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“Smack” that was the sound of me hitting the broken asphalt.

“Wrgghhhhh, whhroof, woof” that’s the sound coming out of the dog chasing me.

“Splosh” that’s my hand finding a puddle of an an unidentified liquid as I try to push myself up.

It’s 5 something AM on a Sunday morning. Pitch black and I am walking and then running from one end of an old plywood factory to the other. As I fend off the live-in security guard’s canine companions I reach the roller doors to the main street entrance and meet my development manager accomplice. Today we are going to turn this temporarily surplus asset into cash flow. At $10 a head we are taking on the car fair and swap meet market…this asset, a future development site, is going to be sweated.

Four hours later, after not exactly replicating the numbers that attend the historic car parade preceding Daytona 500 we shut the roller door and go home.

Part One: Temporarily Surplus Asset Utilisation

To a developer anything with land under it is a potentially under utilised asset. If you own it, you are paying for it, and usually you are paying  a lot. It is rare where a developer purchases an asset with an intention to develop that makes a return that covers all holding costs. Turning that asset into a development project, with construction underway as quickly as possible, is a developers business as usual.

In the interim period between site purchase and construction the asset is temporarily surplus and the developer may look to opportunities to realise cash flow.  ‘Interim’ for a large project or when markets tank or where planning consents drag on, can be a long time. If the asset was purchased with long term leases in place then the likelihood is most tenants will want to move on upon expiry given the uncertainty over development. Similarly a developer does not want to be tied into long term leases as their primary motivation is to get the development underway without fixed leases delaying commencement.

Temporarily surplus asset utilisation opportunities include:

– Subletting space on a month to month or short-term demo clause basis to be used in line with previous business activities on site (an option that deteriorates over time as you spend less money maintaining the property and keeping tenants happy in anticipation of development)
– Short term lease of space for all types of storage (security becomes paramount)
– Erect temporary structures to create leaseable space – including inflatable structures
– Pop up retail and restaurants
– Low rent creative premises and ‘incubators’
– Car parking, public pay as you use
– Car parking, short term lease to others
– Temporary housing and accommodation (outside of disaster relief there are lots of expensive complications like the need to provide infrastructure and services but in some circumstances…)
– Car fairs and swap meets
– Film and television sets or staging areas
– Event space
– Art galleries and sculpture parks
– Farmers markets, arts and crafts, food trucks, coffee carts
– Entertainment (carnival type attractions,  roller coasters)
– Agriculture (yes I have seen land rezoned from residential back into agriculture)
– Urban farms, urban orchards and community gardens
– Trailer park
– All types of signage and billboards for advertising ( this includes parking a truck trailer covered in company logos on site and advertising on fence wraps)
– Demonstration and exhibition space
– Relocatable house showroom
– Car, boat or heavy machinery sales yards and popup showrooms
– Concerts & festivals
– Sports training and temporary event facilities
– Photography studio (one example was a development project site in waiting where they had a ‘drive in’ photography studio for car magazines)
– Trash recycling collection point (actually this is what is going to happen whether you like it or not on most unsecured sites!)
– Vending machines (assuming you have passing foot traffic)
– Urban parks
– Tree farms (when development has stalled for a very long time!)
– Educational and work training premises
– Construction product or system testing
– Bomb squad dog explosives detection training (yep, been there)
– Volunteer or community organisation meeting and information place
– Theatres
– Ice rinks
– Urban beaches
– Playgrounds, obstacle courses, skate parks, outdoor basketball courts, bmx track

An interesting comment from opengreenspace.com is how people can perceive temporary uses that when done well appear to be a permanent fixture. This is especially pertinent where a use has been temporarily brought into the public domain and then removed once the temporary use is no longer required.
“Temporary uses should, however, be approached with caution as there may be a risk that, over time, local communities and stakeholders will associate a permanence and potentially ecological value with a particular space, making future changes difficult to promote without attracting opposition. In considering such opportunities therefore, it is advisable to identify an exit strategy and to ensure that there is ongoing clarity about the temporary nature of a site.”

To actually succeed at extracting cash flow to help fund site holding costs temporary uses have to generate more cash flow than the investment required to commence and operate them. When the duration is uncertain developers are heavily constrained as quite often you don’t have (or know you have) a long enough period to generate sufficient cash to pay back any temporary investment. This of course assumes there is market or public entity demand willing to pay a high enough rate for temporary space/use in the first place.

