Welcome to Episode 13 of The Constructive Finance Podcast.
Today, Dan spoke with Syd & Lachlan Walker of Place Project Marketing about their market views, opportunities and challenges they have faced and some advice/lessons learned thus far in their careers.
The podcast will be released every fortnight on Tuesday and will feature an elite developer discussing these same topics.
The podcast will be available to stream from iTunes and via the HoldenCAPITAL website.
For more information about the podcast or getting involved please email paige@holdencapital.com.au
Read the full transcript below:
Daniel Holden: Hello everyone. Dan Holden here from Holden Capital. Thanks for joining us today. We're here with Syd Walker and Lachland Walker from Place Project Marketing, who, together with Bruce Goddard, make up the team who are heading Place Inter-project Marketing. Thanks for joining us, boys.
Lachlan Walker: No worries, mate.
Syd Walker: Yeah, good to be here, mate.
Daniel Holden: So, thanks for taking the time out. Perhaps we can start with you, Syd, and maybe give us a bit of an overview of how you got into property, initially, and also, the pioneering days of PID, and how that eventuated into you heading up the place.
Syd Walker: I come from what I call a very different background. I was actually a stock and station agent for 20 years, so I was taught by what I would call industry experts. I had to deal with clients and all that sort of thing. I was dealing with livestock, wool, and amongst all that was rural-property sales. I've got a pretty, what you'd call, a very varied background on ... All the skills that I picked up. It doesn't matter whether you're selling stamps, or selling livestock, or selling property, it's the same skill set. You've just gotta think about how you're gonna make that.
So, when I left the stock and station agency business and we came onto the coast and we moved to Melbourne. I had a young family and we were going through a transition in life, sick of being west of the great divide and coming home to the coast. I had three kids and all that sort of thing. We settled down in Melbourne and for about three months, I didn't have a job. So, I'm looking around thinking what can I get into. Everywhere there's real estate signs, everywhere. So I thought, well, this is the business to get into, because not all that difference between selling livestock and selling property. The difference, I'll just tell you what the real difference is, in livestock, when something dies, you've got nothing to sell because the animal is dead. In real estate, when someone dies, you've got an asset for sale, so you've got something really to sell. The same processes are involved in that part of it.
I thought, I'll get into real estate and I actually started off with an LJ Hooker franchise, I think it was 12-15 months I think I was in there. I struggled real hard in general real estate. I struggled because of ethical issues and all that sort of thing. I just found that it was not my scene. Then one day out of the blue comes a call from Archie Douglas, one of the two brothers who headed up PID. They had a rural background and they said, "Syd, would you be interested in buying our business?" I'd had long enough with LJ Hooker. I thought, I'm getting out of real estate. I had a look at the model and everything and it was one of the best decisions I've made in my life.
It was a good brand, clean brand. They were project marketers and they were industry leaders, so it was just an absolute pleasure going into that business. From there on, and then I had 15 years with them under their brand and all the rest of it. Then the Colliers take over of PID. Essentially, from my perspective anyway, that Colliers focus was on their brand, more so than the PID project marketing brand. They absorbed the corporate brands into their name, which is good for them. Today, they operate under the Colliers brand. From my perspective, our brand was gone. From a project marketing point of view, not from a real estate point of view.
Hence, I ran into Bruce in Brisbane. He was going through the same change of what's called real estate life or project marketing life. We approached the owners of Place, who happened to be, dare I say, going back 10 years before of PID people, that had rebranded the place. There was all these synergies that worked. We knew each other from the past and it was a lot easier to get into the relationship. Hence, we formed the three way split, one third with the Place owners and one third with the Goddard family and one third with the Walker family, so that's how we started.
Daniel Holden: That's good to know. I didn't know that myself. That's very interesting, so that's good to hear. Lochy, I guess tell us about, when I first met you, you were in the Colliers team, so maybe tell us about if there was life before that and how you ended up in the role today.
Lachlan Walker: I must say, Syd did everything in his power to get me out of real estate.
Syd Walker: All true.
Lachlan Walker: I still ended up here. I went to uni and did all the uni stuff after school. Did my bachelor of commerce and every degree under the sun, but ended up working in an accounting firm for Grant Thornton actually. I did a couple years there earning my stripes. To be honest, I just got over seeing the back of house and giving jobs, type your numbers in and away you go. I wanted the client facing thing and I suppose I was just the shits with it all. I ended up hitting Syd up and seeing how to get in real estate and the opportunity came up with PID so I started with PID research. Back then when PID hadn't merged over to Colliers, or going through that merger process. Then I got the call up into Colliers itself and ran the research team, worked very close with the project marketing.
That was going through the GFC so it was a very, very tough space. I remember coming into a sales meeting just out with Colliers. They brought up all the projects outside. You know, Scott trade, McCarson, Empire Square, Vision, every high end project you can imagine I'm thinking to myself, holy shit where's this gonna go? So history is history. The market changed and we went though the GFC and I suppose I started looking around and thinking to myself, where do we go next?
At that point, that was when Syd and Bruce were going through their changes and we all sort of, it was the perfect storm I suppose, we started the week before the Brisbane floods. Couldn't get better timing than that.
Syd Walker: That was a challenge all on its own. Imagine, one week before we start a brand new business.
Daniel Holden: Wow.
Syd Walker: You can imagine the capital that was required and all the rest of it. All of a sudden we're ... We went for nine months without a settlement.
Daniel Holden: Wow.
