header
Palladium Insights - Summer 2013 Edition
 
We trust that our Summer 2013 Palladium Insights will be of interest and informative as we review in brief five key topics pertinent to property investment - development / strategic asset management / optimal use of real estate by business.

We welcome any queries for further information.
 
1. Finger on the pulse – the Northwest Growth Corridor   2. Veterinary Hospitals – the perennial performer
With major drilling for the heavy rail line into Sydney’s Northwest Growth Corridor commencing next year, the Northwest is primed to become a key economic node in the greater Sydney region. The final rail link proposal will see new stations in Cherrybrook, Castle Hill, Showground, Norwest, Bella Vista, Kellyville, Rouse Hill and Cudgegong Rd by 2020-21 with plans to... Read more...   Australia has one of the highest pet ownership rates in the industrialised world. Approximately 35% of households own a dog and/or cat and this number is significantly higher at nearly 50% when including birds, fish, guinea pigs and exotic pets. Although this rate has been falling marginally each year (which is mainly attributed to higher density housing trends)... Read more...
3. Beware the dragons roaming in your corporate space   4. New technology – the promise of future chaos
The risks posed in setting up and managing corporate work environments are numerous, and in the cost sensitive business environment, the effects of getting things wrong is ever more severe in affecting the bottom line. Here is a basic check-list and some guidance to ‘lock up’ the dragons... Read more...   The ‘explosion’ of cables, awkward interfacing with meeting room equipment, work stations that appear cumbersome, and office storage that has slipped into degrees of chaos are all examples of our crisis in dealing with changes in technology. The trend away from fixed working places to... Read more...
5. Disposing of Distressed Assets within the constraints of s420A of the Corporations Act
Receivers and mortgagees are being kept busy with the sale and management of distressed assets but a sale by mortgagee in possession or controller under the Corporations Act can be challenged by the debtor so must be done carefully.... Read more...
 
one
Finger on the pulse – the Northwest Growth Corridor
With major drilling for the heavy rail line into Sydney’s Northwest Growth Corridor commencing next year, the Northwest is primed to become a key economic node in the greater Sydney region. The final rail link proposal will see new stations in Cherrybrook, Castle Hill, Showground, Norwest, Bella Vista, Kellyville, Rouse Hill and Cudgegong Rd by 2020-21 with plans to develop a public transport corridor further out to Marsden Park and Mt Druitt. The project will facilitate the future and existing growth in residents to the area and its surrounds as well as increased business activity.
The Kellyville and Rouse Hill postcode alone has seen a surge in population figures of 25.4% between ABS Census dates 2006 and 2011, eclipsing the Sydney average of 6.6% in the same period. Furthermore, the State Government is projecting that the Northwest region as a whole will grow by 52% within the next 20 years. New planning instruments have reflected this projection and have rezoned key areas in Kellyville and Castle Hill to accommodate for greater densities around the proposed train stations. Key players such as Lend Lease and GPT have invested heavily in providing new community master plans and additional amenity in these suburbs and their surrounds. Specifically, the “New Rouse Hill” community and Rouse Hill Town Centre have been and are still continuing to develop in preparation for the accessibility which will be brought on by the new heavy rail link.

A shift in focus around the Norwest Business Park has seen an area surrounded mostly by industrial developments diversify into commercial and retail sectors. This creates new opportunities for non-residential developers as an additional estimated 15,000 workers flock to the area within the next three years according local business park authorities. Undoubtedly, these figures will continue to grow as new transport options open up to the Park.

Apart from new rail links, the M2 widening and Windsor Rd upgrade are underway to alleviate growing traffic pressures to and from the Northwest. These upgrades will open up vital arterial roads to a heavily car dependent population as well as provide greater logistical efficiency to tangible supply based services.

These private and public infrastructure projects coupled with new planning instruments such as the Hills Shire LEP 2012 gazetted in October last year provides traction for developers to begin shifting greater focus to the Northwest Growth Corridor. Needless to say the coming years present a unique and immediate opportunity for developers to capitalise on the urbanisation of the Northwest.

For further information, contact Phillip Hoare on 02 9432 7866
Palladium Property is a Member of the Gravitus Group

 
two
Veterinary Hospitals – the perennial performer
Australia has one of the highest pet ownership rates in the industrialised world. Approximately 35% of households own a dog and/or cat and this number is significantly higher at nearly 50% when including birds, fish, guinea pigs and exotic pets. Although this rate has been falling marginally each year (which is mainly attributed to higher density housing trends), the veterinary services industry has seen steady growth of about 1.4-2.7% year to year with $2.5 billion in revenue in 2012 (IBIS World 2012 Industry Report). The industry is not particularly aggressive or competitive and practices tend to produce solid revenue streams which remain relatively unaffected by economic cycles, making them ideal tenants.

