5.jpg

Investors are lining up for alternative assets including quality healthcare real estate as valuations for traditional commercial property asset classes such as office and retail languish.You don’t have to look hard to see it happening—take Dexus’s recent fully subscribed $220-million equity raise for its unlisted healthcare property fund, for example.Dexus Healthcare Property Fund (DHPF) has returned a five-year fund return of 13.6 per cent to investors to March 31, 2023.The fund recently bought 9.95 per cent of Celsus Holding, which, along with Dexus Community Infrastructure Fund and Dexus Core Infrastructure Fund, manages the Royal Adelaide Hospital.&nbsp;Oracle Investment Management portfolio manager Jack Magann notes Dexus has done well to raise capital for this unlisted fund, given property investors Charter Hall and MA Financial recently closed investor redemptions on two unlisted property funds.&nbsp;“Investors are looking for assets that will continue to provide income and capital growth in an uncertain environment,” he says.“While they are likely steering clear of unlisted office and retail funds, healthcare assets can provide more certainty for investors looking to park their capital in real estate.”<div id="2YJV10CJgN10BNnNU4Ch2U"><picture><img src="//images.ctfassets.net/8pr762qjocl3/59bJ5HeMB4JkqGCANs5yrA/cd9c58d109bde479be70b0b13f61969c/8.jpg" alt="null" data-mce-src="//images.ctfassets.net/8pr762qjocl3/59bJ5HeMB4JkqGCANs5yrA/cd9c58d109bde479be70b0b13f61969c/8.jpg"></picture><div>▲ Royal Adelaide Hospital, managed by Celsus Holding, Dexus Community Infrastructure Fund and Dexus Core Infrastructure Fund. </div></div>Australian Unity general manager—healthcare property Chris Smith says recently developed hospitals in great locations are especially attractive assets because they so rarely come on the market.He also notes investors in the healthcare property sector tend to have specific characteristics.“Hospitals grow over time, so owners need to be supportive of tenants’ businesses so they can grow but also stay at the property. What we like to do is buy land in precincts with strong future growth prospects.”Australian Unity owns one of Australia’s largest unlisted healthcare property funds, its $3.9-billion Healthcare Property Trust, which returned 14.59 per cent a year for the five years to the end of June 2023. The fund raised $335 million of equity in March this year.&nbsp;An example of a prime hospital property Australian Unity owns and manages is its Sunshine Private Hospital in St Albans, Victoria, Australia’s first all-electric private hospital.“We’ve recently opened stage one and it has been well received by the community,” Smith says.&nbsp;Australian Unity also recently bought 7.5ha of land directly opposite the new Melton Hospital site, about 50km west of the Melbourne CBD.&nbsp;<div id="3F2mjk31Zp8DUvULSCTAtV"><picture><img src="//images.ctfassets.net/8pr762qjocl3/6eIrWK1hmIeoryKUkp1tgo/879ca28cc3836f66b8882ca944128bc4/Mid_article_resizes__54_.jpg" alt="null" data-mce-src="//images.ctfassets.net/8pr762qjocl3/6eIrWK1hmIeoryKUkp1tgo/879ca28cc3836f66b8882ca944128bc4/Mid_article_resizes__54_.jpg"></picture><div>▲ A render of the planned Melton Hospital in western Greater Melbourne. </div></div>“This is an opportunity to partner with a tenant for the long-term,” Smith says. Australian Unity’s healthcare property trust has also just opened a $44-million sub-acute hospital at Kingswood in Western Sydney, directly opposite the Nepean Hospital.Leon Hadchiti, national director for healthcare for commercial real estate business Colliers, says the demand-supply dynamic is supporting investor appetite for properties in the sector.“While acute private hospitals are still highly sought-after, acquisition opportunities are increasingly rare and often at a premium as buyers look for high-quality assets with strong tenant covenant, WALE and potential development upside,” he says.&nbsp;Weighted average lease expiry (WALE) measures the average length of leases for a property or portfolio of properties and is an indicator of how sustainable cash flow is.&nbsp;Another recent marquee transaction was HMC Capital’s $1.2-billion acquisition of Healthscope Private Hospital’s portfolio of 11 private hospitals, completed at a yield of 5.8 per cent.Hadchiti says specialist medical centres, which offer a range of allied health services and are typically in accessible town centre locations, are also sought after as they provide a good level of return on a medium WALE of 5 to 10 years.&nbsp;“They are also at price points that give high-net-worth private investors and small syndicated funds the ability to invest in the sector,” he says.“Also, some of the larger institutional funds are seeking to recycle capital through disposing these smaller assets in favour of private hospitals, life science facilities and development opportunities.”<div id="4nM6DIsKSLPbNnTU8TYrXl"><picture><img src="//images.ctfassets.net/8pr762qjocl3/3mVtdTsPsiOi2tdLpx2QDH/fe0f636a376bdeece43eb44ffdbe6068/vitoria.jpeg" alt="null" data-mce-src="//images.ctfassets.net/8pr762qjocl3/3mVtdTsPsiOi2tdLpx2QDH/fe0f636a376bdeece43eb44ffdbe6068/vitoria.jpeg"></picture><div>▲ Charter Hall recently took a 50 per cent stake in the The Victoria Clinic at Prahran. </div></div>Magann says mental health facilities have been in high demand. A recent transaction is Charter Hall’s 50 per cent acquisition of the purpose-built mental health hospital, The Victoria Clinic in Prahran, in May for $51 million on a 3.99 per cent yield. The property is fully leased to Healthscope on a 20-year lease.<h2>Demand drivers</h2> Experts say tenant and lease quality tend to determine the attractiveness of healthcare assets.&nbsp;“Tenants normally agree to a triple net lease with a term of 10 or more years. This certainty makes this type of investment very attractive,” Magann says.In a triple net lease, the tenant is responsible for paying the base rent, the property’s operating expenses and insurance, which offers tax deduction benefits.&nbsp;Yields for healthcare properties are sitting in a range of 3.99 per cent to 5.99 per cent.Quality assets such as new and refurbished hospitals are at the upper end of the range and smaller, sub-A-grade assets sit at the bottom of the range.Societal trends such as ageing and a growing population are driving demand for healthcare services and supporting healthcare property values, a dynamic that’s likely to continue.Conversely, listed healthcare asset valuations are being brought down by the general malaise across the property.At time of writing, HealthCo Healthcare and Wellness REIT, which invests in hospitals, aged-care facilities and childcare centres, was trading at a 19 per cent discount to net tangible assets (NTA).“But listed healthcare is still doing better than the office sector, across which funds are trading at an average 31 per cent discount to NTA,” says Magann.And it is a situation—healthcare real estate outperforming office and retail—that seems higly likely to continue for the foreseeable future. <hr> You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. <a href="https://www.theurbandeveloper.com/membership-plans" data-mce-href="https://www.theurbandeveloper.com/membership-plans">Click here to learn more.</a><div id="2GhuueZl01Zwo2aFfjNVi2"><picture><img src="//images.ctfassets.net/8pr762qjocl3/12UMq5eMSEOh0QxJVBYaDt/d7507cf4ceb1365cc9ce7eaff84d06cc/tud___banner.jpg" alt="TUD + Banner" data-mce-src="//images.ctfassets.net/8pr762qjocl3/12UMq5eMSEOh0QxJVBYaDt/d7507cf4ceb1365cc9ce7eaff84d06cc/tud___banner.jpg"></picture></div>

Investors are lining up for quality healthcare real estate as valuations for traditional commercial property asset classes such as office and retail languish...

