Prodap began in 1986 by advising corporate mortgagees on how to work out of a problem project, rather than to sell the property into a bear market. It later became involved as project manager for those projects, as well as others, notably Hope Island Resort, Phase 1 (133 canalfront lots).
Such mortgagees as AGC (Australian Guarantee Corporation, now Westpac) and Ferrier Hodgson (managers and receivers) needed to know more than just whether the projected net income would cover the debts, they needed to know the risk in developing at a point in time. Mortgagees and receivers are inherently conservative when it comes to adding value themselves, however if they can be convinced of the likely market trends over the life of the project, they are more likely to make that step.
CADES COUNTY
In 1986, AGC were in possession of 60 hectares of zoned Residential 'A' land at Oxenford, Gold Coast, known as Cades County (now Forest Hills). The debt was much higher than the market value of the land, and AGC were faced with either selling at a loss, holding the land until a purchaser came along who was willing to pay enough to cover the debt, or to develop the land and market the allotments itself.
At the time, developed lots in the previous stages of the project were changing hands for $18,000, and at a very low sales rate.
In 1986, the Gold Coast, and for that matter, Australia was in a property recession, and had been since the previous boom in 1980-81. Part of the gloom was the result of the national political scene, where a Labor government showed no hope of reducing interest rates, and in Queensland, Joe Bjelke-Petersen's exit from politics did not help consumer confidence.
Prodap undertook market research which compared the feasibility of three different development densities and a mixture of two densities. Our recommendation was for 2,000 m2 (1/2 acre) serviced lots, which attracted a premium over conventional Res A lots because of the semi-rural nature of the locality. AGC subsequently developed the project and completed it with a $2.5M surplus after development and holding costs. The project comprised 325 lots, which were developed and sold over a three year period between 1987 and 1989.
PARKWOOD
In 1992, the Receiver and Manager for Farrow Mortgage Corporation, Ferrier Hodgson retained Prodap to advise on an exit strategy for a 550 lot residential land subdivision at Parkwood, Gold Coast.
The market for residential land at that time was weak, following the 1988 boom which over-valued and over-supplied the Gold Coast with land. The land was put to tender twice in 1992 and the best bid was $14.4m. The debt was $25M.
Prodap recommended to Ferrier Hodgson that the project be developed in stages over 3-4 years. This was considered to be a risky strategy for the Receiver in such a bear market. However, Prodap was able to satisfy him that the next upward cycle would most likely occur in 1994. This was based on an analysis of historical property cycles in the Gold Coast dating back to the 1970's.
The Receiver took Prodap's advice, and received net realisations of $35M after development costs. Prices for allotments rose from $65,000 per lot initially to $90,000 per lot during the 1994-95 high in the property cycle, which occurred as we had predicted.