How to Survive Property Crashes and Still Win Long Term with John Facer

Andrew:: Hi, I'm Andrew Wright, principal of Professional Southport, and this is the Andrew Wright Property Podcast. I've built a multi-million dollar property portfolio delivering a seven-figure annual rental income, and led my real estate team through thousands of sale and lease transactions in each episode. I share real deals and strategies that will help you find, fund and operate profitable property deals.

The aim of this show is to provide education and build a community of like-minded investors who can collaborate, share insights, and help each other in each other's journeys. You can make excuses or you can make money, but you can't do both. So come and join us.

Hello and welcome back to the Andrew Wright Property podcast. If you were consider yourself at a barbecue or lunch, and you're having a chat to the fellow next to you and you say, what do you do for a living? If he told you he'd just built a high rise tower in surface paradise, you would probably make you pretty curious.

Today's guest is a very good friend of mine, John Facer, who has helped shape the Gold Coast skyline. John's career began in the late 1960s working in Sydney as a construction manager for a company called Progressive Properties. In 1975, John was given a promotion to the Queensland Construction Manager.

I'm going to rattle off some of the developments that John constructed in the 1970s, eighties, and nineties. Because if you live on the Gold Coast or you visited the Gold Coast, you'll probably recognize the names of some of the buildings. Thornton Towers 142 units over 17 stories. Beach Point, Aquarius High Surf the Peninsula Building, which became the tallest building on the Gold Coast until 1992.

Imperial Surf Beach Coma. Beach Haven, 19th Avenue at Palm Beach. The beach house at Cool and Gutter Bayview Shores at Runaway Bay. John built a large project at Main Beach, 120 units at Currumbin Sands and an iconic building known as Crown Towers, which many of you listeners will have heard. John not only built these projects, but in the early years with some of the the high rises, he helped assist preparing the feasibility studies that enabled and secured the bank funding.

Today, John runs ACE Finance, a private lending company. Backed by decades of construction and risk management experience. Welcome to the podcast, John. Great to see you.

John:: Pleasure to be here.

Andrew:: Okay, John, so tell us about the early days when you came up to the Gold Coast and how you got into the business and what gave you the skillset to build these feasibility studies for these high rise buildings?

John:: Well, I was the construction manager for Progress and Properties, and we built, well, they built a lot of three story walkups and high rise around the Randwick and Ee Bay area. And around 1975, they wanted to expand their development activities to the Gold Coast as they saw that was the new growth area. So they previously built 35 stories a Condor. That was their first, the company's first project up on the Gold Coast. And I was promoted to Queensland Construction Manager. And the first project we constructed was Thornton Tower. 16 stories, that sold very well.

And then we went on to Beach Point, another 16 stories, 140 odd units. And we just continued building one building after the next.

Andrew:: But in the early days, you were telling me before the podcast that the banks didn't actually even need a quantity surveyor's feasibility, some of the banks would actually just look at your spreadsheets and calculations, is that right?

John:: Well, in the early days, the AGC funded it, it was a public company, Progress and Properties, and the feasibilities was done in house.

Andrew:: Mm-hmm.

John:: And I had my experience on site and in the administration was able to take the quantities off the plans and estimate the construction cost using past projects as a guide and current trends. And they, Progressive Projects, would use that feasibility, presented to the bank or more so a finance company like AGC and if they were satisfied with the construction cost and the feasibility and the selling and the market price, they had enough confidence in the company Progress and Properties to approve the loan and provide the funding.

Andrew:: And did you always have a certain percentage of pre-sales on those buildings to get the bank's finance approval?

John:: No. In the early days, the banks or the financing didn't require pre-sales. Currently in the market, things had changed, but in the early days, the bank or the financier was comfortable with the expertise and the ability of the crew or the construction team to deliver that project in a cost efficient manner. And we didn't need presales. They didn't require presales.

