In the competitive world of investing in Australian commercial property, property investors are constantly considering what can they do to be the preferred party to deal with in relation to a particular project.
What is important in winning a transaction for property investors – price is not enough!
In the case of a purchaser, the previous view was that by the offering a higher price this would guarantee its success in a transaction. Additional factors are now becoming increasingly important to the other parties to the transaction in deciding who to deal with.
This is due to the increasing complexity associated with real estate transactions (particularly ones involving foreign property investors) and the importance of being able to act quickly to take advantage of opportunities.
Non - price factors: How they can work against a property investor
As a result of the above, price of itself will not necessarily be enough to guarantee success. Other factors, that may be equally or more important to the other parties, include:
- ease of dealing with a party;
- a party's level of familiarity with the type of transaction to be entered into
- availability of funding (including debt finance) for the party; and
- whether FIRB approval is required for the party to complete the transaction.
These factors can each have a major impact on transaction costs and meeting deadlines.
In the case of foreign investors or local property investors involved in more complex transactions than those to which they are used to, these non-price factors are particularly relevant. They can work against the property investor in a tender, expression of interest or private treaty sale. In relation to ongoing arrangements such as joint venture, co-ownership or development transactions, these factors take on even greater significance. This is due to the extended period of time during which parties need to work together.
How can the property investor avoid the negative consequences
To overcome the above disadvantages, property investors should ensure that they understand the main issues relevant to the transaction as soon as possible.
Once the need to have such knowledge is accepted, the question is what do potential investors need to know and when and how should they get that knowledge.
What Makes Us Different?
The main focus of our consulting services is to:
- minimise the cost and time associated with implementing a transaction; and
- maximise the ability of investors to protect their interests when negotiating the initial documentation with the other parties to the transaction.
Real Life Examples
The difference between getting the right advice as soon as possible and not doing so is demonstrated in the following real life examples:
- Prior to seeking our advice, a borrower executed a term sheet which contained a prohibition on it acquiring any other property or borrowing further funds. This was the basis in which the lender agreed to provide funding. Once we highlighted this to the borrower, it did not wish to proceed without the lender removing this restriction. The lender could not accommodate this request resulting in the loan (approximately $50m) not being provided.
- A developer provided a short form of development management agreement to the investor which was to fund the development. Upon seeking our advice, we negotiated substantial changes to that document. This resulted in a saving of $5m for the investor on completion of the project.
By leveraging off the 30+ years of legal and transactional experience of our Founder, Peter Faludi, at cost-effective rates, we assist property investors understand the legal, documentation and structuring issues associated with property investment, development and finance in Australia.
This type of advice is generally not provided by other advisers at the very early stages of the transaction.
By addressing these issues at the very beginning of a transaction, the amount of renegotiation by advisers involved in implementing the transaction (due to the investor requesting changes) will be minimised. This results in the saving of costs and time.
What Difference Does It Make To Property Investors?
By utilising our services, investors gain control of matters and are better able to protect their interests at the vital early stage of discussions with other parties.
In addition to the cost and time savings mentioned above, the investor should be seen as a more savvy investor by Australian parties and therefore be more likely to be invited to participate in future transactions.
To assist investors’ gain the knowledge they need to have before embarking on a transaction, we have prepared a list of the TOP 10 ISSUES FOR PROPERTY INVESTORS IN AUSTRALIAN PROPERTY TO BE AWARE OF BEFORE ENTERING INTO DOCUMENTATION.
If you would like a copy of such list, please click on our Website at https://www.peterfaludiconsulting.com.au.
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