JLL Perspectives podcast: New Zealand's Seismic Building Code Revolution

:: 00:17:06

My name is Amiee Baker.

:: 00:18:19

I am with JLL for the last 14 years,

:: 00:22:20

and I head up our project and

development services team here in New Zealand,

:: 00:27:05

and I also lead our sustainability

consulting team across Asia Pacific.

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All right then, so

welcome to the podcast today.

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I suppose just first

saying I am not the expert.

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I am not a seismologist.

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But I'm very much leaning into, what I'm

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hoping to be a pretty interesting conversation today,

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with two fabulous guests

who are giving up their time for us.

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So, I'm approaching in this conversation really,

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you can tell I'm not from New Zealand.

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So an expert, fellow expert, Fabio, who moved to New Zealand

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about three years ago now and really had

that sort of first-hand experience about

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what is the seismic building code?

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How confusing is it?

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How ambiguous is it?

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And also how onerous

those policies really are.

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So we've had a number of recent changes

that have been announced, to us.

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And I think we're sort of all sensing

a lot of positivity in the real estate sector

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that maybe we might have some stability,

we might have some certainty,

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there might be a little bit

more common sense around the approach.

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But of course, no one wants to negotiate

around life safety. So

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today's discussion we're bringing together

a couple of different perspectives.

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This discussion is going to be pretty vibrant.

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We're not going to get too technical,

but we'll get a little bit technical

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and of course there's a lot

that we still don't yet understand

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as the sort of first announcement

now goes into a consultation process.

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With the bill hopefully being

passed before the next election.

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What are the initial reactions, from an investor

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and a property owner and manager perspective?

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And also from our engineering community.

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So Fabio Pagano joins us here

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with over 15 years of property

experience in New Zealand and Australia.

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And he's the general manager

of property at Oyster Property,

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where he leads the strategic

direction and management

:: 02:32:15

of the entire commercial

property portfolio and I got this

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from your website, that's 1.8

billion of assets under management.

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33 properties,

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and over 364 tenants.

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So a lot of different stakeholders

there that you're obviously managing

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given these announcements.

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And Matt Bishop, the founder

and managing director of Brevity,

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an engineering firm specialising

in seismic design and compliance

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with a career spanning

over two decades in construction

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and at the forefront of engineering

innovation here in New Zealand.

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So let's get right into it, yeah.

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So I suppose our audiences

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across New Zealand and

Australia tuning in to the podcast,

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maybe we could just start thinking about,

you know, what were the,

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core problems

with the old NBS rating system?

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You know, why have why has this,

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seismic risk, review taken place?

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And why did the government embark on this?

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So, Matt any,

any initial thoughts on that?

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To, ground it right back?

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The existing earthquake prone buildings Act

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comes from the results of the

Christchurch earthquake sequence.

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Right.

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So real buildings falling down

and hurting people and as a response

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to that, the government developed

the Earthquake Prone Buildings Act. Yep.

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And after that,

we went to work making an awful

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lot of engineering documents to define

what was in the act and to define,

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among other things,

what percentage NBS was.

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Percentage New Building Standard.

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Essentially, how close is this building that

:: 04:20:15

we're looking at, to the new building standard?

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And giving it a percentage based on that.

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And, got to work doing that for almost,

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almost 15 years and found that

there's quite a few repercussions.

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There's a complicated engineering process

and an even more complicated

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consenting and construction processes

coming off the back of that.

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Yeah. Yeah.

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It really felt like

I mean, I think, you know, earthquakes

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are sort of low probability,

high impact events.

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And, you know,

you can sort of sympathise that really,

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the system was brought in,

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yes in a knee-jerk way,

but in a way that it was necessary to do

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so because it was such

a devastating sort of series of events.

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But then the easiest

and the quickest way to do

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that was to bring in

a blanket approach, I suppose.

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Yeah, yeah we did what we could with what

we had, we kind of made it up on the go.

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and this time around we are looking at

what has worked around the world,

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Yeah, great.

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What’s worked internationally and,

bringing a lot of that back Yeah.

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to what is now

a considerably more targeted approach.

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Yeah.

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That's excellent.

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And so

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in your view then that sort of,

rating a building in Auckland,

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the same as rating a building

in Wellington over the past

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say 15 years under the old regime,

did that feel quite.

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Does it feel interesting for you?

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It's different I suppose the,

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the process we go through to design

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a new building

is very robust and detailed.

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And, make sure

that every single component

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in that building is built to code.

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To look at what happens

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in an earthquake,

there's only a select few bits

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and pieces, a few different modes

that really cause life safety issues.

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Got you.

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And the difference between

those two is quite, quite profound.

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Yeah.

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And,

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looking to,

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for the government to look at life safety

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as the core outcome of the Act

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means they could cut off a lot of that

engineering process

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to focus on

what was actually going to hurt people.

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To hurt people.

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Yeah.

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So a much more targeted approach,

like you say.

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And I mean,

I think I've heard a few times

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that it's interesting

when you have a percentage.

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Right, and I think that everybody's

quite grateful to move away

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from that percentage

because for anybody who's not,

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you know, an engineer, and who's

trying to understand what that percentage

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means, the percentage almost overstates

the precision of what the rating is.

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Yeah, totally.

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It's it's sort of it's an odd one and

why would anybody not want to have 100%?

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You know, it's kind of easy

just to go well, I want 100%.

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Yeah and different engineers

with different

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methods coming to

different determinations

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of percentage NBS

and that's caused all sorts of issues.

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Yeah. Absolutely, absolutely.

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And there's always been this notion of

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just the percentage is the

number you have to hit.

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Yeah. And a different engineer

has a different view.

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And you could have three engineers

look at exactly the same building

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and have three different,

complete different results.

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Yeah.

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And I think that’s where our from

an occupiers perspective and a landlord's

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perspective, is that you've

had to do engineering, detailed

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seismic assessments, we've had to

do peer review on peer review.

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And it's varying like,

how can it be so vastly different?

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Yes.

