An investment company using property development for a high return model

ArchiPro: What is Kingston Group?

Peter Leach: We are an investment company that invests via property development. Property is our vehicle for creating profit for our investors. We develop both small developments with infill housing on sites with existing homes and larger developments on undeveloped sites.

AP: How does a typical development work for an investor?

PL: We're different to the other bigger developers out there because we don't offer a term-secure guaranteed interest rate or anything like that. You will invest specifically in a project, for example, let's call it 123 High Street. We set up a company solely for that project.- let's call it 123 High Street Limited - your money goes into the account for that business, and it's secured against the property. The investors bring the finance, I'll bring the deal and bring it to completion and we split profit 50/50 after that. The reason I like to do it this way, is the investor is risking their money, so I think that they deserve direct security on the asset that we're developing.

Any proceeds from sales go back to fully repaying the investor’s investment, so if they put in a million dollars and the first two sales are sold at $500,000 each, all of that money goes back to paying back their capital. Then if the next two sales are $500,000 each, that's when we start to share the profit.

AP: What kinds of developments do you typically do?

PL: We do a combination of small infill housing projects and large-scale developments. The infill housing projects usually span 18 months from securing the property to handing over the keys to the new owner and many of these are pre-sold to Kainga Ora to use as social housing prior to signing up the deal. This gives our investors certainty around their investment and the return. For large scale projects developing bare land, we bring investors on as shareholders. This involves a long-term commitment, as we subdivide the land in stages, pre-selling the houses in most cases before they are built.

AP: How do you split the profit from the sale of the property/properties?

PL: The investors bring the finance, I'll bring the deal and bring it to completion and we split profit 50/50 after that. I think that a 50/50 split is a fair trade. It’s a great return for them if the development is successful, as opposed to them putting in a million dollars in a bank and it sits in there for 18 months on a 10% return. They'd only get back $150,000, whereas with me if they put their money in here it might only be in for 12 months, and they could take out $240,000.

The 50/50 model is for all of our infill development in Te Awamutu, Cambridge and Morrinsville. A larger brownfields subdivision we’re currently developing at Hakarimata is a bit different. Because of the size and the nature of it (there will be 56 sections developed in total over six years) we've got a reduced shareholding in that and we get a management fee for running the project. Then the investors get profits paid out as dividends in proportion to their shares.

AP: How does financing work and how is the investor protected?

PL: Many of our developments are fully funded by investors with cash, but when there's financing involved it sits on my plate to go to the bank and organise it. We have one at the moment where we've got an investor putting in $750,000, and we're going to be bringing in bank debt to help fund the project. The bank debt will take a first priority mortgage over the property, but second in line to be repaid is our investor.

AP: What is the investor’s involvement throughout the development process?

PL: The investor’s involvement in a development is purely to fund it. Once a month we touch base with them to let them know how the project is going. We let them know the funding we need for the month, and tell them our anticipated completion date. It's a pretty hands-free approach for them.

AP: How is the deal structured in terms of the builder’s involvement?

PL: We have Kingston Group, which is our investment company, Kingston Development and Kingston Home. Kingston Development is used when we do a bit of our own land development and that's where all of the development costs go through. We keep that very separate to our building company, Kingston Homes, which is a registered Master Builder. Kingston Homes has a Master Build guarantee for 10 years over each house it builds.

AP: Do the investors have any responsibility to the development once the sales proceeds are split?

PL: No they don’t, our build company has all of the liability. We have our one-year maintenance period guarantee on all our builds, and the 10-year guarantee on the home. So for the investor, once the sale proceeds are in, they get their money back and their profit and they ride off into the sunset. So at the end of the deal, the investor gets to exit, but we still have liability.

AP: How can a potential investor get involved?

PL: We love to chat to new potential investors about whether they are a good fit for one of our developments. It’s best to get in touch directly with me.

AP: What does a typical investor look like?

PL: Our ideal investor would be someone who has experience in developing or who has already been through the process a few times with a property development. They're looking for a place to deposit their money to make a decent return and are fairly hands-off.

Get in touch with Kingston Group to learn more about this opportunity