Stalled Terrace project poised for liftoff
What is happening with Antony Gough's Terrace project, the supposed flagship of the central city rebuild? In an exclusive interview he tells JOHN McCRONE the stalled project - and the painfully slow inner city rebuild - is poised for liftoff.
The rumour mill instantly cranked up when Antony Gough's $100 million The Terrace project suddenly went silent last month, the subbies packing up their machinery, the scaffolding disappearing, the gates left padlocked.
Gough must have run out of money, his backers pulling the plug. Perhaps his anchor tenant, Westpac Bank, had got cold feet or not enough bar owners were signing leases to make the finances stack up.
Could the Gough family feud somehow be at the root of it. Or had even the uber- enthusiastic Gough finally become infected by the doubt pervading the central city rebuild?
That is what they have been saying, haven't they? The Blueprint recovery plan for the Christchurch central business district (CBD) is stumbling. So many office tenants have taken long-term leases outside the city core that any commercial energy has evaporated.
Overseas investors have wisely steered clear and larger local property owners like Philip Carter or Ngai Tahu have been worryingly quiet.
Gough's bold hospitality precinct had become the one talismanic venture to celebrate. The Terrace was going to be expensive, spectacular, and probably even loss-making, but 64-year-old Gough wanted to leave Christchurch with a development to remember him by.
So if even Gough, with all his insurance money and family wealth, now finds himself in over his head, the dreams of a reborn central city must be well and truly stuffed.
It did not help confidence that Gough has been a little difficult to reach the past few weeks. The phone was not getting answered.
This morning it is answered. Gough laughs and apologises. "I've been busy with meetings," he says. But today he has a gap and is happy, in his usual irrepressible way, to tell all.
Gough says there are two good reasons for halting the project just when the foundations have been laid and the first metal is poking out of the ground.
One is that he has found his hospitality tenants all want a larger space than expected, so that has required an urgent design rejig.
In recreating his old Oxford Tce strip of bar restaurants - the familiar pre-quake names of The Tap Room, Suede, Liquidity, Coyote's and The Bangalore Polo Club - Gough had been allowing for about 20 different business in a two to four level river- facing precinct with its own internal courtyard.
That has changed to about 12 premises with double the floor area.
"We had been planning to put in lots of dividing walls to make smaller hospitality spaces, yet all the requests that have been coming in are for much gruntier tenancies."
So Gough says while the precinct's look remains the same, work is going on to juggle the internals - the walls and doors, the flues and switchboards. And the fact the operators are wanting more space rather than less must surely be good news for the development?
The other reason for calling a halt is the banks now want a fixed price on Gough's costs going forward - a nailed-down contract with his project manager Arrow International - before they commit to funding the next step.
Gough says so far he has been spending all his own money because he wanted to make a fast start on The Terrace. The original target was to open by Cup and Show Week this November.
And the contracts have been open-ended because quite frankly in post-quake Christchurch, it has been difficult to know exactly how to do your foundations.
This is life for CBD landlords. Not only are they having to second-guess how a devastated business community might grow back, but they are having to pioneer whole new building techniques.
Gough's original idea was to build the Terrace precinct on top of its own underground car park. That would have been ideal. But the city's now raised water table meant the basement risked floating up like a concrete tub.
Then there was talk of 16m deep piles which was going to get really expensive, or digging out the bad soil which was going to be even more so. In the end, his engineers went down the road to prove that with the right ground preparation, a simple concrete raft foundation would do the trick.
"We borrowed two empty sites in town, Te Waipounamu House and the Holiday Inn, put 6000 tonnes of rubble on them, compacted it down, measured it until it stopped sinking, then whipped it all off and cast our raft foundations on top."
It proved stable. The foundations only need to be 60 to 80cm thick. But they do have 100 times the usual amount of rebar - reinforcing steel - in the concrete. "Heaven forgive anyone who is going to have to break it up at a later stage," says Gough.
The need to experiment with the foundations in fact caused The Terrace project to halt for some months last year, he says. No-one noticed then of course because to the public it looked like nothing had started.
So it has already been an adventure and he personally has under-written all the work so far. But now The Terrace has moved into the regular commercial risk of completing the above ground build. The banks are coming in at this stage and are asking for the security of a firm building price.
"They are saying you have to have a locked-down number and they're absolutely right." So a stop has been called while Arrow goes through the costings, sharpens its pencil most likely, and a deal will be reached.