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It makes it very hard for us to

understand what we need to be doing.

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Yes.

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So scrapping that then

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feels like that will take away

some of that ambiguity.

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Absolutley.

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And might take away

as well, the way that we approach

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those, engineering

assessments, in the future.

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So, we've got a sort of fairer,

risk based approach.

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We don't know all the details yet,

but there's been a few things

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published under the announcements

in terms of which buildings,

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in which locations would be classified

as having a higher risk rating

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and therefore remain on that

earthquake prone building register.

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And need to be remediated.

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So, we hear a lot about

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sort of unreinforced masonry buildings.

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We're going to try and not use acronyms,

but a lot of people, URM’s.

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And you know that for me,

the beloved British

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brick buildings that we see, that's

basically what we're talking about, right?

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And so, do you think that,

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you know, I guess Fabio

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if you've got any of those sorts of

buildings within your portfolio that you’re now,

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sort of

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We, are. It is a very, very new announcement

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Yeah.

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In a lot of areas,

especially in Auckland, it

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it is a substantial variance

to what we've all been focused on

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for such a long time,

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from a ratings and an NBS rating system.

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So are we taking stock

of everything on all assets?

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Absolutely.

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Are we reconsidering what might be the life

:: 09:27:18

safety perspective of these assets

and the risk assessment around that?

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We have started that journey already.

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Yes.

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Even though we don't

know all the details yet. So,

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and we've got, there’s still a long

way to go to find those details.

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But our view is it's a

positive for the industry.

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Absolutely.

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It takes away some of the ambiguity

we've had before in terms

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of undertaking works in areas

where, like Auckland,,

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doing seismic upgrades in buildings

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worth millions and millions of dollars,

without no material change whatsoever.

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In some cases,

and because we've had so many varying

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degrees of information

from engineers in terms of detail

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sizing assessments,

it feels, can feel very academic,

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rather than the reality of the situation

where, it's actually really low risk,

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Yes.

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from a life safety,

both in an occupier’s perspective

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and also from an external point of view.

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Cause I think there is a

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what I'm learning

and as I read more and understand

:: 10:20:04

more about the legislation,

is as much about life safety

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internally, but actually a lot more

about external, the public side of it.

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That's right.

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The changes in

:: 10:28:12

what some of those regional areas

might be from a seismic perspective

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Yeah.

:: 10:31:23

in terms of a facade falling down.

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So yes, we will look at those.

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We've got concrete facades.

We’ve got glass facades.

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We’ve got glass facades.

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But actually we will

look at all of those in due course.

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Yeah.

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The announcement has suggested

that it is going to take: 3000

:: 10:46:09

off the government's

earthquake prone buildings register.

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So that is quite a major change

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and just for confirmation,

that means Auckland, Northland

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and the Chatham Islands.

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I can't imagine

you have a property over there?

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No we don’t.

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But you know,

a win for the Chatham Islands.

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That is no longer,

under the act at all.

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So: 3000

that it's going to be far cheaper

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for sort of: 1500

more buildings to be remediated.

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So, it feels like the review's been

:: 11:19:08

focused a little bit around

sort of saving building owners money.

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But, do you think that's quite a good

thing in a way, because there's been

:: 11:26:24

so much inertia in terms

of being able to invest in buildings.

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Does it now give you more of a sense of clarity

:: 11:33:17

around where to invest, rather than just that

:: 11:36:15

blanket approach and a wall of capital

that's needed, across the portfolio?

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Absolutely, we do believe that there will be,

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will there be capital to spend?

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In some cases, I think so.

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However, the extent of it

will be significantly diminished.

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And where historically you may have to

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generally driven from a tenant demand

:: 11:58:09

of an occupation to meet

a number, a percentage threshold.

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And you do those works

where it actually has no material change.

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And especially in some,

especially in our environment

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where a lot of the money

we are spending are mum and dad investors.

:: 12:10:06

So we are investing their money to upgrade

an asset that has no material change.

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Doesn't have an impact

on the value of the building?

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No, Not generally.

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Like if I go and spend a

$30 million building and I spend

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You wouldn't notice.

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30 million, you wouldn’t notice it. Yeah.

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Other than some bars here or there.

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You won’t actually see it.

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It makes it more ugly, no?

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Well, hopefully not.

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But you won’t actually,

you won't see that.

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And it wouldn't necessarily have

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Tangible impact on valuation.

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No.

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Not like doing a lease or any other facade,

upgrades or anything else

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you might want to spend your money in.

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So actually, that that capital

can be better deployed for the asset

:: 12:44:03

to drive a better return for those mum

and dad investors and everyone else.

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And also, I think the nature of

the fact that you can have

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historically and even up to very recently,

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multiple assessments on a single asset

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in varying degrees has probably stifled

some investment across the board.

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Yeah.

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And the fact that even for me

personally, being here in 6 or 7 years

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I've seen so many changes in the

the way we assess buildings.

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For someone from Australia

who had no idea about earthquakes, whatsoever.

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I hear you.

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I’ve had to learn a lot.

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Yeah.

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But we’ve now had so many changes on it.

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But the risk was if I buy it,

will the rules change again?

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Will they change next year?

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That's right, that's right.

:: 13:25:12

It the government chages,

will it change again?

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Yeah, hard to predict.

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Exactly and so that

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that risk around seismic challenges has

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my view is, and probably our view as well

is it has stifled a lot of investment historically.

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Yeah, interesting.

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Especially from

non-New Zealand based investors.

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Yes, yes.

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So, offshore you go well, if the rules

change again or the government changes,

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where am I sitting and what will it be?

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It’s the lack of trust I suppose, yeah.

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And could I, could it be

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yesterday when I looked at

that building it was 87%

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as an NBS what it was.

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Yeah.

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But actually, you change the rules,

no it’s 34.

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That's right.

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We, in my career in New Zealand

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I have seen buildings

that were 100% NBS,

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literally months later

at 34%.

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Goalposts have changed.

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Downgrade the building.

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Yeah, I think that's interesting isn't it?

