The Deague Group is a 160-year-old integrated property development company. Their long and illustrious history positions the Deague family as true pioneers as well as modern-day innovators within the Australian property development arena. Now firmly guided by its fifth generation, this family-operated business continues to be highly acclaimed and lauded across the property industry.

 Trailblazing brothers William and Jonathan respectively hold the CEO and MD roles with their father and industry doyen, David as Chairman. While possibly best-known for their highly original Art Series Hotels, the Deague Group has numerous innovative and large-scale developments that keep it at the forefront of modern residential and commercial projects. In addition, their property development activity is complemented by a collection of businesses including real estate, office management, work spaces and car parking.

 We recently sat down with dynamic brothers William and Jonathon to explore how their family operation has sustained its commercial success. The following is an excerpt of their recent video interview.

DR:
The Deague Group has a long history in Australian property, can you tell us a little bit about how it all started?

WD:
William H. Deague, our great-great-grandfather, migrated to Australia in 1867 and started out in what was formerly known as Sandhurst, but we know today as Bendigo, during the Victorian gold rush. He was of notable renown and influence in the area and was even one of the original founding members of the Master Builders Association.

DR:
And today his legacy continues through the two of you?

WD:
Absolutely, the business remains and always has been a family-operated business. Our father took over from his father and we’ve all but completely taken over from him. Everything that is learnt has been passed on to the next generation and we’re incredibly fortunate to have that legacy and wealth of experience and knowledge granted to us.

DR:
Did you go down any other career paths, or were you eager to jump into the family business?

JD:
I initially went to university; however, I was keen to enter the workforce quickly and so traded my student card for my real estate licence and joined Dad at Deague Group. I basically then became his shadow, trying to absorb every bit of knowledge from meetings, interactions, site visits etc. After trying out a range of areas, I found my strength and interest in sales and marketing – more the operations side of the business. It was pretty soon out of high-school and so the learning curve was steep, but it was a well-rounded and invaluable experience.

WD:
It’s a similar story for me too. I don’t think that it was ever thought that we wouldn’t join the family business. I can remember when we were 13 or 14 years of age, spending our summer holidays helping shovel dirt on sites in Queensland. We were primed for it from an early age but all that early physical experience really has fed our broad understanding and capability today.

DR:
Has the business changed since you both have taken on more senior roles? Are you still pursuing the same style of projects?

WD:
Over the past 20 years, we’ve been very busy and have taken on a lot more risk than normal, but this is a result of our ambitious personalities – and it’s paid off too. One project that stands out is the Art Series Hotels which we started 10 years ago and left two years ago. That was a very good property play, as we don’t think of ourselves as hoteliers, but our involvement and execution was strategic. We’ve also stepped up our apartment projects in the past five to seven years, with a couple of thousand apartments in Brisbane, Adelaide, Box Hill and West Melbourne.

DR:
And Jonathan you handle the operations side of the business, does your workload correspond with William’s?

JD:
Yes, it definitely does; it has been a busy time on my side too as marketing and sales flows on from any project we develop. We’ve grown our real estate business and currently have around 1,000 property managements. We also started our serviced office business around 20 years ago and this has also seen a big lift in the past couple of years; we’re currently sitting at around 98% occupied in the assets we own or manage.

DR:
What motivated the move into the serviced office sector so early, before the more recent flood of organisation such as WeWork?

JD:
Firstly, it was there to fill up some ground floor space and help activate the building. Secondly, it helped grow the business within our company. A client might come in on a one-person office, then they might move to take a long-term lease in the building, or they might move up to buying an office. As their business grows, they feed us as well.

DR:
Going back to the Art Series Hotels, what lead you into that space considering you don’t consider yourselves hoteliers?

WD:
We bought an old hospital in Preston in the year 2000 and it was a huge space that we converted into around 850 units. To fill all of these, we started creating different hotel brands positioned at different tiers; budget, mid-tier, high-end, student accommodation etc. It was a good experience and we learnt a lot out there. Then we were inspired by some work overseas, in particular by Ian Schrager who was responsible for Studio 54 among many other things. He was the first one to do boutique hotels properly.

