Part 2 – How Maha Developed Opossum Creek With No Money

 
How Maha Sinnathamby Developed Opossum Springs Into a $32 Billion City Starting With No Money

The following is Part 2 of a three-part series on how Maha Sinnathamby went from Sydney taxi driver to Australia's 49th richest person.

Part 1: How Maha Bought Australia's Largest Parcel of Development Land With Virtually No Money…

Part 2: How Maha Developed Opossum Creek Into A $32 Billion City Starting With No Money…

Part 3: How Maha Boosted Land Values & Bought People To Springfield When Others Laughed…

Is it really possible to create wealth from thin air? Can you really make money investing in property starting with nothing but your knowledge and a little nerve?

The world is full of stories of entrepreneurs who have risen from nowhere and amassed incredible fortunes.
The question is how have they done it from the ground floor when so many others fail with more resources and opportunity at their disposal?

In our last article, we revealed how former taxi driver turned developer Maha Sinnathamby bought Opossum Creek with no money by leveraging the art of the deal.

Opossum Creek was the largest parcel of development land available in Australia at that time and Maha and his partner Bob Sharpless were planning to build an entire city onto it.

It would take billions to make this vision a reality – billions they didn't have.

How would they do it?
 

A Critical Turning Point

1999 was a defining year for Springfield.

Up to that point, Maha and his partner Bob Sharpless had weathered many storms and achieved many miracles.

1991	Maha and Bob negotiate a 12 month property option for Opossum Springs outside of Brisbane, the largest parcel of development land available in Australia at that time.
1992	Maha and Bob secure development approvals for Opossum Springs. They divide it into twelve parcels and sell one to a Taiwanese investor, funding the first down payment for the property. They execute the property option and purchase Opossum Springs, achieving the impossible − purchasing a massive parcel of land with little of their own money.
1993	Maha and Bob sell their first home and land packages in Springfield.
1995	Maha and Bob secure development control planning (DCP) approval for the fully master-planned city of Springfield.
1997	Springfield was so big, the local council didn't have a planning instrument to deal with it. So the Queensland Government pass the Local Government Springfield Rezoning Bill 1997 with an unprecedented unanimous vote.

 

Land Sales Dry Up

Maha and Bob had worked miracles to progress Springfield to where it was.

But they reached a critical juncture when land sales started drying up in 1998.

Home buyers were shunning Springfield for the neighbouring development of Forest Lake.

Forest Lake and Springfield were chalk and cheese.

Forest Lake was being developed by Delphin (now known as Delphin Land Lease), a publicly listed company with access to huge cash reserves.

Maha and Bob on the other hand had little capital to draw upon and relied upon bank finance and business savvy to fund their works.

Delphin specialized in large scale residential developments.

Maha and Bob had no experience in developing large scale residential projects let alone a city such as Springfield.

Delphin's huge cash reserves meant there were able to bankroll the entire infrastructure requirements for Forest Lake such as landscaping and amenities before they offered house and land packages for sale.

This was a huge advantage as home buyers could walk around and get a real sense of what the community was like before they made up their mind.

On the other hand when Springfield first sold their land and home packages, there was nothing to see but open space, dust and the occasional wild horse.

There were no sweeping boulevards, mature Moreton Bay fig trees or even roads. The infrastructure was being built as it was needed and funded by the sale of the plots.

People only bought into Springfield because Maha and Bob were offering larger blocks for less money compared to Forest Lake.
 

A New Financial Crisis

Unfortunately a slowdown in sales triggered a domino effect.

Up to that point, Maha and Bob had gone down the traditional route of sourcing bank finance to fund their capital works and develop Springfield.

As sales dried up, costs began mounting and the banks became nervous.

Rumours started circulating that Springfield was in financial difficulty.

In January 1999, nerves got the better of the banks and they sought a meeting with Maha and Bob.

After a brief exchange, the account manager abruptly came to the point.

“The bank wants its money back. We have lost patience. Will you pay?”

Maha and Bob sat in stunned silence for a few moments. When calculating all of their debts, loan exit fees and sundry charges they owed close to $10 million−and the bank wanted it back in 30 days!

They didn't have $10 million to pay. They didn't have $1 million.

Worse, the banks could force Springfield to be sold off to the highest bidder if Maha and Bob couldn't pay and their vision of a master-planned city would come to an end.

This sometimes happened with large property developments. A developer progresses the first stages of the project then go under because of project delays and cost blowouts. A second big developer then comes in and buys the project for a fraction of the market value and makes a killing.

Maha took a moment to reflect then told the account manager not to worry, they would pay.

He didn't know how they would find the money at the time, but he was confident they would find a way.
 

 

The Search For A White Knight & Joint Venture Partner

Maha and Bob knew that their project was visionary.

Even the banks were scared by its grand scale. No private developer had ever attempted a project this size before in Australia, maybe even the world.

So they sat down once again to hatch a plan.