[+] hero new website (5).jpg

Tighter regulations and a NIMBYism is holding back property development on the NSW South Coast.&nbsp;Nevertheless, a number of infrastructure projects across the region, which encompasses the Bega, Eurobodalla and Shoalhaven local government areas, are underwriting the region’s future economic success.&nbsp;Gabe Reed, an associate director and senior architect with Edmiston Jones, says there has been serious pushback from the community to developments in recent years.“The councils are finding it hard to assess those projects and, as a result, many are forced to go to the Land and Environment Court,” he said.&nbsp;“We’ve been around for 40 years and previously we’d never had a project go to the Land and Environment Court. Over the past year, we’ve had five.”Resident opposition aside, MS Building Constructions director Martin Stewart says red tape is a handbrake on developments across the South Coast.&nbsp;The licensed builder and property developer specialises in residential apartments with from 3 to 10 units. He’s working on a $4-million project in Kiama, about 150km south of Sydney.<div id="5cDiM6u26ERpCZhF8SULqY"><picture><img src="//images.ctfassets.net/8pr762qjocl3/3XxBmtjEi0IC0WItktTUdF/d52af6329b4a5f9ee92c54919ea627b2/2.jpg" alt="null" data-mce-src="//images.ctfassets.net/8pr762qjocl3/3XxBmtjEi0IC0WItktTUdF/d52af6329b4a5f9ee92c54919ea627b2/2.jpg"></picture><div>▲ A render of the under-way $30-million eco resort, Sapphire Batemans, at Batemans Bay. </div></div>“It’s taken me three years to get a construction certificate to start my project, so it’s a long process,” Stewart says.&nbsp;“This is the problem at the moment with the introduction of new class 2 regulations. We’re the proving ground on how this classification achieves compliance.&nbsp;“It’s a learning curve for us as well as the consultants involved.”New requirements under the NSW government’s Design and Building Practitioner Act mean consultants including architects, builders and engineers involved in a class 2 project need to sign off each other’s work. Class 2 buildings are multi-unit residential buildings. The provision’s purpose is to improve construction standards.“There could be 15 or 16 consultants on a project, so this is really time consuming. The regulations have been updated a few times and sometimes you have to go back and forward between consultants to upgrade their reports,” Stewart says.&nbsp;&nbsp;“Once you get to the construction phase, it’s a cleaner and more responsible process. But getting from DA approval to construction certificate approval takes years, so it’s very frustrating.”&nbsp;&nbsp;It also adds to the cost to build, with Stewart estimating the new regulations have added 20 per cent to the cost of a project.&nbsp;“This eventually feeds through to the bottom line and higher prices for consumers, which impacts affordable living,” he says.&nbsp;<div id="3rAq4Jmd1LOYSpOj1kBNqj"><picture><img src="//images.ctfassets.net/8pr762qjocl3/4W8Uo4AoPPhbmmnFmvVccK/07249fe22ff4157cfe4a65e417947625/3.jpg" alt="null" data-mce-src="//images.ctfassets.net/8pr762qjocl3/4W8Uo4AoPPhbmmnFmvVccK/07249fe22ff4157cfe4a65e417947625/3.jpg"></picture><div>▲ Huskisson at Jervis Bay: infrastructure upgrades have reduced travel times from Sydney, making it feasible for Sydneysiders’ weekends. </div></div>“This is completely against what the government is trying to achieve.”Reed says tighter regulations are also reducing the number of local builders who can work on jobs. “Because the builders need to have certain experience to be registered, we’re seeing a lot more Sydney developers and builders working on projects.”In terms of the residential development pipeline, PRD Real Estate chief economist Diaswati Mardiasmo says future housing supply across the South Coast is mostly units.“Some townhouses and stand-alone homes are in the mix, which will accommodate families. There’s also more than a 1000 new land lots ready to be developed, which means more homes in the near future.”&nbsp;As well, there is a healthy appetite for commercial properties in the area, but not as much supply, which supports a positive outlook, according to Mardiasmo.&nbsp;She believes infrastructure projects will likely drive the development pipeline through to 2025.“This is a good thing, as infrastructure development builds connectivity for business purposes and improves liveability for residents.&nbsp;“There is also almost equal investment expected between commercial and residential projects, which means people who choose to work on the NSW South Coast have a good chance of finding a place to live.&nbsp;“This is not something we would normally see; most of the time residential projects are left behind.”<div id="CcFdydc8lbep4NOff8ZK6"><picture><img src="//images.ctfassets.net/8pr762qjocl3/1znUTD8vZDOIA1lzxDiMDa/8c6466c316e9d0f58abe12662cdaa8b2/1.jpg" alt="null" data-mce-src="//images.ctfassets.net/8pr762qjocl3/1znUTD8vZDOIA1lzxDiMDa/8c6466c316e9d0f58abe12662cdaa8b2/1.jpg"></picture><div>▲ Infrastructure projects for the South Coast include a long-anticipated upgrade to the Nowra bridge. </div></div>Able Walsh, a director of One Agency Elite Property Group, says infrastructure developments across the South Coast have vastly improved access to the Jervis Bay area in particular, a shade under 200km from Sydney.These include the completion of the Nowra bridge upgrade, the Berry bypass and the coming construction of the Jervis Bay Road flyover.“It’s made the trip from Sydney closer to two hours than three,” Walsh says.&nbsp;“So it makes it quicker for people to get here. It’s easy to split your time working from the office and working from home when you live in the area.”PRD’s intel shows there are three major hotel developments in the pipeline, the largest a $30-million eco resort, the Sapphire Hotel development at Batemans Bay.Meanwhile, infrastructure projects under way include a $88.5-million waste management centre, the West Nowra Resource Recovery Park.“Almost all commercial and infrastructure projects are in the Shoalhaven LGA, so that seems to be the hub that will carry NSW South Coast forward,” Mardiasmo says. <hr> You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. <a href="https://www.theurbandeveloper.com/membership-plans" data-mce-href="https://www.theurbandeveloper.com/membership-plans">Click here to learn more.</a><div id="2GhuueZl01Zwo2aFfjNVi2"><picture><img src="//images.ctfassets.net/8pr762qjocl3/12UMq5eMSEOh0QxJVBYaDt/d7507cf4ceb1365cc9ce7eaff84d06cc/tud___banner.jpg" alt="TUD + Banner" data-mce-src="//images.ctfassets.net/8pr762qjocl3/12UMq5eMSEOh0QxJVBYaDt/d7507cf4ceb1365cc9ce7eaff84d06cc/tud___banner.jpg"></picture></div>

The potential and opportunities are there, but the hurdles are high, according to industry insiders in the NSW region…

1.jpg

The development pipeline in smaller Snowy Mountains townships is expanding as many buyers priced out of Jindabyne look further afield for a home in the alps.&nbsp;The Snowy Mountains’ status as a Special Activation Precinct (SAP) is also encouraging developers to turn their attention to towns around ‘Jindy’.Real estate in Jindabyne—the gateway to the NSW ski fields towns of Thredbo and Perisher—is, like most ski towns around the world, highly sought after and tightly held.&nbsp;Naturally, this has driven up property prices and prompted buyers to look at nearby towns including Berridale, 30km to the east.&nbsp;As well, towns in the region experienced a wave of migration off the back of the Covid lockdowns as tree-changers fled the cities for regional areas.<h2>New demand runs high</h2> Among projects catering to this appetite is the 43-lot Three Rivers gated community planned for Kalkite, 6km north of Jindabyne. The community-title development will be managed by the Three Rivers Estate Community Association.&nbsp;Henley Property principal Michael Henley says there will be two or three further stages after the initial release.&nbsp;“It’s a spectacular estate and the first stage is about to be finalised. Bitumen roads should go down in the next couple of weeks and titles should be issued soon after,” he says.<div id="2QHJReZXhZ19QOYjW9MGvY"><picture><img src="//images.ctfassets.net/8pr762qjocl3/30ufT1UaXLxepZjpvpGkPH/e7774acf78b1cf263b5baeea8ccf354d/4.jpg" alt="null" data-mce-src="//images.ctfassets.net/8pr762qjocl3/30ufT1UaXLxepZjpvpGkPH/e7774acf78b1cf263b5baeea8ccf354d/4.jpg"></picture><div>▲ On the slopes at Thredbo. </div></div>Another project is also under way at Kalkite, this one is in the development application stage with the land to be re-zoned as residential, consistent with the Snowy Mountains SAP’s aims.&nbsp;<h2>Turbo-charging development</h2> The&nbsp;$391.3-million SAP outlines a 40-year plan for the Snowy Mountains and Monaro regions, and aims to turbo-charge economic development across the region to cement its place as one of the most important tourist destinations in NSW.Up the road from Jindabyne on Berridale’s main road, Bruce Marshall is developing a 38-lot subdivision called Highland Estate, which has DA approval.“We pre-sold all the lots at the relatively modest price of $245,000,” he says.&nbsp;“We’re just waiting on final word from the council for our construction certificate drawings.“There’s been issues with flooding on the Kosciuszko Road up the Cooma end of town impacting council's design requirements that are almost irreconcilable until council commits to upgrading storm water drains within Kosciuszko Road.“There are two or three other subdivisions above ours and we all have the same problem, which is the council is yet to reconcile where they’re going to take the water.&nbsp;“There is a creek that’s not that far away, but the council has yet to work it all out.”<div id="6S8NhTqKhcqWos2LVGPnyh"><picture><img src="//images.ctfassets.net/8pr762qjocl3/6nUsngBPKfx1JVoFZYTRdN/855478510122ee74e825e5d62886d51e/7.jpg" alt="null" data-mce-src="//images.ctfassets.net/8pr762qjocl3/6nUsngBPKfx1JVoFZYTRdN/855478510122ee74e825e5d62886d51e/7.jpg"></picture><div>▲ Jindabyne has become out of reach for most homebuyers in the region. </div></div><h2>Local buyers behind boom</h2> Marshall says many who bought blocks in his Berridale subdivision are tradespeople who have been priced out of Jindabyne.“Berridale has the potential to become a village for local people and local workers,” he says.“When I went through the list of people who have bought the blocks, I knew most of the names.&nbsp;“They are the daughters and sons of locals; so a lot of families with young kids.”Marshall is principal of Australian Land Co, and a veteran Snowy Mountains property developer.&nbsp;In the late 1980s he built the main shopping centre in Jindabyne, Nugget’s Crossing, as well as the nearby Lake Crackenback resort.Back in Jindabyne, Marshall’s focus is building the premium Mountainside development, which has pre-sold its first stage.&nbsp;“It’s a several hundred lot estate. It’s a fabulous site in terms of views and aspect but it’s challenging due to the steep terrain,” he said.<div id="7k8KdTXsHwGCqaBT0juO97"><picture><img src="//images.ctfassets.net/8pr762qjocl3/1C2fXfhg9S9obknThXymtp/0b7f32ed7bd14c4556ed8245bebf8c02/1.jpg" alt="null" data-mce-src="//images.ctfassets.net/8pr762qjocl3/1C2fXfhg9S9obknThXymtp/0b7f32ed7bd14c4556ed8245bebf8c02/1.jpg"></picture><div>▲ The view from the Mountainside development site is impressive. </div></div><h2>Snowy 2.0 drives resurgence</h2> The ‘main’ town in the Snowies is Cooma, about 60km from Jindabyne.&nbsp;Cooma’s resurgence isn’t so much due to the booming ski fields, although it’s a contributing factor, but rather the $4.6-billion Snowy Hydro 2.0 scheme which has breathed new life into a town that not so long ago was littered with ‘for lease’ signs in its main streets.Despite delays and cost blow-outs, the mammoth infrastructure project is radically changing the region.“There are not many vacant shops in Cooma now. It’s bustling every day of the week. Snowy Hydro has injected a massive amount of money into the town,” Henley says.&nbsp;A number of developments are planned for Cooma, including an affordable housing estate.&nbsp;More broadly, the commercial development pipeline in the Monaro should also start ramping up soon, says Diaswati Mardiasmo, chief economist with real estate firm PRD National.&nbsp;She says the Snowy Hydro 2.0 scheme will be a catalyst for this.“There is strong infrastructure development in the Monaro region, but still not much commercial and residential development. There’s so much potential in the area.”Snowy Hydro will increase the pumped hydroelectric capacity within the existing Snowy Scheme by linking the Tantangara and Talbingo reservoirs with a 30km network of tunnels that will feed a new underground power station.And as the SAP gathers pace, a slew of other developments, public and private, will come on line, further driving the transformation of the Snowy Monaro. <hr> You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals.<a href="https://www.theurbandeveloper.com/membership-plans" data-mce-href="https://www.theurbandeveloper.com/membership-plans"> Click here to learn more.</a><div id="2GhuueZl01Zwo2aFfjNVi2"><picture><img src="//images.ctfassets.net/8pr762qjocl3/12UMq5eMSEOh0QxJVBYaDt/d7507cf4ceb1365cc9ce7eaff84d06cc/tud___banner.jpg" alt="TUD + Banner" data-mce-src="//images.ctfassets.net/8pr762qjocl3/12UMq5eMSEOh0QxJVBYaDt/d7507cf4ceb1365cc9ce7eaff84d06cc/tud___banner.jpg"></picture></div>

