Join us in this episode of Property Investory to hear how Barlow’s time spent in London after graduating from University was not all play and no work! You’ll learn how he managed to salvage the purchase of a 50 lot subdivision after a dip in the market, how he realised the importance of money during his first property investment and much, much more!

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(22:40): All of a sudden it's your money and that bill you've got to pay, you might actually ask the consultant to go a little bit cheaper and you might push a little bit harder for certain things to happen quicker. So that was an interesting insight for me in understanding how I would treat my own money versus how I thought I was treating the businesses money that I worked for [essentially].

This is Property Investory where we talk to successful property investors to find out more about their stories, mindset and strategies.

I’m Tyrone Shum and in this episode, we’re speaking with the general manager of Clearstate, Steve Barlow. He shares how he always envisioned working in property and reveals the perks of working in a land subdivision business and how this aids him in his property journey and much, much more!

Tyrone Shum:  

Operating primarily in Sydney, the business that Barlow manages specialises in developing fragmented parcels. You might be wondering what that is? I’ll leave that for him to explain.

Steve Barlow:  

(00:37): It's a consequence of the way Sydney has been developed over time, particularly subdivisions that occurred in the 50s and 60s. It means there are a lot of three–five acre parcels that exist. They are in the growth centre, but they're not big enough for a big MasterPlan community. 

(00:58): They're sort of 50 lots in size, like bite sized chunks. So we specialise in buying those five acre parcels from the existing owner and developing those into communities. What's good about that, from an investment perspective, is that they're small enough such that it doesn't take a significant amount of capital to buy them. If you can aggregate the adjoining parcels, then you can turn it into a particularly big project.

(01:23): Yeah, [like a] big development site, fantastic. There's plenty of opportunity there because we have a lot of land. I guess it's just a matter of being able to release that supply to the market, isn't it? 

(01:39): Well, one of the other good things about fragmented subdivision is that the bigger parcels are typically further away from the infrastructure. A good example of that is [in the case of] some projects we've got in Rouse Hill, where the government invested heavily in the new metro line that will ultimately run through into the city. It's a great piece of infrastructure and we've been able to get projects within walking distance of that metro station. 

(02:07): A customer can come in and buy a freestanding house, but be within walking distance of this great piece of infrastructure. Typically, the bigger projects don't get that benefit as they're further away. We like the fact that we can get in and deliver really efficient projects from an investment perspective, but give great amenity and outcome to the customers who ultimately buy them. 

(02:21): I mean, I just recall because I drove past it and just correct me if I'm wrong, but do you guys have a parcel land down at Quakers Hill, is that right?

(02:29): One of our first projects was in Quakers Hill on Burdekin Road.

(02:33): Yeah, it used to be an egg farm or something like that?

Steve Barlow:  

(02:36): Correct. We will usually buy the five acre parcels off a farmer of some sort, whether it be an egg farmer or a market gardener or something like that. They've owned that land for business purposes, it's happened to be rezoned, it's a good size and parcel for us to buy and we ended up transacting with that particular owner.

Tyrone Shum:  

Although Barlow’s role within the business is very diverse, as he is often dealing with many different parts of the business’s operations, he is primarily focussed on acquisitions at this current time.

Steve Barlow:  

(03:16): In any development business, you need to pipeline to be able to bring stock to the market and ultimately deliver the projects. So we're heavily focused on trying to find new projects to buy, that's probably taking up 70% of my time. I've got a team that works with me that are also heavily focused on acquisitions. 

(03:39): Outside of that, we're heavily customer focussed and we make sure that we deliver on time for our customers and do what we say we're going to do. We've obviously got a team that we're managing.

His day typically consists of a lot of vendor engagement, as this is the main focus in the acquisition process. This is because customers value the investment in infrastructure that is local to the area they are thinking of living in or buying into. 

(04:09): We try to buy sites that are well advanced from a planning perspective. So once we've narrowed down those areas, then it becomes about which parcels we like specifically. We like to look for parcels that have good road layouts, that are relatively flat and are serviced from a utility perspective. We then apply another set of filters if you like, to narrow down the specific sites we'd like to look at and then it becomes about engagement with those vendors. This involves preparing a feasibility in which to put an offer forward. 

(05:00): We then spend a fair amount of time with those vendors in getting them to a point where they understand our offer. [This is] because some of the concepts that we talk about are a little bit foreign.  We then agree on a price and term. We spend a lot of time in the pre feasibility phase, identifying where we'd like to buy. The next thing that we do is a detailed feasibility and detailed numbers to work out what we think we can pay and then it becomes about vendor engagement.

(05:25): Yeah, great. Well, I'm assuming some of the terms that vendors might not be familiar with would be like, joint venturing and options?