Vacant land is generally more difficult than existing buildings to generate a temporary return. Even land used for a car park can require significant investment to comply with council/city regulations as well as being able to collect the income. Often it is simply not worth it except in Central Business District type locations where parking enjoys a high price premium. Zoning and other code regulations can permit only limited activities on a site further restricting any temporary use.

However, it may be best to find an alternative temporary use than to do nothing with an asset in transit.  There may be council/city requirements to offset stalled development site blight or ‘Empty Lot Syndrome‘. You also want to prevent unsolicited trash dumping and homeless invasions and other issues that end up costing money and potentially cause a public relations nightmare. Donating the site, temporarily, to enable a community endeavor may even help placate potential opposition in upcoming zoning and planning hearings.

I had the inconvenience of dealing with a relentless homeless invasion. We had an old house that we used as an office on a development site. When we had completed the show home at an alternative location we moved out of the old house. The intention was to keep the property until construction was approved and then demolish as part of the overall contract – essentially let’s not spend any money until we need to. We looked at offering the building for temporary lease but the lease market was flat and we didn’t want to spend any money on the property to get it up to a leaseable condition. Plus we only anticipated a vacant period of 3 to 6 months.

It started with a few break ins that set off the alarm. Police were called and a homeless man was moved on. Next week, rinse and repeat with an increased number of occupants. Each subsequent time a little more copper wire had been removed and a little more neighborhood trash collected. Then one very ambitious individual cut the main electrical line from the power pole to the building (I have no idea how) – disarming the alarm in a very dangerous manner.

So we got a battery powered alarm system, that survived a week or two and you guessed it, they stole the alarm! Nothing would stop these guys, they didn’t mind that it was 115 degrees nor that the water was turned off (but kept using the bathroom!). So I let them have it and we decided to demolish the building early.

These poor homeless guys were persistent to the extent they would lie there quite happy to let you yell at them to get out and then still not move. After signing the demolition contract I asked the burly demolition contractor what his procedure would be to remove my favorite residents prior to the bulldozer going in. I was thinking he is going to have to call back the police or worse take the physical moving of them into his own hands.

“No problem, this is par for the course on our demos – no one stays in there once they hear me start the engine”

www.aenspire.com

Part Two in an upcoming post will address extracting maximum value from real property assets surplus to what is required to run normal business operations.  We will look at strategies how you identify and prioritise surplus real estate as well as evaluate disposal and redevelopment options in light of risk and opportunity.

“Real estate is all about people and relationships” proclaimed the energetic owner of a very successful local real estate agency.  Enthusiasm can be infectious. There is no more positive way to start the day than having coffee with a master in their field with a real intuitive ‘gut feel’ for the market and a passion to match.

It is certainly much more enjoyable than staring into a spreadsheet with hundreds of rows of data and calculations. This quantitative feasibility model attempts to predict the future viability of a property development project. It is based on testing logical hypotheses using past numerical evidence and objective ‘humanless’ measurement in an assumed world of fully informed rational participants…..if only.

The authors of “The Moment of Clarity” describe how LEGO, Adidas, Intel, Samsung and others use ‘Sense-making’ to turnaround performance, improve product design and set strategy for their businesses using a very human experiential and contextual approach.

[Madsbjerg, Christian and Mikkel B. Rasmussen, “The Moment of Clarity: Using the Human Sciences to Solve Your Toughest Business Problems”, Harvard Business Review Press, 2014.]

Madsbjerg and Rasmussen describe how relying on quantitative analysis and default thinking means you can miss the future for your business. If you are constantly looking into the past rather than experiencing the present, you will have real trouble grasping the future.
“We call our method sense-making because it describes the experience of connecting the dots amid a sea of confusing data. Through sense-making we arrive at moments of clarity” [page 78].

Sense-making is about really understanding your customers by observing them in their real life context.  You collect as much data about them and their interactions as possible. The data is trawled through and analysts given time to let the information ferment to identify patterns from which you create key insights.  You forecast the potential impact on your business and only then do you look to build forward looking business solutions [page 105].

