What every Potential Home Buyer should ask an Agent

fetchimageSo you’ve made your calculations with your home loan calculator and you’re out there viewing houses and getting all excited about what you see. At some point you’re going to have opportunity to talk about the house you’re interested in with the agent. If you’re anything like me you sit staring at the agent with mouth open like a guppy and your best questions dribbles down your chin as they gush madly about the house in question. Then you drive home confidently reciting some the most incisive questions know to man. Perhaps you should come prepared.

 Don’t be afraid to ask questions, you’ve gone to the trouble of using your home loan repayment calculator, don’t hold back with your research now. Whether you are looking to rent or buy you will be parting with a significant sum of money and you are well within your rights to have any of your questions answered.

Here are some important questions you should ask the agent before you sign on the dotted line. They are not necessarily in any particular order.

What are the rates? 
This will help you calculate your budget should you want to look at making an offer for the property.

Is there a levy? 
This is a particularly important question to ask if you are looking at a flat within a residential block or a unit in a sectional title complex.

How long has the property been available?
The longer the property has been on the market the more likely that it is overpriced or has some other problem. Having this information empowers you when it comes to negotiating a price – for example, if it’s been on the market for a while, the vendor or landlord is likely to be keen to come to a deal and so may settle for less than the asking price.

Why is the property available?
Hopefully the answer will be something that is not related to the standard of the property. For instance, if the current residents are looking to move because they have out grown their home or need to relocate then consider if you would be in the same position if you moved in.

How long did you/the previous owners/tenants live here?
The longer the better. If there have been many different residents in a short period of time, why did they not stay longer?

Has there been any recent improvement work on the property? 
Recent work can be viewed both as positive and negative. If the house has just had new windows or guttering that may be a plus. However, if it has been underpinned to prevent subsidence this may prove to be a significant negative.

Is there a neighbourhood watch?
While the answer won’t necessarily tell you how safe the neighbourhood is, you should get a good idea if neighbours look out for each other if there is an active scheme in place.

What are the neighbours like?
Although you are unlikely to be told directly that you are set to move next to neighbours from hell, the reaction you get from the landlord or homeowner should give you some idea what the local residents are like. Does she run a trombone recital club or a day care? Does he service cars or use loud power tools all day?

How many viewings have they had?
More viewings indicate a greater interest in the property, however, if none of the viewings have resulted in an offer does this show that it is too expensive or has another issue. Again, getting this information also gives you more ammunition for price negotiations.

What is the local traffic like?
This is especially important to ask if you have to commute to work by car. Again it’s unlikely that they will complain about heavy traffic but you may pick up some clues in the answer as to whether there is a problem.

When is the noisiest time of the day?
Any mention of aircraft or traffic noise? Is the house on a minibus taxi route or near a taxi rank? What about proximity of shops, clubs and restaurants that may have high noise volumes at certain times of day.

How old is the roof? 
Firstly, are there leaks and where? Roofs only last for a limited time so it’s worth checking just how old the current one is. The older the roof the more likely it will need work, which may be quite costly.

When was the last time the geyser needed repairs or has been replaced? 
Geysers sometimes malfunction due to electrical faults or water pressure issues. Is the current geyser under guarantee?

Has the property ever been burgled?
Unfortunately if a property has been burgled in the past it can often be revisited again. If they have been burgled on more than one occasion then it’s even more likely that it will reoccur. It’s also a good idea to ask what security measures the property is fitted with – for instance an alarm.

Are there any issues that I need to know about?
Certain problems, such as if a property has been underpinned for subsidence, must be legally declared, however asking this question should ensure you know if there is anything else that you’re not being told. Ask about rising damp and faulty drains.

How old is the septic tank?
Not all South African towns have waterborne sewerage. Septic tanks have a life span and they often need draining. They are also attacked by nearby roots. Ask to see where the tank is in the garden and look how closely trees are planted.

How far is the property from local amenities? 
Can you easily walk or drive to everything you need without a problem?

This list is by no mean exhaustive but they all make up a body of research that you began when using your bond calculator. Keep in mind that agents are paid to put the best face on a property not to be dishonest. Most agents may be honest about most things but they are unlikely to volunteer information that will paint the house in a bad light. So take your list of questions with you and write down the answers as you hear them. Happy house hunting.

Doing your part to ensure bond approval.

download

{Financial institutions are tightening their grip on approval criteria for home loan seekers. What can you do once you’ve used your bond calculator to improve your chances.}

 The amount of accepted applications have fallen lately as a result of tighter lending regulations. These oblige providers to make far more stringent checks that you’ll be able to afford to pay your bond, even if interest rates go up or your circumstances change.

While there’s no way of absolutely guaranteeing your bond application will be approved, there’s plenty you can do to make sure your chances are as high as possible.

The following are some helpful suggestions that should assist you in your home loan seeking endeavours. Remember that a good start in this process is to find out where you stand with the aid of a home loan calculator.

In no particular order of importance…

  1. Grow that nest-egg

Saving a large deposit reduces the lender’s risk if they offer you a bond, as they’ll be providing a loan for a smaller portion of your house’s cost. It also shows that you have the financial discipline required to pay a bond. Remember that when you use your bond repayment calculator, one of the entries is the deposit; you will notice what a difference a large deposit makes to the final monthly repayment. Applying with a higher deposit will improve your chances of being accepted.

  1. Shrink some debt

Lenders can be negatively swayed if you have many debts on top of your bond, like outstanding credit card bills, overdrafts or loans. The more you can pay off before you apply, the better your chances.

That doesn’t mean you should use most of the deposit you’ve saved to pay off debts. Focus on paying off the expensive ones, preferably using money you’ve saved by cutting down your spending on luxuries.

  1. Get your credit record in order

Check your credit record through credit bureaus like Transunion, Credit4life or Compuscan. (There are many more.) These can reveal any potential problems like unpaid loans or bills that warn off lenders.

It also gives you the opportunity to check there’s nothing incorrect on your credit report that would harm your bond application – if you find anything wrong, you can ask for it to be removed.

You’ll then be able to work on making yourself look more attractive to lenders. Avoid applying for many financial products just before you take out your bond, although sensible spending like paying off a credit card in full each month can look good.

  1. Declare all income

When your lender or broker asks about your income, don’t just give your basic salary. Include details of bonuses, commission and any other income like investments, shares, expected inheritances and even potential pension payouts.

Make sure the information you give is accurate, make sure you include all your income. Try to time your application sensibly  – you’re far more likely to be accepted if you have a permanent contract than if you’re still in a probation period of a job you’ve just started.

  1. Reduce your bill load

Having bills you pay out for every month will reduce the total amount of your wages available towards paying your bond.

Divide your monthly expenditure into essentials such as food, travel costs, bills and child maintenance, luxuries such as gym membership, holidays and entertainment. If you can cut down on the latter, you’ll improve your chances of being accepted.

In the event of failure…

When you’re looking for any kind of loan, avoid appearing too desperate. Don’t apply for dozens of bonds in the hope that one might say yes, as every lender will leave a mark on your credit report when they check it.

Instead you should look into why you’ve been turned down. The lenders all have different criteria, so just because one rejects your application  doesn’t mean that all of them would. Your calculations with your bond calculator are still valid.

Ask the bond provider if they can offer any feedback. You can also check your own credit report to look for any potential problems or speak to Bond Brokers like Bond Buster, SA Home Loans or IHBB who may have a clearer idea of why the lender rejected your application.

Can bridging finance help you with your home loan

bridgingCan Bridging Finance Help you with your Home loan?

So you’ve used your bond repayment calculator to establish what you can afford in terms of a purchase price and the necessary repayments. But for some reason you fall short of what you can afford for one of the following reasons. Consider these scenarios and see whether bridging finance is for you.

Transfer Fees – Bond
If a purchaser has been granted a loan by a bank but is short of the transfer and legal fees it is possible in some circumstances, where the bond granted is higher than the debt due, to get an advance on the bond granted, for these costs.

Estate Agents Commission
If the attorney handling a property sale / purchase transaction is prepared to give a Letter of Undertaking to settle the loan to the estate agent for commission advance and the Principle of the agency is prepared to allow the bridging of estate agents commission to take place, then it is possible to arrange a bridging loan on the sale of land or buildings.
Generally the purchaser should have presented guarantees to the attorney and all documents ought to have been signed by all parties regarding the transaction

Pensioners Finance
People older than 65 who own property and wish to access some of the available equity can access up to 40 % of the equity with no need to pay any monthly payments.
Common conditions: The client should reside in the residential property; both partners must be over 65 years of age and agree that the settlement of the loan can be made from the property owner’s estate.

Sellers Proceeds – Bridging
You have sold a property and made a profit and need some of the money now rather than when registration takes place.
Common conditions: As long as the attorney handling the transfer is prepared to sign a Letter of Undertaking that the purchasers have put up guarantees, that all Common conditions have been met and that he will disperse funds to the bridging company on transfer, then it is possible to arrange an advance of this profit; sale proceeds advance.

Credit Rehabilitation
Similar to Debt Consolidation above, but all the debts you have are settled by the lenders on your behalf and your credit bureau listings removed. Property is the main source of the funds in lieu of the debt settlement. If clients do not own a property then the chances are you won’t be able to get assistance.

Additional Bond
A second bond or further bond is one method where the equity of your property can be unlocked and converted to an access facility or to cash.
Common conditions: Client must be able to prove ability to service the loan granted and the value of the property must be higher than the current bond. You can calculate this with a bond calculator.

Debt Consolidation for property owners
This is a 4 month bond – if you have equity in a property a short term loan can often be arranged to settle your debts (from the equity in your property) and then arrange for you to apply for a normal 20 year or 30year bond (don’t forget you can use your bond calculator for this.). This is a debt restructuring program
20 year bond – if you have at least 40 % equity in your property but you are blacklisted at the credit bureau, a 20 year bond could possibly be arranged for you

Bridging for developers
Bridging for developers can be obtained where a property developer has almost completed, or has completed, a property development project and needs to get access to some of the funds due to him from the sale of units built.
There are various ways this can be done and so it is best to speak to a consultant to advise you.

