53 – The critical importance of risk mitigation in property development (Don O’Rorke part 2)

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By Justin Gehde. Discovered by Player FM and our community — copyright is owned by the publisher, not Player FM, and audio is streamed directly from their servers. Hit the Subscribe button to track updates in Player FM, or paste the feed URL into other podcast apps.
In this episode we wrap up the conversation with seasoned developer Don O’Rorke. Don is the executive chairman of Consolidated Properties Group. Consolidated is one of Australia’s leading development companies with a current work book of more than $2 billion. It is a privately owned company that has delivered more than 200 projects over the last 35 years. If you missed the first part of the discussion go back to episode 52 and catch up, as Don shared a lot of gold with us about how he got started in the business, the key projects they did along the way and lots of tips on succeeding at developing. In part 2, we continue talking about the lessons learned along the way including the importance of identifying and mitigating risks, adapting to the current credit market, and some of the projects that didn’t go according to plan. Don will also share a tale of a $200,000 cheque and why it is an important reminder to avoid legal litigation. Lessons for real estate developers I hope you enjoyed that conversation with Don, as I certainly did. It goes to show what you can achieve with some ambition and determination. I got a lot out of my chat with Don, but here’s three things that really stood out: 1. Clearly identify your property development risks & mitigate them Don was pretty clear around the importance of managing risk through the development cycle. He said that each stage has risks and mitigation measures. Here’s some examples that Don suggested: 1. planning risk - mitigate that by getting a permit 2. delivery risk - mitigate that by appointing a good builder on a fixed price contract 3. take out risk - get some pre sales or pre leases in place, and make sure they stack up with professional valuations and 4. capital risk - put in place measures to ensure you have debt & equity pieces in place. By identifying your risks and figuring out some measures to off-set them, you can go into a project with confidence that you have thought strategically about what you are doing. 2. When times are good property developers can get sloppy Don said that the projects that didn’t go well tended to start during buoyant periods when people get exuberant. So his advice was to stay laser focused on risk. Don’t forget about sticking to your system and staying balanced in your assessment of projects. Don commented how often the big risk is in the tail of a project, so the last 20% when you are trying to sell those final apartments or lease those remaining shops, can be the difference between success and failure. Don also suggested that you take heed of the lessons you have paid for when things don’t go according to plan, so you don’t make them again in the future. 3. What is your property development business strategy One thing Don said he would change if he could go back in time is to change the business strategy from build and trade, to build and hold, due to the power of the rising market. So consider which strategy you are going to employ and figure out what you will need to achieve it. How much capital and equity will you need? Don’s business now has a balance of both, so they do residential developments for build and sell, which fund the shopping centre projects for develop and hold. Give some thought to your strategy and how you can make it work. If you enjoyed that discussion with Don O’Rorke, and you want to know a little more about strategic planning for your development business then you may want to jump into the archives and take a listen to episode 44, where I speak with developer Byron Sakha about what it means to be a strategic developer. I am sure you will get some value from that episode, so go back and check out episode 44 (https://propertydeveloperpodcast.com/2018/05/24/44-strategic-planning-for-property-developers/). Don’t forget to email me if you are interested in learning how to become a property developer justin@propertydeveloperpodcast.com

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