engineering-value-in-a-tough-market-the-site-acquisition-challenge

Engineering value in a tough market – the site acquisition challenge

By Andrew Ngo, Principal Engineer at PEAKURBAN

2017 so far has been an intensely competitive year when it comes to buying development sites. Despite this, over the last couple of months we’ve helped four clients successfully acquire new projects – three residential development sites (1,830 lots) and one retirement project (145 sites). So, what have we learnt from our experiences?

No easy sites left

We agree with many of our clients that there are no easy sites left in Southeast Queensland and that it’s becoming increasingly difficult to find opportunities that work. There’s not much land that isn’t already tied up; sites either have significant infrastructure servicing constraints (cost and time) or the high cost to deliver them means they can’t get to the vendors purchase price and the deal falls over.

To discount a site because it’s ‘too hard’ is easy enough to do however that won’t help anyone. How these challenges are tackled is what counts and in our experience, nothing short of a heavy ‘solutions focused’ approach is essential in getting them over the line.

Whist no means exhaustive, we’ve found that a few key areas have been important to focus on in extracting the value and assist in getting the deal over the line.

1) Efficient layout. Maximising Developable Area:

In our experience, the most effective way to add value to a project is to start with an efficient layout and find opportunities to gain developable area for increased revenue:

  • Limit land take by optimising the road layout i.e. minimise cul-de-sacs, one sided roads, and four way intersections;
  • Reduce verge width dedications where roads front adjoining land or open spaces/parks;
  • Optimise areas dedicated for open space and stormwater management as well as co-locating services within parks and drainage reserves;
  • On flat sites, consider streetscape biopods rather than end of line WSUD basins to reduce land take and minimise earthworks costs (lower fill volumes);
  • Ensure that premium saleable land is not under-utilised (take advantage of “premium site features” to help with higher revenues); and
  • Ensure that staging reflects the most efficient delivery strategy and minimises upfront cash requirements.

2) Negotiating with the Authorities to agree what is trunk/offsettable works

Thoroughly understanding the relationship between infrastructure charges, offsets and works can significantly improve project cashflow, development profit and IRR.

  • Assess infrastructure requirements and negotiate a performance outcome vs ultimate upfront spend i.e. defer upfront capital costs and stage the infrastructure based on agreed (but still creditable standards;
  • Optimise infrastructure costs by understanding the relevant policies and capturing all available offsets including the ability to enter an IA and cross credit between networks;
  • Understand conversion applications and how these are used to convert non-trunk infrastructure to trunk infrastructure and be eligible for an offset;
  • Negotiate the scope and extent of trunk works to the amount of charges payable (so you avoid refunds/or being out of pocket); and
  • Negotiate to bond infrastructure charges (using insurance bonds) to better cashflow high cost trunk infrastructure items.

3) Reducing Construction Costs

Understanding site opportunities and constraints can contribute to significantly reduced construction costs.

  • Co-locate services where possible so that trenching and backfill costs are minimised;
  • Orientate roads perpendicular to contours so that they grade with natural topography;
  • Orientate lots with their side boundaries parallel to contours to reduce earthworks and retaining costs (use steps between lots to take the fall);
  • Where practical, shorten the path of stormwater and sewer pipes to the outlet locations to reduce earthwork and pipe costs;
  • Locate parks in lower areas of sites to reduce the volume of earthworks required (lower fill levels) due to a lower immunity;
  • Look for opportunities to share costs with adjoining development where possible;
  • Orientate roads and bridges perpendicular to waterways and creeks to reduce length and costs; and
  • Develop an earthworks solution that is fit for the site. It may be more cost effective to ‘table top’ steep sites and move more dirt than it is to bench and retain. The geotechnical profile is key.

A different perspective on how a site can work, or how additional value can be created, can provide the edge needed. You only need to be willing to pay $1 more than your competitors to secure a site. The trick is to have the confidence to want to.

As mentioned, the above list is by no means exhaustive but just a few areas that we’ve found to be very effective in helping our clients acquire new sites and project.

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