Retirement Village Development

One of our major clients in the Retirement Village Industry had been developing and operating Retirement Villages in Adelaide for over 20 years. They had successfully completed several developments each of which had required $10-30m to complete.

Developing and operating retirement villages in Adelaide for over 20 years

They had reached the point where they were open to opportunities to leverage the intellectual property they had created (such as demographic analysis, specially designed CRM software, optimum design for the aged, etc) and allow this to be used by others.

At the same time Pitcher Partners had been approached by a major retailing family who were highly profitable and had built up considerable cash reserves. They approached Pitcher Partners to understand what investment opportunities were out there (such as negatively geared property) and what effect those investments might have on their tax profile.

Assignment Detail and Our Role

Over many months Pitcher Partners introduced the retailing group to the Retirement Village operator to gauge the possibility of a sale of some of their interests to the retailing group and take advantage of a Taxation Ruling issued by the Australian Taxation Office which allowed full tax deductions for acquisition of Retirement Villages in certain circumstances. In the end those negotiations were not able to be completed in time but from those discussions developed a mutual respect between the two organisations.

Thus when a significant parcel of land in a prime location became available with a potential for it to be developed into a $105m Retirement Village, Pitcher Partners were asked to urgently assist in a possible joint venture. Specifically, our role included:

  • Preparation of feasibility to explore whether the development (expected to take over 7 years) would be profitable in both the short term and the longer term during its operational phase.
  • Approaching the retailing family to gauge their interest in being part of the development and operating phase.
  • Negotiating Heads of Agreement between the two parties and have this documented by external Solicitors.

The end result was that all of the above was successfully completed within the four week tender period and the tender submitted was successful and the joint venture was established. Thereafter Pitcher Partners’ involvement continued in a variety of ways including:

  • Preparation of detailed three way profit budgets and cash flows and projected balance sheets over 7 years.
  • Assistance in the preparation of a bank submission for the funding of Stages 1 and 2.
  • Representation of the client in sitting in on Joint Venture Project Control meetings.

Whilst the project is not complete, it is likely that both parties will have benefited. The major retailing group will have access to significant tax deductions that are particularly available to Retirement Village developments. They have found a profitable use for significant cash funds, and once the development is completed they will share in significant annual income streams which in turn will generate a capital value over time. They have recently taken control of the project and plan on completing all stages over the next couple of years.

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Rob Southwell

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Managing Partner and Partner – Private Business and Family Advisory

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