May 27, 2025 • 26 mins
pmarket property is, well, in a league of its own: Shane Smollen is a specialist in the area…and the creator of some of the most impressive heritage-focussed developments in the country.
In today’s episode, we cover…
* Quality first - Setting your property ambitions higher
* Expect the unexpected - surviving whatever gets in your way
* The distinct business of luxury property
* Can I live in my SMSF-owned property ?
Shane Smollen of the Central Element group joins Associate Editor - Wealth, James Kirby in this episode
See omnystudio.com/listener for privacy information.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:10):
Hello, and welcome to the Australians Money Puzzle Podcast. I'm
James Kirkby. Welcome aboard everybody something different today. I'm coming
to you from the Gold Coast at the National Property
Conference here and marvelous hunting ground for finding good guests.
Someone I have wanted to have on the show for
a while is Shane small And of the Central Element Group.
Shane's owned a real estate chain and more recently is
(00:33):
doing some very interesting property developments, mostly around Sydney. You
might know them the Minerva Building at King's Cross and
a very interesting hotel he's doing on Paddington Street in Sydney,
which is going to be the first twenty five hours
hotel in Australia. And they're very interesting. But what I
like about this is these developments in particular is that
they are thoughtful and they actually improve the fabric of
(00:56):
the areas. Often they are art deco. He's somebody who
can really articulate of what matters to investors in today's market.
How are you, Shane?
Speaker 2 (01:02):
Thanks you great, James, Yeah, thanks thanks for the chat.
Speaker 1 (01:05):
Lovely to have you. Many of the listeners of the
Money Podcast, they're at the starters there where you were
once upon a time, right, So they're interested in properly,
they might have some investments they might start, and residentially
they might be thinking of subdivisions, that sort of thing.
Just basically they're just getting going. You're at a very
advanced stage in it. But I imagine calculating risk is
(01:29):
the core of what you do. Am I on the
right tracker is a fair assessment.
Speaker 2 (01:32):
Yeah, definitely, and more so than ever in the post
COVID environment. It's been a really interesting journey just trying
to stay on top of course of construction environment and
effects on program and it's really interesting the off plan environment.
It's an interesting place to be as well. So yeah,
calculating is probably an understatement. There are many inputs and
it's constant working progress.
Speaker 1 (01:53):
You say COVID, you mean the inflation kick on the
building materials?
Speaker 3 (01:57):
Is that what? Yeah?
Speaker 2 (01:58):
Definitely the effect on cost and I think what's been
probably not promoted in the same way we all know.
It's been an inflationary environment for construction, which is which
has made a lot of sectors quite tough, particularly the
lower market sectors, which is certainly one of the reasons.
It's predicated our move to the ultra luxury area.
Speaker 3 (02:17):
But it really, it really was particularly.
Speaker 2 (02:20):
Compounded by program time that it started with the supply
chain constraints, and of course, so time in itself has
been a challenge I think for all developers, because of
course time is money, and any compounds.
Speaker 1 (02:31):
This is why all these development seemed to take ages. Yeah, yeah,
I mean I drive past that looks started in COVID.
It's still not finished.
Speaker 3 (02:39):
Yeah, that's right.
Speaker 2 (02:40):
I mean there's all types of delays that are potential delays,
and of course it all starts in the planning area,
and that's that whole sort of red tape area, bureaucratic
area that of course is front and the center. And
still I think the governments are trying in some cases,
but there are just so many forces at play that
it's difficult. It's a difficult space to unwind in a
(03:03):
way that will have a meaningful effect on both supply
and affordability. So yeah, so's it's a time that you
have to be more prudent. The one percenters, zero point
one percenters, and as I said, they all compound through
and we've worked really hard to make sure that we
focus on the areas that we think we can be
best in class at and work to a best in
(03:25):
the world standard at. It's not without its challenges because
we're in that very luxurious and more complex end of
the premier market.
Speaker 1 (03:34):
And there's always been there, right, but I imagine it's
of recent times it's become more defined in the market.
Like if someone was a starting and property they they
might almost be afraid. You say, oh, well, it's really tough.
It's very uncertain, there's some inflation, we don't know where
we're going at rates, planning regulations are very severe. But
(03:55):
tell me, I imagine it's always tough. Right, If it
was easy, everyone would do it.
Speaker 2 (03:59):
Everybody be doing it. That's exactly right. And if you
stick to the proven things of sticking to what you understand,
sticking to what you're best at, having the best possible
people around you. And I think for busy people we
talk about part time investors or even sophisticated investors, and
most of these people listening right now have.
Speaker 3 (04:17):
A day job.
Speaker 2 (04:18):
Yes, So whilst it's very tempting to look at more
complicated strategies in terms of the development of a property
et ce, a lot of times there's an opportunity cost
and I think it's super important for all of all
of us to really think about that opportunity, cost and risk,
and if you're normally bring your strategies back to simplicity,
(04:41):
staying with quality, taking a longer term view. Most people
that embark upon that making sure that their investments are
underpin by sustainable income flows. Obviously the better at the
position normally, the lower the return and finding a balance,
and oftentimes that's certainly dedicated by what type of cash
flows that the investor enjoys outsid part of their property investments.
(05:02):
But I think there's a lot to be said for
keeping it simple.
Speaker 1 (05:05):
Yeah, right, Yes, like you're looking at as I was
saying when you mentioned the market now in a way
you might say it's deductive, really right, So the richer
getting richer. This is the point I was trying to
make at the start. So you would think you can
see how it happens in every industry. You look at
the hotel industry. I'm sure you know the hotel industry
very well. You're developing hotels, some hotels are actually getting
(05:26):
Some of these hotels in Europe that are famous old
hotels once upon a time they would have got bigger
now they're getting smaller. They're actually redeveloping and they're smaller
and they're consciously moving up market. You did that strategically
in your business. Is it a crowd becoming a crowded space?
But will it always be that sort of eleaset level?
Speaker 2 (05:48):
Well, I mean, certainly, Europe's very interesting tourism. I don't
know where it sits in terms of the eurozones leading industries,
but there's no doubt that the more exclusive European hotels
have been able to increase their premium significantly, and that's
always going to suit a more boutique luxury experience. In
terms of our business moving up market, I think it's
(06:10):
a combination of what we enjoy, what we believe we're
good at, and also where the market opportunity is at.
