Concrete has been the main stay of building construction for generations. Today, traditional reinforced concrete is an integral and important component of building structures. It usually takes the form of footings in ground, slabs on ground, columns and suspended slabs.

Concrete however, is not the perfect substance. As such it can suffer from defects. These defects can have a huge impact on the appearance, capital expenditure, maintenance costs, safety and effective life of the total structure.

What then are the typical forms of concrete defects? Some of the more common defects can be categorised as follows:- 

• Structural design inadequacies – distortion, bending cracks, deflection, shear cracks, impact damage temperature change cracks, abrasion, torsion cracks and erosion.
• Environmental causes – weathering/staining, biological growth, bacteriological attack, efflorescence (lime leaching), freeze-thaw damage and fire damage
• Aggregate properties – aggregate swelling/shrinkage/softening, alkali-silica reaction and sulphide staining/spalling.
• Chemical attack – sulphates, chlorides, acids and salt weathering.
• Reinforcement corrosion – cracking, spalling and de-lamination 
• Concrete Cancer – cracking of the concrete caused by the corrosion of steel reinforcement in concrete structures

These defects are a significant worldwide problem and cause multi-billion dollar losses to infrastructure and building owners annually.

Reasons for the rectification of concrete defects can range from purely subjective (the aesthetics); to preventive (to prevent additional damage); to structural (preventing partial or complete failure); to safety (avoiding impact from falling debris).

As evidenced by the recent traffic disruption caused by structural cracking on the Riverside Expressway in Brisbane, one of Australia’s busiest stretches of road, the consequences (time, distraction and expense) of cracking concrete can be severe.

What then is the solution to problems caused by cracking concrete? The type of concrete defect rectification varies with respect to a number of factors: budgetary constraints, time limitations, weather conditions, and the requirement for specialised techniques.

In the specific case of concrete cancer, cracked concrete is removed followed by cleaning, treating and replacing any rust affected steel. The area is then repaired to the original concrete profile using cement mortar, epoxy mortar or concrete. This depends on the size of the damage and the structural requirement. Cracks are repaired using suitable epoxies, special mortars and injection techniques

While the rectification processes are usually expensive and time consuming, they are nevertheless an important step to take. Cracked concrete can have severe consequences, and if remain unchecked, associated costs can escalate significantly from both a repair, and damage control perspective.

Since the 1960s, there have been numerous, high profile incidents of ‘spontaneous” failure of toughened glass in building facades. In some cases, glass has been known to simply ‘pop’ out of high-rise building windows and fall onto the streets below  Why does this happen? The cause lies within the makeup of the glass itself.

Nickel sulphide is a rare and unintended inclusion in the production of glass panels. However, the presence of nickel sulphide can be a problematic one. This is due to what is technically called, ‘delayed transformation’.

For those interested in technical detail, these follow:

Nickel sulphide crystals can take one of two forms. At high temperatures, a dense crystal is present. At lower temperatures, a less dense crystal is present. Provided the transition from high to low temperature (ie. cooling) is gradual, the crystal can move between forms without problem.

For example, in ordinary annealed glass, the crystals do not cause problems because the cooling process occurs slowly during manufacture.

However, during the production of glass for use in high rise buildings, a very fast cooling process is used. This process in necessary to create the toughened glass that is capable of withstanding exposure to strong winds.

The problem begins when the glass is cooled rapidly during the toughening process. This rapid cooling process often fails to cool the nickel sulphide crystals. So the nickel sulphide remains trapped in its high temperature form. However, the story doesn’t necessarily stop there. Sometimes, years later, the crystals may spontaneously start to transform and result in the glass breaking, causing the windows to shatter onto the streets below.

This problem still presents itself in glass manufactured today. If a significant amount of toughened glass is used, there is likely to be nickel sulphide inclusions. Statistically speaking, around two out of every 1000 toughened glass panels that are produced are likely to contain nickel sulphide inclusions.

The solution is not particularly feasible at this point in time. Existing detection methods are expensive and time consuming. The only way to detect and remove the potential for nickel sulphide is to examine each pane of glass individually. Each image must then be analysed for the detection of inclusions. Once these inclusions are detected the panes of glass are removed and the process of heat soaking begins. Heat soaking is a process first used in 1982 which heats up the glass pane enough to cause the inclusions to change phase altogether, thereby removing them. At this stage there is a 95% conversion rate for removing the inclusions via heat soaking. 