For a rudimentary list of property bridging finance service providers a simple entry into a search engine will do. Shop around the net to see who’s out there and meet with your banks to compare notes.
For those looking for bridging finance in addition to your home loan, remember to use your bond affordability calculator to work out your preliminary repayments and then factor in bond registration costs et cetera. From there you will be able to tell where you stand with regards to your bridging finance requirements. Any challenges you may have encountered with bridging finance in the past consider approaching the FAIS Ombudsman.

Written by Matthew Campaigne-Scott

A Glossary of Terms for the Homebuyer

property-investment-real-estate-trading-word-cloud-illustration-word-collage-concept-35121918When considering a mortgage bond from a bank to buy your dream house you may find yourself bogged down in a swamp of legal terms and bureaucratic mumbo jumbo. Not everything is as straight forward as your bond calculator.

Affordability Score

The Bank’s assessment of a Buyer’s ability to afford monthly instalments based on their income.

Agent’s Commission

The amount payable by the Seller to the agent for work done on marketing and selling a property. This is a percentage of the selling price.

Asking Price

The price at which the Seller is offering their property for sale.

Beetle Certificate

A certificate issued confirming that a structure is free of wood borer or termite infestation. This is a legal requirement when selling.

Bond

A lending agreement between a Buyer and the Bank. The legal bond document states that the Bank will lend an amount of money in the form of a bond.

Bond Calculator

Online software used to calculate estimated repayments on a bond. Input data is required, for example the desired monthly price. The sales price is then automatically adjusted enabling the user to appraise his/her position in the market place.

Bond Cancellation Cost

Costs accrued during the cancellation of a bond. These include an Attorney’s registration fee and a Deeds Office fee.

Cancellation Attorney

The Attorney who attends to the cancellation of the Seller’s bond and is appointed by the Bank with whom the current mortgage bond is held.

Conveyance Tax

A tax charged for the transfer of property from the Seller to the Buyer.

Conveyancer

A Conveyancing Attorney will attend to Deed Office transactions such as the transfer of a property from a Seller to a Buyer.

Cooling Off Period

The 5-day period after the Offer to Purchase has been signed during which the Buyer of a property has the right to cancel this agreement.

Credit Report

A detailed score card of an individual’s credit history prepared by an official credit bureau. This report will determine your risk as a borrower.

Debt-to-Income Ratio

A ratio which shows a Buyer’s monthly payment obligation to debts and which is divided by gross monthly income to ensure affordability.

Estate Agent

The Estate Agent is a person who is authorised to act as an agent for the sale of land or the valuation, management, or lease of property.

FICA

The Financial Intelligence Centre Act, 2001 was formed to regulate money laundering and requires valid information to be presented to the Bank.

Home Loan

An agreement between the Buyer and a Bank, where the Bank lends the Buyer money in order to purchase property.

Home owners Insurance

An insurance policy that covers your house (structure and property) in the event of damage or loss.

Instalment Amount

The monthly amount paid to the lender as part of the total home loan amount. Instalments run for the entire duration of the agreed term.

Interest Rate

A percentage interest is added onto the amount of money borrowed from a Bank. This amount is fixed for a period and is based on the amount of money borrowed.

Mortgage Broker

Someone who acts as an intermediary between the Buyer and a Bank, for the purposes of arranging a home loan.

Municipal Rates

Taxes paid to the municipality by property owners.

Net Income

This is your yearly income after taxes.

Occupational Rent

A charge applied to the Seller for occupying the property after registration has taken place or to the Buyer for occupying the property before the registration has taken place.

Offer to Purchase

A legally binding document signed by the Buyer and Seller stating the agreement of the sale and its conditions.

Payslip

A document issued on a monthly basis by your employer as proof of your monthly income.

Property Transfer

When ownership of a property legally changes hands from Seller to Buyer, through registration of the property at the Deeds Office.

Purchase Price

The amount paid for the purchase of a property as set out in the Offer to Purchase agreement. This can be worked out retroactively by using a bond calculator.

Qualified Buyer

Someone who meets a Bank’s requirements of affordability and has qualified for a home loan.

Registering Attorney

The Attorney who attends to the registration of the new bond into the name of the Buyer.

Repayment Term

The number of months allocated to pay off a home loan. The maximum repayment term is 30 years. This can be easily calculated with a bond calculator.

Sectional Title

An entire property of flats or townhouses. The property is divided into individual units and sold separately and runs under a Body Corporate.

Subject to Sale

When a sale of a house becomes binding and unconditional then certain conditions are met, such as bond approval.

Title Deed

The legal document which states ownership of a property. The Title Deed is filed at the Deeds Office and contains details of the property.

Utilities

Services provided by the government for your use at home. Utilities include: water, electricity, telephone service and other essentials.

Voetstoots

Refers to a property sold “as is”. After a sale of property, a Seller is not liable for defects following a reasonable inspection of the property.

Print this list out and keep it handy when those terms start flying around that you’re not too familiar with. Remember to refer to your bond calculator as the figures start coming at you. With both your bond calculator and your glossary of terms you’re all set to go house hunting.

property-investment-real-estate-trading-word-cloud-illustration-word-collage-concept-35121918.jpgproperty-investment-real-estate-trading-word-cloud-illustration-word-collage-concept-35121918

Bond Affordabilty and the Hoops Banks make us jump through

Your Bond Affordability ‘Score’Picture

Is there such a thing? With research it seems that between the banks the variables are many and the absolutes are few. After working out what you can afford with your bond calculator one will have to take your chances depending very much on the bank.

ABSA Home loans singled out ‘Affordability’ as having become a key factor in the South African housing market recently. You may know what you can afford having used a bond calculator to work out what asking price you can afford but the banks have varying, between banks, criteria on which to base its decision to grant you a bond.

Affordability is a key factor in the South African housing market and banks’ lending criteria has tightened up, but in some instances applicants are reportedly still able to qualify for 100 per cent loans.

ABSA has been quoted in a previous review that the focus of demand for supply of housing is set to be on smaller-sized and higher density housing because affordability is set to remain a key factor into the future.

ABSA also said it still lends up to 100 per cent home loans to would-be home buyers even in this buyers’ market but only if they qualify.

In line with the National Credit Act, the bank’s lending criterion is informed by the customer’s affordability and credit worthiness and taking into consideration some factors as discussed below.

Bond Assessment Criteria

When a local property website asked the four major banks what the criteria are for assessing a home loan application the summarised replies were:

Standard Bank: a loan–to-value criterion plays a major role in what the customer can qualify for; documents required depend on whether the applicant is employed or self-employed, has a Standard Bank transactional relationship or not and if they earn a fixed or variable income.

Generally, document requirements are less onerous for customers that have a transaction account i.e. Employed SBSA applicant with fixed income would need to provide the latest payslip and an offer to purchase.

A non Standard Bank customer with fixed income would need to provide the latest payslip together with the latest three months consecutive bank statement reflecting three months’ salary deposits.

Nedbank:  minimum income (single or joint gross monthly income) + R2500- minimum loan amount R100 000. A maximum repayment term of 25 years. An acceptable credit record. Payment by debit order. The property must be in good condition and acceptable to the bank

FNB:  latest copy of applicant’s payslip. A bank statement. Self-employed applicants will need to supply a signed personal statement of assets and liabilities as well as a balance sheet and financial statement for the business from which income is derived. A commission earner will be required to submit the last six months commission earnings statement.

ABSA:  Current debt repayment behaviour; credit history; affordability; net disposable income; household finances; residential property cycle and prospects; prevailing economic cycle; consumer risk profile.

Preapproval of Bonds

When asked if the bank would give pre-approval of a bond with no upfront fees: this could be worked out and adjusted using a bond calculator.

Standard Bank: A customer can apply for a pledge via the internet or through the Standard Bank Call Centre. No fees are charged for pre-approvals.

Nedbank: Does not grant pre-approvals. Customers can read through the information on the bank’s website to determine what they can afford through various calculations and thereafter use a bond calculator.

FNB: It is called a “Passport to Purchase” where no upfront fees are levied and this pre-qualification is valid for 90 days.

ABSA: According to the National Credit Act, financial services providers are prohibited from granting pre-approved finance to customers.

Sceptics may reflect that this is hardly a scientific process but at the end of the day banks are conservative for a reason. What’s best, is to ensure you have jumped through all the necessary bureaucratic hoops with the bank of your choice and ensure you are taking advantage of a bond calculator to keep the correct figures at hand.

 

 

Pre-Approved Bonds

So what is a pre-approved bond when it’s at home in front of the fire warming itself? OnePicture web definition says that a “pre approved bond gives both the buyer and seller the assurance that the buyer can afford offers made within a certain price brand, and that they will qualify for the bond required to make the offer.” So let’s unpack that some more.

How It Works

When you use a bond calculator it’s reassuring to know what to compare figures to, what to feel comfortable about investing into the selling price field. Getting yourself a pre-approved bond is the very first thing you should do before you put in an Offer to Purchase.

The National Credit Act stipulates that monthly deductions, like monthly living expenses, income tax and debt need to be considered. It is recommended that you provide your bank or home finance professional with a precise summary of your monthly expenditure and your level of debt so your pre-approved figure can be established. Your bank or home finance professional will formulate your pre-approval figure and issue you with a certificate. This enables you to provide an estate agent with a pre-approval certificate that has been calculated according to the National Credit Act requirements.

The pre-approval is valid for 90 days after which your bank or home finance professional should contact you to check whether your expenses have changed over this period. (It’s better not to wait to be contacted but rather contact them a few days in advance.) If there has been a quantifiable change, the pre- approval will be revalidated and recalculated. If there is no quantifiable change to either income or expenditure, your bank or home finance professional will reissue a revalidated certificate. This ensures that your input data for the bond calculator is always accurate.

