The story behind modern methods of construction or pre-fab is challenging. When David Chandler, the outgoing Building Commissioner for NSW said at our TFE Live event a week ago that Strongbuild had failed twice we went looking to find out what happened.
According to Ben Nurmi, it’s true that Viridi, the off site prefabrication construction company started on part of the failed Strongbuild business struck problems late last year, but the business is now struggling back to its feet, with a prognosis that looks positive.
Nurmi is the company’s chief executive officer and he spoke to The Fifth Estate after New South Wales Building Commissioner David Chandler last week told the audience at TFE Live event that Strongbuild had now failed twice.
Chandler was having a swipe at a couple of things he’d fallen out of love within the building and construction industry. Timber was one. The other was off site construction or modern methods of construction.
The industry had over egged the potential of off site construction, he said. People had stars in their eyes but lacked the business models needed to realise the potential.
The amount of investment needed in plant and equipment was intense, and legendary. There was also lumpy demand. And finance was difficult or expensive when the secured product was not located on valuable land but in a “kit of parts” that resembled nothing much at all until the building was complete or nearly complete.
Strongbuild, established by the Strong family, was a “darling” of the industry. What had happened there?
We checked.
For a start the second version of the original business was not quite the same. It had a different name – Viridi, majority controlled by green investor Kirk Tsihlis, who bought into the business, snapping up key plant and equipment at the liquidation sale and moving the operation from Baulkham Hills to Campbelltown.
Adam Strong had been engaged to run the operation and it’s unclear what the financial/investment arrangements were at the time, but in October last year he parted ways with Tsihlis.
Nurmi, who had been in construction, starting with Strongbuild, was appointed CEO.
He told The Fifth Estate that what was purchased from the failed Strongbuild was “a “semi-automated wall line and a floor line”, which refer to the larger manufacturing production lines used to construct the parts of a building within a factory assembly process.
The system “sort of runs up in a U shape and does one side of the wall and window racking and allows windows to be fixed in place and then back down the other side. It’s about 80 odd metres in length, in total,” he explained.
There were also, a robotic “CNC” (computer numerical control) processing saw, and a smaller “cross cut saw”, along with some other smaller part of plant and equipment.
The company “hit some issues” late last year, Nurmi said, along with some negative press in tabloid media.
In September the business “enacted safe harbour” provisions, which gives time for directors to stabilise a company experiencing difficulties.
Nurmi said the problem stemmed from a shortfall in working capital as well as some late starts on projects. There was also the issue of tough private equity and capital markets that were “big contributing factors”.
Media reports earlier this year suggested there were financial issues with companies associated with Tsihlis but these were unrelated to the Viridi business.
Nurmi said the “safe harbour” process for Viridi was “fairly successful”. The company had a contract at the time to supply demountable classroom refurbishments for the NSW government along with delivery of a kit-of-parts solution for Gregory Hills Public School in south-west Sydney, delivered by Lipman as the head contractor.
Nurmi was also appointed as Viridi’s sole managing director in February 2024, taking over from Tsihlis.
“So rather than operating in a supply and install capacity, just really focusing on the manufacturing side.”
The business was in a growth phase and capital was tight, but the business was moving along. However, in March the government suspended the schools contract that had been producing modular classrooms at the rate of about two a week.
“We were seeing things improve and getting back on our feet, and it really knocked the wind out of our sails”
Nurmi said the government was supportive and he was keen to show consideration for that, saying he understood the pause button was in response to budgetary issues with the government.
But with the loss of the contract voluntary administration soon followed, with the intent of producing a deed of company arrangement. Creditors voted to support this 42 to two – the Australian Tax Office and Lipman.
“On the 19th of July the company got handed back to me as the director and we’re now in a deed of company arrangement,” Nurmi said.
The arrangement forecasts a return of $4.3 million to creditors over the course of 18 months, he said. “So the company will make monthly contributions into the deed fund.”
At the end of the 18 month period the business expects to revert to normal operations.
The result offers a significantly different scenario to the liquidation outcomes of many bigger construction companies that fail, “even in manufacturing”, Nurmi said.
