Developing beachfront land
Sherpa Property Group’s Lead Sherpa, Christie Leet, was interviewed this week by Development Ready about developing beachfront land on the Gold Coast. Click on the soundcloud link to listen to the full interview or read the transcript below.
Developing beachfront land on the Gold Coast
Interviewer: The first episode of our New Gold Coast Development Series, we're joined by one of the region’s most active local players in Christie Leet, founder and Chief Executive Officer of Sherpa Property Group. Sherpa Property Group is a Gold Coast-based private property development business that boasts over 30 years of experience in delivering exceptional land estates and boutique high end luxury residential projects across the Gold Coast and, prior to that, also across the Whitsundays region. Active developments under way include Perspective Two Sea, Perspective 488, and Perspective 202 - all absolute beachfront assets in Palm Beach and Bilinga that are set to redefine the concept of full floor luxury living. Past projects include quality developments in the Whitsundays, Hamilton Island and Cabarita, to name a few, while upcoming projects include offerings in Biggera Waters and Palm Beach. Christie, thanks for your time this morning. Let's get straight into it.
The Gold Coast market is undergoing perhaps a once in a generation boom with investment across the region at record levels. Take me through the drivers of this demand, having borne witness to so many cycles across Queensland and also across the Gold Coast, particularly over the past five years or so.
Christie Leet: Yeah, sure, thank you. Look, there's no doubt whatsoever that it's good times for a lot of people. I think the first thing is, as you said, there's been a number of cycles. So the first thing is, I think it's time. The market generally is of a cyclical nature and as it rotates around it moves into this phase of the marketplace. We're certainly in the cycle, and then we’re supercharged, or at least horse-powered up by a couple of other drivers. I would have thought that one of those drivers is the amount of money people have in their pocket. That's affected by a couple of things, primarily affected by the low nature of interest rates. It's old news, but they’re as affordable as they ever have been or more affordable than they ever have been. So, certainly, people have more money in their pocket.
Other things, even small things, like fuel and other things, are cheaper than they have been and people just have more disposable cash. They're not holidaying as much, unfortunately, or certainly not holidaying as much in expensive international locations. So people get a big bag of money weighing down their pocket and most of them are choosing to spend it. I think the other thing is that there is finance out there for developers and, consequently, developers can provide stock. You can't have a booming market without stock being available and I guess development leads resales, and resales lead to other resales, and that goes right through to the first home buyer so that every section of the market is active. And I think that's really driven by the amount of development stock that's available that people can choose from to upgrade. And that sort of facilitates movement right throughout the marketplace. And last, but not least, certainly migration is a key thing for Queensland, I personally don't think we've really seen that start yet. A lot of people are talking about migration, but in our projects we haven't seen a lot of that just yet. But certainly I don't think there's any real doubt that southerners are going to choose to live in Queensland going forward when they can.
Interviewer: I wanted to ask, what are you seeing on the ground in terms of development site values and how have you been able to position the Sherpa Property Group business to be able to acquire some of these opportunities without overpaying.
Christie Leet: I think the reality is that prices have gone up. There's no doubt about that. Development sites have at least doubled in the last little while. It's probably particularly compounding for us because one of our core values is “less is more”. We don't over-develop a site. We try to under-development a site and we think the ultimate form of luxury is privacy - so things like one-per-floor is, we think, a better form of luxury than super high levels of finishes and four-per-floor. So we've got a mantra that “all toes to the sand” in every element of the property - in all bedrooms, all living areas and all those other things where we can - to the sand. And so it's been compounded for us. But I think you just need to have a dedicated focus on acquiring site. So I'm lucky enough to play that role in our organisation and you've got to be in a position to act quickly and to jump on something that becomes available and you can obviously buy on the market and buying off the market is an attractive way of doing things as well.
I think, from our point of view, we've been blessed to be able to buy some really good sites at reasonably competitive prices and having the benefit of time to settle those sites to get all of our ducks in a row that enables us to then have the finance in place to easily settle the sites and get started. Price is an important component of it, but time is also an important component as well and if you can juggle those two things reasonably well, I think it all comes out in the wash.