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And I suppose, you know, with Auckland

being taken off that,

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out of the regime,

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it's going to take a bit of time to

trickle down because a lot of what you

:: 14:20:24

the value of your buildings

is driven by tenant demand.

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So,

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I think that that's the interesting bit is

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will tenants start to shift their priorities?

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Will they feel comfortable enough

to no longer

:: 14:36:16

require, a building

to meet a certain seismic standard?

:: 14:41:04

And how can they appease

their stakeholders, particularly

:: 14:44:23

some of those larger corporates

that have, dealings offshore?

:: 14:48:07

Talking about JLL. You know, we're headquartered

out of the US.

:: 14:51:13

They wouldn't, you know,

would we ever think to put our

:: 14:55:00

people in a building

that wasn't seismically, sufficient?

:: 14:59:20

And just because it's changed overnight,

does it mean, oh, risks gone. Overnight?

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Okay. Happy.

:: 15:05:23

Well then, so then people will rush to all sorts

of different buildings, but I don't know

:: 15:10:09

how long it's going to take?

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I think that's probably

the biggest challenge

:: 15:12:18

we see from our demand.

Our 384 tenants, of which 17

:: 15:17:03

over 17% of it of our tenant occupiers

our government or crown agencies.

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Right.

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Now, they are probably the strictest,

including some multinationals,

:: 15:25:23

in terms of requirements

for seismic rules.

:: 15:29:05

However, that change will take time.

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I think we will, that will change as

we see the detail of legislation,

:: 15:36:03

whatever the timing will be

:: 15:37:11

how it's going to be implemented?

That's going to be of a journey

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and I think we

:: 15:42:01

we have started that discussion already

with a number of our tenants.

:: 15:45:04

But that journey will be around how

do we really look at what life safety is?

:: 15:49:16

And so we've we've all done probably life

safety assessments in our past.

:: 15:55:06

For both for tenants

and because there might be a seismic

:: 15:58:24

NBS rating might be lower, but actually

it's a low risk to life safety.

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Yeah.

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So that's something that I think we,

there's a bit of a journey to go on that yet.

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Yeah.

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And I think it'll take probably longer

than we anticipate because

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most people have had ten years

:: 16:13:06

to get their head around or longer, 15 years

to get a head around what NBS really means

:: 16:18:10

in the seismic settings and what the risk

profile for my occupiers are?

:: 16:22:15

And as you rightly say, none of us want

to have any of our people at risk.

:: 16:26:04

No.

:: 16:26:16

And we don't want any

of our tenants at risk at all.

:: 16:28:20

However, actually making the assessment

around life safety is a bit of a journey

:: 16:32:15

we need to take yet.

:: 16:34:11

The government,

:: 16:37:04

in this proposal they're making that point

:: 16:39:22

evident in the sense that the earthquake

burning buildings is a specific,

:: 16:45:05

targeted, life safety proposal.

:: 16:50:24

For what they see

as being the most hazardous spaces

:: 16:54:18

were on the most vulnerable buildings,

with the most consequence.

:: 16:58:23

And then leaving the market

to decide on all of those other things.

:: 17:03:06

Right.

:: 17:04:00

So, at the moment we've got this

:: 17:06:16

continuum of percentage NBS

:: 17:10:06

all the way through from than 34%

to 110%, 120% I’ve seen that before too.

:: 17:16:06

Yeah, so have I.

:: 17:17:09

To a binary approach where

something is or isn’t earthquake prone.

:: 17:21:19

Yes.

:: 17:22:08

And, what we haven't been able

to do up to this date with the tenant

:: 17:26:11

arguments, the tenant

discussions is talk about

:: 17:30:08

other things like the difference between,

:: 17:33:11

a supermarket and the interiors of that

:: 17:36:22

and the life safety

risks of that, compared to an office.

:: 17:40:01

It's all been lumped into the same thing.

:: 17:41:15

but when you consider two different tenancies

:: 17:43:09

you can come up with different

ways to look at minimising the risks.

:: 17:47:17

Or what sort of buildings

suit different, different people.

:: 17:51:23

And the occupiers, that you talk about

supermarkets.

:: 17:54:24

Past life outside of Oyster.

:: 17:57:23

We had a lot of supermarkets

and we did a lot of work with seismically,

:: 18:01:02

All the our tenants were in Woolworths

to look at the life safety of big

:: 18:05:14

air conditioning units sitting in the roof

:: 18:07:17

and making sure that it was stable

in the event of a building shake

:: 18:10:04

Yeah.

:: 18:10:14

from an earthquake perspective

because that is life safety,

:: 18:12:00

because if that falls,

:: 18:13:02

Yeah.

:: 18:13:11

and you've got a building

that is highly occupied, a supermarket.

:: 18:16:09

Not your office building,

that's a different

:: 18:18:10

I fully appreciate.

:: 18:19:19

Those elements may still be life safety.

:: 18:22:08

Absolutely.

:: 18:22:23

And that's the binary discussions

that we've had very, very rarely.

:: 18:27:09

And it's more

that practical approach has been rare.

:: 18:30:09

And it's it's that binary discussion

outside of the framework

:: 18:33:22

that has been there before.

:: 18:35:08

It has been very much.

:: 18:36:14

It's either either you're at 87%

at 34% with you, but you're at 34%.

:: 18:42:10

Yeah.

:: 18:42:21

But my lowest weakest point might be

a staircase, an external frame at 33%

:: 18:46:19

Yes.

:: 18:47:08

So all of a sudden the whole

entire building is 33% even though

:: 18:50:02

it's actually about making sure

my bracket on a staircase,

:: 18:54:14

that's the challenge I've seen,

:: 18:55:23

Yeah.

:: 18:56:12

it’s that one element and it's the lowest

:: 18:58:00

common denominator rather than.

:: 18:59:02

So fix that.

:: 18:59:20

Exactly.

:: 19:00:07

Actually focus your money where

:: 19:01:22

and I think

:: 19:03:00

because it's had to upgrade

:: 19:04:09

the whole building,

the amount of that spend is huge right?

