David Kobritz - Deal Corporation

26 December 2020
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David Kobritz - Deal Corporation

About this Interview

Our guest is David Kobritz - Founder & Managing Director of iconic Melbourne property development group, Deal Corporation.

Ready Media Group is the home of Australia's best property & business interview series - with over 100 high-profile guests joining our program since 2016.

The Interview, David Kobritz Transcript

*Please note this transcript was auto-generated and some inaccuracies may exist

Rob Langton  00:00

Hi, I'm Rob Langton from DevelopmentReady, our interview series delves into the lives of Australia's most respected property thought leaders and decision makers and uncovers what makes them tick. This is the interview. Our next guest this morning is David Kobritz, its executive chairman and managing director of Deal Corporation. David, thanks so much for your time. Walk us through your upbringing in Melbourne. Where did you grow up? And what are some of your earliest childhood memories?


David Kobritz  00:28

Well, I was born in Melbourne in the early 50s. My parents migrated to Australia, in 1951, from China, and they had a Russian background and lived in China. Pre war I grew up in mainly in Beaumaris my father was a mad fisherman and he was out in the water. Half the week, I think at four o'clock in the morning, and I joined him about 10 o'clock after I woke up, he was also with close friends and business colleagues involved in property as well. And the young kid I can remember sitting in the backyard car while I'd go out looking at properties around the eastern suburbs or south eastern suburbs of Melbourne and listening in. So I guess, property was embedded in my psyche at a pretty young age.


Rob Langton  01:33

Now, as I understand it, you studied a Bachelor of urban planning at the University of Melbourne, which you completed around 1974. Why did you study that? And what did you learn from that degree?


David Kobritz  01:45

Well, I actually started architecture, I wanted to be an architect. But after starting architecture, there were a year of that quickly fixed me and said that no way do I want to be an architect and the urban planning school at Melbourne Uni was in its infancy? So I had a look at that. And I thought, well, we'll give that a go. And that was, that was an interesting exercise, because mainly it taught you the discipline of all the regulations and so forth. But also, it was really as a course that got you prepared to work for government, whether it was the Melbourne Metropolitan border works back in those days as the main planning authority, or a council. And that didn't particularly interest me. But I completed the degree and then went into planning and project management.


Rob Langton  02:45

And how long were you in that sort of field? I know we'll we'll get into the origins of Deal Corp shortly. But how long were you involved in that career and that position?


David Kobritz  02:54

For probably mid 70s to mid 80s, I was working for consultants and then for my own project management and, and planning firm and that a lot of work at the time for Coles while they were establishing k-Mart's and so forth around Victoria and a number of developers as well. So I got involved quite early days in putting projects together and giving planning and design and project management advice and quickly made up my mind that I wanted to be in the development space rather than the consulting space.


Rob Langton  03:39

And you went and did that with the launch of Deal Corporation in around 1984. What was the impetus for starting the business and what was your mandate back then for development?


David Kobritz  03:50

I was actually in a client's office and I met a fellow there and we we got to know one another quite well. And he gave me the impetus to go out on my own and, and actually undertake development and he became a close friend and a backer. For the next decade or so. It was a time where we saw opportunities in the early days of mainly refurbishing existing buildings, a lot of residential buildings, a lot of old blocks of flats in those days that were built in the 50s and 60s in Melbourne that there were quite tired and we can buy the the whole block and undertake renovations strata title and sell them so we did that for about five or six years. And then we also add that in the mid to late 80s. 

We marked the office market but particularly the suburban office market is a market that had a lot of potential and and growth and we got involved in Developing quite a few suburban offices at the time.


Rob Langton  05:03

And give us an idea of Melbourne in the 1980s. How different was it to today and how different was the actual process of developing?


David Kobritz  05:12

Well, I think the development game then was fast simpler, in a number of examples. I don't think we ever went to VCAT, you'd go to a local council and sit down with a planner, and you'd have three or four or five meetings, you'd virtually pull out the tracing paper and you design the building with the planner, and you'd get your permit. And there was nothing like pre-sales in those days, if you're building apartments, got the permit, got the builder, got the finance and you started building we sold as we built and whatever was left over you'd sell three, four or five months after completion. 

So today, of course, you've got to go through this massive, expensive process of pre-sales and marketing that adds millions of dollars of cost to every project. And of course, then you'd have your architect, your engineer, and maybe one or two other consultants and but today, you need a football team of consultants and reports that a mile high for to ensure you tick all the boxes of regulators, I don't know whether they're ever read, but you've got to produce them. And the other aspect of course is we'd build seven days a week, there's no such thing as nine day fortnight's. And so the whole process was far, simpler, far quicker. 

