Melbourne developer Joe Chahin on why he chooses to build fewer apartments.
“We’re not interested in developing properties that are about maximizing yield,” says Melbourne property developer Joe Chahin. “We’re interested in developing properties that are saleable to the local marketplace.”
Chahin’s business, Peregrine Projects, doesn’t operate like a typical developer. For a start, Chahin himself is not a builder; he’s an accountant who set up his accountancy practice, brWellington, and his development business, Peregrine Projects, at the same time in 1994. “I was 23 at the time so I wasn’t overly clear on what my mandate was, other than I had a dying interest in accountancy and a growing interest in real estate,” he says. “They are two distinct businesses but they sit side by side and share office space and some staff.”
Peregrine Projects’ first project was the construction of a factory in Regent St, Richmond. Currently, the are constructing the $35 million Luxton Apartment project in Chatham Street, Prahran, the $20 million Zac Apartment project in High Street, Prahran and have plans for a 60-apartment project in Smith St, Fitzroy.
“It’s become a spectator sport at the moment,” Chahin says of the Australian property market. “There are enough pressures on the development space at the moment, so for a group like us, I feel the only way that we can make a difference is to try to develop properties that are playing to what qualified local buyers are genuinely seeking.”
At Zac, which is located at 227 High Street, Chahin had a permit for a seven-story building with 50 apartments but chose to build only 36 larger apartments on six levels. He believes the local owner occupiers he is targeting wouldn't buy into a project with over 50 apartments.
“I’m not a big fan of just putting in claims and trying to maximize yields and running off to VCAT to get an endorsement of a project,” he says. “The whole model of Peregrine Projects is to try to understand the tapestry of the local community and deliver an outcome that taps into that. I think these days with inner city development, and even sometimes in the metropolitan areas, property development has become somewhat commoditized. It’s all about how high can I build and how far can I stretch the envelope. I think a lot of developers are frustrated with the planning process and they just go off to VCAT for endorsement. Whether or not that is saleable or not becomes a secondary consideration because the first exit strategy is about selling the site with a number of apartments.”
Chahin held what he calls a “simple workshop” where he invited locals to gauge interest in Zac Apartments. On the first day, half of the apartments were reserved. After that, he sat down with the interested buyers to ask them why they chose Zac over other developments. “It became obvious that it was owner-occupiers interested, and they liked the fact that it was a boutique apartment. People tend to throw that word around loosely but in the context of Zac, it means it stays at 36 apartments and the retail offering on the ground floor was simple and clear that wouldn’t compromise the quality or livability of the building.”
“It became obvious that if you can genuinely keep this boutique, and genuinely be clear about your retail offering on the ground floor, then the average qualified buyer will pay a premium. There was an opportunity to make just as much profitability doing six floors this way instead of seven floors and getting to over 50 apartments. It really was an eye-opener to me to see that people were really happy to pay a premium for an apartment complex of 36 as opposed to something greater than that.” Only two one-bedroom apartments are left in the Zac development.
Chahin said the challenge for any developer is to monetize a site. “How do I achieve a commercial outcome with that acquisition knowing that I want to sell into the local marketplace and don’t want to take the risk of foreign buyers?” he said. “What I’ve found is the best way to build up some currency with local buyers is to characterize yourself as a developer of boutique-style apartments, and that’s a challenge in itself because most people tend to bastardise what boutique means.”
“Local buyers who are well informed who can clearly see the difference between what you’re trying to achieve and what the developer around the corner who is $30,000 cheaper is trying to achieve, they will always pay a premium if you can keep it boutique,” he says.