Towering Ambition

In today's video interview Daniel Grollo could be forgiven if he's secretly gloating over a decision to keep his Grocon construction group in private hands. Grocon's arch-rival, the ASX listed Multiplex group has just had a year from hell. The Perth-based building company is now battling in the British courts to retrieve $92 million lost on the ill-fated Wembley Stadium project.

Meanwhile, the unlisted Grocon group has just finished Australia's tallest apartment development - Melbourne's Eureka Tower. Moreover, Grocon, now run by Daniel and his brother Adam, has made its first moves in the retail property trust sector with the unlisted $78m Grocon Property Trust based on a new headquarters for AXA at Melbourne's docklands.

As Grollo explains the strong leasing record of apartments at the Eureka Tower indicates the apartment market may be about to improve, his comments on Grocon's first retail property trust also show local investors are more than willing to finance Australia-based commercial property development if they are attractively packaged.

James Kirby: Daniel Grollo, economists tell us that the residential property market will be flat this year but you’ve just built the tallest apartment tower in Australia. How do you see the residential property market panning out this year?

Daniel Grollo: The residential apartment market’s certainly come off its highs of a couple of years ago...residential sales aren’t as robust as they were but from a leasing perspective, the leasing market’s quite strong, both in Melbourne and Sydney. In fact over the last six months in some of our stock we’ve seen leasing rates rise by more than 10%. So we think that the market will slowly come back. It was overheated three or four years ago.

How is the leasing or the sales going in the Eureka Tower?

Eureka Tower has gone quite strongly. It’s 80% sold now. We’ve settled the building up to level 64, so up to level 64 we’ve actually got 400 residents living in the building. We’re putting the finishing touches to the top and the upper extremities of the building. They’ll be scheduled to be finished in the second half of this year. We’ll have a public observation deck up there but the leasing story at Eureka is the same. The leasing is very strong and rental rates are growing.

Who is buying these apartments?

Well the sales campaign’s gone over four years so the investors have been quite wide and varied. We’ve had international purchasers buying homes in Australia. We’ve had empty nesters coming in from the suburbs and we’ve had investment people seeking to lease the apartments off to professionals working in the city so we’ve had a wide variety. I’d say in the lower reaches with lower price departments we’ve got the greater number of investors including the more expensive apartments at the top are more the empty nesters.

Now property investors have been complaining that the market lacks a stimulus. That it’s a long time since there’s been any bright new ideas for residential property investors. What do you think? Have you any suggestions that you think would stimulate the market?

Direct property investment for Mum and Dad is very difficult unless it’s in residential so retail and commercial is difficult for them to get access to. I think that’s changing. I think a good example of that is what Grocon has done with its Docklands development recently where AXA is the major anchor tenant and we had investment on behalf of Mum and Dad where they could buy investment in a trust that owns that building and that was phenomenally successful. There was some good tax advantages there for high income earners, for Mums and Dads and I think you’ll see more of that as the market goes forward.

Grocon is a private company and I’m sure you’ve been watching the trials and tribulations of Multiplex the listed property developer. Has that concerned you about using public markets for raising capital?

Look I think we’ve always been very cautious to go public. We’ve been asked that on a number of occasions over the last 20 years and I think that the Multiplex experience probably just reinforces our assumptions. I guess we like the concept of being a small family company. We’ve very good at what we do and we like digestible and organic growth rather than growth for growth’s sake at exponential rates. And I think that the great thing for us what we’ve done with AXA and our property trust in Docklands has really given us an ability where we can pursue our growth and it won’t be silly. It will be good strong organic growth and I think that’s where we’re quite focussed.

So Daniel, what’s next for the Grocon group?

Well we’re working on a couple of large projects around Australia both in Melbourne and Sydney in particular but also in Perth and Brisbane. I think that we’re going to see a lot of growth in the commercial office market at the moment. I think there are lots of tenants both in Melbourne and Sydney in particular looking for large slabs or commercial office space and I think that will continue over the next 12 months.

We just saw some of the nation’s biggest commercial property investors, the Besen family and the Sarich family, sell out of the commercial market. How do you read that?

I guess that private families do things sometimes for private reasons as much as for reading the market’s sake and my assumption would be that you know, if I take the Besen family they got a fantastic price and it probably suited the family at the time. But we don’t see any dark clouds on the horizon at the moment. Strong income producing property will be strong for some time yet.

Daniel Grollo, thanks very much for talking to Eureka Report.