THE PROPERTY DEVELOPMENT REVIEW
Third-generation Grocon boss Daniel Grollo has declared bankruptcy, closing the final chapter on one of Australia’s biggest construction companies. GROCON’S FALL, BATHLA’S FALLOUT: THE CASHFLOW LESSONS FOR BUILDER- DEVELOPERS Grocon, one of the country’s biggest construction companies, collapsed in 2020. Over more than 70 years in business, it built skylines in Australia and across the globe, from Sydney’s 1 Bligh Street and Melbourne’s Eureka Tower to assisting on the Burj Khalifa. At the time, Grocon blamed both Covid-19 and the costly legal battle over Central Barangaroo, in which Lendlease and Crown Resorts successfully appealed against a $2-billion development Grocon had won the rights to develop. But, as the recent collapse of Bathla Group has shown, construction failures are rarely caused by one event, says insolvency practice Jirsch Sutherland partner Chris Baskerville. “A major dispute or external shock may ultimately be the tipping point, but often the underlying pressure has likely been building for some time,” Baskerville says. Company structuring and risk Administrators KordaMentha eventually found 88 Grocon-related companies—more than double those initially reported. It owed around $100 million to external and third party creditors, $13.7 million to the Australian Taxation Office, and $500 million in intercompany and related party loans. Two Grocon companies had already called in administrators in 2019 after a legal dispute with Dexus over unpaid rent and lease obligations at the 480 Queen Street office tower in Brisbane. Grocon initially put legacy construction companies into administration, while other parts of the group remained operating, enabled by the complex structures taken on by major contractor groups. Special purpose vehicles (SPVs) are not unusual, as companies seek to quarantine project risk and satisfy financiers. But they can make insolvencies even more complex. “In the absence of a pooling order by the Court—where you treat the assets and liabilities of each separate entity as one large entity—you really have to take the surgeon’s knife to each individual entity,” Baskerville says. Deed of Company Arrangement In the case of Grocon, a full liquidation was avoided when the creditors of the companies agreed on a pooled deed of company arrangement (DOCA). The rescue plan meant that employees and small creditors owed under $10,000 were paid in full—an unusual outcome and not standard practice for a DOCA. “[But] paying those creditors in full can simplify the administration and recognise the disproportionate impact a bad debt can have on a small business,” Baskerville says. In Grocon’s DOCA large contractors (despite their objections) reportedly received fractional returns, of around 2.5 to 2.9 cents in the dollar. The ATO received a $6 million upfront payment, or around 43.8 cents in the dollar. A recent ASIC report found that 44 per cent of voluntary administrations resulted in a DOCA, rising to 48 per cent for companies with more than $10 million in liabilities.
ROOM TO GROW: MATHS ON STUDENT ACCOMMODATION DOESN’T ADD UP
Prepared by Ready Media Group
Author: Clare Burnett
The Urban Developer
New CBRE research estimates potential excess demand for around 185,000 purpose-built student accommodation (PBSA) rooms nationally.
Almost half of DOCAs involved continued trading, 22 per cent involved a business or asset sale and 63 per cent included third-party funding. “A DOCA can be much more than creditors simply agreeing to take cents in the dollar. It can provide a mechanism to preserve or realise value and potentially produce a better return than an immediate liquidation. Ultimately, creditors decide whether to accept that trade-off,” Baskerville says. Reverberating impact of an insolvency The impact of an insolvency does not necessarily stop with the company that fails, Baskerville says. The implosion of UK construction giant Carillion in 2018, for example, created a domino effect through the subcontractor and supplier network. Within 24 hours of Carillion’s failure, subcontractors disclosed multi- million-pound exposures and began laying off staff. The first subcontractor liquidation hit within two weeks, sparking a wave of distress. Associated failures continued for at least 18 months. “It’s particularly relevant in construction because subcontractors can effectively become the cashflow buffer for businesses higher up the chain,” Baskerville says. Bathla had 638 subcontractors associated with its projects, considerably fewer than Carillion and Grocon, which were each thought to have thousands. But Baskerville expects NSW construction insolvencies to rise over the next three quarters as the fallout from Bathla’s collapse continues. Although the businesses are different and collapsed under different circumstances, both show that a large development pipeline and significant underlying assets don’t necessarily translate into liquidity, Baskerville says. Lessons to be learned Baskerville says there are signs that we are moving into a more creditor- driven phase of insolvencies. Voluntary administrations have dipped to 10 per cent of all administrations, instead of an average of 35 to 40 per cent in previous years, he says. “Once lenders, the ATO or other creditors start driving the process, the range of restructuring options can narrow very quickly.” The lesson from the Grocon and Bathla collapses, Baskerville says, is that cashflow needs to be managed as closely as profitability. “Builder-developers should stress-test projects for cost increases, delays, slower settlements and financing problems, and have clear visibility over intercompany funding and guarantees. “They also need discipline around pricing. In construction, taking work simply to maintain turnover can be dangerous if the margin doesn’t adequately price the risk.” The collapse of Bathla will inevitably draw comparisons with previous insolvencies like that of Grocon, and this in turn attracts greater regulatory and government scrutiny—already ASIC has waded in and asked the administrators of Bathla for transparency. “But intervention also needs to avoid creating an expectation that the government will rescue large developers when projects run into difficulty.”
