Nightingale rocked the development world when it got going, with its radical affordable/sustainable model of housing. Now it’s been rocked by one of its own and there’s legal storm clouds threatening.
In one of the most unusual and unexpected sequels to a great idea, Andrew Maynard, a former board member of Nightingale Housing has attacked the disruptive housing model beloved of so many thousands of first home and sustainability aspirants, mostly in Melbourne.
The model that limits developer profit and insists buyers are residents not investors, looks like it’s started to achieve its intended aims to influence broader market behaviour.
Boutique developer Assemble for instance has announced it will have 20 per cent social housing in its future projects and the Victorian government has signalled its massive $5.3 billion housing program will be sustainable and gas free, like Nightingale’s. Other private developers are known to have lined up front-of-queue to inspect details on regular walk throughs of completed apartments.
Are they there to pinch ideas? Probably. But to warning cries about IP theft, founder Jeremy McLeod has said, “good”. That’s the plan.
Other Nightingale architects echo the sentiment – this is about transformation of the market for the benefit of the community.
But things were harder than McLeod and his supporters imagined for his self-proclaimed naïve ambitions.
Of 33 licences issued to architects to create their own “Nightingales” just a few have come to completion.
Architects were required to set up their own development vehicle, acquire sites, source finance, and be development manager. It’s not as easy as it sounds. And all this while running their own practice.
Patrick Kennedy, who’s still completing one of the projects at Nightingale Village which by all accounts is expected to be a shining jewel in the portfolio, says he doesn’t particularly want to do it the same way again.
The development side of the project was particularly onerous.
“We have lost so much money. We are not paid to be the developer,” he told The Fifth Estate on Thursday.
Developers usually make their money by profit margins, investors in Nightingale get a return limited at 15 per cent a year, capped, but for the developer/architect, whose job is to make the project happen – find the site, obtain approvals and so on – the return on this little understood and often pilloried part of the built environment is nothing at all.
“I don’t know how many hours in all [that we spent in development work] the meetings every week, the financial reports, the annual general meetings, and that’s all done to make this model work.
“There is a token fee charged for the development – around five per cent of what it costs us – but it’s negligible,” Kennedy says.
“No one has been doing this because it’s hard and Jeremy and [his partner] Tamara have been doing it for everyone else.”
“Architects were not picking it up; we’re guilty of it as well.”
Last Thursday McLeod and his partner Tamara Veltre presented what they say is “the future pathway” for the model to Melbourne Nightingale architects.
The structure was changed from social enterprise to not-for-profit. The five member board remained, McLeod and his partner Tamara Veltre became the only “members”.
The new entity would source the sites, find finance and package up the deals for architects to tender on.
Kennedy is in favour.
“They have enough experience now to do that and raise the capital.”
“It’s much more scalable and doable. Otherwise it’s architects working it all out on the hop whilst running an architectural practice. No-one is giving them lessons on.”
“It’s a huge risk and to do it without any profit incentive is laudable and not to be criticised.
But what the founders have done now has been criticised
Andrew Maynard who has two Nightingale projects on the go was furious when the new version of the platform was launched and he took to Instagram to make this clear. He said Nightingale had been relaunched as a developer.
“This isn’t good enough,” Maynard told his nearly 47,000 followers. “We should be better than this. If you, like me, thought that Nightingale was meant to be more than this, if you thought that Nightingale was meant to be better than this, then please make your voice is heard.”
Among a string of issues he singles out the limiting of control in the organisation to just two members as a major concern.
If the organisation was intended to provide better housing for the community shouldn’t the community be in charge of its future, with residents represented in particular?
He cited a lack of diversity on the board and says there is significant potential conflict of interest with the organisation already awarding five projects to a single firm (which he doesn’t name but is clearly McLeod’s Breathe Architects).
On Thursday Maynard told The Fifth Estate he was concerned about the “conflict of interest at the heart of Nightingale. Why not protect it by having a broad church?”
Board chair Angela Perry says much of the reaction stems from a “fundamental misunderstanding of the legal structure of the changes”.
She rejects lack of diversity issue, pointing to two women on the board, herself and Anna Peters.
She says Breathe has been awarded two projects on its own and others have been in collaboration with other architects.
