Expert in Focus - James Paver
Managing director James Paver has steered Avenor to become a leading light in Sydney property, rolling out a suite of major projects, including a $1 billion-plus tower for tech giant Atlassian, less than four years since the company was established.
Avenor recently earned national headlines with it's involvement in driving the development of Atlassian's new headquarters to be the anchor for a Silicon Valley-like technology and innovation hub at Sydney’s Central Station, with the 40-story building to become the world's tallest hybrid timber tower.
Mr Paver himself was recently shortlisted as one of the Property Council of Australia's finalists for its 2020 Future Leader of the Year award, part of an awards ceremony to be held in Sydney later this year.
With the company expanding into residential development, Australian Property Investor Magazine caught up with Mr Paver to discuss Avenor’s rise to prominence in Sydney and its ambitions of becoming a national developer.
Tell me about the history of Avenor - how did it start?
Avenor was started in 2016 by Peter Clemesha and myself. We had both been at Leighton Properties, which had been very successful, but was shutting up shop. So Pete and I picked up some of the key employees and have started building up the new and improved model.
We started small, and now we’ve been going for about four years and we’re starting to kick some goals.
You’ve had some pretty rapid growth - I was just having a look at your project portfolio and they are fairly large scale, so how have you been able to put that together in just four years?
One of the key skills that we’ve learned was to partner with institutional land owners, capital partners or tenants to stay in the same markets as we were when we were with Leighton Group. Leighton always had a relatively equity-light model, so being able to structure commercial fund through developments or residential joint ventures meant that we could keep operating in that sort of market. And with the tier-one team that we have, we’re able to deploy a ‘whole-of-project’ development team with major project experience on behalf of clients and investors.
What is the appetite for these institutions to get involved in new developments in Sydney at the moment - what’s the commercial property market looking like?
It’s in a state of caution, as you can imagine. Thankfully though, a couple of our major projects are in a very strong position and we’re not exposed to the full impact of COVID on the market.
In commercial, we’ve been working with Atlassian for five years in the pursuit of a new home for them, but also to create a tech precinct. Having a 50,000 square metre anchor tenant is the critical piece of the puzzle when it comes to minimising your market risk exposure. With COVID, if you are sitting there without tenants then it makes it more difficult, but for a project like that, having such a strong covenant like Atlassian there, is obviously a key piece.
In the residential market, our core project at the moment is a residential tower project in the North Sydney CBD with about 280 apartments. It’s about 30 storeys, is 200 metres from the new Victoria Cross Metro Station and has views of the harbour and the Opera House so will be a quality product when it comes to market. Thankfully though, we’re not in the end sales process at the moment. We’re still in planning, so whether COVID is here or not, we are still kicking it down the road while we are resolving the final planning issues, so we have kind of dodged a bullet there.
Do you think COVID is going to change the way office buildings are developed, will people require more space because they want to spread them out a little more, or will they require less space because fewer people are coming into the office five days a week - what do you think is going to happen there?
To be honest, I’m not convinced either way at the moment. The firm is still doing our investigation as to what the practices of tenants will be like going forward. To form a house view of that, we will be speaking with tenants and seeing how their current operations are impacted and what their plans are for future workspaces. I think Atlassian said it quite well in that there is absolutely still an important place in any businesses’ operations for the face to face engagement and the office space itself. I suppose being able to identify how firms will start changing the way they operate will take some time, but there is no rush. It’s not something that you want to get wrong either way.
We have a commercial project at Mascot which is a growth market that we are quite bullish on for the long term due to WestConnex road infrastructure, which has previously been lower on our priority list.
Another game changer here is the NSW Government’s Sydney Gateway project, which is a new direct high capacity road connection linking the major arterial road network to Mascot Domestic and International airports, and COVID has seen a reduction in use of trains and public transport, which is kind of counter-intuitive to the direction we’ve been going in for so long, which is ‘public transport is the number one’.
We can kind of see there now a tendency for tenants to look at secondary markets where it might be an easier place to get to and park, and where rents are more affordable. So you can have an office where people can drive in and drive out for a two or three day a week arrangement. Smaller healthier designed buildings so they can take a whole building that they don’t have to share with a lot of other tenants and share facilities and common areas, and you can size it to a broader tenant market.
Being able to do that in a market where the rents are a bit cheaper is something that we are finding people are starting to look at, because it means they are not paying exorbitant rents for a space that is utilised at a lower rate.
We’re actually focusing on smart infrastructure, and creating a building that is one of the first cabs off the rank that can actually properly utilise the full effectiveness of high speed WiFi. To retrofit an existing building that is concrete and has existing fibre in it with high speed network can’t be done because it doesn’t pass through structures easily. So being able to create a physical building that is connected to the infrastructure needs to be planned for in advance. This will be quite a combination for tenants that can’t afford the city.
Is that how you set yourselves apart from your peers in this space - the fact that you identify what’s going to be the future trends, what future tenants are going to be demanding, and put that planning in place now?
We do try to be one of the first movers in new markets. At Parramatta, Steve Rayleigh, our national head of leasing, delivered the Eclipse building, which was the first A-Grade building out there, then Pete put together PSQ1 as the first stage of the Parramatta Square precinct to house Western Sydney University.