Lachlan Walker: Sitting in the back office at Ascot, this little tiny box and the rent's coming in. We're going there's no way Brisbane's gonna flood this is all big story. [crosstalk 00:07:11] Everything's changed a bit, we've gone through some ups and downs since then.
Daniel Holden: Well that's very insightful, that's good to hear. So maybe, I guess from an operational point of view, you guys can give us some insight into the difference of you guys and other groups and probably more around some critical decisions you've probably made around as Place in the new brand and evolving as a new brand. I think that's ... The journey that you've come along would be interesting to hear as well.
Syd Walker: Yeah I suppose. If we look at the Place brand and how we could do it. When we started off out in the suburbs and we're first at Ashcroft and then we're in Bulimba which is the main, the little place, the corporate office, we were perceived as being just a suburban real estate agent. We just couldn't get our brand out. Then the Place group made their decisions about, shifting of East Brisbane, looking at head office functions and all that sort of thing, so that was ... Ended up being the perfect place. Close to the city, but not paying city rates. We had to establish the corporate brand, we had to get that up and going. I think one of the catalysts was we, Lachlan and I, being around to see just about every development in Brisbane in that first 3 or 4 months. There was a change on where, developers would be doing their own projects and they're all working for new blood. We're all pitching against the corporates, I got to say that was the main competitor at the time.
Lachlan Walker: People were looking for solutions. They were looking for results.
Syd Walker: I think it was also, coming from my background being around the bush, you strike. You don't mix words with people who are looking for honest answers. One appointment we got took six months after we'd held the interview. Just didn't hold back on what we thought it was and where the weaknesses were and all this sort. I've gotta say, the underpinning of our business was the research side, which as Lachland said, there was a lot to consider we he came into the business. We he left Grant Thornton was ... I said to him, "Now you going to get into property, start in the research side, get to know your business, understand it and your trainings and all the rest will not only empower but allow us to move forward." With that behind us we pushed on.
The difference, I suppose, between us and our main competitors are our products. So the corporates are probably a high competitor. It's always around but you know, they come and they go and all that sort of thing. The corporates have got a pretty tight structure. They're reporting lines are more at risk and I think our ability, and our biggest single advantage is the ability to change direction on a pin.
Yeah it's like a dime, it's all a sudden, we're turned around and we can change, make decisions and that can be week-on-week or month-on-month. That's a huge advantage when we see something that's coming. But there's no backin' off decisions.
Lachlan Walker: As the market changes, and we're going through a little change at the moment, that ability to make a quick decision and also act upon it at the same time is critical I think. It also helps us, we don't get thrown into a project, we do a lot of work prior to taking on any project and that's probably a critical point of what we do as well. At the moment we're knocking back more projects than we're taking on.
Syd Walker: Yep.
Lachlan Walker: Because it's not that we don't need the work, but we want to make sure that we're taking on a project that's gonna, wanna deliver, one it's gonna settle, it's gonna val up, and we're gonna be able to sell it too. It's a tough space and we just need to make sure we're doing it right.
Syd Walker: I think also too that the other really important thing for us, when you're starting up a project management business, is that the Place group had a sensational brand. It was clean, crisp, had no bad rep. It wasn't like the big chains that, you know, you meet someone New South Wales and different chain and they tell you how they've been ripped off or whatever. The Place brand was the epitome to me of what PRD was when I first went into PRD 15 or 18 years before. The synergies were so beautiful just to pick from. It was easy, once you mentioned the Place brand, people knew it and ...
Lachlan Walker: Brisbane people, yeah?
Daniel Holden: Yeah.
Syd Walker: Yeah. Brisbane people, that was what we wanted to be. The core centric was the Brisbane 5k ring. We made a corporate decision that we were gonna sit in the green.
Daniel Holden: Well that's probably somewhat answered my next question. I'm gonna ask you anyway because I think this is probably more about the key lessons you've learned along the way and how to translate it into what you do now. But I'd probably re-word that to say, what are the things that you guys now do? Because I guess you were in that corporate environment and now you're competing against corporates. Without naming names, if a corporate company comes in to pitch on a project you guys are pitching on, what are the things that you then say, "Well, but we can do this." Obviously nimble, dynamic is one thing.
Syd Walker: I think the one thing that I can say this without ... Because the corporates, they've got some in their own strengths, right? There's nothing wrong with them as a business model, is it? Where we're completely different is that on the marketplace, in the 5K inner ring, is the ability to get what we would call market intelligence. Because we've got 300 sales people, in the raising side and we're mixing with those people who are a great source of what is going on in the market. We are now face-to-face with two and a half thousand buyers a week, getting the market intelligence to be able to make decisions of the future for us. That in itself is just, there's no one in the project marketing space, that can compete with us from those visitation orders, or size of their data base or really active people so we're not into, let's call it the telephone book database. We're working with databases of real people and from that information we make some really good decisions.
Daniel Holden: So, we've seen the evolution of developers moving from local agents, some of them progressing to in house, some of them taking on, I guess more channel market type approaches to getting their sales. Most of them I guess wanting to build an investor list, ultimately themselves, that they think they're capable of managing. Two pronged question, where do you see the future going in sales? And also, with pre sales becoming such a big factor particularly with the finance market tightening, where do you see that evolving over the next 12 months?
Lachlan Walker: I think it's a continually evolving equation there Dan, to be perfectly honest. You get told one thing one day about pro-sales and the next day it's completely different again. That landscape of finance is evolving us as agents, so we've just got to make sure we're doing the best job to get those results and to try and hit above it. The hardest thing we've got right now is buyers are pretty thin on the ground. People are cautious. They're taking their time to make a decision. That's the local market, per se.
