Limited to 15 investors only
This is not an application to invest. Express your interest above to be notified when the offer is open for investment. Investment allocations will be made in order of receipt of this EOI
40% FIXED RETURN
Maximum Fixed Return
Minimum Project Term
A stunning landmark location – Step outside and the enchanting natural splendour of the Sunshine Coast will surround you.
A breathtaking location directly across from Buddina Beach on the beautiful Sunshine Coast, this
spectacular position is without rival - and offers astute purchasers a rare opportunity to secure
sweeping ocean and hinterland views that will never be built out.
You are invited to express your interest in investing in the second stage of this development project.
Raising $1million from retail and wholesale investors to fund the next stage of the project including building approvals. The developer is offering a priority fixed return of up to 40% depending on when you invest. Pre-sales of the apartments has commenced with strong take up despite uncertainty in some market segments.
By expressing your interest, you will be the first to receive the official offer information memorandum in 4 weeks at which point this offer will be open for investment.
THE PROJECT SPV
A Special Purpose Trust (SPV) (above) has been setup to facilitate the development of the Project. Investors will receive a specific Class of Redeemable Preference Units in the Unit Trust and receive a profit share dividend on the sale of between 30-40 apartments.
The Trust has appointed Guy Hasenkam of Investire as Fund Manager and Operator under ASIC Class Order 02/0273 and will hold all Application Money in a designated bank account until the Minimum Subscription is reached. When the Minimum Subscription is reached, these Application monies will be transferred to the Trust based on the terms and conditions as set out in the official offer Information Memorandum.
Once the Project is completed and the Units are transferred to respective Investors; and all accounting and taxation matters are finalised, the company will be wound up.
A preference unit in the Trust ensures you receive your capital and returns ahead of the Developer on project completion. More about this below.
The SPV holds a Call Option over the properties bordered by Pacific Boulevard, Talinga Street and Iluka Avenue in Buddina, QLD (Property). Funds raised will be used to finance the building approvals over the Property. The Property has a current DA for a maximum of 73 dwellings.
The EOI closes at 5PM on 17 April 2020 or earlier.
A return of up to 40% (net of fees and taxes) will be paid depending on when the investors funds were received. Returns are paid from project profits on a preference basis. More about this below.
The Fund’s underlying asset will be its Entitlement under the Call Option and the intellectual property related to the design and development documentation for the Project.
Distributions will be paid from proceeds of sales estimated to be between 30 - 40 sales depending on which apartments sell at what price.
No distributions will be paid during the term of the project. Returns are paid once full debt coverage has been achieved currently estimated at between 30 and 40 sales. Current sales rate exceeds that required to meet this target.
The term of the Fund is estimated to be 24 months from the first issue of Units. The Trustee will wind up the Fund in accordance with the Trust Deed with any remaining profits and capital returned to Unitholders.
how to invest
Register your interest to be notified when we open for investment applications. You can apply to invest when the offer information memorandum is made available (expected end of April 2020 or sooner). An online application will be provided with your investment funds held in Trust with the Fund Managers solicitors.
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It is my pleasure to offer you the opportunity to invest in the Redeemable Preference Units of the SPV
The property market and real estate projects have long been a key source of wealth creation for multiple generations of Australians. Over the years the industry has shown resilience and delivered substantial growth in property value and a strong store of value in uncertain market conditions. However, the significant amount of capital required to develop a property acts as an enormous barrier for many Australians to invest in this market and benefit from its growth potential. Sometimes people have pooled funds with their friends and family members to invest in property development projects. But the investment feasibility, scalability and management of such projects has often been a concern for investors.
Funds raised through this issue of shares will be invested in a multi-storied residential development project in the Buddina on the Sunshine Coast, QLD. You can find the details of the project and the location in this EOI, however, it is worth noting the exceptional location being a beachfront position surrounded by detached houses and within walking distance of the 150 store Kawana Shopping centre. Pacific Boulevard was voted the best street on the Sunshine Coast in the Sunshine Coast Daily.
The mechanism of the investment will see the SPV providing preferred equity capital to the Developer of the project. This structure secures our interest above the interest of the ordinary shareholders of the Developer. Furthermore, your investment in the preference shares of this company with a fixed rate of return gives you senior claim on the profits of the company over and above the claims of common shareholders. While this is a unique investment opportunity, like any investments, it has its inherent risks. Whilst the principal of the SPV has executed a number of projects successfully over the last 25 years, this EOI has been prepared to provide you a understanding of the investment structure and key risks prior to releasing the official offer information memorandum.
Sales have already commenced with a mix of units and garden beach houses having being sold. Enquiries continue to be strong despite some concerns over COVID-19.
