#CBD | Demolition | 999 West Hay [48m | Office]

[jackso]

Guaranteed to close in 6 months.

[jackso]

Originally Posted by Bullswool

It also doesn't help that we do have the wealthy Asian investors trying to build Belmont, but their plans keep getting knocked back. It's not just the banks that are to blame.

They haven't had any plans knocked back yet. There is still hope

[jonwil]

Originally Posted by AndyGM

Perth will always suffer from this problem for office projects as it is intrinsically linked to the vary variable resources market. You're living a lala land if you think banks will lend on speculative developments in a boom/bust economy like WA.

Is residential as tied to the boom/bust economy as office is?

[steve_87]

Just to rub some more salt into the wounds.

Chinese developer to develop Sydney’s tallest building

Shanghai-based developer Greenland Group has purchased a major site in Sydney’s CBD and plans to develop a 240m high residential tower.

In its first foray into the Australian market, it is understood Greenland paid more than $100 million to Brookfield Asset Management for the former Water Board site at 115 Bathurst Street.

In 2012 Brookfield gained stage one development approval for a 70-storey tower on the site, containing 420 apartments.

http://www.propertyoz.com.au/Article...x?p=16&id=7353

[AndyGM]

Originally Posted by bub1001

I feel like you yourself are living in lala land if you truely believe that WA is a purely mining, boom/bust state

In terms of commercial property that is exactly what WA is. Even if the rest of the economy is more stable, commercial office space in the city is dominated by the resources industry.

The propensity of banks to lend is based on risk. There is very little 'reward' aspect in their calculations as they will only ever get back a certain amount of interest.

Therefore, the big potential returns in a boom location like Perth (eg super-rents resulting from very low vacancy rates) have a much lower impact on their decisions than they do for developers (as the banks wouldn't see much/any of that money anyway)

What matters to banks more than anything else is the confidence that they will get their money back if they lend it. In a boom economy there is a double problem in that if the economy goes south then not only will the developer/building that they funded go broke, when they foreclose the building may not be able to be sold afterwards for enough to cover the money owing.

In more stable markets banks are willing to take a risk on speculative developments because even if the developer fails and goes bust, it is likely that the building will still be worth enough to cover the remaining liability.

[AndyGM]

Originally Posted by jonwil

Is residential as tied to the boom/bust economy as office is?

I think the problem with resi is more to do with the culture of Perth and the lack of a population adapted to high density living.

Haven't actually spoken with any bank people about residential but my thought would be that the off-the-plan sales to get funding from banks would need to be higher in Perth for two reasons: Firstly, because there isn't a big apartment market in Perth so prices would invariably be less stable (and therefore higher risk) and secondly, because there are less experienced property developers in Perth with the reputation and history to give the banks confidence in the product.

To put it in perspective, the banks would probably be happy to lend to someone like Finbar with very few off the plan sales because they are an experienced, profitable developer with a proven record of completing projects on-time at a decent profit. However in the small Perth market they would probably baulk at lending to pretty much anyone else without huge pre-sales.

[Tandax]

Originally Posted by AndyGM

In terms of commercial property that is exactly what WA is. Even if the rest of the economy is more stable, commercial office space in the city is dominated by the resources industry.

The propensity of banks to lend is based on risk. There is very little 'reward' aspect in their calculations as they will only ever get back a certain amount of interest.

Therefore, the big potential returns in a boom location like Perth (eg super-rents resulting from very low vacancy rates) have a much lower impact on their decisions than they do for developers (as the banks wouldn't see much/any of that money anyway)

What matters to banks more than anything else is the confidence that they will get their money back if they lend it. In a boom economy there is a double problem in that if the economy goes south then not only will the developer/building that they funded go broke, when they foreclose the building may not be able to be sold afterwards for enough to cover the money owing.

In more stable markets banks are willing to take a risk on speculative developments because even if the developer fails and goes bust, it is likely that the building will still be worth enough to cover the remaining liability.

Exactly, history shows that Perth hasn't been a happy hunting ground for the banks either. During the late 80's at the height of WA Inc, banks were lending like crazy due to super high interest rates(17+%) to many corrupt businessmen and as a result, many speculative big office projects went ahead without any precommitments such as QV1, Central Park, Exchange Plaza, Westralia Square...When the recession hit in the early 90's and these projects just got completed, they were literally all empty and office vacancy skyrocketed to over 30% and took a very long time to recover.

The banks lost a lot of money and ever since then, no speculative office developments ever got off the ground in the CBD without any precommitments from the banks and this scenario will not change in the near future as to what they think about the Perth office market.

[anoraxia]

Originally Posted by AndyGM

To put it in perspective, the banks would probably be happy to lend to someone like Finbar with very few off the plan sales because they are an experienced, profitable developer with a proven record of completing projects on-time at a decent profit.

which is ironic since finbar have their own rule requiring 100% debt cover in resi presales (see the chart in their investor presentation). it's one reason that they've become an experienced, profitable developer.

[AndyGM]

True, I'd forgotten about that.

[Sanj]

im guessing their "debt cover" levels are lower than most though with all the JVs that they do

[AndyGM]

Seems like facility limits are around 50 per cent of projected project revenue on average.

After monitoring their developments over the last few years they never seem to approach using the whole available debt facility on most projects though.

The figures are on page 31 of their most recent project update

[Melbcity]

Originally Posted by bub1001

I feel like you yourself are living in lala land if you truely believe that WA is a purely mining, boom/bust state

I've seen one of my best friends make millions in the space of a year on property price growth during a mining boom and also seen a distant friends multi million dollar company go broke during a mining crash.

I myself saw about a 35% value rise in the space of a year on my inner suburb unit during a boom then see it fall to under 15% in the same time during a crash.

I don't know what part of Perth you are from but his comment was 100% valid.

[Citystyle]

Perth's vacancy rate figures are distorted anyway.

[Storm City]

Article in the property section in today's West saying that QUBE are offering 15-20% discounts on rents for pre-committed tenants in 999 Hay st.

They are looking to move the first tenants in early 2015 so hopefully UC soon.

Reading it does seem a little bit to like a fluff piece to gel up a bit of interest, unfortunately no link.