I don't see the investment channel space disappearing. There's definitely gonna be some pressure around that and everybody's aware that commission rates are changing daily, there's different incentives in the marketplace. Buyers are aware of incentives in the marketplace. They're getting offered various incentives to different projects, etc., etc. Where that stamp duty though to different things. Melbourne at the moment is going though a stamp duty charge, which is dragging buyers away from Brisbane and pushing them down there probably just to drag potential sales forward a little bit.
I think it's a difficult question to answer. It is an evolution. I think every day it's a different story, Syd. We still do it. We're still seeing sales on the upper end. They're hard to close out because people, those guys know what they're doing. They do know what they're looking to purchase. The investment market, there's a bit of a square zone and people are conscious of valuation coming up and similarly coming up in finance, was probably the big one.
Syd Walker: I think over the [inaudible 00:15:57] the last market. There was a completely different attitude from a developer who would look at ... And we would require they be doing 10-12 months to get pre sales. No, that was totally typically another thing. [crosstalk 00:16:14] Come following the GFC and Garnaut that, I think the one Hamilton, I think the project over there that all of a sudden they sold them all out in four weeks or whatever. That to us we'd never heard of and then when you start looking at that process then all of a sudden the 3 month pre-sale period came in. The presale period of 3 months was who had the best telemarketers and who did this and who did that and more research, so to a great degree in Brisbane and probably other places too in the South they probably created their own problem.
What we are faced with today given that now, that the last twelve months [inaudible 00:16:50] if you look at the way that projects have changed and evolved and what the products are in each project now is that if a developer comes in to me and says, "I want this. I want these presales done in six months on a hundred things." I'll say, "See you later," just as brutal as that. Unless you go twelve months and the higher the price, let's say you're getting into earned occupy space, you might only make one and a half sales month, which is three in two months. And they are hard. In the first three months you won't make any sales. It's a completely different thing. The other thing is what you've gotta say is previously all those developers in essence are either gone, gone broke, retired, or gone on and done something else. We got whole new breed of developer who only understands one thing, fast sales, pre-sales, pay the comps to the channels and let's move the products through.
Lachlan Walker: And easy finance.
Syd Walker: And easy finance. Those days are over.
Daniel Holden: Back to the normal market. Back to what it used to be.
Syd Walker: I don't know what a normal market is yet. This year is the normal market. The other thing is what we did ... Some good advice to people was, 15 months ago, about October, let's say 12 months ago, we started saying we're not taking on any new projects that are [inaudible 00:18:14]. This year we're gonna pick up the benefit of ... Projects are in. They're gonna be smaller. They're gonna be more owner occupier driven. And we're gonna have people convinced that their rates are solid, they've gotta accept. It's no good bringing them out, telling me we're having a bad month in South. Because if we had, start with the basics, if the inquiries had dropped from 100 or 80, whatever it is every two weeks, then they're down to 20 a month.
Lachlan Walker: I was 60% down in South from this time last year. [crosstalk 00:18:48] Across the marketplace, not just us, that's everywhere.
Syd Walker: The 60 projects across 2015, 2016 they're 60% down and then you take that last December quarterly down 72%. We're entering a new era now, get used to it. This year this first quarter is gonna be another bloodbath on numbers. It's not in our business sense, we're bringing some really big sales this month. But the problem is that I've got, let's say I've got 20-something people out there doing deals, but they're bored because they're only doing one deal a month and that's a big one, right? The big one is, no channels involved, nothing.
We're dealing with really good people so you're back to dealing with what are called the salt of the earth. That's a completely different group. They don't care when you say, oh read this. They don't read the papers. Because they're just so, one ... The last half a dozen sales we're talking to, all the individuals have sold something for two million or whatever it is. And they might be one and a half million, they couldn't care less about clients hiring them. So if that's a really good position, I like that market because [inaudible 00:19:59], I love that signer. And they're people that stick with you for life because everyone of those buyers will bring another buyer in because their relationship to [Wyatt and Marissa 00:20:08].
You got a whole different world. 90% of the brokers in Brisbane had no idea how to handle it. They're only pressure point is blame someone. It's a great world.
Daniel Holden: You've touched on a great point there, which is having a, I guess an understanding of it and a business model is something that we all should, business people have. They have their business plan, their business model, and adapts through cycles. You'd be surprised I guess how few people, entrepreneurial as developers are, some of them don't have business plans that cater for effect if the market changes and things move. It's an interesting thing.
Syd maybe the next question I guess, property developers, in [Verde Commons 00:20:53] come in different shapes and sizes from a mom and dad doing a splitter block, which would still probably create a good product, end product right? Right through to middle market private entrepreneur property developers, right up to big greats. How do you guys, I guess, navigate and accustom to what they're wanting so that they see you guys as the right choice?
Syd Walker: I think just to start out with, people talk about culture and I always wonder what their definition of culture is. To me it's just if you like someone or you don't. I've gotta say in business and development particularly, you don't actually have to like someone to do business with them, but it bloody helps. It bloody helps.
Lachlan Walker: People like doing business with you.
