From Terrace Houses to Home Maker Centres to Italian Wine Hotels: How the Pellegrino Family Built Their Own Opportunities
Residents of Melbourne’s inner-north have a lot to thank Stephen Pellegrino for his contribution.
Carlton’s famed atmosphere and character can in part be directly attributed to its much-loved terrace houses and Victorian era architecture. Stephen might not have been there for the initial build, but he certainly has helped a large number of them retain their place in history.
“I commenced in terrace house development and restoration in Melbourne’s inner suburbs,” Stephen recounted to Development Ready during a recent conversation.
“I was in my late-teens when I started up the trade, working predominantly in Fitzroy and Brunswick. I was eager and a hard worker, so I only had a boss for a couple of years. When I was 20 I decided to go at it on my own; I started buying and restoring terrace houses independently.”
Representing a not too unfamiliar story, property had long been in the family and formed a big part of Stephen’s childhood. His early years were spent around Park Orchards and Warrandyte, where his grandfather was a buyer and seller of land.
“Property was regularly discussed at the table. I always enjoyed it and loved looking at the varied home designs in all the different precincts.”
While hard work and an aptitude for the field no doubt played a part, Stephen acknowledges that he happened to start at the right time. Restoration became his core business and he operated successfully for the decade that ran through his 20s. To this day he attests that some of the most enjoyable, not necessarily the largest projects, jobs have involved the restoration of old buildings; to give new life and new purpose where others might have looked knock down and start again.
That’s 1 for you and 19 for me
Such was the success of Stephen’s terrace house business that it wasn’t long before the tax man wanted an extra slice of the pie. New legislations impacted Stephen with what effectively equated to a double charge of stamp duty.
“What was originally intended to return extra revenue for the government, effectively killed off the terrace house consultancy in the inner suburb industry.” Stephen recalled,
“The two biggest operators at the time were myself and a firm that went on to become Central Equity. They chose skyscrapers and I chose to go into the commercial space.”
Like a rolling stone
Stephen found himself within an interesting period of Melbourne’s development history. The city itself was transitioning from residential development into commercial – and Stephen was there to meet the market.
“I bought the corner of Punt Road and Bridge Road, and then bought all those shops along the top of the Richmond hill. I set to work converting them back into the rag trade – returning their Victorian verandas and all of that.”
With more profitable work rolling in, Stephen started to realise the rate and capacity at which he could grow his business. To do this, however, he would need to create stock. This prompted a move out to Melbourne’s east where industrial estates became his core business, popping up sites in Ringwood, Bayswater and Oakleigh.
Like father like son
Like his father, Paul Pellegrino was exposed to the property sector from a young age. He recalls, perhaps more fondly now than what might have been the reality of the time, being taken to auctions at 12 years of age or younger. It didn’t take long for the seeds to sow.
Paul got his first start at his cousin’s firm, CVA Property Consultants, before lining up a position at CBRE in their industrial team. A new Bachelor Degree in Property and Sustainable Development at Bond University then enticed Paul enough to warrant leaving the professional sphere for a moment.
“I had no intention of ever going to university,” Paul confessed during the conversation.
“However, it was a new course at Bond University, offered in trimesters so I could finish it in two years instead of three. I also saw that the list of lecturers included a suite of highly regarded and importantly current industry experts. They were relevant in the industry, not just old professors. I got a lot out of meeting with them.”
Paul then assumed a position in the acquisitions team at Mirvac, which he was fortunate to achieve due to the Global Financial Crisis and the onslaught of redundancies that surrounded him. After four years, in 2013, it was the right time to join his father at Pellegrino Group Australia.
“The six or so years I spent prior to joining the family business, educating and gaining experience proved enormously beneficial. They pushed me to be more creative in my assessment of a site – to see its full potential. We get a lot of sites come past our desks everyday so it’s incredibly important to be able to ascertain quickly if there is or isn’t an opportunity.”
The Sun is Shining and the Weather is Sweet
Stephen first took his Pellegrino business from Melbourne to Queensland in 1993, after the recession. They had acquired some good quality properties, but due to market conditions saw it wise to wait for the recovery.
“We basically had more time on our hands and so started to investigate Queensland properly, finding an abundance of opportunities as we did – particularly in Cairns. Our first significant purchase was the old post office and telegraph building up there.”
With a restoration, the prominent, central building reclaimed a new purpose as a luxury duty free building; DFS including Louis Vuitton etc.
“The profit ratios were far superior to Melbourne or Sydney at the time – so we kept going. We bought the Northern Brewery, which was owned by CUB, and converted that into a homemaker centre.
“We also started to see profits in the bulky goods sector. That started relationships with BBC, which became Bunnings, and with Gerry Harvey which proved to be a 20 year plus relationship.”
On the sunny side of McLachlan Street
By the 21st century, the Pellegrino Group had become extremely well versed in the regional homemaker sector. They had moved at the right time and saw the opportunity and strength of margins that Northern Queensland could deliver – well above that of the more revered Melbourne and Sydney markets.
When Paul joined the company in 2013, however, he brought his experience in the residential sector to unveil new possibilities.
Stephen told us that “We had experience in commercial and industrial, which were always ‘hold’ properties for us. If we did a residential development, we would end up selling the stock. The building that Paul completed recently in McLachlan Street is a ‘hold’ for us. It’s a different criterion, it’s a different thought process.”
