After ‘retirement’ in 2006 at the ripe old age of 33, I thought I was pretty hot shit. Yet, I definitely recall being really grateful for where I was at. I’d mainly surf the morning to avoid the wind then work from my home office looking after the few personal projects I had running while staying in touch with partners of managers in the business interests we were involved with. After doing 15-hour days 6 days a week the ease of pace was blissful though going from 110% to 60% was a real challenge and after an initial rest I found my energy both physically and mentally looking for outlets. In hindsight I went from way too much to, too little requiring my opinion and in almost a habitual form I sought things to make decisions on.  This lead to things, projects, investments (decisions) that I should not have pursued, the Achievement junkie got me busy and seemingly I had not developed my ability to say No and thus get the Life Balance I so desired in equilibrium. Accordingly, I look back with 20/20 hindsight and can see some really poor choices were made on both projects and investments, some of which I should just have stayed away from. (A number of these are covered in the War Stories tab)

 

Macquarie Street analysed from this viewpoint seems to fit but here's how it started. Living on the Sunshine Coast a regional backwater for anyone who wasn’t from here I’d made my mark but with the big smoke of Bris Vegas 1 hour away I looked there for some more challenges as well as bigger plays and new markets to learn about. Also, with home life not great at the time, 2 days a week of meetings down there meant I did an overnighter with a gap in the sadness and conflict, sadly I was running rather than dealing with the problems in my marriage. My analysis of the Brisbane market looked to the shortage of office premises as a key opportunity. I saw solutions in the conversion of older character style buildings to office premises and this was assisted by some friends in commercial agency plus when I was a Policeman in my early working life, I worked the inner city beats of Fortitude Valley and Woolloongabba which were prime city ring urban renewal targets.

 

The Australian Estates No. 2 Woolstore, 24 Macquarie Street, Teneriffe jumped at me on a few levels. Originally built in c.1957 for, well, you guessed it - Wool storage and display. When this country road on the sheep's back in the mid 1900’s it comprises 4 floors, in two sections with expansion joins to allow for climatic changes. It was erected during the Postwar era and is International in architectural style. Several features suggest significant deviations in Woolstore design and construction during this last phase of development at Teneriffe. But overall to the non-architectural eye it was a brick heritage building with approx. 4000m2 (an acre) per floor area, yes, a Floor! If you love the history of old Buildings, see here for a full rundown. https://en.wikipedia.org/wiki/Australian_Estates_No._2_Store

 

A prior redevelopment had turned the 2nd and 3rd floors into residential apartments leaving the Ground floor as a council archive storage and the magnificent top floor as commercial office space which is what I purchased as a separate volumetric strata from the rest of the building. Being an old industrial building the top floor and had a saw tooth roof giving it double height façade and the topography of the site meant it had drive in access from the rear with the structure built into the side of Teneriffe Hill. The concrete slab had a load rating capable of carrying herds of elephants (that’s a technical description by the way 😊).

 

Its mathematical attributes were compelling, for sale at $7,500,000 or >$2,000 psm it was less than many new Industrial Buildings were selling for, yet it was in a prime inner-city location, had elevated views over the adjacent Brisbane River, a bus and ferry stop at the door plus views south to the Brisbane City Skyline. It also had a passing income at just over $300,000 p/a or >$100 per square meter (PSM) per annum when office rents in surrounding buildings were consistently at $300-350psm. The tenant Auran, had been in occupation for approximately 10 years and were a multiple award-winning games producer and recipient of numerous government grants being in the innovative online gaming space. Their use of the space was sprawling to say the least with little internal walls and 100’s of desks and programmers spread across the acre of floor space. I once was there at dinner and with a big project deadline looming though the programmers seemed to prefer the night hours and when dinner arrived in the form of 70 odd pizzas and 8 cartons of coke I felt the heart attack coming on.... lol

 

I purchased the site with a 10-year plan to keep the space commercial while I designed and gained approval for a residential Development scheme utilizing the roof height to have either 2. or split-level loft town homes, a good number of which would take full use of the superb views.

 

Purchasing the site for $7,125,000 in mid-2007 I was chuffed with my strategic purchase when on settlement it was valued for mortgage security purposes at just over $10,000,000, a good start. I then commenced a negotiation with Auran to review their rent either by increasing it to a conservative $200 p.s.m. p/a which would double the income or keep it at the same annual figure and reduce their sprawling space by half and then seeking a new tenant for the balance, thus achieving a similar doubling in rent. They choose the latter option and signed a new lease then after a short leasing campaign we secured a National Training Company for the balance who wanted to move out of the Albert Street, City location because the rents were getting to high. So far so good.

 

We had some works to separate and create the new tenancies divisions and so we went back to the financier to secure additional funding to complete this plus start the design and detail of the long term residential options as well as to report in on how well we had done less than 6 months in. A new valuation for mortgage security purposes was struck at $13,250,000 almost twice our purchase price and while the loan was being approved we started internal demolition works to prepare. (some photos attached).

 

What we hadn’t factored on though was the dynamics outside the deal, the GFC, the credit crisis. As I’ve covered in detail in other War Stories, in October 2007 4 months after I bought the property but just prior to this new Heroic valuation obtained the American Share market (S&P 500) peaked followed by ours (ASX) in November. What happens after the run up to a peak, yup a decline and while hindsight is an exact science this decline would go on to remove over 50% of the S&P 500 in the following 18 months and when the USA sneezes we get a cold. This cold turned to a flu and that flu turned viral into the Global Financial Crisis (GFC) where volatility, economic confidence AND credit supply were decimated. The RBA comments of the time from their website say “……Many banks around the world incurred large losses and relied on government support to avoid bankruptcy.” So, if banks needed help to survive what help did indebted clients of the banks have?

 

We didn’t know why at the time but getting the revised debt set proved harder than expected and took longer as the world seemingly entered a dark phase. Confidence evaporated seemingly overnight, and all forms of media talked doom & gloom starting with the housing and subsequent credit crisis in the USA, it was daily mainstream news. While at home on this project Auran started to struggle to pay their rent eventually appointing receivers in early 2008, the delays at first frustrated the new tenant who had already signed their lease for a delivery date yet to arrive but with confidence dropping like a balloon they pleaded release on economic terms, then said they changed their minds before trying technical grounds and finally legal ones. The House of cards started both at macro and in micro levels at once. In the end, with no commercial income and an interest bill of $27,500 a month, I battled on for another 12 months seeking all manner of solutions. Eventually I was forced to walk from the project and my own bank appointed receivers. The property was eventually sold for just over $3,100,000, $10 Million less than its last valuation, 70% less than its settlement valuation and $4 million under the purchase price.

 

What happened next? Well that 10 year Residential plan I had was completed in 2014 by the new owner and they did a magnificent job and it’s almost like they had a recording of the vision from my mind, pictures of one of the 8 units attached that sold for $3,100,000. I just have to be please I had the skills and vision for the end product, just need to work on my delivery, timing and perhaps capitalisation. 😊

 

Project summary

Purchased for                                                    $7,125,000

Valuation on settlement                               $10,000,000

Subsequent valuation > 12 mths              $13,250,000

Sold for                                                                $3,100,000

Commercial rents owed on settlement   $1,000,000 (approx.)

# As a footnote the National Training tenant was sold a few years later to an American Hedge fund for $+100 Million