Syd Walker: And if you can't strike it in the first meeting, you know if something starts badly it ends badly. The first year is gonna be a sort out of lots of things including who calls himself a developer. Developer's a really loose term that's been used for the wrong reasons by the wrong people who think whatever. Probably the biggest section of the Brisbane market is, let's call them developers, just for the sake of a word. It's what are called mumsies and dadsies who go on doing 6 packs and 8 packs and all the rest. Not any of that in the last couple of years ... They've built them and the banks have funded them without sales. Blows my head off why anyone would want to build something that they haven't got a sale in to prove that what they're doing is correct. That's probably the tragedy this year that's going on in that space.
Interestingly is the banks are actually ignoring those people because they haven't made sales. Because they've built, and finished, and they've gone on somewhere, and so when are we getting our money back? So there's a whole mindset going. But those are the people, the quiet ones, let's call them that, 90% of the population that you never hear from or whatever. There's a huge effect going on with that thing. When you get into other developers like I think the corporates and I think the ones that watch their phrases and all the rest, they've got-
Daniel Holden: The strategy.
Syd Walker: Yeah they've got strategies and whatever. And they are structured. They're like well funded, all that sort of thing. They've gone in house generally on their marketing teams and more recently that's been the same. They'll come back in the market when they need to, and they'll use people like us because we have a ... In a marketplace that's like Bulimba, they'd be stupid not using a place we control like the Upper End and all that sort of thing.
So this year, how a development's gonna look in twelve months time will be, I think, a completely different animal from that. But I also think that anyone, to any list of core individuals, anyone individual who wants to get into the marketplace and looking at the sights or whatever and doesn't approach an advisor, and we call ourselves, we've got two organisations with it and we're Lachland Heads Up Place Advisory.
His job is not only to not only look in the rear vision mirror to see what been but also to head up our connections and our wider Place group offices and all the rest of this, try and get a train for the future. What someone got. So you got to be an absolute idiot not to go and get the facts, and find out where you sit. And if it's a case of walking away from sights, walk away. For Christ's sake. It's just, it's as simple as that.
So, where do I sit? I think this year is still going to be messy. I think because it's years, Brisbane's biggest settlement I think is on this year?
Lachlan Walker: Yep.
Syd Walker: And that's gonna test. But mind you, as Lachland keeps reminding me, is Brisbane in any suburb, it is not one market. There's probably half a dozen markets within a suburb and you've gotta know, which market you're gonna play in. If you're not playing in that market, you deserve to lose money. That's your decision. So, you've gotta understand up and drop. So, it's critical.
Daniel Holden: That's a good firm point. I like it. You've no doubt seen investors. You've no doubt got a loyal investor base now. You've probably seen that investor appetite change over the last, since you've started years and years ago, particularly in the last 12 months. Can you talk to that and how you've seen investor's expectations change? Whether that's in terms of size of apartment, in terms of location, in terms of amenity. And how that shapes what you guys take on as a project.
Lachlan Walker: I think the investment market, or the investor market, it definitely has gone through a big change the last 12 months, probably more so last two years. People who come through our doors these days are very, very well researched and constantly talking to our team saying, "Guys, you have to know more about your competition." These guys are going around and they're shopping 10, 12, 15 projects. They've got no issues asking other sales teams questions about their product. If our guys don't know the answers, they look under-researched and probably gonna lose the buyer as a result because they don't know what other people are offering and what the positive and negatives are of each product. I suppose that investment space, they're very savvy.
In terms of what we do, and I suppose lastly we do try to see ourselves as a very strong voice in the industry. We do try and do as much background work on the marketplace, what's working, what's not working. We love to be seen as a reliable source of information, as well, if there is one. Being very open with our comments. As Syd said before, we're not short on telling the truth. I think that stands in good stead. That's probably why we've got some sort of following out there. We work very, very hard on our relationships. The big word in our industry is trust. I think that's the one thing that we try and set ourselves apart.
No matter if it's a referral partner we're working with, or a direct purchase, or an investor. No matter who it is, if we're telling the truth and we're providing good information, generally if we don't get that first sale, we'll get the second or the third one. People will come back. They're still in our database. They're always looking for information. We try and add that research component to everything we do as well. That's one thing that probably does set us apart from most other agencies out there is we do have a very strong local market understanding.
Daniel Holden: Well that's good. I saw it from the market fundamentals, a project from a developer's point of view, a feasibility has revenues, costs and obviously that helps guide their decision into taking on a project. I'd be interested to hear what your push buttons are or insights into how you decide on what project you take on board. You've got more than just a feasibility toolkit. You've got the developer. You've got the other side of the matrix, which is marketing channels or the in market. I guess maybe you can give some insight into how you decide on what projects you take on.
Lachlan Walker: We're pretty risk adverse at the moment. I think you sorted out there, mate, developer. Developer's probably a big one for us and as Syd touched on before, if we sit across the table, and we're very much an eye-to-eye, belly-to-belly sort of group, if we don't get along with people we're dealing with, we probably won't take the project on in the first instance. We always do a lot of work up front. Raise such wires and, again as Syd said before, we've got a very good understanding of the local marketplace and if there is a market there for it.
If there isn't a local market, we will try and go through our channels. Obviously the Chinese side of thing's a bit softer these days, so that's not the one-size-fits-all that it used to be. It's constantly evolving and what we might turn back today we might take on in twelve months time if things change and that's part of our adaptability as a brand and as a service. We're always monitoring that marketplace, looking for opportunities.
Syd Walker: I think I'm always fascinated because I get the good jobs of ...