The valuer has indicated total project revenue of $104m is achievable and an independent quantity surveyors report has confirmed the costs. Investors are entitled to the first $3,8m (depending on total of funds raised in stage 1 and 2) of the estimated $25m profit. This provides substantial 'profit buffer' should revenue or costs change during the development lifecycle. More about this here
The developer has secured call options over properties bordered by Pacific Boulevard, Talinga Street and Iluka Avenue in BUDDINA, QLD and are under option with settlement in June 2020. A DA approval was obtained in Dec 2018. This DA amalgamates the land lots into one site accommodating 73 luxury units with uninterrupted 360 degree views. The site is the closest residential beach frontage on the coastline from Brisbane to Noosa and is mostly surrounded by detached houses without zoning for apartments, which means the residents are unlikely to have their views built out or surrounded by apartment buildings.
The combined sites are under option for $13,300,000 with settlement anticipated between April and June 2020.
The Developer will pay a targeted fixed dividend of up to 40% depending on when investor funds are received in the application Trust account. This is not an annual return but a fixed dividend paid from proceeds of sales of approximately 30-40 apartments (depending on which are sold and the respective price obtained).
The Trust is seeking to raise up to $2,000,000 from Eligible Investors with funds raised from the issue of Units to be used to:
b) Reimburse the Project Manager for monies previously expended in getting Council approvals;
c) Reimburse the Project Manager for monies previously expended in preparing and lodging the construction certificate application;
d) Pay Council fees and charges required to obtain building approvals for the Project;
e) Pay capital raising costs and 24 month ongoing investment management costs;
f) Engage Consultants to provide advice and prosecute a Building Application in relation to the Property;
g) Pay administration costs associated with the Project; and
h) Meet associated costs that the Project Manager determines are appropriate and in the Trust’s best interest.
i) Meet any redemption requests, if any, from stage 1 investors.
The Sunshine Coast region has long been recognised as a wonderful tourism and lifestyle destination, and with more than A$10 billion in private investment and A$2.5billion in major Federal and State funded infrastructure projects underway or in the pipeline, it is entering a period of unprecedented growth and economic expansion.
"I regard the Sunshine Coast as the strongest market in Queensland at the moment and indeed one of the strongest in Australia. the Sunshine Coast has diversified and strengthened and is now, I think, the nation’s most compelling growth story. It has a $17.7 billion economy, making it one of the largest regional economies in Australia, and on infrastructure it’s outspending several of the nation’s capital cities."
Terry Ryder | Hotspotting
The population of the Sunshine Coast will increase by approximately 83,300 persons between 2016 and 2026, or over 8,300 people per year. 52% of population growth will be provided through interstate migration.
Buddina is regarded as a high demand market by the largest property portal in Australia, realestate.com.au
According to demographer Bernard Salt, the Sunshine Coast's population of around 298,000 residents is set to rise to 550,000 in 23 years, which will require more than 100,000 new homes to be built.
The latest Real Estate Institute of Queensland figures show the rental vacancy rate on the Sunshine Coast is just 1 per cent.
"From an investment point of view, where in Australia right now can you invest your dollar and get better returns than the Sunshine Coast or southeast Queensland?" Says John McGrath. "I don't think there is a location that's going to offer better investment growth in the future."
McGrath Real Estate founder John McGrath said now was the time to get into the market. "I think there is a great opportunity, in particular right now, because we've seen Sydney and Melbourne have shown unprecedented growth over the last five or six years and now those markets have come to a plateau and a lot of people are going to be saying; 'Do we take our profits and reinvest them, or, in fact, do we move up north and get better value for money?' So, I think right now there's a terrific window of opportunity where people can capitalise on the immense growth we've seen in the southern states."
The health and wellbeing industry is the Sunshine Coast’s largest employer. Around 2,000 healthcare related businesses employ more than 24,990 people (AEC Group 2018), providing the foundation for a dynamic and fast-growing sector.
Strong population growth will drive demand for health and wellbeing services, with an additional 198,000 new residents expected by 2041, in addition to a regional service catchment predicted to grow to 2.4 million people.
New $5 billion Sunshine Coast Health Precinct
New $1.8 billion Sunshine Coast University Hospital
New $150 million Sunshine Coast University Private Hospital
New $60.8 million Sunshine Coast Health Institute Rapidly growing and ageing population
Note: two of the first pre-sales in The Beachfront have been to Medical Doctors.
Work on the Sunshine Coast's new $347 million international airport will conclude in 2020 allowing more direct international flights. Currently there are only seasonal flights to New Zealand. The project will enable direct flights to more destinations across Australia, Asia and the Western Pacific, enhancing national and global connections. It will generate jobs and economic growth, boost tourism, help export businesses and secure air access to the Sunshine Coast for generations to come.
