Construction, labour woes force developer to offload $200m of sites
“Market realities” including rising inflation, labour shortages and higher construction costs have forced private developer APH Holding to put more than $200 million worth of sites on the market and abandon plans to develop over a $1 billion of projects including a “mini-city” in Melbourne’s Forest Hill.
The sudden offering of half a dozen sites, an inability (until Wednesday) to access APH Holding’s website for almost three weeks, efforts by a global aviation company to wind up the developer over unpaid invoices, redundancies made at the company and the appointment of insolvency specialist KordaMentha as a business adviser have all raised concerns about the developer, which is owned by James Zhang.
In addition, one of the APH properties on the market – a 1360 sq m site at 702-706 Station Street in Box Hill that was to be developed into a Novotel Hotel – has been repossessed by insolvency firm McGrathNicol acting on behalf of mortgagee, non-bank Metrics. Maxcon is the builder of APH’s flagship project, a $320 million health and medical precinct in Box Hill known as Wellington Health.
In response to written questions from The Australian Financial Review, APH Holding CEO Johnson Zhang (no relation to owner James Zhang) said the developer was committed to completing its projects under construction including Wellington Health and an apartment development, also in Box Hill, but would not undertake other projects.
“As we recently advised our stakeholders, after a strategic review of our portfolio and direction, we have determined to pivot from our traditional development approach (acquisition, design, planning to project delivery) to an investment-focused business model,” Mr Zhang said.
“Our intention is to position APH Holding to navigate challenging market realities (inflation, labour shortages, higher construction costs and the like) while preserving our most valuable assets, like Wellington Health Box Hill.”
The Financial Review reported last year on the growing number of development sites with permits being put up for sale by developers under pressure from their lenders, or because these projects were no longer viable following escalations in construction and financing costs.
The first stage of Wellington Health – a 20-storey building anchored by a lease to Eastern Health – topped out at the end of May and is due to be completed at the end of the year. The project has been financed through a $150 million first mortgage facility provided by non-bank MaxCap. The project’s second stage (of four planned stages) featuring two 19-storey towers was approved this week.
A spokeswoman for MaxCap said the lender continued to fund construction of Wellington One, “which remains on program and is scheduled to reach practical completion in the coming weeks”.
Basement excavations have been completed at APH’s Box Hill residential project, Irving Domain, featuring 115 apartments and financed by non-bank Wingate.
“The Irving Domain development is in good order and slightly ahead of program. It’s due for completion in August 2025,” said Wingate managing director of property, Mark Harrison.
It is understood APH Holding is in discussions with its financiers regarding its new strategy and decisions to sell its undeveloped holdings.
A spokeswoman from Accor, said it could not comment on the fate of its Novotel Box Hill hotel, which was due to open next year. That site, worth around $10 million, is now on the market with a permit for a 162-room hotel.
Other bigger APH sites hitting the market include an 11-storey office tower at 440 Elizabeth Street in the Melbourne CBD, which APH acquired for $75.6 million in 2016 with plans to turn it into a medical care facility. This is expected to sell for about $85 million.
Also up for sale is a 5.68ha commercial site in Forest Hill, where APH secured approval in 2021 for the first stage of a $1 billion mixed-use business park, which it dubbed a “mini city”. It could sell for about $90 million.
The former Novotel Hotel site, the CBD office tower and the Forest Hill site are being sold by agents from Cushman & Wakefield acting on instruction from KordaMentha. A spokeswoman for KordaMentha said the firm was providing “general business advice” to APH.
APH is also selling the recently completed 69-room Choice Hotel in South Melbourne for about $24 million. In February, it sold the Pakington Strand mall in Geelong for about $30 million.
The developer also owns neighbouring CBD sites of 441-445 Elizabeth Street and 447-451 Elizabeth Street as well as an adjoining site, 139-141 Franklin Street, that include the 1858-built Royal Saxon Hotel.
“Our portfolio comprises quality assets in growing, busy locations, and we expect substantial interest in any property we take to market,” CEO Johnson Zhang said.