And in North Sydney, at 177 Pacific Highway, the Vodafone building, that was the first new commercial building up there in six years, and by moving at the right time, the capital value of the asset grew by $100 million through the delivery phase.
Now at North Sydney there have been three or four commercial towers built there since. Even in residential, Erko was a 300 unit development in Erskineville that Pete put together which was the first stage of the Ashmore Precinct.
At Central Station, we formed a view around four years ago that Central Station is an absolute growth market because it is so close to all of the critical infrastructure, at a more affordable price point and in a space where we can create a new generation of buildings.
The Atlassian tower will be the first stage of that and we were adamant that being the first mover in that market will be a strong move.
Even with the actual buildings we create we make sure we’re at the leading edge. For example, the sustainability initiatives for the Atlassian building are setting new global benchmarks.
So how do you identify those opportunities before others do?
To be able to accurately do that takes a lot of energy and engagement with government authorities and tenant markets in the planning world to make sure that timing is right. If you go too early you’re sitting around for a long time, but if you go too late you’ve missed the growth. But usually we think we pick it quite well, so we will see how we go.
We definitely focus on infrastructure and state government policies on where housing density will be focused and where commercial density will be focused. For example, with our site in North Sydney, when the Greater Sydney Commission and the state government a few years ago were creating the district plans they said ‘we are creating a 30 minute city, where everyone can get to or from work in 30 minutes’, but the primary focus was creating homes near jobs.
North Sydney has a notoriously exclusively commercial CBD, there is no residential in the actual CBD, so we amalgamated a site, bought 24 individual units across a 2,500sqm site, to amalgamate the largest site that was zoned high density residential immediately next to the core. The state government policy was homes near jobs, so we were like ‘where is the closest we can get?'.
Now I know that you said that the North Sydney tower was still in planning, but have you gotten a lot of early enquiry from those interested in the project?
Yes, it’s a pretty unique product because there is not much to buy around there. It’s pretty early days but people are starting to submit their interest. There are not many tower sites in Sydney that have both proper views of the harbour and the city as well as a good northern aspect.
You’ve got Kirribilli and Mosman where you can see the harbour but you are on the south side of a hill and you don’t get the sun. What we are going for here is to have that northern aspect but still have views of the harbour.
What’s the timeline for that project?
We’re looking at starting construction next year.
Is that the most immediate new project on your portfolio?
The Atlassian tower will start construction next year as well, so those two are the immediate focus, while Mascot will probably be a similar start time as well. In the residential market we want to make sure that the strategy we deploy off the back of COVID maximises the opportunity.
There are going to be a lot of opportunities that come up, so we are thinking very carefully around where we deploy our capital and who we partner with. I think there are going to be some good news stories coming out of the recovery - when you look back over history and look at the major economic crises over the last 100 years, and there is inevitably a very strong recovery. The difficult trick is to time it correctly.
But we are in a fortunate position of not having a lot of debt, which means that unlike others who are feeling a bit of heat at the moment, our debt position isn’t weighing us down.
So changing tack, can you tell me a little bit about yourself and how you got to such a prominent position in the property sector so quickly in your career.
When I was at university I landed a gig at Investec Bank in their structured real estate finance team, and in that role it was banking for high net worth developers and investors. In doing that, I got early exposure to all sectors and most major Australian markets, and in investment and development.
I was thrown in the deep end, working really long hours, learning on the run and it was just following the GFC, so it was a tough period. Off the back of that, I started forming a view that I wanted to own my own firm, and decided the way to get there I could either go the route of development, and later on bring in expertise in funds management, or I could go into funds management and bring in some development expertise.
So I went the development route and left Investec and went to Leighton and started working in the commercial development team there. It was a similar thing, really long hours, sink or swim. Then they wrapped up that business, and I started setting up my own firm.
That was part of it, and the other part of it was the team that I’ve surrounded myself with. I’m a big advocate of bringing in specialists and knowing how to get the best out of them, and putting my trust in them and being able to supplement any shortfalls in the firm with new skills to make sure we have the whole suite covered.
What’s given you confidence in Sydney, if you start reading forecasts they are fairly mixed, some are fairly bullish but there are also doomsayers out there that say there’s no good to come in Sydney property for several years?
I think part of it is our company being so young. Other companies have heavy debt and they are operating in a short-term headspace, and that’s not how I’m reading it. My objective is to create Avenor as a long-standing national development and investment firm.
To do that, I’m very conscious that we need a long horizon, and we can’t afford to make silly mistakes in hitting markets when they’re not right. When I say I’m bullish, I’m not saying that if I dump in money this year I’ll get good returns next year, it’s more that I am going to set up really well this year so that next year we have got a strategy to capitalise on wherever the market is.
As a developer, you can still create returns wherever the market is, as long as you are doing the right deals. We specialize in helping our partners create value whatever the situation.
There are still landowners that need to unlock value in a down market or work out the best strategy for their asset, tenants that need to consolidate or move their workforce to a new office space, investors that need to shift their capital to a different asset class.
There are deals to be done out there, whether it be in an advisory capacity or in investment, so we’re in a pretty positive headspace to keep helping our clients and partners work through the recovery.