Developers are knocking, but don’t give away control too cheaply

It’s no secret that COVID-19 has put clubs under significant financial pressure, and so it follows that it’s no surprise to hear about clubs receiving unsolicited offers from developers. For a cash strapped club it may feel like the answer to your prayers, but the reality is that developers are hoping to exploit the short term challenges facing clubs for their own benefit.

It is natural for landowning clubs to want to take advantage of the demand for their land as a way to deliver new club premises and release funds for the club’s operations and financial future. To receive this value from its asset, the club will need at least three key things:

  • Property development knowledge/skills.
  • Capital/money.
  • Approval for a valuable additional use for the Club property e.g. residential or retirement.

Developers specialise in each of these three areas, so it is logical for the club to consider how they can leverage these attributes to achieve the club’s goals. However, in doing so it is vitally important that the club understands the two key themes below.

 Theme 1: Clubs and developers are on opposite sides of the table

First, in property negotiations the club’s position is directly opposite to the developer’s position. Every dollar of value that goes to the club is a dollar less to the developer and vice versa.  That’s naturally strong motivation for developers to find ways to minimise the amount the club receives. Often this is cleverly disguised, and as specialists in the field developers almost always have an advantage in these negotiations with landowners. We see our role at Augusta Advisors as levelling the playing field for clubs with developers, so that landowners get a good and fair result.

Theme 2: Control of the land is everything

Second, control is a very valuable thing to have. As long as you control your land, you are in the position of power during the negotiations because you have what the developer wants. For this reason, developers will usually start negotiations by offering an upfront payment to the club in exchange for the option to purchase or develop the land. This sounds good on the surface: money now, with no immediate obligations. However, by acquiring the option what the developer is really doing is gaining total control of the land, eliminating competition, and removing the club’s future opportunities and negotiating power. Usually, the sum of money offered for this level of control seems large to the club but is small compared to the value to the developer and the loss of opportunity for the club.

We’ve been made an offer, so what do we do?

No matter how good an offer seems, before rushing into entering any binding agreement it is crucial to answer the following three questions:

  • Is the deal genuinely a one-off opportunity? When it comes to option fees, the answer is almost certainly no, there will always be other developers that will offer something similar.
  • Is the offer the result of a transparent and competitive process? If not, it’s highly unlikely to be the best offer possible.
  • Is the deal evenly balanced between club and developer? For example, it should impose obligations as well as confer rights onto the developer.

No matter how much short term pressure you are under, it is always beneficial to take a structured and long term approach to dealing with your land, because you only get one chance to use it to achieve your long term goals.

To learn more about how we can help you get the most out of your club property please contact us on (02) 9966 8898 or email bdaly@augustaadvisors.com.au