Together with Ross McKinnon’s State Development Corporation we identified the Brisbane fringe commercial market as a potentially promising one. Available sites were scarce, vacancy rates and passing rents were low, and the CBD leasing markets were showing signs of good rental growth.

A joint venture between State Development Corporation and Ray White Invest secured a prime 2,665m² commercial site with frontage to Coronation Drive, adjoining Toowong Village and Toowong railway station. The site had an existing approval for an office building, but this was amended and improved by State Development Corporation during the due diligence and settlement periods. At settlement, the site had approved plans for a 7,200m² modern office building together with 135 car parks with an estimated end value of approximately $34 million. The joint venture had a number of important ambitions it wanted to achieve, including:

• Seeking pre-leases prior to construction, and holding the property for the medium to long term.
• The ability to contribute a part of the equity required for the development and ongoing ownership.
• Be rewarded with a share of the profit upon successful delivery and pre-lease of the building, but to retain this profit share as equity in the ownership vehicle.

With this brief, we established the Ray White Invest Property Trust No. 5, a registered managed investment scheme, which incorporated the flexibility of two classes of units. The ordinary units were issued to our investor clients, providing the necessary capital to acquire the site and provide working capital until a pre-lease was secured. Class A units were issued
to State Development Corporation, as a means to retain its share of future development profit as units in the trust.

Within 12 months from settlement of the property, we obtained approximately 40% tenancy pre-commitment enabling commencement of construction.

Once construction commenced we were able to lease all remaining space in the building, and were able to secure the desired tenancy mix. In a strong leasing market, we negotiated favourable rent review structures in the leases.

During construction, the tenant that pre-committed to 40% of the building was acquired by another business. As their tenancy space was no longer required by the new entity, we were able to negotiate a surrender of the lease, and to release the previously unavailable space for a higher rent.

The process enabled us to add considerable value to the building.

Construction was completed ahead of schedule, with all contingency allowance unspent, in a very tight construction market.

At completion of the construction phase, investors ‘paper’ return exceeded 50% p.a.

Now completed, we are managing the property and regularly reviewing the Trust’s ongoing ownership.