Lachlan Walker: [inaudible 00:29:23]
Syd Walker: I get the call, I get the interview and all the rest of it, and I start talking about a project. If they've worked up a project and it's presented to you, in what I call an architect's wet dream, I'm pretty soft on ... Let's say, well, I'm starting to lose interest pretty quickly because first thing I want to know about is how'd they pick the market and how they justify the work up. You know there's some really dumb things go on when people are putting projects together. Like, when you accept that there's one bedrooms in a project, right? Because it's just the way floor plans work, and all the rest of it.
So if you can work through a project and this time we're gonna know where it is, what should be the dynamic? If your client changes your whole subject with one little small project, you're gonna be [addicted 00:30:10]. So you've gotta work with why the hell are you there and you gotta go, well what's in it for the person's who's gonna buy it? So you start with a market and work backwards.
It's still ... My agents have been around doing this, we're old school, we've got this. If I've got a bad feeling about it before I even start, I'm shutting the conversation down, see you later. It's not about insulting me. There's probably someone else out there better than me, and I'm sure there is. I wish them luck. That's okay.
When you start talking about companies, it's they've approached us, you gotta get the comfort in there. The other thing is you always want to know is how well funded they are, because, at the end of the day our business model is such that we rely on the first half of commission to fund our business, you know to get through a project, and the other half is provided at the end. It's always about making sure that our business model fits in with their business model.
Daniel Holden: Reliable counter-pocket.
Syd Walker: Absolutely. Most of them are. Then you get the flippant ones. You go, as soon as someone starts wanting to ... Giving me the wrong signals, I get a bit ... The other thing is it's a real estate thing. The inexperienced ones go in ... We've got our basics now, we've got a model and what works for us and we've got the back of house, which is locked one side of it, an advisor, we have to pay for that somehow. We punt those little fees. They're not [inaudible 00:31:41] ... They're pay them a monster, which is fine, it's all good because they've got no obligation on this house or ...
In our business when we got as good an advisory team that's around, that understands the basis of the whole thing, and then you wanna argue with us about fees and things like that? It's little things ... that if you're gonna pay peanuts, you get monkeys and become the zookeeper, it's all good. From a business point of view it comes down to where it is, what it is, what the product is and can we sell it, why are we there.
Lachlan Walker: And we have some fun along the way too.
Syd Walker: Okay. It doesn't matter how you look at development and I'm ... I don't know one person whose in the development industry who thinks it's an easy gig. It's not an easy gig and you've got to have some serious fun along the way. It's bloody hard work and it's not without ... A great thing we're in is dealing with human beings. If you wanna be shit on, well, deal with human being. That's why only the best quality of human being around us and we all have a bit of fun and know that outcome, we'll all make a profit, whatever your definition of a profit is.
Daniel Holden: That's some very good advice. One thing you did say, we've got a very similar thing as a financier senior talking to somebody in the first interview, which I like to say is headed by [inaudible 00:33:06]. He'll tell ya a long story, but the gem is when they say, "Oh, I saw it in Primesight." I go, "Right, I saw you was advertising Primesight for a whole month, and you were the biggest monkey that rocked up and paid the biggest check, right? Okay, good. Meeting's over. See you later."
Lachlan Walker: Good advertising campaign.
Daniel Holden: Exactly. [crosstalk 00:33:28] But it's very important, it's why are you here, why are you here, why are you doing what you're doing? Is it because you did the homework and you thought that that's the best suburb? And look, at the end of the day, if they did all their homework and they engaged guys like you to go and research and say this is the best suburb, it's under-supplied, it's got demand, and they end up buying a sight on Primesight, it's not to say they're idiots, it's just to say that they've ... Why did you do it? Let me understand why you did it, how you did it, and the reasons why you're doing it can be a big influence to why there-
Syd Walker: It makes it worse that they're the first timers. That is just unbelievable, you step into something nowadays. Our business model was always about getting somewhat small with 16 units or 16 whatever things and then working with those and make 16 from them and then we find the 32, and then we find number 60 and a 100. And as we're all growing together, it's the best way. But when you come in and you go 300, 300. "I just bought 300."
"Oh, and where are you from?"
"Oh, I'm from the Sydney or Melbourne and what's your first time in Brisbane like?"
And I go, eyes nearly rolling in the back of my head, go, "Boy, oh boy, are you in for a ride."
Lachlan Walker: We're of the opinion we like to pitch once, get the next job because we've done it properly. There's no point working all the time on pitching the business when you don't have to.
Daniel Holden: Great, 100%. So, Lachy, I read your reports with interest, I like them. I'd send them to people. I think they're very interesting.
Lachlan Walker: I'm trying to stay positive, mate, that's what I like.
Daniel Holden: [crosstalk 00:35:07] You're a big fan I guess of the market growing into a price point that is different beyond the typical investor market channel range, and I followed it with interest because I think you're spot on the money, or you're proving to be spot on the money. Let me correct myself there, because the market has changed and you're spot on.
We've seen the investor sales channel grow, grow, grow, and then all of a sudden, this is Brisbane-centric here, drop off a cliff, in my observations.
Lachlan Walker: Yeah, very quickly.
Daniel Holden: And you guys are kinda reaffirming that in the last couple of questions. We saw investment channels as a good thing through I guess, '14, '15, '16, and then now, the developer's gotta kind of take heed and adjust their business model and the way they do things. What's your overall assessment of SAQ and how do we decipher the ...
Two fold question. One, is as we evolve into more of a luxury price pointed market, how does a developer evolve? And then secondly is around the research that I know you're a part of, and deciphering between an approval and an actual commencement.