However, this is not the same as a 100% success rate, and it is indeed a time consuming and expensive process. While there are new developments within the industry that one day may overcome this problem, the shattering truth remains that when toughened glass is used, nickel sulphide inclusions are more likely than not to present themselves.

When undertaking due diligence work, we often identify instances in which owners have carried out quality refurbishments that include foyers, floors and ceilings.

While this certainly does help with the building’s maintenance and appearance, the refurbishment often overlooks a critical part of the equation: the air conditioning unit.

Air conditioners are a critical resource for buildings everywhere.  Why is it then that they are so often overlooked? Many building owners do not consider the air conditioning unit to be particularly important in terms of refurbishment. Some owners do not even consider that air conditioning units would ever need to be refurbished.  This however, is certainly not the case.

For most buildings, the air conditioning units were installed when the building was constructed. In some cases, this is as many as thirty years ago. As such, these air conditioning systems were designed to suit conditions relevant to the times when the building was originally constructed. For older buildings, this means that the air conditioning was designed to cater for factors that we consider common today such as computers, longer working hours and work station clusters.

Why is this a problem? Computers and body temperature each affect the general air flow required within a building. Consider a 10 storey building with a central air conditioning unit. It is likely that over a period of years, the number of employees within the building would have increased; the required electricity would have significantly increased; and the hours of work would most likely also be significantly greater.

In this instance, the air conditioning unit will have to work significantly harder than it did when it was first installed.

This can lead to several problems due to the increased workload, including increased maintenance due to, or to prevent failure, and increased running costs.

Effective, efficient air conditioning systems are a major consideration for employees and therefore benefits. So, a building owner must consider this issue when allocating funds for refurbishment, in order to achieve an optimal return on investment.

For many years, building owners have subscribed exclusively to the theory, if it aint broke, don’t fix it. This however can be an expensive mistake.

It is important to acknowledge that a building is an asset. As such, it needs to be protected and maintained to ensure that its value is not eroded.

To retain and attract tenants, your asset must be presented in the best possible condition, which in turn will maintain or increase its value.

Napier & Blakeley Building Consulting Manager, Nigel Towse says that if building maintenance is ignored, it can have significant consequences.

“There is a common misconception that buildings have long lives and only deteriorate gradually. This may be true for the more robust forms of structure. However even these can deteriorate rapidly with structural failure, environmental issues, chemical attack or the ingress of moisture.”

The health and well being of tenants is paramount in any leased asset and is heavily linked to how the building is maintained. There are basic, statutory obligations that require regular maintenance to be carried out to this end. In particular, cleaning, testing, and checking etc, of fire systems, boilers, lifts and hoists.

“By planning and carrying out your maintenance efficiently, you can minimise your capital expenditure. This will ensure that your asset is safe, economical, efficient, environmentally friendly, and retains its value,” says Towse.

Damage to property and buildings by fire and other disasters, natural or otherwise, costs Australians hundreds of millions of dollars every year. In Australia, the most common building disaster is fire, so it is important to be prepared.

Napier & Blakeley’s fire insurance assessments are called reinstatement cost assessments. The function of these assessments is to determine the amount a property needs to be insured, to cover the possibility of damage from a disaster. This can include the demolition of the remaining component of the property followed by reconstruction.

Construction markets nationally have gone through significant upturns in cost in recent years. While the increase in these costs may have slowed, they are still far greater than they were a few years ago.

Fire or disaster can have a direct impact on the business operations within a building and many building owners do not adequately factor items such as loss of profits or business interruption into the building insurance equation, leaving themselves under insured.

Over insurance is equally detrimental to business performance. Insuring a property for more than its true worth provides no tangible benefit and may increase the building’s outgoings unnecessarily.

Napier & Blakeley will ensure you are insured for the right amount. The assessments we provide take many factors into account in determining the cost of reinstating property. Our quantity surveyors are capable of determining the true demolition and reconstruction costs of a property. Valuers value, architects design and builders build, but none are real cost experts

Full assessments by Napier & Blakeley are vital in analysing the true extent of loss in the event of a disaster and enable property owners to secure the right insurance cover at the best available premium.  Our quantity surveyors are skilled in the area of construction costs and have daily exposure to changes in the marketplace affecting labour, materials and procurement.