Interviewer: Geographically speaking, which pockets of the Gold Coast market are undersupplied and what sort of product is the market seeking and, conversely, are you seeing any regions that are oversupplied by a particular product type?
Christie Leet: I think the second question is easier to answer than the first question. So, no, I don't really think there's too much oversupply anywhere at the moment. I think there is a temptation and I think one of my skills is I ask a lot of questions and there is a temptation to go and buy anything that moves and develop on it. I've often asked a couple of my mentors, “should I jump on this site?” Their comment is “look, that's really boom-time thinking” so there is a temptation for people to go and develop stock that maybe shouldn't be developed in a rational marketplace. And you know while they'll sell it and get it sold, there is a question mark around getting it settled in a period of time, depending on how far down the track that is. While I don't think things are oversupplied, I think you just got to be careful that we don't go and do everything that can be done just for the sake of doing it and think prudently and long-term.
Under supplied? I think most things are under supplied, if not everything. The marketplace that we like to be in most is permanent residential, certainly for the owner-occupier, and ideally land, where we can. Traditionally that means a land subdivision in the in the purest sense of the word. But we've done a couple of really good small lot subdivisions, which I think are very much a way of the future. We brought one site that was just on 4000 square metres. Instead of building 157 apartments on it, we created 16 small lots at 250 square metres each and settled those sites last week and all of those people now have started to build their homes and they'll have a house in the second most undersupplied housing suburb on the Gold Coast, Rainbow Bay. So they’ll have a house at Rainbow Bay on a freehold, not body corporate, title. So that's where we try to aim. We do do medium density and certainly anything along the beachfront or beachside medium density is selling really well and there's a good reason for that, but we'd like to do more of our land subdivisions if we could.
Interviewer: From a developer's perspective, what are the key characteristics of buyers that have purchased in your recent developments and what is it they're looking for, either in the residential apartment projects or the Land estates that you're developing?
Christie Leet: We've been selling to owner-occupiers and, without being too plain about things, if you threw a cast net from the site you'd almost capture those people. So we're selling to people who already understand the area, have an affiliation with the area, love for the area and want to be involved. That started with my first development on the Gold Coast, three years ago, at Scenic Ridge at Bilambil Heights and the locals there that took up that stock – we were blessed to experience that – the sort of generations waiting to get a piece of land next to their family. And really that doesn't change through the balance of our projects. Everyone is sort of almost come from the surrounding streets, or they've come from Brisbane where they've had something in the surrounding streets as a holiday home before - maybe have sold that recently and wanting to get something again back in that particular area and we concentrate on … We push to have the most livable floor plans in our medium density product. We push really hard to have great floor plans that enable people to have a great lifestyle – internally, when they're in our developments, and, obviously, externally with a great location.
Interviewer: With interest rate levels where they are, what impact is this having on the weight of capital in the region, and to what extent are you finding healthy competition in financing your projects be it from traditional or from non-bank sources.
Christie Leet: You know, I think financing is probably one of the key drivers in the marketplace at the moment. If developers can't get good money, it's not going to happen. So I think there's at least three forms of finance, and we certainly deal in all three of those, which is just traditional debt from the big banks, which we found exceptionally active. They used to call them the Big Four, but there’s six or seven now that are really, really active. Most of them, if not all of them, are saying they want to expand their book in the development funding marketplace, which is really encouraging. And you'd assume that they've done their due diligence and have got some good research sort of driving the back end just to make sure that's a prudent thing for them to do. So getting their support is encouraging.
Secondly, there's mezzanine funders, which is a second tier funder who assists in providing extra equity in the form of mezzanine debt. That's very plentiful out there at the moment and very well used here on the Gold Coast.
The third is there’s lots of equity, lots of capital. We try not to use that. We prefer to do our own things, but if you're looking to do a deal and need a partner at the moment there's equity around everywhere. But you could get a project out of the ground if you need extra equity, it's very plentiful. A lot of people have money in the bank and looking for a home for it.
Interviewer: And then, from a construction cost point of view, have you observed inflation increases in the price of materials?