Andrew:: Back in those early days in the eighties and nineties, there was a mob called Rider Hunt, and they used to produce this research on property cycles and they talk about these seven year cycles and you've been through a lot of cycles. And I wanna talk about one of the crashes around that 1982 period. You were right in the middle of building at the time the highest building in Surfers Paradise on the Gold Coast, the Peninsula building. What happened? Can you just talk through briefly what happened when the prices crashed? And my understanding is this was before the building had been finished.

John:: Well, it was an amazing situation really, because in the early days when construction started, the market was very strong and the agents were selling the, or pre-selling the units off the plan, if you like. And it was very hard. The agents or people were finding it very hard to be able to sign a contract.

They might have three or four contracts on the one unit. Someone would sign the contract and they would onsell it to someone else and they would onsell it to someone else and a profit each time, hoping that each time pushing the price up.

Andrew:: Mm.

John:: Then all of a sudden, I think it was June 82, the market just crashed. And the prices just dropped unbelievably. Everyone that had signed a contract, they didn't have the equity or the price was a lot less than what they signed the contract for. And they were all trying to escape or get out of the contract.

And unfortunately, the developer had to try and protect themselves as much as possible. And they had to take legal action against the purchases. And they were very successful enforcing that legal action because the contracts were very tight.

Andrew:: So I guess when it's only when you have a bad run in a property development that you appreciate building margins and contingencies into feasibility studies. I guess that probably made developers at that time a bit more conservative going forward. But another seven or eight years down the track, John, when the cycle turned again, you were building for Hudson Conway Bayview Shores. And you came across problems in the next cycle again, around 1989 is my understanding.

John:: Bayview Shores, that was for Progressive Projects.

Andrew:: Oh, was it? Okay.

John:: Yes. That wasn't Hudson Conway, the first. Progressive Projects, that was their last project on the Gold Coast, Bayview Shores.

Andrew:: Okay.

John:: And what happened there was the public company, which was Progress and Properties, which was bought out by Danford. They had two major projects in Sydney. It was a hotel in Bondi and another hotel at Brightly Sands. And those huge hotels, those sales fell through, which forced the company to go into liquidation.

So Bayview Shores was a knock on effect, because they had the one funder, the one AGC with the main funder, that was under their umbrella. So Bayview Shores, the funder or AGC took over the construction or finished the construction under their own construction management team.

Andrew:: So all the other projects that you did largely went to plan, but those two just got caught up in the bad time of the cycle, I guess.

John:: Yes. Well, Peninsula was a different thing because it was more that the market, it wasn't the cost of the building or the developer going broke. It was the market had changed. Whereby the other project, Bayview Shores, that was a consequence of two other projects getting into financial difficulty because of the sales falling through in Sydney.

Andrew:: So you've just an amazing itinerary there and timeline of building all these high rises, which has given you plenty of experience. And in your own capacity, you've done quite a few deals, which I'll just run through a small handful of them, John, for our viewers. This is a property podcast and I just wanna talk to the audience about the fascinating ability of compounding to take effect over a number of years. And I looked on RP data just last week in preparation for today, and John purchased his residence in Admiralty Drive Paradise Waters in 1978 for $55,000.

Those numbers to the viewers now might seem incredible, but neighbouring properties in that street are selling for $10 million, some of them. And I just want your advice to the viewers about long term holding of property versus some of your neighbours who have sold and maybe boasted about making a couple of hundred grand here, tax free or a million dollars there, but you've held for that's nearly 50 years, John.

John:: Just about, yeah. Well, I mean, I actually moved up to the Gold Coast in 1975. And I just got married and we were looking to build a home and settle up here for the foreseeable future. And this block of land at Paradise Waters was 55,000. And I thought it was very expensive at the time.

And I said to the seller, I said, oh look, you're too expensive. And I'm looking for a discount. So he wouldn't give me a discount. He wouldn't budge. So I took the tablet, if you like, and paid the 55,000 and it was the best thing I ever did because I built a home there.

And the actual time, the compounding and the value of the rise and rise and rise of products and cost of construction and wages has just been pushing and pushing and pushing the prices up. So really the best thing I've found, or one of the best things I've found, once you buy a property, stay with it for the long term.