Financier and developers, will often shop around to get the cheapest quote in an effort to shave a few hundred dollars off the cost of their reports. The question that remains is: Should they prioritise financial savings, or a quality level of reporting?

Developers often see financiers reports (risk assessments during the construction period of a development) as a necessary evil to get their hands on the financiers cash, so the cheaper the better. However where the drive is towards controlling of costs to maximise return, the saving in a financiers report could leave them exposed to the risk of far greater costs during the life of the project.

Paul Cosker, Manager, Quantity Surveying at Napier and Blakeley says that a well thought-out financier report will provide commentary on the project. However, in order to achieve that, the developer should sometimes be prepared to pay a little extra for a thorough review at the outset.

“We typically would examine contract documentation, licensing and regulatory issues, project consultants and insurances amongst others. These key issues identify items that have huge potential for causing problems further into the project. This takes both time and expertise from the quantity surveyor.”

A thoroughly considered and well written report has merit as an independent review of the project from the developer’s point of view as well as the financier by providing an unbiased appraisal of the development as a whole.

“The report should fulfil the brief by giving a concise review of the project risks through use of experience and knowledge of the industry. By quantifying and identifying the risks, the report should also provide methods of minimizing and controlling those risks and can offer recommendations on resolution,” says Cosker.

Ultimately, if you want the best protection and advice, you need to be prepared to pay a little more. The reward will be a development that runs smoothly, costs are controlled, risks are contained, and return is maximised.

So where will all of this leave us in 2009 and beyond?

We are now in a Catch 22 market, which will make for an interesting year all round in property and development in Australia.

Property

There is an inordinate amount of property on the market nationally, from residential housing and apartment’s right through to large retail and commercial properties and any number of development opportunities across all sectors of the market.

The problem is credit and debt funding. Australian banks no longer have the cash funds and backing they previously had from the larger offshore investors which makes it much more difficult for them to lend causing them to adjust their lending criteria.

We are aware of a recent example where a blue chip client, with AAA rated companies and virtually no debt, was unable to secure debt finance from their banker of more than ten years to develop a commercial office building in which they would have taken more than 50% of the available space. In another development funding application of only $20m, it was suggested that the $20m be syndicated across four lenders at $5m each – unheard of in recent years.

The Australian property market is still in a state of adjustment (and shock) with valuers increasing yields almost on a daily basis leaving vendors with difficult questions to answer – should I sell, do I need to sell, will I be forced to sell and are there buyers at that price ?

In coming years it is entirely possible that we will see a few ‘super property groups’ who, in conjunction with the banks as partners/managers in legacy JV’s, are unable to sell or don’t want to manage property investments they’ve inherited. This scenario is certainly potentially bad news for tenants, but as banks will inherit distressed property that they cannot sell or entire property companies ,,it may be inevitable..

Markets, of course, always have two sides and there are a significant number of cashed up investors large and small, local and foreign , who are asking the same questions but in reverse; ie; ”How far will prices fall and yields go up?” As a good old Jewish client of mine said to me recently, I have my wallet out but I’ve not yet opened it!

Overseas investors still look at Australia as a prime investment target; we have legal certainty, a sophisticated property system and opportunity for growth before many other countries around the globe.

There have been a few recent examples of cashed up private investors plunging in for large retail assets in excess of $80m at yields of 8.5%, but there are also lots of willing buyers with cash who are still unable to secure debt finance from the banks.

Development

If you are sitting on development land, where are construction costs going this year? Simple, they are going down – maybe by as much as 10% in certain geographic and sector areas.

Facts; unemployment will rise and the availability of skilled and unskilled labour will go up, subcontractors’ margins will come down, builders’ small and large will have their order books slashed and this will, along with the current lower cost of fuel, decrease the cost of a raft of other items.

A weaker A$ will cause imported materials and machinery to stay up in price, however generally our prediction is that costs for new start projects will be lower than they have been for some time.

Council Planning departments, who have been overworked in recent times, should be able to process development applications in record time as the number of applications reduce, therefore reducing holding costs and making development generally more affordable.