"A world class tourism destination and a highly desirable place to live like the Sunshine Coast needs a world class airport",
Federal Infrastructure and Transport Minister Darren Chester said.
Not only is the Sunshine Coast regarded as one of the best areas for investment but the The Beachfront project is located on the best street on the Sunshine Coast according to 15 local real estate experts.
The saying location, location, location refers to not only the broader market credentials but also the street location. The beachfront is in the booming sunshine coast, on the beach front with uninterrupted 360 degree views, on the best street in the Sunshine Coast and surrounded by all the important amenities and detached houses (not other apartment buildings).
The Developer has received a preliminary ‘as if complete’ gross realisation valuation for the project of $104m from JLL Valuers. This means the valuer believes the total proceeds from sales are expected to be approximately $104m. Pre-sales indicate this valuation is accurate.
When considering an investment in a development project, the profits are dependent on two key assumptions: the total development costs (site purchase, consultants, builder, sales, legals etc) and the total revenue from sales.
Construction is a major cost and therefore we have obtain an independent QS report. The QS reports details the constructions costs of $40m, however, we have adopted a construction cost of $43m in the feasibility summary below. Costs can decrease as builders focusing on investors housing stock compete for projects like The Beachfront that are targeting the downsizing, cash paying owner-occupier segment.
Nevertheless, we have adopted a higher input cost and current pre-sales support assumed total project revenue before profit.
Change in household composition
Around 72% of existing supply is detached dwellings comprising mostly of 3 and 4 bedroom detached homes yet approximately 60% of households are singe or two person dwellings. While demand is still high, the under-supply of smaller detached dwellings and apartments is where the demand is highest
The Beachfront is located amongst this larger detached stock attracting downsizers and mostly cashed up retirees and professionals from the health precinct and interstate migrants.
360° UNINTERRUPTED VIEW
NEVER TO BE BUILT OUT
WALK TO ALL AMENITIES
SURROUNDED BY LOW DENSITY ZONE / HOUSING
Your targeted 40% fixed dividend is paid from the proceeds of sales after all costs and expenses are paid.
The project is forecasting net sales revenue of $96,663,636 with net development profit of $25,500,651 (a project IRR of 27.88%). The table below contains a summary of the financial forecast for the project with a detailed financial feasibility available with the formal information memorandum to be provided to those interested in investing.
The full feasibility report will be available with the official offer Information Memorandum
click to enlarge
The estimated profit margin is $25m. Investors in this offer will be the first to receive a share of this profit, along with existing investors, to a maximum of $2m plus a targeted 40% fixed dividend. Total distributions to all classes of unit holders is expected to be $3.8m if the full amount is raised and if all investors qualify for a targeted 40% fixed dividend (based on when they invest).
This means actual profits could drop by as much as $21m before impacting investors capital and returns. This is not likely given the strength of the local market but serves to emphasise the importance of the order of profit distributions.
The time taken to sell the apartments determines the investors effective annual return. The average time it takes to sell a unit in Buddina has halved to only 77 days within 2 years. The Valuer has indicated a sales rate of between 2-3 units per month is achievable, however, current sales enquiry volumes, expressions of interest submission and confirmed sales/ exchanges since January 2020 have exceeded this estimate .
The risks and risk mitigation will be detailed in the official Information Memorandum:
Settlement Risk - if the developer does not settle on the options to purchase the land then all investor capital will be lost.
Comment: the landowners have extended the options to accommodate the developers timelines before. Each landowner has been offered above market rates for their individual lot so they would lose potentially hundreds of thousands of dollars each if they chose not to extend the call option over their property. The call options have been extended with settlement in June 2020 to enable sufficient sales for bank funding purposes.
Funding risk - The Trustee holds a call option to purchase the individual land lots. Investor funds will be deployed prior to the Trustee owning the land. If the Trustee fails to raise debt funding to settle the site then investor funds will be lost.
Comment: The Developer has obtained two funding proposals based on the number of pre-sales supporting the valuation. A minimum of 10 pre-sales are required to settle the underlying amalgamated land lots with six sales expected by end of March 2020*
*09 March: 4 exchanged, 2 waiting on builder price for upgrades before exchanging
Investment Term - There is no guarantee Investors' capital will remain invested for the expected term of approximately 24 months from the date Units are issued. There are circumstances which may result in the Term of the project being shorter. For example, while it is not the current intention to dispose of the Property prior to the project completion, if the Trustee, on advice from the Project Manager, considers it appropriate to take advantage of a selling opportunity, then it may sell the Property prior to the proposed termination date if it believes that an early disposal of the Property is in the best interest of Investors. The Trustee also has the right to extend the Term at its discretion.
