No-nonsense developer gets to the point

Melbourne-based developer Lei Feng shares his insights on building a profitable portfolio in the current market, as well as the biggest risks for those looking to get into property development.

Property Developer Lei Feng
An avid traveller before COVID, Lei Feng brings a lot of international flavour to Melbourne development.

Lei Feng is a refreshingly straight-talking property development consultancy owner. 

While many consultancies will pepper their websites and promotional materials with bold promises and a liberal splattering of jargon, Mr Feng’s PREER, based in Collingwood, Melbourne, talks an altogether different game.

His website videos wield titles like Bad Ass Whiteboard Session, and the site’s introduction offers the no-nonsense assertion that, “We don’t believe in the Get Rich Quick sort of crap”.

Lei Feng is a well-regarded entrepreneur committed to changing the lives of like-minded property-obsessed investors. 

Typically working with homeowners and investors, PREER oversees projects across the residential, commercial and industrial sectors. 

Mr Feng spoke to Australian Property Investor Magazine this week, covering everything from his business immersion when growing up in Asia, a passion for singing and his tips and advice on successfully building a property portfolio. 

And the four main risk variables in property development that Feng identifies (at bottom of this interview) offer shrewd insight that could prove the difference between a profit or loss.

How would you describe your business and the service it offers to clients?

For our developer clients, we offer a range of services depending on their experience and level of investment. For entry-level property developers, we mainly help them to acquire the profitable and viable development sites, obtain and develop the optimal funding structure to fund the project, including equity and debt, assist and support them to manage the project and help them exit projects in a timely fashion.  

For established developers, we offer specialised problem solving services as well as turnkey solutions. Depending on each client’s experience level, we consult for them on areas which allow them to outsmart, out resource and outcompete their local competitors. 

Tell us a bit about your own beginnings

I grew up in Shanghai. Our family has multiple businesses across Shanghai, Hong Kong and New York, ranging from supply chain and hospitality to property and construction. Business and real estate was kind of in my blood. I undertook my high school years in New York and came to Australia to study at university. I fell in love with Melbourne and decided to call it home. I have great passion for architecture. I am very inspired by it.  

At what point did you decide that you had the knowledge and experience to offer clients a product/service of value, and what did it take to create the business?

I realised most developers run their business on a project to project basis instead of a rolling ongoing business. For many, it is a hobby rather than a sustainable business and I wanted to help people understand how to translate it into a meaningful and profitable activity. 

Some of the issues facing those engaging in property development include: 

  • Not having a consistent deal pipeline
  • Not having a proper and sustainable business model
  • Failing to strategically set up their business funding from an equity and debt perspective  
  • Lacking multiple ways to market and sell their end products.

Your website bio says you are a tech enthusiast and capable singer - which of these skills gets the biggest workout these days?

Singer I guess - this makes me sound cooler and more approachable! We all need hobbies and avenues for growth and enjoyment. Singing keeps me grounded and helps me connect with others. At the end of the day, property development is a people business. 

One of the key skills required to become a successful real estate developer/investor is to learn how to better communicate and positively influence others, including landowners, bankers, buyers, investors etcetera.

At what stage of the property portfolio development cycle are most of your clients?

  • 80% own more than six properties 
  • 50% are active developers 
  • 20% are passive residential investors
  • 30% are institutional commercial investors and developers.

Do you focus on the Victorian or national property market?

About 80 per cent of our projects are based in Victoria. That's mainly due to the fact I live in Melbourne. Besides Australia, we have one project in Los Angeles and one in Paris.

Where do you see the property market cycle at the moment and what property presents the best opportunities and what/where is best avoided?

We are at a mid cycle. In the next two or three years we will see some very positive price uplift in major capital cities. 

This will be due to a handful of factors:

  • Four million baby boomers are retiring and the government has to fill the gap by increasing the workforce through skilful immigration  
  • Borrowing costs have never been so low 
  • Prior to COVID-19, the issue with the property market was that our supply of housing couldn't keep pace with the population growth
  • Because of COVID-19, it makes the supply side of things even worse
  • Marching into 2021, we will see strong demand from investors and homeowners
  • Stock will be limited.

I would stick with properties with land content that are in the inner established areas where there’s a greater percentage of homeowners. In Melbourne, I would stick with a price range between $450,000 - $750,000. 

Things to be avoided are:

  • High density apartments
  • Brand new land estates with lots of investment speculation 
  • High density townhouses (e.g. townhouses with basement but very little land content).

It would be remiss not to mention the dramas of 2020. How has COVID and lockdown affected your business and client portfolios?

We are flying during the pandemic. We’ve made a ton of site acquisitions at great prices with super flexible terms. Some of our home estates were doing extremely well due to most accommodating long-term residents. 

On the development side of things, we’ve achieved great sales volumes. However, the sales and marketing strategy has had to pivot a bit from traditional methods. This is where we start outcompeting and outsmarting some local competitors.

What's your own life goal from here?

My goal is always changing from time to time. At this stage, I am looking to build a legacy by sharing what my family has taught me about generational wealth with others - so that the battlefield can be levelled a bit.

Feng’s top four risks in property development

1) Buying the wrong property

Buying the right property is the key to unlocking the success of any investment property.

Finding a development site that ticks all of your boxes is all about having an in-depth understanding of not just the property market you’re interested in but also the larger economic picture. Property development projects can take up to four years to complete in many cases, so it is essential to have an understanding of where the markets will be heading over the next few years.
2) Not understanding risk and delay potential

When a property development project is delayed it is both frustrating and costly for the contractors involved. Weather, labour shortages, poor communication, project mistakes and conflicts, equipment failures, and missing or inaccurate data are all reasons that delays can occur. While weather is beyond the control of the developer, most construction delays can and should be avoided.
As a total tech enthusiast, I cannot overemphasise the importance of investing in a cloud-based communication channel and construction software. Utilising the latest technology will ensure everyone on the project team is on the same page and timeline, all in real time. Collaboration, visibility and transparency are key to minimising and solving issues.
3) Underestimating costs

The pre-construction process is as critical to the ultimate success of a project as the construction process itself.

In order to accurately estimate your costs for a project, I recommend researching developments similar to your own and looking at their budgets, as well as devoting a significant proportion of your planning time to securing the correct permits for your project to avoid costly hold-ups.  
4) Unexpected structural defects
“Unexpected structural defects apply more to renovation or rejuvenation projects, however, they can result in huge hits to profit margins. If you are interested in developing an existing site, I recommend splurging on building and pest inspections from qualified, independent professionals before you make a purchase.

Being forewarned of any issues with a building or site is worth its weight in gold. Pre-existing issues with a property do not always mean you should walk away from the potential project. At the end of the day it all comes down to whether you can make a profit.

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