And over the decades, the industry's just become so over regulated, and that it's actually a highly inflationary system, given the cost of the creation of a project from the time we acquire it right through the planning and sales process to eventual completion. The hard work is done before we actually start building. That's the easy part.


Rob Langton  07:24

And just on that, how much of an impact you think all those costs that you have to carry the taxes and the regulations and that sort of thing? How much of an impact does that have on housing affordability?


David Kobritz  07:36

I don't know whether any ones actually sat down and done the numbers, but it would add an enormous amounts, whether it's 20% 30%, or more to the cost of a project. It's just the time it takes to go through the planning process that can take 2, 3, 4 years, sometimes even longer. The presale process, the marketing process, and often in a project that perhaps we could have done in two or three years in the 80s would today take at least double that amount of time.


Rob Langton  08:18

Take us through the growth of Deal Corp as a business, what are some of the more notable projects you've developed over the years?


David Kobritz  08:26

We've really concentrated on opportunity and location, we've always said the secrets in the buying, you've got to you got to have patience, you've got to buy well. And and you can't chase the market in terms of even if it's a rising market, you can't keep chasing it because the market can turn very quickly. So our projects have been largely in Melbourne, because that's our home base and we know the market very well.

And it's been a spread from CBD refurbished buildings for apartments or new apartment buildings through to inner city through to our suburban, but it's very much concentrated in areas where we feel we know, we know the market, and we've comfortable with the market. And if the market turns, that location will still stand up reasonably well as against some areas where we might be overdevelopment, or, or the margins in terms of price decreases could be quite significant.


Rob Langton  09:39

And take us through the Deal Corp business today in terms of who's involved in the business and where are some of those projects located that you're either marketing now or that have recently been completed?


David Kobritz  09:50

We've got a very tight knit group in the office, we really see ourselves as a management company. We see property as a very being called Complex jigsaw puzzle, which needs careful day to day management that's got to be brought together. We've got a team of in house development managers in house, sales and marketing, obviously the finance side, the accounting side and the administration side. But everything else is outsourced in terms of our principal consultants and construction. 

We got a variety of projects we've got about 14,15 projects on our books at the moment, and they may vary from we've got the development rights through the state government authorities on to the railway station sites where the level crossings have been removed and the stations have gone. below ground. One is Gardiner station in Burke road, Glen Iris will be building commencing in January next year with 118 apartments and some retail on the ground level facing onto the station Plaza also got the development rights for ormond station in North Road ormond. And we've recently got planning approval there for about 290 dwellings, plus 7000 square metres of retail, so we're wrapping around the station. 

So that will probably go ahead in 12 to 18 months. And then there are other we're had a project that's now been going nine years at Bandoora, playing the road Bandoora, where we bought an 11 hectare site from the state government for the Larundel psychiatric hospital site. It's got two common frontages with Latrobe University. And it's a 14 stage project mixed use of, again, retail, residential, new residential refurbishment of some heritage buildings and some commercial there. And we've completed now we're just about to complete our 10th stage. And we've got two more stages to run.


Rob Langton  12:15

So at any one time, you've got anywhere between five to 15 projects on the go ranging in value between 30 to $300 million. What are the fundamentals you consider when analysing an opportunity?


David Kobritz  12:27

You've got to buy well, you can't put a noose around their neck from day one and, and hope the market rises. So it's really comes down to real disciplines of property in terms of the right location, the way we see the growth in the market, whether it be residential or commercial, and the risk from a planning point of view because that is that has become a major risk today, given the complexity of the controls.


Rob Langton  13:05

And in which sectors are you seeing you mentioned their opportunity and growth. So in which sectors are you seeing the most opportunity at the moment?


David Kobritz  13:13

Well, we've had a large concentration on the residential sector, the middle suburban, multi unit market, whether it be townhouses or apartments, I still think given the demographics of our society and the ageing population, but that is still a growth market. It's certainly been tempered by the projected decrease or not decrease in the growth of population, which is we're starting to experience now and will continue to experience in the next few years, and the decrease in investors. But I think, given the structure of our society where this lead, there's so much invested by families in their home, that's generally the key asset. And in many, many circumstances, that asset needs to be liquidated for various reasons. And and the family doesn't need the big family home, whether it be you know, in the outer suburbs or the inner suburbs, and the growth of the value of that asset has been so substantial in the last decade, that that has created the the opportunity in a way to liquidate in and change your lifestyle.


Rob Langton  14:49

And given that then, are there any sectors that you're avoiding at the moment?


