Creating and Retaining Value
The economic value proposition in this project, incentivises the delivery and maintenance of strong community and built environmental values for a period of up to 50 years. We have adopted a build-to-rent financial model, whereby the existing landowner – Department of Communities – will retain all developed unit stock for long term rental income.
The key innovation in this financial model is the inclusion of several Specialist Disability Accommodation units that yield strong returns under the NDIS scheme. The inclusion of these units, and their fixed rent return upon completion, afford the project the confidence to increase the construction budget to adopt higher than usual quality materials and sustainability programs, whilst still achieving a high enough margin to ensure that loan repayments are met over a 25 year period. In this case we have assumed that the Department of Communities were able to register as a SDA provider to ensure that all income is returned to them as the landowner, rather than a 3rd party supplier.
By retaining the assets created in the development, the quality of the construction, maintenance and operational costs become paramount, as the upfront cost of adopting these technologies are not then considered a one-off cost, rather they are considered on the merit that they will be offset by the capital return over many years.
Under typical residential development models, there is a bias towards net profit, or return on equity, as the underlying mechanism of whether or not a project goes ahead decision based entirely on financial feasibility. This simply means that the financial value, or returns, trumps any other perceived value. For example, if a project is built poorly, but allows an immediate financial return, this is deemed totally acceptable. If a project is built to the highest quality specifications and presents tremendous community value, but has no financial or return value, this is simply unacceptable in a capitalist economy. We believe that by aligning the owner of the asset to grow their margin by ensuring that a high quality of asset is maintained, they will continue to contribute to improving the built and surrounding landscape environment.