The Weekly Review
By Andrew McUtchen
14th November 2012
Developing our city \ This business plan is “stick to what we do best”, writes ANDREW McUTCHEN
Michael Fox, the “face” and managing director of the Paul Little-owned Little Projects, pulls a blue folder out of a cupboard in his office that has his name printed neatly on the cover.
Inside the folder is a real-state flyer from 1989, advertising the auction of the iconic Stitches Factory in Cremorne. Fox was the agent on the job and when the auctioneer’s rolled-up contract hig his palm for the not paltry sum of $4.75 million, Fox said he knew that he wanted to do with his life: “Bigger things”.
His father owned a plumbing business in Kew, where he was born and bred, but that wasn’t for him. Instead after he finished school at Xavier College, he studied at the Chisholm School of Banking and Finance before taking a job with real-estate company LR Reed.
Fox did the necessary hard yards in residential property management to earn a crack at sales. Looking back, from his corner office at Little’s headquarters on Burwood Road, Hawthorn, Fox says: “I think my first job was really just a foot in the door.
“I’d always wanted to be in sales but then when I was in residential sales, I always wanted to be doing bigger things, which is why I then moved towards the commercial-industrial stuff. It was always the size of the sale, the size of the deal that interested me.”
Size obviously matters Fox, which is why – with that slap of the contract paper on the auctioneer’s hand from the Stitches Factory sales still ringing in his ears – he moved from real estate to working for the Smorgon family as a development manager.
Fox became what he calls a “shed man”, building little warehouses all over Australia for the Smorgons.
He met Toll Holdings boss Paul Little through business dealings and saw the opportunity for a further increase in size and scale. He accepted a role as the manager of Toll’s property portfolio.
“I had my eye on probably doing bigger and bigger things. I jumped in with Toll and we were building warehouses in industrial parks all over,” Fox says.
“We took businesses out of crappy old warehouses and put them into brand-new, modern facilities, very different to the old warehouses that many of the old transport and logistics businesses were in 20 or 30 years ago.
“My job was to put the businesses in the best facilities and the best locations, and I think that we pretty much achieved that.
“Toll elevated the game. I don’t think people really realised how big the property portfolio at Toll was. We occupied property worth over a billion dollars probably, in terms of what the capital value of the assets were that we were using.
“There were hundreds of properties all over Australia and all sorts of combinations. We had freeholds, leaseholds, government licences, lease. We were on ports, wharves, you name it.”
Fox and Little worked together at Toll for 14 years as the company’s revenue shot up from $300 million to $9 billion.
“I’m not sure anybody expected the size of the business to get to that when we started, but we were on the acquisition trail and it just continually grew and grew,” Fox says.
“What we did at Toll was buy businesses and integrate them. We had tremendous success. It just grew into the massive transport and logistics business that it is today. It’s now a leading world competitor, I suppose.”
Fox had moved up to be the director at Toll Holdings when he stumbled across a large site in Stawell Street, Richmond. He had a concept for the site that included building 133 apartments. He spoke to Little, who he describes as “a great mentor”, about funding it. They bought the site, appointed a project manager and sold the apartments off the plan.
Despite the success of the exercise it was still considered to be a “one-off” for Little Projects. But then Fox proposed that they buy a huge site on Burwood Road in Hawthorn, now occupied by Bunnings.
“We’d done two successful developments by that time and we’d bought a couple more sites for development, so I left Toll to run the business.”
There was only one part of the property development experience that Fox and Little baulked at – paying a real-estate agent to sell the apartments.
The solution was to buy a real-estate business.
“Jeffery Wilson sold all the units for us at Stawell Street off the plan,” Fox says. “Then we thought, ‘we’ve paid him all that commission, it’s a small business, we may as well buy the business’. That gives us the marketing arm and the beginning of a rent roll. It also meant we were able to let the apartments for all our investors.”
“We bought a few other bolt-on rent rolls to get a bit of size and scale. That strategy really paid off only in the last month, when we settled stage one of our 101 Bay Street development down in Port Melbourne.
“Any investors that registered with us early and told us that they wanted a tenant had their property let before it settled. Now, two weeks after settlement, every stage-one investor has a tenant. That’s just been a great story for us.”
In the way that Toll bought businesses and integrated them, Little Projects – now split into three separate brands: Little Projects, Little Commercial and Little Residential – began to do the same, integrating the real-estate and property development businesses to ensure they took a cut at every stage and also provide investors an end-to-end service, should they require it.
Despite it appearing to be a clever and obvious continuation of Toll Holdings’ phenomenally successful integration model, Fox claims it was partly a happy accident.
“I think we probably didn’t start out with this idea, but we’ve learnt that as we do more and more developments it’s by far the best model,” Fox says. “As an example, last weekend we sold a unit in Stawell Streeet that the lady paid $345,000 for five years ago for $496,000. They’ve had a terric experience buying with us.”
There may have been a degree of evolution in the Little business model, but with two powerful business minds at work and an almighty precedent set by Toll, you get the feeling that success through integration is inevitable and a formidable point of difference for the Little businesses.
“It is true though that the Toll experience has shaped me and the way I think,” Fox says. “Sometimes I use the same words in a meeting or talking to investors – like ‘integrated solution’, I’m like, ‘oh my God, that’s what we did at Toll’.
“At Toll, our customers wanted to do more than to just transport things from one point to another. They wanted visibility up and down a supply chain.
“Now we’ve applied that same function to real estate. We’ve put the best property management system that you can buy in here.
“We can give you access over the internet to all your statements, your photos, your condition reports. I suppose the overall philosophy that made Toll so successful was staying involved with our customers.
“With a rent roll of more than 3000 properties, Little Residential and Little Commercial has quickly become a player in the real-estate market.
As for the future of Little Projects and its ambitions to develop our city; “We’ll stick to what we do best, which is build good-quality accommodation in great buildings in city fringe locations where there’s not miles and miles of competition,” Fox says.
“That said, we are embarking on another development in the Forrest Hill precinct of South Yarra, but it’s only because the first one, ILK, was so well received. We sold it out. We sold 388 apartment off the plan. Everybody loves South Yarra.