Steve Barlow:  

(05:33): Absolutely. It's pretty common when we look to buy under an option agreement purely to defer our stamp duty obligation, that not only vendors, but their legal advisors think that we're taking an option that we can walk away from, which is not the case. We're committed to the option and they have the ability to enforce that commitment, but they don't necessarily understand it. Sometimes it's just a lot about educating them on those concepts and on how we're protecting their interest in the transaction.

(06:07): I'm also just curious [about] the vendors. Are these usually vendors who don't know that they might be at an opportunity to sell or are they actually already advertising on the market?

(06:20): A bit of both. We like to try and find off market opportunities because, I suppose there are some costs during the transaction that you can actually avoid, [regarding] agents primarily. But typically, where we operate, everyone's aware of [the] range of value their parcel is. They talk to their neighbours who might have sold or someone down the road, so they're all pretty educated on what their land is worth. 

(06:45): They've been educated through the rezoning process, so the rezoning process [often] takes anywhere from 2–5 years and they've been informed during that process. Then a lot of them, particularly in high demand locations, will see a lot of agent and developer activity, for example, people trying to buy their land. They become educated through just talking to people interested in acquiring their land. 

Tyrone Shum:  

Growing up in the Blue Mountains on the outskirts of Sydney, Barlow stayed living in this area all throughout university. He would then make the move to London.

(07:22): [After London I realised that I had gotten] to the end of that period in my life and I decided that I best get a job. I was always very fortunate in that I knew I wanted to do property in some way, shape, or form. It wasn't until during university that I decided property development was where I wanted to head specifically.

He attended Western Sydney University at the Quaker’s Hill campus, where he studied property economics. 

(08:18): It [required] me to drive through parts of Western Sydney and that's where I'm developing now, which is quite interesting. 

(08:40): Okay, so you pretty much drove from the Blue Mountains out to university during those days as well? How long would that trip have taken actually?

(08:48): Half an hour.

(08:50): Oh, so it's not that far when you think about it. 

(08:52): No, I grew up at the very bottom end of the Blue Mountains. So you could almost say it was within a stone's throw of Penrith.

During the 18 months that he lived in London, it wasn’t all play and no work. Barlow dabbled in real estate.

Steve Barlow:   

(09:32): I did some leasing of flats, which was very interesting, getting to know London and driving around London was a great experience. But yeah, [it was a time] I certainly look back on fondly. 

(09:56): Definitely. Was that straight after uni? [So] you finished and then [moved] over to London [straight away]? 

(10:00): Basically yeah, within a couple of months I was on a plane. It was my first time overseas, which was daunting and exciting all at the same time. I didn't do as much European travel as I'd planned, but London's a pretty interesting and diverse place and you can get lost there for a long time. So that's basically what I did and in the job that I was doing, I was working weekends as well, so it probably narrowed down the time I had, but nonetheless [it was a] great experience. 

(10:27): So was that your intention when you went over to London, to actually work a bit? 

(10:31):  Yeah. 

Tyrone Shum:  

(10:31): Oh okay, so you actually got a job over there and then as soon as you came back, it worked out perfectly that you got [a job at] Mirvac. What were you doing at Mirvac?

(10:39): So I was in their development business, their greenfield subdivision business located out in Parramatta. I was fortunate that I sort of had two bosses, one of which just threw me in the deep end. That was a bit daunting because whilst you learn a lot at university, not all of it is practical. So he threw me in the deep end, which was great, it sort of made me learn very, very quickly. 

(11:05): Then I had another boss who had more of a coaching approach, so if I ever got stuck, I sort of had the best of both worlds. I was very fortunate that I landed that job with those two particular individuals and that gave me a really good grounding [of] what property development  was really about. 

(11:24): Wow. Is that common to actually have two bosses to report to in corporate?

Steve Barlow:  

(11:30): If you think about it in an org structure sense, one was a formal line and one was a dotted line, [the latter was] almost [a] self healing guy. He sort of imposed himself on me, which was fine. He was one of the best operators I've had the benefit of working with and I think his approach to sink or swim benefited me in the long run. So, although it was a really daunting experience at the time, I look back with fond memories.

After working at Mirvac for two years, Barlow’s formal reporting line superior got an offer to work at Stockland and took Barlow with him.

(11:33): I ended up going to the dark side, if you like, which was a completely different business. I went from Murdoch homes in Parramatta, [which] was part of a corporate organisation, but that particular division was run almost like a small business. [That] was great for me at the time. It was a good starting point [to moving into] the big head office of Stockland in the city. It was a completely different culture and mindset, so that took a bit of getting used to, almost 10 years.

Starting as a development manager, Barlow managed their projects in the Hunter Valley before being promoted. He shares the type of developments he was involved in. 

(12:37): I had three or four projects [in the Hunter Valley which were] of differing sizes and at different points in their lifecycle. I worked my way up to a regional manager role where I basically looked after their business in New South Wales from a greenfield land subdivision perspective.