In 2015, the Pellegrino Group bought the site in Brisbane’s McLachlan Street with plans for a small commercial scheme. The DA was approved the following year.
“As soon as we got the DA, however, the site next door came up for sale – and it was an estate!” Paul revealed.
“We got a call from a residential agent on the other side of town and decided to jump on it. So we got him in on Australia Day and did the deal the old-fashioned way, writing the contract up that night.
“It gave us enough size to go up a bit higher so we drew up a mixed-use scheme in 2017 – but then got a little bit uneasy about the amount of residential stock coming onto the market at that time. The decision to shelve the project proved to be a good one. With our now third attempt, we redrafted the DA for a boutique office development with around 4,000sqm.”
The resulting development offers five levels of office, ground level retail and a dedicated rooftop for the tenants.
A Deeper Understanding
Speaking with both Paul and Stephen you quickly realise that they both are extremely in-tune with the markets they’re operating in. Many of their decisions and projects might seem to have just coincided with the ‘right time’, implying an element of luck, but this is drastically far from the truth.
When prompted as to why Pellegrino Group has focused a lot of recent energy in Fortitude Valley, as opposed to other CBD fringe markets, this is what Paul had to say;
“If you go back 10 to 15 years, with respect to a commercial perspective in the Brisbane fringe market, the largest and preferred area would have been Milton. This isn’t the case today. We’re now seeing a consolidation of the renewal precinct, namely Fortitude Valley, RNA Showgrounds and Newstead being the preferred fringe market. The vacancies reflect that too when compared to any other market including Spring Hill, South Brisbane or Milton.
“There’s a few reasons for this. First, there’s normally a big high street, like James Street, which provides a lot of life and commercial attraction. Some of the other neighbourhoods, like Spring Hill and Milton struggle in that regard; there’s no real heart or soul to them and this has a significant impact on the culture. Employers are now thinking about being an employer of choice, so many are moving to Fortitude Valley because of the number of apartments that are being developed. It’s attractive to the businesses because the area is attractive to their employees.”
Picking the market and coinciding with the right moment is a difficult task for any property enthusiast. However, it’s an undertaking that Stephen has built his career on and he’s adamant about it to anyone that asks “You have to have an intricate knowledge of the city.”
“Townsville, Cairns and Brisbane are all different beasts – you can’t treat them the same,” Stephen continues.
“You’re dealing with centres that are affected by different factors. Cairns really relies on tourism, and within that there are waves – so you have to watch and pick that five-year wave.
“Townsville is different to that even though it’s the next town south. It’s a stronger market and we’ve held a lot of property there rather than turn it over. It’s home to the largest army base of the country. There’s a lot of mining activity that comes out of Mt Isa and goes direct to Townsville. There’s also a bit of tourism too. All these factors and more keep it strong and that’s reflected in our tenants. Townsville is only a town of 175,000 people, but the Bunnings is in the top 3 or 4 of the country. The Supercheap Auto is the number one performer in the nation. The Beacon Lighting is also in the top three or four – it’s an interesting town which we’ve seen present a lot of opportunity.”
When the moon hits your eye
Busy comes with the nature of the game, however Stephen acknowledges that rest is equally important.
“We’re decedents of Italians and have spent a lot of time over in the mother land. In the past 20 years we’ve been spending more and more of that time in the Veneto region in particular. Through our visits, we’ve made a lot of friends and naturally this eventuated in a property deal.
“They’re a group of Venetian-based investors and bankers who have a winemaker friend. They came to me with this huge property, comprised of three 16th century buildings that were surrounded by vineyards in the Verona region. They didn’t know what to do with the site – when they asked me, I suggested a boutique hotel.”
As one can imagine, this soon evolved into a love project for both Stephen and Paul. There were some headaches along the way, as they both attest to, but with local friends on the ground Italian bureaucracy could only get in the way so many times. The project is now in the lock-up phase, and while it was originally only meant to be a ‘one-off’, it seems they might not be done just yet.
“We’re being approached by, and have recently had some serious conversations with, major world hotel chains who are looking to possibly roll-out a series of up to 10 wine themed hotels similar to this project,” Stephen divulged with a smile.
You can go your own way
The Pellegrino Group Australia are currently in a fairly enviable position. Their focus may be turning towards residential development, but the reality is that they have multiple paths to walk.
“We’re going to pursue whatever makes sense and that we enjoy. We’ve got the ability to hold stock and we’ve got access to a mixed bag of property coming up for availability.”
Thanks to many of Stephen’s developments that were taken up in the turn of the millennium, the Pellegrino family are starting to see many of their commercial centres coming back online. The large tenants that have occupied these assets for the past 15-20 years are coming to the end of their leases and that means new opportunities are knocking at the door
“We’re going to review a lot of the assets and see if they can’t be repositioned as something stronger to suit the modern market. One site that we have in particular, stretches five hectares across one storey. The council are in talks with us at the moment to push it up another 10 storeys across the whole site. There’s a lot of opportunities coming up in Brisbane and that’s why we’re trying to centralise here.”
The corner stone of the Pellegrino Family’s success is being able to identify opportunities. Whether your restoring Victorian terrace homes in Carlton, homemaker centres in Queensland or renaissance-era wineries in Italy, they have proved it time and time again; you create your own luck.