Transaction news: March 2014
Deals in action
Victoria Racing Club unlocks value with new development
The Victoria Racing Club (VRC) was in need of a new members grandstand at its famous Flemington Racecourse, and turned to the EY real estate group to discuss how it could unlock the value it had in several surplus land holdings. EY evaluated the potential of the land and introduced Greenland, a major Chinese developer, who are now in the design and planning stage for a residential development around sections of the racecourse with a project construction cost in excess of $500M.
The work completed by EY will assist the VRC in its mission to maintain Flemington as a world leader in thoroughbred racing, event management and entertainment.
- Our client
Located at Australia’s most famous racecourse, the Victoria Racing Club (VRC) was founded in 1864 and continues to uphold the traditions that have made it Australia’s premier racing club. The Melbourne Cup is one of 13 Group One races and 35 listed races hosted annually by the VRC. In 2013 the VRC gave away $36.4 million in prize money.
- What was our client’s capital agenda?
The old members grandstand is at the end of its physical life, and to maintain the high quality racing experience the club has been famous for, it needs to fund the construction of a new stand, at a cost of approximately $120M. The old members grandstand has been a central element and key asset of the VRC, and its replacement has occupied considerable time and effort of the VRC committee.
The club assessed a range of options for funding construction of the stand, and one of the options was to evaluate the potential of its land holdings. The majority of the Racecourse is Crown Leasehold, but over the years it had acquired pockets of freehold land, which were identified as potentially surplus under the Master plan.
The VRC understood that the land holdings had value, but the real question was how could they maximise the value of their land and maintain the VRC brand.
- The engagement process
The committee members of the VRC were first introduced to EY in mid 2011, and by late the same year EY had evaluated the development potential of the freehold land owned by the club. EY led a team of consultants including town planners, architects and quantity surveyor to assess the “highest and best use of the land”. The analysis concluded that it had potential for some form of residential development.
In addition to considering the development potential of the land, the VRC also engaged EY to advise on how it should deliver the project. Through a series of workshops, EY worked with the VRC committee to understand the level of risk it was prepared to accept to maximise the price. Everything from selling the land “as is “, right through to taking on the role of developer, was considered. VRC concluded its interests would be best served by working collaboratively with a developer that understood its vision for the entire precinct.
In the course of the engagement, EY China engaged with Greenland, a leader in developing real estate in China. Greenland had a vision of expanding off-shore and was talking to EY on how it could best enter into the Australian Real Estate market. EY introduced the two parties, which commenced a round of commercial discussion culminating in an agreement between the parties in November 2013. Greenland has just kicked off a design completion for the sites.
- Driving Exceptional Service
EY’s ability to provide excellent client service, on a consistent basis over an extended timeframe, provided VRC with confidence in our team.
Our history with the asset and sector enabled EY to work efficiently with the VRC to obtain financial and key operational information, identify key risks and opportunities, and ultimately achieve the VRC’s objectives for the sale at the optimal terms and conditions.
- The outcome
VRC have identified a lucrative opportunity to optimise the value of existing assets to support their capital agenda. EY have generated trust and knowledge of the asset, and key management, which will prove invaluable for our ongoing relationship with VRC. This commercial agreement now gives the VRC a path to design and fund its new grandstand.
Richard Bowman, Partner at EY says, “EY’s deep sector knowledge in the real estate industry coupled with its global reach was able to deliver an exceptional outcome for two clients.”