Tyrone Shum:  

Barlow deals with a lot of greenfield projects, which are free standing house land subdivisions on the outskirts of any city, but in his case, Western Sydney.

(13:18): It [means that] you can go and buy a piece of land and you can find a builder and build your house. It is like you would imagine suburbia to be, I suppose. So that's what we would term Greenfield as opposed to Brownfield, which was more centrally located within the CBD sort of ring and is typically in built form, whereby you buy an apartment or you buy a dwelling that's already constructed.

Barlow has been fortunate in his career, as he has been able to work his way up in the business. This was particularly the case at Stockland, where he started in subdivisions.

(14:19): As a developer, you put the roads and the services like sewer and water in, so I spent a lot of time understanding how the physical construction process worked. From there, I did everything from the planning side of things. This involved working out what your DA is going to look like, whether you comply with the planning controls and the like. [Then] to rezonings, which is basically taking a concept plan and turning it into a precinct that can be developed, then into acquisitions. 

(14:45): I've been [lucky] to see all aspects of property development from the very front end acquisition and statutory planning processes all the way through to the end product with customers moving into their homes. [I'm very thankful that I got] to see the whole process.

Tyrone Shum:  

(15:19): Wow. Now I can see why you stayed [at Stockland] for 10 years because you did quite a broad range of things all the way through the whole process, which obviously developed your skills.

(15:27): That's one thing about property, it's very tangible, in that the end result for the customer is that they're living in their dream home. [That] is pretty exciting to be a part of. But, it's also very diverse in the sense that we do things on site. So there's a tangible aspect to that or relevance to that, where you've got construction activity, you deal with feasibilities and numbers, you deal with planning and engagement with local councils and advocacy with local councils. 

(15:57): You sort of need to be, not a master at any one particular thing, but you need to have an understanding and grounding in each particular component. That's one of the things that is really attractive about property, in my opinion.

(16:10): Yeah that's what I love about property development, there's just so much of the process that you can actually be a part of. It's great to be able to see that from the planning stage all the way through to where your customer actually moves into the house because there's so many cogs in the wheel. At the end of the day, if you don't get the part at the beginning right, because that's obviously got to go through council and planning and so forth, then you can get stuck. That's why it's so important to make it right. Especially to develop land that's going to be sustainable, but also to fit the needs of customers. I'm pretty sure over that time you've seen the developments change, the block sizes have gotten smaller and smaller.

Steve Barlow:  

(16:44): Yeah, I mean when I first started, which was 15 or so years ago, 450–500 square metre lots was probably the norm. I remember a project that I looked after in Glenmore Park in Penrith and we had an idea that we could deliver 300 square metre lots, which at the time was just unheard of. Everyone was against it, particularly the sales team. They said 'We don't think we can sell this', 'Don't bother putting it on the market', they were very, very against the whole arrangement of 300 square metre lots. 

(17:21): Anyway, in the end we were able to get them because of their reduction in size to a price point that was very, very competitive and therefore more appealing to more customers. We put them on the market on this particular weekend, I think we put 10 on the market and they were all sold on the Saturday. In the following sales meeting on the Monday, the sales team was screaming for more. 

(17:41): But that was my first experience where the product itself changed significantly and now, 300 square metres is almost the most common product in Western Sydney. We're doing lots down to [around] 250 square metres, which is affordability driven in the main. So it's a good thing that we're able to deliver a price point where more people can get into homeownership.

(18:05): Yeah, I don't think people realise the land size at the end of the day until they actually see it and think about it. When you do think about it, 250 square metres is literally the house and just a tiny bit of backyard space. If it's affordable, who cares? As long as we can get our own home ownership, as you mentioned, [that’s what is] important to a lot of people.

Steve Barlow:  

(18:30): The builders have done a great job too in that small lot product. Some of the designs they're coming out with now are so livable and use the space so efficiently that the value for money you get is really, really high. So whilst they're affordable, the quality of living, if you like, is exceptional.

Barlow was content at Stockland, managing some great projects that had been in the works for a long time. He was then introduced to his current boss, Dean Williamson, owner of Clearstate, through a mutual friend.

(19:24): He was keen for me to come and work for him and after four months of saying no to him a few times, going back and forth and saying no to him a few more times… [I realised that] he's a pretty convincing guy. 

(19:56): In the end, I decided that coming across to work in a smaller private business would be good for my personal development. I probably always had it in the back of my mind that it was something I’d like to do one day. It probably [also] came into my world sooner than I had anticipated, but nonetheless, the opportunity presented itself and that was it. We agreed that I'd come and work for him and I've been here for almost four years. 

Clearstate aims to buy projects where they can deliver an affordable product. With this as their goal, their target market is predominantly first and second home buyers, who are typically budget conscious.

Steve Barlow:  

(20:50): So we'll typically try and buy, like I said, projects that are well located in terms of proximity to amenity because that's what customers value, which obviously makes our product easier to sell. The buyers that we are usually selling to are wanting value for money and the projects we can buy can offer both of those things. 

