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

NZ Business - - CONTENTS - BY GLENN BAKER

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.

MUL­TI­PLE CA­REERS

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.

THE PRO­FES­SION­ALS

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.

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