After the banks have assessed your home loan application, and if the application is successful, the bank will issue a Quotation which will include interest rate, cost of credit, any special conditions that may apply, etc. Your bank or home finance professional will discuss this and other bank quotations with you. Once you settle on a Quotation, your bank or home finance professional  will proceed to instruct the attorney appointed to register the mortgage bond.

Advantages of having a pre-approved bond

It can be so frustrating for a seller to accept an offer only to find out weeks down the line that the deal has fallen through due to the buyers inability to get a home loan. It can also be very disappointing for the buyer. With a preapproved bond this can be avoided. Using a bond calculator you can determine what you aspire your preapproved bond to be.

Bear in mind when dealing with sellers and Estate agents that they want to sell to you! You are holding the cards when it comes to buying and you will seek out the very best deal available to you. This attitude will make the seller think twice before counter offering and will have the Estate agent working twice as hard to close the sale.

One should be encouraged to be assertive when making an offer, apply for bond pre-approval before you go out on a show day.

The posture of the Estate agents, like anyone who is dependent on financial institutions giving credit to customers in order for them to earn an income, is very different towards a pre-approved buyer, especially one who has clearly gone to the trouble of doing the necessary homework with a bond calculator.

The agent knows that you are looking for a home and that you essentially have the money available. This is a huge bonus for the agent who will go out of his way to help you spend your money.

The other thing the agent will be very aware of is that you don’t have to spend your money with him/her but there will be other agents out there trying to help you spend it. The result is that once you have made an offer he will do everything in his power to get the seller to accept your offer.

Currently we are living in a buyers market with some areas selling homes for as much as 30% below their asking price. Both the agent and the seller know this, the pressure is on the seller to accept what he knows is an approved buyer when you walk in..

Good luck with pursuing your preapproved bond
.

Ten practices of picky property purchasers

So you want to buy a house. House hunting is all about the viewing. Here’s how to make sure a property is really worth your money.Picture

Upon determining your bond repayments with your bond calculator it’s time to start looking around. Looking around a property that could become your new home is exciting, but you can’t afford to get swept up in fantasy, sales pitch and the pressure to purchase…

Failure to use the viewing time effectively and you could miss something that ends up costing you dearly.

Here are ten tips that will help you see what’s really up for sale behind the agent’s sales talk.

1 View during the day

Make sure to view the property at least once in daylight so that you can see it with clarity. If your first viewing was unavoidably at night, push for another viewing in daylight before making an offer. Similarly if you have viewed the property during the day and want a better idea of what the area is like in the evening, you could arrange a second viewing later in the day.

This will give you an idea of how light the property is at different times of the day, how loud the neighbours are and what the neighbourhood is like once evening sets in.

2 View with company

The more pairs of eyes you have looking around a property the better.

If you attend a viewing alone then it’s likely you will be lead around by an agent who do their best to highlight the positive features of the property, not giving you the chance to look closely.

So even if you will be living alone, take a friend or relative to view the property with you as they may spot something you miss.

3 Examine the exterior.

It is easy to get caught up examining the inside of a property and forget to take a thorough look at the outside.

Checking the exterior and the roof as well as the pipes and drainage is essential; if there are any problems they could be expensive to fix.

If any work needs doing you may either want to arrange a professional survey if you are looking to buy, or look for a rental property elsewhere.

4 Take your time

The last thing you want is to have to rush around the property because you have another appointment or viewing booked.

You should leave at least 20-30 minutes to view the inside of a property and a further 20-30 minutes to check the outside and the local neighbourhood.

If you are being shown around by an agent or the owner, try and view the property at your own pace and avoid being rushed through.

 

5 Consider room and space

An empty flat or house will always look bigger than a fully furnished property, so you need to check that there really is enough room.

Check what the property offers in terms of storage space. For instance, are there built in wardrobes in the bedrooms, or would you need to have space for a wardrobe in each room?

Would your bed, couch, dining table and drawers all fit comfortably or would you be blocking plugs and windows and so on?

In the kitchen, are the white goods built in or would you need to use vital space for a fridge, washing machine or dishwasher? What about the cupboard space, is it expansive enough to fit all of your pots, pans and crockery?

6 Arrange many viewings

Making sure you go back to view a property after the first look can help make sure that you don’t miss any potential issues and ensures that your know exactly what you’re getting for your money.

It also gives you the chance to ask the agent or owner any specific questions that you have after looking around the first time and to negotiate on price if needs be.

7 Take pictures

Taking lots of photos, or even a video, is a great way of ensuring that should you miss something you then have a personal record of the viewing to look back at.

It also means that you can look back at the property and compare it to others you’ve seen in your own time without the pressure of going around with a letting or estate agent.

However, make sure to ask permission before you start snapping away. Although letting agents and estate agents will not usually have an issue with you taking photos, if the owner still lives in the property it is only polite to check.

8 Watch out for damp

Damp can be serious concern regardless of whether you are looking to buy or rent a property, simply because it may illustrate more fundamental problems.

Signs of damp include a musty smell, peeling wallpaper or bubbling paint and mould or dark residue on the walls and ceiling.

If you suspect that the property suffers from damp it need not be a deal breaker but should definitely be an issue you raise with the agent and investigate further.

Any cracks or signs of subsidence may indicate a much more serious problem with the property so make sure you look out for these too.

 

9 Examine everything

When you are looking around a flat or house, don’t be afraid to test the fittings and fixtures.

Check that the windows open easily and that there is suitable water pressure throughout the property by testing the showers and taps. You are also within your rights to check things like the level of loft insulation, the wiring and electrics during a viewing and it’s a good idea to do so.

Although you may feel awkward testing things in this way, any issues you spot at viewing can either be fixed before you move in or be used to negotiate a reduction in price.

10 Ask the hard questions

Don’t be afraid to ask questions, whether you are looking to rent or buy, you will be parting with a significant sum of money and you are well within your rights to have any of your questions answered. For example ask about rates, previous renovations, traffic, neighbours, burglaries, state of roof, proximity of schools, state of geyser, the reason why the property is on the market, were there tenants before and so on.

Negotiating a Better Price for Your New Home

Here are four important considerations when negotiating the asking price of your prospective home so you can bring down the monthly repayments you calculated with your bond calculator.Picture

Probably the biggest purchase you’re likely to make is a house. So bringing down the asking price even a couple of per cent will save you thousands of Rands.

Here are our 4 easy methods of negotiating down the price of the property you have your eye on.

  1. Start low

It may be that you have to put in an offer on the property before you get any reaction from the seller.

If this is the case put in an offer below what you worked out using your bond calculator, this will then allow you to up your offer at a later date which will then seem more attractive to the seller.

It’s also wise to explain your offer; state exactly what work the house needs and how much it will cost, or that other properties of a higher standard went for less than the listed price nearby.

Explaining your offer in this way not only makes the seller think twice about their valuation but also makes you appear serious about purchasing the property by showing that you haven’t simply plucked a number out of mid air.

2.View thoroughly

In reality you can often tell quite quickly if you like a property or whether you don’t ever want to set foot in the house again. However, if you are interested you shouldn’t get swept away with the excitement of finding somewhere you’d want to live.

Any flaws or work that need doing represent an opportunity to knock some money off your offer price. So taking the time to thoroughly inspect the property, inside and out, could give you the ammunition you need to negotiate.

Estimate the cost of any work required and take this amount off your offer price – you’ll be justified in doing so.

You should also find out whether there are likely to be any major expenses in the near future – ask when the geyser was last serviced and when the roof was last repaired (or resurfaced if it’s flat). Again, if work is likely to be needed in the near future you have a legitimate reason to go in with a lower price.

You should also consider whether parts of the property need redecorating and how much this might cost and factor this into your negotiations.

  1. Ask for extras

If the person selling the house isn’t willing to budge on price then you may want to negotiate over the additional costs you face when buying.

It’s estimated that the cost of actually purchasing a house can easily exceed £5,000 when you consider legal fees, valuations fees and surveys.

Asking that the seller contribute towards these fees could be a good way to cut the cost of purchasing the property and save hundreds or possibly thousands of Rands – even if you don’t manage a reduction in that actual house price.

  1. Do your research

You’ve already done some research by using your bond calculator, now consider researching the  ‘going rate’ for other properties in the same area.

If you can argue that the asking price is above what similar properties sold for nearby, you will have a strong case for a reduction in price.

You should also check the asking price of other properties currently on the market and see what they offer in terms of space, features and presentation.

  • If other properties are of a similar standard but the asking price is higher, then the owners of the property you’re looking at could be struggling, or in a hurry to sell – both of which could work in your favour when negotiating over the price.
  • If other properties are of a higher standard but going for an equal or lower price you need to question whether they’d be a better investment than the one you’re currently looking at.
  • If other properties are of a similar standard but are on the market for less than the property you want to buy, you can use this to your negotiating advantage.

If you think the property is overpriced mention it to the estate agent – they may feed this back to the owners who could drop the price of their own accord.

Ask the agent how many viewings the property has had and whether it’s received any previous offers. If there hasn’t been a great deal of interest, it gives you licence to go in with a lower bid when you start negotiating.

If you discover that the property has had lots of viewings but no offers then quiz the estate agent about why they think this is the case and use this knowledge to your advantage.

You could also ask for certain things, such as curtains and appliances to be left by the current owners to reduce your set up costs even further.

After you’ve gone to the trouble of using a bond calculator to work out your monthly repayments that price you can afford, then you’ve shown intent and are ready to negotiate. Be strong and don’t back down – remember you’re the customer and you hold most of the cards. Don’t be afraid to consider the points above when proceeding with your house purchase enquiries.

George Clooney

– for Le Kap Magazine by Matthew Campaigne-Scott

bm-image-774501

If we asked you to identify a celebrity who started out selling ladies shoes, whose face was paralysed with Bell’s palsy in high school, dropped out of two Universities, whose mother was a beauty queen and whose maternal great-great-great-great-grandmother, was the half-sister of Nancy Lincoln, mother of President Abraham Lincoln you may be a tad flummoxed.