Tyrone Shum: 

Working in the property development space for over a decade, it’s not unusual that Barlow would start his own property journey. This kickstarted when he purchased his first property off of Stockland.

Steve Barlow:  

(21:47): I was working on a project in the Hunter Valley, in Maitland and I saw that we were delivering a product where I suppose mum and dad investors were coming along after us and subdividing our lots into smaller lots. So I thought, well I've got the skills to do that, so I did. I ended up cutting a 600 square metre lot into two, 300 square metre lots.

(22:16): I built one house which I rented out, but I didn't build the second house because financially, I didn't quite have the capacity to do so at that point in time. I ended up selling both of those, but it was a good experience in that, it was the first time I put my own money into a property project and it was interesting how that changes your mindset slightly. 

(22:40): All of a sudden it's your money and that bill you've got to pay, you might actually ask the consultant to go a little bit cheaper and you might push a little bit harder for certain things to happen quicker. So that was an interesting insight for me in understanding how I would treat my own money versus how I thought I was treating the businesses money that I worked for [essentially].

(22:59): Yeah, that's fascinating. I know, once you start putting your own money on the line, you start to think, ‘Hmm, how can I actually make better improvements?' 'Is there probably a little bit more margin it can make?' 'How can we actually ensure that delivers on time?' It's a really different mindset because I guess the business has a bit of a buffer, so we kind of work that out the best we can to help them out too.

(23:20): Yes, it was a bit confronting because I always prided myself on, or at least at the time I thought I prided myself on the fact that I treat the business's money as my own. But it was a good and pretty early lesson [to learn] that I could actually go a little bit harder from a business sense. It sounds a little bit wrong to be saying that, but that's the lesson I took out of it.

(23:39): It's fascinating to hear that, it's great and thanks so much for sharing that. I also wanted to understand as well, when you said that those lots were 600 square metres and you saw that mums and dads were subdividing them, is that still quite common to see that happen? Why would people buy the 600 square metre block initially, not to build on it themselves but to subdivide it?

(24:04): The nuance of the planning controls in that example was that you had to build the houses to subdivide. So because at stockland, at the time, they weren't building any houses, the minimum lot size restricted us from going down to that 300 square metres. That still happens, so there's still dual occupancies that get developed in the greenfield projects that we're working on. [Due to the fact that] Clearstate [doesn’t currently] build, a mum and dad could come along and buy the bigger lot, propose through the council process to build two dwellings and therefore subdivide that lot further. It becomes about how any particular investor can manipulate the planning controls to their advantage. 

(24:50): Yeah. So is there any reason why Cleanstate has not decided to go down the construction path as well, instead just selling blocks of land off?

(25:00): Yeah, if you look at our 10 year plan, it's certainly something we've got on there as an idea and something we'd like to be doing. At this point, we just want to be really good at what we know and build up the business to a point where we've got the financial means and we've got the ability to go and try something different. So it's more about being really methodical in the way we implement our strategy and getting really good at what we do. Also [growing] to a certain size that allows us to go and branch off into other things. 

(25:33): But I have a personal opinion that pure land subdividers in 10–20 years will probably be pretty rare. The ability to sell a house and land is a much better customer experience than trying to do all of the pieces of the puzzle separately. So if you're a customer at the moment, you buy a piece of land off me and you sign a contract with me, you then go and find a builder, you sign a contract with them, you then go and find a financier and you sign a contract with them. 

(26:06): If that was all more streamlined through one entity, that's a far better experience and I think as a consequence of that, more people will be attracted to building a new home as opposed to buying an established house.

(26:18): Yeah and that makes absolute sense because with anything, it doesn't even have to be property, it could just be buying an electronic device – if you're going to buy something that comes with all of its accessories, you buy it all in one go. You don't want to be going to multiple different vendors to buy something. [It] just takes too much time [and] it's about convenience. 

(26:36): That's happening in Melbourne a little bit already. I think the Melbourne market's a bit more mature in that sense, than Sydney is. There are a few more builder developers, as I call them. So yeah, I think that's ultimately where we'll end up. So the building journey for us is going to be a long and slow one, but it's certainly on the radar.

Anyone who is in the development space for a period of time will have one or two war stories to tell and Barlow is no different. He recalls the unfortunate events that occurred following the purchase of a 50 lot subdivision at Clearstate. 

(27:30): We got a little bit swept up in the market hysteria that was happening a few years ago and bought at the top of the market. We were probably guilty of not reading the tea leaves on what was actually happening in the market and almost forecasting that growth was going to continue...It didn't.

 

(28:02): What felt like a week after we finalised that transaction, prices started to go down, demand started to fall and in a 50 lot subdivision, once you lose the ability to sell at your feasibility price, your returns start to come under pressure. So basically, we bought at the top of the market, we were selling on the way down, returns don't look as good as they were when we bought the project. 

