In the past, property developers simply sold their investments to syndicates, but now developers are realising they can be both the supplier and product manufacturer.
Such a dual role gives developers an ongoing relationship with their clients, as well as enabling them to achieve greater returns on a development.
Property developer Becton Group entered the financial services market a few years ago with a $5 million capital raising through performance notes.
In 1996, the Becton management team sat down to consider its future direction.
“Becton was an internally focused company that, up to 1996, funded developments with capital provided by the owners,” Becton managing director Hamish Macdonald says.
“We always had the ability to turn a site into a tangible property deal, but in 1996 we took the view that we could use other people’s money as working capital.”
The first capital raising took place soon after, using Austock Brokers. Further note raisings were offered by Austock and all were fully subscribed.
“So then we did a mezzanine finance facility against several projects, which raised $23 million,” Macdonald says.
The various capital raisings had been for Becton Developments Ltd (BDL), which in turn used Becton Construction Services (BCS) to build the projects. BCS is wholly owned by the Becton Group, whereas BDL is 20 per cent owned by the investors.
Investors can now subscribe to a $25 million capital raising for Becton Developments, through Austock and Deakin Financial Planning. The mezzanine offering consists of unsecured notes and shares with returns estimated at between 9.6 to 16 per cent.
Macdonald says the capital raisings identified other opportunities in the financial services sector and the group formed Becton Investment Management (BIM).
“We made a strategic decision to either quit the financial services area or be very good at it,” he says.
“We liked the recurrent income from funds management companies and we could identify projects for future offerings.”
At the same time, Becton also entered into a joint venture with Australian Unity to develop retirement homes. Called Classic Residences Management, the joint venture has undertaken one retirement village development at East Brighton in Melbourne.
According to the Australian Unity’s 2001 accounts, its half of the joint venture made a $52,000 profit. However, the joint venture has been cancelled and Becton now owns 100 per cent of the company.
Becton has also built a relationship with the Accor hotel management group and has a joint venture company with them.
Another property developer to go down the dual-role route is BIM, headed up by former MCS property finance manager, David Hinde.
Going against the general trend in the syndicate business, BIM has launched its first property syndicate for units in a Newcastle hotel development.
The four-star hotel will be managed by international manager Six Continents Hotels. It will feature 177 suites, a conference area, a health and fitness centre, restaurant and basement car park.
Returns for the syndicate have been forecast at 10 per cent based on a guaranteed return of six per cent during construction and nine per cent during the first 18 months of the hotel’s operation.
The exit strategy for investors will probably be the sale of strata-titled units in the hotel.
Macdonald says future developments will include an 11,000sqm office building in Canberra and possible commercial/industrial developments at Essendon Airport in Melbourne, which Becton jointly owns with Lindsay Fox.
