CASE STUDY // CAMERON BLOOMFIELD
A SLICE OF THE PIE
GEMMA CARR
Cameron Bloomfield was part of a 12-person investor group that manufactured a profit of $1.055 million – or $87,000 each – in just 22 months.
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Kieran Clair
C
ameron Bloomfield now sits at the big table of property development, but his arrival was the result of a studious and steady approach to development projects forged on an ethic of creating value, not just waiting for the market. At 33, Cameron has certainly come a long way, but before establishing his own property development company, he wanted to gain the right knowledge and experience. “I came from a marketing, media and advertising background,” he tells API. “Post my degree in marketing, I worked for a number of the majors in advertising, both in outdoor and online. From there I started learning more about wealth creation and bought my first property around 2008. It was from that first purchase that I started to learn more about property investing as a vehicle.” Since then, Cameron has grown a portfolio of four standalone investment properties and seven further holdings, where he’s retained a completed residence after finishing a development project. Cameron isn’t a one-eyed investor. He’s been in business for more than a decade and traded securities as well as foreign currency exchanges. Unlike other property investors you meet, he wasn’t burned by the experience – far from it. He just believes property and its development provide the most secure method of wealth creation. “It was through property that I was able to do a number of deals ranging from renovations to off the plan and then through to development to manufacture growth. It was the experience that’s led to where I am today.” Cameron was smart enough to know the process of property development is fraught with risks first-time developers may not see coming. Even an experienced hand at real estate projects is capable of being blindsided now and again, so Cameron sought the guidance of more experienced souls. “This first venture was introduced to me by a mentor that I was studying property development under at the time. To take on a development of this size would have been too much to handle at that point of time. It was an opportunity to be part of a project and gain that hands-on real life experience, without having to take on as much of the risk.” Cameron’s mentor put together a plan
to establish and project manage a jointventure property development set on returning a handsome profit to investors. ¿¿THE PROJECT The project management team set out what they required from the venture and they were happy to find an opportunity that fit like a glove. It’s not often you come across a property carrying a development approval (DA) that’s perfect. “A lot of developments that are signed off and approved under one particular architect may not be the type of product that the next purchaser who comes along is looking for and is thinking will meet the market. I guess the rarity in this event was that the product that was actually designed for this site ended up becoming the type of stock that the group was happy with.”
æIt’s a matter of finding a project that’s going to yield the return that’s attractive to investors.Æ The property provided more than 1500 square metres of land in the Brisbane suburb of Auchenflower, which is located just 2.5 kilometres from the CBD. It’s an area with all the good fundamentals. Buses and trains are available for the short commute, but any number of workers choose the riverside bike track to cover the distance. In terms of amenities, there are several great café strips within a weekend stroll. There’s a university and hospital within the tenant catchment, and the Toowong Village Shopping Centre is close by. Capital growth in Auchenflower has been good historically, despite the impact of the 2011 flood on some of the suburb’s lower lying property – an event that didn’t quite reach this development site. The approved development provided a highly saleable product, Cameron says. “It was for a four-storey building made up of 14 two-bedroom units of approximately 83 square metres in size with 23 square metres of undercover walkthrough balcony. There’s also one penthouse suite, which is a three-
bedder that has a northerly aspect with spectacular views of Brisbane’s skyline.” Cameron says the investors were taken with the contemporary feel of the design. It positioned the project a step up from others in his opinion. “There’s a lot of older-style designs and a couple of lower spec designs that are coming through these days that might appear quite boxy but without a unique aspect. The project management team was really happy with the design as it added great character to the landscape. “One of the most appealing things with this particular development is that it had a nice pitched roof. It’s got great curves and lines throughout. I think it’s a real credit to the designer, but also the execution of the builder as well.” It was beneficial that all the existing onsite structures were able to be demolished too. Pre-war homes in inner city Brisbane can’t be knocked down and there’s any number of unit projects where a retained dwelling sticks out like a blister on a new development. “There was one large existing dwelling on the site, comprising of four units, I guess you’d call them. They were owned by the vendor and tenanted by people that were attending the local university. In this situation, to make way for the 15 apartments that were built, the existing dwellings all needed to go.” Cameron also appreciated the project having limited common area ancillary improvements. While a pool is a nice thing, no one in the body corporate likes to pay for its upkeep. “I think those high hopes for the pool or a tennis court dwindled rather quickly due to their cost!” ¿¿GATHERING INVESTORS Cameron says the first step was securing the site. The project management team knew they needed a proposal to take to a group of investors, because without supplying actual numbers, it’s difficult to get stakeholders to nod their head. “It’s a matter of finding a project that’s going to yield the return that’s attractive to investors, but also finding a project that’s not too large, because you’ve got pre-sale requirements and risk mitigation to deal with.” The DA came through on the property in March 2009 and the contract to purchase was signed on February 2010 with a price of $2.175 million. Cameron’s development mentor was in contact with the agent and knew about the property before it went public – yet another example of why
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CASE STUDY // CAMERON BLOOMFIELD
Timeline FEBRUARY 2010
