Management rights are in demand, so developers can be easily tempted by a direct approach from ‘shoppers’ offering what sounds like a good deal. But be warned, the chances are they’ll sell their management rights short.

Given the robust returns delivered by management rights, and the recent growth in development of quality residential and mixed-use apartment projects in prime locations, it’s not surprising to see opportunistic approaches made by operators hoping to secure properties prior to completion.

But, nine times out of ten, these situations result in the assets being dramatically undersold. Even allowing for the savings on commission, the developer is still likely to be much worse off.

Not only that, they typically will not get the best operator for their project, just an opportunist with some ready cash and a convincing pitch. It is vital for developers to not only achieve optimum financial return for their management rights sale, but to secure a quality operator who will provide good service to their investors, supporting the brand and reputation of the project and its creator.

A professionally conducted Expressions of Interest process managed by an experienced specialist broker is designed to meet the objectives of the developer. Their aim may be to maximise the bottom line, to secure the most suitable operator, or to achieve the ideal balance between the two.

Different developer clients may have different priorities. A developer with a one-off project may simply be chasing the highest sale price. A branded developer, on the other hand, will want to strike a fair price while ensuring they have a top quality operator running their building and working for their investors. Selling on what seems like a high price per unit in the letting pool can be a big mistake.

Typically, we will attract five or six submissions for the management rights purchase, which we scrutinise in great detail. A bidder might come in with a high price, but if they don’t have the skills and ability to sell their services to investors, you can end up with much fewer apartments in the letting pool, hence a significantly lower ultimate sale price.

For example, if the prospective buyer offers $14,000 per unit in the letting pool, but cannot sign anyone up, you end up with a great deal less than would be generated by a buyer who offers $9,000 per unit but is able to sign up the maximum number of unit owners to letting agreements.