Christie Leet: I think the biggest challenge with prices going up is understanding what the number is, as opposed to what everyone wants the number to be. I think the two are completely different things. I think our challenge is to really understand that the numbers that were being provided are the actual numbers. Because once you sell something, you've locked in the end value. You’ve locked in your income and you don't want to have too much of a change with your expense on the way through.
The first step in price estimation is just to ensure that the number that you're using is as accurate as possible. Whether it's good or bad, the preference would be, for me, for it to be accurate. And then the second thing, I guess, is, we've got the philosophy that we partner with one builder – they’re 5Point Projects – and they're very transparent with us, with their costs and their profitability. So we know that they're stable, they can afford to trade, etc. And also, they're working on our projects and similar projects, so we know what the costs are doing on current projects and that enables them to budget going forward. So I guess costs have probably gone up somewhere in the order of 10% in the last, well, this calendar year and that's a factor that you need to take into account.
Interviewer: From afar, much of the attraction for Interstate groups looking to deploy capital into the Gold Coast market is the favorable planning structure and willingness of the local council to support and drive investment into the region. Take me through how much of an incentive this is for local developers like yourself in continuing to build and develop new projects across the Gold Coast.
Christie Leet: I think that's the reality. I think the Gold Coast City Council are – I don't know if they're very proactive about development – but I think they're very clear to deal with. They've got a planning scheme that you can work with where we're blessed to work with great planners. And we also generally do code-accessible applications, which probably makes it a touch easier. But, you know, you can get an approval through in four to six months, which I think is fantastic. Some of my friends are developing in Sydney and that number is more … it's closer to four to six years. So yeah, we can buy a site, settle in six months time with an approval, which makes funding dramatically easier.
The second part of your question was the other side of that. That is, the officers on the ground are obviously overworked. The volume is increased dramatically, so if there is a challenge for council, it's a resource challenge, not an attitude or a structural challenge, so that they're just, you know, like a lot of busy businesses at the moment, they're under-resourced because of the volume that's coming through but I think they’re doing their best.
Interviewer: Before we move on, there's been an enormous wave of new infrastructure projects across SE Queensland, particularly in relation to the light rail, Star Casino redevelopment, arts precinct and so forth. What impact do you see this is having on drawing people from other parts of the country or indeed from other parts of the State?
Christie Leet: I think the best way to answer that is from my own personal perspective. I moved here 3 1/2 years ago from the Whitsundays. And I think I was probably the most passionate person about the Whitsunday lifestyle, arguably, on the planet. I thought, at the time, it was the best lifestyle destination on the planet to live, to work, and to recreate. When I moved to the Gold Coast, I was a little bit nervous, to be truthful. I thought “I'm going to give away all this lifestyle to come down here and you know, enter into a new business venture, which is the upside, and the downside would be the loss of the lifestyle and gee I was surprised, I’ve got to say. The Gold Coast is an extraordinary place to live, an extraordinary place to recreate. There's no doubt whatsoever about that.
The diversity of activities and experiences on the Gold Coast is extraordinary, absolutely extraordinary. So you have a wonderful place to live. That's continuing to be enhanced by, as you say, the infrastructure projects. I also think the foundation or the fundamentals – this is a Tuesday, tomorrow morning, my swim coach and a few of us will be swimming in Tallebudgera Creek at 6:00 o'clock in the morning - just outside of winter, just an extraordinary thing to be doing. And there's hundreds of those experiences on the Gold Coast, literally hundreds. They’re not all confined to the beach or the waterways. There’s the beautiful hinterland, northern NSW is amazing and if you want to move into the city as you say, all of those infrastructure projects are there as well. So I don't know if I’ve answered your question all that well, but I think the realness of the Gold Coast is very, very rare.
Interviewer: Let's get into the Sherpa property group business. As I outlined, you’re one of the region’s most active property players. Take me through the fundamentals you consider prior to each new acquisition that you make.