Priced out of Jindabyne, locals and tree-changers are turning to smaller towns, bringing an avalanche of development. And then there’s Snowy 2.0…

[+] biz parks web.jpg

While the CBD office property outlook remains wobbly, it’s blue skies ahead for suburban business parks as the appetite for the sector stays keen.But, while their short-term fundamentals look extremely attractive, the question is whether business parks, which typically accommodate variations of a mix of logistics, warehouse, office and data centre assets, will continue to perform during an economic downturn.Two recent Dexus transactions demonstrate the shifting outlook for CBD office assets versus business park properties.&nbsp;On June 15, Dexus announced it had exchanged contracts on its <a data-mce-href="https://www.google.com/url?client=internal-element-cse&amp;cx=756112276a0564662&amp;q=https://www.theurbandeveloper.com/articles/dexus-axxess-corporate-park-mount-waverley-melbourne-sale&amp;sa=U&amp;ved=2ahUKEwjvxoTRk_T_AhUwm1YBHS8cB2wQFnoECAgQAg&amp;usg=AOvVaw08PQKn0ksRx2q3bKaatIw4" href="https://www.google.com/url?client=internal-element-cse&amp;cx=756112276a0564662&amp;q=https://www.theurbandeveloper.com/articles/dexus-axxess-corporate-park-mount-waverley-melbourne-sale&amp;sa=U&amp;ved=2ahUKEwjvxoTRk_T_AhUwm1YBHS8cB2wQFnoECAgQAg&amp;usg=AOvVaw08PQKn0ksRx2q3bKaatIw4" target="_blank" rel="noopener">Axxess Corporate Park business park at Mount Waverley</a>, Victoria for $306.2 million, a 7.4 per cent premium to its December 2022 valuation.By contrast, earlier in the month on June 9, Dexus said it had exchanged contracts on its Sydney CBD office building at 44 Market Street for $393.1 million. This represents a 17.2 per cent discount to its December 2022 valuation.CBD office assets have been under pressure since the pandemic shut them down. Conversely, the fundamentals of suburban business parks have come into their own as many office workers now prefer to work close to home and avoid lengthy commutes.&nbsp;To capitalise on this trend, asset owners such as Stockland are developing campus-style suburban business parks—its M_Park precinct in the outer Sydney suburb of Macquarie Park is a prime example.Oracle Investment Management portfolio manager Jack Magann says e-commerce is another factor driving demand for business parks.“Consumers expect speedy delivery of online shopping purchases, with many companies offering same-day delivery. This is where business parks come into their own,” he says.&nbsp;<div id="5HjzhQlKhUR80xieNQpTeh"><picture><img src="//images.ctfassets.net/8pr762qjocl3/6scdBe8dIjaJj2QEygKPl7/7be8ddf40e664930abc7e2b05ca0aff4/5.jpg" alt="null" data-mce-src="//images.ctfassets.net/8pr762qjocl3/6scdBe8dIjaJj2QEygKPl7/7be8ddf40e664930abc7e2b05ca0aff4/5.jpg"></picture><div>▲ Dexus last month sold its Axxess Corporate Park business park in Victoria for a 7.4 per cent premium to its December, 2022 valuation. Main image: A render of M_Park stage 1 by Lendlease. </div></div>“E-commerce companies are increasingly looking to rent warehouses in metropolitan areas so they can offer a superior delivery service. Business parks located on prime land, close to main roads and within major cities, are perfectly situated to provide same-day delivery to consumers.”<h2>Data centres winning fans</h2> Business parks with data centres as tenants are especially attractive to investors.&nbsp;A good example is Sydney’s Macquarie Park business park precinct where tenants include Macquarie Technology Group, formerly Macquarie Telecom, and NextDC, whose data centres are there.&nbsp;Macquarie Technology is in the process of gaining approval to build another data centre at Macquarie Park, almost doubling its capacity.“There is a long runway for growth in the data centre sector as businesses move to cloud computing,” says Magann.“Data centres in prime properties like well-located business parks are going to be in high demand from the biggest tech companies in the world looking to rent space.”David Loakes, founder and managing director of commercial property developer Sector Property Group, which operates industrial, office and warehouse properties around Melbourne,&nbsp;attributes growing demand for business parks to investor interest in alternative asset classes.&nbsp;“Office is off the boil,” he says. “The alternative&nbsp;is commercial&nbsp;industrial and in the current environment, investors are gravitating towards office warehouse strata units.”<div id="3ayss9ZPiLxvbvpQHu4Q4n"><picture><img src="//images.ctfassets.net/8pr762qjocl3/5SUmdmkvWnl8qkHr3MGNVj/9c59f1dc02a77f3938b8bb6eecfaba08/2.jpg" alt="null" data-mce-src="//images.ctfassets.net/8pr762qjocl3/5SUmdmkvWnl8qkHr3MGNVj/9c59f1dc02a77f3938b8bb6eecfaba08/2.jpg"></picture><div>▲ A NextDC data centre at Macquarie Park, NSW. </div></div><h2>Cap rates’ performance strong</h2> In terms of business parks’ recent investment performance, cap rates are performing well versus traditional office assets.&nbsp;There has been a 0.31 per cent rise in cap rates to 4.25 per cent for industrial and logistics assets, using Charter Hall’s long weighted average lease expiry (WALE) REIT’s data as a proxy for business parks.&nbsp;This compares to Charter Hall’s cap rate figures for office property, which have grown by 0.37 per cent to 5.42 per cent. Higher cap rates reduce a property’s value and imply weaker income-generating potential.In terms of yields, Loakes says they traditionally sit in a range from 6 per cent to 10 per cent net for business parks.&nbsp;“In most cases tenants pay the outgoings, which is very attractive to investors. In my experience,&nbsp;once people get into these investments they stay in them. Industrial is a set and forget investment.”He notes office parks often outperform yields versus other asset classes such as residential property.&nbsp;“These units don’t require any maintenance. They are four walls and a roof.&nbsp;“People continue to buy them and the supply side is getting tighter as the availability of land diminishes.&nbsp;“Ten years ago, it was easy to buy and develop industrial land, but now it’s really hard.”<div id="4BMWStGfM4oXzkCa2V96Nl"><picture><img src="//images.ctfassets.net/8pr762qjocl3/4soIIhxRElPrMkpn4StZxR/fda12e46eb4f691ac7a871222aadf04e/3.jpg" alt="null" data-mce-src="//images.ctfassets.net/8pr762qjocl3/4soIIhxRElPrMkpn4StZxR/fda12e46eb4f691ac7a871222aadf04e/3.jpg"></picture><div>▲ A render of Ledlin Development’s Springvale business park. </div></div><h2>Leasing incentives show the way</h2> Ben Hackworthy, director of commercial real estate firm Lemon Baxter, says with low vacancy rates and diminishing leasing incentives, investors who would normally prefer business park assets replete with carpet and air-conditioning are moving their focus to simpler properties with concrete and roller doors. Port Melbourne is his focus. &nbsp;&nbsp;Hackworthy says the relative movement of incentives also demonstrates the strength of business parks versus other assets.&nbsp;For instance, his data suggests commercial leasing incentives have risen to 50 per cent, while industrial incentives are below 8 per cent. Additionally, while commercial vacancy rates peaked at more than 30 per cent, industrial vacancy rates are below 2 per cent.“Demand for industrial properties has remained constant even during the last year of interest rate rises. But supply is extremely low, keeping upward pressure on prices.”Ledlin Development director of industrial property specialists Oscar Ledlin agrees there has been solid rental growth across industrial properties.“The surge in rents has effectively balanced the increases in interest rates, ultimately protecting property values as the industry braces for expanding yields, although in some cases we are seeing yield contraction driven by investors betting on the future growth of these assets,” he says.&nbsp;“This is underpinned by a significant shortage of well-located industrial property and fixed annual rental increases.”&nbsp;As for the future, Magann expects demand for business park assets to remain elevated.“Online shopping and demand for offsite data storage capabilities are two huge trends which will mean business parks are valued at a premium for some time.” <hr> You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals.<a href="https://www.theurbandeveloper.com/membership-plans" data-mce-href="https://www.theurbandeveloper.com/membership-plans"> Click here to learn more.</a><div id="2GhuueZl01Zwo2aFfjNVi2"><picture><img src="//images.ctfassets.net/8pr762qjocl3/12UMq5eMSEOh0QxJVBYaDt/d7507cf4ceb1365cc9ce7eaff84d06cc/tud___banner.jpg" alt="TUD + Banner" data-mce-src="//images.ctfassets.net/8pr762qjocl3/12UMq5eMSEOh0QxJVBYaDt/d7507cf4ceb1365cc9ce7eaff84d06cc/tud___banner.jpg"></picture></div>