Lachlan Walker: So I suppose if we do a bit of background there. I think the market itself, we're gonna see a bit of stability the next 12 months. I can't our sales volumes going back up quickly. I think the decline we've seen has been primarily investment, sales orientated, and we have seen the evolution of the marketplace, so we identified ... We had a lack of three bedrooms 12 months ago and now we've got demand for three bedroom apartments, which is nice.
What we are seeing bad is what would probably be seen as a C-grade sight trying to market A-grade property, and that's where the challenge is moving forward. For developers who are in that space, it's gonna be difficult. If you're trying to sell to a local, they know their marketplace, they know what value is. They're out there shopping, as we were talking about earlier. That's probably the biggest challenge out there is trying to sell million dollar product to people who aren't million dollar buyers.
Syd Walker: I think when you start talking about investment channels, I think it's a fact of life, and I think that came with the regulation that they're here to stay. Anything that's gonna happen with investor channels in the future is, I think they're gonna be a more useful weapon to use in the domestic market, because people have honed up their skills and are what are called short-termers. And they'll last a few years and make some easy money, and they're gonna disappear. Our sales volumes may have slowed significantly, but-
Lachlan Walker: We're seeing a higher sale price.
Syd Walker: Yeah, and I think the higher price is also, too, the investor, as we alluded to earlier, is getting a lot more astute, and I think that we're gonna be seeing a shift into what we'll call investment, or in the old days, we used to call them quasis. Which were investors with a view of living in [inaudible 00:38:37]. So in other words, we're gonna shift from $390,000 one beds up to a two bed or a two bed two car with ... That someone may even move into and live in, in years to come. It's a whole ... Those people are what's called, particularly in Brisbane ... We haven't seen a domestic market in Brisbane-
Lachlan Walker: Hasn't fired yet.
Syd Walker: It hasn't fired, it's been terrible now for five or six years. It just hasn't played the game and it doesn't recognise that property in Brisbane's half the price of somewhere else. It's a whole new game that's going on.
Lachlan Walker: I think on the, touching on that supply debate, it is what it is. I think that'll work itself out. You look around at the moment, there's 50 grand in there, per say. [Matt Duomo's 00:39:25] time there won't be 50 grands, there'll be none and we'll be going, "Where, who's selling apartments?" And that's when you'll get the locals coming in, picking and choosing their product. Picking the eyes out of things.
This pipeline debate which keeps getting brought up in the media, I've got a massive issue with. The pipeline 40,000 apartments has always been there, it's just that more people know about it now.
Syd Walker: 2015 unicycle, the Brisbane 5k was what, 2,400, what was it for the year?
Lachlan Walker: When?
Syd Walker: 2015.
Lachlan Walker: 2015, yeah, two and a half thousand.
Syd Walker: Two and a half thousand. Last year it was? 1,200?
Lachlan Walker: Yeah, 1,200.
Syd Walker: So where the hell is 40,000 gonna fit into this equation?
Lachlan Walker: It's approvals on a piece of dirt, and they try and buy somebody for 40 years, and then you're gonna sell it.
Daniel Holden: They're trying to evaluate so they can sell it.
Lachlan Walker: Exactly. They've just got an approval on their sight because the market was right, but they're not gonna sell it-
Daniel Holden: And you go through this cycle. They're not gonna sell unless it's phone book numbers.
Lachlan Walker: You can go through that list and you can cross out with a red pen 50% without even working hard on it.
Syd Walker: We've also got a lot of faith in the government with the statistical numbers [crosstalk 00:40:37] every year are flipping on that comment, but what I'm saying is-
Daniel Holden: It's always right, but I'll tell you one comment that I ... One number that I saw from you, maybe two or three months ago was that 73% of the actual under construction product was sold.
Lachlan Walker: Yeah, that's right, and that's the other big thing, I think. Yes, there is a lot of stock out there, but the majority is sold, and it has to be sold to get off the ground. [crosstalk 00:41:01]
Daniel Holden: So, the stuff that's commenced-
Lachlan Walker: There'll be nothing left by the time it's completed.
Daniel Holden: Correct, the stuff that's commenced, actually under construction, 73% of it is actually sold right now. Which I thought was pretty cool, it was a good number. Syd, in your experience, which is very vast, the developers ... You've obviously met a few, many hundreds, thousands. I think what I like about your position in the project cycle is it's very early on, and it's easy for people late in the cycle to say, "Well, you should've done this different."
But you meet them very early fires and so maybe you can give some insight on what you think developers are doing wrong, and secondly how they can avoid them.
Syd Walker: Well, first of all, I don't think anyone does anything wrong. I just think it's how they implement their strategies, because your type here hasn't been found yet, but I'm sure every developer thinks whatever they've got going is a utopia. You know, it's a perfect world. I think it's more than just a set of plans and it's more than just getting the sight right and all the rest, it's interesting when you drive around anywhere, whether it's Gold Coast, Sunshine Coast, or whatever, and you drive past and look at a building and go, "That's a fantastic building."
And if you talked to the person who actually sold it, he'll probably tell you that's the worst building I've ever been in, I ever saw, and all the rest. Every building and every project should have a personality. And how you get that personality right is what good. And in the days of our [inaudible 00:42:40] and the grand junipers of the world and the [inaudible 00:42:43], we miss those characters because they had personality and they build some beautiful stuff, and all the rest.
If you haven't got a personality as a developer, I'd suggest you go to the airport lost and found and see if you can find one, all right? Because it counts, it does count.