Speaker 3 (06:17):
I mean, it's an area that does have a.
Speaker 2 (06:19):
Close relationship to the prestige housing market, which has been
a star performer. It's an area that is closely influenced
by the overall baby boomer and downsizeer evolution.
Speaker 1 (06:30):
You think that's going to keep going, there's nothing to
stop that.
Speaker 2 (06:33):
I can't see why. It also is an economic strategy
to dilute increasing construction costs, because even though you're increasing
construction costs by way of reducing a much more high
quality product, in all ways, as a proportion of the
overall investment, you're actually increasing land component and decreasing the
(06:53):
relative input of construction. So it is a strategy to
actually combat increasing construction costs.
Speaker 1 (07:01):
Just to simplify this for our listeners, I'm imagining cutting
back to basics. If a brick costs ten dollars, it
costs ten dollars, whether you're around a two million dollar
side or a half a million dollar side. Yeah, that's
the economics of it.
Speaker 3 (07:15):
That's exactly right.
Speaker 2 (07:16):
So if you've got a ten dollar brick that goes
into a two million dollar apartment, we will probably spend
for example, eleven dollars fifty so it's better profile and
a more interesting finish. But it might go into a
ten or twenty million dollar apartment.
Speaker 1 (07:30):
Yeah's it. Economics there for example, very interesting. Just tell
me one thing before we go to the break. I
like what you do those buildings, and you see, I've
late you seem to be specializing, if for want of
a better word, with our deco and restoration and heritage.
Most people find that most people would find that it's
such a headache to do and such a challenge to
(07:51):
do property development anyway. It must take all your diplomatic
skills to get the heritage side of things done. Yet
harder than it as hard as it sounds.
Speaker 2 (08:01):
It is it is well first of all, because we
work in inner city blue ribbon areas. Naturally there are
going to be more more properties that are of heritage importance,
and we genuinely, we generally do want to work to
the line unlucky remarkable places. And there have been times
where we could have proposed to local council's demolition and
(08:27):
clean skin approach and we elected to restore, which we
did most recently in an ord witting development in kuji
and development called and another development we're doing in Kujie
at the moment called Baalomack House. It's the original Lord
Mayor's House from the eighteen sixties with a new build
in front, enjoying beautiful views back over the ocean and
(08:47):
converting that beautiful mansion into two heritage style apartments and
we seek a lot of enjoyment. The twenty five hour
Sydney which is due for opening a little later this year,
a property well known to many people.
Speaker 1 (08:59):
Yeah, what was it?
Speaker 2 (09:00):
Originally it was the Olympia Theater, but a lot of
people more of our general age group probably remember for
the blue specific room and.
Speaker 1 (09:09):
A lively night spaff it was right.
Speaker 2 (09:12):
So it's been an absolute joy, but at the same
time it does bring its challenges. We've been blessed to,
i guess more vertically integrate with some great people in
the planning and obviously development management and more recently construction area.
We now we're building Coujie Central. Animal Constructions was birthed
last year and we've had a really great experience again
(09:33):
because we've found some very high quality, like minded people
and so that's that's been a really great process to
actually enter the construction arena and take a little more
control in that area.
Speaker 1 (09:45):
I want to ask you one of the things that
I've seen you see, which is this importance of saying no,
I reckon. It's important in any career at all, but
particularly when you're in an area like yours and you're
in property investment. We're going to come back after the
book and talk about that in a moment. Hello and
(10:07):
welcome back to the Australians Money Puzzle podcast. I'm James
Kirby talking to Shane Smollen. Now, Shane, as you've heard
the first part of the show is experienced a developer,
also under a real estate agency. At one stage we're
going to talk Shane. I've been listening to some of
the interviews you've done in the past, and I think
one of the really interesting things you're talking about in
(10:30):
being in property is there's some things that you say
you've already said them there, about having basically a squad
of your own that you build this people, your people
around you, knowing clearly who you are and where you
are and what you want to do. There was a
quote here which was a terrific podcast you did. By
the way, Shane is also a racing car driver, but
(10:51):
you wouldn't have guessed that from his modulated calm tone.
Or maybe that's what you need, is a racing car driver.
But he's also a rady car driver, which is not
as unusual as you might think in the property business.
And I can tell you I know a couple of them.
But you mentioned on this podcast with Anthony Denman, which
was mostly about car racing, that most of your best
wins come in your ability to say No, it's really
(11:16):
just going through all of the elements of due diligence,
being confident, but not to the point where your optimism
gets the better of you and your numbers are simply wrong,
in which case you can in which case you chase
your tail from day one. Now, that's the thing I
think with property development that this is always this terror.
I think that people have it if they get it wrong,
especially on their first one, and never recover. Is it
(11:38):
as severe as that?
Speaker 2 (11:41):
It's no doubt if people who are ill prepared set
out on the wrong development, by the time it winds
itself out, you could be talking about certainly no less
than half a decade, and then the financial implications could
take up most of the rest of that decade.
Speaker 3 (11:54):
So the answer yes, But in terms of no, yeah,
it's critical.
Speaker 1 (11:58):
What were you said, like, what give us an EXAMPP
And I'm starting, Okay, I'm thinking I'm doing my first
ever property development. I'm subdividing this suburban block. I've got
these options. Everyone's suggesting things, Where is the idea where
you would say, now, where would it make a difference.
Speaker 2 (12:14):
Look, I think it's about just having the right advice
up from the outset and also really under I think
when it comes to that level of development, just understanding
which your fallback position is. I mean a lot of
people in that space will be embarking upon subdivisions or.
Speaker 3 (12:29):
Adding a duplex to a house side, et cetera.
Speaker 2 (12:32):
But just understanding that if all files in something relating
to planning, which typically at that level, the risk is
largely mitigated. I mean, you're normally working. You might be
trying to build a little bit outside of the constraints potentially,
but it's unlikely that a developer at that level is
going to be embarking upon totally non compliance style developments.
