The Art of Property Development: A Peek Behind The Curtain Wall - Part 1

Introduction

Are you an aspiring property developer?

In this brand-new series, I interview three leading property developers to gain experience-based insight into the lucrative Australian property development industry. The purpose of this three-part interview series is to help you get started on your development career and set yourself up for success

Whether you are an aspiring developer or a seasoned professional, this series has valuable content you won't want to miss.

Interview 1: Charles Mellick - Executive Director at Fortis / Pallas Capital

Charles Mellick brings an in-depth knowledge of the property industry, gained over 30 years, together with a reputation for the delivery of high-quality projects. Charles has funded and directed many residential and commercial projects with a particular focus on Sydney and Melbourne’s inner-city suburbs.

What attracted you to a career in property development?

I have been interested in property since I was about 6 years old, however, it was buying my first house at 22 and selling it 12 months later for a profit that really sparked my interest in developing. I pursued a career in building and throughout my career I always had a strong interest in development. When I was building for developers, I was cognizant of the fact that I am quite literally building their dream. I had my own dream, so the natural progression for me was to develop.

At 28 I started to develop whilst building. I was losing money building at the time. 10 years ago, I stopped building altogether and partnered with some friends who were bankers, taking the role of developer. The Pallas group was formed, which encompasses Fortis and Pallas Capital.

2. How has the development environment changed since you started your career?

It is very, very different. Back then it was far easier to find sites, as there were very few developers. Nowadays, everyone is watching these home shows and thinks they are a developer.

What I tend to do is precinct development rather than spot development. I pick areas like Double Bay and South Melbourne and purchase assets around existing or proposed train stations. We like to curate and activate streetscapes ensuring we leave a timeless legacy, particularly when it comes to materiality and architecture. 

3. What trends are likely to shape the development environment in the future?

The trend we looked at since 2017 was buying fringe properties. I always viewed that people want to work closer to home. We have purchased hundreds of millions of dollars worth of assets in quality areas on the fringe. On a building level, we also see the increased benefit of providing unbelievable end-of-trip facilities like showers, toilets, and shaving facilities. It is also common to find a Members Club, restaurant, and bar up top and below. Food really brings people together and fosters an on-site community.

4. What is the greatest mistake emerging developers should avoid?

Short settlement periods, reliance on pre-sales and external funding. What you see is developers who may have assets, but not liquid cash buying sites with short settlement periods (3-6 months), which is not enough time to create value. A lot of people rely on approvals to give them an uplift, to do that you need 12-18 months. In times like these when stock is hard to move and construction rates are going up, your marginal cost drops and financing becomes very difficult.

I also see developers making the mistake of not maintaining a good relationship with the council. You want to work with the council and their vision to get approval because the approval is everything. You don't want to push the boundaries. These relationships are often tarnished out of desperation from the developers as a result of the pressures of short settlement periods. As well as negatively impacting the project, this gives them a shocking reputation. 

5. Describe the core qualities of a successful developer?

Understanding a community. It's impossible to please everyone, but a great developer works with a community without overreaching. Your reputation is everything. By working with integrity, you become an enigma and gain respect from the community. The council love you and the community loves you. You look back and you can see when the legacy you've created.

6. If you were starting out today, what would be your first steps?

For anyone looking to get started now, I don’t think I'd push them to get into the construction industry. I would skip that chapter. You'll gain a general understanding of it through development, you don’t need an intimate understanding to be a successful developer.

If you want to get into development, I think you've got to align yourself with a great developer. Look for a group like ours where developers are working alongside financers, designers, quantity surveyors and marketers.

7. With the snap of your fingers you can alleviate one challenge in the development process, what is it?

Planning. Planning is always difficult. It doesn't matter how well you know the council, as it comes down to the staff assessing it, which changes frequently. It is also very subjective. I might like a building, but the DA officer might not like glass. Of course, there is a council for a reason, for bad developers, and they do a good thing in that regard.

8. From a developer's perspective, what makes a great architect?

A great architect is almost like a builder-architect who can draw and know how it's going to be built. Another quality is not being too precious. Particularly with a group like us, because we're always going to be dominating the design. if you don't have an architect who can be adaptable to change as build costs are increasing, you won't get projects off the ground.