And on the issue of control she told The Fifth Estate, “To be fair, “Jeremy created the model himself”
She said legal action had been launched.
“We are trying to resolve things with Andrew by requesting removal of the social media posts which we believe are untrue and misleading. If we are unable to resolve it we will be seeking further legal advice.”
In a conversation with The Fifth Estate, McLeod also explains more of the reasoning for the new structure and tackles some of Maynard’s views.
“Under the new model – because we’ve struggled so much – we now have an acquisitions team to go out and find sites and a financial team to source the equity so that we can actually start to scale up and get runs on the board.”
There won’t be a conflict of interest, he says because “under the NFP model there is really clear governance. I don’t decide on what architect is awarded the project, that’s handled by the delivery team and signed off by the head of operations and the board. The Nightingale architects will tender for future projects, rather than raising capital and buying a site.
“A conflict of interest is when the MD of the project signs off on the fees.”
He’s referring to the old model where the project required its own organisational vehicle with a managing director who “set whatever fees they wanted”.
It’s meant that some Nightingale projects are bigger and more expensive than others. He says his own studio’s fees and apartment sizes are more modest.
Maynard’s view is that there should be an independent chief executive appointed who had experience with development and with NFP organisations.
McLeod says McLeod says he has significant experience on champoining Nightingale, sourcing finance and in dealing with stakeholders such as governments and faith-based organisations.
The founding principles and the constitution
Maynard is also unhappy about what he calls a lack of transparency on the new constitution and that it omits the founding principles of Nightingale.
McLeod said there’d been a full revision of the founding principles to find the essential purpose of the organisation, distilled to the following in the new constitution:
“The company exists to revolutionise the way we live together, by facilitating the construction of carbon- neutral housing that is socially, ecologically and financially sustainable. Our vision is to create a world in which housing is built sustainably to support wellbeing, community and liveability. “
The original principles are:
– Advance environmental sustainability through design
– Build social connection
– Contribute positively to neighbourhoods and urban culture
– Promote affordability by providing access to housing purchased at below market price
– Minimise on-going costs of living
– Educate designers, potential home owners and the public in deliberative development and sustainable housing models
– Involve groups of purchasers in collective planning and participation
– Be a transparent organisation
“When we started this we thought we were building something for the community so rather than ending up with small number of members we thought we would have had more members including residents,” Maynard says.
“Why not have common representatives on the board and as members of organisation? Why consolidate down to two members?”
The leverage with other architects
Maynard says: “If the issues of social and environmental sustainability are important then what we need is a guard of multiple people to ensure that changes are made through consensus and through a diverse group of people.
“Essentially we have two people who leveraged off some of the best architects in Melbourne to build a brand that is now incredibly valuable.
“You could actually sell the brand itself; it comes attached with many thousands of people [on waiting lists]”
McLeod says, “another way to look at it is that the two founders of Nightingale gave their IP to other architects.”
Under the new structure the brand is now worth nothing, McLeod says.
“I don’t own it. Tam and I are members and it’s not worth a cent. We are officially members of a not for profit that is worth zero dollars.”
As an NFP it can’t be monetised. If the venture failed its entire assets must by law be handed to a similar organisation.
There was also a concern raised by Maynard about an invoice for $210,000 paid to Breathe for “managing directors’” fees, McLeod said these were to cover costs of managing the company after a former CEO left with short notice.
Maynard said: “None of this should be about Jeremy, or me. Jeremy has been an incredible advocate for change. However, Nightingale was created to benefit the community therefore Nightingale should reflect the community. Nightingale’s owners/members should reflect the community.
“Nightingale’s board should reflect the community. Nightingale’s CEO should be experienced in NFPs and development. I very much hope that Jeremy stays as the voice of Nightingale, however the entire structure should not be built around him. That’s not what Nightingale was meant to be.”
A motivation for change
McLeod says in recent times he started to worry about how to preserve the model in future.
The new structure was also an opportunity to better police the way projects came to life, and stop developers picking and choosing only elements they wanted.
In one project, he says, the licensee failed to impose a fundamental principle of attaching a caveat to the property that would prevent windfall gains in any resales.
Patrick Kennedy of Kennedy Nolan Architects is dismayed at the attacks.