So I would have thought in that case the risks
(12:55):
are quite mitigated and they generally represent great opportunities. Of course,
when you start getting into a larger, more complex developments,
it's a different story. And I guess my device is
to make sure that we have a large funnel so
we're building great relationships our acquisitions. Directed does a great
job in bringing quite a lot of opportunities for that
initial assessment. But again it's just it's very easy because
(13:19):
the natural instinct is to want to push ahead. I mean,
there are a few more it's very exciting when you
finish a development, but equally, it's extremely exciting when you
have the promise of a new development. And it's very
simple to be despite experience. It's fairly simple to potentially
think that every apartment is worth a little more, or
it costs a little bit less to develop, or the
(13:40):
program time can be delivered on a more idealistic time frame,
et cetera, et cetera. And of course, as it when
you start to compound all those elements through, I mean,
another trap can be the larger style development that enjoys
view corridors from a good chunk of the development stuff
that start to really price the average per square meter
rate as if it all enjoys the whereas sometimes could
(14:01):
be a lack of car parking. It could be just
that you're not able to deliver the development without a
high amount of southern south facing apartments or that are
departments that are view or solar impaired or privacy impaired,
et cetera, and they have significant per square meter rate impacts.
So it's just important to make sure you've done a
reality check on all of that. And yeah, it's of
(14:22):
course it's challenging to preserve margin. I think for a
lot of the people that I think that are possibly
short on time, there's just so much to be said
for in terms of longer term wealth creation. For just
focusing and on holding residential income producing property that sits
(14:43):
in an area that is under redevelopment into a higher
class and a higher density style of property, and there's
some of the best outcomes that I see. It's differently,
we're properly developers that we do we do that, We
do that for a job.
Speaker 1 (14:58):
It sounds like inter city to property as it always
has been.
Speaker 2 (15:01):
Well, if you look at if you look at what's
happening right at the moment in Sydney, if you've got
what is basically once in a generation type change with
the with the reforms in terms of mid to high rise,
and you've got tracts of prime housing and areas as
salubrious as Rose Bay or Mossman, et cetera that are
now being option and for that matter sold at twice
(15:22):
their residential value, give or take. Now that's a great opportunity.
Now it might have been hard to pick that, but
in another way, from another point of view, it actually wasn't.
Because there's been talk for a long time, but a
lot of people would either be living in as houses
or that bought those houses as interesting rental investments for
a long term. For a long term you.
Speaker 1 (15:40):
Have an end in mind which is much further down
the track, which is a transformation of that neighborhood.
Speaker 2 (15:44):
I think so, yeah, I think there are some obvious opportunities.
I look at areas of Brisbane. We're sitting here on
the Gold Coast. I mean, the Gold Coast is a
great example. I mean there are when you see something
like the light rail that is moving now at least
as far as Burly.
Speaker 3 (15:58):
It was supposedly go a little further, but.
Speaker 1 (16:01):
Going through a hell down there at the moment.
Speaker 2 (16:03):
Yes he's going through hell end, going through hell and
not Palm Beach at the moment. But it goes without
saying that governments don't invest in these sort of whether
it be council, state, federal, They don't invest in this
type of infrastructure without backing it with significant increases in
nearby density. So there are opportunities at the moment in
older strata total buildings. Now Queensland doesn't enjoy the same
(16:26):
or doesn't have the same strata renewal laws in other words,
it does have a strata renewal law, but it's a
little more complicated than say New South Wales. But logically,
if you take a long term view, a decade long outlook,
there are quite affordable strata opportunities in older buildings which
inevitably will be amalgamated at some point in the years
(16:47):
to come. That may not be today, and nor should
they be assumed to be today, but these type of
examples are everywhere. And I think it's a way. If
you take the view that if you just sit on
a vanilla property in Astra and it'll compound at seven
percent per year, which seems to be about the historical rate,
I think it's I think it's a good way to
double that.
Speaker 3 (17:08):
Yeah, it goes.
Speaker 2 (17:08):
Without saying that a smart development is going to see
a much higher bounce, but just like with anything without
the higher return, it comes with a higher.
Speaker 1 (17:17):
You seem to have that faith though, that it will
keep going as it has for a long time, because
more recently that that idea you could say to anybody
on the street, look, you'll double your money every ten years,
or you'll do your seven percent. There was there was
also some questions over that of recent times.
Speaker 2 (17:32):
Yeah, look, the under supply issue is not going away quickly.
There are just way too many constraints for that to
change anytime soon. There is net migration, it'll the dial
will be turned from time to time, But overall, Astraight
has a need for a net migration increase. And there
are just certain areas as well that are more and
(17:53):
more attractive, some because of affordability, some because of commercial opportunity,
some because of the significant and moved to lifestyle. And
COVID did accelerate in terms of the move north into
sunnier coastal climates, etc.
Speaker 3 (18:07):
Et cetera.
Speaker 2 (18:08):
COVID accelerated that, and in some cases those trends were
reversed back to the cities as people sort to find
work and had to move back to the offices. But
you know, some of these generational changes are very real
and I think we'll go on for some time. It
makes sense to sell the forty or fifty year old
familyhouse and move to a beautiful boutique apartment with views
and close to amenity and locked the door and head
(18:29):
to Sydney Airport. It makes sense to enjoy the last
thirty or forty years Sydney.
Speaker 1 (18:34):
There's a lot of negative negativity around Melbourne at the moment,
prices very soft. It's a market that people didn't move
to in COVID. They moved out of in COVID. What's
your view.
Speaker 3 (18:48):
I'm positive about Melbourne.
Speaker 2 (18:50):
It's such a big, dynamic city. It's attractive to a
broad range of demographics and nationalities, and it seems to
be a real focal point for migrant populations and it
enjoys it.
Speaker 1 (19:02):
Do you think now? Just now?
Speaker 2 (19:05):
I think my view on the high density market, and
just a personal view, I think it was somewhat manufactured.
I know, the type of incentives that have been used
for many years compared to the.
Speaker 1 (19:17):
City that the people didn't Is that what you mean?
Speaker 2 (19:20):
No, it's I don't think the high density developments as
a rule, and I'm generalizing. I don't believe that they
were necessarily based on a waiting demand. I think the
demand to some extent had to be created, and I
wouldn't put Sydney in the same category as that in
(19:41):
nor do I put the current For example, the current
Gold Coast market where we sit, which in days gone
by was a different story. I think there's a genuine
market there for the right product. But in terms of
Melbourne in generally we're seeing increases in the in demand
in the quality of Melbourne housing market, and there is
certainly a market there in the boutique again and downsize
a high quality premium areas close to amenity that people
(20:04):
have enjoyed for some decades with their families. But I
think high density is still quite challenged and it's difficult
to build things in Melbourne, and you don't sell a
thing in Melbourne for the same price as you do
in Sydney. So you've just got that element again where
it's costing as much or more to build in the town,
but you just simply can't sell it for as much
(20:25):
as you can in Sydney. Naturally, the land per unit
is more affordable, but it's still just a really challenging
place to build high density. And of course there's been
massive one area where under supply hasn't been so much
an issue. It's just the broad acre land releases.
