The eclectic developer

Saturday, 8 March 2008

High-profile property developer Dave Henderson may have beaten the IRD in the 1990s but as Marta Steeman reports he now faces a different foe - a slowing property market and a credit crunch.

It is tough out there in the property development game but Dave Henderson is a survivor who is typically upbeat.

After all, he fought the IRD in the 1990s and won after a high-profile and bruising four-year battle that left him bankrupt. Out of it the entrepreneur produced a bestselling book, Be Very Afraid, which was last year released as a movie, We're Here to Help.

Henderson's business career up till the late 1990s had been a string of small business ventures, 10 of them unsuccessful. Some of the successes included an icecream shop chain in Australia and a couple of property conversions in Christchurch. Failures included the Sandwich Factory, a chain of sandwich bars, a yoghurt-exporting business, and a radio station, Radio Liberty. There were disgruntled creditors, needless to say.

But he has come a long way in eight years since emerging from bankruptcy. These days he presides over a property investment and development business with a string of projects and $263 million in assets - according to the March 2007 year accounts of his company, Property Ventures. He owns about 70 per cent of the shares and 400 investors own the rest.

His trademark developments are a medium to high-density mix of residential, retail and commercial - innovative for Christchurch where the city and the suburbs have had distinct boundaries.

Henderson's banking on the idea of people living, working and playing in the same space and he markets it as 'new urbanism'.

His revitalisation of the south-east inner city where he and a few other developers are restoring and refitting rundown older buildings is appreciated locally and has won him goodwill in high places.

His flagship development is known as SOL (South of Lichfield) and is a collection of buildings converted to bars, cafes, restaurants, office spaces and apartments linked by lanes with a market value Henderson estimates at $40m.

Christchurch is probably 15 years behind Wellington where inner city living is old hat. This is a city of suburbanites who love their gardens and backyards. Townhouse development is taking Christchurch by storm and providing quick bucks for developers riding the property boom for six years.

Henderson's got several development and investment balls in the air but he welcomes a downturn flushing out the inferior operators.

'When we go and do something like Sydenham Square we've got to compete against a whole bunch of people doing some very ordinary stuff out there. They are getting away with it because it's a hot market and people are queueing up to buy stuff.'

Henderson's accommodation and hotel business provides steady income for the wider group. From the accounts this appears to be several million dollars.

He has converted buildings into managed budget accommodation for students and others -- and brands those places LivingSpace. Some of the studios and units are being sold to investors.

A hotel chain of glossy-looking but budget-priced accommodation is in the pipeline. The first built is in Christchurch, Hotel So. The building once housed his old foe, the IRD. He estimates its market value now at about $40m.

Surprisingly, Henderson also owns a company that runs the cafes and bars in SOL rather than leases them to other operators.

'We ended up owning and operating the hospitality business simply because we are just fanatical about the detail and about the way that all happens.'

He was concerned other operators would 'dumb things down' to save money.

He is a substantial employer now. About 150 staff work for the hospitality company, Atlas Food and Beverages. Property Ventures employs its own team of planners, architects, financial and administrative staff - about 50 people - and has its own construction company, MonteCristo Construction of another 50 employees.

By far, his most ambitious project is the new township Five Mile in Frankton, Queenstown, beside the airport. The first stage alone will suck up $350m of development capital for 150 buildings to be constructed over the next three years. It is only 15 per cent of the more than 15-year total project that aims to house 10,000 people. The first sod was turned last September and contractors are building an underground carpark for 800 cars and a big supermarket.

The development will be similar to the high density SOL with lanes linking the blocks of buildings and squares.  

The development has a value of about $100m in the 2007 accounts.

Henderson's funders have largely been finance companies to date. But that has to give. Finance companies are battening down the hatches and shrinking lending as mum and dad investors flock instead to banks.

So how is that impacting on Henderson's property development business.

'It's affecting us in several ways. One, it affects us from a perception point of view which is what you are describing.

'Secondly, it affects us in a practical way. We have to accept that that money is not going to be available so we need to do the pre-sales and pre-leasing.'

Basically he has to sell more properties off the plans at a discount. Banks want to see a certain level of sales before they will back a project.

