Development Site Purchase

● Acquisition of a development site is a minefield. We recently helped a developer acquire 12 lots in Castle Hill NSW worth over $40 million and another 5 lots in Rouse Hill worth over $20 million with the following objective

• Minimise risk;
• Maximise yield; and
• Maximise cash flow.

● We negotiated with the vendors for the completion of the purchase to be subject to a put and call option with the option fee payable upon the achievement of certain milestones such as development approval.

● The price was not fixed but subject to the floor space ratio yield of the development approval and the acquisition of more sites.

●The formula for calculating the price needed to consider the potential for the lots to increase but at the same time not overpay if the yield did not increase. It also needed to consider part of the lots was SP2 zoning, which means that this part of the land is for government infrastructure and should not be considered for calculation of the yield.

● The result was that we were able to strike a delicate balance between the vendors wanting the best price and our client who wants to minimise the risk of overpaying for a site which provided a low yield while at the same time not having to pay large lump sums up front.

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