Speaker 1 (20:41):
So that so that kind of can dilute demand to
some extent.
Speaker 2 (20:45):
There's been a lot, yes, there's been a lot, and
there's still a lot to come.
Speaker 3 (20:48):
And of course Sydney is landlocked.
Speaker 2 (20:50):
Yes, that's right, so city has to build up.
Speaker 1 (20:53):
Yeah, all those lovely national parks, they have a bow
product of creating intense demand within those sort of that's
very good. All right, Look we'll take one short break
and we'll be back in a moment. As a crucial
question I want to ask Shane. Hello, welcome back to
the Australians Money Puzzle podcast, coming to you today from
(21:16):
the AREK Conference are the Gold Cost where there are
simply thousands of real estate agents and real estate people
here this morning and we are talking to Shane Small
and here in the main auditorium. Shane, there is some
questions I cover every week on property, which i'll do
with in a moment. Hope you can chip in if
you wish. You can have completely dodged them if you want.
But what they I want to ask you was on
(21:37):
the show. A lot of people talk all the time
about macro right, they talk about interest rates, they talk
about the conditions of the market, whether they talk about
governments and whether they're helping or not helping. But I
wonder with someone like you, when you've had a career
where you've built a real estate chain, agency chain and
soldiers where you do these not just risk developments where
(21:59):
you have to calculate at risk, but obviously stressful difficult
developments where there's heritage dimensions. To what extent do you
look at the macro picture? Does it matter to you?
Do you start looking at your development and then get
a surprise that inflation kicked in and all the building
materials went up a thirty percent? Or do you keep
an eye closely on macro? How important is it to
you the big picture?
Speaker 2 (22:21):
I think there have definitely been surprises in terms of
just to what extent there is inflation in the construction market. Yeah,
we've obviously seen some stabilization of not decreases in the
interest rate environment. So it's hard to it's hard to
pick those changes in the funding environment. I mean, there's
obviously been a quite a large and burgeoning non bank
sector that is still very active, and that's provided developers
(22:45):
with i think greater choice and only wants.
Speaker 1 (22:47):
For instance, lending to property superannuation smsfs in property, Yeah.
Speaker 3 (22:53):
For sure, doing it for sure. Yeah.
Speaker 2 (22:55):
And then and look a lot of those non bank
they're great to work with, and whether they're purely dead
or taking on a dead equity appetite. But there's some
very progressive players out there. But look, we made a
decision some time ago which I think has been vindicated
to It was a flight to quality, and it was
a flight to very high quality under occupy a stock.
Speaker 3 (23:18):
We haven't fallen.
Speaker 2 (23:19):
Into the trap of regardless of increasing costs in value
engineering stock. It's a multi generation business. We're very conscious
of reputation and brand and so and that sometimes means
that you might be slightly compromised in the moment for
the sake of a bigger picture. But our reputation is
everything to us.
Speaker 3 (23:40):
So yeah, but.
Speaker 2 (23:41):
It goes without saying it's impossible to forecast over three,
four or five years and get it right. But we're
probably doing a better job than most governance.
Speaker 1 (23:50):
So you stick as you said at the start, you
stick closely to and you have a clip, you have
a cleip of who you are and what you do.
Speaker 3 (23:58):
Yeah, that's right.
Speaker 2 (23:58):
I mean, look, it's very tempting based in this area now,
so I sort of fly to work, but you see
opportunities and it's very tempting. But we're trying to stay
disciplined and to stay at what we're best at. We
think We're very strong in our perl development in Bondai,
that is with our good partners, the Family Office of Quaramantha.
(24:20):
We're about to release that and whilst I can't give
away the exact prices, but I can say that they're
well north of one hundred thousand dollars per square meter
and we're confident and we're excited and it's just really stimulating,
satisfying work.
Speaker 3 (24:33):
To be able to work at that level of quality.
Speaker 1 (24:35):
Bok to that level and execute at that level very interesting.
I have a couple of listener questions, as always, just
two quick ones, the ones from Anton A and Ton
High Anton. Anyone talking about a legal challenge or a
class action over a division two ninety six. That's the
new super tax which I'm sure everyone knows, which is
going to be applied on on realized gains, creating something
(24:57):
of a sensation in terms of ulter to cross the
investment community. Anton, I am not aware of a class action.
I have asked regularly if someone is going to mount
a constitutional challenge on it. I wonder if they could
land tax in its way?
Speaker 3 (25:13):
Is it?
Speaker 1 (25:14):
Would you agree is a tax on realize gains? Shane?
Would you see it as that. I mean, you own something,
it goes up. It's a paper game, so I suppose
in that respect, In that respect there is a legal precedent. Sorry,
but that doesn't mean someone couldn't contest it, So we'll see. Anton.
Thank you very much. Always welcome to have questions, and
remember this is never advice information only. Nathan, thanks for
(25:36):
your excellent podcast. I listened regularly ever since moving from
Australia to the Netherlands. Okay, my question is if I
own a property in a self managed super fund, can
I move into that house in a tax effective way
once I enter the pension phase. Nathan, you can do
just about anything, but you cannot move into that house.
There is an incredibly elaborating where you could perhaps sell
it to your fund, could sell it and move it
(25:59):
out and to you at the market price, which would
be incredibly awkward and elaborate and almost a kind of
counterintuitive for the reason you did it in the first place,
or one might have done it in the first place.
So short answer, it's not impossible, but not worth doing,
is what I would think most financial advisors would say
to you. Thank you Nathan for that question, and thank
(26:20):
you very much Shane Smollen for coming in today. Really
nice to talk to.
Speaker 3 (26:23):
You, James, thanks for your time.
Speaker 1 (26:24):
To thank you everyone. Let's have some more questions the
money Puzzle at the Australian dot com dot au. Talk
to you soon.
Hello, and welcome to the Australians Money Puzzle Podcast. I'm
James Kirkby. Welcome aboard everybody something different today. I'm coming
to you from the Gold Coast at the National Property
Conference here and marvelous hunting ground for finding good guests.
