By Sarah Danckert
1st February 2013
AS head of one of Melbourne’s fastest growing property developer, Michael Fox knows a little knowledge is not always such a dangerous thing.
Together with his business partner, former Toll boss and veritable captain of industry Paul Little, Fox has turned their company, Little Projects, into more than just a semi-retirement “hobby farm” venture.
After only three years in operation, Little Projects has become one of Melbourne’s most successful and rapidly growing private developers.
‘It’s been a phenomenal success,” Fox – the former head of property at Toll Holdings – says. “We’ve got 1200 apartments under construction and another 500 in planning. So we’ve quickly become a large developer.”
Hundreds more apartments have already settled, including at the company’s project on Bay Street, Port Melbourne.
When it comes to urban infill projects. Little Projects has a leg-up on the opposition, with both Fox and Little accustomed to what it takes to successfully remediate a site after their time at Toll.
“Most of the properties that we’ve bought are old industrial sites and all have had some form of remediation. And so it’s about being able to manage that and knowing what you’re doing,” Fox says.
That knowledge has meant being able to identify which sites can be transformed into residential apartments and which are basket cases that have to be avoided.
Fox says developers who take on an infill site without knowing what they’re doing are entering into a minefield.
“The costs can quickly get out of hand” he says.
“We haven’t found it to be a problem, we’ve headed towards those sites that had issues because most people stay away from them and we think we’re not too bad at cleaning them up.
“It’s about knowing and managing the site and having the right people on board.”
According to Fox, all of Little Projects’ developments so far are fully sold, bar Capital in South Yarra, where a handful of homes are still available after the project was launched last November.
However, Fox offers assurance that the partnership was never expected to do so well, starting after he stumbled upon a prime residential development site while scouting out industrial sites for Toll.
“I came across site on Stawell Street in Richmond and I said to Paul we could really do something a bit different here,” says Fox, who started his career as a rental agent and then a sales agent in Melbourne.
“We did 133 apartments there and it was a roaring success. So we bought a couple more sites and I left Toll to take care of those developments.”
Since the first development, Little Projects has pulled off no fewer than 11 residential developments in three years. All of the projects are located in what Fox refers to as premium city fringe locations – such as the booming Forrest Hill precinct in South Yarra and the hipster haven of East Brunswick as well as Richmond and Port Melbourne.
“It’s all about a superior lifestyle and location, so we find that we don’t have all investors. We have about 50 – 50 investors and owner occupiers,” he says. The company has also found time to build the Bunnings Warehouse in affluent Hawthorn and an office building in the equally well-to-do suburb of Armadale. Buoying the company’s success has been Fox and Little’s plan to ensure the sustainability of Little Projects’ balance sheet by utilising the integrated business model that brought Toll Holdings its success.
In property terms, that means incorporating a rent roll business on top of the company’s apartment’s sales unit. “We’ve just settled on 250 apartments down in Bay Street, Port Melbourne, and we’ve put a whole lot of those on our rent roll and a huge component were leased within two weeks of settlement.”
He says there are a few still available for rent, but that’s to be expected considering the size of the project.
“Being able to have that integrated model has just been fantastic,” he says. “To have a rent roll, you need to be able to feed it. If you don’t have a sales business, then you’re going to have to continually top up the rent roll. You need to continually seed it.”
There are other key planks in the Little Projects model that have less to do with integration and more to do with creating a product that is in step with market prices, or a bit below, but still with top-of-the-line fittings and finishes.
“We’ve been able to get our prices below what’s already out there. So with Bay Street, for example, we didn’t have any problems with settlement.”
A problem that has become all too familiar for many apartment buyers in Melbourne is when apartment prices have been pushed ever higher to become far more than what the buyer’s bank will value the property.
Melbourne’s property market is full of horror stories of banks declining mortgages on properties because the developer’s valuation doesn’t stack up.
“Some people like to push the boundaries a bit with those things.”
“We don’t want to be caught with people not being able to settle so we’ve generally been a bit below the market in terms of prices.”
And that could actually be the real secret to the success of Little Projects.