Lend Lease covers waterfront

LEND Lease is poised to reap sizeable development profits from its part in the winning consortium for the redevelopment of the $1 billion Sydney Convention, Exhibition and Entertainment Precinct.

Brokers said the deal would boost Lend Lease's development pipeline at a time when construction remains under pressure in non-mining cities.

The project will also boost the local building sector in a year that saw five major developers hit the wall through lack of forward work.

These were Reed Constructions, Kell & Rigby, Southern Cross Construction, parts of St Hilliers and most recently Holmwood Builders Pty Ltd, which trades as ProCorp.

Experts warn that the coming year will also be tough for the building sector.

The managing director for New South Wales of Rider Levett Bucknall, Bob Richardson, said in the group's most recent fourth-quarter Oceania Report that the construction market in general was static as the industry adapted to a reduced workload.

The report shows prices were steady in the past nine months as builders continued a high level of discounting in order to remain competitive and secure work.

"There appears in the short term, little prospect for improvement in workload as there are large variances in the values of building approvals on a month-on-month basis, as reported by the Bureau of Statistics," Mr Richardson said.

In the latest bid, Lease Lease and its partners beat out competitor Brookfield Multiplex. The group will effectively "book end" the redevelopment of the Darling Harbour precinct, from Barangaroo South, at the northern end, to near Haymarket, in the south of the city.

Under the deal, Lend Lease, as part of the Destination Sydney consortium - which includes HostPlus, Capella Capital, AEG Ogden and Spotless - will work with Infrastructure NSW in a $1 billion public-private partnership (PPP) to design, build, finance, maintain and operate the convention, exhibition and entertainment facilities.

JPMorgan's Anthony Passe-de Silva says, in a note to clients, Lend Lease will secure several earnings streams from the project by acting as PPP development manager/financial adviser (via Capella Capital), delivering design and construction services (via project management and construction) and investing 50 per cent of the project equity.

"The redevelopment of the five-hectare site around SICEEP also provides further opportunities to expand and lengthen the group's mixed-use development pipeline," Mr Passe-de Silva says.

"Lend Lease believes that the site could have an end development value of over $1.5 billion, and it will include 1400 apartments, 15,000 square metres of commercial space, 7000 sq m of new retail space and a 900-room hotel."

Mr Passe-de Silva says that, using the "rule of thumb" that Lend Lease management provided at its May 12 investor day, the SICEEP project could deliver about $150 million in pre-tax and overheads earnings for Lend Lease over the life of the project.