Yields of 10 per cent, tenants pay outgoings, cheap upkeep and closeness to commute-shy suburban workers—there’s a lot to love about business parks…

Builder collapses have dominated headlines for much of the year and insolvencies have reached the heights of June 2020 according to CreditorWatch.&nbsp;The crisis gripping the construction industry is widely understood—and not going away any time soon.On the back of that, developers have been urged to ensure they’re doing all they can to prevent their projects going under if their builder collapses.Understanding construction risk and regularly assessing financial and non-financial factors to make sure a builder is in the black are crucial to shoring up a project.&nbsp;“With the non-financial, developers should confirm if there are any issues or disputes with the building commissioner or any defect claims litigation,” HLB Mann Judd Sydney risk and restructuring partner Todd Gammel says.“Check whether they have a certification of quality and access to warranty insurance.”When it comes to the financial component, use credit checks to assess the credit quality of the builder.&nbsp;“Review the balance sheet to ensure adequate equity and working capital to fund projects.<div id="1QHICuORUrGxSYLrA8p14W"><picture><img src="//images.ctfassets.net/8pr762qjocl3/2F2i2Bdz0L1Cx6loxM6KaF/7aad68063c586d2be34a3b8f59c390a4/2.jpg" alt="null" data-mce-src="//images.ctfassets.net/8pr762qjocl3/2F2i2Bdz0L1Cx6loxM6KaF/7aad68063c586d2be34a3b8f59c390a4/2.jpg"></picture><div>▲ HLB Mann Judd Sydney risk and restructuring partner Todd Gammel. </div></div>“This can assist with managing early claims that might be used to front-run the contract if the builder has insufficient working capital to meet the investment required in the initial phase of the contract.“Also look for related-party loans and other funding arrangements. Review current Personal Property Securities Register registrations, including secured creditors, creditors with specific security and other registrations.”Understanding a builder’s financial position is all about getting ahead of the curve, McGrathNicol partner Jason Ireland says.&nbsp;He recommends developers ask builders for a recent profit and loss statement, balance sheet and cash flow forecast.“Also make sure you get financial information for the relevant entity,” he told The Urban Developer.&nbsp;“Sometimes the builder will hand over the balance sheet for the larger property group, but the contract is with a special purpose vehicle and the developer is wooed by the large balance sheet of the builder.&nbsp;“Be very cautious if the builder won’t provide recent financial statements.”<div id="6ZQIdNqGrRMhBnRerETQ14"><picture><img src="//images.ctfassets.net/8pr762qjocl3/43PLHLdt3CUgJYmI4McYqG/8f0087f728cf2e8a699d87819a0bd703/5.jpg" alt="null" data-mce-src="//images.ctfassets.net/8pr762qjocl3/43PLHLdt3CUgJYmI4McYqG/8f0087f728cf2e8a699d87819a0bd703/5.jpg"></picture><div>▲ McGrathNicol partner Jason Ireland. </div></div>Ireland recommends assessing whether the builder is making a profit and not just generating cash flow.&nbsp;“It’s a red flag if the cash position is sound but they have not paid creditors and the build has not started,” he says.&nbsp;Fabrizio Perilli, co-founder and managing director of property group PERIFA, says a poor credit record raises major concerns about a builder’s solvency.&nbsp;Other warning signs include delayed subcontractor payments, fewer contractors on site than there should be and orders not being placed for materials.&nbsp;“It’s up to developers to do their homework and talk to the builder,” he says.Property developers should not be shy about exercising their rights.&nbsp;“They can insert step-in rights to manage payments on a project to ensure funds are being directed to the relevant subcontractors and suppliers to keep the project moving and ensure warranties are maintained,” Gammel says.These rights allow for developers to pay relevant parties to avoid cessation of work or services and maintain the project’s momentum if the builder is in financial strife.&nbsp;<div id="3Ehi5bkIJldBtBkTYDQ05q"><picture><img src="//images.ctfassets.net/8pr762qjocl3/7lkq86CPWAg7f7LeSMgIR8/eb13d82c255653076438de5578c7c915/3.jpg" alt="null" data-mce-src="//images.ctfassets.net/8pr762qjocl3/7lkq86CPWAg7f7LeSMgIR8/eb13d82c255653076438de5578c7c915/3.jpg"></picture><div>▲ Engagement and communication with the builder, as well as access to recent financial information, is vital. </div></div>This also allows the developer to engage directly with major subcontractors to potentially resolve any issues that may have an underlying impact on the timing of the project, protecting the outcome for the developer.When it comes to communicating with builders about financial matters, be sure to build provisions into contracts such as monthly meetings to talk through the financial progress of a job.&nbsp;“Discuss changes in major supply items and related timelines on a commercial basis to avoid delays or supply issues,” says Gammel.Perilli agrees engagement and communication with the builder, as well as access to recent financial information, is vital.“If the builder entered into a fixed price contract in 2019, 2020 or 2021, supply chain issues could mean costs have escalated by 30 per cent,” he says.“So it’s important to understand the breadth and depth of the builder’s exposure to contracts secured during that time to assess their commercial viability today.”According to Perilli, it’s all about being across the detail.&nbsp;“Don’t just rely on the builder to walk you around the site. Have your eyes and ears open and talk to subcontractors, because they are the ones that live and breathe the site on a daily basis.<div id="6TYrYcygp81fFZHdQLqIFs"><picture><img src="//images.ctfassets.net/8pr762qjocl3/58K5AGiS0xUpuf2bZsOlFx/8b8301ac80bd3615a3e32466cc7bde8f/1.jpg" alt="null" data-mce-src="//images.ctfassets.net/8pr762qjocl3/58K5AGiS0xUpuf2bZsOlFx/8b8301ac80bd3615a3e32466cc7bde8f/1.jpg"></picture><div>▲ The collapse of Probuild, while one of the biggest firms to fail, has been just one of dozens of builders to go under. </div></div>“Make calls to suppliers and do background checks to make sure everything is in order from a supply chain perspective.”Talking to other developers the builder is working with is also a smart move.&nbsp;“In the event a builder is in a financially precarious position, the best outcome is for the developer and the builder to work things through together to share cost increases on an appropriate basis,” Perilli says.&nbsp;“It’s about being reasonable and coming up with the best outcome possible in a really difficult situation.”&nbsp;Ultimately, transparency and contract terms are effective ways to ensure developers and builders can discuss the financial position of projects and any material changes impacting the commercial outcome.&nbsp;“This means potential solutions can be discussed before the value of the project is destroyed,” says Gammel.When a builder becomes insolvent during a project, it’s often an opportunity for the developer to take control of the job to bring greater certainty in terms of timeline and funding.&nbsp;“Although unfortunate and undesirable, the insolvency process can end uncertainty around the project and enable a clear plan to be developed,” says Gammel. <hr> You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals.<a href="https://www.theurbandeveloper.com/membership-plans" data-mce-href="https://www.theurbandeveloper.com/membership-plans"> Click here to learn more.</a>

It is up to developers to ensure they don’t go down with the ship if their builder goes under, say the experts…