Most small animal veterinary practices (that is, veterinarians which focus solely on companion pets) are independently owned operators which provide services such as general health checks and diagnostics, dental care, vaccinations, sterilisation and other routine surgeries. However, Sydney has only ten 24-hour veterinary practices with the most recent practice opening at Rose Bay in 2012. Only a portion of these 10 have a veterinarian on premises 24/7, 365 days a year. This is a particularly vital service as pets may often require urgent medical intervention outside regular operating hours. Furthermore, only some  of these practises are also 24-hour referral hospitals providing more specialised treatments such as complex surgeries (e.g. cardiovascular surgery and hip replacements), own more sophisticated and varied diagnostic equipment and stock a wider array of pharmaceuticals.

In general, commercial and rural zoning allow for general vet practices and vet hospitals, although each LGA is different as should be revised on a case to case basis. A development able to accommodate a 24-hour veterinary practice has specific requirements. For example, parking is essential for both staff and clients. Given that these practices run on 15 minute consultation blocks a single veterinarian may see up to four clients an hour. Considering that the standard client will spend 45-60 minutes on premises a substantial amount of parking spaces are required. Ramp and lift access is also compulsory for any practice greater than one storey as they accommodate for large, immobile or disabled pets and clients. Specialised rooms need be created for appropriate standards in mind for x-rays, CTs, MRIs and surgery (for example radiation shielding). Furthermore, special consideration may need to be given to providing sleeping quarters to staff, specifically to those working and changing over night shifts.

Consolidation is occurring within the industry, promoting investment, and smaller clinics are aligning themselves with 24-hour practices. However, these 24-hour practices are in short supply, especially in the South and South-West suburbs of the Greater Sydney Metropolitan region. The development of the Southwestern Growth Corridor (i.e. Camden and surrounding areas) and the Northwest is attracting young families which will increase demand for 24-hour vet services in coming years.

This coupled with deregulated ownership restrictions which allow non-veterinarians to hold a share in veterinary practices presents a unique opportunity to property investors and developers. Dependent on the vet practice business model, both a long term lease to a solid tenant or sale of strata space within a multi use complex should be carefully reviewed in the early planning stage.

For further information, contact Phillip Hoare on 02 9432 7866
Palladium Property is a Member of the Gravitus Group

 
three
Beware the dragons roaming in your corporate space
Risks in establishing and managing corporate real estate:

The risks posed in setting up and managing corporate work environments are numerous, and in the cost sensitive business environment, the effects of getting things wrong is ever more severe in affecting the bottom line. Here is a basic check-list and some guidance to ‘lock up’ the dragons:
1. Commercial terms and contract specifics: Two prime categories are leases followed by construction contracts. A fine balancing act takes place to ensure that negotiations around commercial terms don’t delay the project or prejudice rights, and that ‘well timed’ occupation is achieved.

Use experienced property advisors to negotiate terms. Key with construction contracts is deciding the contract type. Make sure the detailed terms have been considered using someone with experience and industry knowledge.

2. Existing leases: There are many clauses that have ‘blind spots’ and obligations are forgotten over time. Premises carrying the threat of redevelopment typically have landlords that resist many of their obligations.

Ensure you have been given a ‘road map’ of both parties’ obligations that is monitored for compliance.

3. Scope: Asking the right questions, and identifying the right people to answer them.

Make sure the conclusions are valid and are systematically documented to avoid miscommunications.

4. Efficient planning: Any design process involves a balance between form and function. Not only can ‘lesser issues’ be confused as main drivers, but understanding what will be delivered is a further stumbling block. Drawings are often hard to understand.

Use strong graphic communication technologies to ensure stakeholders can understand what they are getting.

5. Technology: Managing the identification of requirements, clever purchasing and maintenance strategies are a tall order. The objective is to avoid ineffective, poorly integrated or dumbed down solutions.

Involve experienced managers and clearly defined requirements to ensure the ‘right’ decision is made.

6. Growth factors: Consider carefully dynamics of out-sourcing, changes in work processes, and changes in technology when catering for future growth. The cost centre of ‘property’ is full of inertias and getting space requirements wrong has an impact that is felt for many months, if not years!

Consider ‘activity based workspaces’ (ABR) as a strategy of structuring offices where less space can cater for more staff and accommodate changes in work processes.

7. Performance of built services: Air-conditioning, lighting and general services in kitchen areas are the most typical. Having services that are not over specified is crucial to limiting capital expenditure. However, facilities that under perform are a major drain on time due to the required problem solving.

Identify the responsibility of the landlord and the obligations of fitout contractors when it comes to building services.

8. Security: Often security requirements are not catered for in the planning phase and retro fits prove to be costly and full of loop-holes.

Identify security requirements and strategies at the initial scoping when setting up an office.

For further information, contact Pierre Hattingh on 02 9432 7866 or phattingh@palladium.net.au
Palladium Property is a Member of the Gravitus Group

 
four
New technology – the promise of future chaos
Office spaces are continually disrupted by the changes in technologies.

The ‘explosion’ of cables, awkward interfacing with meeting room equipment, work stations that appear cumbersome, and office storage that has slipped into degrees of chaos are all examples of our crisis in dealing with changes in technology. The trend away from fixed working places to shared working environments has added to the complexity of the problem.
The current game changers are desktop video technologies and mobile employees using multiple devices such as desktops, tablets and mobile phones.