Comment: The Developer has a track record of completing projects on time and on budget. Given the maximum expected 24 month term, investors have been compensated with a targeted 40% fixed return on capital. If the term were to extend to 3 years, for example, the return would be still be regarded as competitive in our opinion.
The Beach Houses are approximately 320m2 in total with direct beach access
The project team consists of highly experienced investment management professionals with extensive expertise in funds management, property development, property market and location research, legal, finance and compliance.
Developer & Trustee of Project SPV
"Buddina is really unique, it’s a great location and I don’t believe this lifestyle is duplicated anywhere on the Eastern Seaboard of Australia."
Robert has been a property developer since 1995, having personally developed everything from duplexes, apartment blocks, land subdivisions to complex commercial projects. His services as a development manager are widely sort across all States helping Rob keep his "tools sharpened" while steering his own projects over the line.
Prior to this Rob was a professional athlete, competing at national and international levels in motocross. During this time he won numerous state, national and international titles. Rob is married with 5 children with a passion for flying helicopters.
Head of Research & Director, Hotspotcentral
RG146 - Managed Investment Schemes
RG146 - Securities
"I think investing in a project that targets the cashed up owner-occupier 'downsizer', both interstate and local, is smart in times of uncertainty. Then there's the location of this project: voted best street on the entire Sunshine Coast, beachfront position, 360° uninterrupted views (due surrounding detached house zoning) and the proximity to all the best amenities. If the market does shrink, this could be a safe harbour."
Michael founded Hotspotcentral 11 years ago after a corporate advisory career spanning residence in four major capital cities around the world. This includes international roles assisting retail and private banks to combat fraud and money laundering using sophisticated neural network (AI) data systems. During his time at Australia's leading credit bureau (during the GFC), Michael created Boomtown, a property market research platform designed to find property investment opportunities with a focus on combining value creation, through property development, in locations with comparatively stronger market dynamics than the majority of alternative locations. The results of this model have been proven in both up and down market cycles. Michael research and market forecasts have appeared in most leading media publication over the last decade.
Fund Manager, Investire
Guy a Fellow of both the Australian Institute of Company Directors and the Financial Services Institute of Australasia has decades of experience in property lending, construction funding, property syndicates and capital raising including in senior management roles with Citibank, Westpac and Advance Bank (now St George).
Guy is the Operator and Fund Manager for this offer under an ASIC Class Order 02/0273.
Adrian Edwards is a lawyer and solicitor in Australia and South Africa, and a full member of the Queensland Law Society. Adrian holds the B. Juris, L.L.B, L.L.M degrees and is a Graduate of Applied Law (UQ). Adrian is currently reading his PHD in International Financial Services. Adrian has been retained by both government and industry in Australia, Mauritius, and South Africa with tenures in jurisdictions including Singapore, Cyprus, Caribbean, France, Germany, Luxembourg, Channel Islands, Isle of Man, Switzerland and the United Kingdom. His expertise covers mutual and private equity funds, capital markets, cross border structures, major international trade practices, jurisdictional regulation and tax regimes.
It has been enormously refreshing to find Michael and Hotspotcentral. Michael is very approachable, answers any questions promptly and clearly is an expert in his field, treating his clients with respect and as individuals always delivers timely updates that shows actual progress on the development...once you see your money back with the expected returns you know this is the real deal. It's a no-brainer - I have no hesitation recommending Hotspotcentral to others - only wished I had found you earlier!
KIM RECEIVED A 30% RETURN ON HER CAPITAL INVESTED IN 12 MONTHS
Banker, SMSF Investor
"A developer's 57% return on my cash without all the work. Everything ran smoothly." Hotspotcentral has been fantastic, the project has run smoothly and the finished product looks great. I knew Michael had some... of the best people on his team. Discount achieved in 11 months was $90,500...rents achieved 10% higher than original agent appraisal. Annualised cash returns 57% on money invested. Property cash flow positive. So in short really happy with the return – as this is a developer's return without all the work....
TRACY HAS SINCE INVESTED IN 2 PROJECTS WITH ANNUALISED RETURN ACHIEVED OF 57%
Michael’s passion, inspiration and enthusiasm to help others succeed is infectious and I find him to be an extremely trusted adviser in this field.
I have always been passionate about residential property and would regularly purchase Property Investment Magazines to keep up on the latest information where I discovered Michael's Boomscore location data (previously Boomtown) and I would test the results against different towns that I was familiar with in Queensland and New South Wales.