He told The Fifth Estate Maynard had caused a “huge amount of trouble”.
“I don’t really understand what Andrew’s motivation is. A whole lot of things have been conflated with one another around governance. We have full confidence in the board.
“We think Jeremy is the most appropriate person to be [managing director].
“We don’t feel there are any negative aspects to Nightingale. It has had an enormously positive impact on people’s lives and our community and on development in general, on private development and including on social housing.
“It is a force for good and no-one has been enriched by NG.
“There are so many bad things that happen in the development world, why would someone pick on Nightingale?
“We are really saddened by it and feel it’s enormously damaging to the people around that, particularly with Jeremy and Tam who have come up with the concept and taken on all the financial risk and have had no financial reward from it.
“Nightingale is entitled to set up governance the way it chooses and it’s not up to the commentators to say how it should be done. They are very welcome to set up their own model.
Mr Kennedy’s studio has been involved in Nightingale 2 with Six Degrees and is now an investor in a project called West Field in the Village that he hopes will be completed by Christmas.
The structure of the project is that “we put in equity, with $3 million from friends and family and colleagues”.
The project of about 27 units was originally launched around 2017 when there was a market downturn.
But now with one unit to sell because it did not meet requirements of the Nightingale buyers eligible in the ballot, the currently a roaring hot market has been of no help as the program is committed to deliver the unit at the originally agreed price and needs to do that – around $500,000
“We’re not increasing the price because the price is baked into the feasibility and any more money that’s made is returned to purchasers.”
But how did it start?
McLeod describes Nightingale as “this beautiful naïve idea.”
“In 2007 Tam and I started a Nightingale site at 9 Florence Street. We bought the site personally and again got friends to put money in and got it through planning. Small Giants came to our aid and rebranded the site to The Commons.”
In 2014 McLeod and Veltre bought a site for Nightingale put a call to a “whole lot of Melbourne architects to help us do this. Let’s build a version of the Commons and democratise the capital.”
McLeod says he and his partner put “everything we owned into it.” They ended up with 27 other people involved and the project winning a national award for housing.
“Breathe then teamed up with Six Degrees to build Nightingale 2.
With Nightingale 2 the pair brought Austin Maynard into the picture.
Nightingale 2 struggled to get bank funding and it was finally secured through Nightingale Housing.
In fact projects struggled generally to get senior debt because banks were saying: “here’s an architect who’s relatively inexperienced and no development history and they’re asking for $7 million”.
“We had work really hard to build a security trust pools to underpin the projects.
“If you look at who signed on senior debt for Nightingale 2 it’s my signature on the security trust pool.
“When it was still a social enterprise the signature on the contract [of sale of the land] was mine.”
“At Nightingale Village the signature on $18.5 million sale price is mine…[with the property then nominated out to the other architects] so Tam and I took the original risk.”
“I don’t even think Andrew understands the kind of risk Tam and I took.”
Why do it?
“I just believe this. I believe in this and it’s going through teething pain and it will become more elegant. The board has been incredible. The chair has been absolutely incredible, really, really good on governance and incredibly supporting to take it to NFP and they’ve worked tirelessly on this for 18 months.”
The board’s fiduciary member Peter Lalor had told him early on that this was the “most ludicrous business model”, “how insane our model was. We were charging $500 for IP packs. We’re happy to share our IP, I have no issue with that.”
Developers do an OK job
“I have been on such a journey. I was very critical of developers and now I have so much respect for them because I had no idea of the level of risk they take.
“I used to be critical of developers but they create something. Some of it might not be great, but it’s a lot different to speculating on the stock market or Bitcoin… it’s creating something of value.”
McLeod presented to large development group MAB early in the week where he reflected: “I don’t think we can change the housing model but I think we can influence things. So when we put in 20 per cent affordable housing and Assemble says it will put in 20 per cent social housing in all its communities, when we say we’re not plumbing gas into our building and we see the state government [doing the same with it’s housing program] it’s proving to the market that this thing works.
“I think we’ve had an incredible impact. I was really naïve I thought the answer was in architecture and design. And over time I see the world though that of banks and risk.”
Now he says, he’s more inclined to think “form follows finance.”
UPDATED: This article has been updated to correct minor editing errors and for further accuracy.