Land contract signed
MARCH 2010
Investors confirmed
MAY 2010
Finance approval
JUNE 2010
Settle land
AUGUST 2010
Building approval
SEPTEMBER 2010
Commence construction
FEBRUARY 2012
Penthouse party
APRIL 2012
Certificate of classification issued
APRIL 2012
Investors settle properties
APRIL 2012
Apartments put on the rental market
MAY 2012
Tenants signed and in place networks are important. He says once the contract to purchase was signed, it was time to rope in some shareholders. “The land was to be settled by June 2010
which left four months to pull together the investors.” An information memorandum was prepared for the venture and offered to an existing network of investors, and it was structured in such a way the investors were each financing a particular apartment in the project. Stakeholders would be required to Heavy concreting invest between approximately $150,000 and $178,000 each, which would cover 25 per cent of the project’s total cost. The balance of 75 per cent would be provided by the bank. Under this structure, rather than taking the profit out in cash, investors would retain ownership of the finished units and benefit from the equity gained. Based on assessed end valuations, the scheme showed investors The upper levels go on benefiting by about $105,000 to $114,000 per apartment. In this case, one investor took two units, while another took three. With that, all the units were accounted for. With only four months between signing the contract and coming up with the investors, you’d expect the development team to have some sleepless nights, but any concern was shortlived. Most Finished of the spots were filled within the first four weeks, with the remaining places being taken up uploading to a video hosting site which well before the deadline. then distributed it to all the investors. Cameron believes in this case, 12 investors were the right amount. It meant Cameron says they were a smash hit. “The interstate investors were quite the risk could be mitigated adequately, favourable of the videos. Being so but there was still enough profit in far away, they preferred having a bit the deal. more coverage.” Pre-development appraisals for the There was an opportunity for investors proposed south facing two-bedders were to communicate, ask questions and share around $560,000, with the two-bedroom, any concerns about the project, but like city-view units assessed at $625,000. any good venture, decisions ultimately The standout penthouse was valued at rested with the project manager. $850,000. The project management team was “You’re sitting just above the median fortunate that none of the investors average so you’re then presenting a deal needed to divest themselves before the that’s going to be favourable to most of project was completed. the middle market.” While it was a pre-condition of the The project management team made agreement that all contributors would arrangements for the process of keeping be staying in for the long term, life can investors informed throughout the sometimes change without notice. construction. Apart from email updates “This is a risk that needs mitigating. and monthly bookkeeping reports, the Each investor’s situation is different and project managers used other technology independently they’ll need to be assessed. to bring the project into the investors’ The main goal would be to facilitate an sphere. They provided video updates outcome, without being detrimental on the development by filming on a to the venture and reviewing any smartphone, putting together two to tax implications. three-minute pieces on its progress and
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“Before the development, the venture required everyone’s capital to remain in the project given that the land was purchased unencumbered and the forecasted cash flow was already set. “As always, circumstances can change. Having an opportunity for someone to exit, should they need to, is part of every good investment strategy.� The project management team used a builder who had completed projects for them before. As such, they were able to provide a reasonably accurate estimate of construction costs to the investors as part of the sign-up process. “There was a good understanding as to what costs were going to be accounted for in terms of the build and a good project history proving his (the builder’s) capability to deliver.�
¿¿BANKROLLING THE BUILD The project management team put the proposal out to a few lenders to see which came back with an attractive proposal. “Competitive funding packages were requested and it was one of the majors + BONUS that ended up doing the deal. Part of CONTENT that package included the investors Use your smartphone purchasing at least one of the properties ! on completion, which was already going or tablet and your favourite QR scanner to be the case.â€? app to view a photo The decision by owners to retain units " " gallery of the finished in the project resulted in savings when Auchenflower units. it came to stamp duty too. Investor
SMART
Property Investors
buy-back is now something Cameron encourages in all his deals. “We prefer the structure as there are a number of efficiencies. These include meeting the pre-sale requirements which strengthens the profile of the deal ! ! to the banks, your exit strategies are far more secure especially when settlements occur when the market is soft or slow, and there’s a savings to investors on the back end as well. “It’s a win-win-win situation, which is always something worth playing for.� #
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¿¿WORKS UNDER WAY They settled the land in June 2010 and commenced construction in September after the building approval was issued. Cameron says there were many highlights during the build – those times during the construction process when you get to take stock and enjoy the fact you’re a part of building something. “I think it’s those moments where the development actually starts to take on a new look and feel. Those milestones for this project were seeing the existing dwellings demolished, seeing the initial piers going in, and then from that stage, once the lower level slab was poured, every couple of months a new floor would be capped off and another one would begin. Four floors later, the roof was then put on. “After 14 months, finally seeing the building in its entirety, this was the mark of a fantastic development and the knowing of where my future would lay.â€? The project management team was pretty much finished with the build and looking for the certificate of classification, which would officially mark the works as done and dusted. Under certificate guidelines, water pressure must be at a certain level.