Christie Leet: I think it starts with our name, actually. We’re the Sherpa Property Group and that name came as a result of – I was blessed enough to experience base camp via Sherpas when I turn 50 a couple of years ago, three years ago. Four years ago, actually. And we've carried that forward that we're sort of the custodians and the transporters of our buyers’ experience. So I think when we start to look at something, we really have a an end user perspective on what we're looking at. Whether we like it or not is really irrelevant, to be truthful. I mean, we've got to trust our gut. But it's equally as important that our end user is going to like it and love it. And the cap that goes on first is: “Is this a good thing for our customers and our clients to start with?” We look at a lot of sites and we can't do them all, obviously, so we've got to be, and I think one of our blessings is that we are a small private company so we can't do them all, so we're limited to the amount of capital that we can spend. So our choices have got to be good from our point of view as well. And then we work on our four brand pillars. The first one of those is “less is more”. So if we can under-develop a site, if we can turn a site from 157 apartments at Rainbow Bay to 16 house and land packages, that gives us a really big tick. And we think our buyers would prefer to live in a house at Rainbow Bay, than to be one of the 157 apartments. We get to this because we think differently, so innovation is the 2nd component of our brand. The third component of our brand is buyer customisation. So whenever we provide built form, whether it be a house or apartment, we ensure that our builders are very on-side that buyers can change what they choose to change at their cost and at their reasonable cost where possible. So people can customise their own property. And last, but not least, is that we have a strong awareness that we need to do everything possible, generally, the three things beforehand, particularly “less is more” to ensure that when people come to settle their property is worth more than they paid for it. While we’re all running around at 1,000,000 miles an hour at the moment, the markets escalated, we're still very mindful that our delivery is a couple of years away. And we just want to make sure that people when they get the keys in two years time they are absolutely delighted with their product and they are delighted with their value. So we get a little bit of flak that we sell under the market. Yeah, that's OK. It does make it a little bit harder to buy sites because some of our feasibilities don't stack up as well as other developers’ feasibilities. But we want people to arrive at settlement delighted. it's easy to sell things at the moment. Our focus and our awareness is on the settlement process in whatever period of time that may be.
Interviewer: You mentioned that you moved to the Gold Coast from the Whitsundays about three or four years ago. I'm interested to know how much of a change, have you seen in the Gold Coast, having lived in the Whitsundays and now having lived in the Gold Coast? And do you think the changes that have occurred in the past five to 10 years have been a major driver in drawing people into the region?
Christie Leet: That's a really good question. I think it's a combination of both. I think my stage of life and career corresponded with the stage of the Gold Coast maturing, I suppose. I mean the Gold Coast now is over 600,000 people, so it's got momentum of its own. It's not that's not reliant upon Brisbane or other areas. It is a serious city. It's got exceptional people, exceptional business people, exceptional leaders. it's a place that you can make a career, make a life, have a family and all those sorts of things. So I think the Gold Coast really is at a good stage. It’s hard pressed to say it’s just getting started. It’s well past getting started, but it's there's still plenty of opportunity on the Gold Coast. There’s opportunity for developers, and there's opportunity for people who come in and invest in those developments and enjoy an amazing place on Earth.
Interviewer: Take me through some of the existing projects you've got under way in terms of how they came about - the sales process, whether it was on market, off market and then the considerations that you made prior to appointing the project team. You've obviously got a good relationship with 5Point Projects, but who do you use from a marketing and sales perspective?
Christie Leet: I watch what other people do and I guess I've been watching the founders of PRD, Gordon and Archie Douglas, for nearly three decades now and loyalty is certainly one of their key attributes and a couple of other close friends of mine are very, very loyal as well. And I think that's a beautiful attribute to have. So we've been blessed that we've sort of taken our time to put a consulting team together. I think we've got a very, very good consulting team. I think we're friendly with all of our consultants, not that you need to be, but they sort of fit our mix. They understand us. We understand them. So our consulting team is very good, whether they're a small part of it or a large part of it, like our builders.