Sense-making has many applications to real estate. Especially in residential real estate the numbers you ‘forecast’ are only ever likely to be proven wrong. The most sophisticated econometric analysis cannot predict the turning of a real estate market nor inform us as to the financial metrics of herd mentality.

Purchasing a home characterises the findings of recent studies evaluating how people buy.
“We rarely know what we want. We almost never fully grasp the market and most important, we almost always buy something at a different price than we thought we would” [page 32].

Houses may be purchased in dollars, loans granted in ratios and percentages and floor plans measured in square metres but value is perceived in a very human context. This is where psychology and culture tend to dominate and very often overrule so called rationale behavior (despite what many Valuers think!).

The first action when sense-making is to re-frame your problem as a phenomenon.
“Phenomenology is the study of how people experience life” [page 79].

Rather than trying to jump to find solutions to the question ‘how do we sell more apartments?’ you ask ‘what is the role of inner city living?’.
Instead of saying ‘how do we deliver 1000 houses profitably over the next 2 years?’ you investigate ‘what makes a house a valuable home and where is this value missing most in our society’.

Yes it all sounds very soft and fluffy, but the authors do a much better job than me in showing how this can be used to solve business’s biggest problems.

“Ethnography, the process of observing documenting and then analysing behavior” [page 90] can be used to examine and collect data on inner city living.
Why do people want or need to live in the CBD?
How do they live in their apartment?
How do they travel and what common activities do they undertake?
What do they actually use in the kitchen?
What shops do they commonly visit on their way to and from work?
How do they use cars and parking?
How do they arrange furniture and store household items?
What do they show friends and family when they come to visit?
How is their timetable different or similar to people living outside the CBD?

Let’s say you analyse how people live in the CBD and find a pattern, that whilst everyone has a kitchen, they use the oven on average only once every two weeks but use the microwave daily.  On initial inspection of this data ovens are not an important item. However, when guests come over they all comment on how ‘cool’ the kitchen with the large wall oven looks. This may lead to the insight that many apartment dwellers like to be seen to have a full Masterchef kitchen, but rarely actually use it.

The potential business impact when selling could be to focus on the look of the wall oven, not its functionality and sell up the benefits of a full function and regularly used microwave. [Page 155 for associated discussion how Samsung improved market share around by focusing on televisions as stylish pieces of furniture].

Or what if the ethnographer documents the daily activities of stay at home mums (and dads) in a large subdivision. A pattern is discovered how time efficiency for the stay at home parent provides the most value – more ‘valuable’ than the effect of the bread winner’s lengthy commute.

The stay at home parent values a logical and consistent traffic free route from home, to pre-school, to school, to supermarket or other task centres and back to home in the mornings. A similar journey albeit loaded with after school activities and other tasks occurs in the afternoons.  In the intervening period whilst at home the kitchen has become a default office – with online trading (goods and investments) undertaken by the stay at home parent an emerging theme.

This may provide the insight that stay at home parents are busy, have time constraints, value efficient transport routes and when at home now tend to spend more time in a business like activity than household chores.

The impact for property development business could be a sales focus less on distance to work and more on specific amenity in the surrounding area. It could also mean developing to embrace stay at home parents taking a more active role in online based investing and design in ‘kitchen or pantry offices’.

When we were researching to develop a medical center I remember one site visit where the architect asked me to look up while we walked around the halls of the clinic. They had done extensive investigation from the patients view point whilst being wheeled around on the hospital bed ready to go into the pre-surgery area. The result was calming artwork and way finding signage (to reduce disorientation) on the ceiling.  Perhaps a similar sense-making type exercise helped create this luminous ceiling Philips have developed for an Intensive Care unit in Germany.

The authors provide more sophisticated examples of sense-making in other industries and tackling strategy as well as product and environment design.

They extend the discussion to leadership and the need for leaders with perspective [page 173]. The understanding of consumer behavior can be wasted if leaders do not find a way to interpret and implement appropriate strategy across an organisation – connecting the different quantitative and qualitative worlds.

The authors contend that leaders should look out to the furthest of four horizons; moving past yourself (career) and the company towards industry and society [page 173].

It is then, once the organisation knows how customers actually experience life when moments of clarity happen [page 173] .

www.aenspire.com

The assessment of risk in property development is often very basic. The best case ‘evidence based’ scenario is presented to funders with a project contingency and margin to cover known risks.