David Kobritz  14:55

It's not really avoiding it's just really you've only got a certain number of hours in a day, you can't look at an every sector, but the world's just changes so quickly they economy changes so quickly that every project has got to have the flexibility to change with it. Whether it's the the size of apartments that we're building, or the design aspect, or actual change of use within a project.


Rob Langton  15:27

You gave a webinar, I think around a month or two months ago, where you spoke about Australia and Melbourne being an attractive destination for development you've been developing here for some 36 years, what is it that you think Melbourne offers from a property developer perspective?


David Kobritz  15:44

Well, I think diversity, I think it's an extremely attractive city to live in. It offers almost everything you can get anywhere around the world, is offers great education, for both tertiary and secondary education, that's a huge attraction for people to come to Melbourne. lifestyle in Melbourne is fantastic from smoothing culture. It's easy to get to our rural areas, whether it's the beach or the the hills and so forth around Melbourne.

So I think it's the end, and of course, has now reached the stage where with a population of 5 million people, it can it's almost self perpetuating in that respect. Whether it reaches 8 million people, whenever that's projected, is is another question altogether. But I think now our government has also going to improve the quality of life in Melbourne with the investment in infrastructure that's already commenced, and in the programmes in place for that to continue.


Rob Langton  17:05

And as I mentioned, you've been developing for over 35 years now. So you would have seen a lot of new market entrants, a lot of new property developers come into the space over the past 10 to 20 years. How are you finding the process of site acquisition is a lot more competitive now than it was 20 years ago? And how do you navigate through that?


David Kobritz  17:24

Yeah, well, it's there many more players, you know, every second person you run into is a developer, until probably the last six or 12 months, you've just need a lot of patience and you got to be cautious. And, and as I said earlier, you just, you know, you, you got to be careful how much you pay for sites, and we've had a lot of developers into the market and syndicates into the market.

And they might, they might have a different agenda than we would as a traditional developer, you know, from our point of view, we don't need to acquire more sites, if we've got 15 projects today, that's gonna keep us busy for the next four or five years. So my attitude is just be patient if the right project comes along, that's fine. But the other aspect, of course, is because we've got a reputation for delivery and integrity in the marketplace built up over that period of time for 36 years, we get offered a lot of opportunities.


Rob Langton  18:41

And how are you finding the lending environment? At the moment?


David Kobritz  18:45

 Yeah, well, that's difficult. I think we're in a era where of zero risk or minimal risk. So we've seen the major banks pull right back from the development space. And we've seen the growth of the second tier lenders, the private equity markets and and that's probably here to stay and, and they have got a large slice of the market now we'll probably have an increasing slice of that market.

I think we've also seen the, the super funds into the development space, either on their own accord or through joint ventures, and that'll be a growth area as well. Of course, we're in a era of very low interest rates. I mean, I've never seen that in in my working life. And I've seen more at the other end of the scale and then where we are at the moment so that all makes me a bit nervous as far as how long can we sustain these loans. First rates, but it looks like they're here for for a while longer. And that's of course, you know, encourages more investment and of course, people taking the opportunity to upgrade or change their lifestyle as well.


Rob Langton  20:18

So David, I want to ask you, as I mentioned, you've been in business for a long period of time, take us through the most challenging periods in the history of Deal Corp, when were they and how have you managed to navigate your way through difficult economic periods?


David Kobritz  20:33

We've probably been through three, I think, major downturns in the 36 years. course, the late 80s, early 90s, when interest rates were through the roof 18, 20%. And that was in the early days of the company. And we had projects on the go, then unfortunately, we built up a portfolio of investments at the same time. And between some projects that we had to liquidate, we were fortunate enough to have substantial equity in our investments, to be able to carry the pain on the one side and maintain the business and in the potential growth of the business.

That was a difficult, probably four or five year period. But as we came out of it, there was tremendous opportunities, because we purchased existing buildings, well below replacement value. And and they were largely office buildings, we refurbish those, and, and that created the platform for the next round of growth for the business. And then the GFC period. A decade or more ago, again, we had a number of projects, and we had finance in place for those projects.

And then suddenly, the finance was withdrawn on two or three of those projects. That set the company back in terms of being able to proceed but at the same time gave us a little bit of breathing space to reset things and refinance things and and we grew from there. And in the last year or two we've seen not only the COVID period, but even preceding the COVID period where the industry was going through a credit squeeze in 2018 2019. And finance was much harder to get and then of course, we've had COVID. Since then, and we've not only from a development aspect, that has slowed down and construction has slowed down or been delayed. But rental income portfolio also suffered. And we spent half our time dealing with payment issues in the last six months. And in assisting our payments through this period there. That's an ongoing matter that we're dealing with almost on a daily basis. And I expect that's going to continue well into 2021. Before we see any hopefully satisfactory resolution,


Rob Langton  23:44

That segues nicely into my next question, which is your vocal earlier in the year in relation to large corporates refusing to pay rent even at discount rates? How do you navigate this challenge? And have you found corporate tenants more willing to repay the rents back to the properties now that we're you know, later in the year,?