We do primarily do the sales and marketing internally. I guess that comes about for two reasons. One is, I own a real estate agency in the Whitsundays so sales and marketing has been my background. But probably more importantly, I think we do complex things so our house and land packages at Rainbow Bay - buying a 250 square meter block of dirt instead of something that's governed by a body corporate - was a little bit hard for a lot of people to get their heads around. So we wanted to make sure the vision that that we have, is created and dialogued through the people that understand it. And in project marketing, you're not settling for a couple of years so we want to make sure the representations and warranties are done correctly. But, moreso, we want to make sure the passion and the uniqueness of our projects is communicated properly to our buyers. So we do do that internally.
Our projects are different, I mean, we're doing one at 488 at Palm Beach at the moment, and that site was approved for 37 apartments, and we did freehold beachfront blocks of land 200 square meters each, and we're doing 8 apartments above and behind those big front lots. And, to be honest, that changed the cash flow model dramatically for that project and then enabled that project to work really well for me, personally, so I could do it by myself. But equally as importantly, it enabled us to create something for 11 people that is the ultimate form of luxury. 11 people on that site has to be better in any shape or form than 37 families on that site. And I suppose you could say, well, it's a very finite resource, and maybe we should have opened it up to more people. But I know all the buyers on that project and the three people who bought on the beachfront – to have a house on the beach that's 10 meters wide, on a freehold block of land - it's just going to be extraordinary, absolutely extraordinary.
So I think those sort of things that if we can do things a little bit differently, keep the density down and increase the buyer customisation and increase the buyer value, I think it works for everyone.
Interviewer: There's been a lot of transaction activity in the residential development sector as we've discussed, but not as much in terms of office development. Do you see any opportunities to move into either that sector, or perhaps another sector such as build to rent or mixed use in the future?
Christie Leet: I'm sure there is, to be honest, I would think so. A lot of my friends are doing it and they’re pretty wise. But one thing I've learned is, I've been blessed to interact with a chap called Michael Lasky now for a couple of decades and Michael's very successful. And I love many things about him, but one of the things that I love about him is that he knows what he does and what he doesn't do.
When I was in the Whitsundays, he'd ring me up about once a month and say: “Christie, have you got deals?” and I’d say: “Yeah, Michael, we got plenty of deals.” And he’d go “why haven't you told me?” And I’d say: “They're not the sort of deals you do, Michael. You know, you build shopping centres.” For us, we're not active in the office market and we won't be. It doesn't excite me and I don't have a passion for it. Many of my friends do, and they're highly active in it and they're successful people so I assume that they think that marketplace has got some legs. Certainly the build to rent models, again, there's some really clever people involved in that marketplace, so again, I think that's a good thing. But it's just not our thing.
Interviewer: Now I know you've got to run so just to close out our discussion, are there any headwinds for the local economy on the horizon, or do you anticipate a continuing of existing market conditions over say that medium to long term?
Christie Leet: I don't think there's any headwinds at the moment. I think everyone’s just got to keep their feet on the ground and understand that the tide’s very much running with this at the moment and consequently things are easy and - one of my friends said to me that a sale equals 25% of the process. We’ve still got to deliver things and we're still going to settle things, most importantly. So, I think if there is a “watch out for” it is everyone sort of saying that a sale equals dollars in the bank and not delivering what they promised they're going to deliver, etc. So I think you know quality control is a really important thing. Even though the market drawing along people are still entrusting us with any purchase and invest off the plan. And I think irrespective of market conditions we have an obligation to deliver what we said we're going to deliver way back when. I think that's probably the “watch out for”. Just stay true to your word and that we said we’re going to do this and even though prices may have gone up 20% or 50%, maybe we could cut corners but we don't do that. I mean construction costs - people have got to be prudent of that – have got to be prudent of their consultants and their partners being able to deliver. So there's a bit of a discussion around that. But every experience in life you always encounter somewhere along the line a problem. If you can sit down and understand that problem and talk that problem through, you can usually get on with life. I guess thinking that everything is going to be rosy forever is probably a “watch out for”.
Interviewer: Christie Leet founder and chief executive officer of Sherpa Property Group, pleasure having a chat with you this morning and all the best for the rest of the year and over the course of the years ahead, thanks for your time.
Christie Leet: Very nice thing of you to say. All the best.