:: 19:07:11

Absolutely.

:: 19:07:23

And sometimes it's more than what

the building's worth in the first place.

:: 19:11:03

Yep, absolutely. I've seen that to.

I’ve seen it nearly double the value of an asset.

:: 19:14:02

Yeah. Interesting.

:: 19:15:11

Which is just economically

unaffordable for anybody.

:: 19:17:17

Of course.

:: 19:18:07

Because you’ll never, ever get the return.

:: 19:21:04

No.

:: 19:21:17

It's not like I can charge

my tenants three times as much.

:: 19:23:21

No, no, no, we have to think

of buildings as exactly that.

:: 19:27:15

Assets. Right?

That's there for a reason.

:: 19:30:13

On the way through there, it's worth

mentioning that, your seismic updates,

:: 19:34:09

then pulled in fire updates and access

updates and things like that as well.

:: 19:38:02

so it was cost on top of cost.

:: 19:39:22

Yeah.

Yes.

:: 19:40:15

It sort of felt like

a smart thing to do didn't it?

:: 19:42:16

Like oh, as a, you know, as the government

:: 19:44:23

well I really want my landlords

and my building owners to comply.

:: 19:48:19

I just want to force compliance.

:: 19:50:20

So. Okay.

:: 19:51:15

Well I'll just bring that in as a,

as an added component of the legislation.

:: 19:55:17

It was unintended consequence.

:: 19:57:15

So the

:: 19:58:10

Yeah.

:: 19:59:04

central government

said, let's do the earthquake thing.

:: 20:01:21

Local government, the council said, okay,

but that's a consent,

:: 20:04:09

so therefore it triggers these

other reqiurements.

:: 20:06:20

Yes, of course.

:: 20:07:23

It wasn't exactly expected.

:: 20:09:09

And so we're expecting that

that will be completely decoupled.

:: 20:12:08

That is completely gone, so thats

:: 20:14:14

it’s very, very clear in the current

documentation that I've read, that says

:: 20:20:13

if you need to do earthquake elements,

you do those, only.

:: 20:23:12

Yes, yes.

:: 20:24:02

from an earthquake prone perspective to

:: 20:25:05

Yeah.

:: 20:25:17

that's the focus. You're not kinda,

:: 20:27:16

oh let's go and upgrade the fire system.

:: 20:28:24

That's 30 years old

:: 20:29:21

Yeah.

:: 20:30:14

or other things, I've

experienced that where the cost

:: 20:34:06

of those additional elements

from a local authority consenting body

:: 20:36:19

and they were right in doing so,

:: 20:38:17

are more expensive than the

actual seismic work in the first place.

:: 20:41:08

And you can't sort of plan those.

:: 20:43:00

I think that the original Act

was brought in to effect change

:: 20:47:15

within a small amount of time,

so that if there was another earthquake

:: 20:51:02

that we'd at least done

something to reduce the risk.

:: 20:55:03

And but what it’s

actually backfired in a way,

:: 20:58:00

That’s it, yup.

:: 20:59:03

because, and I think that's

why the review has come in.

:: 21:03:03

Is that really it's gone

the other way, and it's actually meant

:: 21:08:05

that capital hasn't

and the upgrades haven't taken place.

:: 21:12:01

When we got briefed on it the other day,

:: 21:14:21

MB did a brief to the

Engineering NZ engineers and

:: 21:19:12

they talked about, a curve essentially.

:: 21:22:22

Where limited amount of requirements

:: 21:27:05

would have got high compliance.

:: 21:30:21

And then

:: 21:31:24

the more requirements they put in place,

the harder it is to comply,

:: 21:35:05

Yes.

:: 21:35:21

And the less people do it.

:: 21:37:00

Yes. Exactly.

:: 21:37:21

And the longer it takes to get

things done. So then

:: 21:39:23

looking back, and going okay,

:: 21:41:20

we're not getting the

effects that we expected

:: 21:43:23

Exactly, yeah.

:: 21:44:22

It’s costing too much, it's taking too long.

:: 21:46:02

We haven't taken the risk factors

:: 21:47:20

We haven’t expected.

:: 21:48:13

We haven't got what we expected to happen.

:: 21:50:03

That’s right, yeah, yeah.

:: 21:53:04

There was some interesting debate,

:: 21:55:16

at an event that I went to recently.

:: 21:58:14

About actually, what presides will be

that Health and Safety at Work Act.

:: 22:03:22

And so, you know, as a building owner

I think there's all sorts of views

:: 22:08:05

there’s a whole balance of risks

that you have to look at when you own

:: 22:11:18

a building or occupy a building.

:: 22:14:19

And so the, how the two interact

in terms of the new,

:: 22:19:16

seismic building code and the Health

and Safety at Work Act, you know,

:: 22:23:16

which one takes precedence because you're

still talking about life safety

:: 22:26:21

and so I'm not going to go into

too much of that detail

:: 22:30:04

because it sounds very complicated,

but I can see that there needs to be,

:: 22:34:14

you know, quite a balanced view

taken across that.

:: 22:38:09

Yeah, that will be interesting.

:: 22:40:19

When they were developing the Act

the first time around, there was discussion

:: 22:44:18

with WorkSafe and I don't know

if they put it in legislation, but

:: 22:50:02

the guideline was that they

wouldn't include earthquake,

:: 22:54:24

under the Health and Safety Act to leave

the earthquake prone building stuff.

:: 22:58:08

Separate?

:: 22:59:08

Yeah.

:: 23:00:02

Yeah, to itself. Right.

:: 23:01:13

Whether they hold to

that once they’ve paired

:: 23:03:10

the earthquake prone building

down would be another,

:: 23:06:04

another thing to investigate.

:: 23:08:02

Yeah.

:: 23:08:20

I think that we

:: 23:11:14

when you start to look at an asset,

a property in, say in Auckland

:: 23:14:17

from a risk perspective,

like there might be an earthquake

:: 23:18:19

risk assessment we might undertake,

we'll have to do it for tenants,

:: 23:20:24

but we still do it from a health

and safety perspective all the time.