I followed 2 projects of Michael’s prior to being in a position to undertake my first experience as an Armchair Developer. During this time I had many communications with Michael. He was always and still is very patient and generous with his time which reflects Michael’s high ethical standards and I observed that Michael is very particular with the Developers that he partners with.
JULIE INVESTED IN 2 PROJECTS WITH ANNUALISED RETURN ACHIEVED OF 49.19% AND 30%
"I wanted to make sure that we would not be losing any money."
I had had a previous experience buying a property through another company which had not been a great success, so I wanted to make sure that we would not be losing any money.
We like the fact that Michael has a specialised company but is still small enough that he is happy to have a chat and explain anything that we are not certain of.
JUERG & NICOLA HAVE SINCE INVESTED IN 4 PROJECTS MOST RECENTLY EARNING ANOTHER 30% FIXED DIVIDEND IN 13 MONTHS.
These have been the best investments I’ve made with continued growth even during the housing market downturn. I have seen my initial investment grow 30% over the previous 12 months with the opportunity to make an additional 30%. I will continue to follow Michael and appreciate his honest direct approach to seeking out and bringing to market the best investment opportunities.’
THE MANSFIELDS HAVE INVESTED IN 2 SMALL DEVELOPMENT PROJECTS BOTH DELIVERING RESULTS AS PROMISED (PIC TAKEN IN DISNEYLAND WITH SOME OF THE INVESTMENT PROCEEDS)
The results exceeded expectations and I'm very, very happy with the outcome! Not just financially, but the quality and detailed communications about the offer, the structure, the process, the progress reporting, and the project wrap-up including payout. All contributed to my comfort throughout the build, and all from my own armchair!"I achieved a 42% return on my $100,000 over 19 months. Have told my friends and family and will definitely invest with Hotspotcentral again."
JOHN HAS SINCE INVESTED IN 3 PROJECTS MOST RECENTLY EARNING A FIXED RETURN OF 30% (12 MONTHS) AND 42% (19 MONTHS)
Everyone including SMSF funds, wholesale investors and retail investors (up to a limit of 19).
Express your interest here to get the offer Information Memorandum when it is ready. The sooner you invest after receiving the offer IM the greater the return potential.
Once you receive the offer Information Memorandum, you will find a link to an easy online application form with simple instructions.
If your application is accepted, you will then receive a Unit Certificate for the number of units you are allocated at $1 per unit. You will then receive regular progress updates from us.
In times of crisis, less experienced investors base their decisions on FEAR. As you know, at Hotspotcentral we're data nuts. We prefer to focus on the FACTS.
That said, the reality is markets are driven by sentiment causing markets to both overheat or decline.
In 2007, during the Global Financial Crisis the media predicted the property market would be decimated. Sure, some local areas were but many were not. And what happened not too long after the GFC - prices in all major cities almost DOUBLED.
What about September 11, SARS, bird flu, mad cow disease Swine flu and the biggest killer of our time: AIDS?
We've been in crisis before and the market dips a little, people panic and start selling their assets but the more experienced investors listen Warren Buffett and, "Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”.
Bottom line: those investors who continued investing end up making a fortune.
With regards Buddina Beachfront Project:
Now, I’m definitely not trying to downplay the seriousness of this latest pandemic. The affect of this virus has been devastating and will be tough for some people for the next few months. Fortunately, from a project perspective, ALL project consultants can work from home, the bulk of the sales calls are not face-to-face. If anything, building supplies might be impacted depending in the short term, however, construction is not expected to start within 6 months which many commentators believe might be the tail-end of this pandemic anyway. If not, the project goes on.
PUTTING COVID-19 INTO PERSPECTIVE
I'd like to share two fantastic infographics published by Visual Capitalist that outline the history of some of the most deadly pandemics and help put the current pandemic into context
Finally, remember these wise words from Warren Buffet said: “Be fearful when others are greedy and be greedy when others are fearful.”
Home buyers and long term investors who have a secure job and income and pre approved finance should take advantage of any short term downturn in our property markets to set themselves up for the next phase of the property cycle.
'Investor-developers' can choose between leaving their capital in their offset mortgage account and save a couple of percent on interest. The stock market is a no-go zone unless you know which stocks represent good value given the circumstances and savings interest rates are only going down.
COVID-19 AND THE PROJECT
I’m comfortable with the underlying fundamentals supporting our property markets in the medium to long term and the local Buddina/Sunshine Coast Market:
1. Population growth - we need to build about 180,000 new dwellings per year to meet Australia's growing population. The net population growth of the Sunshine Coast according to Demographer Bernard Salt demands around 76,000 new dwellings, split between traditional suburbia and medium density townhouses and apartments be built by 2040 .