4.jpg

An influx of more than 1.5 million migrants into Australia over the next five years will boost demand for both build-to-sell and build-to-rent apartments, especially in Sydney and Melbourne’s middle ring.&nbsp;Charter Keck Cramer’s research director Richard Temlett says there are abundant opportunities for cashed-up developers to start projects now and take advantage of a constrained market.“Population growth will drive demand for additional and diverse forms of homes, especially in Melbourne and Sydney, with 70 per cent of migrants who come to Australia living in these cities,” he says.Temlett says constrained supply and high demand for properties as a result of migration will translate into rents and property prices.&nbsp;“The mismatch between supply and demand is going to become worse, but developers will see opportunities within that.”This is echoed by Mitchell Brandtman partner Caitlin Shields who spoke at The Urban Developer's Brisbane Residential Devleoper Summit last week.&nbsp;Shields says migration is a double-edged sword that will provide labour force for an undersupplied subcontractor market, while also creating more demand for housing products.&nbsp;She says the solution is “they (migrants) will come, and they will build it”.<div id="MuOWKbrhX7gBI5W0rEMdm"><picture><img src="//images.ctfassets.net/8pr762qjocl3/3A0G00kfjK9I43nfO13Z2B/a631f4087aecbfeed895d665d3eb91f9/1.jpg" alt="null" data-mce-src="//images.ctfassets.net/8pr762qjocl3/3A0G00kfjK9I43nfO13Z2B/a631f4087aecbfeed895d665d3eb91f9/1.jpg"></picture><div>▲ Migration will bring opportunities, but not just any development will cater for the demand. </div></div>Temlett says he is not concerned developers will knock-up poor quality buildings in response to strong demand for properties as a result of rising migration.“People won’t buy or rent places if poor quality or the wrong types of homes are built. The market will decide what it is prepared to accept and this will help drive activity in the build-to-rent space.&nbsp;“If they are well capitalised, developers can start building out some of these projects and deliver stock into a market where there is going to be a low level of competition because other developers can’t proceed.”&nbsp;Temlett’s advice to developers is to understand their target markets and what they can afford.&nbsp;“With interest rates increasing and people’s buying capacity diminishing, demand will go into more affordable stock.&nbsp;“That’s not cheap stock, it’s more affordable stock. Apartments are the most affordable form of accommodation, to buy or to rent, compared to townhouses and houses. So there’s opportunities in the apartment space to build-to-sell and build-to-rent.”In particular, Temlett says, there’s lots of potential for townhouse developments, especially in Sydney’s middle ring.&nbsp;“There’s a missing middle and there’s opportunities to deliver properties in these locations.“But governments need to understand the industry wants to build upwards and that’s what needs to happen.&nbsp;“We need medium-density homes like townhouses and high-density homes like apartments in areas that have the best infrastructure and amenities.&nbsp;<div id="46c4hhCF15RycF27Qy3VEf"><picture><img src="//images.ctfassets.net/8pr762qjocl3/3uNWhuiVg9aEnAUTLoRSPm/50259e5d6e3c56b15f4e53dbdfbca76f/4.jpg" alt="null" data-mce-src="//images.ctfassets.net/8pr762qjocl3/3uNWhuiVg9aEnAUTLoRSPm/50259e5d6e3c56b15f4e53dbdfbca76f/4.jpg"></picture><div>▲ The effect of the increase in migration will likely be felt right across the property sector. </div></div>“Developers can be purchasing sites now and getting developments through the planning system because there’s a huge amount of demand.”CBRE head of residential and build-to-rent research Craig Godber expects rising migration to have an impact right across the property market.&nbsp;“The supply cycle is at cyclical lows right now, but it’s going to be difficult to get product out of the ground over the next three to four years.&nbsp;“This is going to be very difficult if there is an influx of people.”Despite this, Godber says, high input costs and inflation are holding the development pipeline back. Builders are also more aware of risks when they take on projects, given the challenging operating environment.&nbsp;“A lot of builders are favouring government infrastructure work right now.”He agrees built-to-rent properties are part of the solution when it comes to housing new migrants.“It’s a massive market in other parts of the world and the conditions are right now for build-to-rent to become a strong market here over the next five to 10 years.&nbsp;<div id="4gtcEesXytv2IzVUR3maJS"><picture><img src="//images.ctfassets.net/8pr762qjocl3/1a7A2ZReUxazK8tKI5pmG6/c026a01c3fae20e40ba581bbbb85339a/5.jpg" alt="null" data-mce-src="//images.ctfassets.net/8pr762qjocl3/1a7A2ZReUxazK8tKI5pmG6/c026a01c3fae20e40ba581bbbb85339a/5.jpg"></picture><div>▲ The popularity of build-to-rent will only increase on the back of more migration. </div></div>“There’s a pipeline of work and proposed developments that are sorting out funding.”Godber expects build-to-rent developments to emerge in Brisbane’s inner city, the Gold Coast and across Melbourne’s inner city transport corridor. There are fewer opportunities in inner Sydney because of the high land costs.“But we are seeing developments happen in places like Parramatta and in key transport corridors. We think build-to-rent will spread to other, smaller markets such as Perth, Canberra and Adelaide.“We have a pipeline of 30,000-plus units. Realistically, a lot of that is still a few years away. So in the short term, there’s going to be more pressure on the market before it eases.”Temlett says it’s important to remember property development and investment is a long-term play.“It's not a one year thing. If you look at the fundamentals to live and to invest in Australia, they’re all there.&nbsp;“Overseas investors and developers can see it. That’s why a lot of the build-to-rent players are coming to Australia.&nbsp;<div id="MIMAU94eVHAUsiWpp9WXs"><picture><img src="//images.ctfassets.net/8pr762qjocl3/2GeiwkwuO8bwUISGCHvsQi/6fb87fc7103121c78a5906827d838431/2.jpg" alt="null" data-mce-src="//images.ctfassets.net/8pr762qjocl3/2GeiwkwuO8bwUISGCHvsQi/6fb87fc7103121c78a5906827d838431/2.jpg"></picture><div>▲ There will be more certainty and stability when interest rates reach the top of their tightening cycle, says CBRE’s Craig Godber. </div></div>“There’s going to be short-term pain, but that’s not just limited to Australia. It’s around the world, given inflation.&nbsp;“But people still need a place to live.&nbsp;“Australia is a very attractive place to invest, and I believe we’re going to get more certainty and stability when interest rates reach the top of their tightening cycle.”&nbsp;Although in the short term the market is likely to remain constrained, it’s probable the next market cycle will be driven by population growth.&nbsp;“All the different residential asset classes will have a role to play,” Temlett says.“But it comes down to governments taking a proactive approach. Developers and financiers want to work with governments because everyone has a vested interest in developing profitable projects.&nbsp;“Build-to-rent will add supply and put downward pressure on rents and prices, and support housing affordability over time.” <hr> You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. <a href="https://www.theurbandeveloper.com/membership-plans" data-mce-href="https://www.theurbandeveloper.com/membership-plans">Click here to learn more.</a><div id="2GhuueZl01Zwo2aFfjNVi2"><picture><img src="//images.ctfassets.net/8pr762qjocl3/12UMq5eMSEOh0QxJVBYaDt/d7507cf4ceb1365cc9ce7eaff84d06cc/tud___banner.jpg" alt="TUD + Banner" data-mce-src="//images.ctfassets.net/8pr762qjocl3/12UMq5eMSEOh0QxJVBYaDt/d7507cf4ceb1365cc9ce7eaff84d06cc/tud___banner.jpg"></picture></div>

Already in undersupply, the record wave of migration will strain housing to breaking, but opportunities are on the rise too…