Someone I have wanted to have on the show for
a while is Shane small And of the Central Element Group.
Shane's owned a real estate chain and more recently is
(00:33):
doing some very interesting property developments, mostly around Sydney. You
might know them the Minerva Building at King's Cross and
a very interesting hotel he's doing on Paddington Street in Sydney,
which is going to be the first twenty five hours
hotel in Australia. And they're very interesting. But what I
like about this is these developments in particular is that
they are thoughtful and they actually improve the fabric of
(00:56):
the areas. Often they are art deco. He's somebody who
can really articulate of what matters to investors in today's market.
How are you, Shane?
Speaker 2 (01:02):
Thanks you great, James, Yeah, thanks thanks for the chat.
Speaker 1 (01:05):
Lovely to have you. Many of the listeners of the
Money Podcast, they're at the starters there where you were
once upon a time, right, So they're interested in properly,
they might have some investments they might start, and residentially
they might be thinking of subdivisions, that sort of thing.
Just basically they're just getting going. You're at a very
advanced stage in it. But I imagine calculating risk is
(01:29):
the core of what you do. Am I on the
right tracker is a fair assessment.
Speaker 2 (01:32):
Yeah, definitely, and more so than ever in the post
COVID environment. It's been a really interesting journey just trying
to stay on top of course of construction environment and
effects on program and it's really interesting the off plan environment.
It's an interesting place to be as well. So yeah,
calculating is probably an understatement. There are many inputs and
it's constant working progress.
Speaker 1 (01:53):
You say COVID, you mean the inflation kick on the
building materials?
Speaker 3 (01:57):
Is that what? Yeah?
Speaker 2 (01:58):
Definitely the effect on cost and I think what's been
probably not promoted in the same way we all know.
It's been an inflationary environment for construction, which is which
has made a lot of sectors quite tough, particularly the
lower market sectors, which is certainly one of the reasons.
It's predicated our move to the ultra luxury area.
Speaker 3 (02:17):
But it really, it really was particularly.
Speaker 2 (02:20):
Compounded by program time that it started with the supply
chain constraints, and of course, so time in itself has
been a challenge I think for all developers, because of
course time is money, and any compounds.
Speaker 1 (02:31):
This is why all these development seemed to take ages. Yeah, yeah,
I mean I drive past that looks started in COVID.
It's still not finished.
Speaker 3 (02:39):
Yeah, that's right.
Speaker 2 (02:40):
I mean there's all types of delays that are potential delays,
and of course it all starts in the planning area,
and that's that whole sort of red tape area, bureaucratic
area that of course is front and the center. And
still I think the governments are trying in some cases,
but there are just so many forces at play that
it's difficult. It's a difficult space to unwind in a
(03:03):
way that will have a meaningful effect on both supply
and affordability. So yeah, so's it's a time that you
have to be more prudent. The one percenters, zero point
one percenters, and as I said, they all compound through
and we've worked really hard to make sure that we
focus on the areas that we think we can be
best in class at and work to a best in
(03:25):
the world standard at. It's not without its challenges because
we're in that very luxurious and more complex end of
the premier market.
Speaker 1 (03:34):
And there's always been there, right, but I imagine it's
of recent times it's become more defined in the market.
Like if someone was a starting and property they they
might almost be afraid. You say, oh, well, it's really tough.
It's very uncertain, there's some inflation, we don't know where
we're going at rates, planning regulations are very severe. But
(03:55):
tell me, I imagine it's always tough. Right, If it
was easy, everyone would do it.
Speaker 2 (03:59):
Everybody be doing it. That's exactly right. And if you
stick to the proven things of sticking to what you understand,
sticking to what you're best at, having the best possible
people around you. And I think for busy people we
talk about part time investors or even sophisticated investors, and
most of these people listening right now have.
Speaker 3 (04:17):
A day job.
Speaker 2 (04:18):
Yes, So whilst it's very tempting to look at more
complicated strategies in terms of the development of a property
et ce, a lot of times there's an opportunity cost
and I think it's super important for all of all
of us to really think about that opportunity, cost and risk,
and if you're normally bring your strategies back to simplicity,
(04:41):
staying with quality, taking a longer term view. Most people
that embark upon that making sure that their investments are
underpin by sustainable income flows. Obviously the better at the
position normally, the lower the return and finding a balance,
and oftentimes that's certainly dedicated by what type of cash
flows that the investor enjoys outsid part of their property investments.
(05:02):
But I think there's a lot to be said for
keeping it simple.
Speaker 1 (05:05):
Yeah, right, Yes, like you're looking at as I was
saying when you mentioned the market now in a way
you might say it's deductive, really right, So the richer
getting richer. This is the point I was trying to
make at the start. So you would think you can
see how it happens in every industry. You look at
the hotel industry. I'm sure you know the hotel industry
very well. You're developing hotels, some hotels are actually getting
(05:26):
Some of these hotels in Europe that are famous old
hotels once upon a time they would have got bigger
now they're getting smaller. They're actually redeveloping and they're smaller
and they're consciously moving up market. You did that strategically
in your business. Is it a crowd becoming a crowded space?
But will it always be that sort of eleaset level?
Speaker 2 (05:48):
Well, I mean, certainly, Europe's very interesting tourism. I don't
know where it sits in terms of the eurozones leading industries,
but there's no doubt that the more exclusive European hotels
have been able to increase their premium significantly, and that's
always going to suit a more boutique luxury experience. In
terms of our business moving up market, I think it's
(06:10):
a combination of what we enjoy, what we believe we're
good at, and also where the market opportunity is at.
Speaker 3 (06:17):
I mean, it's an area that does have a.
Speaker 2 (06:19):
Close relationship to the prestige housing market, which has been
a star performer. It's an area that is closely influenced
by the overall baby boomer and downsizeer evolution.
Speaker 1 (06:30):
You think that's going to keep going, there's nothing to
stop that.
Speaker 2 (06:33):
I can't see why. It also is an economic strategy
to dilute increasing construction costs, because even though you're increasing
construction costs by way of reducing a much more high
quality product, in all ways, as a proportion of the
overall investment, you're actually increasing land component and decreasing the
(06:53):
relative input of construction. So it is a strategy to
actually combat increasing construction costs.
Speaker 1 (07:01):
Just to simplify this for our listeners, I'm imagining cutting
back to basics. If a brick costs ten dollars, it
costs ten dollars, whether you're around a two million dollar
side or a half a million dollar side. Yeah, that's
the economics of it.
