Cash? Skill? Nerves of steel?
What does it take for a successful private property development to get off the ground in central Christchurch?
Alongside busy construction sites there is bare land that has sold and resold as landowners’ enthusiasm to build disintegrates into disappointment.
Projects abandoned or shelved include the rebuild of the old ANZ and BNZ buildings in Cathedral Square, retail and office blocks at the south-west end of the retail precinct, and hotel and office developments for Cathedral Square. Others have had to be been reworked, such as the Miro apartment-turned-hotel plan in Colombo St, or have faced delays, such as The Terrace.
The delayed and cancelled plans have cost developers in wasted engineering, design, consultancy and land-holding costs.
Property professionals say that post-quake, the recipe for success has new ingredients.
Tony Sewell, private property consultant, former chief executive of Ngai Tahu Property and national president of the New Zealand Property Council, says many investors have struggled after being thrust into rebuilding with an insurance or Crown payout settlement.
“Some will be very good at it, some will fail miserably,” he says.
“Developing is as different from investment as rugby is from cricket. In investment the cash flow and tenant covenants are known, but when you go into development you have to know all the risks.
“It’s a risky business, why property developments go broke, and tons of them do. People getting into it think it’s a get-rich-quick scheme and they’re the ones who go bankrupt. It takes a lot of skill,” says Sewell.
“It’s nothing to do with building buildings. You can build buildings till the cows come home and that’s not property development. The building is just a mechanism for a financial transaction. Securing tenants is what makes it work”.
One recent reaction to the tenant problem is brokers with business expertise and contacts stepping in to wrangle deals such as the Millennium Hotel rescue in Cathedral Square.
Another trend is experienced developers teaming up with partners from outside their sector, widening their skill base. Richard Diver has built several Victoria St buildings in partnership with construction company Clearwater, Miles Yeoman is busy in several parts of the city after joining forces with money man Craig Newbury, and Richard Peebles has a joint venture with the McKenzie and Willis shareholders in his innovation precinct development.
Independent Christchurch development consultant David MacDonald says one of the most valuable lessons property developers have learned is how to choose the right people to work alongside them. And that list of people needed is bigger, post-quake.
“These experienced guys have to marshall their whole team – engineers, architects, construction, fire, the bank, the tenants – and they have to be able to control all that.”
MacDonald says it is a huge help if the developers’ previous projects have been of a similar size and scale, “then they will know what they are doing”.
“It’s hard anyway, not impossible but difficult, but if you are inexperienced you’ll find it much harder in every discipline. It is a multi-disciplinary business.”
Location plays a big part too. In Victoria St and west of the Avon River momentum has made leasing easier, and the same is happening now around the retail, innovation, and justice and emergency precincts where developers such as BNZ Centre’s Nick Hunt are making big strides. Further north, especially around Cathedral Sq, the lack of progress is still deterring some tenants and immobilising landowners.
Jonathan Lyttle, managing director of commercial real estate firm Savills, says the post-quake development environment is “dynamic, you need to be able to change and re-energise”.
“It’s like playing chess in 3D. We have a unique set of circumstances and people have faced changes in regulation, costs, and supply chains among other things.”
Lyttle says he could count the number of successful developers in central Christchurch since the earthquakes “on two hands” at the most.
He notes that even the sort of property owners with substantial assets or insurance payouts have needed to bring other investors on board, including family members.
Projects around the city with multi-member family investment include the Gough family’s The Terrace, where shareholders include at least five family members over two generations, and the Yeo family’s Awly building development, headed by Anna Yeo, which also has five family investors.
“People are investing not just their whole life savings but in some cases their whole family is too,” Lyttle says.
“They are not just betting the farm, as it were, but the next generation’s farms too. There is a massive leap of faith for these people.”
He says that while experience and family money are extremely valuable and developers such as Philip Carter, Tim Glasson and Antony Gough have business and financial success behind them, he would not discount the potential of younger developers.
“I would encourage anyone who believes they can do it to at least try, providing they have done their due diligence and refinement of feasibility.”
New development groups gaining attention include REV3, whose Cathedral Towers plan would be a catalyst for Cathedral Square. REV3 includes co-directors Ivan Presquito, an accountant from the Philippines, John Fernando, a chemical engineer from Sri Lanka and Vincent Ho, an electrical engineer from Hong Kong. They are all aged in their 30s and live in Christchurch.
Arrivals from outside the city are also making their presence felt. Auckland-based Patrick Fontein had worked in Christchurch before the quakes but reappeared to do deals including the Vodafone and Kathmandu developments in the innovation precinct. Another Auckland-based operator, Andrew Fonagy, is busy on projects including the Peterborough Quarter proposed for the old convention centre site.
Lyttle says these outsiders can bring an advantage. Overseas groups, however, have failed to make their mark as most have just wanted to “clip the ticket” and not offered expertise, he says.
“We need people who can look at high-level, not just from the trenches. It has been easy to blame Cera or the council or blame the market if things don’t work out. Coming in from competitive Auckland, for example, you see the opportunity, not the issue.”
He says that with construction costs 25 to 30 per cent higher than Auckland’s but with rents lower, the successful developers are those managing resources and costs and looking at different ways of exploring how and where they build.
“They’re more design- and practicality-focused. They have to be.”
Lyttle defends the reputation of property developers, and says the successful ones want to be part of the new Christchurch, not just make money and move on.
“The public has a perception that developers are fly-by-night, money-hungry beasts, but I certainly don’t see that. I see very thoughtful people who are probably more investment focused than ever.”