How Frenchs Forest Residents Teamed Up to Offer New Development Opportunities
How Frenchs Forest Residents Teamed Up to Offer New Development Opportunities
You don’t have to go it alone when selling to a developer. Teaming up with others in your community could make your property more appealing. That’s exactly what these residents of Frenchs Forest did.
Think about the traditional process of selling a property.
For a homeowner, it generally involves finding a residential buyer. Your property goes to somebody who wants to live in it after you complete the transaction.
But there are non-traditional methods too.
For example, you may decide on selling to a property developer. Developers may want to tear down your old property to make way for a new development. Both parties can profit from that, in the right circumstances.
Yet a single property or block may not provide many opportunities for property development. If you have a small property, selling to a property developer may not seem like an option.
But it is, if you can get others in your street to get on board.
You may be able to team up to develop property. There’s even a name for this strategy – the aggregation play. It involves a group of people coming together to sell their properties together to a developer. The developer gets more land, which leads to more opportunities. The sellers may achieve a higher price because of the group effort.
This isn’t a pie in the sky idea either. People all over Australia use the aggregation play when selling to a property developer. Just take the residents of Frenchs Forest as an example.
62 Residents and One Sale
As the amount of available land decreases, property developers try to use the aggregation play to buy from multiple people.
62 residents of Frenchs Forest noticed this. Then, they flipped the script.
Instead of each selling individually to a developer, they banded together to sell their properties. In doing so, they created a development “superblock” that has instant appeal to developers.
By combining each of their small blocks, they create an enormous chunk of land for developers to build on. This means that developers can see more potential in the land that you're selling. This makes the land more desirable, which makes it more valuable.
David Tomlinson, who’s one of the 62 residents, spoke about the idea. He says that the residents held a backyard meeting after several of them received letters from developers. During the course of the conversation, the collective discovered something remarkable.
They could get more for their properties if they sold collectively.
This prompted the idea for teaming up. Together, the residents can now offer 4.3 hectares of land for property development. More importantly, recent rezoning in the area allows for the construction of high-rise buildings.
The residents hope that they’ll achieve a $200 million sale with this collective effort. That works out to over $3.2 million per resident.
Clearly, there’s potential in using the aggregation play.
The Benefits of Teaming Up
The above story touches on some of the benefits of teaming up and selling to a property developer. Of course, the technique wouldn’t work if there weren’t any benefits for developers as well.
Let’s look at what both sides may get from such a transaction.
Benefits for Developers
Property developers face a lot of burdens in their work. Anything that can reduce the workload and make more land available is a good thing for them.
That’s exactly what this technique has to offer. Here are the benefits for developers.
Benefit #1 – A Singular Point of Contact
Think about how the traditional aggregation play works.
A developer canvasses potentially dozens of property and landowners. They then have to work individually with everybody who responds.
Let’s say that they get 20 responses. That’s 20 different people for the developer to negotiate with. It’s also 20 opportunities for things to go wrong. They may secure land from most of those people. But they may not get it from some, which can ruin all of their plans.
When residents team up, developers benefit. Working with a team of residents gives developers a single point of contact. They’re still talking to 20 people. But those people have a collective voice.
Benefit #2 – More Land to Work With
There have been recent efforts in some states to make development on smaller patches of land easier. For example, the New South Wales government has recently made changes to its housing code. These changes make it easier to build medium-density housing in the state.
But many property developers prefer to work on larger projects. A single property development may not generate the revenue that they need from their efforts.
That’s the problem that developers face when buying from individuals. They get a small patch of land, which presents limited opportunities.
The aggregation play changes all of that. When residents team up to sell, developers get access to much larger sites. The combined blocks create more opportunities.
A larger site also gives developers more control over layout. For example, they can mix large properties with smaller abodes to create a full development. Again, that’s not always an option when they buy singular blocks of land.
Just take the above as an example. By combining forces, the Frenchs Forest residents offer developers 4.3 hectares of land. That’s a lot of land to work with in property development.
Benefit #3 – More Sites Become Available
All of this assume that a seller’s site is even suitable for development. There are many sellers whose sites simply aren’t big enough.
That immediately takes them out of the running for developers.
When sellers team up, such sites suddenly become viable. The site may be of no use on its own. But when combined with 60 more, you suddenly have a chunk of land that’s suitable for development.
This is crucial in the current market. Continued Australian population growth has led to the development of prime patches of land. Simply put, developers have to get creative to find new land to develop on.
