LendLease to allocate 40-50% of capital to international growth
Lendlease is allocating 40-50% of its capital offshore as the Australian property and construction multinational seeks to export its integrated business model abroad. After an aggressive foray into the US that ended in a partial retreat from the market, and the 2008 financial crisis, Lendlease earmarked about 80% of its capital to Australia. Now it's again seeking to expand in the US, focusing on major cities including Boston, Chicago and New York. Lendlease's CEO in the Americas, Denis Hickey, said the company will make sure growth is "slow and measured" and built up with "local people in the marketplace".

Australian-born Hickey, 52, a potential candidate to eventually replace Lendlease group chief executive Steve McCann, says the US residential and commercial construction market has rebounded strongly in the last few years and the outlook is positive.

"Asset prices are full, debt is cheap but the underlying economics of those assets are sound."

And as for President Donald Trump's tax cut and deregulation agenda, Hickey sees it as a positive for the US economy.

"Our strategy is consistent and doesn't alter on macro decisions like that," he says.

Denis Hickey joined Lendlease in 2012 after a stint as chief executive of ING Real Estate, and shifted to the US nearly four years ago with his wife and four children. DAVID JOSHUA FORD

"On a personal front I think that tax reform will be good for the economy. "We are competing on a global landscape and it will make the US more attractive in terms of foreign capital coming into this market."

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Lendlease pays a US corporate tax rate of about 42 per cent including state and local business taxes, so slashing the 35 per cent federal corporate rate to 21 per cent may also help the company's bottom line.

Lendlease's Steve McCann has spoken to investors about capitalising on the trend of urbanisation in international "gateway" cities including London, Milan and Kuala Lumpur.

Yet the company's international expansion is not without risk.

Mark Waugh is hit by ball from Denis Hickey back in February1988. Photographer Unknown

Under previous senior management, the Australian construction and property multinational blew up nearly $1 billion 15 years ago on an aggressive US foray that ended in a partial retreat from the world's largest economy.

Separately, it was later reprimanded for a fire on a demolition site that killed two firefighters in New York in 2007 and fined in 2012 for overcharging clients for inflated-labour bills.

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After the 2008 financial crisis hit the global economy hard, Lendlease largely turned its focus inward on the safer local market by allocating about 80 per cent of its capital to Australia.

The company's more recent goal is to allocate 40-50 per cent of its capital offshore as the global economy picks up and Lendlease seeks to export its successful Australian integrated business model to the world.

Hickey, who has long been fascinated by the evolution of New York City since the 1990s, when he had a map of Manhattan pinned to his office wall, was the logical fit for the US job.

He joined Lendlease in 2012 after a stint as chief executive of ING Real Estate and shifted to the US nearly four years ago with his wife and four children.

Hickey understands the direction Lendlease needs to take and he says the company has learnt from its earlier expansion in the US.

"It is making sure we take our growth slow and measured and we make sure we embed local knowledge," he says.

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"As we've grown our development business we've been very conscious to build our capabilities with local people in the marketplace."

In the US the company is focusing on development and construction in Boston, Chicago, Los Angeles, New York, San Francisco and Washington DC.

About 95 per cent of Lendlease's 1800 US staff are American. There a just a few Australians such as Hickey who are embedded to "bridge" the culture and business links between the two countries.

One of the US executives, Melissa Burch, is overseeing the development of the $US470 million project at 277 Fifth Avenue in the NoMad (North of Madison Square Park) neighbourhood.

The under-construction 55 floor condominium building was designed by the famous Uruguayan architect Rafael Viñoly, including retail space at the base and a planned 130 luxury residences on the upper floors.

The project is on track to have lower-floor buyers move in during late 2018.

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A typical two-bedroom condo is selling for about $US3.7 million. Hickey says the condo [apartment] market has started to slow down a bit in terms of new construction because of tighter lending criteria.

"Melissa knows the market well and we can bring to her our armoury of what Lendlease does with global access to capital, product thinking and innovation," Hickey says.

Burch, who has worked in New York residential and commercial development for 15 years after beginning her banking career at Merrill Lynch, says she joined Lendlease in 2015 due to its global network in development, construction and funds management.

She was attracted to Lendlease's effort to build and grow a meaningful development business in New York City.

"For decades Lendlease has been known as a top-flight builder in New York, and we will look to leverage this local expertise along with a strong balance sheet and international experience to secure and develop our own projects in this market," she says.

Lendlease has operated under various brands in the US since the 1970s and worked on iconic projects at Grand Central Terminal station, the Statue of Liberty, the National September 11 Memorial and Museum, Time Warner Center and Citi Field, home of the home field of the New York Mets.

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Since Hickey arrived in the US in 2014, Lendlease has been trying to transform its business beyond a "capital light" firm that was largely focused on construction of buildings for other developers and providing Defence Department accommodation to more than 100,000 military personnel in the US.

Across 50 military bases, Lendlease co-owns and manages about $US10 billion in assets comprising nearly 60,000 hotels rooms and houses, making it the largest joint venture accommodation partner with the US military.

The construction business, which turns over about $4 billion, will remain a steady, low-margin and high-turnover part of the Lendlease empire.

The recent expansion into originating US projects at the initial development stage offers potentially larger financial rewards, such as the company's Barangaroo development on Sydney Harbour.

Lendlease has active developments in Boston, Chicago and New York.

"We're moving from being a delivery-focused business to much more of an origination business," Hickey says.

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"The board in sending me here wanted to round out Lendlease's activities and bring a much more integrated approach with all the other things Lendlease does around development and investment management."

Lendlease's Manhattan development joint venture partner is local developer Victor Group.

A Chinese business partner, Shokai, has a preferred equity investment of $US100 million. Three banks from Singapore are providing debt financing.

The US accounted for $162 million, or 12 per cent, of Lendlease's total operating EBITDA of $1.4 billion in the 2017 financial year, compared with 79 per cent for Australia, 8 per cent for Europe and 2 per cent for Asia.

The US currently has about 8 per cent of the company's capital allocation, at the lower end of a target range of 5 to 20 per cent.

"The shift to international regions is significant, but I don't want to overstate its importance," McCann said the company's profit result in August.

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"Australia is expected to remain the dominant region for the foreseeable future."

Elsewhere in the US, Lendlease and longstanding business partner, Japan's Softbank, have both injected $US200 million in equity to develop and own telecom infrastructure assets across the US.

The telco joint venture, Lendlease Towers, will seek to develop a portfolio of geographically diverse rooftop and tower assets to capitalise on the explosion in digital data use.

"When you look at what's going to happen with data use across the world and in the US, the rollout of 5G, the internet of everything, driverless cars, the quantum of data that is going to be used is exponential," Hickey says.

"The infrastructure to transport that data needs to be vastly upgraded."