Lendlease's first big step on the road to becoming a global powerhouse started when it decided to shrink.
A decade ago, the 68-year old company, founded by Dutch immigrant Dick Dusseldorp, that had made its name building the Snowy Hydro and the Sydney Opera House, was operating in 40 countries but only four of them were profitable.
In the tough years after the global financial crisis, the new chief executive, Steve McCann, rationalised its global operations to a new set of international "gateway cities" where it was willing to invest.
Sydney's giant Barangaroo project was the first big step in a new direction towards landmark urban regeneration projects; Lendlease won the tender in 2009, and it was a big risk for the new boss.
"Steve took a big bet," recalls Tony Lombardo, the company's former head of strategy who now heads up its Asia division.
"People were worried about the debt. It became the calling card for what we wanted to stand for in urban generation. This is going to be built in our back yard. Sydney is our home city. We thought that was the great opportunity."
Today, LendLease has a list of 16 landmark regeneration projects across 10 countries, and the group has expanded well beyond its construction roots to become an investment giant worth $11.5 billion, employing 13,000 people and deploying a $71 billion development pipeline.
In a series starting on Monday,The Australian Financial Review is examining how Lendlease became the world's developer, as part of an ongoing focus on Australian businesses going global.
"We said to ourselves, you know what, we have to go after these bigger projects where we believed we could create a different place," Lombardo says.
"Lendlease lost money internationally previously. The board could at the time have retreated completely but it held its nerve and said you can't just be a player in Australia," Lombardo says.
The company also plans to reduce the amount of capital it invests in Australia and push it out to the rest of the world with the focus on its core operations in Europe, the Americas and Asia.
Lendlease chief Steve McCann says the company hoped to generate up to 20 per cent of total profits from the world's fastest-growing economies by reinventing the way people work, live and spend their leisure time in high-density cities while branching out into new businesses underpinned by ageing populations.
"Capital is increasingly deployed in our international projects, where we believe there is strong embedded margin," McCann says.
"The regional shifts in capital are in line with our expectations, highlighting our origination focus in recent years on international gateway cities."
In the group's latest results operating EBITDA margin out of Asia jumped to $97 million for the financial year 2018 up from $21 million the previous year.
Bringing Barangaroo to Asia
Singapore's Paya Lebar Quarter, the company's flagship project in the region is a city precinct of three office towers, residential apartments, shops, restaurants and lots of green space. It is six metro stops from Raffles Hotel and about the same distance away from the city's airport.
This is the kind of project Lendlease is holding up as a model for the region as it pursues urban regeneration projects in "gateway cities" around the world.
On site in Singapore, Lombardo gazes over a sea of cranes, scaffolding and half-completed high-rises as he relays the story of Lendlease's mixed fortunes offshore.
Lombardo has big plans for the world's most populous region as the company works with local governments to shake up the way major residential and commercial developments are built and operated.
As well as bringing Barangaroo-style developments to cities like Singapore and Kuala Lumpur, the company want to be a major player in China's fledgling aged care market.
"We have been fixated this time round on making sure you get a competitive advantage. Don't be a one-trick pony in construction which is where we were sitting previously.
"The next three to five years across Asia, the opportunity is there. We just have to make sure we can do it safely and profitably."
Sydney's Barangaroo is the role model, which meant Lendlease needed to convince the Singapore authorities to rethink the way a mixed-use development works.
Lombardo compares it to the "party people don't want to leave" – a liveable and active space like Barangaroo where people work on laptops in ground floor cafes, families picnic on the weekend and is just as busy in the evening as during office hours.
Lendlease convinced the Singapore government to combine three plots of land which would have been sold separately into a precinct with more community space than was normal for developments in the small city state.
Lendlease also proposed covering up the concrete canals running through the site, which are generally left open in Singapore, to free up 100,000 square metres of public space. It was a radical proposal and one of the biggest property transactions in Singapore at the time.
It will be the first development in the city to offer "end of trip facilities" such as showers and towels for people who want to run or cycle to work, bike parking and facilities for electric scooters. This is something the Singaporean government is now mandating in other big projects.
