Best practice in club property development
Why is it that with all of the partnerships between clubs and developers that have occurred in clubland that you don’t hear of developers getting involved in club operations? One sure reason is because developers know they don’t have the experience and it would be a significant risk for them.
For the same reason, clubs shouldn’t be a developer if that’s not their core expertise. Usually it’s much better to find an expert development partner that takes on the development risk and responsibility.
So what other important things should a club’s board and management consider when thinking about redeveloping the club property?
Competition
The number one way to minimise a club’s risk and maximise its result in a redevelopment project is by selecting a suitable development partner through a competitive process involving multiple development companies that each have a track record of excellent developments, including projects with clubs.
Know the value of the club’s potential
It’s important to understand that most club redevelopment projects involve the club trading the value of its property’s surplus development potential with a developer. That means the first thing the club needs is a thorough understanding of the development potential of its property and the value of that development potential.
Dealing with developers without knowing the value of the development potential is the same as when the average person deals with a clever mechanic. They think they’re getting a good deal but in reality they have no idea how much the mechanic is actually making. The difference is a mechanic might make a few hundred extra dollars at the customer’s expense but with developers it could be an extra few million dollars at a club’s expense.
Capturing the maximum amount of value
Having established the value the development could create, the club then needs a well thought out development strategy that sets out how the club can secure the greatest share of the value and at the same time minimise its risk.
Plan for the timing
Keep in mind that property and development processes take time, particularly when development approvals are required, so if your club is under financial pressure or could be in the foreseeable future, you need to get your development strategy moving.
There is some good news though if your club is under financial pressure – in most cases it’s possible to negotiate a substantial early cash payment that can eliminate the problem and put the club in a positive cash position.
Don’t deal one-on-one!
Another very important thing to remember is to never deal with just one developer, no matter who the developer is or who they were recommended by. Developers are very keen to deal one-on-one with clubs because if they can exclude competition they are almost guaranteed to get a better deal, which will no doubt be at the club’s expense.
The classic example is where the developer approaches a club and during the discussions asks what the club needs. A typical answer is a new club, a great new fit out and more parking. The developer then says, after appearing appropriately hesitant, “I think I might be able to do that for you”. The excitement that statement creates is understandable but the developer knows exactly what he’s doing and has already calculated that if he only has to provide a new club, fit out and parking he is getting control of a good development site very cheaply.
Prepare a premises brief
To ensure that the club receives the physical space it needs, it will need to prepare a brief describing the size and function of the spaces in its new premises. The brief can just be a simple summary of the spaces and parking the club requires because it will be used to create an early construction cost estimate for the feasibility study.
Prepare a financial feasibility study
A financial feasibility study is essential to assess the commercial viability of the project. This isn’t often said about feasibility studies but you will find this a very exciting step because the feasibility has the potential to prove that the club’s goals can be successfully achieved.
Diversified revenue
The planning phase is an important opportunity to identify possible new revenue streams for the club. One of our club clients received a large, brand new childcare centre as part of its development project. The centre is leased long term and generates a substantial and reliable annual income for the club. It would make money for the club even if the club didn’t open its front doors each day.
There is a lot to be aware of in a club redevelopment project. Having your club operating from new premises and being in a positive financial position is well worth it.
To learn more about how you could have a new club and diversified revenue please contact Augusta Advisors on 02 9966 8898 or email us at admin@augustaadvisors.com.au.
