How The Rich Invest: Shesh Ghale and the stroll that saved him millions
Nepal-born Financial Review Rich Lister Shesh Ghale enjoys an evening stroll past his properties in the Melbourne CBD. Last June he and wife Jamuna Gurung took one that is set to promote them to billionaire status on this year's list, and ensure they stay there.
The two were passing the former Mazda dealership near Queen Victoria Market, where they had approval to build twin apartment towers, when they had their epiphany.
"We looked at the site, then we looked at each other, and started questioning whether we were doing the right thing here," Ghale, who with his wife of 36 years was valued at $876 million in the 2018 Rich List, tells the Financial Review.
Jamuna Gurung and Shesh Ghale, founders of Melbourne Institute of Technology, at the redeveloped Argus building that now serves as MIT's campus. Arsineh Houspian
The planned development is just two blocks from the Latrobe Street campus of Melbourne Institute of Technology, the private college the couple founded in 1996 and built their fortune on, and Ghale had no doubt the towers would find some tenants among the international students that comprise 80 per cent of its clientele.
However, as the size of the development sank in as he stood before it, he worried it faced too much competition in a Melbourne apartment market that was already showing signs of cooling.
"We called our project management team the next day, and said we have to develop this as premium office instead," he says.
The couple's walking whim has proved fortuitous. Melbourne apartment market values fell as much as 20 per cent upon settlement in 2018, and are expected to decline further as a flood of supply hits credit-constrained demand.
The 4000-square-metre site on William Street is now proposed to house 20,000 square metres of A-grade office space, at a time where Melbourne commercial vacancies are around 10-year lows. Shops and a five-star hotel with 290 keys also feature, with completion targeted for 2022.
There is the small matter that Victoria's Department of Environment, Land, Water and Planning is yet to approve the change of use from residential to office. However Ghale is proceeding on the basis that it will, given the shape of the building will not change from the design the department previously okayed after amendments were made to avoid overshadowing of the Flagstaff Gardens opposite.
"We are just in-filling between the towers for the bigger floor plates required by offices, so we're working in anticipation of approval," he says. Colliers and Jones Lang LaSalle have been engaged to attract pre-commitment tenants.
With an end-value he estimates at $500 million, the William Street development is the largest Ghale and Gurung are undertaking — but two smaller ones arguably are more ambitious.
One is the redevelopment of the Sir Charles Hotham Hotel at the corner of Spencer and Flinders Streets, now a backpacker hostel that Ghale admits is "crumbling", into a boutique four-star hotel with 150 keys.
Inspired by his transformation of the former Argus newspaper's building into MIT's campus in 2014, Ghale says he is working to preserve as much of the 1854 building's "beautiful facade" as possible.
"It's a costly, difficult exercise but I like that. Like the Argus, we'll bring it back to its former glory," he says.
The couple are also giving back to their native Nepal, fully funding a five-star, 225-key Sheraton hotel in Kathmandu that Ghale proudly notes will host the country's biggest ballroom.
Ten years and $50 million have been dedicated to the project, which suffered a setback in 2015 when its foundations were damaged by the massive earthquake that killed almost 9000 people.
"It's a challenge on many fronts. Basically everything except a few local bricks has to be imported via India, but at the end we will have a hotel at the best location in Kathmandu, like being on Collins Street," he says.
Because of Nepal's lower labour costs, the hotel will have cost only a fraction of an equivalent Melbourne asset when it opens late next year, Ghale says. He estimates an end value of $125 million for 6600-square-metre site.
Ghale and Gurung are in a strong cash-flow position to pursue their property dreams. Their Ghale Group, which includes MIT and their real estate holdings, turned over $66.3 million in the year to June 30, 2018, up from $52.4 million the year before, with net profit of $16.1 million and net assets of $202.7 million.
MIT alone contributed $13.7 million profit, up 75 per cent on the prior corresponding period.
Ghale says growth in student numbers across its two campuses in Sydney and Melbourne have had to be capped at 15 per cent a year. Demand is surging for courses in data science, artificial intelligence and cybersecurity that MIT runs in partnership with the Computer Society and Engineers Australia, he says.
"The toughest thing is finding the senior people to teach these courses," he says.
"There's a lot more competition from the universities in these areas now compared to when we started, but we find our specialisation and our campus locations in the middle of the cities serve us well."