George Clooney, it turns out, is a wealth of fascinating trivia: Born in Lexington, Kentucky he is now a house-hold name, candid pictures of whom fetch a fortune. Women, and even men have been feasting their eyes over this man’s man ever since the days of his appearance on Television’s medical drama ER, although he has been treading the boards since 1978.

georgge child

Yep, George wasn’t always so suave.

Many may not know that Clooney has a dog he named Einstein. “Einstein has been studying acting for many years now as you can imagine. I think he’s concerned that I am in his shot and he thinks that perhaps you can airbrush me out if it. That’s his hope.” said Clooney in a photo shoot with Einstein for Omega where he sports an OMEGA Seamaster Aqua Terra wristwatch. He is currently an OMEGA brand ambassador.

Going back in time George has had some roles he would prefer us to forget: everything from a simpering supporting role on the trashy sitcom Roseanne, a down to earth handy man on the more respectable: The Facts of Life and a role on a sitcom that took a nasty dive with the prophetic name of E/R.  (Not to be confused with ER!) George has certainly paid his dues.

george ER

As Doug Ross in ER

Then came along that famous episode of ER, one of the most viewed on US TV history, where George’s character Doug Ross emerges from a flooded storm-water drain carrying a hypothermic boy under the glare of lights, cameras and howling helicopter blades over head. Fellow ER actress Gloria Ruben is quoted as saying that every women watching was wringing her hands, crying out: “oh George, SAVE ME, let it be me!” He received two Emmy Award nominations for Outstanding Lead Actor In A Drama Series in both 1995 and 1996 as well as three Golden Globe Award nominations for Best Actor – Television Series Drama in 1995, 1996, and 1997 for his role in ER.

It’s been happy hunting for George since then – in more ways than one. Scripts began falling into his lap, most famously and lucratively the Ocean’s Eleven trilogy. He got started in movies with some not so Thespian: Return of the Killer Tomatoes (1988) to the commercially pleasing Batman and Robin in 1997 – a movie that he openly advises people not to watch. In later years he displayed his maturity as an actor in movies like the critically acclaimed war satire: Three Kings.

The Facts of Life

…and with Mullet in THE FACTS OF LIFE George Clooney as George Burnett — Photo by: Ron Tom/NBCU Photo Bank

In 2002 George decided it was time to sit on the opposite side of the camera as director of the movies Confessions of a Dangerous Mind and the political drama Ides of March. Last year he directed/produced and starred in The Monuments of Men which grossed $155 million at the box office, receiving mixed reviews.

The 2000’s through to the present have been kind to George.  He is the only person ever to be nominated for Academy Awards in six categories. He received Best Actor in a supporting role for Syriana, a 2005 geopolitical thriller loosely based on the Robert Baer’s work See No Evil. Then in 2012, as producer received Best Picture Oscar for Argo -the political thriller about the iconic Us embassy in Tehran debacle and it’s political fallout . Both very challenging movies showing a depth to George Clooney’s greater than just charm and good looks.  Other Oscar nominations were for Best Director for Good Night , and Good Luck as well as Best Original Screenplay. He was nominated for Best Actor in Michael Clayton’s, Up In the Air and The descendants. He was also nominated for Best adapted Screenplay for the Ides of March.

George-Clooney the wise

The world’s got problems, but I can handle them.

As if this wasn’t enough there is a great deal more to George Clooney than just the movie industry. The CFR or Council for Foreign relations is an august body that influences US foreign policy. It’s fellows include CIA directors bankers, lawyers and senior politicians and one George Clooney. They have clearly had their eye on George and his political activities.

George Clooney has been vocal about a few issues. He has also made it clear that he was anti the War in Iraq and pro Barak Obama and pro Gay Rights (for example Clooney took an auction winner out to lunch to benefit the Gay, Lesbian and Straight Education Network (GLSEN)in September 2001.)

George has found his political voice with the Not On Our Watch Project, a body that was co-founded with Matt Damon, Brad Pitt, David Pressman, and Don Cheadle. In this capacity he has raised donations for the 2010 Haiti Earth Quake victims and has been on a fact- finding mission to Chad and drawn world attention to human rights violations by Burma’s (Myanmar) brutal military regime. The organisation says on their website “Our mission is to focus global attention and resources towards putting an end to mass atrocities around the world”. [1]

Clooney and human rights activist, John Prendergastco initiated the Satellite Sentinel Project (SSP), after an October 2010 trip to South Sudan. SSP monitors armed activity for signs of renewed civil war between Sudan and South Sudan, and to detect and deter mass atrocities there.[2]

Clooney spoke at a Save Darfur rally in Washington, D,C, when he and his father returned from Darfur after having made a  documentary, “A Journey to Darfur.” exposing the Darfur refugee crisis.

George the activist

George the Activist

In March 2007 Clooney sent an open letter to German Chancellor Angela Merkel calling on her to use her influence with the European Union to take “Decisive action in Darfur.” Also in 2007 he narrated and was co-executive producer of the 2007 documentary Sand and Sorrow. Clooney appeared in the documentary Darfur Now, with the view to activating people the world over to help stop the human rights abuses in Darfur.

Clooney and Don Cheadle received the Summit peace award from the Noble Peace prize Laureates in Rome in December 2007. But Clooney expressed how much he felt his and other’s efforts were for naught in his acceptance speech:  “Don and I … stand here before you as failures. The simple truth is that when it comes to the atrocities in Darfur … those people are not better off now than they were years ago.[3]

In March 2012, he whet his theatre acting appetite by starring with actors Martin Sheen and Brad Pitt in a performance of Dustin Lance Black’s play, 8, a re-enactment of the US trial that overturned California’s ban on same-sex marriage. The production raised money for the American Foundation for Equal Rights.  In the same month Clooney was arrested for civil disobedience during a protest outside the Sudanese Embassy in Washington, D.C. The man gets around.

It’s no wonder  George Clooney was included on Time Magazine’s top 100 “Most Influential People in the world.”

Speaking of getting around, George has had his fair share of exotic beauties on his arm, from the talented Talia Balsam and Italian stunner Elisabetta Canalis to popular actresses Kirsta Allen and Renee Zellweger. But 53 year old George has shown his class and his pecking order by landing 37 year old British-Lebanese human rights lawyer Amal Alamuddin. They recently did a ‘royal tour’ of the Italian countryside visiting the Chianti Hills on a vintage Vespa Piaggio. George, who has a passion for motorcycles as well as beautiful women, took his bride for further tours on an assortment of bikes throughout Italy last month.

George1

Leisure time

But movies is what most of us love about George, so we look forward to his latest offerings.

This year saw the launch of a science fiction adventure: Tomorrowland. The movie is all about memory, destiny and time, so he appropriately dons a masterpiece of retro timekeeping: the vintage 1958 Omega Automatic Chromometer in his role as Frank Walker. Regarding time, Clooney’s character says: “With every second that ticks by, the future is running out.” Profound words from the man who’s made good use of his time.

What does George have in store for us in the future? He is currently working on two productions: a comedy with Josh Brolin, Channing Tatum, Tilda Swinton, Alden Ehrenreich, and Ralph Fiennes called Hail Caesar. He has also teamed up with Jodie Foster  and Julia Roberts to make a thriller called Money Monster. You can’t keep a good man down. So George continues to do what he is arguably best at, making movies and keeping us entertained.

View the article with vivid and unique pictures at Le Kap online magazine. http://www.lemagpublications.com/LeKap5/LeKap5.html

BOND PROTECTION INSURANCE

So you’ve decided to work out the dePicturetails of your bond repayments with our bond calculator. But now you need to start thinking about, what they call in the industry, Bond Protection Insurance.

Bond Protection Insurance is a bond insurance plan that has been specifically designed to provide flexible risk benefits in respect of home loan protection.

The plan pays the original bond in the event of Death, Dread Disease or Permanent Disability, and pays the monthly bond instalments in the event of illness, injury, temporary disability and retrenchment. Under most plans the bond holder has the flexibility to select any combination of the benefits, in addition to the death benefit.

Most insurers these days offer choices, making the cover more accessible, highlighting the convenience and expertise they offer. Getting insured should be a straight forward process ensuring that your particular financial needs are adequately met and that your most important asset is protected for Life.

This is all very well but what about the details. Once you’ve used your bond calculator and you have some idea of the kind of house you’re in the market for and what the repayments you’ll be  faced with, bond protection insurance is like another hill before the end of the marathon. So let’s look at what insurers are offering.

What are the benefits?

Firstly there is the direct payment of benefits into your home loan. Next there is the death benefit (which typically pays a lump sum directly to the home loan within 48 hours of receiving all the documentation on a valid claim). There is also an instalment protection benefit which covers the bond instalment in the event of illness, injury, temporary and permanent disability.

There is usually a permanent disability benefit which pays a lump sum directly to the home loan in the event of a valid disability claim as well as a dread disease benefit which pays a lump sum directly to the home loan in the event of a valid dread disease claim allowing you to focus on getting better. A retrenchment benefit is offered which covers the bond instalment for up to 6 months while you focus on finding new employment.

Very rarely are there medicals or HIV test. Two lives may be insured under one policy, thereby providing a more affordable premium. The policy can be ceded to any financial institution. The policy will pay the full death benefit on death even if the instalment protector benefit has been claimed. While a valid Instalment protection benefit is being claimed, all the policy premiums due during that period do not have to be paid. You should be able to increase or decrease your cover to suit your home loan requirements.

Free death cover is offered, usually around three months,  while the bond registration is pending. Cover is provided for the term of your home loan.

Typical Features of the Products

Instalment Protector Benefit

If you as a homeowner are prevented, as a result of illness or bodily injury, from earning an income for a period of usually 90 days or more, your bond protection plan Insurance will pay the monthly home loan instalments while you are unable to work. These would be the same instalments you that can be worked out with a bond calculator.

Dread Disease benefit

Most Bond protection policies include what’s called a Dread Disease Benefit. A list of diseases would be included with the policy. If you are diagnosed with any disease on that list you will be paid the sum assured, usually after a period of 90 days, allowing you to concentrate on recovery. If the sum assured is greater than the outstanding home loan balance, the difference will also be paid into the home loan account.