(28:27): There's a few unexpected things that came during the council approval process as well, that didn't help returns. We ended up making okay money out of it, but it was certainly nowhere near our expectations. We had to do a lot of things on that project unconventionally, to try and recover as much of that loss as we could.

(28:52): How long did that particular process take to sell off all of that land to be able to recoup your first initial investment, but also to get through this challenging phase that you went through?

(29:04): About two years longer than we originally anticipated. To try and buy time for market recovery we were renegotiating terms with the vendor and we were looking at whether we could get more yield out of the project. We were [also] looking at trying to, I suppose be a little bit creative in how we delivered the subdivision works with a civil partner. 

(29:26): So [we were coming up with] almost any idea that we thought could save the project we were trying to implement. It was good because it taught us a lot about how we could be more efficient on some of our better performing projects. But that particular investment was one we probably don't look back fondly on, from a return perspective. But, out of every war story, there's a lesson and we certainly learned some there.

Tyrone Shum:  

(29:47): Definitely. Was the 50 lot subdivision a common project that you guys take on? Or was that a smaller development in comparison to sizes that you usually take on?

(29:57): We do anywhere from 20–200 lots, that's sort of our sweet spot. That will vary in terms of the ultimate size of the parcel we buy originally, depending on where you are and where you're developing and what the associated lot sizes are. But 50 is pretty typical for us.

When thinking back to his time at uni, Barlow remembers how it all just clicked for him in his property development class. This would further ignite his passion for property and give him clarity from a career standpoint.

(30:29): You could do many things in property as you know, leasing, sales, real estate, all [of] the above. That class was the first time I learned about feasibility and what makes up a feasibility and how you determine the value of a development site. It was really intriguing to me, so that was probably my first aha moment where I said, 'Okay, well now I want to do property and I want to do property development'. 

(31:26): From an ‘investing in property’ perspective, when you're doing your own personal investing, the benefits of relationships is probably a broad lesson that I've learned, whereby if you can use your network to your advantage, it can help the return that you'll ultimately get out of a project. I suppose that's probably a mindset that I try and take into any investment, whether it be personal or professional and that's paying dividends for me.

Tyrone Shum:  

At Clearstate, Barlow is deeply involved in the process from the early stages of acquisition right through to when customers are purchasing land. He describes this process as being somewhat dependent on outside factors but ensures a level of predictability within their team’s strategy.

(00:41): In April of early last year, we committed to a 50 lot subdivision, which was acquired from three separate owners that own contiguous parcels. So if you cast your mind back to April, that was [during] peak COVID uncertainty. For that particular investment, we believed that the government would implement stimulus to the property industry, given how important it is to the overall economy's health. 

(01:18): We backed that if you've got good projects and good affordable products in good locations, ultimately we'll be able to develop them. Fortunately, that's turned out really well, so from the point where we committed to that project back in April, we've almost got our DA, which is really surprising.

Wow that’s fast.

It was very fast. We typically forecast a 12 month period for our DA's, so we're going to get that in circa six, which is fantastic and we've sold the project out. 

(01:49): With the benefit of hindsight, if you had said to me, we'd almost have our DA and we'd have sold the project within six months of acquisition, I would have laughed at you. So that's been really good. But in terms of the end to end process, once we've identified the site and we've done the deal with the vendor, we then go through a really detailed and strenuous due diligence process.

(02:13): We spend a lot of time and money at the front end really understanding a project before we formally commit to it and spend money. We [seek to] understand the ground conditions and any contamination that might exist, we understand the planning controls that we need to adhere to and we do a lot of market research to understand that the product we're going to deliver is market-facing and what we can sell it for. 

(02:37): We do a really detailed feasibility, that typically takes us eight weeks to complete. Once we've done that due diligence, we formally commit to the project contractually and then the next day, we're into preparing the DA package, preparing our go to market strategy and getting ready to deliver the project. We'll typically have a 12 month option period, once we've committed to the project.

(03:04): This involves getting the DA, getting pre sales, getting project debts as we fund some of our projects via project debt, from a third party. Then we settle on the land and once we've done that we're straight into construction. So we have all of that lined up ready to go, for example, we settle on Monday, we start construction on Tuesday and then from construction through to creation of the title, that mum and dad ultimately settled on, will take another 9–12 months. At the end of that, we get all the settlement proceeds in and that's ultimately where we make our cash profit.

(03:38): So just to explain to the audience what you're referring to when you say construction, we're not talking about building houses but it's basically laying the foundation, so all the sewage, the plumbing and all the electrical works. So basically you have all the roads and all the stuff there, just no houses on [that land yet].

Steve Barlow:  

(03:54): That's right. Picture suburbia, if you like, just minus the houses. We get the suburb to that point and then after that, the customer can come along and build the house that they ultimately want to live in. 

