Wednesday 24 July 2019

Corkman at helm of £3.8bn UK builder

The CEO of London's number two homebuilder tells John Reynolds of his upset, as an immigrant, about the UK's vote to quit Europe

Donagh O’Sullivan, Galliard Homes at Harbour Central site in East London. Photo: Jonathan Goldberg
Donagh O’Sullivan, Galliard Homes at Harbour Central site in East London. Photo: Jonathan Goldberg

John Reynolds

For a self-confessed avid follower of politics in these islands and across the Atlantic, the office of Donagh O'Sullivan, CEO of Galliard Homes, has an apt setting, on the edge of Westminster in the heart of London and just around the corner from the home of Channel 4 television. The 50 year-old Corkman, who grew up in Cullen, near Millstreet, was one of seven sons of parents who owned a petrol station and bus- hire company in the village.

A graduate of UCC, he has lived in the English capital for 28 years and now runs what is the second largest residential developer in the city, with FTSE-listed Berkeley Group ranking number one.

With a staff of 650, and employing up to 8,000 indirectly at any one time, Galliard is majority owned by British businessman Stephen Conway and his family, with senior management, including O'Sullivan, sharing a stake.

It has £3.8bn (€4.3bn) of developments under way - typically including up to a dozen 20 to 40-storey towers at any one time - and is the 17th largest home builder in the UK, but the ninth most profitable, so it punches above its weight.

It's a long way from when he joined the firm as a contracts manager in 2001, when it had only 25 employees, building 75 homes.

Mostly focused on London and England's south-east today, it also has projects under way in Birmingham, Edinburgh, Bristol, Exeter, Cornwall and Bath. Its bread and butter is apartment blocks aimed at investors - many of whom buy off-plan - and first time buyers. Some developments are mixed use, with a bit of commercial space.

The firm is planning to do more on a build-to-rent basis, where the firm will retain ownership and have a rental income, he said.

"Selling off-plan might become more difficult [though a no-deal Brexit and a subsequent crash in the pound might bring a flurry of investment seeking to take advantage of that.]"

There are also two hotels at London landmarks under way. One is a serviced apartment style property at Tower Bridge. The second sees Galliard building and owning the property, while hotel group Hyatt will operate what will be the five-star Great Scotland Yard at the original home of the Metropolitan Police in Whitehall, whose moniker was 'The Yard.'

The model isn't unusual. Galliard works with a lot of joint venture partners. The firm usually takes between a 20pc and 40pc stake - the latter being the average - in each of its developments.

"Our partners are a diverse group; from individual wealthy people, landowners, funds, banks and other developers. We're very flexible, and the growth of the business has been driven by this way of working," said O'Sullivan. "Investors who make money in the time that their apartment takes to build - usually two to two-and-a-half years - will often return to buy from us again."

Several construction partners are Irish-owned, including Toureen, Modebest, JRL Group and the largest, O'Shea, with which Galliard frequently partners, and which has over £1.75bn of developments under way in London.

Earlier this month, O'Shea and Galliard announced they'd bought a €25m site at Nine Elms Park, nestled between the new US Embassy and Battersea Power Station, where they will build a block of 262 apartments.

"We have traditionally been very successful at off-plan sales. Of our current book of £3.8bn, we have forward sold about 75pc of that, and it might take three-and-a-half years to build it all out. We like to buy sites where we have something to contribute and are very much about creating primarily homes where people will enjoy living and will want to live.

"We do everything, from land acquisition, to the planning, sales and marketing, construction, after-care, and property or estate management all in-house," O'Sullivan added.

"Traditionally we've been very good at helping to regenerate parts of London. With 33 boroughs and 8.65 million people, 75pc of what we build is there, and there are always opportunities somewhere in the life cycle of communities. Britain has a target of building 300,000 homes a year, but to date has only achieved 210,000 at best."

As high streets change with the growth of online shopping and demise of several previously successful household names, he could see a future for residential development in some of them.