Not for the short term because the longer you hold it, it's the best hedge you'll ever have against inflation. And that's proven itself time and time again. Hold on, hang on. And then if you need to buy another property, use that equity in that property to fund your next property. And so on and so forth.

That's the best advice I could give anyone. If you've got a property, hold onto it, rent it out. Borrow against that and continue the cycle. And that way you protect yourself against inflation and that'll be your quickest way to make money in the property market.

Andrew:: When you were in the construction business there for many years, I understand that you had the opportunity from time to time to actually buy units in those high rises you built. Did you buy many of them and have you held any of those ones?

John:: Well, what I tried to do, I tried to wherever I could, was to buy a unit in each complex and hold it and then sell it. One particular unit I paid or bought was in Beach Point 16 stories, 17 stories on the beachfront in Surfers Paradise. I paid 35,000 dollars for that. Still own it today. And that would be in the order of maybe 900 or maybe a million dollars today. So that just shows you if you've got the patience and the time, have a long term view of property, the cycle will go up and down.

But you can be almost positive that it will always rise because of inflation and the prices never, ever, they might go down for a year or two, but they always come back a lot stronger. So that's my advice, buy the property. Hold on. And keep it as long as you possibly can.

Andrew:: It's incredible. I mean, 35,000 to 900, that's almost 30 times its value over that period of time, which is incredible.

John:: Well, just for example, the site, the developer, Progress and Properties paid $750,000 for the site for Beach Point.

Andrew:: Mm-hmm.

John:: And now I believe that Meriton, Harry Triguboff, has paid in the order of 50 to $60 million for a similar site, maybe a hundred meters north of Beach Point. So it just shows you how the prices have increased in the last 40, 50 years.

Andrew:: It's amazing. And down at Mermaid Beach, you've got a similar story there at Two Oceanic Drive. You built 10 units there.

John:: That's correct. Yeah. 1980, I built 10 units, ten two bedroom units in Oceanic Drive. I think the land was about 50 or 60,000. Construction was a couple hundred, so it was about 250,000 all up. And I've rented those units out for the last 40, 50 years. And I understand a similar unit sold the other day in the street for 940,000.

So you can just see how much property's gone up year by year.

Andrew:: So 10 of them. And that's all pre capital gains tax too. So bought, built before 1985, no capital gains if you were to sell it now. Potentially worth over 9 million with a cost base of 250.

John:: In that order. Yes.

Andrew:: And what about the rents there, John? Like over that long period of time? What were the initial rents per week?

John:: Well, the first rents were fairly low. I mean, by today's standards, 120, 110, 120 a week. They're now, as I said, I still own the property, and they're paying average about 720, 725.

Andrew:: Yep.

John:: So it's a remarkable increase. And it moves with inflation. As inflation moves, the rents move.

Andrew:: Absolutely.

John:: So it's your best protection against inflation.

Andrew:: Okay, so you did a pretty large project, over a hundred units I understand at the Italian club and got a bit of experience there. And then you saw an opportunity on University Drive at Robina for another 120 villas. And what I like about this story is the land was purchased for $6 million from Delphin, but I like the creative way that you've actually financed this. So you didn't have the $6 million lying around, so you've found a mate to put in 50% deposit and Suncorp lent the other 50%. Can you talk us through the deal there?

John:: Well, this was a remarkable deal. I mean, this sort of deal comes along maybe once in a lifetime, but this particular project, Delfin were having trouble selling this site because it was a split level site and had a main sewer going through it, but they wanted $6 million.

I never had very much money at all. And my partner never had much money either, but he went to a private lender, Steinle, to see if they could find a joint venture partner who would be interested in funding this project. And Steinle, the lawyer, found and introduced us to an investor who liked the area, he liked the university, liked the design, he liked everything about the project. So we funded it by Suncorp Metway. They lent 50% of the value, so that's 3 million. And this investor or joint venture partner, he lent another 3 million on an equity basis, not on an interest basis, which gave him a profit share of 50%.