Gough says the High Court battle between the various sides of the family dynasty for control over the Gough Caterpillar franchise has nothing to do with The Terrace project. His property investments are entirely separate.
And there is no sudden flight of tenants. About 80 per cent of his hospitality space is spoken for. Final leases can be signed once the floor-plan is re-drawn to fit.
Westpac Bank is still committed as his anchor occupier. Its purpose-built, five floor office block for 450 staff on the Bridge of Remembrance corner - a duplicate national headquarters to back up its Auckland Britomart building - is due for completion mid-2016.
Gough is talking to operators interested in building and owning the precinct's 320-space multi- storey car park off Hereford St. He is seeking someone else to develop the 100 bed hotel earmarked for the back corner of the block of land.
The package will come together in stages as always planned. So it is a pause, not a crisis, says Gough.
"We'll be back into it in a couple of months or so once we've got the locked-down price and made the drawing changes the tenants want. I'm not going to leave a skeleton standing there after getting this far. That'd be stupid. Particularly with no debt on it at this stage, it's all got to be worth something."
Gough could be putting a brave face on deeper difficulties. Those in the business know it is a big decision to halt construction. After workers and machinery are pulled off a site, it is a job to get re-started.
However, Gough does have deep pockets. Few people realise he has other investments like a half share in Russley Village, a $100m retirement development off Memorial Ave, built on the grounds of an old hotel he cannily bought 16 years ago.
More importantly, the fundamentals of his precinct are looking righter than they might have even a few months ago. Gough's greatest risk was that the city around him was going to falter. Yet suddenly the news there is a lot more positive.
Jonathan Lyttle, Christchurch general manager of Colliers International, says the next few months will see a rash of building announcements which should finally give the public a concrete idea of how the new CBD is taking shape.
Of course, as a commercial property estate agent, Lyttle is paid to be upbeat. But a year ago, Lyttle was openly critical of the Government's Christchurch Central Development Unit (CCDU), saying its bumbling was burning off large overseas investors like Australia's Goodman Property.
Lyttle admits he was feeling "terminal" about the city's prospects after a few more unpublicised disasters like that.
Lyttle says the bureaucrats did not get the way the property market works - how, especially with a blank canvas like the new Christchurch, any rebuild was going to be tenant-led.
There was the naive belief that city landlords would simply collect their insurance and immediately begin construction. But speculative development without a tenant already contracted is the fastest way to lose money.
So a dance had to be orchestrated. Christchurch had a pool of about 60 A-grade corporate customers not only able to demand a new building tailored to their particular needs but free to point to just about any location in the CBD that took their fancy.
Lyttle says there should have been complete focus on making the pairings happen. Instead the CCDU and the city council were squabbling over their anchor projects. Critical infrastructure like the car park buildings was allowed to drift. Uncertainty grew.
Lyttle says there were other brakes on the recovery as well. Insurance obviously. An unrecognised aspect of the Canterbury earthquakes is the way five big shakes between September 2010 and December 2011 allowed insurance claims to stack up.
In any one event, a building owner might get paid out to the indemnity value of a property - what it would fetch in a sale. But with the clock being reset after each quake and the damage accumulating, owners have been able to claim and claim again on that sale price until the payout reaches a building's full replacement value - what it would cost to build brand new.
It is a quirk of New Zealand policies that can work hugely to an owner's advantage. Lyttle says there are cases in the CBD of 1980s office blocks that might have been worth just $300m on the books but have resulted in payments more like $700m.
Great news for the owners, giving them plenty to re-invest. However, many owners have had to fight like dogs to get what their policies promise and those decisions are still working their way through the courts.
"People have been putting the boot into the CCDU because there are 90 buildings in the central city waiting to be demolished. But in fact that is 90 owners who are very happy to be allowed to continue to negotiate with their insurers."
So the CBD looks bogged down in inaction. Three years and not a lot to show. However, Lyttle says that behind the scenes, finally landlords and tenants are partnering up. Deals are almost ready to be announced. Positions on the Monopoly board are clicking into place and the shape of the new city is about to become clear.
Lyttle says the CCDU Blueprint is going to deliver on its promise of creating a more logical, people- friendly and condensed city core - even if, as many have noted, there is also going to be a marked lurch westward of what people think of as its natural centre.
With a row of large office blocks erupting on the far bank of the Avon River - getting started earlier because they are outside the Blueprint's restrictions - Durham St leading into Cambridge Tce is looking like the new Colombo St, its terraced river precinct the new Cathedral Square.