2.png

Australian developers are nervously watching the outcomes from recent major cyber security breaches on home soil.&nbsp;Of course, cybercrime has been a real and present danger for developers for many years, but the rise of embedded building technology presents some serious challenges for the industry, according to Mirvac’s chief digital officer, William Payne.“Buildings are becoming smarter through both ground-up software development and modernisation,” he says.“Developers and asset managers must now apply cyber security disciplines, tools and continuous improvement techniques more commonly seen in traditional corporate IT environments. There must be an ongoing strategy to protect assets and support customers’ cyber security standards.”&nbsp;Those with long memories will recall the poster child cyber incident in 2013 involving the US consumer goods behemoth, Target.The breach happened after hackers got into the system through the air-conditioning system connected to Target’s main IT network. It sent chills down the spines of development firm principals and asset owners given it could happen to any business that owns real estate.Today, smart buildings are more connected than ever. So, understanding what data is being collected and retained during the development process and beyond is crucial, says Lara Paholski, chief executive of property and legal technology development company, thelawstore.com.au.<div id="69RLjaFdfeFW5IJw29rA2y"><picture><img src="//images.ctfassets.net/8pr762qjocl3/16OI8PiK8ZInmRnc9MUj7E/9103d3d3a633c861af286e53fc7d5bef/2.jpg" alt="Lara Paholski" data-mce-src="//images.ctfassets.net/8pr762qjocl3/16OI8PiK8ZInmRnc9MUj7E/9103d3d3a633c861af286e53fc7d5bef/2.jpg"></picture><div>▲ Lara Paholski: Personal information sent back to developers’ offices creates an identity treasure trove. </div></div>Some of the data collected when developing smart commercial buildings includes identity documents, financial documents, as well as personal information such as contact numbers, address and next of kin details. The question is once collected, whether this data really needs to be stored longer term.“Personal information may be captured via photo, which is texted or emailed back to developers’ offices. This creates an identity honeypot. Hackers can get all this personal information simply by gaining access to emails,” Paholski says.HopgoodGanim lawyer Steven Hunwicks says developers and managers may quickly find they have become custodians of great volumes of deeply personal information about behaviours.&nbsp;“But they may not have governance arrangements and practical controls in place to manage and mitigate the risks arising from the data,” Hunwicks says.As a result, developers need to think about whether they really need to be storing this information long-term. Because the consequences if they are hacked and the data is stolen and sold on the dark web are serious.&nbsp;In a sign that the people and parliament are increasingly losing patience with corporate data breaches, new legislation that dramatically increases penalties for serious or repeated privacy breaches passed both houses on Monday, November 28, with bipartisan support.The Privacy Legislation Amendment (Enforcement and Other Measures) Bill 2022 raises the financial penalties from $2.5 million to $50 million, three times the value of any benefit obtained through the misuse of data, or 30 per cent of a company’s adjusted turnover in the relevant period, whatever is larger.<div id="5ua20sffFYQXhkH1h4G4r0"><picture><img src="//images.ctfassets.net/8pr762qjocl3/1saaAPGaLRqpelTtHDkTVm/21bbf81f71713ea677be5a64fe501f78/6.jpg" alt="New legislation seriously beefs up penalties." data-mce-src="//images.ctfassets.net/8pr762qjocl3/1saaAPGaLRqpelTtHDkTVm/21bbf81f71713ea677be5a64fe501f78/6.jpg"></picture><div>▲ New legislation seriously beefs up penalties for privacy breaches. </div></div>Personal data aside, technology consultancy Waterstons’ head of security, Ryan O’Kell, says property firms are often vulnerable to a hack attack due to outdated and unmanaged tech systems.&nbsp;“Without a solid cyber security plan in place, your threats and vulnerabilities increase.”In addition to heating, ventilation and air-conditioning (HVAC) systems, property firms are exposed to cyber risks through security cameras and employees’ own devices.“One infiltration scenario could be adversaries watching security cameras, gathering information and potentially locking people inside, controlling the HVAC systems to inflict damage to those inside and demanding a ransom,” O’Kell says.In another hypothetical scenario, hackers could access and then control the lighting or HVAC systems and blast the air-con and leave lights on all night. This is a seemingly invisible infiltration but with serious monetary consequences.Asset managers and developers need the knowledge, resources and skills to constantly combat these threats.&nbsp;Any robust cyber security strategy starts with standards and frameworks. For security reasons, Mirvac does not disclose the measures it takes to protect its assets. <div id="4X9FzCnLMztVqJTENXf7iZ"><picture><img src="//images.ctfassets.net/8pr762qjocl3/4oJCD3trzgC2Vk4UNrv8aP/541d30de91e91da27a2bb6a28ac5a220/5.jpg" alt="A framework is vital to protecting building systems." data-mce-src="//images.ctfassets.net/8pr762qjocl3/4oJCD3trzgC2Vk4UNrv8aP/541d30de91e91da27a2bb6a28ac5a220/5.jpg"></picture><div>▲ Standards and a framework are effective steps to protecting building systems. </div></div>But chief digital officer William Payne says they follow the National Institute of Standards and Technology (NIST) cyber security framework to manage hacking risks. This gives property managers tools to respond to and recover from cyber threats. &nbsp; NIST is just one method developers can use to guide their cyber security strategy. Another common framework Aussie businesses use to is the Essential Eight mitigation strategies the federal government’s Australian Cyber Security Centre recommends putting in place to prevent attacks. These include taking away unnecessary network administration privileges from employees who don’t need them and putting in place multi-factor authentication.Emergence Insurance head of corporate cyber Trent Nihill says the Target example was a wake-up call for developers that separating corporate networks from building management systems is critical.&nbsp;“These systems should be able to run independently so an attack at the property developer’s offices should not impact buildings and tenants.”Nihill says when assessing property risk for underwriting purposes, for many years insurers have been focusing on the robustness of policyholders’ operational technology such as building management systems. This is because these systems have been increasingly exploited by cyber criminals.“Building management systems typically have long operational lifespans and they are not patched as often as other systems, so they can be weak assets for criminals to target.”He notes many businesses are unable to continue trading without their operational technology up and running, in the event a major breach takes these systems down.&nbsp;<div id="3JfBtLlMjfw0zeJcMV3Yq4"><picture><img src="//images.ctfassets.net/8pr762qjocl3/3Hjq8Knzu9E292ZTjGtKSt/769da2a967c5bf5605554fbdea443384/1.jpg" alt="Building management systems can be weak assets for criminals to target." data-mce-src="//images.ctfassets.net/8pr762qjocl3/3Hjq8Knzu9E292ZTjGtKSt/769da2a967c5bf5605554fbdea443384/1.jpg"></picture><div>▲ Building management systems can be weak assets for criminals to target. </div></div>So it’s essential building management systems are designed with manual overrides so people can get in and out of the buildings and are not stuck in lifts and other places in the event of an attack. &nbsp; Additionally, Nihill says while cyber insurance is one tool developers and asset owners require for cyber safety, it is important for them to understand and manage buildings’ specific cyber risks.&nbsp;“Without adequate cyber security controls most businesses won’t be able to get cyber insurance.”Terry Burgess, data security firm Protegrity’s Asia Pacific head, says property businesses should protect themselves by thinking about data security differently.“Readily available data privacy technologies such as tokenisation can keep sensitive data, including personally identifiable information, hidden, even in the event of a breach.”Tokenisation involves substituting personal information for a token in an organisation’s network, as the token has far less value to criminals.“If this kind of technology had been applied by Optus or Medibank, the cybercriminals would have had to re-identify the data before they could derive value from it, a difficult process for those without authorisation. This makes stolen data less useful to criminals,” he says. The property sector has a way to go upskilling IT staff, implementing the right cyber security solutions and being aware of the potential effects of a hack in the short and long term. The message is to make this a priority before a hacker takes buildings and businesses down. <hr> You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. <a href="https://www.theurbandeveloper.com/membership-plans" data-mce-href="https://www.theurbandeveloper.com/membership-plans">Click here to learn more.</a><div id="2GhuueZl01Zwo2aFfjNVi2"><picture><img src="//images.ctfassets.net/8pr762qjocl3/12UMq5eMSEOh0QxJVBYaDt/d7507cf4ceb1365cc9ce7eaff84d06cc/tud___banner.jpg" alt="TUD + Banner" data-mce-src="//images.ctfassets.net/8pr762qjocl3/12UMq5eMSEOh0QxJVBYaDt/d7507cf4ceb1365cc9ce7eaff84d06cc/tud___banner.jpg"></picture></div>

The Urban Developer lifts the lid on the cyber security risks in the highly-tech enabled smart buildings and what developers need to know to safeguard against hackers...