 Increased access to electrical power, wireless networks and different formats to workspaces are needed to facilitate these new modes of working. More than ever an intrinsic link exists between working environments and information technologies.

The IT backbone to offices has changed dramatically:

  • All offices rely on having secondary wireless network systems.
  • Voice over IP and the use of mobiles as the primary communication and information manager are now the norm
  • Utilising third party networks and data storage has meant the death of large server and data rooms.

The demands of the ‘green’ revolution are starting to be felt as recyclable and low energy technologies begin to take hold and point to the redundancies of typical office technologies. Buildings have to be smarter; lighting has to be ‘greener’. Decision-making around technologies now requires corporates to consider the ‘environmental impact’.

Security solutions require the use of complex and rapidly changing technologies that have effects on efficient working processes, ease of access and the costs of changing existing layouts. Maintaining systems and the logic associated with their design is a factor affecting restructure and change.

Furniture technologies require careful consideration. They can facilitate changes in how we use information technologies, and changes in types of working environments. Limiting the inevitable redundancy of furniture assets before total depreciation is now harder. The need for furniture to accommodate the changes in technology is further complicated by occupational health and safety requirements.

Paper storage technologies have changed. There are fewer and fewer service providers in managing paper storage and the growing dominance of the paperless office is leaving storage methodologies and technologies in disarray, characterised by lost documentation and the risks associated with poor contract management.

The landlord’s building technologies experienced on a day-to-day basis have an impact on tenants’ business outcomes. One example is elevators, which affect attitudes and working time efficiencies. Upgrades in these essential building elements have drastically changed the speed at which floors are accessed, thus changing people’s expectations and the possible re-structuring of multi levelled work spaces.

Below are the basic rules representing best management techniques for offices and technologies

  • Flexibility is crucial as ‘future proofing’ is now a misnomer.
  • Contractual flexibility to facilitate change and avoid redundancies with technology assets is essential
  • Expert knowledge is key to limit redundancies in purchased technology, ensuring greater longevity and efficiencies from technology for business outcomes
  • Avoid many of the ‘newest’ technologies. They are characterised by little experience in both installation and ‘user experience’.

Over a decade’s international experience has shown us that corporates of varying sizes all struggle to cope with new technologies. A constant tension exists now in managing corporate space to cater for the more rapid changes in technology.

For further information, contact Pierre Hattingh on 02 9432 7866 or phattingh@palladium.net.au
Palladium Property is a Member of the Gravitus Group

 
five
Disposing of Distressed Assets within the constraints of s420A of the Corporations Act
Receivers and mortgagees are being kept busy with the sale and management of distressed assets but a sale by mortgagee in possession or controller under the Corporations Act can be challenged by the debtor so must be done carefully.

Under the general law, receivers and mortgagees must act in good faith when exercising their right to sell or manage property.
Section 420A of the Corporations Act 2001 (Cth) imposes a more onerous duty on a ‘controller’ exercising power of sale; that is, they must take all reasonable care to sell the property for no less than its market value (s.420A(1)(a)); or if there is no ascertainable market value, the best price reasonably obtainable having regard to the circumstances at the time of sale (s.420A(1)(b)).

A failure to sell the property at market value does not necessarily mean that s.420A(1)(a) has been breached; the relevant consideration is whether the controller took ‘reasonable care’ to achieve market price. The process followed and the considerations documented will be relevant in assessing this. Controllers, and the creditor which appointed them, should maintain a detailed record of each step in marketing and sale process in case a sale is ever challenged.
While there is no checklist to follow when selling distressed property, below are some of the points that should be considered:

  1. The type of property and the potential purchasers. Advertisements should be targeted at the appropriate market, run for a sufficient time, contain all relevant information, and use the most appropriate sales technique (for example, some markets can be unresponsive to EOI requests or tenders).
  2. How the sale is structured. Should multiple assets be sold separately or in one line? Would a property be worth more if tenanted prior to sale? Should it be sold as a going concern? Would a lease/purchase arrangement or a sale and leaseback arrangement be appropriate?
  3. If an asset has multiple uses, is it being sold by reference to the most valuable use? In one example, breeding-quality cattle were sold for slaughter, thereby achieving a lower sale-price than could otherwise have been possible.  
  4. Have you acted reasonably to ascertain the market value/best price? A formal valuation alone has been held to be insufficient in certain circumstances.

The best approach to take will always depend on the particular circumstances of the case so you should get expert advice as soon as possible.

For more information contact James Clancy or Paul Hunt from Crisp Legal on (02) 9233 3144
Crisp Legal is a Member of the Gravitus Group

 
Contact
For further information regarding current trends and opportunities, contact Phillip Hoare (Director) on 02 9432 7888

Disclaimer
The information contained in this newsletter is understood to be accurate and is based on sources deemed reliable. Any comment and analysis is of a general nature only and should not be interpreted to provide any form of guarantee or project financial returns as regards the potential of any property asset class, geographical region or particular project. Investors should rely on their own investigations and due diligence prior to making any acquisition, divestment or development decisions.
 
palladium.net.au