In residential property development, for a lender to fund 80% of development costs they may expect to see a 5% contingency, a robust construction contract, a 20% return on cost profit margin and 50% pre-sales before releasing funds to start construction. This obviously varies depending on a range of factors including the market, the developer and who is providing guarantees and equity.

‘Megaprojects and Risk: An Anatomy of Ambition’ provides a detailed insight into how poorly risk is treated on some of the worlds largest infrastructure projects.
[Flyvbjerg, Bent, Nils Bruzelius and Werner Rothengatter, ‘Megaprojects and Risk: An Anatomy of Ambition‘, Cambridge University Press, 2003]

The authors pull no punches in their critique but also offer  solutions to how risk should really be treated. Their research covers a number of projects from the Eurotunnel, to bridges and tunnels connecting Denmark and Sweden to metro subways, high speed rail and airports around the world.

The reason for their research is simple: many megaprojects experience a double whammy of cost overruns and missed revenue forecasts in a very public forum.

Effectively risk has not been correctly identified, publicised or managed, as the authors describe:

“We will show in terns of risk, most appraisals of of megaprojects  assume, or pretend to assume, that infrastructure policies and projects exist in a predictable Newtonian world of cause and effect where things go according to plan. In  reality the world of megaproject preparation and implementation is a highly risky one where things happen only with a certain probability and rarely turn out as originally intended.”  [page 6]

“Megaprojects are increasingly becoming highly public and intensely politicised ventures drawing substantial international attention with much potential for generating negative publicity.” [page 9]

“A first step in reducing cost overrun is to acknowledge that a substantial risk for overrun exists and cannot be completely eliminated; but it can be moderated.” [page 11]

“A next step is to allocate the risk of overrun to those best able to manage it.” [page 12]

There are lots of examples with massive cost overruns and revenues never getting close to initial expectations – the Chunnel for example only had 18% of of forecast traffic in its first year of operation, beaten by Calcutta’s metro which had a measly 5% ! [page 25].

The discussion is also very critical of the lack of accountability and optimism bias of political and private promoters of such projects.

I know very little about large infrastructure projects, let alone megaprojects. I once developed  software that was used on motorways (freeways), wastewater upgrades, hospitals, prisons, airport and rail projects in New Zealand for document and consultant collaboration. The software’s objective was to improve communication, variation management and indirectly reduce risk but I had little knowledge of how feasibility and initial assessment of risk was treated on those projects.

However, after reading this book you could quite easily substitute the words ‘property development’ for megaproject. Except for the most basic, short term and complying projects,  property developments are susceptible to many of the same risk causes as the authors describe in megaprojects. This is especially so in publically funded projects but even private developments have many political and public risk factors.

Large scale property developments take time. The longer the programme the more likely you are susceptible to (changing) property market risk, capital market risk and policy risk [page 77 for associated discussion].

The larger the property development project the greater the potential implication on project costs, negative publicity and political decisions.

What the authors found is that a mechanical approach to risk analysis (static +- sensitivity analysis) often led to an incorrect belief that the course charted is the most likely [page 77]. They describe the problems when looking from what the World bank describes as the EGAP approach ‘everything goes according to plan’ [page 80].

“…in reality in the world of megaproject planning an implementation is a highly stochastic one where things happen only with a certain probability and rarely turn out as originally intended.” [page 73]

“…what people may think is the mean of all possible outcomes it actually the very unlikely best possible outcome”  [page 77]

” …the result is that the real costs and real risks do not surface until construction is well underway” [page 44].

The authors describe a better mechanism for risk analysis where you assign probabilities to potential outcomes and provide a more realistic assessment of what could happen and the effects on project investors and stakeholders. This helps remove some optimism bias (politicians like to make promises, builders like to build, developers like going for high profits) and to uncover the all important worst case scenario [page 81].

Whilst determining probabilities itself can be very subjective and montecarlo simulation analysis may appear overkill in property development, merely looking to apply the principles can create a more rigorous risk assessment. With the risk assessed, alternative scenarios can be formulated or contingency plans produced to mitigate that risk should it arise.

If the worse case is beyond your speculative inclination you can drop the project altogether. If the worse case isn’t actually that bad, then that may influence your decision to proceed even if there are significant risks (yes I run the ‘risk’ of sounding contradictory!).

