JV Opportunity - Proposed 82 x Lot (Resi) Land Sub-Division in Toowoomba Region


Viking Capital is presently working with a client who holds a binding Contract to purchase a circa 10 Hectare land parcel in the Toowoomba region. Our client is currently working through the process of obtaining a DA for a proposed 82 x Lot Residential Land Sub-Division on this land parcel.

The Client does not have the required equity to complete the sub-division on her own once the land is settled under the current contract, so we have been asked to source either a JV Partner for the project, or alternatively someone to purchase the rights to the land and DA under the client's existing contract.

Comments from our Client in relation to the DA:

I have received an update from my Town Planner, and their report for the project looks very convincing with the project now becoming "code accessible" under the Council's new regional plan and if lodged now the DA should warrant approval under general terms in due course.

The full proposal goes before Council's Development Committee early March and I am expecting I will get approval for the full yield of 82 lots.

Viking Capital comments:

Based on Viking's discussions with a couple of Valuers who have recently assessed land sub-divisions in the greater Toowoomba area, we estimate the following key deal numbers to be associated with this project;

Development Land Value Estimates (assuming issue of DA for 82 x Lots) :

Conservative Land Value 'As-Is with D.A.' (Ex. GST) $1,500,000

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Est. GRV (Inc. GST) - 81 x Residential House Lots $12,960,000 ($160K per lot)

Residual House Lot - Est Resale Value (Inc. GST) $ 350,000 (Payable to Vendor)

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Total Est. GRV - Inc GST $13,310,000

Total Est. GRV - Ex GST - (assuming Margin Scheme) $12,236,364 (Assuming Lot 82 Assessed)

Development Costs Estimates (All Figures Ex. GST):

S/Duty for Land Acquisition Cost $ 42,000 (assume $900K land settlement)

Misc. Planning & Consulting Fees - DA + BA Fees $ 551,800 (part DA fees already Paid)

Proj. Mngmnt Fees $ 195,000

Ergon/Telecoms Infrastructure $ 435,000

Council Contributions $1,882,000

Contingency @ 5% of Construction Costs $ 172,500

Civil Works $3,450,000

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Est. Development Cost $6,728,300

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Estimated Equity Requirement

To Assist with the Purchase of the Land $1,200,000

To assit with Project Costs (Float) $ 150,000

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Estimated Total Equity Requirement $1,350,000

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Note:

As stated above the value of the land 'As Is with DA, (once DA is issued), should be in the order of order of $1.5M > $1.6M ... and hence the proposed take-over cost if someone wants to come and take over the entire project would be $1.2M + Lot 82 with residual house upon completion, combined value is circa $1.52M.

Buy-Out Option ....

This being the case any incoming buyer would only need to come up with $900K to settle the land, plus a further $300K to pay out our client's mezzanine funder. This represents a total cash investment requirement of circa $1.2M to secure the land, (noting that the client is happy to take Lot 82, with the existing house on it, once the sub-division is completed for the notional value of say $320K to pay the balance of the proposed purchase price of $1.52M).

Over and above the $1.2M required to secure the land, we would suggest a working capital contribution of another $150K, would be sufficient to satisfy any incoming lender, to enable a sub-60% LVR perspective, and also to provide a further buffer against costs, noting that part of the estimated allowance for DA costs within the project funding summary (as above) have already been paid.

JV Option ....

If however, there are several parties interested in forming a Joint Venture, and perhaps in this scenario the current mezzanine lender might opt to 'stay in' the project with their $300K investment to date, then incoming investors can contribute the balance $1.05M remaining cash requirement via proportionate investment parcels ... e.g.

- if 3 x investors with the mezz lender staying in, then the investment would be $350K each for a 1/4 share or

- if 3 investors with the mezz lender being paid out, then the investment would be $450K each for a 1/3 share etc.

Estimated ROI

Based on obtaining a private non-bank construction loan of circa $7.33M, at an LVR of 59.9%, over a term of up to 18 months, and at an indicative interest rate of circa 13% per annum, (which Viking can assist in providing), our preliminary funding table estimate indicates the following profit returns are likely (and assuming completed stock is sold down at a minimum rate of 3 x lots per month).

  • 118% ROI on total cash invested

  • 23.6% on total project

  • Estimated EBIT is $2.2M (after return of all invested capital and payment of sales commissions)

If this project is of interest as either a straight 'buy-out' or perhaps as a JV of 3 or 4 parties, please feel free to call Gary Simonite on 0438 331 116 for a confidential discussion.

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