Following UK legislation that bypassed the planning process to increase new homes after a shortfall since 2013, Galliard has already done office conversions, about 20 schemes amounting to about 2.500 homes.

"We strip back buildings to the structure and build apartments to the same high standards as total new-builds. They have a 10-year warranty and all the appropriate building controls," said O'Sullivan. "We stand by our developments, and have retained them to let out on long leases. If there are opportunities to convert former retail space, as the government has talked about, we'd look at that as well."

A new Galliard division, Evolve, has four sites in the London commuter belt, where effectively a twist on co-working spaces will be developed. It would see startups and small businesses operating in 700 sq ft units - the size of a small terraced house or two-bedroom apartment. All covered by fast 1Gb broadband, communal facilities are housed in a barn conversion-like building featuring showers, a gym, meeting and kitchen spaces.

"People are looking for a better quality of life, and it's expensive to commute. These cater to a certain section of the market not being served, so we're doing it." The first site has 90 of the units and they start at £99,000 (€113,000.)"

Has Galliard ever looked at building in Ireland? "We looked in Dublin elsewhere, before the crash. But each time I did, we didn't go ahead.

"I couldn't understand the basic maths, in terms of affordability for the people who'd need to buy the homes to make it a success. Land and development costs, and then what the selling prices needed to be: I couldn't see how the market could sustain those three elements.

"I'm not claiming to be an expert in that I saw the potential for a crash. As we all know, the banks were exposed twice, lending to developers and then lending for mortgages. It was mad. We recruited some people from Ireland in the aftermath of the crash. My Dad sent some recruits our way as well who needed work.

"But also, we are a pretty simple business. There has to be a fair chance that there are enough people who want to and can afford to buy where you've built. We did some experimental developments in other countries that didn't work out, so we will stick to what we know here in the UK."

He's acutely aware of the various issues in construction and housing in Ireland at the moment. "Barretstown, where I'm a director, is about to build a new accommodation block for volunteers, but I've seen the budget for that, the building costs are about 30pc higher than the initial estimates."

With those costs perhaps likely to rise further in the wake of Brexit, Galliard will also be hit on its material costs, although he believes that the date of Britain leaving will be delayed.

"Brexit is like throwing sand into a gearbox. We'd see a contraction in the housing market, no economic growth, and material costs rising by 10pc to 15pc giving a 5pc to 7pc overall rise in our build costs. But myself and my colleagues think it will be delayed, perhaps by a year or more. There's the impossibility of the border issue. And 'no deal' just cannot be an option.

"My biggest issue is around our staff. Our HR department will support all of our staff from the EU who require settled status. It will take them through the whole process. We're looking after our people. We want them to know we care about them."

Softly spoken, but with a discernible steely resolve never far from the surface, the Corkman gives a forthright and passionately held opinion on why he believes Brexit is a mistake, and makes no economic sense for Britain.

It's not difficult to imagine him as a politician - an early childhood ambition was to be the US President, he laughed - although he insisted that he's never had any political ambitions in adulthood. He believes that his personal confidence is better suited to answering to shareholders - who are more engaged with details and results than voters.

"Having been in London since September 1990, the day after the referendum in 2016 was the first day that I felt very upset. The country had chosen to leave the EU, in my view due to an argument about stopping immigrants coming in. I'm one who'd been here 26 years.

"I've wholeheartedly contributed in my own modest way to the country, making a reasonable mark in my circle of influence, never having taken from the state.

"I'm completely immersed in London. It's my home, where my life is, where my love is and where my heart is. Leaving the EU is such a backward step in terms of openness to other countries, cultures, ways of life and approaches to life. Integration of people improves our understanding of the world, of cultures and different points of view."

He pointed to several of his staff in the small open plan office next door to his, who are from Ghana, Dublin and Spain. "I've got staff from all over the world. They make this company a success and, as in many other businesses like it, small and large, and all of that makes Britain a success."

Sunday Indo Business

Also in Business