And my partner and I, we had a profit share of 25% each. The project was a great success. The prices, we got very good prices. And the final analysis, the project profit was about 6.8 million. And everyone was happy. The private investor doubled his money or more than doubled his money and got his money back.

And we were happy because my partner and I only invested a couple hundred thousand to do the preliminaries and do the feasibility and put the documents together for the project. So that was a very profitable exercise.

Andrew:: Yeah, it's just fascinating to me because I think most viewers of the podcast and most real estate investors in general, sometimes they come across a deal. They think, wow, this is so awesome, but oh, I can't do that. But what I like about that situation is you found a creative way. You were good at feasibility studies. You had the experience, John, and you found a way to get the finance done, whereas most people would've thought, oh yeah, that's a great deal, but I can't do it. But you found a way to actually finance it?

John:: Well, because of my background, because of my experience in the construction industry in Sydney and the Gold Coast, it gave Suncorp confidence that this project had good management or a proven track record. So that was a great asset in obtaining the funding.

Even though Suncorp Metway would only lend 50% of the land, they funded the construction on a cost to complete basis. So as we did the work, they funded the money for the construction. And sales went very well from day one, and everything just fitted into place nicely.

And I still own a unit there. My partner and I sold all the units, and I kept one. And I think that it was about $300,000, that was the selling price. That unit today would be worth over a million and is in the letting pool, and is let out continuously almost semester by semester basis, year in, year out, through the management and has been a very good hold and a good investment.

Andrew:: And you went a step further there, you had an agreement with your two other business partners that you would actually buy the management rights of that complex for 1 million and 50,000. And you sold that 12 months later for 2.3 million. So what motivated you to go down that track and how did you actually increase the value of that management rights business, John?

John:: Well, originally, when we did the joint venture agreement, one of the partners had the opportunity to buy the management rights from the group, from the Joint Venture Partners. And I took up that opportunity, and the price was already set in the early days when we agreed, when we commenced the joint venture.

So really we never had any numbers. We never knew how many people would be in the pool, what the percentage would be. We did some estimates and we thought, well, we'd probably get at least 50 or 60% students from the university. So it was a bit of an unknown thing. But once we completed the project and started to market it through the university. They were the main residence, from Bond University. It was a deal that's right on Lake, it's a short walk to the uni, people don't need cars.

And there's a great demand from the students. And once we got the place fully leased, we had over a hundred units in the pool and that made the multiple of about five to one. And that's how they assessed the value of the management rights. And that includes a unit of course.

So we sold it. The only reason why I sold it was because my son-in-law was managing it, and he wanted to seek other opportunities. So we sold it prematurely, sorry to say. And the rents are still going up. The prices are going up, so the current managers are very happy.

Andrew:: John, you had a few dabbles with some commercial property as well. You built a few industrial sheds and profited quite well. But I wanna focus on a site that I find fascinating. You and a few friends bordered Computer Road Yatala, purchased for 4 million and sold within a year for 8 million. Doubled the value. What changed in that short period of time to add that much value to the site and tell us the deal?

John:: Well, that was another sort of stroke of luck, I guess. Sometimes these things come from nowhere. It was just a friend of mine, I spoke to a friend of his that said, oh, there's a property up in Yatala. The owner is under a lot of pressure to sell it. He needs to sell it very quickly, and it's got a lot of development potential and he's asking about 4 million for a quick sale. So I had a look at the property and I thought that's a dual position. It's a lot of factories around it, looks like a growth area. So five of us, five friends got together and said, okay, why don't we do a joint venture on this, which we did. And we put in about 500,000 each and borrowed the rest from the bank. And we went ahead. One of our partners was an engineer, civil engineer.

So we went ahead and did a feasibility on the land to subdivide it into smaller lots, I think it was about eight lots, and sell them off as factories for tilt panel. Tilt panel factories were very popular and still popular, strata titled.