The Australian Student Accommodation 2026 report estimates PBSA currently serves just 7 per cent of university students, or one bed for every 15 students. The imbalance is particularly acute around major university precincts. We spoke to CBRE’s Senior Director of Living Sectors, Rosie Young, and Head of Research, Sameer Chopra, to find out what this means for investors and developers. Supply still short of the mark Australia’s PBSA pipeline is growing, but not fast enough to close the gap. CBRE estimates around 34,000 new PBSA beds could be added nationally between 2026 and 2029, representing a roughly one-third increase on current stock. Yet even if those projects are delivered, PBSA penetration would rise to only about 9 per cent of university students. The relatively low penetration rate leaves Australia well behind global markets, where PBSA can account for one bed for every two or three students. The opportunity is particularly pronounced in Sydney and Melbourne. Sydney has the larger shortfall, with CBRE estimating 25,000 beds of unmet PBSA demand in the Central and Inner West around the University of Sydney and UTS. Melbourne also remains undersupplied, with around 10,000 beds of unmet demand in the CBD and inner north. Ms Young said Sydney remained the city with the greatest imbalance between demand and supply. “Sydney remains the city with the greatest demand/supply imbalance both on current PBSA supply levels and including future supply,” she said. “To grow pipeline in Sydney is going to take an innovative approach, looking at new submarkets away from the traditional university core areas of city fringe and inner west.” The location equation More beds do not necessarily mean a better investment. Where those beds are located can make all the difference. CBRE research shows students place a premium on proximity to campus, with walking distance, short commutes and access to public transport all influencing demand. That preference is showing up in rental performance. Median studio rents across CBRE’s Melbourne and Sydney sample increased at a compound annual growth rate of 5 per cent between 2018 and 2026.
Nearly one-quarter of standard suites now rent for more than $700 a week, compared with just 4 per cent in 2023. Nationally, PBSA rents were 12 per cent above two-bedroom apartment rents in the same precincts at mid-2026. “PBSA is no different from any other sector; location remains key,” Ms Young said. “Ideally less than 10 minutes’ walk from a university campus or even better, directly adjacent.” But location alone does not command a premium. Students are also choosing between competing properties based on the experience they offer. “Word of mouth referrals and online reviews are key drivers for students when deciding on which individual PBSA property to choose,” Ms Young said. “Ultimately, it is these factors that drive rental premiums.” Top marks for resilience The supply shortage and rental growth outlook support the investment case for PBSA. Cap rates have remained broadly stable over the past 18 months, with demand for newly built, high-quality investment stock and prospects for rent growth supporting pricing. CBRE Head of Research, Pacific, Sameer Chopra, said that while student accommodation had performed incredibly well over the last few years, the sector faced some headwinds in the near term. “Like other sectors, development remains challenging as a result of high construction and finance costs,” he said. But those same development challenges could also continue to constrain new supply. Mr Chopra said the longer-term outlook remained positive. “Offset against that, however, is the longer-term view: the counter- cyclical benefits of PBSA being that education and housing are two of the most resilient areas in any economic slowdown, together with longer-term rental growth potential, driven by the potential for restricted future supply,” he said.
6 – October / November 2026
October / November 2026 – 7
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