Private business, undertaking work for public entities often miscalculate policy and stakeholder risk. One important way to reduce that risk is to get as much upfront agreement and clarity around objectives and decision making processes as possible – ideally binding contracts. It is also important to monitor those risks in line with the agreements in place. This works both ways; it protects the private interest from expending resource in anticipation of a successful outcome only to face policy change down the line; and it reduces overall cost to the public entity because clarity (especially when contracted) reduces the margin a prudent private business needs to place on policy and stakeholder risk.

The book has many lessons applicable to large scale property development and I recommend it as essential reading, especially for any organisation involved in private-public development initiatives.

Andrew Crosby

For my own take on managing project risk visit www.developmentrisk.com and read more in Turnaround Success: How to Resurrect Failed Real Estate Developments. 

Here’s a teeny weeny deal me and my business partner did, which to me makes a mockery of the overused real estate mantra ‘Location, location, location’.

In 2003 we brought the worst house in the worst street in a regional town just outside New Zealand’s largest city Auckland. The owners before us had paid 98k in the late 90’s. We had it conditionally signed up at 100k. A last minute negotiation at the lawyers office got it down to 98k plus an early access clause before settlement.

During the settlement period we did a quick renovation ourselves – my partner project manager and me laborer and general dogs body. The house was transformed to the best house on the worst street.

We signed up a tenant before closing at a higher rent and had it revalued (twice actually as the first valuer did not know the fast rising market!). When it came to closing we settled in cash using family money, then had the bank lend 80% on valuation shortly after. This allowed us to repay the family money, paying our renovation costs (5k) and left us without having to put a cent into the deal.

I didn’t visit that house or do any further laboring duties for almost ten years. I had one point of contact where after the stove elements had to be replaced twice I told the property manager their role was to collect the rent and if there were maintenance requests the tenant could contact me directly. I never got a phone call.

Ten years later the tenant’s government subsidy ran out and the tenant could no longer afford to live there. The tenant was a pig. In fact I actually uncovered the carcasses of at least 3 pigs in my landscaping duties, one of them conveniently intertwined with shellfish shells and a metal wire clothesline. Admittedly our absenteeism landlord approach didn’t help the cause, but the tenant had successfully turned the house back into the worst house on the worst street.

So we had a decision to fix and rent again or to fix and sell. We decided to fix and then figure out to sell or rent later. For the second time my business partner was project manager and I was the dogs body. This time we did a proper renovation, completely rebuilding the bathroom and kitchen and pretty much completely overhauling every internal finish. I estimate every cent we spent (40k) we only recovered 50% on sale. The problem was we were forced to fix everything as the house was is such a bad condition.

A few months later (actually it took us ages as we lost interest a number of times during the process) we had turned the property back into the best house on the worst street.

When we were close to finishing we decided to sell. About a week before we listed the government put a Loan-to-Value restriction on banks in New Zealand. Real estate agents told us first home buyers for this low end property pretty much dried up. That made us drop our asking price a bit. However, within a couple of weeks an ‘investor’ emerged and we settled on $265k.

With no money down, rent just covering expenses throughout the ten year period and a number of annoyingly difficult weekends laboring  we cleared $120k. Despite it being at the low end dollar wise that’s not a bad return – just try and divide $120,000 by zero.

And guess what, it was nothing to do with location. In fact you can’t get a much worse location. We cut holding out on price on the sale negotiation pretty quickly when one morning doing the final touch-ups a patched gang decided to have a gathering across the road – the alcohol started at 9am. I think we would have pretty much taken any figure at that point.

It was also nothing to do with our expertise. We simply lucked out on the purchase timing, lucked out with an always paying government subsidising this tenant, kept expenses and income close to zero and ignored the property for almost ten years. While the tenant, her family and her dogs fouled up every internal finish we waited it out.

For residential investment property I contend time in the market is more important than location. Unless you have ESP to predict booms and busts or an innate ability to predict the next hot spot that all the trendy people are going to move into (or out of)  from a % total return point of view, location doesn’t really matter.

I can hear the but’s…..

www.aenspire.com 

Last night had been a big one. After 6 years at University I finally had some cash to spend and that night most of it had gone to bar proprietors.  I gingerly got out of bed about to embrace the day (with a headache), when I noticed a flashing light on the cell phone.