:: 23:23:13

Yeah.

:: 23:24:00

We got people that walk in and out.

:: 23:24:20

It's fixing the concrete in the tiles,

it’s fixing potholes, it's

:: 23:28:03

Yes.

:: 23:28:16

making sure all things work

and making sure window cracks

:: 23:30:12

are are fixed, and

there's no leaks in roofs.

:: 23:32:02

Like, as good property managers,

we do all those things on a regular basis

:: 23:36:03

from a health and safety perspective regardless.

:: 23:38:15

Yeah.

:: 23:39:05

What we’re now doing

is including kind of the risk associated

:: 23:41:24

with the building

in terms of people's ability to exit

:: 23:45:09

or the facade

having an impact on the public,

:: 23:48:06

being people outside

as part of our assessment.

:: 23:50:21

Yup.

:: 23:51:17

And hopefully we will get to a point

where that is

:: 23:54:05

all encompassing in one review, ideally

:: 23:57:15

so that it’s all around the risk.

:: 23:59:09

Yeah.

:: 24:00:03

Cause, I can have someone fall over

or trip on a hazard on a footpath,

:: 24:03:05

which I don't want to happen either,

:: 24:04:11

Yeah.

:: 24:04:22

Let alone

a concrete facade falling down.

:: 24:06:14

That's right.

:: 24:07:15

I think when I first moved here

it was, I'd come out of London

:: 24:10:23

and we were very much focused

and I'm very passionate about,

:: 24:14:02

sort of upgrading buildings from

a sustainability performance perspective

:: 24:17:17

and so it was quite different

to have conversations with landlords,

:: 24:21:14

in New Zealand where,

you know, they were faced with

:: 24:24:22

so many costly upgrades

from a seismic perspective,

:: 24:28:23

that to advocate for spending on making

a building more efficient, making it,

:: 24:32:20

you know, less of a consumer,

it felt like a really hard ask.

:: 24:38:02

And I think, you know, we're also thinking

here, you know, we're seeing lots of,

:: 24:43:09

very, catastrophic weather events.

:: 24:46:11

I arrived a week before Gabrielle,

:: 24:48:17

so, that was quite interesting.

:: 24:51:13

And obviously we're at the moment,

our thoughts go out to, residents

:: 24:56:23

in, in Jamaica, where the biggest storm

ever recorded is about to hit.

:: 25:01:06

So I think it hopefully.

:: 25:03:11

Do you think this is going

to allow building owners

:: 25:05:09

to look forward a little bit more,

with a bit more certainty, and plan

:: 25:08:11

for other risks

that might impact buildings?

:: 25:12:07

Both buildings value,

but also the the life safety

:: 25:16:00

and the resilience of that, that asset?

:: 25:18:09

I think so, I think you're absolutely

right in terms of as building owners,

:: 25:23:00

we've had to focus

so much on the seismic side of it

:: 25:25:21

because it becomes mandatory

from a tenant expectation point of view.

:: 25:29:13

So here's my lease,

:: 25:30:13

I will occupy it for five years,

ten years, whatever it may be.

:: 25:33:15

But I need to make sure that your

:: 25:35:03

seismic assessment is at this level.

:: 25:37:02

So it is actually written into the lease.

:: 25:38:10

Into leases, a lot of times it is.

:: 25:40:06

And historically, in my experience,

we always want to put a line in the sand,

:: 25:43:24

like so, as the point in time

:: 25:45:14

when we're signing the document,

the legislation says X, we will assumed

:: 25:49:07

a lot that the legislation

would just keep on ratcheting up.

:: 25:52:10

And so we didn't want to have

open ended environments.

:: 25:54:21

Right, right.

:: 25:55:13

If it was open ended.

:: 25:56:12

And just at any point in time

:: 25:58:08

other than an event like a force majeure

or a storm or something like that,

:: 26:01:22

then you might be okay now

because the legislation will change.

:: 26:05:19

If you want to push it down to next year,

then you might be okay

:: 26:08:23

in terms of upgrades.

But most of us would,

:: 26:11:18

that's too, open

ended is too big a risk.

:: 26:13:24

And the forecast would

it would only get tighter and tighter, yeah.

:: 26:15:16

How long’s a piece of string

and how much is it going to cost?

:: 26:18:03

So actually, we all put

a line in the sand.

:: 26:19:14

Right.

:: 26:20:06

And that now is a challenge because we are

legally obligated under a lease.

:: 26:23:16

Ok.

:: 26:24:06

To undertake those.

:: 26:25:06

So that's where the early conversation

around tenant occupation,

:: 26:28:18

that's the, that's the

next piece to that exercise is to understand

:: 26:32:16

that obligation with tenants.

:: 26:34:03

Their ability to understand

the legislation and change.

:: 26:37:09

Yes.

:: 26:37:23

And actually convincing

:: 26:39:12

And most people that actually yesterday

there was a deemed risk.

:: 26:43:02

Today there's no risk.

:: 26:45:04

Yeah.

:: 26:45:20

And how do you how

do you convince somebody of that?

:: 26:48:21

Gee, that highlights quite

well the issue like,

:: 26:54:01

I've built a whole business

as a consulting engineer around

:: 26:56:13

the premise that the government will just

keep adding more requirements Exactly.

:: 27:00:09

to Acts and rules and regulations.

:: 27:02:04

Yeah.

:: 27:02:20

And for an asset owner, the strategy

is to delay as much as you can.

:: 27:09:05

It has been, yeah.

:: 27:10:03

But now with the going back

the other way, that strategy reverses.

:: 27:13:23

Absolutely, but actually,

I don't think you'd find a building

:: 27:17:17

owner out there that doesn't want to have

like safety at the core of what they do.

:: 27:20:21

We have PCBU health and safety obligations

and those things.

:: 27:23:18

So we all do it.