The following 12 Dread Diseases are more often than not covered by most insurance companies:

Blindness, Cancer, Coma, Coronary Artery Bypass Graft, Heart Attack, Heart Valve Surgery, Loss of Limb, Major Burns, Major Organ Transplant, Paralysis, Renal Failure, Stroke.

Retrenchment Benefit

If a homeowner is retrenched for a period longer than 30 days, Bond Protection Insurance will, if this benefit is included, pay the home loan instalments for up to 6 months, allowing the homeowner the peace of mind to find alternative employment.

Lump Sum Disability Benefit

Almost all bond protection insurance covers homeowners who are totally and or permanently disabled rendering them incapable of earning income for a period of 90 days or more. Bond Protection Insurance will pay the home loan instalments for the first 24 months, before paying the lump sum benefit equal to the sum assured into the home loan account. If the Sum Assured is greater than the outstanding home loan balance, the difference will be paid into the home loan account.

Death Benefit

In the event of death all Bond Protection Insurance schemes pay a benefit equal to the sum assured. Again, if the Sum Assured is greater than the outstanding home loan balance, the difference will also be paid into the home loan account.

Now that you’ve seen all the benefits of Bond Protection Insurance you can soberly consider the value in pursuing this next stage in your journey to purchase your own home.

Investing in Africa, Good News, Bad News and Faux Pas

As people around the globe eye Africa for potential investment and South Africans head north there is some encouraging news to feed those ambitions, worrying reports to temper our enthusiasm and some mistakes to learn from.
afflag
Ghana’s capital Accra is awash with educated, well-dressed young up-and-coming people, driving top-of-the-range cars living in stylish houses. It’s indicative of Ghana’s economic growth, 4% last year. According to the World Bank many African economies are among the world’s fastest growing in 2015. African countries in the top 20 last year with the highest projected compounded annual growth rate (CAGR) from 2013 through 2015, based on the World Bank’s estimates are: Zambia 7.2%, Tanzania 7.4%, Uganda 3.4%, Sierra Leone 9.5%, DRC 7.9%, Ghana 8.1%, Mozambique 8.7%, Angola 8%, Rwanda 7.8%, Gambia 7.8% and Ethiopia 7.9%.

US-based business consulting company Ernst & Young reports: “There is a story emerging out of Africa: a story of growth, progress, potential and profitability.”  Back in 2013 US secretary of state for African affairs, Johnnie Carson is quoted as saying that Africa represents the next global economic growth since 2000, U.S. trade relations with Africa have been dictated by the Africa Growth and Opportunity Act (AGOA). As a unilateral preference scheme of the U.S. to promote trade and investment in Africa, AGOA was meant to boost U.S. trade with Africa and the development of the continent. However, 14 years in, U.S. trade in goods with Africa has demonstrated a perplexing downward trend since 2011. U.S.-Africa trade dwindled from $125 billion in 2011 to $99 billion in 2012 and $85 billion in 2013. For the first five months of 2014, U.S.-Africa trade in goods totalled about $31 billion. At this rate, the total trade volume in 2014 could be well below $80 billion in a continuation of the declining trend. This is largely blamed on an decline in demand for oil from Africa and the fall-out from the 2008 financial crisis

In comparison, Beijing has been quite low-key in disseminating its Africa trade promotion efforts, although its trade with Africa has been growing exponentially. China surpassed the U.S. as Africa’s largest trading partner in 2009. China-Africa trade reached $166 billion in 2011, an 83 percent rise from 2009. The bilateral trade further increased another 19.3 percent to $198 billion in 2012, and passed the $200 billion threshold to $210 billion in 2013. In terms of trade volume, Chinese trade with Africa not only dwarfs U.S. trade with Africa, but the gap is as large as 2.5 times the magnitude of last year. But there’s some dissonance between the rhetoric and action.   {THE HILL}

London based magazine The Economist reported: “Since The Economist regrettably labelled Africa ‘the hopeless continent’ a decade ago, a profound change has taken hold.” Today “the sun shines bright … the continent’s impressive growth looks likely to continue.”

Africa’s trade with the rest of the globe has skyrocketed by more than 200% and annual inflation has averaged only 8%. Foreign debt has dropped by 25% and foreign direct investment (FDI) grew by 27% in 2011 alone and 13% in 2013. Although according to E&Y FDI projects (as opposed to cash) declined by 3% in 2013

Despite projections for growth in 2015 being revised downward due to the so called Arab Spring, lack of demand for oil and a sluggish world economy , Africa’s economy is expected  to expand by 4.2%, according to a UN report earlier in the year. The International Monetary Fund (IMF) is expecting Sub-Saharan African economies to increase at above 4.5%. Added to that, there are currently more than half a billion mobile phone users in Africa, while improving skills and increasing literacy are attributed to a 3% growth in productivity.

According to a UN report the think tank,  McKinsey Global Institute writes, “The rate of return on foreign investment is higher in Africa than in any other developing region.”

An end to numerous military conflicts, the availability of abundant natural resources and economic reforms have promoted a better business climate and helped propel  Africa’s economic growth.  Greater political stability is greasing the continent’s economic engine. The UN Economic Commission for Africa (ECA) in 2005 linked democracy to economic growth. Having said this attacks by Boko Haram in Nigeria and Al Shabab in Somalia and Kenya go against this trend and have worrying consequences if not contained. Also in this category would be the so-called  Xenophobic violence in South Africa.

All this growth and urbanisation is putting a strain on social services in cities, it has also led to an increase in urban consumers. More than 40% of Africa’s population now lives in cities, and by 2030 Africa’s top 18 cities will have a combined spending power of $1.3 trillion. The Wall Street Journal reports that Africa’s middle class, currently estimated at 60 million, will reach 100 million by the end of 2015.

Some other sobering news:  “A sustained slowdown in advanced countries will dampen demand for Africa’s exports,” writes Christine Lagarde, managing director of the IMF. Europe accounts for more than half of Africa’s external trade. Tourism has been and may continue to suffer as fewer Europeans come to Africa, affecting tourist dependent economies like Kenya, Tanzania and Egypt.

The South African Reserve bank warned in May that the financial crisis in Europe, which consumes 25% of South Africa’s exports, poses large risks. Adverse effects on South Africa could have severe consequences for neighbouring economies.

Another worry is the resurgence of political crises. Due to the so called Arab Spring, economic growth in North Africa plummeted to just 0.5% in 2011 and hasn’t recovered much since. Recent coups in Mali and Guinea-Bissau could have wider economic repercussions. “Mali was scoring very well, now we are back to square one,” says Mthuli Ncube, the AfDB’s chief economist. Ethiopia, Kenya, Uganda and other countries have militarily engaged in Somalia, which may slow their economies.

A cause for concern what many are referring to as Africa’s “jobless recovery.” Investors are concentrating on the extractive sector, specifically gold and diamonds, as well as oil, which generates fewer employment opportunities. 60% of Africa’s unemployed are aged 15 to 24 and about half are women. In May, UNDP raised an alarm over food insecurity in sub-Saharan Africa, a quarter of whose 860 million people are undernourished.

But none of this is deterring South African business interest north of the border. One may ask why? South Africa’s domestic market is not providing local companies with enough growth opportunities, prompting many of them to look at the rest of the continent. This according to Ernst & Young’s Africa Business Centre’s leader, Michael Lalor in an online press conference recently: “While South Africa was still growing well compared to the advanced economies, it’s certainly hasn’t kept up with some of the other rapid-growth markets.” Says Lalor. Now it’s battling to grow at all.

Analysts are pointing out that many of the other emerging markets, such as China and South America, are difficult to enter, making the rest of Africa the obvious choice. Asia is seen as almost excessively competitive. Latin America ventures mean dealing with a very strong and ever present Brazil. Therefore Africa, given its sustainable growth story and its potential, is an obvious region for South African companies to grow into.

Quoted by howemadeitinafica.com Lalor says that most Johannesburg Stock Exchange-listed companies are currently developing strategies for the rest of the continent.   Ernst & Young is experiencing strong interest from foreign companies to invest in the continent. “The response from our clients and from potential investors is overwhelmingly positive, to the extent that we simply cannot keep up. So there’s no doubt that we are seeing significant interest, both spoken, interest in spirit, but also people putting their money where their mouths are,” he said.

These sentiments are confirmed by a survey done last year by Price Waterhouse Coopers. A CEO survey published by PwC found that 94% of South African company heads expect their business in Africa to grow in the next 12 months. PwC interviewed 32 South African CEOs in the ICT, financial services, and consumer and industrial products and services industries.

With this in mind it’s worth turning to Raymond Booyse, founder of consultancy firm Expand into Africa, who identified four mistakes often made by South African companies venturing into the rest of the continent.

The first was: Not doing your homework. South African firms are frequently not prepared to spend money on market research. “Go and look if there is a market for your products or services. After you’ve established that there is indeed a market, find out who your competitors will be,” says Booyse.

Booyse points out that South African companies underestimate transport costs and ignore how local laws and regulations influence doing business.

Secondly: Ignorance. Many South African business people are ignorant of local cultures and attitudes according to Booyse. By way of example, ignorance doesn’t realise that just because they’re both former Portuguese colonies, what works in Angola’s capital Luanda, doesn’t necessarily mean it will work in the northern Mozambique. In a recent report, research firm Nielsen noted that African consumers’ attitudes towards technology, fashion and how to spend leisure time vary greatly. No prizes for that one.

Thirdly: Arrogance. Booyse says that South Africans sometimes think they know what people in the rest of the continent need. “In the rest of Africa, South Africans are often regarded as arrogant.”

Finally: Not being prepared for the high costs of doing business in Africa. Many South African companies are not aware of the high costs involved in doing business in the rest of the continent. “If you want to spend two weeks in Angola it will cost you R40,000 (US$4,700),” notes Booyse. “It is not cheap and easy.” Flights for example, from South Africa to either Kinshasa or Lubumbashi can be costly, and hotel rates are also very high.