13 messages. 12 of them within the last three hours. I looked out the window, it had been pouring down with rain last night but relatively fine this morning. I only had to listen to one and a half messages before my face dropped and the sad state of affairs that would be my weekend dawned down on me……….

I had recently quit a prestigious consulting firm to join an up and coming property development company. Lured by champagne dreams and a caviar lifestyle this was my ticket into the fast lane. That all appeared a little off the mark now as I was lying on the edge of a roof of a multi-level town-home, holding a hose over the side, trying to pretend I was the likely rainfall from a northerly storm.
“Can you see it yet?” I yelled.
“Na” was the muffled reply from inside 3 stories below.
“What about now”…the conversation continued for many hours.

The problem that has held New Zealand’s residential property market ransom for almost two decades now was just starting to emerge. My role was to resolve any outstanding defects for purchasers – it quickly morphed into a job that dealt with a few minor issues (everything except water) and one massive disaster (water!). Yes I worked for a developer that did care and did consume vast resource to try to fix what effectively others had built.

As a practical introduction to construction 101 and stakeholder engagement 202 there was nothing better than spending 18 months trying to identify and rectify mysterious water leaks in peoples brand new, very expensive inner city homes – whilst they were living there.

In the early days we tried the following expensive approach:
– Tell the builder to fix it. Mostly they couldn’t without additional support and sometimes key staff had already moved on.
– Withhold the builders retention to make sure they had fixed it. Given enough time and with an industry flush with new work  builders would often drop any hope of receiving their last payment. Often the problem emerged after the last payment had been given.
– Tell the original Architect to sort it out (obviously must of been a design detail), yeah not really an approach that got any results – a  lot of blank faces on Architects in those days
– With no builder available or at least capable we took the highly professional route and pretty much assembled what we thought was the water leak A-Team. Engineers, new Architects, Project Managers, all sorts of experts you name it, we paid for it.

The problem was (in retrospect) no one really new what they were doing but were more than happy to be paid to try and dream up solutions. I was culpable because, mainly to minimise purchaser disruption, we wanted to limit intrusive investigations. That forced a piecemeal approach – fix it in the easiest way possible. Typically there was no easy fix.

Later there were consultants who appeared on the scene who specialised in weather-tightness armed with their moisture meters so we used them. They were also still learning and took a very conservative (everything is a problem) approach. As a representative for a company who could end up footing the bill you didn’t always want to hear the answer.

Over time and hundreds of thousands of dollars later we learned that in the first instance the practical approach was best.

My stakeholder engagement went something like this:
“Hello Mrs Smith, yes that annoying leak into the bottom bedroom doesn’t want to go away does it?
Hmm, well we have had all the experts in – thanks to your 7 year old daughter for letting us look at the wall in her room by the way – and checked the property as much as possible.
Well, arrrrgh, hmmm we think the best thing to do now is to knock holes in that wall and the adjoining wall in your master bedroom, lounge and daughters room and find where the water is coming in.
I am going to hold a hose on the roof and these guys, with work boots removed are going to try and not knock anything over in your house and tell me when and if they see water.”

That approach whilst a frightening inconvenience for the home owner actually fixed that leak. What we found is that the intersection between the parapet wall, the roof metal, the internal gutter and the bitumen seal was faulty. You couldn’t tell from looking at it, but once isolated with water, that’s where it was coming in. Once inside, water traveled down timber, across ceilings, down more timber, and eventually out into the inside of the young girls bedroom once it hit the concrete floor on the lower level.

So we fixed each one of those intersections on all 5 or so townhouses and while we were at it replaced all parapet capping to cover the entire parapet to the metal roof line. Like this one, often a leak does not have a single cause. Typically there are many faults that in their sum create a weather-tightness problem.

Then we lawyer-ed up and the costs and blame game went stratospheric.

Nowadays there is a whole industry of building surveyors who specialise in weather-tightness. I don’t know if they make the solutions any easier, cheaper or less intrusive to home owners – it just seems everything gets completely re-clad or rebuilt now.

