TO PROTECT AND PRESERVE
Last November’s Kaikoura earthquake brought into sharp focus the vulnerabilities of Wellington’s commercial properties. Cornerstone Partners is making a name for itself around the refurbishment of the capital’s heritage and non-heritage buildings. And it
Last November’s Kaikoura earthquake brought into sharp focus the vulnerabilities of Wellington’s commercial properties. Cornerstone Partners is making a name for itself around the refurbishment of the capital’s heritage and non-heritage buildings. And it has one determined CEO in Andrew Cotterrell.
The unique topography of central Wellington, with its compact CBD and tall office blocks standing shoulder to shoulder, has provided numerous challenges for planners and builders over many decades.
The November 2016 earthquake, centred across Cook Strait at Kaikoura, was yet another reminder that the main boundary between the Australian Tectonic Plate and the Pacific Plate sits just 25 to 30 kilometres below the capital. And that Wellington’s citizens, and businesses, are literally living on a fault line.
From old heritage buildings to relatively modern structures such as Statistics House, the effect of the November quake was widespread – forcing many businesses to either shut down or relocate, employees to work from home or temporary premises (many are still doing so), and creating a shortage of commercial property space in the city.
The quake report prepared by Kestrel Group for the Wellington City Council stated that the prolonged shaking “was close to New Zealand Building Code seismic design levels”. A month after the quake the Council instructed the owners of 80 CBD buildings to perform more invasive testing. It will be some years before things return to normal.
The landscape has changed – with tenant businesses reluctant to endanger their workers, buildings now come under close scrutiny to ensure they comply with the latest building standards.
In this pressurised cauldron there operates a comparatively low-profile commercial property business that’s out to make a difference. Cornerstone Partners owns 20 buildings in Wellington, and is fully focused on ensuring its buildings rate 100 percent with the new National Building Standards (NBS), where possible.
The company has embarked on a multimillion-dollar refurbishment program to help meet the demand for high-quality quake-strengthened buildings – including a year-long $10 million transformation of the landmark 11-story building at 1 Victoria Street (formerly the home of ANZ); a refurbished and strengthened 69 Tory Street; and two other CBD buildings: 36 Customhouse Quay and the already strengthened 89 The Terrace. The refurbishment of HarbourCity Centre in Brandon Street begins in July.
Driving Cornerstone Partners is founder, chartered accountant and investor Charlie Zheng, in partnership with CEO Andrew Cotterrell.
As chief executive, Andrew is company spokesperson, and tasked with driving the company forward. It’s a task he relishes. Meet the exlawyer and you immediately sense his passion for protecting and preserving central Wellington’s iconic heritage buildings, and his love for property generally.
While Andrew is happy to be spokesperson for Cornerstone, Charlie prefers to quietly steer things from the background. He also has other business interests involving the export of wine and meat to China; the construction of the ‘NZ Centre’ in Xi'an, Shaanxi province (home of the famous Terracotta Army); and the development of strong trade ties between New Zealand and China.
Andrew admits he’s had an interesting journey to head up one of the country’s most successful commercial property companies.
Dunedin-born, he moved to the capital as a schoolboy when his father, a policeman, was transferred to Wellington. He graduated from Victoria University with a law degree and subsequently joined the commercial property team at Phillips Shayle George (today known as DLA Piper).
The ’87 sharemarket crash saw Andrew looking for a new job. His father suggested firefighting – after all, his son loved the outdoors.
The Fire Service thought the lawyer lifestyle would have made him too soft to fight fires, but he proved them wrong. He became their top recruit.
Two years of firefighting followed. On his days off Andrew kept his other career alive with conveyancing work for boutique law firm Cloustons. He had met Jason Clouston through a fellow firefighter.
In 1991 he was offered a partnership at law firm Gault Mitchell and his learning curve steepened. Later he went on to secure a disputes resolution business diploma from Massey University, which meant he was now putting out fires of a different kind.
Next came a major change in personal circumstances and a move back in his southern roots of Dunedin, where he indulged his love for skiing. His time at Downie Stewart Lawyers was “refreshing” and he formed lifelong friendships with several of the partners. “In particular with Gerard DeCourcy, whom I worked with on a daily basis.”
But four years later Andrew was back in Wellington again, working as general counsel, then CEO, for well-known property developer Ian Cassels.
“There has been a flight to quality and safety. People don't want to bargain with their life so they'll look for a safe building first.”
“This was my introduction to Wellington’s commercial property market from a non-technician’s perspective,” he recalls. “Ian is a true visionary; and I learnt a lot from him.”
Always ready for the next big opportunity, he then joined Heritage Property Group, which focused on developing old heritage buildings. This is where he learnt the lesson of not pursuing one asset class – “or in other words, putting all your eggs in one basket”.
“Unfortunately, following the Christchurch quakes, it became an unpopular and devalued asset class. We breached the banks’ LVR (loan-to-value) ratios and had to embark on selling the assets in a very difficult market.
“One of the first sales was the iconic Molly Malones Irish pub – which we sold to Charlie. That’s how I first met him.”
Further sales to Charlie followed. The nature of the sales, which Andrew describes as “straight-up, honest and open”, appealed to Charlie.