Lendlease will move its Asian headquarters, currently in a high-rise down town where its staff are trialling a co-working concept it will offer to tenants at the new site, early in the new year.
Lombardo, who outlines his plans over two interviews in Singapore and in Shanghai, is confident Asia will eventually account for one-fifth of the company's global profits to match the capital being allocated into its operations spanning China, Singapore, Malaysia and Japan. This is a big leap from 3 per cent in the first half of the current financial year.
"We are putting 15 to 20 per cent of the capital [in] so over time profits should get into that zone. It takes time because developments take three to four years to build before you get to recognise profits at the end. It takes time to build up a consistent portfolio and generate those returns."
The Paya Lebar Quarter, a 30:70 joint venture with the Abu Dhabi Investment Authority, is the company's flagship project in Asia. Like its other big projects, Lendlease buys and develops a site, brings in a buyer and then takes a long-term operational role.
Offices are offices no longer
Lombardo says this long-term approach is an incentive to create a good quality asset from the beginning. Technology, co-working and the shared economy play a big part in its projects. The site also sits on two train lines while covered paths and cycleways connect it to other parts of the city.
Lombardo says office buildings operate completely differently now than they did a decade ago. An office lobby used to be an empty space but now contains a coffee shop and places to meet.
Residents and workers do not drive to work and are more likely to run or cycle to work, even in Singapore's stifling heat, if there are the right facilities.
Technology is blurring the lines between where people live, eat, shop, exercise and work. The company is targeting medium to small companies who want co-working spaces as tenants.
"When we look for a certain site it has to be an attractive place to live, work and spend leisure time in parts of the city that are getting renewed or re-rated," David Hutton, the company's head of development says.
Lendlease rarely takes on projects in the middle of cities, but focuses on growth areas.
"What we try and do is get enough area and scale in a part of the city to get it re-rated and improved and we can contribute to that."
The property business is a long-term game but Lendlease has the luxury in Asia of being able to build major projects faster than it can in Australia, although this also creates huge challenges.
It uses cutting edge technology such as drones, 3D modelling, laser scanning and virtual reality to improve the planning process as well as safety.
"Hard to believe I came here from Australia with coloured drawings and pencils three years ago," says Andy Bartal, the senior site manager for the Paya Lebar site.
He marvels at the project started in 2015. He says 2000 construction workers putting in six days a week and 10 million man hours means the project will be finished early next year.
The challenge for Lendlease was building the office, retail and residential components all at once rather than a staged process.
There are cultural challenges too managing a workforce where only 10 per cent are trained in the construction industry.
Lendlease set up a training academy to improve safety. Building alongside a working metro system and with height restrictions which meant its cranes could not go above 64 metres was also challenging.
An aged-care vision for China
The long-term vision is for a large aged care business in China, the core property construction business in cities such as Singapore and Malaysia and a telecommunications tower operation in Japan.
He wants three to four major projects underway consistently at any one time compared to the two main projects it has now.
"In Asia, there are so many young cities and the urban centres are growing. It is most efficient to build up from a scale perspective because you get a better return out of the transportation and infrastructure."
New cities springing up in China, Malaysia's relatively young population and Singapore's more developed economy are major drawcards. Lendlease also operates in Tokyo.
You get a sense Lombardo is hungry to take the model to other cities but there are no formal plans to expand out of its four key markets yet, at least none that have made it past the board.
Lendlease has around $800 million, or around 12 per cent of group capital currently deployed in Asia.
That includes $500 million in development capital and $300 million in existing assets. The company plans to invest another $500 million to $600 million in equity, add debt and bring in investors for Asia.
Lombardo says he would like to double the size of its existing $6.2 billion portfolio in the region, while growing its funds under management to $10-$15 billion. The company currently has around $6 billion of funds under management.
"I would like to see the scale of that portfolio double in size because it means we have more sustainable platforms. It means we need to win a couple of big urban regeneration deals. I would like to grow our funds platform," he says.
The existing $6.2 billion pipeline includes the $3.4 billion end vale for the Paya Lebar Quarter and $2.9 billion for the Tun Razak Exchange (TRX) – a shopping mall and development in Kuala Lumpur.
Source: Financial Review