2. The Sunshine Coast region has long been recognised as a wonderful tourism and lifestyle destination, and with more than A$10 billion in private investment and A$2.5billion in major Federal and State funded infrastructure projects underway or in the pipeline, it is entering a period of unprecedented growth and economic expansion
3. Interest rates are low and will go down further. The prevailing low interest rate environment is making it easier to own a home, either as an owner occupier or investor.
4. Smaller households are becoming the norm
Sure many people live in multigenerational household, but pretty soon Millennials will make up one third of the property market and their households tend, in general, to be smaller as are the households of the booming 65+ year old demographic. The Beachfront represents considerable value given the unusual size of the apartments..
5. More renters - soon 40% of our population will be renters, partly because of affordability issues but also because of lifestyle choices.
6. The fundamentals are strong - our economy is facing challenges, and the share market is volatile, but our property markets are underpinned by the fact that the vast majority of property owners are home owners who are there for the long term.
As the community starts to become more concerned about the economic impact of the corona virus, it is likely that there will be a flight to quality assets, and bricks and mortar have always stood the test of time.
Ask anyone who understands market cycles when to develop property and they will probably tell you to purchase development sites in a time of recession or trough and to sell the developed property in a time of growth or when the cycle is at its peak. Whilst at an intuitive level this may sound appealing, there are a number of problems with its implementation in reality.
Firstly, no one can consistently predict macro-economic cycles with any great accuracy. In fact, the prediction of macro-economic movement is becoming more and more complex in light of globalisation and the liberalisation of markets. If economists cannot predict macro-economic movements then how can ordinary property developers!
Secondly, it would be great if we all had an abundance of lazy cash sitting around so we could purchase development sites outright in the troughs and wait until the peaks to sell. In reality most property developers do not have an abundance of lazy cash sitting around and have to finance the purchase of a development site. To purchase a site in the trough and sell in the peak would therefore involve the payment of land holding costs (eg. rates, land tax) and finance costs (eg. interest, management fees) for the interim period which may last for many years.
Thirdly, it implies a direct relationship between the broader economic environment and the property market. Whilst on a broad level this may hold true, in reality the property market is made of many sub-markets which each behave differently and not all in line with broader economic movements. To simply talk about the property market is to overgeneralise as there are property markets within property markets (e.g. Australian property market - Queensland property market - South-East Queensland property market - Brisbane property market - Sherwood property market - Salisbury property market). In other words, whilst the Australian property market at large may be in recession the Buddina property market may be performing strongly.
Fourthly, the property development industry, like any other industry is driven by the forces of supply and demand. If there is increasing population growth, as is the case in most of the developed world, then there will be increasing demand for dwellings to accommodate the increasing population. This increase in population does not have any relationship with macro-economic movements. Therefore, imagine if developers only developed during the growth phase, where would the individuals demanding accommodation in the interim live?
So if the use of the economic cycle is no good indication of when to develop property, than what is? Well, any serious property developer will tell you that if the financial feasibility analysis and due diligence analysis on a project shows an adequate return for the risk involved, including a pandemic, then the project should be undertaken. This is not to say that broad macro-economic factors should be ignored but rather the financial feasibility analysis and due diligence analysis of a project should be the determining factors in deciding when to develop. And besides, a thorough financial feasibility analysis incorporates such macro-economic factors as interest rates and inflation and their effects on project returns.
Whilst there will still be those who advocate the use of the economic cycle for timing property development projects, in our experience we have tended to do just as well financially irrespective of which stage the economic cycle is at.
During the growth or 'good' times suitable development sites are harder to find, are often overpriced by sellers, and often have to be purchased without local authority permits and without suitable contractual conditions (unlike the the Buddina site). Local authorities are overworked and are slow to issue permits causing frustration and sometimes increased land holding and finance costs for developers. The Buddina project is entering the Building Approvals phase. Building contractors are busy and their profit margin and the cost of materials increase. Sales will occur quickly and marketer's fees may decrease due to the higher turnover. Fear of an overheated real estate market by the financial regulators may initiate an interest rate rise in an attempt to dampen demand.
During the anticipated short-term recession or 'bad' times, suitable development sites are easier to find, are often fairly priced by motivated sellers, and can often be purchased with local authority permits and on attractive contractual conditions. Local authorities are not as busy and are quicker to issue permits. Building contractors are not as busy and their profit margin and the cost of materials will generally stabilise or possibly decrease. Sales will occur more slowly and marketer's fees may increase due to the lower turnover. Interest rates are generally stable and may even fall in an attempt to stimulate demand.
