Construction cost blowout kills $750m housing project
Developer David Wardlaw says he intends to make an offer to buy back a large site in North Melbourne approved for a $750 million housing project, after the property was repossessed by non-bank lender Metrics.
Mr Wardlaw, who leads Orb Property Partners, said a $40 million blowout in construction costs with its preferred builder forced the developer to seek a new contractor and delayed the start of the project.
“In May our financiers were getting agitated as they wanted to see the project start coming out of the ground,” he told The Australian Financial Review.
“We went to get pricing with our preferred builder, and it was $40 million above what we estimated.”
While Orb has since secured a new builder for stage one of the project – 161 apartments of which two-thirds have sold off-the-plan – and has lined up a new offshore financier, Mr Wardlaw said Metrics declined his request for a four-month extension to repay the loan.
Sources with knowledge of the project said almost $50 million was owed to Metrics, which is the senior lender. About $6 million is owed to another non-bank lender, Ark Capital, which is provided mezzanine funding.
Debt funding also came from a group of regular Orb investors who have all placed caveats over the site. They include former BlackRock Australia CEO and an ex-Richmond vice president Maurice O’Shannassy, accountant John Kennedy, builder Brett Behmer and CBRE Victorian executive Jarrod Frazer.
About $2 million is owed to unsecured creditors including consultants, engineers and architects.
On June 24, Metrics appointed KordaMentha’s Craig Shepard and Lara Wiggins as receivers and managers of Boundary3051 Pty Ltd, the entity that owns the North Melbourne site. A spokeswoman for Metrics declined to comment.
KordaMentha last week appointed Jesse Radisich, Josh Rutman, Jack Bergin and MingXuan Li from JLL to sell the 1.4ha site known as Alfred & Boundary via expressions of interest. It comes with a permit for a low-rise urban village across six boutique buildings and lies within the Macaulay urban regeneration precinct.
The forced sale of the circa $70 million site is the latest example of how high construction and holding costs have crippled previously viable projects.
Also in Melbourne, another private developer APH Holding is selling over $200 million of development sites after and abandoning plans to develop more than a $1 billion worth of projects, including a “mini-city” in Melbourne’s Forest Hill.
The Forest Hill site is now in the hands of receivers from KPMG after non-bank lender MaxCap repossessed the site.
It’s the second APH site to be repossessed by developers after insolvency firm McGrathNicol (also acting on behalf of Metrics) took charge of a 1360sq m site in Box Hill that was to be developed into a Novotel Hotel.
Armed with new offshore funding, Mr Wardlaw said he hoped to buy back the site and complete the project. He said rising construction costs were hitting all developers.
“The only projects progressing [in the Macaulay precinct] are those backed by super funds,” Mr Wardlaw said.
“The real problem is infrastructure projects sucking up all the construction resources. We’ve already put $30 million into the site.”
Apart from getting hit by the construction cost blowout, Mr Wardlaw has grappled with soaring holding costs. Alongside higher interest rates on loans, land tax on the site had more than tripled to $770,000, while council rates had also risen substantially.
If he was able to come to a fresh agreement with Metrics and regain control of the site, Mr Wardlaw said construction could begin as early as January.
Projects progressing in the Macaulay precinct include one by specialist developer Assemble, majority-owned by industry super funds AustralianSuper and Hesta and another by Macquarie-backed build-to-rent platform Local.