It’s clear that Africa is a fertile place to plant seed. But Africa is not for the faint-hearted as business is done in a very different way to elsewhere in the world, with all manner of social and political hoops to jump through. South African companies have a potentially bright future and definite advantages if they are prepared to take risks, stay humble and do their homework.

For more articles by Matthew Campaigne-Scott CLICK HERE

Urbanisation: slower than expected, but no room for complacency.

460719a

Formal urbanisation: Durban CBD

Over a hundred Years ago, it’s estimated that 95% of people living south of the Sahara were engaged in cattle nomadism, hunting & gathering, farming and fishing, leaving 5% of Africa’s population in urban settlements.  Prior to the growth of independence movements in the 1950s, 15% had become urbanised. According to UN figures of 2002 that increased to 37.2 with a projection of approximately 3.5% per annum the figure will look more like 45.3% by this year.

There has been a mixture of dread and concern both politically and in sociological circles as to the outcome of the expected growth figures. Will Africa’s cities cope given that they have neither been built for such growth nor seem capable of accommodating increased infrastructure even if the funds were available?

So what do we make of some of the talk in research circles that urban populations are growing slower than has been projected? In South Africa: Durban and Johannesburg have been bracing themselves for a tsunami of rural migrants only to find that there has been nothing like the rate of growth expected.

squatter

Informal urbanisation: Durban Informal Settlement

The late 80’s saw the scrapping of the Group Area’s act and the pass laws in general. People were allowed freedom of movement overnight. There was huge concern about cities becoming swamped. Johannesburg and other cities certainly have grown but not to the extent predicted while others haven’t at all.

In a paper published on the UN’s humanitarian affairs website IRINNEWS.org it is opined that with little access to the formal job market, most rural people lack the resources to live in cities for long periods. They often maintain homes and families in rural areas and return there for marriages, burials and when they fall on hard times.

It seems this ‘circular migration’ is muddling the conventional assumption that Africa’s urbanizing so quickly. Based on latest census material there are more and more countries ‘urbanising‘ this way. There are also more countries that are showing evidence of de-urbanisation.

In a paper released by the Africa Research Institute in February, researcher Deborah Potts, a reader in human geography at King’s College London, makes the case that the high standard of living and poor employment opportunities in African cities has created an air of economic insecurity in urban areas. The gap between rural and urban living standards has narrowed in some cases not making it worthwhile to venture into towns.

In South Africa for example Social grants for the elderly, children and the disabled can support a family living in a rural area where the cost of living is comparatively low. This has even kindled the growth of cash economies in some areas.

Then there’s what’s being termed ‘hidden migration’. It seems that many households have multiple locations given that some family members live in informal settlements and others at a rural location and there is movement between them. People keep moving until they find a reasonable standard of living.

South Africa’s  Independent Electoral Commission uncovers a very mobile population, “People are drawn to areas of greater economic opportunity, but also where infrastructure and housing is provided”  says the commission.

Fears about urbanization can hardly be dismissed given that overpopulation has played a major role in the lack of basic services, high unemployment and a general sense of hopelessness and political dissatisfaction. High crime and service delivery protests are a worrying knock-on effect.

Interestingly there are other dynamics at play elsewhere in Africa. Local traditional authorities in some countries provide the stability of access to land. In such communities people are at least assured of the opportunity to grow their own food for the extended family.

An example cited by Potts is Malawi, a profoundly rural country. Due to the lack of jobs and the high cost of living in urban areas people don’t settle in the towns but rather engage in very basic subsistence farming in the rural areas.  Some remain mobile and move from place to place traveling, moving with the food as it were.

None of this suggests that sub-Saharan African villages and cities are dwindling. The urban population continues to increase, however so does the rural population. There is still a general move towards urban life, but it is a slow shift, not a tsunami.

Eduardo Moreno, head of the Cities Programme at UN-Habitat, says “It is very clear that urbanization is slowing down, and African cities are not growing as fast as they were 10 or 15 years ago. But when you compare it with Asia or Latin America, Africa is still experiencing the highest rate of urbanization of the entire developing world.”

The warning in all this, is not to become complacent. Although the floodgates haven’t opened and the cities haven’t been swamped to the extent anticipated, negligence of the country’s urban poor would be huge mistake. Expectations of those who seek better lives in the cities and towns have been largely dashed. People with nothing to lose are a powder keg waiting to explode.

This isn’t to be melodramatic; civil disobedience around South Africa is arguably at an all-time high.  But no country in history has been lifted out of poverty by remaining rural. China, in its five-year plans says that urbanization is its driver of development.

A hiatus in the urban growth rate should, if anything, give those in authority a moment to catch their breath to deal with maladministration and corruption so that improving infrastructure and creating jobs can be brought up to speed. If not we will reap the urban whirl wind originally feared.

Offshore Property Investment – Not for the Faint-hearted.

OFFSHORE-INVESTINGTiming is everything, and if it isn’t then learning from history is. Continuing to make the same offshore property investment bungles could be the result of a combination of emotional frustration, Afro-pessimism and a Moby Dick like obsession with the Rand.

In 1997 the South African government allowed its citizens to take R200 000 per capita per annum to invest offshore. One may argue that investors practically ran to the offshore hills from an outperformed JSE and evaporating Rand.  South African investors stood clutching their modest handful of Rands and looked up in wonder at a booming Wall Street. By 2001 the rand had fallen to R13.50 to the Dollar.

Who would believe that ten years later many countries would be on the verge of bankruptcy and that people would be grumbling about the “Strong Rand” and that the South African Equity market had outperformed most other markets over the same period?

offshore2

But those in this game for the long haul will remind us that when all seems lost, it’s time to role up the  sleeves and capitalise. Back in 2001 when fear gripped investors it was actually the right time to buy into SA equities. When the rand collapsed and afropessimism crept in, investors bought Dollars and Euros expensively and sold out of arguably undervalued markets and bought into markets trading at large premiums.

Looking back over ten years, comparisons have been made to a R100 investment in the JSE all-share index at the end of 2001 that would have been worth about R400 by the end of June this year, versus only around R94 if invested in the MSCI world index over the same period. The main US equity index, the S&P500, is today still roughly 10% below its peak in 2000 in rand terms.  Emotions have been the main driver of the investments.

Says Investec Asset Management director Jeremy Gardiner  to the Financial Mail August 2011, Many SA investors, having watched with horror over the past 10 years as the rand doubled in value and the JSE delivered enormous returns, are again considering switching at the wrong time — this time out of developed markets and into SA equities and the rand. “Yet again, this decision is made on the basis of emotional frustration rather than recognising that both SA equities and the rand are now relatively overvalued.”

But a steady hand is required here since the strong performance of the SA equity market seems set to continue.  Offshore investment in general equities may well have dried up recently, it seems the JSE’s R125bn listed property sector is becoming a hot commodity among overseas investors. Big institutions putting down their names include Principle Global Investors, Black Rock and State Street.

On the receiving end GrowthPoint properties, has seen its overseas shareholding jump from 3% to 11% a while back. Redefine – SA’s second-biggest listed property counter, with a market cap of R20.3bn – doubled its offshore shareholding from 4% to 8% in the same period. “Global investors are now taking note of the fact South African-listed property offers far more attractive returns – total returns of close to 30% last year – than other global real estate markets.” Says Growthpoint executive director Estienne de Klerk.

offshore

There is expectation of more overseas funds showing up locally over the next 12 months. Names bandied about include Hyprop Investments,  as well as what we’ve see materialise from the merger between Capital Property Fund and Pangbourne Properties, also whatever surfaces from the potential merger between Acucap Properties  and Sycom Property Fund and then there’s the  listing of Old Mutual’s R12bn property portfolio.

Macquarie First South Securities property analyst Leon Allison spoke to Finance Week recently and said that although returns over the next decade will be more subdued than has been the case over the past 10 years, current positive structural changes will make the sector more investor-friendly.

Bringing us back to offshore options. The rand’s ‘strength’ favours taking money offshore. But the logic for offshore investment goes beyond any potential weakening of the rand. There is much to be said for the need for South Africans to diversify their assets. But there are more South Africans who have in the past got their offshore investment timing wrong. 2001 was the prime example, when a historic devaluing of the rand alarmed investors into the arms of foreign markets. At the peak of the rush, the second quarter 2001, 88% of net unit trust inflows went into offshore funds.

Now according to Marius Fenwick, head of the financial services arm of accountants Mazars:  “Now is the opportune time to invest offshore as the strength of the rand makes offshore investment attractive. Instead, offshore diversification should be used to hedge future rand depreciation and diversify through access to large global companies.” So here we go again…

But we know already this isn’t all about the rand. The great Bismark said: “Some people learn from their mistakes, that’s good. But isn’t it better to learn from other people’s mistakes?” Aren’t the underperforming overseas markets just waiting for South African investors? Rand or no Rand variance?offshore-investing

What are the options? Who are the players in offshore property investment?

First of all there’s Growthpoint that bought up a Sydney listed subsidiary applying its winning formula in Australia. Then there’s Emira, which has just put R117m into Growthpoint Australia, in their case they claim the rand had zero to do with their investment move. Emira has a 6.4% stake in Growthpoint’s Australian presence.

International Property Solutions markets UK and Australian residential property to South African investors. CEO Scott Picken was quoted as saying that South Africans wait until the rand is collapsing, panic and throw their money into offshore apartments as it hits bottom, he says. “Most investors have lost money offshore in this decade.”

Financial correspondent Scott Picken writes that comparative data shows that South Africans would have made much more money over 10 years measured in sterling by buying an average house in Johannesburg in 1997 than buying one in London at the same time. Only time will tell if the shoe is now on the other foot.

Other off shore institutional investors include Capital Shopping Centres. British Capital, run through Barnard Jacobs Mellet and Stanlib which has offshore unit trusts. Investec Property Investments has unlisted funds buying property in Europe and the US. There is also Catalyst which has an unlisted fund of global listed property funds.  Redefine is working through its London-listed Redefine International. Resilient has New Europe Property Investments (Nepi), which mainly owns shopping centres in Romania. All top performers.