Confused? Don't be. Just remember that serious property developers develop property in any market. If the financial feasibility analysis and due diligence analysis on a project shows an adequate return for the risk involved then the project should be undertaken: health crisis or not.
Now it's over to you. Sit on the sidelines and miss out or base your decision on current market data with a medium term view. We know this pandemic will blow over and everyone will be rushing back into the market pushing up the asset values of those who got in ahead of the pack.
It would be if there was no project risk and the developer didn’t really need your capital. After all, bank debt is much cheaper, isn't it, why is he coming to you for investment funds?
The key to understanding why the returns offered are 'above market' is as follows:
The banks typically lend a percentage of total development costs (TDC). Let's say it's only 60% of the TDC. The developer needs to get the balance of 40% from somewhere. This could be his own funds and a variety of sources but he may still be short. So in order for the project to proceed, the developer needs to find more funding.
Yes, bank debt is cheaper but it might not make up the sole source of project funding.
The source of funding is usually either DEBT or EQUITY.
DEBT - Interest is paid monthly and the funder gets first mortgage security meaning they can sell the assets of the project company to recoup their capital.
EQUITY - This is usually investment funds from a range of sources but sits behind the DEBT when the project company assets are sold including sales of the newly created properties in the development. Providers of investment funds also don't have security over the assets. Their returns are typically paid out of PROFITS.
DEVELOPMENT RISK STAGE - Returns and interest paid are usually dependent on WHEN the money is deployed. For example, if fund
CAPITAL STACK - now we expand on form of capital provided: is it DEBT or EQUITY. In this case, your investment is in the form of equity. Some equity can be converted into a form of debt but without any right to the assets via a 1st mortgage. Just be aware of some structures out there that create the illusion that your investment is a secured debt arrangement. It's will not be if you are earning double digit returns.
CAPITAL STACK - Now we expand on the form of capital provided: is it DEBT or EQUITY? In this case, your investment is in the form of equity. Some equity can be converted into a form of debt but without any right to the assets via a first mortgage. Just be aware of some structures out there that create the illusion that your investment is a secured debt arrangement. It will not be if you are earning double digit returns.
As you can see from the illustration above, returns paid are a combination of its type (debt versus equity), the security given to you (or lack thereof), where it is used in the development process and the risks attached thereto, and ultimately where your returns sit in the repayment process.
Hotspotcentral always ensures its capital (we invest alongside with you) sits ahead of the Developer. So if the developer stands to make $10 million in profit after the debt has been repaid, we want first dibs at the $10 million. This is important because if the profits reduce to say $3 million but we are owed $1 million, then we still get paid.
If you want to know more, read this article.
‘Fixed’ is not to be confused with a guaranteed return.
Whatever profit remains after paying the banks is paid to you before profits are distributed to the developer and other classes of investors (if applicable).
This contrasts with a Joint Venture structure, for example, where profits and risks are generally shared equally between the developer and the joint venture partners
If the developer were to pay you an equivalent of 20% per annum like some providers out there are doing, you need to ask yourself, what is the SOURCE of those monthly distributions and can the project AFFORD to pay them if there is no revenue from the sales of completed properties?
The answer is simple. We've seen competitors offering "20% pa paid monthly". What investors do not realise is they are paying these monthly returns from subsequent capital raises.
A good question to ask is: Are any of the monthly payments made from capital sourced from new investors?
The specific risks are covered in more detail in the offer Information Memorandum (IM) as required under the Corporation Act. Our compliance manager views these projects purely from a compliance and risk perspective whereas Hotspotcentral focuses on the location dynamics that support (or indeed, don't support) the project. Is the project suitable for the particular occupant? Who will buy and live there? What competing alternatives (projects) are in the area? Will the location support the number of sales, at the proposed price point, in the time estimated to meet profit assumptions?
The IM will explain the structure and the various layers of risk mitigation imposed by us as fellow investors as well as by the research consultants, the Fund manager and lead solicitor.
The average amount investors invest is about $130,000. We had investment amounts of $500k, $300k and $50k. Some of our investors have chosen to reinvest for as much as 80% over a project lifespan. Some investors have earned almost 60% in 12 months. It all depends on individual circumstances, experience and risk appetite.
It is important you conduct your own due diligence. To support your efforts we provide a number of important documents specifically verifying costs, turnover and independent reports to validate the profit assumptions influencing your returns.
As an Armchair Development investor you become an equity partner with the Developer. In exchange for your investment, the Developer provides his time, expertise, money and extensive contacts to source and develop a property from concept to conclusion.