Daniel Holden: It does, 100%.
Syd Walker: Because without leadership and all that sort of thing ... And you can see some terrible buildings that have been highly successful, and all the rest. I don't think there's a formula amongst it all. I remember Gordon Douglass or [Archie 00:43:13] Douglass, one of them said, "How does this all work?" He said, "Look, it's all the smoke," he said, "and you want to try and get through that smoke. If you can find anything sold in that smoke, you're better than me and the mass." So there is no real formula-
Lachlan Walker: You know how to tell a story, isn't it?
Syd Walker: Oh, it's all, again, personality. You've gotta have personalities involved. At the end of the day you've gotta get a group of people that work well together. You're gonna have a good funder. I've gotta tell you, these days a funder, because the sad thing about pre-GFC and now is you cannot rely on banks. You cannot. I just think-
Lachlan Walker: It's tougher now than what it's ever been.
Syd Walker: Oh, it's tougher now than what it's ever been, but the banking industry's being driven by the wrong people. Because there's no personalities left in there, either. That relationship factor is gone, and [inaudible 00:44:06].
That probably suits what today's world is from a profitability point of view and shareholders and that sort of thing. That's all good and fine and dandy, but they're all things we've gotta take into account, and we've gotta live in the modern world.
Developers, make sure you're well funded, you understand the risks, and the last think I'm gonna say is be prepared to lose money. 'Cause if you are prepared to lose something, then go and do it, 'cause you'll have a far better attitude than getting three parts through the project, losing some money, and then the whole world collapses and you just collapse with it. You've gotta be prepared to lose money.
Daniel Holden: I think there's plenty of developers getting around today that aren't prepared to lose money or prepared to break even. They'll just back themselves to the hilt and go ego first, I've gotta make money, it has to work. Having a business model that says, do you know what? One in every five projects won't make money or will potentially lose money. One in every five projects will just break even. Three of every five projects will make money to some degree, but it won't be as per the feasibility. I think we're missing those guides.
Syd Walker: Absolutely, 'cause the best projects, anywhere you travel around this country is value and success, but at the end of the day, there's lives to all this, there's a community and all the rest, and those have lost money, even the biggest of them. You know, [inaudible 00:45:32] they've all lost money on something, but they're going to the next process because they're well funded and they'll make a whole heap of money on the next one. So you've gotta ride the storm and don't be looking in the rear vision mirror. That's what value [crosstalk 00:45:48].
Daniel Holden: Let's move on to the next topic. So, Lachy, I'd be interested to hear your thoughts on apartment size, and let's keep it Brisbane, let's keep it metro. Over recent times we've seen the start of this construction wave. Back in '13 and '14 was a smallish apartment in the sky that was pitched at a rental market, and the rental market was what created the investor appetite to buy that apartment, so we were driven by an investor driven apartment boom that we saw in '13, '14. And that's excellent, at that time we needed it, it was very, very good. But, now we're seeing it shifting to larger owner-occupied product, and we're seeing some pretty significant changes, so I'd be interested to hear your thoughts on layout, on density, and on salability.
Lachlan Walker: I think it comes down to who you're targeting, Dan. I suppose going back to ... We always look at a project on its own, and we look at who they're competing with, who they're trying to target, where our market's going to be, if that market's going to change, how much competition's in the marketplace. All those factors come into that. As you mentioned 2013, 2014 was a very hard ... There was lots of high density sales going on and that probably drove through to the peak that we saw last year in terms of sales volumes.
That market was created on the back of the GFC through those 2009-10 years where there was no development in Brisbane. I remember going ... We'd been doing the report now for over ten years, and through 2008-2009, we were 67 sales in a quarter. We went from 67 sales in a quarter up to 1,200 sales in a quarter in a very fast period. Over a period of eight years. That went from nothing to lots.
Syd Walker: 67 were [crosstalk 00:48:02], 1,200 and 400.
Lachlan Walker: But all of those aren't occupied. Sales created this demand for rental product, and that's what we saw being delivered, and Divine was the first company to come out in the marketplace back then and go, "Let's create something Hamilton Harbour." And on the back of that we saw everyone else take these sights that were probably zoned commercial at that point in time, revise the DA, which shaped the product in the marketplace. What we've seen has been driven by an inherent demand. I think that rental market will probably sort itself out, it always does.
One thing we're lacking at the moment is that population growth driven by employment opportunities, and when employment comes back, we'll be fine. And good stats coming out of Melbourne recently, where they said the vacancy rates were gonna fly through the roof, and it's settled itself down.
Syd Walker: I think when you come down to ones and twos and threes, sizing and all the rest of it. If we go back-
Lachlan Walker: I'd love to see some big one bedrooms in the market.
Syd Walker: That's where I'm heading to.
Daniel Holden: New York?
Lachlan Walker: That'd be nice.
Syd Walker: We need shrink as construction parts and all the rest of it. What was, let's call it a [inaudible 00:49:21], is now 50. Same price. And the other thing is what I think is completely twisted-
Lachlan Walker: Well, you look at that data, Syd, if look over time in Brisbane off the planned sales through the last 10 years, the average price probably hasn't changed at all. But what we have, Syd, is back 10 years ago it was all twos and threes at that price. Now it's all ones and twos at the same price, so there's been price growth, it's just different product being sold.
Syd Walker: I think the other key factor, and now you talk about sizes, but to me the biggest single challenge is car park. And you come down to what are unoccupied space-
Lachlan Walker: Money's made in the basement.