Nothing was being built in Australia like what he was doing in America – so we decided to run with it. In the space of six months, we opened three hotels on three different sites around Melbourne. We did everything; came up with the brand, the concept, did the builds – and thankfully it seemed to work. But they were still a strategic real estate play. We bought them at the right level, and we sold them at the right level. We sold the freehold to investors and then Mecure Hotels knocked on our door two years ago and wanted to buy the business – we were happy to exit. We did have one hotel in Brisbane that was yet-to-completed which we kept ourselves and we still manage that.

DR:
Can you run us through how you came up with the brand, plan and strategy and how you executed it as well as you did?

WD:
We took a lot of inspiration from what was happening overseas and identifying aspects that weren’t yet in the Australian market. But the journey and the plan itself was catalysed by our concern with cash flow. I think that every developer at some stage experiences the ups and downs of market cycles, so we asked ourselves how we could combat this. For us the obvious place to start was cash flow and the Art Series was born as a solution to help smooth those ups and downs.

DR:
Are you seeing any opportunities in the current market?

WD:
If a site came up for sale in the city with an old permit for residential development – we’d buy it tomorrow. We’ve got a lot of confidence in the apartment market and I’ve been singing from the rooftops for years that we’re about to enter one of the biggest periods of apartment undersupply ever. Population is going up and cranes are coming down.

JD:
We also see substantial opportunity in the affordable housing sector. If you look at St Kilda at the moment, there’s fair bit of apartment development but it’s mainly in the luxury space and that doesn’t assist population growth. As a general rule, we aim to appease the masses and deliver liveable, well-designed one-bedroom apartments, not penthouses.

DR:
What fundamentals do you look for when buying and developing residential sites?

WD:
We look for good prices and the potential yield, and I think that we’ve always done this well. For example, at our Box Hill site, we paid $12.8 million and obtained a permit for 650 apartments, which worked out at around $16,000 per apartment. Half the profit is in the way you buy.

DR:
Are there any technologies or innovations that have changed your operations?

WD:
Jono’s very innovative and recently came up with an idea to offer a very luxurious Mercedes Sprinter as a free commuting benefit for the tenants of our six-building development in Moray Street, South Melbourne. The van will have a driver and perform continuous loops going from the apartment complex, into the city, past Kings Business Park and back again.

JD:
We’re also investing in apps and technology to improve the accessibility of the commercial tenants at our South Melbourne site. For example, you can track the Mercedes Sprinter van on your phone, and you can even enter the building with a simple shake of your phone at the door. 

DR:
As technologies and amenities improve, are tenants demands evolving too?

JD:
Absolutely, and this has been a big focus here at Deague. We’ve just taken over 25% of the carpark in South Melbourne to install a fully functioning health club with all the bells and whistles. We also put on monthly events for the tenants. But these are now becoming standard features of any modern apartment and commercial complex. So, we’re looking at how we can go beyond that and reach the next level.

DR:
How do you see the market evolving through 2020?

WD:
It’s looking strong. Debt is cheap and yields still have a little bit more to go; compared to overseas yields are still very attractive. I also think that we’ll see more and more money coming out of Asia which will prop up our housing market. Rental is going to be very strong for residential too. I think we’re looking at a very promising few years ahead.

DR:
And what does next year, and further into the future, look like for Deague Group?

WD:
Well our family business has been around for over 150 years and with that comes a certain level of stability. But during our tenure over the past 25 years or so, it’s been incredibly busy. We’ve got a number of projects that will reach completion phase in early next year and so will have more capacity to pursue new projects.

With the lifting market, we’ll be scouring new development sites which we’re expecting to come online early in 2020 and we’ll be filling out our pipeline for the next few years. We’re both young and very ambitious, so we’ll be keeping busy as normal, looking for new opportunities and ways to grow not just the business but our business intelligence too.

Watch the full interview here...