Banks will only lend a percentage of the development costs with the developer adding some of his own equity to make up some of the difference. The rest of the funds are sourced from investors like your. Without your funding the project would not proceed (that’s ZERO profits to the developer), so it’s easy to understand why a developer is prepared to give away some of his profits (to investors like you) to make a project viable.
The reason lenders get a much lower return is they may hold a 1st mortgage over the property which gives them first right to any proceeds from the sale of the site and the first 30-40 apartments in this particular project.
Your money is deposited into the Fund Managers Trust account and provided to the developer once the offer milestones are met. The developer then deploys the capital in accordance with the offer Information Memorandum.
No. Our Fund manager has special permission to issue this offer under an ASIC Class Order allowing for both retail and wholesale investors. All the usual regulatory compliance applies and our Fund manager is entirely unrelated to the business and project.
The impact of the development taking longer is that any profit made by investors is calculated over a longer period of time which reduces the effective annual return.
Each investor gets a preference share/unit that gives them a priority share of the profit so a drop in actual profits might not affect their returns.
In some cases the developer may guarantee the costs which means there is no impact if the project goes over budget.
We provide regular updates throughout the project. These include images, audio, video and are delivered on a timely basis. In fact, most of our clients tell us how much they love this part of the process (see a sample of our client testimonials).
There are some providers that promote the value of having no bank debt. This is great in extreme circumstances like the GFC when the value of end properties plummeted and the banks called in their loans. Projects without bank debt would have still made a loss but the underlying property would still be an asset to the investors that the bank would not foreclose on. As it happens, some of these 'competitors' cannot get bank debt for various reasons. Do your homework.
Also, if a bank will not lend money to a developer then why would you provide the money instead? Banks are by nature conservative and if they are prepared to lend significant sums of money (as much as 70% of the total costs) then they have satisfied themselves that the project is viable in the hands of the developer.
Bank debt can also inflate the investor returns through leverage. Depending on market conditions, the amount of bank debt employed may be reduced or increased to reflect market risk.
Our investors benefit from our relationships and our independent research. Developers compete for our business and your capital. In return we're able to secure off-market opportunities on terms that individuals are unlikely to secure on their own. But mostly it is our high tech research and risk mitigation that makes a big difference. We're also a boutique business with fewer mouths to feed and use technology to keep costs down so we can get better returns for ourselves and our fellow investors. We also invest alongside our clients (why wouldn't we).
The simple answer is YES.
The more complex answer is it depends. It depends on who gives you this advice.
We have investors who have asked their everyday financial planner or accountant for advice only to be told "NO, don't invest". When asked why, often the answer is "it's too risky".
When we ask what is too risky about the offer, in many cases the independent advisor cannot explain why it's too risky and what sort of risk mitigation would make it less risky and in line with their client’s risk profile.
In most cases, in our experience, these advisors have either not invested in these kinds of off-market offers or simply do not understand them as well as perhaps they might a managed fund.
On the other hand, we love getting referrals from more experienced fee-for-service financial advisors and accountants who are not motivated by commissions and genuinely have their client’s interests at heart.
Hotspotcentral has been providing access to off-market Armchair Developments since 2009. Our research technology that underpins the decision to back a project has been around longer and has featured extensively in property media publications.
Ask our competitors the following questions:
In the past we proudly handed out our clients’ contact details but you can imagine how this becomes quickly unmanageable. We do, however, allow this - with their express permission - when the sums invested are substantial. Mostly, we urge you to review our client testimonials which are comprehensive, including their full name, photograph and location. They are all from a broad background: students, retirees, young families, professionals (doctors, solicitors, accountants....), couples, experienced, inexperienced - all with one goal in mind: to let their lazy equity work harder so they can enjoy more time with people they love and to feel more secure about their future.
If you'd like to discuss this opportunity in more detail then please book a time directly in my calendar for a chat.
DIP YOUR TOES IN THE WATER
We have an estimated 15 spots for investors assuming most invest the minimum. The average investment in similar projects has been $80k. Considering interest rates are dropping, current investment property market uncertainty (buy-and-hold investors) and dismal stock market performance: typically informed and experienced investors go to 'safe-haven' bricks and mortar property development investments like this. To be fair, we will allocate units in the trust in the order we receive the expressions of interest completed below. Thank You.
This Expression of Interest does not constitute an offer. All information contained herein is subject to disclosures to be contained in an Information Memorandum (IM) to be provided by an Authorised Intermediary on behalf of the Company. It is general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. An investment in the offer is not a bank deposit and carries the risk of Investors not getting a return on their investment. Terms defined in this document have the same meaning as where used in the IM. Applications to invest can only be made on the Application Form to be attached to the offer information memorandum provided to those that express and interest.