Disposing of a Property Asset

Russell MartooManaging Director

RCP

Project Management – Development Management – Project Programming – Delay Claim Advisory

Disposing of a Property Asset

Asset Strategy is the decision as to whether to hold, develop or dispose of a property asset

Highest and Best Use Study

Prepare Asset Strategy

Hold / Develop /

Sell

Market Assessment by Urban Planner

Town Planning Assessment

Financial Assessment /

Feasibility

Prepare Master Plan options

Confirm Decision to

Sell / Develop

No

Yes

Hold

Develop / Sell

Yes

Settlement

Sell ‘as is where is’

Value Add or Develop

Rezoning, Site Remediation, Demolition,

Refurbishment etc

Contract Negotiation and

Management

Marketing / Sales

Disposing of a Property Asset• Three phases in the disposal process

• Deciding how to sell the property, i.e. ‘as is where is’ -vs- ‘value adding’ before offering for sale

• Adding value to the property before it is sold• Marketing and selling the property

Disposing of a Property Asset• ‘As is where is’ -vs- ‘adding value’

• The market value of a property asset, or the price a vendor may expect to achieve in selling it, depends on its ‘highest and best use’ (HBU)

• HBU means “the use of an asset that maximises its potential and that is physically possible, legally permissible and financially feasible”

• The HBU of an NPO’s property asset is very often not based on its current use, but some other physically possible, legally permissible, financially feasible use

Disposing of a Property Asset• To determine the HBU of a property asset it may be

necessary to engage a range of property consultants• Economist• Town Planning Consultant• Surveyor• Architect• Cost Planner• Valuer• Media and Communications Consultant• Development Manager

Disposing of a Property Asset• A decision to sell a property ‘as is where is’ is a low risk

strategy which pushes the risks associated with a rezoning onto the purchaser• Number of disadvantages

• Purchaser is likely to discount the true value of the property asset by factoring in a ‘risk premium’ – rezoning, decontaminate the site

• Purchasers offer will be conditional on these things being satisfactorily resolved by the purchaser

• May significantly delay the realisation of funds from the sale of the asset• May rule out some potential purchasers who are not prepared to take on

the risks. Reducing the number of potential bidders may reduce competitive tension in the market

• NPO is more likely to encounter less public and political resistance to an appropriate rezoning

Disposing of a Property Asset• Adding Value

• Very likely that the HBU will not be used on its existing use

• Unattractive in its current condition to other potential users or buyers

• Number of ways an owner may ‘add value’ to a property asset• Rezoning the site to permit the HBU• Site remediation where contamination may be an

issue• Demolition of existing improvements• Refurbishment of existing improvements• Redevelopment of the property

Disposing of a Property Asset• Rezoning – addressing the technical issues

• May also be necessary to engage additional specialist consultants • Traffic• Hydraulic• Acoustic engineers• Environmental scientist

• Rezoning application supported by a number of technical reports• A planning report prepared by the town planning consultant• Economic impact assessment• Environmental impact assessment• Acoustic report• A traffic impact assessment• Water, sewerage and storm water report

Disposing of a Property Asset• Rezoning – addressing the political issues• The rezoning decision notice• Development Manager

Disposing of a Property Asset• Marketing and Selling the Property Asset

• Memorandum of information (MOI)• A typical MOI contains the following:

• PART 1A. Invitation to Tender

B. Property Report

a) Introduction

b) Summary of Offer

c) Property Details

d) Site Plan

e) Area Overview

f) Ambitions / Desires

g) Development PotentialC. Concept Plans

Disposing of a Property Asset

D. Planning Reporta) Introduction

b) Site History

c) Zoning

d) Road Closure

e) Development Control Plans

f) City Council Requirements

g) State Government and Regional Issues

h) Conclusion

E. Specific Requirements for the Site

F. Environmental Issues (if applicable)

G. Council Approval

• PART 2• Tender Document

• Conditions of Tender• Terms and Conditions of Sale

Disposing of a Property Asset• Due Diligence

• Building inspections• Legal investigations• Confirming the seller is legally

entitled to sell the property• Investigating encumbrances, e.g.

mortgages, leases, covenants, easements etc

• Town planning checks• Concept designs and preliminary

feasibility assessments

Disposing of a Property Asset• Contractual and Legal Risk Management

Matters which may be managed under a conditional contract include: • Purchaser has to get all the approvals and must be seen to be

acting promptly to achieve all the approvals• Purchaser has to achieve all the requested amendments to

particular approvals• Environmental approvals must be carried out within an appropriate

timeframe• Purchaser might need the consent from the vendor to undertake

their applications• Insurances (payment of statutory fees, statutory obligations)

Disposing of a Property Asset• Transaction Management

• Most of the transaction process will be managed by your legal representative

• A Development Manager would:• Liaise with your legal representative• Manage and clearly outline the steps and timeframes to achieve

settlement• Undertake a co-ordination role to follow upon what is required to

happen, by whom and in a timely and complete manner

Disposing of a Property Asset• Putting up the ‘For Sale’ sign

Disposing of a Property Asset

Questions?