:: 27:25:09

And that's why

we are fully supportive of this change,

:: 27:28:23

because I think it's doing the

right thing in the absence of

:: 27:33:07

doing what is,

:: 27:34:06

what has felt like quite academic

in an environment,

:: 27:38:04

for the past and and the challenges,

it has been about cost.

:: 27:42:07

Yeah.

:: 27:42:23

and so therefore other things like sustainability

or reducing the carbon footprint

:: 27:47:03

in a building, putting on solar panels

or doing anything else to reduce

:: 27:50:20

the occupation cost of those assets,

:: 27:53:11

has been probably put on the backburner a little bit.

:: 27:55:17

Yeah, interesting.

:: 27:56:20

Unless you're a big corporate.

:: 27:57:20

Yeah.

:: 27:58:10

Perhaps.

:: 27:59:11

So I thought we might just change,

:: 28:02:15

direction a little bit and talk about,

we've talked about leases, lease structures.

:: 28:06:22

The other major thing that we talk a lot

about here in New Zealand is insurance.

:: 28:11:15

Our insurance costs are astronomical.

:: 28:15:09

And of course,

:: 28:17:11

now with this new regime,

do you think that,

:: 28:21:14

maybe you're having conversations

with your insurers at the moment, Fabio.

:: 28:25:21

But is it something that

they will look favorably upon?

:: 28:29:18

Do you think the premiums will go down?

:: 28:31:10

Does it change anything at all,

or is it too early to say?

:: 28:36:02

Honestly,

:: 28:36:20

we've had some very initial

conversations with our, market.

:: 28:40:18

However, I think it's really too early

to say at this moment.

:: 28:44:23

While seismic ratings on all our portfolios

:: 28:48:08

as we insure the entire lot.

It is important for our brokerage.

:: 28:53:01

And both from a New Zealand

perspective and offshore,

:: 28:55:10

so we have both London based, Singapore

and New Zealand based insurance.

:: 28:59:12

Yep.

:: 29:00:01

And there is a need for that driven predominantly

:: 29:03:08

around the expectation of

:: 29:06:10

that if it's a certain percentage, then

it's better than something that's lower.

:: 29:10:05

However, I honestly don't,

my view at the moment is it's

:: 29:14:14

probably not going to materially change

a lot of the insurance, at this stage.

:: 29:18:07

I think it may have a potential

impact where it is

:: 29:22:05

earthquake prone, in a market,

it might be more expensive.

:: 29:26:06

Yeah. Okay.

:: 29:27:08

You, insurance and lending is

another issue, I think in both,

:: 29:30:18

cause lenders both also want to have,

an NBS rating or what is that?

:: 29:36:09

Yeah, take a view on risk.

:: 29:37:21

Exactly.

:: 29:38:15

And I think like the percentage NBS,

it was

:: 29:42:10

it was never about the likelihood

of the building being damaged,

:: 29:46:20

it was always focused around life safety.

:: 29:49:10

Is my understanding.

:: 29:50:21

NBS did both.

Because it was to the standard.

:: 29:55:05

Okay.

:: 29:55:21

It essentially covered, well

:: 29:57:11

it actually started from the

building side of things.

:: 30:00:04

Right.

:: 30:00:19

The building asset.

:: 30:01:19

And if the building doesn't fall down, the people

will be protected. It was kind of like that approach.

:: 30:06:06

Of course, the two go hand in hand, right?

:: 30:07:17

So the assset and the life safety

were integrated in that approach.

:: 30:11:09

The new approach is looking for

mostly protecting public safety.

:: 30:15:07

Yeah.

:: 30:15:20

And for a an unreinforced masonry building,

:: 30:21:04

which only needs facade protection.

:: 30:23:12

So you secure the facade, the whole rest

of the building could fall down.

:: 30:26:12

Yeah. Of course, but.

:: 30:27:19

But the people walking along the,

the sidewalk are safe.

:: 30:31:01

Yes. Yeah.

:: 30:32:12

So there's that separation now

between the two.

:: 30:34:23

Yeah.

:: 30:35:16

And yeah, it's very likely

that the insurers will ask for more.

:: 30:38:22

But the,

the opportunities that at the moment

:: 30:43:12

it's a calculated based approach

on every building.

:: 30:46:18

Yes.

:: 30:47:11

From the ground up, nuts and bolts.

:: 30:49:08

Literally to figure out your percentage NBS.

:: 30:51:14

Yeah.

:: 30:52:05

And there's opportunity to develop

new techniques.

:: 30:55:01

Yeah.

:: 30:55:10

And some of those exist overseas

which are more statistical.

:: 30:58:13

Okay.

:: 30:59:01

How likely is this

type of building to fall down?

:: 31:01:12

What do we need to do?

Things like that,

:: 31:03:06

and they can be quicker

faster, cheaper.

:: 31:05:13

Yeah.

:: 31:06:03

Then the engineering based approach.

:: 31:07:17

So, yeah it's good.

:: 31:10:14

There’s room there for

engineers to innovate to.

:: 31:13:20

Yeah, be less restricted

and really focus on the,

:: 31:17:11

the parts that need to be solutions

within a building.

:: 31:20:24

Instead of being told

what to do with the government.

:: 31:22:22

Yeah.

:: 31:23:12

We can talk to the insurers and see what

they're worried about

:: 31:26:03

and develop processes

specific to what they want.

:: 31:29:02

Yeah, and it does changed from insurance

like I've had conversations

:: 31:31:19

over the few years

where it's all about batteries and EVs.

:: 31:35:04

Yeah.

:: 31:35:23

Or it's all about the ACM panels

on the facade of a building.

:: 31:39:11

Absolutely.

:: 31:40:04

After the Grenfell fires,

:: 31:41:11

there are moments in time

within the industry

:: 31:43:13

and I'm not expert in insurance at all

by any means, but it's those moments

:: 31:47:02

in time of an event

that causes the greatest level of concern.

:: 31:51:01

And I haven't had NBS

:: 31:53:13

or seismic as the number one issue, to date.

:: 31:55:17

No, no.

:: 31:56:13

Right? While they had the reports

and everything else, that's it.