So if you can finance your development (and maybe make a few sales) this will be the year to strike a deal to build.

A final note – Government and Superannuation

Every negative statement made by our politicians, journalists and industry pundits, causes many of these cashed up investors to sit back once more and wait for the self-perpetuation process to continue, fuelling the continued loss of confidence by making banal statements is now verging on the irresponsible.

In the early 1980’s and again in the early 1990’s the Federal government analysed and then increased the benefits of building and depreciation allowances – which in turn lead to increased levels of development and investment buying – which in turn stimulated the jobs market and brought much needed revenue into State and local governments through increased stamp duty revenue and the like. Food for thought rather than a Pokie windfall !

If we assume that over 10 million people are in employment in Australia with an average wage of around $50,000, a 9% super contribution equates to $45 billion dollars in contributions over the last year.

Fifty percent of these funds are probably sitting in cash as the superannuation funds have been shy of the equities market in the last six months and their exposure ratios to property, even with the downgrading of property values, has gone up in most cases well above their comfort/risk levels, so they will not invest in property whether it offers good growth potential or not.

It’s an interesting conundrum for the superannuation sector and indeed the Federal Government. The funds are shy of taking risks to protect their stakeholders retirement, however as they have lost a huge amount of their stakeholders funds anyway by being conservative, should they play a part in creating growth, future wealth and assist the country in staving off recession ?

By definition a significant portion of superannuation contributors will not receive their retirement benefit for 20-30 years. Surely such a long term return requirement enables the funds to take some longer term positions enabling to play a positive role in re-building the confidence required in the economy?

Fasten your seatbelts and hang on for the ride.

 NBNews:  What is NB Sustainability?

RW:          Sustainability is not only about Corporate Social Responsibility; it’s responsible financial management. 

                 Environmental and social sustainability initiatives directly impact the productivity and financial bottom line of running and occupying a property profitably; building, buying, tenanting, selling and demolishing.

                Responsible sustainability is applying the right initiative at the right time to maximise corporate and financial returns during the life cycle of a property development.

                Napier & Blakeley not only have the reputation and breadth of services to deliver this technically, their knowledge of the needs of both tenants’ and landlords’ also allows them to provide valuable strategic, positioning and portfolio priority advice.

 NBNews:  Are there differences between Tenant and Landlord Sustainability needs?

RW:          Yes.  The two perspectives are not necessarily mutually exclusive, but often opportunities are lost in the tenant and landlord relationship that could be leveraged with objective mediation.  You need to work with a partner that understands where the best returns for your investment exist.

                Owners need advice and due diligence that delivers the best market return on their property whether it’s during demolition, construction or refurbishment of existing buildings while tenants’ needs focus on their Corporate Social Responsibility commitments and maximising day to day productivity, such as energy use, recycling and staff wellbeing.

NBNews:  You recently presented at the PIR forum in Coolum.  How was your paper received?

RW:          In a forum of Property Investment Managers, the fiscal bottom line is always the top priority, and with the recent global market strain there’s no doubt that everyone there was firmly focused capital adequacy and cost.

                Some delegates saw Sustainability as something that is ‘worthy’ but low priority right now, while others understood that neglect now may reduce their opportunities in the longer term.  But the business principle for both positions is constant – “How do I maximise returns?”. 

                Sustainability is not just a ‘feel good’ initiative.  It is a cost management tool.  If you have a 4 star premises and a Government tenant requires a 5 star rating next year, you have to consider

§     how much the tenant is worth to you?

§     what options are open to you to reach a 5 star rating cost effectively? 

                Sometimes the solution is “to do nothing” and sometimes it’s a matter of applying an initiative that works for your budget and your required rating.    To ignore it completely is ignoring possible ‘pay back’ initiatives that could cost you market share.

NBNews:  Can you give me some examples of Pay Back on initiatives you’ve implemented?

RW:          The waste management recycling I put in place for Optus recycled 92% of the waste at the Macquarie Park Campus and was 5% cheaper than standard cleaning contracting/waste management services.  I was at Optus for 3 years with the same budget and was able to increase services and deliver significant reductions in emissions across our office portfolio.

NBNews:  What innovations impress you in property sustainability right now?

