Failure of builder SMLXL hits Fortis Gaden House project at Double Bay

The builder for the Fortis flagship restoration and rebuild of Gaden House in Sydney’s Double Bay has filed for liquidation after a sudden failure last week.

From publicly spruiking SMLXL three months ago, Sydney property players Marprop and Fortis now face weeks of delays after the collapse of the builders at the Gaden House project at 24 Bay Street in Double Bay.

SMLXL has been placed into liquidation, leaving Fortis scrambling to replace the builder on its Double Bay redevelopment of the listed site at Gaden House.

A Fortis spokesman said the developer had agreed terms to replace SMLXL with a potential handover on July 17.

“Our new builder is already seeking to work with the same construction team and subcontractors to complete the job,” he said. “We envisage any delays will be limited to just a few weeks, with an anticipated completion date shifting from January to February next year, which is important as the building is fully let on completion.”

Fortis, the development arm of Double Bay property house Pallas Group, has now scrubbed all reference to SMLXL from its website after publishing a sit-down interview with the construction firm’s founding director Dean Ossip and chief executive Lisa Mort nine weeks ago.

The $50m Gaden House site is to accommodate a six-level development touted by Fortis as “a rare triple street frontage in the heart of Double Bay village” but has taken years to grind through council amid community resistance to altering the 1968-built modernist site.

Construction insolvencies have skyrocketed as the industry faces a long tail of projects blighted by delays during the pandemic.

SMLXL founding director Dean Ossip and CEO Lisa Mort.

Australian Securities and Investments Commission insolvency statistics showed a 75.4 per cent jump in external administration of construction companies in the last financial year. Construction and building firms made up a disproportionate bulk of companies going bust, with industry sources reporting the sector is facing cost blowouts on materials with labour shortages slowing worksites.

Documents filed with the corporate regulator reveal SMLXL placed a string of companies under its banner into administration and subsequently liquidation last week. The four SMLXL companies represent the firm’s NSW and ACT projects arms, as well as its administration and holdings operations.

Documents lodged on Wednesday show the four companies were swiftly placed in liquidation after a creditors’ voluntary winding up vote was made.

Jirsch Sutherland liquidators Trent Devine and Peter Moore are handling the wind up of the SMLXL group, which was founded in 2016 as a fit-out company.

Fortis has acquired a number of sites around its Double Bay headquarters, with some of Sydney’s wealthiest families backing the property group.

But property market watchers have questioned if the firm or its parent Pallas Group have overextended themselves through aggressive plays for large sites.

Fortis took a $50m loan from the family office of Harvey Norman boss Gerry Harvey to back its $82m purchase of 2-10 Bay Street in February.

Canberra property baron David Kenyon and Morgans principal Rob Fiani are among almost 800 backers of Pallas, which has attracted funds after offering investors up to 25 per cent returns. However, Fortis has also been forced to take haircuts on its touted returns, with its luxury residential site in Black Street, Brighton in Melbourne’s southeast, coming in well below the firm’s initial $57.97m target.

Fortis had been targeting a 20 to 50 per cent rate of return on the site, a figure used to tempt investors into funding the Pillar + Tide project. But sales for the Pillar + Tide site shows Fortis banked circa $45m for the site.

Fortis has told The Australian the firm banked a 35c on the dollar return on the site, which it purchased for $14.25m in 2020.