Four years ago Daniel Grollo was feeling invincible.
His Melbourne-based construction and development company Grocon had been named preferred bidder by Infrastructure NSW for Sydney’s sprawling Central Barangaroo development precinct, a deal the company expected to soothe the financial stress the storied builder had been suffering for about two years.
But a senior adviser to the group came to Grocon’s Melbourne office in the QV building off Lonsdale Street with a warning about speculation in property circles that could destroy his plans to turn the company around.
The adviser had heard James Packer’s Crown Resorts’ new casino and hotel in Barangaroo would fight to have its sight-lines of the Harbour Bridge and the Opera House protected from larger projects by its next door neighbours like Grocon.
“Don’t worry about it, he’s a friend,” Grollo blithely replied with the confidence that several sources, who have known the man for years, say is one of the marks of his character.
The adviser shot back: “I hate to disappoint you, but Packer has no mates.”
The warning was prescient.
Only a few years later, Grocon would be in the Supreme Court of NSW alleging it lost out on $270 million because of a secret deal between the Barangaroo Development Authority, Crown Resorts and rival developer Lendlease which protected the sight-lines of their towers and thus capped the height of Grocon’s development.
Grollo would in late November and in the midst of this legal fight place large parts of Grocon into administration, firmly blaming Infrastructure NSW for the company’s financial woes.
Some projects were kept out of administration but that moment marked the end of the building company founded in 1954 by Luigi Grollo and which, under the stewardship of Luigi’s sons, Bruno and Rino, built some of the biggest buildings in Melbourne such as the Rialto, the Eureka Tower, and, perhaps ironically, Crown’s Southbank casino.
Daniel Grollo declined The Age and The Sydney Morning Herald’s request for an interview. A spokeswoman declined to comment on the recollection of the adviser.
‘I hate to disappoint you, but Packer has no mates.’Adviser to Daniel Grollo
But former senior executives and advisers to Grocon, who spoke to The Age and The Sydney Morning Herald on the condition of anonymity due to employment reasons, say the construction company knew the project was risky.
Like all Grocon deals struck in the six years since the family handed over control of the builder to Daniel Grollo in 2011 to run the shop on his own, Barangaroo had a make or break tag attached. Success would mean more money and more projects, failure could plunge Grocon into administration.
The Age and Herald can reveal former advisers and staff at Grocon believe the group has been in financial difficulty since at least 2014. That year Grocon’s auditors from KPMG resigned after being unable to agree with the company on the group’s audited accounts. According to company sources, around 2015 the Australian Securities and Investments Commission (ASIC) was probing the company’s financial reports. Grocon declined to comment on both allegations.
PwC was brought in to replace KPMG but it would leave in 2018 citing a conflict of interest. Grocon’s annual report, which reporters could normally rely on to drop in October every year, was not published in 2018, nor in 2019 or 2020.
Company watchers were quick to say Grocon’s woes were not caused by the group’s notorious battles with the construction arm of the CFMEU or the notorious “wall” incident in 2013 when a retaining wall at its Swanston Street apartment development collapsed, killing three people walking past the site.
“The unions didn’t destroy Grocon, Grocon destroyed Grocon,” a former insider says.
(Some sources have also put some of the blame on Grollo’s “weird” decision to base himself in New York and issues he confronted trying to run a multi-faceted business from the US. His efforts to launch an American business flopped, his marriage soured and his health deteriorated.)
For those who know the company well, the seeds of Grocon’s financial demise were sown in 2011 when the business was restructured to allow Daniel Grollo to run Grocon without the help of dad Bruno or brother Adam.
In that arrangement, Daniel Grollo took control of the group and its suite of exciting development and building projects while its assets were spun out or sold to family interests. The deal meant that a fair portion of the family’s wealth remained to benefit Daniel’s siblings Adam (who worked at Grocon for many years) and Leanna.
At the time, patriarch Bruno Grollo was lauded for his proactive approach to splitting up the business empire he and his sons had built. And why not? It had worked for Bruno and his brother Rino 11 years earlier when they split their business so that their respective children could thrive.
“I suppose I’ve got to get things in order before I die. I don’t want the kids fighting,” Bruno told the Australian Financial Review at the time. “As a father you think your kids are happy just being your kids and owning everything. But they’re not, they want to own something and that’s fair enough.”
But the splitting of the Grocon empire decapitalised the company and caused irrevocable damage to its balance sheet. Grocon’s holdings in the QV building, two lucrative suburban office towers and other assets were stripped out to be retained for the benefit of the family.
“If Grocon had not split it would be like Walker Corporation and worth $2 billion,” says a former insider, pointing to Lang Walker’s sprawling property empire.
Without these assets, sources say Grocon was forced to chase riskier deals and did not have the assets to sell or the steady flow of rents to back up its cash position when projects went over budget, as they tend to do when an aggressive developer is seeking to outbid the competition on wafer-thin margins. Presented with this thesis on Grocon’s history, a Grocon’s spokeswoman would only say: “This is incorrect”.
Grocon would lurch from project to project, immediately on-selling its rights to own the finished development to a new bidder. It would then use the money to pay out debts on other projects and prepare bids for a new gig.
This is what sources say Grocon did at Barangaroo, quickly offloading its interest in the development to Chinese developer Aqualand for $73 million. Sources suggested Grocon had put in $25 million and the sale represented a $50 million profit.
“They may have been dudded by NSW but they made $50 million as well. It was a good deal,” a property sector source said. A spokeswoman for Grocon said this assertion was incorrect.
‘If Grocon had not split it would be like Walker Corporation and worth $2 billion.’Former insider
But according to Grocon, without the stoush at Barangaroo the company could have remained solvent and covered the $8 million outstanding to creditors on other projects, most notably the Northumberland office development in Melbourne’s inner north. But the money is not there.
At the same time , Grollo’s relationship with his father Bruno, who is a shareholder in APN Property Group which has been locked in a business dispute with Grocon for seven years, has frayed.
Now truly on his own, and without the support of his family or his ‘friends’ like Packer, Grollo has one last chance to resurrect Grocon and his standing in business circles by presenting a pay out deal to creditors. Whether he can pull it off is another question.
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Source: Thanks smh.com