RW:         The focus of technologies to not only have a positive environmental impact but also a positive impact on occupant productivity impresses me. The biggest breakthrough is in lighting which for a new building can now deliver Australian Standard compliant lighting at around 5 Watts psm for office space. The solutions now exist for retrofitting lighting in existing buildings to deliver 6 watts psm without changes to the ceiling grid so paybacks are around three years and you can complete the work without disturbance to the tenant.

                The demand for reducing green house gas emissions is generating new technologies every day. Manufacturers of technologies such as nitrogen cooled computing and low energy lighting fit outs promote payback periods of less than three years. 

                 Sustainability is a perfect fit for Napier & Blakeley’s commitment to Cost Risk Return and I am looking forward to demonstrating that responsible sustainability equals responsible cost management.

“If you can keep your head when all about you are losing theirs. . . Yours is the earth and everything that’s in it…” …Rudyard Kipling

While markets across all industries are in a state of stress and chaos at the moment, it is now that the true industry leaders will prove themselves as they keep sight of the business fundamentals that underpin long term profitability.   Cost management is the key focus and due diligence in all business aspects is required, not just to survive but to consolidate for the future when conditions improve.  The skill is to trim the sails and stay in the race.

There are restrictions on capital funds and a degree of talk about delaying projects and cutting back on capital works programs. Environmental sustainability for some businesses has taken a back seat as recovery is worked out and debt and financing options are reviewed.

To maximise return we must continue to focus on sustainability and the opportunities to advance in this area to meet future tenant and regulatory demands.  The danger of short term cost cutting is that the long term positioning of the building can be compromised as the demand for sustainable, energy efficient and star rated buildings increases.

• The Federal Government has stated that they will be moving the minimum NABERS energy rating from the existing 4.5 to a 5 star base building rating (previously ABGR rating) for buildings they tenant. 
• The Queensland Government has stated that from 2010 they will require all new buildings to meet a 4 star minimum design standard. 
• In NSW the Government has a minimum 4 star rating and is currently moving to 4.5 stars, while making a longer term commitment to have carbon neutral operations.
• Large corporate companies are following with minimum rating requirements but at times struggle through with the low vacancy rates and limited options currently available for their space requirements.
• While most super funds currently require portfolio managers to have a sustainability platform and a policy on sustainability in place, how would the market change if the supply side moved the way the government has and required minimum performance before providing funding and investment in the property allocation of their portfolio?

Sustainability can be a key factor in Corporate Social Responsibility delivery, but strategically applied environmental sustainable initiatives can also support your fiscal and market returns with implementations such as;

• new technology E1lighting upgrades at $50psm achieving 6 watts psm comparing favourably with traditional costs of $200psm and 9 watts psm
• new technologies for data rooms including nitrogen cooled racks that remove the requirement for air cooling

The Cost, Risk and Return of sustainability is building specific. When completing due diligence for purchases or undertaking an existing portfolio review it is critical that all options available to improve the building efficiency and operating performance of your property are fully assessed to realise the true potential of your investment.

Responsible Sustainability is financial responsibility.

Summer time is a great time to take stock of your business and a great time to think about and diarise some property housekeeping issues that quite often get overlooked in the bustle of normal day to day business.

However if you consider this now, you can plan to carry out some crucial housekeeping duties in January when business is traditionally quieter.

Some of the not so sexy but absolutely essential items to consider to maximise your return and minimise your cost and risk are as follows:

Property Replacement Insurance: given the sizeable increases in construction costs in recent times, have you considered whether your properties are correctly insured? Do you know what you are insuring: base building and / or fit out?

Capital Expenditure Planning: what items have you planned over the next calendar year? How will they be managed?

Maintenance: are your maintenance contracts up to date and appropriate? Are there any routine maintenance items that can be efficiently attended to in this quiet time?

Tax and asset updates: Is your base schedule correct? Have you carried out any upgrade works during the financial year to date for which you can claim either a tax write off or a future tax deduction?

Condition Audits: Do you need to create or update any condition surveys of your tenanted properties?

Tenancy Make Good: Do you have a schedule of lease expiries that will occur during the year? Are there any “repairing and make good” obligations that need to be planned with the tenant?

N&B can assist with all of the above to help you really enjoy your summer holiday.