Christchurch Rebuild: Young guns find the silver lining

Michael Doig.

Smart, forward-thinking developers are taking the opportunity created by rebuild to enter the construction market. Alexander Speirs talks to two 'young guns'.

When the Christchurch earthquake hit for some it spelled opportunity - not disaster.

Former Hawkins Construction regional manager Quin Henderson felt it was the right time to enter the market with a new firm and a new business model.

"We wanted to take a different approach to contracting, based on a more collaborative and collegial approach. Our style is for the builder to work much more closely with the contractor, the consulting team and the client to come up with a solution-based methodology."

The upshot was South Base Construction - a Christchurch-based subsidiary company of the HGC Group founded by Henderson and NBR- rich listers Phillip Carter and Ben Gough.

"We're gaining very good traction," says Henderson. "We've been trading for 12 months now and have delivered $25 million in our first year and a forward work load of $60 million."

"We have agreements with our supply chain in Christchurch as well as further afield with our national suppliers who want to come on board with us. We've also done a joint venture with Thiess, one of Australia's largest construction companies, and, we're looking there at how we may procure ultimate supply routes for materials and labour."

Also establishing a presence in the Christchurch market is Ganellen, which has transitioned from being a Sydney-based business focused on private clients to a multinational corporation working primarily with institutional clients.

"I was brought back to head up the development in Christchurch which was Ganellen's first presence in the market," says Michael Doig, Ganellen's commercial director for New Zealand. "We'd purchased substantial land in the northeastern quadrant of Cathedral Square which we purchased from Fairfax Media Limited. It was part of a $140 million urban regeneration scheme that was planned. "

Ganellen was six days away from practical completion of the development when the first earthquake struck in September 2010. From 2011 onwards its the focus was the remediation of the Press building so staff were able to move back into the CBD from their St. John's office, where 350 employees were working out of 24 portable cabins.

"At that stage we were a very conservative entity and our whole strategy was to prove our merits as a builder by building for our own investment vehicle, create those strong relationships with the subcontractors and consultants, then go out and win those third party contracts," says Doig.

To avoid competing with core clients, all of Ganellen's property holdings in Christchurch were sold off. "We're now moving into other contracts and looking at new opportunities in both the residential and private sectors. We primarily focus on larger products or medium-to-high density residential projects."

"There's been a lot of challenges, particularly for clients. Because of the scale of the devastation, there were real challenges to work out what type of product to build and where, and how to convince tenants to come to your property. It's pretty easy in an operating city to develop a property because you've got some evidence of other buildings around, but in Christchurch the challenge that we have is exactly what to build.

"The next phase of development for us is shifting, as we've previously been targeting what we'd term as A-/B+ clients. The challenge is going to be how do you deliver affordable stock that perhaps can't pay more than early-$300 per square metre.

"If you look at the profile of the city prior to the earthquake, there was roughly 350,000sq m of space and of that only about 50,000sq m that would be profiled as A-grade. So the vast majority of the city was B & C grade properties. We're looking for cost efficiencies in construction and innovative ways in which we can deliver to that demand."

"Because so much of the city's previous building stock is gone, it's almost like we're trying to redefine and rebuild what the previous wall stores were - buildings that can be used for private, residential or retail purposes."

Doig says the market is showing signs that it's running near full capacity and everyone's getting pretty busy through the first two quarters of this year. "The ongoing effect of that will be interesting because I don't really think we've seen any real evidence of trade escalation at this point, but what happens next year could be another matter."

If trade escalation through to sub-contractors does occur, then more national or international construction entities would likely look to enter the market as the amount of money to be made in Christchurch would presumably outweigh what is available just in their own regions.

"With the commencement of government projects which is starting towards the end of this year and the insurance work around commercial entities, we're going to see a massive escalation of labour rates and material costs," says Henderson.

"One of the ways to help control this is working with the client and the whole team up front. It's around selection of products, the building itself and working out just what can be done early in the piece."

Both Ganellan and Southbase have found an advantage in working with a construction management model and being one of the smaller players in the market. By being able to work with contractors on a project-by-project basis it allows for new efficiencies to be created by not having any slack within the supply chain.

"We are firm believers in organic growth," says Doig. "We've been approached by entities to come and work with them based on the professionalism we've displayed in the market, but we're being very careful with controlling our cash flow in a boom time. We need to expand based on the work we have coming. We don't want to be the biggest builder in town, we just want to be the most reliable.

"We're really keen to work with the public sector. To date all of our work has been focused on the private sector because they've moved a lot faster, but certainly in the coming years we're expecting a lot of work out of institutional public clients."

Henderson's goal is remarkably similar.

He says that "over the next 12 months I would've like for us to consolidate our place in the Christchurch market and be recognised as one of the best in industry - not the biggest. We want to lead the industry in terms of safety, quality and speed and be respected for adding value to projects we're involved in.

"Through our joint venture with Thiess, some of those major projects will be targeted. We're in a supportive roll with Thiess, but that will work out very well if it pans out. On our own we're targeting quite a range of projects around town, looking for an ideal of $20 million-$50 million projects from institutional clients."