Now out of a job, Andrew planned a ski season in the French Alps. But Charlie had other ideas – offering him the CEO’s position in Cornerstone Partners Limited, the investment management company they incorporated in November 2012.
Five years on, Cornerstone has a $340 million portfolio, staff numbers will soon be ten (rising from just three), and once its current projects are completed, will begin looking outside Wellington in order to, as Andrew explains, “follow good governance by spreading risk”.
FLIGHT TO QUALITY
There’s no doubt the November earthquake profoundly affected the capital’s commercial property market. The impact is ongoing and there has been a significant shift in priorities when buildings are being evaluated for use.
“There has been a flight to quality and safety,” Andrew explains. “People don’t want to bargain with their life so they’ll look for a safe building first, before considering any other factors, such as facilities, outlook, or how beautiful the exterior of the building looks.
“In the old days NBS was probably around the fifth question they’d ask. Now it’s the very first,” he says.
“Directors of large institutions especially are fearful of putting employees in a place that’s not safe. The Health and Safety Act requires they take all reasonable steps to keep them safe – so they’ll look for 100 percent seismic compliance – or at the very least 80 percent.”
Needless to say, there was a flurry of lease negotiations after November. Big institutions and companies – even smaller firms – have been shifting buildings and negotiating exits, and that has been lifting rental market rates.
Cornerstone has a policy of aiming for 100 percent NBS compliance, if possible, with every building it acquires. Any of their buildings coming up less than 100 percent is generally due to adjoining buildings – perhaps the seismic gap is too small and the ‘knock’ or ‘pound’ effect caused by seismic activity comes into play (where buildings literally bang against each other in a quake). Andrew is proud of one award-winning example where Cornerstone’s engineers designed a scheme to bolt two buildings at 330 and 326 Lambton Quay together – making a stronger combined structure that swayed in unison.
For both Charlie and Andrew, there is pride in producing such solutions.
“You change a structure and turn it into something wonderful,” explains Andrew. “It’s not only good for the city, it’s good for tenants – and yes, there is an economic benefit, but you can’t help but feel proud of the outcome. That’s what keeps me going.
“You have to weave through a whole lot of agencies – heritage, planning, geotech engineering, construction, architectural, the Council – we have even had to involve an archaeologists report for the Molly Malones building that stands on an old Maori pa site.
“Projects can be a year or more in just the planning stage. There are a lot of challenges, but I tend to thrive on them,” he says.
To prove his daring nature, he has climbed Mount Aspiring, describing the experience as “the most exciting thing I have ever done so far.”
He’ll be climbing many more mountains in the property market in coming years too. The rebuilding of Molly Malones, which also suffered damage in the November quake, is one project he’s particularly looking forward to. It will be the very first ‘out of the ground’ project undertaken by Cornerstone.
Andrew’s grateful for his law background and his experience with Ian Cassels’ property development company – without which he doesn’t think he would have been equipped to handle the Cornerstone challenges. “I can see the issues within any situation, and I can take a logical approach to projects.”
He describes his relationship with Charlie, which began across the negotiating table, as rock solid. They both abide by similar business principles of honesty, integrity, openness and transparency – especially when it comes to negotiating.
“We call that our brand and we live the brand. I think our peers see us the same way.”
The art of negotiation is all about understanding the other party’s point of view, he explains. And if you have to say ‘no’ to something, explain why it’s a ‘no’.
There have been many hard lessons along the way too – the commercial property market can be an unforgiving one, says Andrew.
“In a nutshell it’s about spreading your assets, having good people around you, effective governance, and most importantly, having a great relationship with your bank. In the Heritage Property Group days it was the ANZ that supported the company over the two years that we sold down those [heritage] assets.”
As you would expect, there are many frustrations and difficulties to overcome in this line of business, but many of them can be mitigated through good communication.
Andrew uses CIP House at 36 Customhouse Quay and SAS House as illustrations.
“In both cases further engineering testing was required to determine what seismic damage each building had sustained.
“Then it was about full communication with the tenants in the buildings (both buildings have legal firms as tenants) including providing the tenants with a copy of the full report, and then meeting with all the tenants to discuss and summarise the engineer’s assessment in layman’s terms.
“If you don’t communicate properly then you’re going to have a problem,” he says.
While Andrew loves his job, he admits that dealing with all of the pressures can be stressful. And that’s why on weekends you’ll find him snow-skiing, boating, or donning lycra to go road cycling with his fellow cyclists.
“I love cycling and the exercise, but its more about the coffee after the ride and socialising!” he admits.
THE NEXT PHASE
Cotterrell sees the next phase in his journey with Cornerstone Partners as both exciting and challenging. After “going hard” for five years, its current projects are expected to be completed by the middle-to-end of next year. The company will then look at further acquisitions, which he says will include looking outside the capital, and possibly involve both investment and construction.
“In the next five years we aim is to see the business continue on as a reputable company and a landlord of choice. We also want to remain small and responsive.”
As for his role within the company, Andrew sees the next five years as an opportunity to continue building the Cornerstone brand, or “ship” as he describes it, in preparation for when he can “hand over the captain’s hat” to Charlie.
And then it might just be time for him to rebook that ski holiday to the French Alps.
“Projects can be a year or more in just the planning stage. There are a lot of challenges, but I tend to thrive on them.”
ANDREW COTTERRELL AND CHARLIE ZHENG.