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CASE STUDY // CAMERON BLOOMFIELD
“At the time that it was finally connected and the tests were carried out, you’d be lucky to fill a glass of water with the pressure that was recorded.” Something was amiss, and that something was in regards to the water mains at the connection. “That actual connection to the complex needed to be upgraded. There was an internal error from the water services department with one of their checks that should have happened, but didn’t. The whole project was put on hold, up until the point that the water service was upgraded.” According to Cameron, the only way to upgrade the service was to redirect the line down the street and up toward a very busy main road. He says it wasn’t an easy process and the timing was lousy. “This occurred at a time where we had the development fully completed. So those that understand what ‘peak debt’ is and how it can affect your project would know this is trouble.” Basically, the investor group was at the point where it had borrowed its largest amount of funds from the bank, with the view a certificate of occupancy would allow it to finalise the project and pay down the debt through settling the units. Instead, members were paying interest on their maxed borrowings for an additional, unplanned four months while the trouble was sorted out. Cameron says there isn’t any recourse against the authority that caused the error, so they had to cop it sweet. “These are one of the many pitfalls that developers face time in, time out when projects are moving forward. “I think with property in general, there’s the need for persistence but also the need for patience. The project was forecast for 17 months but on completion, it ended up running to just short of two years.” By most of his measures, Cameron says the project was a success. It was unfortunate, but understandable, to see valuations of $530,000 on the completed two-bedroom units despite an expectation prices would be closer to $560,000. The reason was poor market conditions and low buying activity, which resulted in lower comparable sales, he says. “The Brisbane real estate market was pretty soft through 2010 and 2011. Ever since then it has been pretty flat with some retraction.” In the end the project involved a total outlay of $7,416,074. The two-bedroom units on the south side of the building were assessed at around $530,000 each,
THE NUMBERS | CAMERON BLOOMFIELD
Project
Exchanged contracts
Demolish an existing structure and construct a four-storey, 15-unit building with a group of investors February 2010
The settlement
June 2010
Purchase (Land $2,175,000, stamp duty & conveyancing $137,791)
$2,312,791
Professional fees Construction costs
$507,943 $3,998,400
Contributions and charges (Electrical, water, sewer connections and fees)
$284,478
Finance and holding costs
$312,462
Marketing and sales Net GST paid
No sales, investors held completed stock No GST due to no sales
Total development cost and sell estimation
$7,416,074
Total income
$8,471,175
Total profit / equity gain
$1,055,101
Profit on costs Average profit per investor (12)
14.23% $87,925
while the two-bedders with city views were valued at about $590,000, and the penthouse saw a figure of over $800,000. The gross realisation was $8,471,175. This means the investor group realised a total equity gain of $1,055,101 for the 12 shares, or $87,925 per investor on average. In the end, the basic two-bedders rented for around $480 per week. This figure reflects a gross yield of 4.7 per cent. When you consider this is for a new unit, with depreciation benefits, which is literally within a Sunday walk to the centre of a major capital, the return seems fair enough. The better units with city views rent for $530 per week and the penthouse achieves more than $610 per week in rental. ¿¿LESSONS LEARNED In the wash, Cameron says he earned a real life education that money can’t buy. “By investing in property this way, what you’re getting is the benefit of building in capital. This is the whole goal for growing your wealth. Through property development, you don’t have to wait for the market to move to grow your wealth, as a developer you make the wealth! This managed form of wealth creation gives me more options in my life and that was one of the things that I was seeking.”
In the lessons learned column, Cameron lists research at the top. “I think doing the due diligence is by far the most critical thing with any investment that you’re going into. I’d recommend to people to actually attempt to do twice as much due diligence… it’s through doing the research that you’re going to acquire knowledge, which then leads to the confidence you need to make the decision on whether to invest or not to invest. “Number two is entrusting and being able to establish that form of trust with the people that you’re engaging. They’re the very people who are managing the money you’re investing in the project. “Number three – past performance predicts future performance.” Cameron’s final tip is to get out there, take action and do something. “I think there’s a lot of people that talk about what they do in property and it’s another thing to actually do the research, meet the people that you’re about to joint venture with and actually take on the process and do it.” Most good stories deserve a happy ending. This one was a celebration in the project’s penthouse. “Yeah, it was a night to remember. I was staying not too far down the road, grabbed a cab, arrived, took the lift up to the top floor, stepped out and walked into the penthouse apartment for the celebration success party. I guess this was the final step of my initiation into being part of the development process that’s led to me becoming a developer. “To arrive at project completion and to experience the event with all other parties who were involved was an incredibly memorable moment – so much so that it’s now an essential event that we plan as part of our developments down in Melbourne. “As the Auchenflower development took over 700 hard working days to complete, I think it, like every great development, deserves a launch night to remember!” Cameron has since independently embarked on a number of apartment developments and infill subdivision projects across Melbourne. He credits his learning experiences to the Auchenflower project, thorough due diligence and surrounding himself with the right network as being critical to his success. API API Connect Do you have a question for Cameron? Turn to page 81 for the simple steps on how to send it in and receive an answer.
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