And that was another one of those projects that come along once in a lifetime. It sold very well. And the profit was about $4 million.

Andrew:: So that one, there was, again, it was really just getting a DA and selling them off, flicking it. You didn't go and build any of the sheds?

John:: No, we didn't do any building. We probably could have made more money if we'd have done the building. But we just wanted to exit, get our money out and move on and do something else. That was one of those projects that don't come along every day. But we went through the exercise, got the DA, did all the civil works. There were a few other conditions the council wanted. We complied with those. That was just a very good project, very straightforward. It was level land. There wasn't any geotech problems or any drainage or flooding issues. It was just one of those projects that didn't take long to actually do the subdivision, get the approval and do the works, and they pretty well sold overnight without too much marketing.

Andrew:: Good on you, John. I wanna talk about your transition, like you've had all this construction experience for decades and you've decided to move into private money lending, lending money to other investors to buy property. What motivated you to make that transition?

John:: Well, when you're in the development business in your own right, it's a continuous cycle. You must keep buying, developing and selling, buying, developing, and selling. You can't just stop and start when you feel like it.

If the market's good or bad you need to keep your team together, you need to keep the machine working. You've got good quality staff, you've got experienced construction managers. They need some certainty, they need to know where their future is. So you're more or less forced to keep developing on a continuous basis despite how the market is.

And that's very risky. Because if you get a downtime and your sales dry up, well that's when you can get into financial difficulty. So it's quite profitable, but it can be spasmodic. If the market really goes bad, then you've got serious problems.

So I thought I'd be better off to lend money to boutique, smaller type developments, say six townhouses or maybe 12 townhouses. Something in the order of five or $6 million, with a short building time, not too complicated, and lend money. Fund those particular projects with my expertise to ensure the feasibility was viable and stacked up.

And the developer would put in the hurt money if you like, and I would lend up to 70, maybe 75%, without the ongoing day-to-day management. And I didn't need a cast of thousands. I didn't need an architect. I didn't need to employ all these people.

And if times got a little bit quiet and the market was a bit ordinary, I would just hold back from lending until the market turned. So it's a much less riskier approach, on the proviso that you know your LVR and you deal with someone with a track record.

Andrew:: So you had a lot of confidence. Obviously you're getting in most cases a first mortgage, LVR only up to 75%. And more importantly, with your background in construction, you knew that if things went wrong, you could probably take over the project.

John:: That's right. I always had the insurance that if something did go wrong, and one project it did go wrong, the developer didn't do what he was supposed to do. It was poorly managed. So that enabled me to finish the project under my mortgagee conditions and take it to market and sell the project in a timely manner.

Because the problem with most funders, the bank or AGC, they haven't got any experience at all in construction. And they have to hire a project management team, who really have to be experts in the business as well, and that's a very expensive pathway to go down. Where I wouldn't have any of those add-on expenses.

The banks would have to pay to engage someone to take on the role and responsibility of completing the project. So that was always my insurance to be able to say, well, look, I've got the expertise to complete this project at a minimal cost. Maintain the same contractors, and virtually continue to finish the project in a timely and effective manner.

So that was always my peace of mind if things did go pear shaped.

Andrew:: I just wanna talk, John, on that process because there's a bit of a myth out there that private lenders are all hard money sharks. And if you fall into tough times, they'll come in and close you up and sell. But you told me just recently about one of your clients who borrowed some money building. You could have gone and closed them up, but you extended, you've lent them more money. Can you tell us through?

John:: Well, that particular project, it's all about really successful business is all about relationship. If you've got a good relationship with your developer or your builder, and he is making a genuine effort to try, I mean, a lot of things can go wrong. Even if it's a small project, say a dozen townhouses. A lot of things can go wrong that the developer doesn't plan for, like extremely bad weather, soil conditions, there's been a mistake with the geotech report. All sorts of things that can extend the construction time. Prices, we had a huge price rise during this particular project, prices and the bricklayers were hard to get. Trades were hard to get. And the construction prices went out of control. And this particular developer needed more money. He needed more time. He was genuinely making an effort to complete the project. He'd put his own money into the project, so I, together with him, lent more money and helped him along the way to finish the project.