Speaker 3 (07:15):
That's exactly right.
Speaker 2 (07:16):
So if you've got a ten dollar brick that goes
into a two million dollar apartment, we will probably spend
for example, eleven dollars fifty so it's better profile and
a more interesting finish. But it might go into a
ten or twenty million dollar apartment.
Speaker 1 (07:30):
Yeah's it. Economics there for example, very interesting. Just tell
me one thing before we go to the break. I
like what you do those buildings, and you see, I've
late you seem to be specializing, if for want of
a better word, with our deco and restoration and heritage.
Most people find that most people would find that it's
such a headache to do and such a challenge to
(07:51):
do property development anyway. It must take all your diplomatic
skills to get the heritage side of things done. Yet
harder than it as hard as it sounds.
Speaker 2 (08:01):
It is it is well first of all, because we
work in inner city blue ribbon areas. Naturally there are
going to be more more properties that are of heritage importance,
and we genuinely, we generally do want to work to
the line unlucky remarkable places. And there have been times
where we could have proposed to local council's demolition and
(08:27):
clean skin approach and we elected to restore, which we
did most recently in an ord witting development in kuji
and development called and another development we're doing in Kujie
at the moment called Baalomack House. It's the original Lord
Mayor's House from the eighteen sixties with a new build
in front, enjoying beautiful views back over the ocean and
(08:47):
converting that beautiful mansion into two heritage style apartments and
we seek a lot of enjoyment. The twenty five hour
Sydney which is due for opening a little later this year,
a property well known to many people.
Speaker 1 (08:59):
Yeah, what was it?
Speaker 2 (09:00):
Originally it was the Olympia Theater, but a lot of
people more of our general age group probably remember for
the blue specific room and.
Speaker 1 (09:09):
A lively night spaff it was right.
Speaker 2 (09:12):
So it's been an absolute joy, but at the same
time it does bring its challenges. We've been blessed to,
i guess more vertically integrate with some great people in
the planning and obviously development management and more recently construction area.
We now we're building Coujie Central. Animal Constructions was birthed
last year and we've had a really great experience again
(09:33):
because we've found some very high quality, like minded people
and so that's that's been a really great process to
actually enter the construction arena and take a little more
control in that area.
Speaker 1 (09:45):
I want to ask you one of the things that
I've seen you see, which is this importance of saying no,
I reckon. It's important in any career at all, but
particularly when you're in an area like yours and you're
in property investment. We're going to come back after the
book and talk about that in a moment. Hello and
(10:07):
welcome back to the Australians Money Puzzle podcast. I'm James
Kirby talking to Shane Smollen. Now, Shane, as you've heard
the first part of the show is experienced a developer,
also under a real estate agency. At one stage we're
going to talk Shane. I've been listening to some of
the interviews you've done in the past, and I think
one of the really interesting things you're talking about in
(10:30):
being in property is there's some things that you say
you've already said them there, about having basically a squad
of your own that you build this people, your people
around you, knowing clearly who you are and where you
are and what you want to do. There was a
quote here which was a terrific podcast you did. By
the way, Shane is also a racing car driver, but
(10:51):
you wouldn't have guessed that from his modulated calm tone.
Or maybe that's what you need, is a racing car driver.
But he's also a rady car driver, which is not
as unusual as you might think in the property business.
And I can tell you I know a couple of them.
But you mentioned on this podcast with Anthony Denman, which
was mostly about car racing, that most of your best
wins come in your ability to say No, it's really
(11:16):
just going through all of the elements of due diligence,
being confident, but not to the point where your optimism
gets the better of you and your numbers are simply wrong,
in which case you can in which case you chase
your tail from day one. Now, that's the thing I
think with property development that this is always this terror.
I think that people have it if they get it wrong,
especially on their first one, and never recover. Is it
(11:38):
as severe as that?
Speaker 2 (11:41):
It's no doubt if people who are ill prepared set
out on the wrong development, by the time it winds
itself out, you could be talking about certainly no less
than half a decade, and then the financial implications could
take up most of the rest of that decade.
Speaker 3 (11:54):
So the answer yes, But in terms of no, yeah,
it's critical.
Speaker 1 (11:58):
What were you said, like, what give us an EXAMPP
And I'm starting, Okay, I'm thinking I'm doing my first
ever property development. I'm subdividing this suburban block. I've got
these options. Everyone's suggesting things, Where is the idea where
you would say, now, where would it make a difference.
Speaker 2 (12:14):
Look, I think it's about just having the right advice
up from the outset and also really under I think
when it comes to that level of development, just understanding
which your fallback position is. I mean a lot of
people in that space will be embarking upon subdivisions or.
Speaker 3 (12:29):
Adding a duplex to a house side, et cetera.
Speaker 2 (12:32):
But just understanding that if all files in something relating
to planning, which typically at that level, the risk is
largely mitigated. I mean, you're normally working. You might be
trying to build a little bit outside of the constraints potentially,
but it's unlikely that a developer at that level is
going to be embarking upon totally non compliance style developments.
So I would have thought in that case the risks
(12:55):
are quite mitigated and they generally represent great opportunities. Of course,
when you start getting into a larger, more complex developments,
it's a different story. And I guess my device is
to make sure that we have a large funnel so
we're building great relationships our acquisitions. Directed does a great
job in bringing quite a lot of opportunities for that
initial assessment. But again it's just it's very easy because
(13:19):
the natural instinct is to want to push ahead. I mean,
there are a few more it's very exciting when you
finish a development, but equally, it's extremely exciting when you
have the promise of a new development. And it's very
simple to be despite experience. It's fairly simple to potentially
think that every apartment is worth a little more, or
it costs a little bit less to develop, or the
(13:40):
program time can be delivered on a more idealistic time frame,
et cetera, et cetera. And of course, as it when
you start to compound all those elements through, I mean,
another trap can be the larger style development that enjoys
view corridors from a good chunk of the development stuff
that start to really price the average per square meter
rate as if it all enjoys the whereas sometimes could
(14:01):
be a lack of car parking. It could be just
that you're not able to deliver the development without a
high amount of southern south facing apartments or that are
departments that are view or solar impaired or privacy impaired,
et cetera, and they have significant per square meter rate impacts.