Tyrone Shum:  

(04:09): Yeah and this is the challenge that I think any land developer faces, to actually sell [the] land is hard because the customer has to sort of picture it without actually seeing it. Most people who buy a brand new house can actually go in, feel it out and so forth. Is there a different way that you guys would market and promote the land in order for the home buyer to be more inclined to purchase that land? 

(04:09): For me, I'm like, how do I see what this house will look like on this land and in this suburb and who's going to be around me? If I've got 50 odd lots out there that are empty, then I'm imagining, 'What's it gonna look like when there's 50 other houses being built exactly the same?' How do you market it in a way where it's, you know, selling that dream.

Steve Barlow:  

(04:55): It's interesting. I think that was probably more of a problem 10 years ago than what it is today. What we find nowadays is that customers are so educated when they come and talk to us. Very few customers have very little understanding of what they're potentially going to acquire. Whether it be through family and friend experience,  through market research or internet research.

(05:20): Whether it be going to display villages and competing projects, where you can actually walk around a house and touch and feel it and see what a typical lot size will look like. There's more opportunity for people to understand the process and what they're buying. One of the really important things is to try and get people on site, you might not be able to see the lot that you're actually buying because it isn't under construction, or it's mid construction, but you can see the typical location of where your lot is. Selling off the plan from a land perspective is easier than it was once before.

Although Clearstate already sells an affordable product that checks a lot of boxes for their customers – especially first home buyers – Barlow also informs that there is currently a lot of government incentive for customers to build new. 

(06:16): There are currently stamp duty exemptions, there are grants that they can get access to. That is an advantage to buying a new product. The other advantage is that you can build the house that you want, you can customise a house, you can choose the materials and colours that suit your taste and needs, you have complete control over that. 

(06:50): The ability to be able to personalise your family home is a really appealing one, so that's probably the other reason why it makes sense. In some examples, like I touched on earlier, our projects are located near new infrastructure, one in the North West rail link, in the northwest of Sydney. So the ability to to build your new home to your taste, within walking distance to that infrastructure is pretty appealing.

(07:16): Yeah, absolutely. That factor is really important because I think nowadays, people rely very heavily on that infrastructure, especially to get them closer towards the CBD if they need to access that to get wherever they need to go. It's made a huge improvement, I mean, I've been on the metro many times and it's so fast now to get from point A to point B. 

(07:34): It's actually faster to hop on the metro to go from, say, Kellyville to Macquarie Park than to drive. I don't even know why I even drive when it takes me an hour to drive to Macquaire and it only takes me 20 minutes on the metro.

(07:45): Yeah, the other property advantage that particularly first time buyers get out of buying new is, because they're buying off the plan and they don't have to settle because the lot hasn't been created for circa 12 months, they've got another 12 months worth of saving time. So you know, for first time buyers particularly, that 12 months worth of the ability to save is really good when you ultimately get to the point where you need to take out your mortgage, you've got more of a deposit to tip into that transaction. So that timeframe for a lot of our customers is really appealing.

Tyrone Shum:  

Often in the fragmented land subdivision space, one neighbour is reliant on another to maximise their value. So if they join their blocks together they receive a higher price. This was the case with one of Barlow’s acquisitions which involved three vendors.

(08:48): That particular example is on a street in Box Hill called Box Road where we've done some projects before. So we knew the area really well, we like the location from a market perspective, we knew the planning controls really well and that came about just via our network. So I suppose we've got a network that we reach out to when we're looking to acquire. An agent friend of ours knew one of these vendors and I suppose that got the initial conversation started. 

(09:21): From there, the three vendors realised that they were better selling together. Their land was more valuable because it was more efficient to develop it as one parcel as opposed to three individual projects. That allowed the conversation to become a lot easier because there was a realisation from a vendor perspective that they were going to maximise their outcome by partnering together. 

(10:03): So I'm also wondering, in terms of those three lots, how large was that block of land when you actually merged them together?

Steve Barlow:  

(10:11): It was six and a half acres.

Tyrone Shum:  

(10:15): That's quite a lot. Once you actually subdivide how much was each block in terms of sizing wise, once you'd actually been able to subdivide into, say 50 lots?

(10:26): An average of about 375 square metres.

(10:29): Well that's reasonable still, I mean close to that 400 mark. That then means that people will be able to develop or build a house, like a double storey house quite easily, then will still have a little bit of backyard space too.

(10:40): That's write. So again, they've got their choice of builder, they've got the choice of design, they've got a lot of flexibility to come in and make it their own. So that appeals to a lot of people and they go away and do that.

(10:53): So just curious as well, how much were those books selling for on average, in this current market?

Steve Barlow:  

(11:00): We started from $475,000 and for the bigger lots, we ranged up to near on $600,000.

