When a more sophisticated asset holder, like a club, decides to delve into a major renovation or renew the clubs assets for the first time, they often miss some important numbers that can make or break the project. We asked Anna Porter of Suburbanite Asset Advisory to delve deeper into this topic for us.
“A feasibility study is a critical exercise to undertake, but without the correct inputs you just won’t get the right output. “ says Anna Porter
Anna shared her list below with us and reveals some of the critical numbers that often get missed or miscalculated:
- Underestimate interest on lending- many will raise some lending during the period, or if the costs blow out but forget to calculate the interest costs on the funding. Or they calculate it but not at commercial rates, which are much higher than residential rates.
- Underestimate the costs to DA stage – This is usually grossly underestimated by a significant amount. Planning reports and consultants’ fees are usually far more than the club expects at the outset.
- Inadequate contingency – more often than not, things don’t go to plan with a major renovation project and we rarely see a suitable contingency being allowed for in a feasibility. We recommend at least 5% as a minimum, or even 10% of the build costs on a more complex project.
- Realistic time frames – many project figures we review neglect to incorporate realistic time frames. It will take longer to build than expected and not all areas of the club will remain operational during this time. Allow manageable time frames and associated costs for these to avoid a financial fall out.
- Insuring the project – Many clubs do not get adequate insurance on the project or for the contracts they engage in. This exposes the club to risk. The ones that do plan for this will often underestimate the costs of these specialised policies. Getting some quotes from the outset will save a financial blow out later in the project.
360 Degrees on the assets in a nutshell – Anna Porter, Suburbanite Asset Advisory
1. Know your numbers
2. If you aren’t experienced at doing a feasibility study, engage a professional to do it
3. Consult your accountant regarding the tax implications
4. Don’t underestimate your costs and allow a good buffer as a contingency