Just because there is a water leak doesn’t always mean the whole building is leaky. I remember visiting an office extension we had built  that housed our new development showroom on the morning before the big launch. To my astonishment the newly laid timber floor was flooded with water quickly moving towards the carpet.  I sent a laborer to the warehouse to buy every towel they had to mop up the mess.
I eventually climbed up onto the roof. No not a leaky building, just a stupid paint subcontractor had left all their gear in the middle of the gutter and that had blocked the water from getting to the downpipes !

In another non-leaky building situation, water was coming in from the ceiling. OK here we go, thinking it was a leaky building and the consultants were about to be called in. Thankfully  the builder figured out what could be the problem and stripped the ceiling off. We found the plumber had not tightened the shower wastes to the bathroom upstairs! As a precaution we removed ceilings in a number of other units to check the plumbers handiwork.

From my experience I put the leaky building crisis down to some key points:
– Poor attention to detail at joints and where sub-trades meet. This was exacerbated  by poor construction management oversight and liberal site inspections. I understand in the United States the methods of contract and packages of work actually create better coordination between sub-trades.

– Very few people knew what they were doing when it came to trendy looking town-homes. Flat roofs, parapets, internal gutters, flush walls all can work if done properly. Almost everyone was inexperienced in this type of construction: Architects, Project Managers, Construction Managers, Foreman, Main Contractors, Sub-contractors and yes Developers.
The focus on cost control and delivery according to programme created gaps in detail for this type of construction, that many overlooked because they didn’t know what they didn’t know. In retrospect they should have known!

– Sometimes it simply was shoddy or negligent construction, often associated with cheap labour.

– Council and independent inspections were inadequate or at least not cognisant of weather-tightness issues to the same degree as they are now so they missed potential problem areas.

– Material manufacturers had a role to play.

Our town-homes used to have stucco exteriors. When cracks started to appear (literally) we searched high and low for suitable alternatives that would fit the style of modern town-homes.

There was one meeting we had which I now look back on as a game changer to the severity of leaky buildings. I am sure every developer in town was having the same meetings . In this ‘sales’ meeting sat our company, and three others; a representative each for suppliers of kiln dried untreated timber framing,  elastomeric coatings and cementitious backing board.

This was to be the new fail safe method, explained to us something like:
“With kiln dried timber there would be no shrinkage, and therefore no movement, and with the elastomeric coating on cementitious board because there was no movement there was no way the water could get in. Cavities were not a requirement for a manufacturer approved installation.”

The problem as many of us know is that the water came in through intersections and details and with this system the water couldn’t get out. Once the water was in, and stayed in, it could cause damage for a long period of time before it was noticed. With untreated timber framing this increased likelihood of rot.

Applied with the utmost precision the system could work – good builders got it to work with relentless attention to detail on many of our projects. However, the precision required in my opinion was beyond existing residential trade skills, management and inspection thereof – so the system failed on many developers projects all across the country.

So then we moved to doing everything in concrete, which in itself does not solve the problem but is a much more robust fail safe if water does get inside.

Today on residential projects I am involved in, we have the plans evaluated at concept/resource consent specifically for weather-tightness risks, then again at building consent (for weather-tightness details) and then specifically inspected for weather-tightness during construction – by an expert.

So back to that fateful Saturday morning,  I listen to the 12 messages, they went something like this:
12. “Andrew, my house is flooded”
11. “Hi, we have some water coming in”
10. “My carpet is wet in the corner”
9. “I can put my hand through the wall”
8. “Can you please send someone around, we have a problem”
7. “My neighbor has just called me and said their place is flooded, I am away – can you check mine for me?”
6. …and so on they went…

My weekend was spent coordinating three separate carpet cleaning services, a team of carpet installers (to remove the carpet) and running over 20 industrial strength fans to dry the floor out.

The problem was very simple, but certainly caused by negligence of the sub-trade and not picked up by construction managers or inspectors. The building is multiple levels high, water would hit the face of the wall during a particular storm direction and track down the wall. At the bottom level it would run down a ranch-slider door and supposedly any water trapped in the joinery would escape through the weep holes. The joinery had weep holes so we thought no problem there.

What we found eventually after having a Chinese supplier fax us joinery details was that this aluminium section had two sets of weep holes and that the plasterer had rendered over one set. So 50% of the trapped water had nowhere to go but inside.

That one was easy to fix also, unfortunately only after a lot of damage had been done, after home owners had been frustrated to their limits and after  I had to find out far too much about every minute detail of how the building had been put together.

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