Condev’s downfall is a symptom of greater issues with the building industry, with tight margins

Builders work off a thin margin of error for developments that cost $100m to build as a “perfect storm” of spiking material costs, Covid and floods smash the industry.

Andrew Potts and Kaitlyn Smith

5 min read

March 15, 2022 - 4:39PM

Gold Coast Bulletin

Business

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Gold Coast building giant Condev says it needs sympathetic developers to help stump up $25m for it to survive – and it wants an answer now.

Bosses from the struggling construction company met with a dozen of Australia’s most prominent developers for nearly two hours late Monday afternoon.

The company, which has built some of the Gold Coast’s most notable towers and was named the city’s best business just 18 months ago, has blamed a “perfect storm” of spiking material costs, flood damage and the effects of Covid for its predicament.

Monday’s high-level “make or break” meeting was held at the Surfers Paradise offices of law firm Cronin Miller at 2.30pm. It ended just after 4pm.

Condev chiefs met this afternoon to appeal for a multimillion-dollar bailout. Picture: Glenn Hampson

The developers have been asked to pour millions into the company’s coffers to keep it active.

In a short statement, Cronin Miller partner Derek Cronin said: “The meeting was positive and constructive.

“The developers have been presented with a proposal and asked to respond as soon as possible.”

The developers have been given a handful of days to review Condev’s finances and consider their position.

The company plans to offload some assets as it rallies to come up with a $25m bail out.

Property industry insiders expected the company’s fate to be decided by the end of the week. Condev was urgently seeking a commitment from the developers late Monday night.

Condev, which helped build much of the 2018 Commonwealth Games infrastructure and employs more than 100 staff, has 13 projects under construction in southeast Queensland, six of which are on the Gold Coast.

Steve and Tracy Marais. Picture: Tertius Pickard.

The Gold Coast projects are valued at more than $500m alone.

Among the projects Condev is building are the $200m Capital Court towers at Varsity Lakes, the $140m Alegria at Palm Beach, the $77m Natura at Burleigh Heads and $76m Allure at Chevron Island.

The Bulletin understands the talks are the result of months of ongoing concerns about the company’s financial state.

According to the company‘s latest financial report lodged with ASIC, Condev made a loss of $358,772 in 2021 compared to a profit of $536,332 the previous year.

Revenue climbed from $175m to $181m over the period with the company noting it continued to procure work from national developers despite the impact of Covid-19.

Condev co-founder Tracy Marais told the Bulletin on Sunday the company was still solvent, but needed help.

Natura is one of six projects underway on the Gold Coast. 112 The Esplanade, Burleigh Heads. Picture: Glenn Hampson

“We are seeking a resolution and we cannot do that alone – we need to work together,” she said.

“This is not something the building industry is renowned for but it would be in the best interests of all parties, our clients and our staff.”

On Monday, she added all subcontractors, staff and suppliers had been fully paid to date but had been battered by the dramatically shifting economic situation.

“It has been really difficult,” she said.

“We had four assessors take a look at the market in October 2020 and they gave us a forecast they were anticipating the market costs would go down four per cent (but) instead it went up 15 per cent.

“This has been a profitless boom. It’s very strange because normally a boom would come with profitability.

“But builders cannot get materials and there is so much work that we’ve been turning things down every single week,” she said.

It came as the major construction union described the crumbling company, which does not run union worksites, as a “collapse waiting to happen”.

The Construction, Forestry, Maritime, Mining and Energy Union (CFMEU) claims Condev’s business model was flawed and had left it vulnerable to market headwinds, including rising material costs and recent floods.

Capital Court, Varsity Lakes. Picture: Supplied

CFMEU state secretary Michael Ravbar said a “combination of underbidding on jobs, poor project management and quality control” meant Condev was “a collapse waiting to happen”.

“Condev’s business model is basically a race to the bottom, all they do is damage the rest of the industry,” he said.

“Even when they last did return a profit, their margin was about 0.3 per cent on

turnover of $175 million, which leaves absolutely no margin for error,” he said.

“Condev has long been a collapse waiting to happen, and – as we have seen with the

Probuild implosion – it is certainly not the only one.”

How builders are getting into trouble

Gold Coast builders work off a bare-bones 5 per cent margin of error for developments that cost $100m to build.

Most established big companies add a further 3 per cent or $3m in “prelims” – which cover the cost of employing builders, hiring machinery and setting up development sites.

More conservative builders would spend up to 21 per cent – $21m in a $100m project – margin, overheads and all preliminary costs.

Of the remaining 79 per cent of the build, about 60 per cent is spent on materials and 19 per cent on trade and related costs.

Insiders say unprepared builders operating on 5 per cent buffers have been stung by a 15 per cent rise in materials, equal to about $9m unbudgeted for materials on a $100m project.

They have adopted “razor-thin” margins to snare big contracts in a hot market.

They say the fallout could have been prevented by builders negotiating “rise-and-fall clauses in contracts” to account for the increased costs during Covid.

Construction heavyweights fear the crisis will continue as the cost of materials rise further on the back of the war in Ukraine. A vast chunk of the wood used by builders is sourced from Russia.

What’s it like on site?

Workers on a Condev’s $77m Gold Coast site were largely unaware of the firm’s financial woes – but said it’s “business as usual” for now.

Despite facing the prospect of losing their jobs contractors were hard at work at Natura Towers at Burleigh Heads on Monday.

Workmen at the Condev project, Natura, at 112 The Esplanade, Burleigh Heads. Picture: Glenn Hampson

The project sits on a 1011sq m beachfront parcel on The Esplanade and replaces a former mid-level apartment building previously demolished about two years ago.

Tradies at the job site declined to speak with The Bulletin when approached for comment on the matter, just hours out from the meeting which could ultimately cost their jobs.

Building materials were regularly seen shuttled to upper-levels 17-storey tower while sounds of powertools roaring echoed throughout the job site.

One source confirmed they had not been informed of any possible issues the firm faced: “I had no idea this was even happening, we have heard nothing,” they said.

The worker said they were shocked to hear of the troubles as their company were currently engaged on multiple projects with Condev.