Tyrone Shum:  

(11:08): That's actually still very affordable when you think about it because by the time you build a house and stuff like that, it would be close to buying a brand new house in the area. Around the Box Hill and Kellyville area, the prices [are] up to the mill Mark. So that really does make it very enticing to be able to build them brand new, compared to actually going out and buying an existing one that doesn't have your taste and everything in it.

(11:33): In that particular project, also being within three kilometres of the metro. So not a significant distance, which again, was appealing to customers.

Tyrone Shum:  

(11:42): Now it makes sense. It's [also] a no brainer as to why those lots sold out so fast.

Steve Barlow:  

(11:47): The government stimulus certainly helped. The government's done a great job, from a property industry perspective, managing the COVID situation.

Tyrone Shum:   

When it comes to funding a project like this, Barlow explains that it’s not as complicated as it seems. It’s not a one-point acquisition of funds but rather happens over a period of time until construction. Barlow explains their usual process to attaining these funds.

(12:23): That project hasn't gone to construction yet, so we'll typically take out the bank finance at the point of construction. Up until that point, so say, the first 12 months of the project's life cycle, we fund out of equity and then once we've got the pre sales in place, once we've got a DA and a construction contract with a civil contractor, that's the point where we go and take out bank debt. 

(12:46): At the moment there are a fair amount of players in that space, particularly non bank lenders who are looking for well placed projects that are pre sold, with good returns that they can go and put their money into. Our recent experience in the debt market has been really positive.

(13:05): Is that related to the financier that you mentioned is in New York, is that person helping fund these types of projects? 

Steve Barlow:  

(13:14): That's part of our structure, if you like.

(13:17): Okay, excellent. It's really fascinating, because there's so much that's involved. Obviously, with your experience having worked at Mirvac and Stockland, you can bring all this across to better manage these projects. One thing I think most of us will probably be thinking about is how do you make sure that you get these projects delivered on time? 

(13:32): You've obviously delivered something like this much sooner than expected, as you said, but how do you ensure that projects like this are delivered on time? There are so many parts of the wheel and there are so many external factors like COVID, for example, that could have impacted this dramatically.

(13:47): Due diligence is really crucial, so we need to have a really thorough understanding of the moving parts of your program, to make sure you’ve got enough time to deliver on those moving parts. A lot of it will come back to our ultimate strategy, whereby we buy land that's already zoned, that's very, very certain from a planning perspective and then when we're looking at the products we're going to deliver, we try and get 100% compliance. 

(14:14): So because we're not trying to push the boundaries with council, you limit the risk of your program, from a DA perspective, not being achieved. It's about having a really, really detailed and understood program at the point of acquisition. It doesn't necessarily mitigate all risk, but it certainly gives you a good chance of delivering on your project. Again, everyone's got a war story as it relates to projects that haven't gone to program. But it really comes down to the buying and how well you analyse the moving pieces of your program and forecast accordingly.

(14:54): I think we've talked about the council DA approvals and so forth, that you've gone through. Now, say for example, a customer comes and purchases this block of land and they want to build their dream house on it, they will need to submit a DA approval to get that done as well. But, do the lands also fit for CDC? Like complying development? 

(15:14): Yeah, so without being completely accurate, I'd suggest 95% of our product, if not higher, is CDC applicable. A customer can get a CDC approval on most of our projects within 10 days.

Barlow is lucky to be involved in every part of the transaction, from acquisition to the owners moving in. His job is very diverse and he never spends his days doing the same thing, which keeps him on his toes.

(16:04): I don't sit and look at a spreadsheet all day, sometimes I can get out on site and kick the dirt. I do look at spreadsheets, I analyse markets, I deal with people, I negotiate with councils. It's so diverse that every day I come into the office or start work, it's going to be different to yesterday. 

(16:27): That keeps me interested. But the tangible nature of what we do is probably the biggest thing. The ability to take a project from the initial conversation with a vendor and doing a deal, through the DA process, into construction and ultimately, seeing homeowners in their house creating their lives is a really tangible thing. So that's pretty exciting.

Having exposure to a number of executives early on in his career, particularly at Stockland, gave Barlow the chance to learn some important skills that he would take with him throughout his development career.

(18:05): I wouldn't say I had any mentors, specifically, I probably just took little bits from everybody that I dealt with, whether it be the way they do things really well, or maybe some of the things they weren't so good at and how I think they could have done a better job.

(18:34): I was very fortunate that lots of people gave me some really good guidance along the way. One of the best things I did was getting exposure to a business coach or a corporate coach, if you like, through some training that I did at Stockland. I ended up spending some one on one time with him and it was really quite powerful for him to analyse me and give me some feedback on what he was seeing and what I was telling him. From a personal development standpoint, that was one of the most important things I've done.

(19:12): Can you share an example of one of those experiences?

