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‘UNPRECEDENTED’ DEVELOPER CHALLENGES IN 2023
During Covid the most overused word was “unprecedented”, and I took a visceral dislike to seeing it appear in every commentary piece. I cringe at the title I have given this article but how else do I describe a set of challenges that I have not seen coalesce in my 68 years on the planet and certainly in my decades in the property/construction/finance sectors. I will let you the reader determine whether the term is valid.
Benni Aroni Client Director - Property Pitcher Partners.
I doubt there is a fundable “residential” feasibility in 2023. In this article my focus will be Victorian residential. In future articles I will address the commercial sectors including BTR, hospitality, offices, mixed use, retail, and alternates such as lifestyle communities, childcare, aged and health offerings. My definition of a fundable feasibility was historically one that shows an IRR of 20% plus. In fairness a 15% plus IRR is not bad and many developers are proposing projects on that projection. The 2023 challenge is that investors can get a double-digit return lending funds on first mortgage through numerous respected non-bank lenders with
relatively less risk. Do a few more percentage points warrant the risk and stress of “development”? Examining the elements of a feasibility is the best way I know to illustrate the challenges of development in 2023.
Let’s start at the top – Revenue.
It is now accepted that to address the items I will classify as development expenses, revenues on residential developments in Victoria need to and are increasing by a minimum of 25%. There will be variations between product but an apartment block in the CBD/Southbank area that in 2020 stacked up at an average of $10,000 a square
10 –August / September 2023
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