An owner with a site that has development upside has three broad choices: sell it, bring in a partner, or develop it. The option with the biggest number is not always the right one. The answer depends on the owner's capital, time, appetite for risk and tax position as much as on the site.
Start with the owner, not the site
Five questions come before any feasibility:
- What do you need from the site: cash now, a long-term income, or the largest eventual return?
- How much equity can you commit, and for how long? Developing ties capital up for four to five years.
- Can you meet what a lender will ask for: equity, guarantees and pre-commitments?
- What happens to you if the project runs 20% over budget or six months late?
- What does the structure mean for tax? GST, capital gains tax, land tax, and in Victoria the Commercial and Industrial Property Tax. That conversation belongs with your accountant.
Selling
Selling as it stands is the fastest and lowest-risk route. The price reflects the market's view of the upside, and you hand that upside to the buyer.
Selling with a permit captures the planning uplift for yourself. It costs design and planning fees and 12 to 18 months, and it carries the risk of refusal, onerous conditions, or a market that moves while you wait.
Selling is often right when:
- the owner needs the capital
- the site is too small to carry a building's fixed costs
- a mandatory height or heritage control caps the envelope
- there is simply no appetite for construction risk
A recent permit-ready build-to-rent site in inner Melbourne is an example: the right outcome was a deal with a buyer that could carry the project through.
Joint venture
In a joint venture the owner contributes the land, and a partner brings capital, delivery experience, finance and the guarantees a lender needs. Common structures are:
- land contributed at an agreed value plus a share of profit
- a development agreement with deferred payment for the land
- land value paid first, then a split of the profit
The terms that decide whether it works:
- the land value, agreed up front
- who funds the costs before a permit
- the order in which profit is paid out
- decision rights, and what happens at deadlock
- how the owner's land is secured, and where that security ranks against the construction lender
- milestones with sunset dates
- how either party exits
Walk away if the partner has no track record at this scale, will not agree a land value, or will not accept a sunset date. Check a joint venture partner as carefully as you would check a builder.
Developing
Developing keeps all the upside and all the risk. It needs equity (lenders typically fund 60–70% of cost), a development manager, and pre-commitments or presales. There are two ways out:
- Sell on completion: judged on the margin on cost, typically 15–20%.
- Hold and refinance: judged on whether the yield on cost comfortably beats the rate the market values the building at.
It is the right choice when the capital and time are available, the site has scale, and the owner wants the asset or its income.
Put the options side by side
The fair comparison puts all of them on the same footing: what each returns, when, and at what risk.
- Selling now is money today.
- Selling with a permit is more money in about 18 months, less the planning spend.
- A joint venture is the land value plus a share of profit in four to five years, carrying the partner's risk.
- Developing is the full profit or the completed asset in four to five years, carrying all of it.
Then run a downside case: rents 5% lower, a valuation rate half a percent worse, costs 7.5% higher and three months late. If the downside wipes out the equity, the decision is made.