Other choices in property include these very few funds which have actually lost money. Nedgroup Global Cautious (down 8,5%); Sanlam Investment Management Global Best Ideas (down 2,3%) a long term performer though; the Absa International fund of funds (down 15,8%)

Whether it’s  a strong Rand or the need to diversify one’s portfolio, these may be the times that offshore property funds offer the South African investor a long term strategy again, last made available ten years ago. Whatever the case this isn’t the time to think with the knee-jerk of emotion or a political bias.

On-shoring in the USA with notes for SA

onshoring3Onshoring is seeing a resurgence in manufacturing in the United States. The knock on effect for industrial and commercial real estate is debatable. What lessons, if any, are there for the South African market?

Firms like Ford, Carlisle Tire and Wheel Company, Otis Elevators, General Electric and Whirlpool have relocated some jobs back to the U.S. or opted to upgrade existing U.S. plants rather than resort to off-shore operations. This is in the wake of the World Financial Crisis.

There is some political incentive; it may be the patriotic thing to keep manufacturing plants at home. But in the end it’s the big buck that cracks the whip.  Master Lock a world player in the manufacture of security products, has brought over one hundred jobs home that had been previously off-shored.

US President Barak Obama used the ‘on-shoring’ of the Master Lock factory in Milwaukee to highlight the Democrats Blueprint for an America Built to Last. The ‘blueprint’ is essentially an incentive scheme for the on-going creation of manufacturing jobs in the U.S. Coupled with this is the removal of deductions for offshoring jobs overseas. The political message is clear.

Heavy equipment manufacturer Caterpillar is opening a giant facility in Victoria, Texas, in the process of shifting production from Japan back to the U.S. In February, the firm announced it would also shutter a 62-year-old plant in London, Ontario – Canada that makes locomotives and move production to Muncie, Indiana.  Jumping on the bandwagon is Japanese carmaker Honda which is investing $98 million in its largest vehicle engine plant in Anna, Ohio. A significant number of firms have moved some jobs back to the U.S. or opted to upgrade U.S. plants rather than resort to off-shore operations. So there is significant movement on the manufacturing landscape.

In some cases, firms are actually reopening mothballed factories. In others, firms surveying the landscape have opted to open plants in states within the U.S. with the lowest labour costs and unionization rates. Something South African corporates wouldn’t be able relate to given the uniformity of unionisation across the country’s provinces.

onshoring2

In South Africa labour remains arguably at acceptable levels in the manufacturing industry – for example we aren’t seeing PE’s motor manufacturing plants moving to Botswana due to unmanageable wage demands. South Africa’s Chemicals and the Agriprocessing industries are geographically anchored and aren’t able to be moved offshore. So labour in those industries is unlikely to fear offshoring any time soon.

Onshoring in the US though has contributed to a steady revival in manufacturing jobs within the U.S. since mid-2010. Employment in the sector is expanding at an annual pace of approximately two per cent. But manufacturing as a percentage of the U.S. workforce will continue to fair lower down the scale since higher productivity is one of the draw cards for Onshoring.

Higher productivity means fewer workers producing the same amount of goods. Without appearing cynical, it must be said that this would not bode well with labour in South Africa since it would seem more desirable to have greater numbers employed to produce the same amount of goods for the sake of employment figures. But since there is no such incentive in South Africa onshoring is not a relevant dynamic in the economy for that reason. There is also the migrant labour dynamic to consider.

But there are lessons to be learned from ‘the equation’ used by U.S. corporates when it comes to deciding on the location of new factories. Factors weighed include: shipping costs and real estate; infrastructure and supply chain competence; cost, quality and obtainability of labour; proximity to suppliers and customers; taxes and incentives.

Previously, cheap labour and shipping costs clinched it for China and other emerging countries. However the labour market in those same countries is not putting up with the pay and conditions heretofore endured. Labour costs in China for example have risen on average almost 20 per cent per year over recent years. The result is that there’s a higher premium to pay. Similarly volatile oil prices are being felt on the transportation leg. Some estimates have transportation rising 20 to 25 per cent in the next three years!

But back to labour, in the U.S. over the previous four decades, productivity has hit the roof. Output per worker in the manufacturing sector has grown 136 per cent since 1987. According to William Strauss, senior economist at the Federal Reserve Bank of Chicago, what it took 1,000 workers to do in 1960 requires only 184 workers today. In 2005 goods produced in China and shipped to the U.S. were 22 per cent cheaper than products made in the United States. By the end of 2008, the price gap had dropped to just 5.5 per cent.

Despite productivity gains, the manufacturing sector has stopped losing jobs, instead there have been gains. Hitting rock bottom at approximately 11.5 million workers in January of 2010, the U.S. market has since added 421,000 new manufacturing jobs. The sector is growing at an average annual rate of about two per cent, the fastest rate of expansion since the mid-1990s.

A lesson for South Africa is that U.S. analysts believe that production never really disappeared. But there are factors that are strengthening it, including a lowering of wages for manufacturing employees. Real hourly wages for U.S. manufacturing employees have remained flat since 1970. In 2000 average wages were $14.35 an hour in 1970 and $14.63 in 2009, according to the U.S.’s Bureau of Labour Statistics. Would S.A. unions put up with that?  Could S.A. workers settle for less for the sake of keeping their jobs and still increase productivity?

Then there’s the issue of what is referred to in the U.S. as ‘right-to-work’. This legislation prohibits agreements between unions and employers to create “closed shops” and limits auto-payment of union dues. Closed shops are workplaces where every employee must belong to the union as a condition of employment. It could be argued that in S.A. the social/political pressure makes it impossible for such legislation to be considered or even at ground level, enacted.

onshoring

Currently, 23 U.S. states have some sort of right-to-work laws in place and that’s where the plants are being reopened or built.

The difference in quality of U.S. labour is a factor too. “Many of the manufacturers moving back from Asia and India say the quality control there is atrocious,” says K.C. Conway, executive managing director of market analytics with Colliers International. “We have quality control, a well-trained work force. It’s much more robust here than in Asia.” South African manufacturing labour quality seems to vary in reputation across the board but excels in the automotive and agriprocessing industries for example. There doesn’t seem much to tempt local manufacturers to move to Lesotho or Swaziland for example since workers from those and other Southern African countries populate our workforce anyway.

Both the U.S.’s President Obama and S.A.’s President Zuma have spoken much about the improvement of infrastructure. In President Zuma’s case there has been large allocations to infrastructural improvement in this year’s budget. Theoretically this should reduce the cost of moving goods around the country. Obama has proposed $476 billion through 2018 on highways, bridges and mass transit projects for example.

In overview one school of thought is that U.S. manufacturing has never really gone away. The U.S. produces 18.2 per cent of all goods globally, of course it used to be so much more, and China has surpassed the U.S.  2010 marked the first year since the late 1800s in which the U.S. was not the largest producer. China, with $1.92 trillion in manufacturing output has taken the title.

Along these lines, one is pointed to the fact that although it’s true that the majority of consumer goods are produced in China, the U.S. specialises in heavy machinery and goods that are the product of highly-skilled labour. Automobiles, airplanes, aerospace components and pharmaceuticals are all divisions where the U.S. retains a hefty share of world production.

In the final analysis the assumption we may make is that the U.S. commercial real estate industry should be strengthened by on-shoring though not as dramatically as we may be tempted to conclude. The total industrial market vacancy rate has stood at 9.5 per cent. It declined in every quarter of 2011 and is down a full percentage point from its recessionary peak of 10.5 per cent at the beginning of 2010 the rest is history. For flex space, vacancies are a bit higher—12.6 per cent at the end of the fourth quarter—but there too the rate has declined from a peak of around 14 per cent.  Manufacturing space tends to be very specialized and often manufacturing companies build their own buildings and they don’t need to buy the space that existed previously. The exceptions to this might be smaller secondary and tertiary suppliers that support larger manufacturers. Those kinds of firms tend to locate in flex space.

Although South Africa doesn’t find itself in an on-shoring situation the lessons above remain for us to observe. Manufacturing activity in South Africa rose to a two-year high last quarter, fanning expectations that growth in the economy’s second-biggest sector is gaining impetus. This surpassed those recorded among South Africa’s main trade partners during the same quarter. Manufacturing accounts for 15% of South Africa’s economic output and 13% of formal employment. In the fourth quarter of last year, it recovered from a recession in the previous two quarters, expanding by 4,2%, according to official data. The knock on effect on industrial and commercial property is presumed and likely but can be unreliable and inaccurate to monitor.

In Memory of Miss Cara the Cat

A Tribute to Miss Cara: a beloved Waterfall Cat.

Picture“Some people talk to animals. Not many listen though. That’s the problem.”

― A.A. Milne, Winnie-the-PoohIt is well documented that animal companionship from horses to gerbils has a positive influence on human society in general and a therapeutic effect on people in particular. Everyone from small children to the elderly seem to benefit from the companionship and shared affection.  Cats are said to have been worshiped by the ancient Egyptians and domesticated by the Assyrians and Babylonians. Cats are an acquired taste for some and as irresistible as chocolate to others.

“Cats will amusingly tolerate humans only until someone comes up with a tin opener that can be operated with a paw.” ― Terry Pratchett, Men at Arms

Although cats are maligned for their apparent haughtiness and accusations are made as to their selfishness, cat lovers will testify to feline submissiveness in private not to mention their devoted loyalty. It seems to me that cats are great actors. I’m reminded of the Billy Joel Song: “Always a Woman to Me.” In the song Billy Joel narrates how ‘…the most she will do/Is throw shadows at you/But she’s always a woman to me.’ Cats are just like this.  At first impression and often in the company of others, your cat is aloof and distant. But when she’s comfortable in her surrounding and especially when  alone time, kitty rubs your feet in worship and purrs like a didgeridoo and makes loving eyes at you that speaks  volumes in otherwise unenunciated devotion.