:: 31:58:19

Yeah.

:: 31:59:17

I was interested again

at this event that I went to

:: 32:02:06

I won't mention who put it on because it's

:: 32:04:00

obviously going to be a competitor of yours, but

:: 32:07:04

it was quite interesting

:: 32:08:11

because the way that insurers,

work is it's very much on an annual basis.

:: 32:13:12

So really, if there's nothing happens to a building

within a year, happy days.

:: 32:17:22

I’ve banked the money,

I don't have to pay out.

:: 32:20:12

All good.

:: 32:22:01

I've made more and more money.

:: 32:24:03

And I think that because the

likelihood of these events, you know,

:: 32:27:14

they don't happen,

it's been 15 years since since Canterbury.

:: 32:32:13

And so, you know the likelihood

of that happening on an annual basis.

:: 32:37:07

You're right.

:: 32:37:21

There's other things that are more risky

within a building.

:: 32:40:16

Right, that's

going to pose a risk.

:: 32:43:08

So I, my feeling is,

is it's not going to have a huge impact.

:: 32:47:11

But none of us are experts.

:: 32:49:02

We're here to speculate.

:: 32:50:14

Exactly, it's very rare from

:: 32:52:04

I think most people's

experience of insurance going down.

:: 32:55:03

Absolutely.

:: 32:56:00

There has been moments in time.

:: 32:57:01

Yeah.

:: 32:57:14

Because of generally capital deployment, globally

:: 33:00:21

but rarely does it go down.

:: 33:02:03

So I can't see it having a

massive material impact.

:: 33:04:23

No.

:: 33:05:10

And I mean if we think about

:: 33:06:14

I’d like it to.

:: 33:07:11

We all would love it to, absolutely.

:: 33:08:21

Yeah.

:: 33:09:13

But.

:: 33:10:07

Yes.

:: 33:10:23

And I think that, the likelihood

of a climate event happening.

:: 33:15:00

Yeah I have a friend

that works in reinsurance

:: 33:18:20

brokerage of natural disasters.

:: 33:21:18

Yeah, wow.

:: 33:22:12

You know, yeah,

:: 33:23:09

what a niche.

But for her, hurricanes,

:: 33:27:20

tornadoes, severe flooding, severe fires.

:: 33:33:09

You know they, more likely,

:: 33:35:12

are we hearing more about those

in the news than we are about earthquakes?

:: 33:39:05

Absolutely, we are.

:: 33:40:21

Yeah, all sorts of things

:: 33:42:02

like we and we've

experienced them all here before,

:: 33:44:03

more recently than we ever have before.

:: 33:45:15

So, flood mapping is changing

in Auckland because of flooding zones.

:: 33:49:16

We've got massive buyouts of suburbs

because of the way they

:: 33:54:09

how they reacted in those

massive flooding events.

:: 33:58:05

We've always historically

looked at 1 in 100 year events.

:: 34:01:05

Now it's like, 1 in 50 perhaps.

:: 34:03:21

Yeah.

:: 34:04:12

So there's and that goes

to sustainability as a broad measure

:: 34:07:22

and how do we meet those

obligations beyond just seismic

:: 34:11:24

because we've been so focused on that.

:: 34:13:17

So focused, yeah. It’s really,

:: 34:15:07

And I think to Matt’s point around

looking at the likelihood of something

:: 34:18:03

is where the industry will change,

:: 34:19:18

and that goes to both the tenant side

and the engineering community.

:: 34:23:04

So what is the statistical approach

to something?

:: 34:26:11

What will happen in this?

:: 34:27:17

And that's something that I think is

great, that tools get developed,

:: 34:31:16

they’re faster and they're more there,

in an event you can react faster to it.

:: 34:36:13

Yeah.

:: 34:37:08

And also that's

:: 34:38:09

I think those tools from the engineering

community is what we will need for tenants

:: 34:41:19

for them to understand, actually

what's the chance of something happening?

:: 34:45:23

Yeah.

:: 34:46:14

And that’s that risk assessment

that, it will get through as detail

:: 34:49:05

as the industry comes through the next

hopefully six months, 12 months.

:: 34:52:15

Yeah.

:: 34:53:04

There's a crossover there

in some of these building

:: 34:56:00

elements to. The Geoscience Australia,

:: 34:59:17

they do a study on parapets

and facades for earthquake loads.

:: 35:03:04

Yeah.

:: 35:03:17

But they also do a study on parapets

and facades for wind loads.

:: 35:07:11

Similar effects,

:: 35:08:10

Right.

:: 35:08:18

a cyclone can push over a parapet just

the same as it can, as an earthquake can.

:: 35:12:15

Yep.

:: 35:13:18

Interesting.

:: 35:14:14

So maybe that’s an interesting focus area

because you two birds with one stone then.

:: 35:17:10

Absolutely.

That's right, yeah.

:: 35:18:19

I've replaced carpark lighting

in a supermarket before in Wellington

:: 35:24:11

because the wind, because it wasn’t

originally designed for the wind load.

:: 35:27:16

because there was a

standard across the portfolio,

:: 35:29:11

but where it was sitting on a hill,

caused a light pole to fall down.

:: 35:33:04

Yes.

:: 35:33:17

Because it wasn't designed and embedded

far enough to meet those loads

:: 35:36:19

and that's nothing to do with seismic

or anything else,

:: 35:39:02

No.

:: 35:39:10

That’s purely meeting the

:: 35:40:10

demand of that community in that area.

:: 35:42:02

Yeah.

:: 35:42:23

We can't underestimate

the sort of devastating impact

:: 35:45:11

that earthquakes can have.

:: 35:46:11

And I think because it's so widespread

and it can be so catastrophic, it's less,

:: 35:51:15

you know, with a weather event,

it tends to not be quite as widespread.

:: 35:56:03

But, you know,

it can can certainly happen.

:: 36:00:12

Interesting.

:: 36:01:14

So maybe we could,

just wrap up a little bit here

:: 36:05:09

for our audience.