[+] web hero ai and real estate.jpg

Artificial intelligence (AI) is revolutionising real estate, with tools such as 3D virtual tour software CAPTUR3D and automated value estimation tech Zestimate already transforming the nature of an agent’s work. The question is whether AI can replace real estate agents.The answer lies in AI’s potential to combine with human intelligence and skills. Computers and robots can be used right across the real estate value chain to improve processes by absorbing huge amounts of data and creating insights from it. Then it’s up to people to make the most of the value this creates.<h2>Exploring the options&nbsp;</h2> There’s an array of tech that agents can already use. Tools such as computer vision can analyse images such as aerial photographs to identify the condition of a building. Geographic information systems (GIS) can scrutinise geographical data such as maps and satellite imagery, to identify patterns and trends across an area. Predictive analytics can forecast future demand trends, to identify areas where house price growth is likely.&nbsp;Natural language processing (NLP) can be used to investigate social media and other online data sources to identify buyer preferences. The NLP tool that’s likely to get the most attention this year is called ChatGPT. This is a chatbot that responds to questions, queries and requests much like a human can, drawing on mammoth banks of data. Its ability to learn is exponential.“For real estate agents, tools like ChatGPT are able to generate more value from the extensive knowledge agents have of their portfolios. For example, it can rapidly create property descriptions from a simple prompt with basic parameters,” Melbourne tech studio Phoria chief executive Trent Clews-de Castella says. <hr><h2>Giving ChatGPT a task ... <picture><img src="//images.ctfassets.net/8pr762qjocl3/4Vo71ab5ueRL7L9PGTrY7f/a024c9e22467a9b0ef0c41a644f3d304/ChaptGPT_real_estate_description_prompt.jpg" alt="ChatGPT real estate description prompt" data-mce-src="//images.ctfassets.net/8pr762qjocl3/4Vo71ab5ueRL7L9PGTrY7f/a024c9e22467a9b0ef0c41a644f3d304/ChaptGPT_real_estate_description_prompt.jpg"></picture></h2><div id="5JmT64algPUKiFmGlS3JqQ"><h2> And the AI’s response ... <img src="//images.ctfassets.net/8pr762qjocl3/7v25ltnPU9f53HEgORBbRF/a4e2c8525e0aef357074aaa42d05c083/ChaptGPT_real_estate_description_response.jpg" alt="ChatGPT house for sale description" data-mce-src="//images.ctfassets.net/8pr762qjocl3/7v25ltnPU9f53HEgORBbRF/a4e2c8525e0aef357074aaa42d05c083/ChaptGPT_real_estate_description_response.jpg" style="font-size: 18px;" data-mce-style="font-size: 18px;"></h2></div><div id="MgjdoE7PJ1JAhFEtlrHc3"><div><hr></div></div> Clews-de Castella says AI tools such as ChatGPT will be able to cut down the hours agents spend creating compelling listings. This is time that can be repurposed with potential and current vendors and buyers.“AI is capable of a lot more than just writing listings for agents. It can help prepare legal documents and monitor lead generation for property listings. It can digest big data sets and identify trends like demographics and crime rates; patterns that can impact the desirability of an area and marketing strategies.”&nbsp;For example, if AI can show a suburb is demographically skewed towards young families, then agents can make sure marketing for properties in that suburb showcases schools, parks and other family-friendly features.“All of this can be integrated with a web-based application and used by agents to make data-driven decisions. The beauty of these tools is that as their capabilities evolve, we’ll discover new and innovative ways to use them,” says Clews-de Castella.Aside from estimating house prices, commercial property development and finance firm Salvest managing director Anthony Ferraro expects AI to be used to estimate rental growth and consumers’ debt levels for home financing. He says tech will shake up the industry in a number of other ways.&nbsp;“Speech recognition can assist the sales process by gathering data to measure the stress and emotional levels of vendors and buyers. This can provide the agent with resources to close the sale. We will also see virtual agents emerge, where the vendor becomes the agent, drawing on machine learning to assist in the buyer qualification process.<h2>Should agents be worried?</h2> While agents reject the notion they will be replaced by AI, some of the tasks they are accustomed to performing will be done by machines in the future.&nbsp;Clews-de Castella acknowledges AI has the edge on agents in some respects. “AI is fast, cheap and accessible. It can help remove emotional biases from one of the most stressful decisions buyers make. But what agents bring is empathy. They understand your story, what matters to you, what motivates you and what they can do to support you. It’s that human interface for which an AI platform isn’t a substitute. Yet.”Similarly, BeKonstructive Marketing managing director Bek Drayton says there’s a lot more to being a real estate agent than creating basic property listings, which can be done by a robot.“Smart agents will use AI to create the base of their listings and present the facts. Then it’s up to the agent to edit and weave a story through the listing that builds an emotional connection with the reader. This will mean agents can spend more time building relationships with clients.”&nbsp;<div id="7cjJ8LWw5B0siq71skysey"><picture><img src="//images.ctfassets.net/8pr762qjocl3/XCbfYNz7HEic0gwn27aEo/6791a4925b98ae9e77984a741076e45e/Mid_article_resizes__7_.jpg" alt="null" data-mce-src="//images.ctfassets.net/8pr762qjocl3/XCbfYNz7HEic0gwn27aEo/6791a4925b98ae9e77984a741076e45e/Mid_article_resizes__7_.jpg"></picture><div>▲ The age of the real estate agent is far from over. </div></div>Undercover Agent founder Chris Bellesini sees AI as a marketing tool that may shake up property sales, before becoming just another part of the property buying and selling process.“There’s been considerable advancement in technology in the real estate industry, but trends come and go.“Large portals such as realestate.com.au and domain.com.au know what we are looking for and are very clever in showing us properties that may suit our needs. What they don’t know is your emotional connection to a property or whether you want to buy it because you already own the block next door, so you would be prepared to pay more.&nbsp;“Also, people sell infrequently, so although they may not want to use an agent, they are comfortable with them. Let’s face it, agents don’t want to be replaced and whenever challenged they have been able to prove their worth.”&nbsp;He cites Purple Bricks, a UK online real estate agent with a flat fee rather than commission-based model, as an example of a business that wanted to shake up the sector, claiming traditional agents were overrated and overpaid. “In Australia they lasted about 18 months.”Bellesini believes there’s a range of reasons real estate agents still have a future.&nbsp;“AI will not have all the data needed to know what a buyer is prepared to spend on a property.“A skilled agent can also note conversations of importance to extract the best price and read body language and tone to pick the handful of potential buyers out of a group of, say, 30 acquirers pretty quickly.”Additionally, he notes vendors feel more confident having a professional on their team when dealing with their largest asset. “Selling is a stressful process and having a human to deliver information and know what to do next is important.”&nbsp;Ultimately, rather than thinking about how technology can replace agents, it’s probably better to look at how technology can enhance the work they do.AI can be an invaluable tool to streamline the journey to sell a property and to empower buyers to make the most informed decisions possible. So agents can rest easy; they are unlikely to be completely replaced by a machine.For the moment. <hr> You are currently experiencing&nbsp;The Urban Developer&nbsp;Plus (TUD+), our premium membership for property professionals.&nbsp;<a href="https://www.theurbandeveloper.com/membership-plans" data-mce-href="https://www.theurbandeveloper.com/membership-plans">Click here to learn more.</a>&nbsp; <div id="2GhuueZl01Zwo2aFfjNVi2"><picture><img src="//images.ctfassets.net/8pr762qjocl3/12UMq5eMSEOh0QxJVBYaDt/d7507cf4ceb1365cc9ce7eaff84d06cc/tud___banner.jpg" alt="TUD + Banner" data-mce-src="//images.ctfassets.net/8pr762qjocl3/12UMq5eMSEOh0QxJVBYaDt/d7507cf4ceb1365cc9ce7eaff84d06cc/tud___banner.jpg"></picture><div> </div></div>

Artificial intelligence is revolutionising the real estate landscape and providing big data opportunities. Cou virtual agents and AI unseat real estate agents? The Urban Developer investigates...

[+] construction contract rethink web.jpg

Flexible contracts could help to salvage Australia's weakened construction sector as price fluctuations and a labour-constrained market continue to curtail the nation's productivity.&nbsp;Perth-based Clough Group collapsed late last year with a $10-billion government project work book, including the Snowy Hydro 2.0 project, and about $248 million owing to creditors.&nbsp;Deloitte's report says the collapse was triggered due to the skyrocketing costs of raw material costs causing significant budget blowouts.&nbsp;But Australian Constructors Association chief executive Jon Davies is among a growing chorus in the sector calling for a dynamic shift in the way it is doing business.&nbsp;Davies is one of many calling for an arbitration mechanism, different equity structures and new contract types are among measures that need to be looked at as the roll call of failures grows, including Clough Group, Condev Construction, ProBuild Australia and more.Intel suggests it’s still straightened times for builders—data published by CreditorWatch from January shows that although only 3.7 per cent of businesses in the construction sector are at risk of default, 11.4 per cent are in payment arrears.That’s the highest percentage among the 19 industries the credit data firm studies for its Business Risk Index.Australian Constructors Association chief executive Jon Davies says large price rises for building materials as a result of supply-chain issues from Covid and the war in the Ukraine are contributing to difficult conditions in the construction sector.“Governments are investing all this money into infrastructure, but contractors are falling over because of the accumulation of risks they have taken on board they are unable to deal with,” Davies says.<div id="1Bxm7LCb5RiFsUamR1JMuP"><picture><img src="//images.ctfassets.net/8pr762qjocl3/1y7J6jJ7ml5rsHHHcLBKny/50f68f4a89cf9424de2759e4c7ca2b4d/2.jpg" alt="null" data-mce-src="//images.ctfassets.net/8pr762qjocl3/1y7J6jJ7ml5rsHHHcLBKny/50f68f4a89cf9424de2759e4c7ca2b4d/2.jpg"></picture><div>▲ Deloitte’s Jason Tracy: Fixed-price contracts among the culprits. </div></div>Deloitte-led Clough Group administrators Sal Algeri and Jason Tracy, who also led the ProBuild administration, say the trend for fixed-price contracts is one of the culprits.“Builders could operate profitably under fixed-price contracts during periods of economic and house price growth but Covid-facilitated cost escalations across materials and labour are outside builders’ control,” Tracy says.Lengthy builds are also to blame. With large projects, procurement processes can span many years, from scoping through to choosing contractors, financial due diligence and negotiation of engineering procurement construction contracts.Contractors are mostly expected to wear cost rises through construction periods that can span years, without having any real insight into price trends into the future.Also, large-scale price rises may be absorbed into a construction business for one or a small number of contracts.The challenge is builders have multiple jobs on at once, which all require materials with rising prices. This only compounds the problem.“That’s the crux of the issue. The stronger your balance sheet, the more you can weather the storm. The weaker you are, the more vulnerable you are,” says Tracy.<h2>Ways forward</h2> Contracts in construction are changing to try to address the risk-sharing and cost-escalation challenges facing builders. Players are also willing to take different approaches.For instance, Davies says, there’s growing recognition among developers that going for the cheapest bidder can have limitations.“Value for money is also about time certainty, reduced impact on the environment, improved diversity and inclusion outcomes and greater sovereign capability. So we need to look at the best contractual models for realising that extra value.”He says incentivising contractors to realise financial and non-financial value is important.“So if the developer is focused on the environment, then the contract has to remunerate the builder for driving environmental outcomes.”Tracy says there are other ways to fix the “broken” contracting model.“One option is to include flexibility within contracting arrangements to allow for a rise and fall of costs that fluctuate,” he says.“We’re seeing an increase in ‘pain and gain’ sharing arrangements, as well as hybrid contracts that include fixed costs and costs that are responsive to the market price.”Including chunkier buffers in large government projects is also vital.He notes equity investors have a role to play. “There’s a heightened need for equity in projects.<div id="3U8eD7xXNwWoPpWKjW1c2N"><picture><img src="//images.ctfassets.net/8pr762qjocl3/7D1aKuMlMZCTOzH7kZoXBY/364d2ececa888a387f99c5c55d2da0da/1.jpg" alt="null" data-mce-src="//images.ctfassets.net/8pr762qjocl3/7D1aKuMlMZCTOzH7kZoXBY/364d2ececa888a387f99c5c55d2da0da/1.jpg"></picture><div>▲ Australian Constructors Association chief executive Jon Davies. </div></div>“Cost increases can’t be the responsibility of debt providers because they don’t benefit from the risk upside; they’re only getting interest on the debt.“So project sponsors need more equity.”A mechanism that allows parties to arbitrate or mediate a situation in which a project’s costs blow out is another option. This may be as simple as the parties meeting once a month to review a progress report, with an independent assessment of the works completed prior to the meeting.“The mechanism would allow the parties to come together. There must be an open, transparent sharing of costs and project progress. This brings issues to the table earlier so they can be resolved,” Algeri says.Fiona Doherty, a board member of the Australian Institute of Quantity Surveyors, agrees future contracts must include novel ways of sharing of risk between the different parties.“We don’t think lump-sum contracts are a bad thing if the contract is set up correctly and the sharing of risk is there.”She says traditional tools such as guaranteed bills of quantities can also help, as well as certainty around design.“Two-stage tendering also helps to more fairly share risk,” she says.While many contracts do have associated insurance bonds, calling the bond in should the contractor default has limited effect—it won’t completely cover any shortfall and also means insurers view the Australian market as riskier, which only serves to raise the cost of any similar bonds issued in the future.<h2>A brighter outlook</h2> Davies says the reckoning the construction industry is undergoing could be positive long term.“There is huge demand for construction and construction services. We’re seeing a growing realisation among clients in the public and private sectors you cannot contract out risk because contractors are falling over.“When a contractor falls over, you’re the one that’s going to have to pick up the pieces, talk to the administrator and find another contractor to finish off the job for a significant premium and a significant delay to your project.“So clients realise things need to be done differently, because contractors are going to start to pick and choose contracts that are favourable to them.” <hr> You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. <a href="https://www.theurbandeveloper.com/membership-plans" data-mce-href="https://www.theurbandeveloper.com/membership-plans">Click here to learn more.</a><div id="2GhuueZl01Zwo2aFfjNVi2"><picture><img src="//images.ctfassets.net/8pr762qjocl3/12UMq5eMSEOh0QxJVBYaDt/d7507cf4ceb1365cc9ce7eaff84d06cc/tud___banner.jpg" alt="TUD + Banner" data-mce-src="//images.ctfassets.net/8pr762qjocl3/12UMq5eMSEOh0QxJVBYaDt/d7507cf4ceb1365cc9ce7eaff84d06cc/tud___banner.jpg"></picture></div>