Even though it was six or maybe nine months later, he finally finished the project, never made as much money as what he thought he would. He still made money, but we nursed the project through to the end where a lot of banks or financiers, soon as you miss a payment or go into default, legal letters come out and the whole thing becomes a disaster.

Subbies stop working. The place sits there, there's arguments, and all this time the meter's running on the interest and the project gets a bad name. The developer ends up losing his money and maybe the funder loses money as well. So at all costs, you must try and use your best efforts to try and micromanage the developer.

So he doesn't lose his money, and this is important. You've protected your money and you're not trying to recover your money by default interest. Because that doesn't help the project. It doesn't help the developer. And you're looking for a long term outcome. And after that relationship, the same developer is doing another project.

Now he knows who he's dealing with and he knows that he's got a level of comfort and peace of mind that if things do get a little bit off the rails for whatever reason, he can safely be at peace to know that we will try and definitely use best endeavours to nurse the project through.

And that does two things. That gives him a level of comfort and it gives me repeat business. Whereas, that's what business is built on, relationships. And you can do another project, another project, another project, and you can build up a small team of developers that you can rely on and they can rely on you.

And funding can be approved quite quickly. There's no long delay, months and months and months of spending money on application fees. Then find out that, oh, I'm sorry, your project doesn't stack up. I like to be able to look at a project, analyse it quickly, check the market out, do some research and try and have a quick yes or a quick no.

That works for me and also works for the developer and I don't charge any fees up front. I'll speculate my time to look at the project, and that way the developer's happy that he's getting a free service, if you like. And that way we get repeat business and everyone's happy.

At the end of the day, everyone's gotta make money. Developer's gotta make money, I've gotta make money. And if you can have a relationship with both parties winning, that's the way to run a successful business.

Andrew:: So in summary there, for developers looking to borrow from ACE Finance or John's business there, what you can expect is a free due diligence. He'll have a look at the deal and the feasibility study that you've put together. He'll give you a quick approve or a quick no, one or the other. His experience can come through and he can offer you some sort of project management advice based on his experience if required.

And finally what's great that we went through that last example is you're not gonna go and sell them up straight away if you can work together with them and come to a solution for both. Absolutely not.

So private money lending is something that most developers probably need to look at given, I mean, the last few bank loans I've got, let me tell you, it took more than three months to get the approvals, and these were not for developments. Just for straight out purchases with existing leases. So getting a quick approval and benefiting from John's experience, not just his capital, is perhaps something that the viewers might want to consider down the track. John, I appreciate your time very much, and again, I'd like to thank you.

John:: I've just got one more thing. I mean, with a project, I've got a pretty good feeling with my experience, whether it's going to fly or not.

Andrew:: Mm-hmm.

John:: Just through doing a lot of projects myself, so I can generally assess a project pretty well. If I think it stacks up and it flies, I'm very keen to do the business. Whereas banks don't really have that expertise and it's more on the numbers. So I can offer advice to how I would approach a project. What I would do and what I wouldn't do. And I can advise against different pitfalls that a lot of developers strike. But generally when it's too late.

Andrew:: Fantastic, John, appreciate your time today coming into the podcast very much. You've been a good friend of mine, you've helped me out in various different areas and I'm really grateful that you were prepared to come and talk on the podcast.

John:: Mate, it's been my pleasure. Thank you.

Andrew:: Thanks, John. Okay, viewers, well, if you like that podcast and you know any developers, why don't you press the like button and forward this podcast onto your mates and hopefully some of them might be able to benefit from John's experience. Thank you very much and look forward to seeing you on the next podcast.

Bye for now. Thanks for listening to the Andrew Wright Property podcast. This is all about building a community of like-minded investors who can share real life stories, experiences, and collaborate with a view to helping each other. Join us. Get in touch through the link in the show notes. I look forward to you joining me on the next episode.