Ashley Wain
Boutique property fund manager, Forza Capital, is commencing settlement of its 129 unit apartment complex, Supply Co, located in David Street, Richmond this week.
Completion of the development marks an important milestone in a project that straddled a number of major market shifts.
The site, acquired by Forza Capital in January 2014 at the attractive price of $5,875,000 ($45,000 per unit site), obtained a planning permit in late 2014 and investors wished to proceed with developing the site. Forza Capital raised additional capital from its high net worth client base in February 2015 and commenced sales and marketing of Supply Co in mid-2015.
During late 2015 and early 2016, investment sales in Melbourne slowed dramatically and debt providers substantially retreated from the market. The Fund, which had a rare “non-recourse” construction debt facility from a major bank, was well placed to ride out these gyrations. As pre-sales rates slowed significantly, many projects came to a grinding halt. At the same time, talk of a massive oversupply of apartments surfaced.
While Forza Capital was not concerned with talk of oversupply given the significant difference between ‘mooted’ and ‘actual’ supply, its Supply Co project demonstrates the importance of acquiring well.
Ashley Wain, co-founder of Forza Capital said, “Frankly, we cannot work out how many feasibilities stack up at the moment.”
“We know the cost of construction, the pricing (and availability) of debt, and the cost of sales and the sales rates.”
“When we plug these variables into a feasibility, and then overlay it with the price sites are being acquired for, we cannot understand how many projects will ever get out of the ground”.
The team at Forza Capital has been focused on settlement risk from the outset and takes the view that the sale of an apartment for a big price does not guarantee successful settlement.
According to Wain, their focus was on ensuring the delivery of well-priced, highly specified apartments that would assist the business reduce settlement risk.
“The feedback from our valuers and purchasers has been excellent and our settlement consultant has been delighted by the straightforward process experienced with Supply Co.”
“We are 100% pre-sold and expect no more than 3-4 settlements to potentially be an issue.”
Forza Capital also focused on delivering strong environmental and social outcomes on the site. Numerous ESD features were incorporated into the development, together with the delivery of two major art installations, including a six-storey high artwork. Seven dwellings were sold to a disability services provider, one of the first transactions of its type in such a development.
“Buying our site well enabled us to ride out changing market conditions and invest in value adding opportunities,” said Forza Capital co-founder Adam Murchie.
“Although various elements of our feasibility changed substantially, by having a margin of safety through acquiring the site well, we were able to navigate our way through change while retaining a strong net profit.”
“It also allowed us to invest heavily in sustainability initiatives, which is important to us and our investors”.