So it's just important to make sure you've done a
reality check on all of that. And yeah, it's of
(14:22):
course it's challenging to preserve margin. I think for a
lot of the people that I think that are possibly
short on time, there's just so much to be said
for in terms of longer term wealth creation. For just
focusing and on holding residential income producing property that sits
(14:43):
in an area that is under redevelopment into a higher
class and a higher density style of property, and there's
some of the best outcomes that I see. It's differently,
we're properly developers that we do we do that, We
do that for a job.
Speaker 1 (14:58):
It sounds like inter city to property as it always
has been.
Speaker 2 (15:01):
Well, if you look at if you look at what's
happening right at the moment in Sydney, if you've got
what is basically once in a generation type change with
the with the reforms in terms of mid to high rise,
and you've got tracts of prime housing and areas as
salubrious as Rose Bay or Mossman, et cetera that are
now being option and for that matter sold at twice
(15:22):
their residential value, give or take. Now that's a great opportunity.
Now it might have been hard to pick that, but
in another way, from another point of view, it actually wasn't.
Because there's been talk for a long time, but a
lot of people would either be living in as houses
or that bought those houses as interesting rental investments for
a long term. For a long term you.
Speaker 1 (15:40):
Have an end in mind which is much further down
the track, which is a transformation of that neighborhood.
Speaker 2 (15:44):
I think so, yeah, I think there are some obvious opportunities.
I look at areas of Brisbane. We're sitting here on
the Gold Coast. I mean, the Gold Coast is a
great example. I mean there are when you see something
like the light rail that is moving now at least
as far as Burly.
Speaker 3 (15:58):
It was supposedly go a little further, but.
Speaker 1 (16:01):
Going through a hell down there at the moment.
Speaker 2 (16:03):
Yes he's going through hell end, going through hell and
not Palm Beach at the moment. But it goes without
saying that governments don't invest in these sort of whether
it be council, state, federal, They don't invest in this
type of infrastructure without backing it with significant increases in
nearby density. So there are opportunities at the moment in
older strata total buildings. Now Queensland doesn't enjoy the same
(16:26):
or doesn't have the same strata renewal laws in other words,
it does have a strata renewal law, but it's a
little more complicated than say New South Wales. But logically,
if you take a long term view, a decade long outlook,
there are quite affordable strata opportunities in older buildings which
inevitably will be amalgamated at some point in the years
(16:47):
to come. That may not be today, and nor should
they be assumed to be today, but these type of
examples are everywhere. And I think it's a way. If
you take the view that if you just sit on
a vanilla property in Astra and it'll compound at seven
percent per year, which seems to be about the historical rate,
I think it's I think it's a good way to
double that.
Speaker 3 (17:08):
Yeah, it goes.
Speaker 2 (17:08):
Without saying that a smart development is going to see
a much higher bounce, but just like with anything without
the higher return, it comes with a higher.
Speaker 1 (17:17):
You seem to have that faith though, that it will
keep going as it has for a long time, because
more recently that that idea you could say to anybody
on the street, look, you'll double your money every ten years,
or you'll do your seven percent. There was there was
also some questions over that of recent times.
Speaker 2 (17:32):
Yeah, look, the under supply issue is not going away quickly.
There are just way too many constraints for that to
change anytime soon. There is net migration, it'll the dial
will be turned from time to time, But overall, Astraight
has a need for a net migration increase. And there
are just certain areas as well that are more and
(17:53):
more attractive, some because of affordability, some because of commercial opportunity,
some because of the significant and moved to lifestyle. And
COVID did accelerate in terms of the move north into
sunnier coastal climates, etc.
Speaker 3 (18:07):
Et cetera.
Speaker 2 (18:08):
COVID accelerated that, and in some cases those trends were
reversed back to the cities as people sort to find
work and had to move back to the offices. But
you know, some of these generational changes are very real
and I think we'll go on for some time. It
makes sense to sell the forty or fifty year old
familyhouse and move to a beautiful boutique apartment with views
and close to amenity and locked the door and head
(18:29):
to Sydney Airport. It makes sense to enjoy the last
thirty or forty years Sydney.
Speaker 1 (18:34):
There's a lot of negative negativity around Melbourne at the moment,
prices very soft. It's a market that people didn't move
to in COVID. They moved out of in COVID. What's
your view.
Speaker 3 (18:48):
I'm positive about Melbourne.
Speaker 2 (18:50):
It's such a big, dynamic city. It's attractive to a
broad range of demographics and nationalities, and it seems to
be a real focal point for migrant populations and it
enjoys it.
Speaker 1 (19:02):
Do you think now? Just now?
Speaker 2 (19:05):
I think my view on the high density market, and
just a personal view, I think it was somewhat manufactured.
I know, the type of incentives that have been used
for many years compared to the.
Speaker 1 (19:17):
City that the people didn't Is that what you mean?
Speaker 2 (19:20):
No, it's I don't think the high density developments as
a rule, and I'm generalizing. I don't believe that they
were necessarily based on a waiting demand. I think the
demand to some extent had to be created, and I
wouldn't put Sydney in the same category as that in
(19:41):
nor do I put the current For example, the current
Gold Coast market where we sit, which in days gone
by was a different story. I think there's a genuine
market there for the right product. But in terms of
Melbourne in generally we're seeing increases in the in demand
in the quality of Melbourne housing market, and there is
certainly a market there in the boutique again and downsize
a high quality premium areas close to amenity that people
(20:04):
have enjoyed for some decades with their families. But I
think high density is still quite challenged and it's difficult
to build things in Melbourne, and you don't sell a
thing in Melbourne for the same price as you do
in Sydney. So you've just got that element again where
it's costing as much or more to build in the town,
but you just simply can't sell it for as much
(20:25):
as you can in Sydney. Naturally, the land per unit
is more affordable, but it's still just a really challenging
place to build high density. And of course there's been
massive one area where under supply hasn't been so much
an issue. It's just the broad acre land releases.
Speaker 1 (20:41):
So that so that kind of can dilute demand to
some extent.
Speaker 2 (20:45):
There's been a lot, yes, there's been a lot, and
there's still a lot to come.
Speaker 3 (20:48):
And of course Sydney is landlocked.
Speaker 2 (20:50):
Yes, that's right, so city has to build up.