It’s time the construction sector explored alternatives to how it does business if the flood of firms collapsing is to be stemmed, according to many in the industry...

Porter Davis Insolvent HERO.jpg

Hundreds of Porter Davis customers risked losing their deposits and the collapsed homebuilder is being investigated to determine whether it traded while insolvent, liquidators have revealed.About 500 people attended a webinar with appointed liquidators Grant Thornton’s Said Jahani, Matt Byrnes and Cameron Crichton earlier this week to hear they could lose their deposits if work on their projects had not begun.&nbsp;Porter Davis had about 470 employees and was forecasting revenue of $555 million for the 2023 financial year <a href="https://www.theurbandeveloper.com/articles/porter-davis-homes-lloyd-group-liquidation-administration-collapse" target="_blank" rel="noopener" data-mce-href="https://www.theurbandeveloper.com/articles/porter-davis-homes-lloyd-group-liquidation-administration-collapse">prior to its collapse last week</a>.&nbsp;During the webinar Said Jahani confirmed that insolvent trading was “an area of investigation”.“Directors of companies can be held personally liable for incurring debts that remain unpaid, if the company was insolvent when they incurred those debts, and they should have known, or did know, that the company was insolvent,” Jahani said.More than 1700 home builds have been abandoned across Victoria (1500) and Queensland (200), but the liquidators have confirmed they are in talks with builders who could scoop up the unfinished work.&nbsp;“Making the decision to restructure or liquidate is an important moment of truth,” according to Salvest managing director Anthony Ferraro.<div id="2lmh7jtyzbmCFj5xNSpuOs"><div id="74uUYdbw9gKz24WinUsx9R"><picture><img src="//images.ctfassets.net/8pr762qjocl3/2scTO467zznPQLGeOEZPcZ/1cec50d7fb4aebaf1ae15d7a92db9682/porter_davis_MID.jpg" alt="null" data-mce-src="//images.ctfassets.net/8pr762qjocl3/2scTO467zznPQLGeOEZPcZ/1cec50d7fb4aebaf1ae15d7a92db9682/porter_davis_MID.jpg"></picture><div>▲ About 1500 home builds in Victoria and 200 in Queensland have been abandoned in the collapse of Porter Davis. </div></div>He says it will determine the future of the business, and the fortunes of all those tied to it.&nbsp;</div>But experts in the insolvency field say there are ways you can cushion the blow when a builder goes belly up.&nbsp;<h2>More builder insolvencies on horizon</h2> ASIC data shows 1236 construction companies have collapsed since July 2022, and there are <a href="https://www.theurbandeveloper.com/articles/longriver-group-developer-construction-insolvencies-double" target="_blank" rel="noopener" data-mce-href="https://www.theurbandeveloper.com/articles/longriver-group-developer-construction-insolvencies-double">no signs that this pace is slowing down</a>. CreditorWatch data supports this with 125 construction firms declared insolvent, almost double the next industry segment, food and hospitality.&nbsp;More failures are expected in construction, which is reeling from the boom-bust Covid years and <a href="https://www.theurbandeveloper.com/articles/tradie-exodus-construction-sector-apocalypse-looms" target="_blank" rel="noopener" data-mce-href="https://www.theurbandeveloper.com/articles/tradie-exodus-construction-sector-apocalypse-looms">ongoing supply chain disruptions</a>.&nbsp;Voluntary administration happens after the directors form the view their company has the potential to become insolvent. They then appoint an insolvency practitioner to take over the running of the business.&nbsp;Trading while insolvent exposes directors to a criminal conviction and any risk of this is the usual prompt to call in the administrators.Risk management aside, administration gives the directors an opportunity to press pause and work out the best plan of action for the company. Whereas liquidation, which may be the outcome of administration, involves selling the assets and winding up the business.The decision is made by the administrator, after reviewing the builder’s financial records, assets and liabilities.Jason Ireland, partner with restructuring and turnaround experts McGrathNicol Restructuring, recommends being properly prepared before pursuing the options in a time of turmoil.&nbsp;“Insolvency is usually rare in most people’s career. Management teams can therefore think the worst and sometimes panic when a company is facing insolvency,” Ireland says.“Sites might get damaged; I’ve seen all sorts. People come and collect equipment that’s not even theirs from a site because they think they will lose money.“Without a planned administration, basic elements such as having security on site and securing assets doesn’t happen.”Once the hygiene factors are out of the way, during an administration’s formative stages, what’s key is to understand the business’s liquidity. This is the stage at which an administrator will identify the company’s valuable parts, the parts that need to be reshaped and the parts that need surgery.<h2>The Clough case</h2> Sal Algeri is Deloitte’s national turnaround and restructuring lead and one of former building company Clough’s administrators. He was part of the team that negotiated Clough’s sale to its partner in the construction of the Snowy 2.0 hydro project, Italian builder Webuild.“On Clough, we had a couple of weeks before we were appointed to understand the business and work through a plan with management and directors. We typically welcome the thoughts of management and the directors to help shape the game plan,” Algeri says.<div id="6xjTs16TZB4tr6OXmwNAnr"><picture><img src="//images.ctfassets.net/8pr762qjocl3/45lbAymuXvEhoCXNJMUvgV/b730a0d7399e8a8ff8d3f2aed3bf42bd/Hero_Image_Re-size__920x600_.jpg" alt="Clough Group collapse" data-mce-src="//images.ctfassets.net/8pr762qjocl3/45lbAymuXvEhoCXNJMUvgV/b730a0d7399e8a8ff8d3f2aed3bf42bd/Hero_Image_Re-size__920x600_.jpg"></picture><div><div>▲ When Clough collapsed its Snowy Hydro 2.0 partner WeBuild bought out the business.</div></div></div> In a restructuring, the administrator develops a rehabilitation plan to help the builder get back on its feet and become financially sustainable. If liquidation is the only option, the administrator must maximise the return to creditors, usually by selling the assets or the company. The administrator must present creditors with the company’s options so they can vote on them and decide the way forward.The creditors can agree to receive a proportion of their debt to extinguish or delay the company’s responsibility to pay it. The decision comes down to allowing the company, or part of it, to continue trading – with or without the existing board or management – or sell the company and/or its assets.A key decision is whether to sell the company’s shares or assets. When the company is sold, as opposed to just selling its assets, there’s no requirement to transfer assets out of thecompany to another owner.&nbsp;“The new owner simply owns the shares, which was the case with Clough and Webuild. It meant the employment, construction and EPC contracts didn’t have to be novated or assigned to a new entity,” Algeri says.“This saves a lot of time and money, particularly when you’re talking about thousands of employees, big contracts and subcontractor agreements. So for ease of transaction, it’s more efficient to do a share sale versus an asset sale.”The Urban Developer understands Grant Thornton is due to confirm if a buyer has been found for completion of current projects later this week.&nbsp; <hr> To access more exclusive content and events join our growing TUD Plus membership. <a href="https://www.theurbandeveloper.com/membership-plans" data-mce-href="https://www.theurbandeveloper.com/membership-plans">Click here to learn more.</a><div id="2GhuueZl01Zwo2aFfjNVi2"><picture><img src="//images.ctfassets.net/8pr762qjocl3/12UMq5eMSEOh0QxJVBYaDt/d7507cf4ceb1365cc9ce7eaff84d06cc/tud___banner.jpg" alt="TUD + Banner" data-mce-src="//images.ctfassets.net/8pr762qjocl3/12UMq5eMSEOh0QxJVBYaDt/d7507cf4ceb1365cc9ce7eaff84d06cc/tud___banner.jpg"></picture></div>

Hundreds of Porter Davis customers risked losing their deposits and the collapsed homebuilder is being investigated to determine whether it traded while insolvent, liquidators have revealed.