Sky-high cost for falling marble facade

TELSTRA is seeking nearly $500,000 in compensation from the owners of a building that dropped part of its marble facade onto a Melbourne city street in January.

By InvestSMART · 22 Jun 2012

By InvestSMART ·
22 Jun 2012

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TELSTRA is seeking nearly $500,000 in compensation from the owners of a building that dropped part of its marble facade onto a Melbourne city street in January.

Telstra was forced to clear its 462 staff out of offices at 447 Collins Street, and claims it spent $304,642 on temporary leases and wages for staff who were unable to work.

It is seeking a further $170,000 in costs to speed up refurbishment of new office facilities for its staff, according to documents filed with the Supreme Court of Victoria.

"We look forward to the matter been resolved in court," a spokesman said.

The property carrying the Suncorp name is owned by Industry Super Property Trust and is covered in scaffolding. Melbourne City Council issued an emergency order after a marble sheet fell off the building on January 30. About 40 per cent of the facade is now clamped to the building to avoid further shedding.

ISPT will not renew leases and remaining tenants will gradually vacate over the next year. Telstra was already planning to move to a new building in La Trobe Street. Suncorp is expected to be the last to leave, in mid-2013.

"At this stage the intention is to keep the building," ISPT chief executive Daryl Browning told BusinessDay. "The floors that are vacated will not be reoccupied because the work that would be needed on the facade is likely to be disruptive to tenants. The certainty is it would be easier to conduct the work with an empty building, whatever the work may be."

Mr Browning said that no more damage had occurred since January, including when Melbourne was struck by an earthquake on Tuesday night.

While shops and cafes in the bottom of the building that were forced to close were in talks for compensation, Telstra was the only tenant to sue for compensation so far, Mr Browning said. A hearing is set for this morning in Melbourne.

ISPT bought the building from AXA Asia Pacific in November 2004 for a reported $81 million. It values 447 Collins Street at $50-$99 million, according to its latest annual report. ISPT was founded in 1994 and manages $7 billion worth of property owned by 23 superannuation funds. SunCorp plans to move 750 staff out of the building in 2013.

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Frequently Asked Questions about this Article…

What caused the disruption at 447 Collins Street in Melbourne?

A large sheet of marble from the building's facade fell onto a city street on January 30, prompting an emergency order from Melbourne City Council and the erection of scaffolding and clamps to secure about 40% of the facade.

How much compensation is Telstra seeking over the 447 Collins Street incident?

Telstra is seeking nearly $500,000 in compensation. It says it spent $304,642 on temporary leases and wages after clearing 462 staff from the offices at 447 Collins Street, and it is seeking a further $170,000 to speed up refurbishment of new office facilities.

Who owns the building and how are they responding to the marble facade problem?

The building carrying the Suncorp name is owned by Industry Super Property Trust (ISPT). ISPT has put scaffolding and clamps in place, says it currently intends to keep the building, and plans not to renew leases so remaining tenants will gradually vacate over the next year.

Are other tenants seeking compensation and which tenants are moving out?

Shops and cafes in the building that closed were in talks for compensation, but Telstra was the only tenant to sue for compensation so far. Telstra was already planning a move to a new La Trobe Street building, and Suncorp is expected to be the last major tenant to leave in mid-2013, with plans to move about 750 staff.

What legal action or court timetable is mentioned in the article?

Documents filed with the Supreme Court of Victoria show Telstra's compensation claim, and a hearing was set for the morning in Melbourne. ISPT said it looks forward to the matter being resolved in court.

How has ISPT valued the 447 Collins Street property and what is its purchase history?

ISPT bought the building from AXA Asia Pacific in November 2004 for a reported $81 million. In its latest annual report ISPT values 447 Collins Street at between $50 million and $99 million.

What precautions have been taken to prevent further facade shedding?

After the marble sheet fell, scaffolding was erected and around 40% of the building's facade has been clamped to the structure to avoid further shedding. Melbourne City Council also issued an emergency order following the incident.

What information about ISPT might everyday investors find relevant from this incident?

The situation highlights property‑owner risks that can affect cash flow and tenant occupancy: ISPT is choosing not to renew leases and will have floors vacated to facilitate disruptive facade work, the building's valuation sits below its 2004 purchase price, and ISPT manages about $7 billion of property for 23 superannuation funds—factors investors may watch when assessing property‑trust exposure to refurbishment costs and tenant disruption.