But Lyttle says the immediate east of the river is going to come on strongly as well.
The banks are committing to locations in the retail precinct between Oxford Tce and Ballantynes. With Nick Hunt and Tim Glasson building half-block developments right next to Gough, that will be $ 1/2 billion in investment just on that side of Cashel St.
Colliers' leasing broker Ryan Geddes says he has been crunching the numbers on the deals that have been agreed but not necessarily announced.
"Within three years, we'll have about 10,000 people working within 300m walking distance of the retail precinct. Within four years, we'll have 15,000. It'll be a condensed little city which will be fantastic for employees who want to wander down to the cafes and shopping."
Lyttle says the old CBD was a disconnected sprawl. It had 455,000 sqm of lettable space, but nearly a fifth of it was empty, only 380,000 sqm actually occupied. The city was so over-built that every worker had around 40 per cent more personal space than the national average.
It was woefully inefficient and the rebuild should be judged on how well it manages to establish concentration and critical mass.
Geddes says this is why it is healthy that Cambridge Tce is taking off with unexpectedly large buildings like Awly Investments block-sized office development opposite the Provincial Chambers.
Christchurch's last wave of big building came in the speculation- driven 1980s when developers threw up skyscrapers like the PricewaterhouseCoopers and Forsyth Barr towers over the other side of the CBD.
The buildings only landed there because the space was free. But they always felt out on a limb, says Geddes. "I used to work there and at lunchtime it was a trek to the shops."
Now the way the city is coming together, office workers will be far more tightly clustered. And with modern building design - the maze of lanes and courtyards, shops below and businesses above - it will have a lively buzz.
So even if the media commentary hasn't caught up with the change in mood, Geddes says expect announcements in the next few months to change that.
Again going on the business Colliers is doing, Lyttle says he now expects 150,000 to 180,000 sqm of space to return to the central city within the next three years. So approaching half of what existed before.
Then following that will come a second wave as those who are stuck in the suburbs on five or six year leases can rejoin the market. That will swell the figures by a further 25 per cent.
It may indeed take decades for some corners of the CBD to be fully built back. There will be bare plots or strips of short-life single storey shop fronts for a long time. However, Lyttle says what matters is that there will be a compact and functioning heart centred on the Avon River precinct.
It is going to be a different Christchurch from what people remembered, but impressive and attractive. Well worth the lengthy wait.
It is all about confidence and the next few months will tell.
Will Tim Glasson unveil his plans for the Triangle Centre as promised? Will Philip Carter reveal if he has definite intentions for The Crossing? What is Ngai Tahu going to do with the former central police station which is another whole city block to fill?
Plenty could go wrong just as plenty could go right. And many will still see Gough's Terrace development as a crucial test of how things are panning out.
The promising fact is Gough seems as enthusiastic about the project as ever. Giving away perhaps more than he should, Gough retells with relish a wrangle he has been having with powerline operator Orion.
"It's a silly thing. Orion want me to pay for the design of the electricity network to supply my site. And I'm saying, 'Excuse me, you want me to pay for the design and then you'll charge me to use it? That doesn't seem right.' So we're having discussions. I'm pushing back.
"That's what Joe Public doesn't see. It's like the council wanting more development levies out of me. But then I say to them, I had toilets and bars and restaurants there before so I'm entitled to some kind of credit. And they go 'Oh yes, you probably are.' "
As a developer, it is another battle every day. But Gough says he loves the fact he can do the little clever things that only his tenants might appreciate. In the old Christchurch, it was a case of make-do and retrofitting existing buildings. Now he is designing a purpose-built hospitality precinct.
"For instance, every restaurant and bar will have three flues - the kitchen extract to pump the steam off the hot grill, but then a separate one for the toilet because you don't want to mix the two, and a third one for the dishwasher."
Likewise rubbish collection and delivery access will be centralised, kept tidily out of sight. Gough says the development will not only have grease traps but the pipes are heated to prevent blockages.
"These are the nice surprises tenants can expect. They'll say 'Gee, this is a good landlord, he's actually thought about how my kitchen's going to run'."
Gough says his halt has given people a fright. But it was caused more by his eagerness for speed and now the sense in pausing to make mid-course adjustments.
Give it another year and you will be having a beer in the sunshine of a pedestrianised Oxford Tce, watching the folk promenading on the newly landscaped river front. The dream still lives, he assures.