'That's the key, of course, to having bank funding as opposed to finance company funding. That's fine. We're up for that. It doesn't concern us, ' Henderson says.

Thirdly, it is becoming more expensive and that hurts as well. Property Ventures 2007 accounts reveal interest rates of 9% to 16%, and are likely to be higher now a year later.

The banks are flush with cash and calling the tune.

'Every single bank has a policy for development funding and they're all keen on development funding. All that matters is they want to see a greater degree of pre-leasing and pre-sales,' he says.

A finance company would have lent on a developer's track record but not the banks in the current downturn.

If he had been the typical developer he would have just built the supermarket at Five Mile and taken the profit, he says, acknowledging the size of the development he has bitten off.

' We've got sales pending in Five Mile now of just on $60m of some commercial and residential (buildings).'

They sold $18m of row houses off the plans before Christmas and have a couple of offers on commercial buildings which will sell for about $40m.

And there were a couple of people wanting to buy the supermarket but he has not made up his mind whether to sell or not. It was leased long-term to a major company.

The March 2007 accounts show Property Ventures had $147m of current debt - debt due in the next 12 months.

When asked about the heavy short-term debt, Henderson says Property Ventures sold close to $100m of properties in the 2007 calender year. That included an office tower in Queen Street, Auckland for '$50 something million', some apartments and land and buildings in central Christchurch between Gloucester and Armagh streets.

'We will have already refinanced the bulk of that debt. Basically that's the nature of what we do.' Short-term funding was par for the course for developers.

This year Property Ventures intends to sell more properties - $150m is the target, he says.

Hanover Finance is mentioned in the 2007 accounts as a lender but Henderson says it is not a key one and Property Ventures is replacing that short-term funding.

A couple of banks were offering Property Ventures development finance.

'We've got two offers sitting there at the moment from prime banks with some conditions that we are meeting and we are not far off concluding those. That means that we will take Hanover out at that point.'

Does Hanover want to get out? 'I think you can reasonably assume they do. They want out of everything in New Zealand.'

One of the banks has just raised the bar for funding for the Sydenham Square development before he can start building. 'We have to do more deals in terms of pre-sales.'

So far Sydenham Square has $15m of sales off the plans and another $7m is likely, he says. The development is his trade-ark high-density mix of apartments, offices and shops and a green square on the old Sydenham School site about 2km from the centre of the Christchurch.

Property Ventures has a lot riding on Five Mile.

The investment of $100m ( the value on the books) is a big chunk of the company's assets.

Local specialist MAC Properties' executive director, Alistair Wood, says Queenstown is now experiencing the same sort of slowdown as Auckland and Christchurch.

There are probably about 1000 residential properties for sale.

At the moment, there is a big gap between what buyers will pay and sellers want.

'And the buyers aren't there in the same volumes and are waiting to see where the market ends up,' Wood says.

He considers Five Mile's biggest competitor to be Remarkables Park, a residential and commercial development by Auckland's Porter Group.

It includes worker accommodation, big box retail, a supermarket, retirement village and the potential for schools and recreational facilities.

Henderson is not blinking.

'Long term, I'm comfortable with where the Queenstown property market is going. But I also know very well that the value in this project is in the second half for us, the real margin.

'It's like SOL Square. If I had sat you down two years ago and talked about SOL Square, neither you, with respect, nor your readers would have got it. People get this now and say this is cool.'

Henderson says there is a strong demand for commercial property in Queenstown for both leasing and buying because investors appreciate Queenstown has a great future.

The essence was that his projects were long term. The value of taking a long-term approach is the acceptance of market ups and down.

And the design allowed the projects to be scaled up or down for market conditions.

'We've got a sound organisation in terms of the talent, and the people and the ability to handle these projects.'

He is recording a lot of his trials and tribulations with the Queenstown Lakes District Council.

'It's a wonderful story about NZ's statutory planning regime and about dealing with local bodies. '

Property Ventures had carried a film crew around on several occasions.

'We're going to tell the story when we get well down the track even if it's only for the residents of Five Mile.'

Sounds like another movie coming on.