Club property development: maximise rewards and minimise risk
Many clubs these days find themselves in difficult circumstances with financial problems, declining membership and ageing premises. When a developer approaches a club in this position it can seem like a good way out of a bad situation.
Unfortunately, this often isn’t the case. At worst, some clubs have failed because they have been tricked into a bad deal, or they have been directly exposed to development risk in a commercially unsuccessful project. Even at best, clubs in this situation have usually missed out on millions of dollars which they should have received.
Not all developers are unscrupulous enough to try to lure a club into a deal which will see it fail. Some are reasonable and fair-minded people. However, all of them are motivated to get access to the development potential of the club’s property at the lowest price possible to increase their profit. Developers have a saying “you buy your profit”, which means a developer can lock in profit by buying the land cheaply.
In complete contrast, a club’s motivation is to maximise the club’s return from the development potential of its property, while minimising its risk. A club wants the developer to pay the most he is prepared to pay, and the developer wants to pay as little as he can get away with.
The developer wants to get the club into a one-on-one direct negotiation and then use their superior knowledge and experience to minimise the amount they pay, to get the best terms and to expose the club’s return to development risk.
Club representatives are often taken in by such an approach because the club is in financial difficulty, the developer is charming and says he can deliver what the club needs and property development is an exciting thing to be a part of. This is precisely the outcome the developer is hoping to achieve.
In these situations, the developer typically has a great advantage over the club representatives as he knows what the development potential of the club property is worth and the club representatives do not. This is a classic recipe for the club to do poorly in a negotiation. Even if the developer does offer to pay for what the club thinks it needs (and things are sometimes overlooked, such as the cost of fitting out the new club) he will avoid paying his top price and the club is likely to miss out on millions of dollars.
To avoid a bad outcome and to get the best result in most cases there are two main things a club in this position should do:
Get expert advice on what the development potential of the club’s property is really worth. Become as informed as the developer about this in order to improve the club’s ability to negotiate.
Use a competitive process to identify a development partner. This should be a professionally managed process which forces developers to compete, to ensure the club gets a fair commercial deal and a good, reliable and trustworthy development partner.
To discuss your club’s property objectives please contact us on 02 9966 8898 or email us at admin@augustaadvisors.com.au.