(19:20): Yeah, he sort of drilled into me that I could sometimes be a little bit pessimistic, particularly around my own personal performance, not so much about the business. He got me to look at the good things that I did, not just the negative things that I did. For a period of time every day, he would get me to write down the good things out of my day and conversely, the not so good things out of my day. 

(19:49): What that taught me was that when I was really realistic about what I was writing down on the page, I had more good things to say than I had bad things, from a personal performance and how to analyse that perspective. So it allowed me to become more balanced and more confident in what I was doing. So he was great at giving me a structure to analyse myself and ultimately gain confidence in my work.

Fantastic. That's what I love to hear because I think a lot of investors also get inspired to do that. We do look at things realistically, but at the same time, it can be [dangerous] to always think about what the worst case is. On one hand you need to factor those things in but [on the other hand] you've also got to look at the positives. Are you still using those skills in your current life and in what you've been doing?

(20:40): I'm not doing it every day, but when I find that I'm becoming a little bit more pessimistic, or I'm focusing on the negative, then I'll do it maybe for a week just to reset myself. So I'll probably end up doing it once every quarter on average. I’ve found that it's a really good structure to keep me balanced.

(21:02): Excellent. I've been in the corporate environment for many, many years as well and there are personal performance plans. Is that what you guys have set up to help in being accountable in your role?

(21:17): We're probably fortunate that we're small enough that we get interaction day to day across the business. There's only eight or nine of us so we can sort of do it live, if you like. One of the things that I think we've found that's worked well for us, is we now spend more time doing than planning. Whilst we do an element of planning, we're finding we're more successful just by getting in and doing, which has probably been a lesson that as a business, we've been learning over the last couple of years. But at the moment, it seems to be working really well.

Tyrone Shum:  

(21:50): Yeah, it sounds like it's a great, agile environment where you're moving across much faster. Understandably the Mirvac's and the Stockland’s have got thousands and thousands of employees there, so there's a lot of corporate tape in getting up to the top to get approvals and so forth. So being able to move much faster, I think you've delivered outcomes much quicker too. 

(22:10): As the company grows, how do you actually manoeuvre through that? In your position as a general manager, how do you see the company building to [to the point where it would] potentially have lots and lots of employees as well?

Steve Barlow:  

(22:23): Ultimately, we'll have to become more structured in the way that manages those HR aspects. I'm fortunate that I've got a team of self starters. They want to be the best they can be and they want the business to be the best that it can be, so I'm fortunate in the people that I've got around me. As we grow, if we can try and find alike people, then that whole process becomes easier. But at the moment, we give people a lot of autonomy to do their job and if you've got the right people, I find that works really well.

Barlow enjoys reading materials that keep his mind fresh and allows him to always stay learning. He doesn’t necessarily read property books, but books in that general vicinity.

Steve Barlow:  

(23:05): A book that I'm still fascinated by and still read every so often is The Ascent of Money by Niall Ferguson. It's one of those books where I find myself having to read the page twice to understand what he's talking about. It's a very complex book on the history of money, bond markets, share markets and the like.

(23:44): Wow. That's the first time I've heard of that book. Is it a book that we can easily find online and just download it or purchase it?

Steve Barlow:  

(23:52): He's done a DVD series as well which is pretty good. But I find with this book, you can take your time to really understand the concepts that he's putting forward and what the history of money looks like. So I found it really fascinating. 

There are a number of things that Barlow would like to have begun at a younger age – both from a personal perspective and a career perspective.

(24:32): I would have said invest earlier, whether that's property investment or investing on the share market, be more investment focused with your personal money. I think that's probably the advice I'd give and secondly, from a career perspective, probably what I touched on earlier, be more positive and confident. Those are probably the two things that I'd say. Enjoying the journey is probably the third thing, obviously you've got to have fun as you do anything. 

Although Barlow foresees his own property portfolio growth in the future, at present he is focused on growing Clearstate and honing his craft there. He believes in the motto; business success equals personal success.

(25:24): I probably don't think a lot about myself in a five year term, to be honest, I think about business in a five year term, but I suppose my logic or approach is that if the business does well, then everybody in the business will do well. That then affords me, I suppose more personal opportunities from an investing standpoint. 

(25:48): I don't have a self managed super fund, that's probably one thing that I'm going to do in the next year or so, just to be able to go and be a bit more flexible with the super money that I've got. But outside of that, for me, it comes down to business success equals personal success. So that's where I focus most of my energies.

(26:05)  Finally Steve, yes you've achieved great things, a lot in your career within property development and in all of these large, great companies, and within Clearstate. How much of your success do you think has been due to your intelligence, your skill and hard work? Conversely, how much of it do you think has been because of luck?

(26:33): In our game, particularly in the property space, we are a victim of the market. You can only influence the market so much, you can't control it. So it's probably a little bit of both. I'd like to think it's more skill than luck, but it's probably a bit of both. 

Thank you to Steve Barlow, our guest on this episode of Property Investory.