Potential Distribution From Rezoning

Thanks to all those who attended the information evening on Tuesday night (12 September 2017), the information evening was a great success with many valid questions being asked and answered.

Probably the single most important question asked related to the distribution of the value uplift after the rezoning and as the sale of land occurs.  As such, we thought it would be useful to provide an example of how the distribution may occur.

Example of Land Owners Group Distribution

First, we need to use the assumptions made in the Information Document dated 12 September 2017 that was issued on Tuesday night.

Please note the disclaimer stated within the Information Document remains valid for the purposes of this example. The actual values will vary. The assumptions were:

  • Total land area participating in the rezoning being 1,027 hectares
  • Total expenses of $5,955,324 (this equates to $5,799 per hectare)
  • Revenue is $1.1m per hectare (as per the Wyndham Vale sale).

As we don’t know what your, and your neighbours’, property is currently valued at we will have to make an assumption for the purposes of the example as follows:

  • Example current market value $150,000 per hectare

Within the Information Document we said that this “current market value” will be determined by a registered property valuer for all landowners’ properties that are participating in the Owners Group.
The only other relevant matter that we need to make an assumption about for the purposes of the example is how much of the land will be sold per year and for how many years?

We expect that a substantial quantity of the available land will be pre-sold subject to the rezoning occurring. Most property developers seek time from when the rezoning occurs until they settle the land purchase transaction so they can obtain a permit to subdivide the land, arrange development funding and to get pre-sales to satisfy the bank. 

This means that the actual sales rate of land will vary each year.

It is our view that it is unlikely that it will take more than 10 years for all of the 1,027 hectares to be sold, however, for this example we will make the assumption of 10 years. To make the example simple, we will also conservatively assume that only 10% of the total land is sold each year even though we believe the majority of land will be sold in the first few years.

These assumptions are therefore:

  • 10% of the total land is sold per year (e.g. 102.7 hectares per year)
  • Example timeframe of 10 years to sell all of the land

Based upon the above assumptions, let’s look at the distribution for year 1 (the first year) after the rezoning has occurred and only 10% of the land has been sold.

Revenue (1,027ha x 10% = 102.7ha x $1.1m)                      $112,970,000
Rezoning Expenses (102.7ha x $5,799)                               <$       596,000>
Current Land Cost Base (102.7ha x $150,000)                  <$  15,405,000>
Therefore, Value Uplift                                                           $  96,969,000
LEFTA Incentive Success Fee (10%)                                      <$    9,697,000>
Amount for Distribution                                                       $  87,273,000

Distribution Per Hectare ($87,217,200 / 1,027ha)             $         84,978

The above example is very simplistic and does not take into account such things as annual CPI increases to the land cost base and consultant fees or any interest earned on the monies held in trust.

For this example the distribution of revenue from the Owners Group would be $84,978 per hectare in the first year, with this being repeated each year for the 10-year period.  This distribution would occur for all landowners participating in the Owners Group, regardless of whether they have sold their property or not.

The way the distribution works, it doesn’t matter whether you sell first or last, as long as you sell at some point, and so long as there are sales occurring annually, everyone wins every year until all the land is sold.

Obviously, the available distribution is directly linked to land sales and typically the percentage sold would be higher that 10% per annum in the first few years.

Benefits of the Owners Group

The purpose of the Owners Group is to:

  • To give the community the best chance possible of successfully rezoning the land;
  • Reduce the cost of the rezoning process for each landowner, the more landowners the cheaper it is;
  • Reduce the effort required by the landowners to proceed through the rezoning process;
  • Generate the highest possible value uplift for the landowners in the shortest possible timeframe;
  • Share the wealth equally, regardless of the new zoning requirement placed upon the land by the rezoning.Remember, not all land is developable; the basic rule of thumb is that approximately 50% of land will be required for non-residential purposes such as biodiversity and wildlife corridors, parks and gardens, heritage offsets, road reserves, municipal infrastructure, water catchment and retention basins etc.  As such, if the land is successfully rezoned, an owner only has a 50% chance of their land being used for a high value land use.

It is in everyone’s interest to have the maximum amount of land included within the potential rezoning area and participating within the Owners Group. This will reduce the cost per hectare of land to fund the rezoning and will increase the amount of value uplift shared amongst the Owners Group landowners.

The more land participating, the greater the opportunity to increase developable land. A property developer is interested in developable land; the more housing lots or building area they can put on land, the more money they make. And the more money they can make the more money they can afford to pay for land.

The distribution process is critically important for you to understand. If I have not been able to clearly explain it above, please feel free to contact me at any time to discuss the process.

I also look forward to receiving any further questions you may have regarding the Information Document. If you can email me your questions by Sunday night (17 September 2017) I will respond to them early next week.