:: 36:09:12

The engineering community

:: 36:11:04

has often been criticised

as being overly risk averse.

:: 36:15:10

Maybe over engineering solutions,

of course,

:: 36:19:21

you know, no engineer wants to be held

responsible, for something

:: 36:24:18

if in the event

that there is an earthquake

:: 36:27:23

so I can completely sympathise.

:: 36:31:14

What do you think is going to happen

in your community,

:: 36:34:18

given the changes and what,

where do you think this is,

:: 36:39:15

you know,

how's it going to change the approach?

:: 36:42:03

From the feedback I'm seeing already,

:: 36:44:21

the first stage is going to be denial,

and there will be a lot discussion around

:: 36:49:01

Okay, okay.

Are we going through the five stages of grief?

:: 36:51:02

Pretty much.

:: 36:52:15

Yeah.

:: 36:53:02

And, what about all the things

that we're not covering?

:: 36:55:22

What about hollow-core floors?

What about stairs?

:: 36:57:21

What about all these things?

They’re still there.

:: 36:59:16

And then once we come to terms

and accept

:: 37:01:18

that this is the new way,

there’s new things to learn as well,

:: 37:05:11

one of the keys for,

three plus storey heavy buildings

:: 37:09:07

is what they're calling high risk deficiencies.

:: 37:12:00

Which will be kown as HRD’s.

There you go, there’s another one.

:: 37:15:04

And they'll be, things like,

:: 37:17:18

torsion weakness or column connections

or things like that.

:: 37:21:12

And, we need to get used to

being able to identify

:: 37:25:09

high risk deficiencies,

which is a whole nother set of stuff

:: 37:28:04

that we can get buried into.

:: 37:29:14

Yes, of course.

:: 37:30:22

So we’ve still got work to do.

:: 37:32:05

Yeah.

:: 37:32:21

So we’ll be okay.

:: 37:33:16

Yeah, I feel another podcast brewing.

:: 37:35:02

That’s right.

:: 37:36:07

Okay.

:: 37:36:20

So in effect it's another

it's a real learning process

:: 37:41:12

then that the community

will need to go through and

:: 37:44:03

there'll be lots of training

presumably being rolled out and

:: 37:47:10

Yeah, I mean the

we should see the, new proposals,

:: 37:51:24

the new Acts come through early next year,

:: 37:54:07

Yes.

:: 37:54:23

for public comment.

:: 37:55:22

Yes, okay.

:: 37:56:20

And then, development

and we've still got until I think mid 27,

:: 38:03:08

2027 before we see this actually roll out so there’s a

:: 38:05:14

Right.

:: 38:06:10

a lot of time yet to discuss the details

:: 38:08:03

Although we do have an election next year.

:: 38:09:12

That’s right.

:: 38:10:01

So there might be you know,

:: 38:11:01

there’s always those things on the horizon.

:: 38:13:12

So for you, what do you think,

:: 38:17:02

your advice would be for anybody else

sitting in your shoes,

:: 38:21:23

owning one property,

owning multiple properties.

:: 38:25:07

You know what,

:: 38:26:04

where do you start?

:: 38:27:04

Where's the,

where's your initial focus going to?

:: 38:30:18

I think.

:: 38:32:04

Well firstly, we do believe this is

a positive from an owners perspective.

:: 38:35:12

Across the board hopefully it will simplify

the way we approach this

:: 38:39:05

from everyones perspective.

:: 38:40:16

Like Matt, I do think there's a bit of a journey

:: 38:42:10

we have to go on to understand the detail.

:: 38:45:12

My my advice, like we are is,

:: 38:48:05

heed the changes that are coming.

:: 38:50:19

Look for opportunities

where you can, ideally without creating

:: 38:53:21

any additional risk for anybody,

because nobody wants

:: 38:55:16

that is to defer activities until we know more.

:: 38:58:22

It'd be remiss of us as,

from a property managers for us, on behalf

:: 39:02:07

of our investors, to go off and run down

keep on running down a path

:: 39:06:18

that perhaps will substantially change

in six months, 12 months time.

:: 39:10:17

So if there's an opportunity

:: 39:12:09

to actually pause without creating undue

risk, which is what we will do

:: 39:16:10

and review entire,

review your portfolio, review assets,

:: 39:21:11

even with the limited knowledge we have.

:: 39:23:09

And then as as the information comes out,

we get more detail.

:: 39:26:10

Talk to the engineers,

:: 39:27:11

we've spoken to a lot of our engineers already,

:: 39:29:11

and they are already thinking about

different ways to approach it,

:: 39:32:20

already because they have to because the

industry is changing in front of them.

:: 39:37:08

And so have those conversations

and be transparent with your tenants

:: 39:41:11

as much as possible

and actually just avoid a scenario

:: 39:45:08

where you could do some work and finish it

the day before legislation comes out.

:: 39:50:03

Yeah.

:: 39:50:19

Did you have any examples of that

where you'd done

:: 39:53:15

some strengthening recently and?

:: 39:55:16

No, not yet.

But there are ones that are in ourpipeline

:: 39:57:07

that we are actively looking at

avoiding scenarios where that would happen.

:: 40:01:22

Yeah.

:: 40:02:08

Because I think that's not,

that's not good use of people's time.

:: 40:05:10

And it is, especially in Auckland

where we know it's substantially changing.

:: 40:08:22

And that's the environment

we want to make sure that we

:: 40:11:10

protect the assets, still protect our people

and people and occupiers and our tenants,

:: 40:15:13

but we have a journey to take a little bit more, so.

:: 40:17:19

Yeah, excellent.

:: 40:19:17

Well, thank you so much,

both of you, for sparing your time today.

:: 40:22:24

But like you say, really positive, and

:: 40:26:14

you know, a good step forward

I think in the right direction.

:: 40:29:22

And then the time will tell

through the consultation as to sort of

:: 40:33:01

how it really starts to get, rolled out.

:: 40:36:03

So thank you so much.

:: 40:37:20

Thank you.

Thank you.

:: 40:38:22

And see you soon.