David Kobritz  24:04

Our experience by and large was there might have been a period of try on between landlords and tenants earlier in the year, and now by and large, the communications back to where it should be tenants explaining their situation providing the evidence, and as long as the communication is there, we can deal with that and we can assist where we can. I think where there's been lack of communication that's caused the problems.


Rob Langton  24:40

Now, no doubt over the past three decades that you've been in business has been opportunities to expand interstate in particular, no doubt to Sydney. Why have you always stuck to Melbourne when we've seen a few other developers that have been in business for the same period of time, often expand into Sydney.


David Kobritz  24:56

I think we've been extremely busy in Melbourne for the last call it 15 years, and there's only a certain number of hours in the day, and if I was 10 or 20 years younger, I probably would have taken that step but given I'm not 10 or 20 years younger and I'm, and we've been very busy in the Melbourne market. That's been our concentration.


Rob Langton  25:25

Reflecting on your career, what would you say your proudest achievements?


David Kobritz  25:29

I think really our reputation in the industry, the integrity, we we do what we say we do. We we do what we say we will do. And we deliver. And sometimes things, things can get difficult or delayed in this market. But we really stick to our guns, make sure that we deliver on every project. And we're there for whether it's our tenants or our clients as purchases. If there are issues, we're always there to assist.


Rob Langton  26:09

What's the best deal and what's the worst deal that you've done?


David Kobritz  26:12

I suppose they reckon they were a couple of projects in the in the early 90's that cost us quite a bit of money in the downturn. And oh god in terms of best deals Well, you know, often they'll reflect the building we're sitting in there we built 12, 13 years ago here in Cremorne. We bought the site at 6000 a metre, at 6000 square metres, we paid 1200 a metre. And we did quite well out of it. And this is one of a number of examples. Today, the site would probably be valued at close to 15,000 a metre, so we might have done far better than doing nothing. And sitting on their haunches and there's quite a few examples of that.

But that's all, you know, at a point in time in a when a markets been rising. There are other points in time where the market hasn't gone that way. So but we did our recall we did in the in the late 80s. When I talked about the suburban office market. We bought five or six sites in the inner east of Melbourne. And I think we only developed one of them. Because the price was rising so rapidly, we got our permit and sold them very quickly for very little investments. We were they were pretty good deals back then.


Rob Langton  27:51

Now for developers watching this or aspiring developers, what would be your two or three key pieces of advice that you could potentially pass on?


David Kobritz  28:02

Need a lot of patience. Don't, don't jump in on a whim, do your research. And make sure the pockets are deep enough to get through a downturn or a slowdown.


Rob Langton  28:19

Now two questions to finish one outside of property development. You're heavily involved in horse racing and have been for some time, take us through where this interest originated from and how the passion has grown over the years that you've been involved.


David Kobritz  28:31

It stems from my university days where I have a few mates who were involved in, were like going to the races and I didn't know one end of the horse from another but we we used to go there to have a few drinks and a good time and chase a few girls and and one day five or six years after uni finished. We got together and we ended up with a relatively inexpensive horse that won nine races in town so we were well and truly hooked to the end.

During the 80s I had the interest in a few horses and then met Lee Friedman when he moved from Sydney to Melbourne in the 80s. And Lee convinced me to take a quarter share in a grey horse that he bought in 1988. And that horse turned out to be Sub Zero that won the Melbourne Cup in 1992. So I should have given it away after that. But you go through that experience you want to relive it time and time again.


Rob Langton  29:48

As you've mentioned that you've had success in in group one races and other prestigious races. What does it take to win the Melbourne Cup and what's the feeling like post post win?


David Kobritz  29:56

What's it take to win a Melbourne Cup I mean a lot of luck. 99 percent luck and some good management by the trainer and jockey, I guess. Yeah, I think well, Racing's changed dramatically from those days to today where it's far more internationalised. We're importing horses or the industry's importing horses or you can go and buy horses anywhere in the world to race here or so it's dramatically different.

The feeling of winning a race like that is incredible you just you hope, your hope you've got the right horse was being trained to the minute and everything goes right on the day, so it's all gonna fall in place. It's like the property jigsaw puzzle that's eventually going to come together for a successful development.


Rob Langton  30:53

David, that's a good note to end on. Thanks so much your time this morning and thanks for sharing your insights. Pleasure to have you on

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