Speaker 1 (20:53):
Yeah, all those lovely national parks, they have a bow
product of creating intense demand within those sort of that's
very good. All right, Look we'll take one short break
and we'll be back in a moment. As a crucial
question I want to ask Shane. Hello, welcome back to
the Australians Money Puzzle podcast, coming to you today from
(21:16):
the AREK Conference are the Gold Cost where there are
simply thousands of real estate agents and real estate people
here this morning and we are talking to Shane Small
and here in the main auditorium. Shane, there is some
questions I cover every week on property, which i'll do
with in a moment. Hope you can chip in if
you wish. You can have completely dodged them if you want.
But what they I want to ask you was on
(21:37):
the show. A lot of people talk all the time
about macro right, they talk about interest rates, they talk
about the conditions of the market, whether they talk about
governments and whether they're helping or not helping. But I
wonder with someone like you, when you've had a career
where you've built a real estate chain, agency chain and
soldiers where you do these not just risk developments where
(21:59):
you have to calculate at risk, but obviously stressful difficult
developments where there's heritage dimensions. To what extent do you
look at the macro picture? Does it matter to you?
Do you start looking at your development and then get
a surprise that inflation kicked in and all the building
materials went up a thirty percent? Or do you keep
an eye closely on macro? How important is it to
you the big picture?
Speaker 2 (22:21):
I think there have definitely been surprises in terms of
just to what extent there is inflation in the construction market. Yeah,
we've obviously seen some stabilization of not decreases in the
interest rate environment. So it's hard to it's hard to
pick those changes in the funding environment. I mean, there's
obviously been a quite a large and burgeoning non bank
sector that is still very active, and that's provided developers
(22:45):
with i think greater choice and only wants.
Speaker 1 (22:47):
For instance, lending to property superannuation smsfs in property, Yeah.
Speaker 3 (22:53):
For sure, doing it for sure. Yeah.
Speaker 2 (22:55):
And then and look a lot of those non bank
they're great to work with, and whether they're purely dead
or taking on a dead equity appetite. But there's some
very progressive players out there. But look, we made a
decision some time ago which I think has been vindicated
to It was a flight to quality, and it was
a flight to very high quality under occupy a stock.
Speaker 3 (23:18):
We haven't fallen.
Speaker 2 (23:19):
Into the trap of regardless of increasing costs in value
engineering stock. It's a multi generation business. We're very conscious
of reputation and brand and so and that sometimes means
that you might be slightly compromised in the moment for
the sake of a bigger picture. But our reputation is
everything to us.
Speaker 3 (23:40):
So yeah, but.
Speaker 2 (23:41):
It goes without saying it's impossible to forecast over three,
four or five years and get it right. But we're
probably doing a better job than most governance.
Speaker 1 (23:50):
So you stick as you said at the start, you
stick closely to and you have a clip, you have
a cleip of who you are and what you do.
Speaker 3 (23:58):
Yeah, that's right.
Speaker 2 (23:58):
I mean, look, it's very tempting based in this area now,
so I sort of fly to work, but you see
opportunities and it's very tempting. But we're trying to stay
disciplined and to stay at what we're best at. We
think We're very strong in our perl development in Bondai,
that is with our good partners, the Family Office of Quaramantha.
(24:20):
We're about to release that and whilst I can't give
away the exact prices, but I can say that they're
well north of one hundred thousand dollars per square meter
and we're confident and we're excited and it's just really stimulating,
satisfying work.
Speaker 3 (24:33):
To be able to work at that level of quality.
Speaker 1 (24:35):
Bok to that level and execute at that level very interesting.
I have a couple of listener questions, as always, just
two quick ones, the ones from Anton A and Ton
High Anton. Anyone talking about a legal challenge or a
class action over a division two ninety six. That's the
new super tax which I'm sure everyone knows, which is
going to be applied on on realized gains, creating something
(24:57):
of a sensation in terms of ulter to cross the
investment community. Anton, I am not aware of a class action.
I have asked regularly if someone is going to mount
a constitutional challenge on it. I wonder if they could
land tax in its way?
Speaker 3 (25:13):
Is it?
Speaker 1 (25:14):
Would you agree is a tax on realize gains? Shane?
Would you see it as that. I mean, you own something,
it goes up. It's a paper game, so I suppose
in that respect, In that respect there is a legal precedent. Sorry,
but that doesn't mean someone couldn't contest it, So we'll see. Anton.
Thank you very much. Always welcome to have questions, and
remember this is never advice information only. Nathan, thanks for
(25:36):
your excellent podcast. I listened regularly ever since moving from
Australia to the Netherlands. Okay, my question is if I
own a property in a self managed super fund, can
I move into that house in a tax effective way
once I enter the pension phase. Nathan, you can do
just about anything, but you cannot move into that house.
There is an incredibly elaborating where you could perhaps sell
it to your fund, could sell it and move it
(25:59):
out and to you at the market price, which would
be incredibly awkward and elaborate and almost a kind of
counterintuitive for the reason you did it in the first place,
or one might have done it in the first place.
So short answer, it's not impossible, but not worth doing,
is what I would think most financial advisors would say
to you. Thank you Nathan for that question, and thank
(26:20):
you very much Shane Smollen for coming in today. Really
nice to talk to.
Speaker 3 (26:23):
You, James, thanks for your time.
Speaker 1 (26:24):
To thank you everyone. Let's have some more questions the
money Puzzle at the Australian dot com dot au. Talk
to you soon.
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Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Special Summer Offer: Exclusively on Apple Podcasts, try our Dateline Premium subscription completely free for one month! With Dateline Premium, you get every episode ad-free plus exclusive bonus content.
The Breakfast Club
The World's Most Dangerous Morning Show, The Breakfast Club, With DJ Envy, Jess Hilarious, And Charlamagne Tha God!
Crime Junkie
Does hearing about a true crime case always leave you scouring the internet for the truth behind the story? Dive into your next mystery with Crime Junkie. Every Monday, join your host Ashley Flowers as she unravels all the details of infamous and underreported true crime cases with her best friend Brit Prawat. From cold cases to missing persons and heroes in our community who seek justice, Crime Junkie is your destination for theories and stories you won’t hear anywhere else. Whether you're a seasoned true crime enthusiast or new to the genre, you'll find yourself on the edge of your seat awaiting a new episode every Monday. If you can never get enough true crime... Congratulations, you’ve found your people. Follow to join a community of Crime Junkies! Crime Junkie is presented by audiochuck Media Company.