The idea of selling off a parcel of their land with approvals to another developer was discussed.
As luck would have it however, they didn't need to go door knocking. A white knight came knocking for them instead.

It was Chris Banks, the CEO of Delphin from the rival Forest Lake development down the road.
Maha and Bob were worried that Delphin had smelt blood in the water and were gathering information in preparation for a kill.

So when Delphin requested a meeting, Maha and Bob went along not knowing what to expect.

They were surprised when after some pleasantries, Chris leant over and said, “Let's not beat around the bush. You need someone who can drive this development, sell land and build homes. I suggest Delphin should be your residential partner.”

Chris explained that their Forest Lake development was nearing an end and that they were looking for another large parcel of land to invest in. He proposed that Maha and Bob keep the land, but allow Delphin to develop and sell it for a royalty.

Could Delphin be the white knight Springfield needed?

Maha and Bob agreed to discuss their proposal and left the meeting.
 

Negotiations Begin

A residential partner would solve their problem with the banks. But there were risks.

Firstly, what if Delphin only wanted to control the land to prevent any building. This would remove competition to their Forest Lake development and drive prices up even further.

Secondly, Delphin admitted they wanted to scale back Springfield's master-planned vision.

Springfield's planned central business district was bigger than Brisbane's and would need a massive population to support it. Not surprisingly, Delphin didn't think it was feasible and wanted to scale it back.

Maha knew that if Delphin got full control of Springfield, it would never reach its full potential.
This was a non-negotiable in Maha's view. If a deal was to be reached, Springfield's master-planned vision would need to be protected.

At the same time, the banks were breathing down their neck. And with land sales down, they were struggling to attract the population they needed to make the shopping centres, universities, hospitals and CBD feasible.
The Delphin negotiations at least bought them a stay of execution from the banks.

Several months of tough negotiations passed until finally, a deal was struck in June of 1999.

Once again, Maha and Bob had survived and had managed to negotiate several important conditions into the deal.

1. Royalties, Not Ownership

The first part of the agreement involved ownership.

It was agreed that Delphin would not own any land in Springfield.

Maha and Bob still owned the land. Delphin would simply own the rights to develop and sell the land and would receive an agreed royalty for every block they sold.

This was a major win for both parties.

For Delphin, it meant they could control and sell a huge parcel of land without having to buy it.

The money they would have otherwise spent on buying the land could instead be injected into developing the infrastructure such as parks, landscaping and water features, all of which would make the plots more attractive and easier to sell.

Delphin would also avoid expensive transaction costs such as stamp duty and settlement fees because they wouldn't own the land. They would simply receive a royalty for every piece of land they sold.

For Maha and Bob it meant they could attract the huge population base they needed to make Springfield's city centre feasible. Delphin's enormous capital reserves meant they could develop the infrastructure upfront to make their development more attractive at sale which in turn would bring in more buyers.

It also meant they now had a partner with the resources to develop the residential component of their project. This would save them from a lot of stress and potential pitfalls in the long run.

2. Control Limited To Residential Only

The second part of the agreement involved control.

Delphin wanted to control the project and scale back the enormous planned city centre.

Maha and Bob however negotiated that their control be limited to the residential component of Springfield only.

This meant Maha and Bob still controlled the commercial component and could prevent its scaling back, thereby protecting Springfield's master-planned vision.

This worked for Delphin as the residential component was still an enormous parcel of land and huge opportunity.

3. Upfront Payment
The final part of the deal involved an upfront royalty payment.

Maha and Bob still had the banks crawling all over them.

And with Delphin now planning to put future land sales on hold until they could build the required infrastructure, it could have been years before Maha and Bob saw the first royalty payments.

They needed an upfront payment to appease the banks.

It also meant Delphin would have skin in the game. Any delays in the construction would hurt Delphin as much as Springfield. This ensured everyone moved forward with the project as quickly as possible.

After much haggling, Delphin agreed to pay a $4 million advanced royalty, plus a further $8 million a year later once the new road to Springfield was complete.

Finally, the deal was done and Maha and Bob survived the bank's financial bombshell.
 

Lessons Learned

Man's greatest achievements have typically come with man's biggest hurdles. Whether it be landing a man on the moon or building a city in the face of financial catastrophe.

One of Maha's most enduring strengths has always been his resilience, a lesson he learnt as a young child during the second world war in Malaysia. Maha calls this ‘facing the brutes' and being fearless in the face of adversity.

This fighting spirit along with his mastery of the art of deal making saved Springfield from financial collapse and allowed them to develop Springfield with other OPM (other people's money).

But Maha and Bob still had another challenge in front of them – the commercial component of their project.

It was a chicken and egg problem.

Commercial partners were reluctant to invest in Springfield without a sizeable pre-existing population in the area. And people would be reluctant to move to Springfield without shopping centres, schools, hospitals and other commercial centres – let alone pay the premium price Maha and Bob needed to further their development.

How would they overcome this problem?

Find out how in the final chapter of our three-part series.