment Simon Hulett says the investment manager has inked about 35 equity joint venture deals in four years in partnership with developers across all geographies and sectors. “That gives us a fairly unique perspective on risk and opportunity,” he says. ▲ Developers across the New South Wales property sector met for The Urban Developer and MaxCap roundtable in Sydney. “With the addition of the Direct Investment business to the established MaxCap Group lending platform in 2019, the pendulum is now able to swing across debt and equity as the markets move, macro environments change and opportunities are created. “We want to be agile and innovative across the whole capital stack.” But he warns “belts have tightened significantly”. “The strategy for attracting capital is to focus on products that are underpinned by the right research and fundamentals to identify dislocations within robust markets, it’s what I think we’re good at. ▲ MaxCap head of direct investment Simon Hulett says the investment manager has inked about 35 equity joint venture deals in four years. “Where we’ve found strong appetite from capital and also good alignment with our development partners is in hybrid capital structuring that provides downside protection for our investors via a preferred equity style structure whilst allowing our developer partners to outperform through capturing a large share of the upside in returns. “Our investors really like it, particularly in a volatile environment.” The Urban Developer and MaxCap Group hosted the roundtable in Sydney recently to tackle the issues impacting development in New South Wales and get a temperature check on the health of the sector. You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] View From the Top: ‘Something Needs to Break’

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