Syd Walker: The money's made in the basement and sales comes out of the basement. I just have an absolute belief, start in the basement. Sort the basement out first and then worry about what's above it. Whereas architects look at whatever they do and go, "This is the dream," in a way [crosstalk 00:50:17]. So we spend our whole life-
Daniel Holden: The developers look at it and go, what can I fit above the ground, what can I cut below the ground?
Syd Walker: Precisely right. So I just think-
Lachlan Walker: That's what Brisbane City Council does, too.
Syd Walker: You just discuss a project with a person and he said, "Well, it's gonna cost me 50k a park." I said, "Build another basement, I'll sell them at 50k." All day long, because if I don't sell them off the plane, I'm certainly gonna sell them as soon as they become residents.
Lachlan Walker: Well, at least you get some value add there, where you do have someone who comes in and says I want a two bed, two bath, two car, you can sell that product. And the value is revalued at 50k a park.
Syd Walker: So you've got that. So the sizing is an issue, and I think the other thing is that we're heading into the real market from now on, as I've said, in the tip of the floor plan. There's always gonna be one bed's to make a four flat work, to get the size of the twos and the threes. So I think your ones are back to 60 minimum retail, and that's gotta have a little bit of an office or whatever, whereas, you know-
Lachlan Walker: This is to get the local market.
Syd Walker: The local market, I'm not talking about investor market, I'm talking the people living in places, like single women.
Daniel Holden: The transient worker, they're there for a year, they go-
Syd Walker: Absolutely. Then you've got the two bedroom, it's gonna be sitting around 80-85, that should be where it should be spaced, and then 50% of those should have two cars. And you don't pay the extra 50 for the car park. And your threes are 110 onwards, I'd say 130 is probably a good balance in the market. And then when you move on from that, you've got the people that are starting to turn up to projects, which want you to merge a two and a three. Or a three and a one. So they're looking for the biggest place-
Lachlan Walker: Yeah, it's that trend to be able to go, this is a shell, what do you want in it? And that's where you really start to get some really solid clients, 'cause they're the guys that know what they want.
Syd Walker: We're eventually going back to what used to be, in tourism, same sort of sizing when you go to the beach. Well that beach size is now in the city, and people are having to live it. Now the train goes, surprise, surprise, comes out from ... Local government says that, oh, we built all these units and never expected people with kids to live in them. Like, where the hell did that come from? Everywhere in the world kids are living in units.
So they've got pressures on state's [inaudible 00:52:44]. I find that an absolute joke that people can't get their act together and understand that males and females have sex, and there's kids that turn up, and they want to stay where they are. And all of a sudden they want to go to school. What happened in this world?
Daniel Holden: And then they're probably earning more or spending more money on rent or double accommodation.
Syd Walker: Double income?
Daniel Holden: Correct.
Syd Walker: Who wants to look after a back yard while your kids are growing up? Kids are gonna be ... Kids are the future, gotta be used to high density. There's no doubt about that.
Daniel Holden: It's evolving.
Lachlan Walker: I think no matter what you're doing, I said this to [inaudible 00:53:19] just recently is no matter what, it's the projects that haven't designed the product for the end user, they're the ones that are gonna get called out in the next six months as settlements occur. Because if you design a product for a renter, it's designed for that reason. If it's designed for an unoccupied, you're delivering something better, something bigger, and those unoccupieds are willing to pay a little bit more for that, and they'll be asked different to the investment product. It's an end user dynamic, and I think if you get that right at the start you're gonna get your sales, you're gonna get your settlements, and everything will be fine no matter what market you're in.
Daniel Holden: And there's so much talk in the last six weeks anyway about housing affordability and people are gonna be renters forever. Where you go, well, why wouldn't you accommodate to a renter who actually is comfortable being a renter for 10 years? Why accommodate a product only for a renter who's a transient, who's only gonna be there for 12 months?
Syd Walker: To me, fundamentally, like when I was, I lived in a rental joint for 20 years, then I finally got my own place. And this argument about affordability, it is just an absolute waste of words talking about it. It is just the greatest joke in history when you get into the space because nothing's changed except that everyone wants to own a property in the inner city. Get real. If you want to own something and you want it first hand, go out-
Lachlan Walker: Sneak some townies into suburbs. Townies and [inaudible 00:54:48] that's the moment we're looking toward the townies' product, because he can deliver a better product. You're hitting that market where it might be a first time buyer or a second time buyer moving out into the suburbs, can't afford their house, but they want their own little bit of dirt. We're seeing heated activity there at the moment, heated demand.
Daniel Holden: I think it's a good market, we're pretty active in that space and sales at the moment, which is good, but back to your point, Syd. You look at the wedge growth in the last 12 years-
Syd Walker: Oh, sensational.
Daniel Holden: Yeah, since '06, '07, the wedge growth has been, eh, and the house price has been, well, it dropped off a cliff at one point for '08, '09, and then it rose back up quickly. And it's not been ... Housing affordability has not been an issue at all. And then all of a sudden at the moment, that is now, in the last 18-24 months has punched above wage growth. It's now all of a sudden a hot topic.
Syd Walker: It's a Sydney Melbourne centric discussion. You could have some of those places. You can't say that Brisbane is not affordable. And the other thing is, they're always [inaudible 00:55:55]. Go and get a decent job and then you buy it. Let's not muck around. It's a dumb discussion.
** To be continued in Part 2 **