EXCLUSIVE: The Subiaco developer is facing legal action from investors who chipped in more than $4 million into a Hay Street apartment project proposed in 2014.
Devwest Group is facing legal action over a Subiaco apartment development it proposed more than eight years ago that is yet to surface, as investors in the project look to recoup more than $4 million.
Bennett managing principal Nathan Ebbs has this week filed two applications in the Supreme Court, seeking pre-action discovery, and access to the books and records associated with a trust established to develop 361 Hay Street, Business News can reveal.
“This action is necessary to understand how the trust was administered, in the circumstances where my clients have concerns in this regard,” Mr Ebbs told Business News.
Devwest executive director Chad Ferguson told Business News Devwest still intended to proceed with 361 Hay.
“There has been some planning hurdles we’ve had to overcome, so we leased out all the tenancies and are looking to develop it this year,” he said.
The Perth developer secured $4.2 million from investors to fund a mixed-use development at 361 Hay Street in Subiaco in September 2014.
At the time, Devwest planned to build 22 one and two bedroom apartments, retail and commercial tenancies in a six-storey complex on the site by May 2017.
The Hay Street property was purchased in 2014 for $4.5 million via the trust Hay 361 Pty Ltd, which Devwest and its directors hold a 20 per cent stake in.
Local investors Yunsu Fu and Haifeng Zhang chipped in $1.7 million under family trust Yutai Holding Pty Ltd and Hwee Koon Chew and Tze Wen Chung, of Malaysia, paid $2.5 million under the entity Cert Heritage Pty Ltd.
An information memorandum written in September 2014 outlined Devwest’s plans to raise up to $7.5 million for the development, with a minimum $4 million collective buy-in.
The offer signalled a 14.12 per cent initial rate of return for investors and referred to the developer’s “extensive track record of high-quality mixed-use buildings”.
Devwest’s Tony Hatt described the project as “an appropriate opportunity, well suited to current and expected market conditions and having an acceptable potential return for the risk taken”.
However, eight years on from the project being flagged, it is yet to get off the ground and its investors say they have not received any returns.
The owners of Yutai Holding and Cert Heritage are looking to pursue legal action against Devwest, to recoup their investments.
The move comes as Devwest is also facing further delays at its nearby $37 million Olive Street apartment development, which is yet to come to fruition six years on from gaining approval.
The developer recently sought a second extension to commence the timeframe for the 71-apartment six-storey development, citing the “shocking and volatile construction market”.
The City of Subiaco has recommended a Joint Development Assessment Panel refuse an extension to the project’s commencement, saying Devwest has had “ample time to pursue substantial commencement for the development”.
Devwest’s proposal spans across six lots on the corner of Hay and Olive Streets in Subiaco, less than 300 metres away from 361 Hay Street.
Devwest's proposed Olive Street apartment project. Image: Devwest
The group purchased 263 Hay Street for $4.9 million in November 2011, under the entity Hay 263 Pty Ltd, RP data records show.
Devwest was granted conditional approval for the project in 2016, which was extended by four years after an appeal to the State Administrative Tribunal.
The project’s commencement deadline was extended by another two years under the state government’s emergency COVID legislation, which granted extensions to every project with pre-existing approvals.
In a letter to the City of Subiaco in October last year, Devwest development director Brett Lovett stated that the company had “worked feverishly” from the recent approval consent date to commence the demolition and build for the project.
“Due to a number of factors but mainly due to the rather shocking and volatile construction market we have had to endure over the last 12-18 months, it has been near impossible to make the project viable for a site start,” he wrote.
He added that after much work by the assigned builder EMCO Building, financier Metrics and the group’s technical consultant team, the company had “finally reached a positive position where we can commit to build the development”.
The City of Subiaco has advised the JDAP to refuse Devwest’s application for an extension at its meeting next Friday (January 13), noting the proponent had ample time to get the project off the ground.
The city also said the area’s planning framework had changed substantially since the initial approval in 2016, with upgrades to the local planning scheme coming into effect in 2020.
“An extension to the substantial commencement timeframe of the approval would go against the direction that the planning framework is currently taking and would be inappropriate and contrary to the principles of orderly and proper planning,” the JDAP stated.
Chad Ferguson told Business News the last 12 months in the development industry have proved extremely challenging “with runaway construction prices causing many projects to either be delayed or cancelled”.
“There were no new projects with over 25 apartments launched in the third quarter, which is normally a very active period for project launches – this clearly demonstrates how challenging conditions have been,” he said.
“In this instance we have a construction finance facility in place and a signed construction contract so the project is ready to commence should an extension be granted.
“We are ready to deliver a well-designed scheme that will be a major catalyst for this part of Subiaco.
“Developers need the authorities to help facilitate projects rather than hinder them in order to ensure Perth doesn’t experience an apartment shortage in the coming years.”
Devwest is also behind South Perth’s $85 million One Richardson, which is proceeding after a number of hurdles were overcome.