“And in a liquidation scenario, the returns are virtually non existent for most people. So this is going to see a return to creditors of somewhere between sort of 38 and 70 cents. The reason that number’s a little bit variable is that we’ve obviously got a quantum of claims that have been submitted that haven’t been verified and validated by the administrators yet.”
The schools contract has resumed
Another outcome has been the resumption of the schools contract and in the meantime the company has continued to seek new projects on a contingency basis that Nurmi expects will now become part of a “small pipeline” of work that he hopes to grow.
Changes to the business have been inevitable and the focus now will be on something that’s relatively new to the prefab business.
The new business model
Nurmi calls this entering a more “productised approach”.
“So standard wall panels, standard designs of houses, whether they be townhouses, duplexes” or whatever else developers might want.
It might be facades, fixtures and finishes, or other “off the shelf book of standard designs” that people can choose from, such as manor homes, duplexes, townhouses or granny flats.
With a background in technology and scaling businesses – he’s worked with Apple and Optus along with other bigger tech companies – Nurmi has a keen eye on the systems approach to off site construction.
It’s a “systems based scenario,” he says.
With manufacturing, “you do get down and dirty with a lot of the details and all of the steps. You’re putting in systems around regulatory and compliance and everything else. I don’t have an extensive construction background, but I do have a good team.”
Nurmi agrees with the industry assumption that pre-fabrication won’t save consumers money (and maybe not even developers at scale) but what it can do is reduce the risks inherent in traditional builds – and it can save time.
If a typical build takes 12 months, a panellised “kit of parts” or modular build ought to take between three and six months.
“It’s not something that has been hugely quantified and tested within Australia as yet, in terms of having those case studies. We’re working with a couple of partners on doing some pilots around that. So we can actually, you know, put our money where our mouth is so to speak.”
“If you’re talking about a greenfield development of multiple properties, the savings stack up on the holding costs and getting the properties occupied faster”
If Nurmi’s plans are realised it could signal a new phase in the pre-fab industry.
The company has been doing some market research on what consumers might want now under the weight of the housing crisis and the results are interesting.
Young people may soon want smaller houses
“And I think that’s where, where realistically, modern methods of construction will do quite well. You’re never going to compete with that $2 million custom built house.
According to Nurmi there’s a new and emerging preference for smaller houses – McMansions are out thanks to the cost of construction and the poor quality that many of these deliver, resulting in big energy bills to cool and heat.
Perhaps even wanting 110 square metres or 120 sq m and much simpler fixtures and fittings.
“Seven, eight years ago, it was sit down around a table and pick out your tapware and pick out your tiles and whatever else. And it’s now sort of, ‘what can I get that’s value for money? As long as the tap turns on and off, and water comes out…’ that’s where there is a segment of the market that’s sitting in that piece.
“And I think that’s where, where realistically, modern methods of construction will do quite well. You’re never going to compete with that $2 million custom built house.
“But in terms of getting more keys in doors sooner with a standard design, and good quality, that part of the market is large enough to keep every manufacturer busy for quite a long time in New South Wales alone at the moment.”
Nurmi likes the analogy with cars – that no one expects to order a bespoke car. Instead they pick the model they like off the shelf. He thinks Australians don’t have that aesthetic right now with houses but in time they might.”
“Housing in Australia has always been a little bit unique. We’re very tied to our houses, it’s a very prideful thing to own a house.
“I’ve got friends that are in in Tokyo, and they’re just like, ‘it’s a box you live in. And then you get another job. And then you go and get another box and another box, and you just move around with what suits your life’, but there’s very little emotional attachment to it.”
There are different densities in play too, but more than that Australians have a uniquely emotional attachment to their first home or their “forever” home.
And maybe that’s one attachment we may no longer be able to afford.
Younger people seem to be keen to simply get a roof over their heads and say “I don’t need the four bedrooms upfront. Like I’d be happy with a, you know, a cheap two bedroom apartment or staying in a manor house,” Nurmi said.
“People are paying north of 500 bucks a week in rent for studio apartments. And going, ‘you know, if I could [own a property] for $750-$1000 a week, I’d probably prefer to do that’.”