When sellers team up, previously unviable land becomes primed for development work.
The Benefits for Sellers
Of course, sellers enjoy plenty of benefits from teaming up too.
Here are just some of the positives that come from using this tactic.
Benefit #1 – Increasing Value
The Frenchs Forest story highlights how teaming up can increase the value of land.
The sellers expect to receive about $200 million for their collective block. That’s divided among 62 people to make $3.2 million each.
There are very few properties in Australia that can sell for that kind of money on their own. Even in Sydney, the average property price is about a third of that sum. Those that do sell for such figures are generally luxury properties.
That’s not the case in Frenchs Forest. The higher price tag comes from the potential that a property developer attaches to the land. A developer may offer a higher price than a regular buyer because they’re able to profit later.
This benefits every member of the selling team.
Benefit #2 – It Makes Poor Properties Valuable
Let’s come back to that point about potential.
Imagine that you have a property that’s seen better days. It seems like it’s falling apart and the market reflects that. You can’t attract the price you want from residential buyers. They ask for a lower price because of the amount of work that they need to do.
That’s not the case with many developers.
A developer isn’t looking to buy your property. They’re looking to buy the land that it’s built on. They have other plans in mind, which means the current condition of your property isn’t as much of a factor.
That’s great news for those who own properties that have seen better days.
You’re appealing to a completely different type of buyer. As a result, you’re more likely to achieve a sale due to the collective.
Benefit #3 – Combined Knowledge
Going into a property transaction is a scary prospect for any individual who doesn’t work in the industry. You may have help from other professionals. But you still have to rely on your own knowledge to get the result that you’re looking for.
Working as a team means that you can pool together the knowledge of many people.
Collectively, you can approach the transaction from a much more educated place. That can only benefit you when it comes to negotiations. You pool your resources, knowledge, and time to create the best possible deal for all residents.
That’s something that you don’t have at your disposal when selling on your own.
Of course, nothing is perfect. There are a few drawbacks to the team strategy that you have to consider. In fact, failure to think about these drawbacks could put your transaction at risk.
Typically, there are three issues to keep in mind.
Drawback #1 – The Logistics
Even when you’re working as a team, there’s still a logistical issue to consider. Selling so many blocks or properties at once means you’re working outside of the norm. While a developer and experienced real estate agent will help, you’re still dealing with a lot of extra work.
Understand that selling as a group makes the process more complicated than selling as an individual. As long as everybody pulls together, you can overcome the logistical difficulties.
Drawback #2 – Selling Too Much
The purpose of teaming up is so that you can offer a larger patch of land to a developer.
But there is such a thing as too much.
A large enough group may end up pooling too much land together. Ironically, this can lead to some developers losing interest. Developers that work on small sites won’t have interest in a massive group block.
Consider the size of the site versus the local property development pool. Trying to amass the largest amount of land possible isn’t always the best idea. Sometimes, it’s best to form smaller groups so the land becomes viable for smaller developers.
Drawback #3 – Disagreements
There’s an old saying that goes “too many cooks spoil the broth”.
When sellers team up, there’s a possibility for disagreements to occur. There are more people involved in the transaction and each individual has their own aims. If the collective doesn’t meet an individual’s aims, you may lose that person. In some cases, this reduces the strength of your offering to developers.
It’s important that everybody understands what they’re getting into from the start. The conditions of the sale must offer fairness to all involved. Plus, you need a communication process that gives everybody a voice. You may have a group leader. But each individual needs to be able to put forth their opinion if needed.
Create this structure early on and you reduce the possibility of disagreements arising.
With less viable development land available, developers increasingly look towards the aggregation play. That can play into the hands of sellers. If you can band a group of people together, you can create a more attractive offering to a developer. You may earn more money from your sale and those with less desirable properties can benefit from the collective’s strength.
For developers, the advantages include access to more land and more options.
But there are some issues to deal with. Offering too much land could reduce your buying pool. The group also needs to agree on its collective goals to ensure the deal runs smoothly.
Then there’s the issue of maximising the value of each block before the sale. The more attractive each block is, the higher the price you can attract for the collection of blocks.
That’s where Archistar Property can help. We provide a software package that helps you to determine the development potential of your block or property.
It all starts by getting in touch. Talk to an Archistar representative today to find out how you could make a group deal work in your favour.
If you would like to share your thoughts on our blog, we’d love to hear from you!
Get in touch with the ArchiStar Academy community via Facebook.
Posted on 10 Dec 2018