“I have lived with several Zen masters — all of them cats.” ― Eckhart Tolle, The Power of Now: A Guide to Spiritual Enlightenment

Such was the nature of our beloved Miss Cara. A very pretty light grey cat, slight in stature and quietly spoken. Carey had decided that after the death of her very dear exquisite Tortoise shell, many years before, she wouldn’t get another cat since losing her was too painful. However the years passed and we lived in a new location, the girls had grown up a little, the time seemed ripe for a new feline friend in our midst. We did the ‘right’ thing and supported the SPCA and were introduced to the youngest mother of kittens you could find retreating, perhaps a little overwhelmed from the attention of her litter, at the back of a cage. Carey just knew this was the cat for her in flurry of intuition that only certain types of people understand.

“The smallest feline is a masterpiece.”  ― Leonardo da Vinci

Miss Cara was a juvenile and still had some playful kitten in her (which she never lost), though it was clear that before we met her she had been habitually kicked either accidentally or on purpose since she remained fearful of anyone in shoes all her life and big feet were watched suspiciously from a safe distance. She loved to play with the standard, shop bought, catnip filled mice. She became quite hysterical having imaginary hunting and wrestling games with them. Best fun of all for Miss Cara were her boxes. Our house became not unlike a Mondi Recycling drop off point with shredded boxes littering the house. Our daughters began to notice a distinct disparity between the level of discipline aimed at their untidy rooms compared to Miss Cara in hers.

Picture

 “No matter how much the cats fight, there always seem to be plenty of kittens. ” ― Abraham LincolnThe cat Beds: I’m not sure to whom the importance of beds lay: us or the cat. At first makeshift beds were made out of old jerseys on the couch, and then treasured old baby blankets in boxes. Then one day I was minding my own business like a good husband waddling around Mr. Price Home Store admiring the completely useless, superfluous, unnecessary items on the shelves that appeal deeply to some people. My wife and daughters were ferreting through this mound of must-have cushions and swooning over throws and surplus bric-a-brac when they discover much to their delight a cat bed. Now we aren’t just talking some beige basket containing a colourful cushion with paws motif. Oh no this was a square, stuffed bed covered in two-toned pink silk. The bed was festooned with silk pink ribbons and was as gaudy and camp as a drag-queens hand bag. Worst of all since my wife decided to rush off with the girls to do some or other errand I was instructed to wait clutching my high camp paraphernalia in the very long Saturday morning queue. I haven’t grown hair on my chest since that day.

“Women and cats will do as they please, and men and dogs should relax and get used to the idea.” ― Robert A. Heinlein

But back to Miss Cara. The best thing about her presence in our lives was the incredible joy she brought to us all. She was certainly doted upon though never spoiled with non-cat food except for little morsels of cheese. Oh yes if we were eating tuna she would polish off the leftovers in the tin. But I digress, Miss Cara was not a cat that you could cuddle, she didn’t like sitting on your lap and had to be trained to enjoy being cradled like a baby which she tolerated whilst rubbing your chin with her paw. Miss Cara, like all cats, loved to sleep and beds were made from old out-door chairs in the sun and shade alternately, with a cushion folded in a square so she could climb inside.

 “Ignorant people think it is the noise which fighting cats make that is so aggravating, but it ain’t so; it is the sickening grammar that they use.”  ― Mark Twain

We will always remember Miss Cara as a friendly and spritely cat full of little chirps and very much in charge of her life, who could touch her and who her friends were. Alas in May this year she was killed. There is something devastating about losing a young beloved pet in the prime of its life. Evidently someone went speeding around the corning near our home and wiped her out without a thought. We try and encourage people to drive below the speed limit in roads like ours where old people take walks and children ride bikes and pets roam freely. But it’s all about ‘me and my rights’ and so there are casualties. Regardless it’s done now and we still have our memories of a little comforter to my family who brought joy into the room whenever she sauntered in.  Adopt a cat today they’ll change your life for the better.

Mahatma Gandhi is quoted as saying: “The greatness of a nation can be judged by the way its animals are treated.”

Landlords Are Back With a Vengence

shoppingIf anyone thought bricks & mortar retailers were going to lie down in the face of an online invasion they are very much mistaken. Likewise any retail landlord who hasn’t heeded the ‘adapt-or-die’ writing on the wall, is in for a shock.

South Africa’s traditionally big names have learnt to have an online presence to supplement their physical shop experience. Woolworths and Pick n’ Pay have online shops. While Look n’ Listen, for example, has become so integrated online it’s basically a hybrid retailer. Kalahari and Spree remain purely online vendors.

The next phase of integration is being previewed in places like the UK, from whom SA retailers can learn a great deal in this regard.  Enter the “Student Lock in”: some of the UK’s largest shopping centres are using this marketing tool to draw in younger clientele,

Students-from-across-the-north-west-participated-in-a-mock-protest-before-doors-opened-to-the-Lock-In-PRESS-SHOT-670x457After weeks of promotion on social media sites such as Facebook and Twitter, shopping centres close at the normal time, and then reopen from 9pm until 11pm for the ‘Student Lock-in’, only admitting shoppers who can show a valid National Union of Students (NUS) card.  The events are intermittent and planned long in advance.  Special offers, entertainment, food and music all add to a festival atmosphere. One of the UK’s largest shopping centre owners is  Land Securities(LS). Events like ‘Student Lock-ins’ at LS shopping centres in Cardiff and Dundee have raked in the sales.

Other Student lock-in events revolve around online media promotions of film events. For example Gok Wan’s “How to look Good Naked” was promoted on line and shot at the Hammerson mall, packing in the crowds with retail benefits all round. Combining online promotion and social media with fashion, restaurants and leisure seems to be a way of keeping up with the attraction of online stores. People come to shopping centres for the vibe, to eat and be entertained.

But there’s more: in the US, Land Securities has brought the convenience of online shopping into seven of its malls, where Amazon.com collection lockers have been installed. Customers who cannot be at home, or are ordering things too bulky to fit through a letter box, are sent a code and date to pick up their parcel from the shopping centre. When customers collect in store, or return an item it’s another sales opportunity.

A MasterCard survey indicated that the number of people who make use of mobile phone access and thus using their phones to do online shopping in South Africa has increased hand over fist. Growth of mobile smart phones and iPads allows shoppers to shop anytime or anywhere. This can’t be ignored, so if-you-can’t-beat-‘em-join-‘em. Enter the QR Code.STD

A QR code (or Quick Response code) is a kind of barcode popular due to its large storage capacity and quick readability. QR Codes make it easy for a person to perform a certain action by scanning a code on their smart phone. The use by retailers to market products to consumers is obvious.  Every Smart-phone owner is a potential user. More and more retailers are adding QR codes to their merchandise adding a further dimension to their shopping experience.

qrcode.23545541This allows shoppers to scan products via a QR code reader on their smart phones, and order and pay for the product directly without needing to do the transaction at a point of sale. Of course this is just one of many ways of shopping in a multifaceted shopping experience. Woolworths South Africa made use of this technology during its last big sale earlier in the year. Standard Bank is making big waves with its QR ‘Snap Scan’ for purchasing without cash or card.

Another UK innovation that emerged this year was “click and collect.” Department store House of Fraser moved its pick up facility from the back to the middle of the store reporting that customers are more likely to purchase items in addition to their online purchases they had come to pick-up. Being present meant that online customers are able to try on and exchange goods whilst in the shop.

The concept developed further into House of Fraser “virtual department stores”, a fraction of the size and cdownloadost of a full department store – which can get virtually any products on next day delivery. The stores consist of a customer services area, and many change rooms, making it easy for customers to pick up, try out, pay for or return items.

Innovations like this have brought out a creativity and an aggressive response to the so-called onslaught of on-line shopping, blurring the lines between worlds.

Interestingly there are even online-only and catalogue retailers who have started opening small shops to improve their customers shopping experience and to compete with finer tuned bricks and mortar customer service. What’s certain though is that shopping centre landlords are getting creative, innovative and fighting back by taking on the online retailers at their own game.

Who’s Going to Wear the Green Tights?

Gateway Hotel - Umhlanga

Gateway Hotel – Umhlanga

Have you ever witnessed one of those moments at a glittering event, where the company envoy ostentatiously hands over the enormous polystyrene dummy cheque to the suitably grateful charity representative. The cameras flash, the recipient’s knees bend a little, the company boss swells and flashes a self-satisfied smile. People clap and everyone swoons in awe at the selfless generosity of business. Onlookers declare: “They do have a heart.” And “It’s not just about the money.” Let’s not pretend that business doesn’t need positive affirmation from the community. Face it; we all like a good pat on the back.
Which brings up a growing trend in the world that has found its feet in South Africa. Green Buildings. If ever there was a way of scoring points with the community, government and those with not only green fingers but whose superhero sports green underwear – the environmentalist, this is it.  IF you’re a land lord don’t knock it, because something’s in it for you.
Recently this was demonstrated in the latest extension to that Mecca of upmarket shopping, Sandton City. A splendid dome graces the new Protea Court. This crowning expansion, involves interior refurbishments and 30,000sqm of new retail space. The Protea Court roof has been created with a product called Texlon, which is made up of multiple layers of foil known as ethylene-tetra-fluoro-ethylene (ETFE) it’s so green it could be mistaken for peas.
“Texlon is an innovative technology used worldwide but has been used for the first time in South Africa at Sandton City,” affirms architect Tia Kanakakis from MDS Architecture. “It was selected as a suitable roofing material as it is lightweight and an environmentally-friendly climatic envelope”.
Kanakakis pointed out excitedly: “The ETFE material is unique in that it does not degrade under ultraviolet light or atmospheric pollution.” The material doesn’t harden yellow or deteriorate. Furthermore, as the surface is very smooth and has anti-adhesive properties, the envelope self-cleanses in rain.” For Sandton City this means going Green and they are being richly rewarded already. Sandton City Manager Sharon Swain was able to announce the arrival of international names like Dumond, Inglot, Carlo Pignatelli, Miguel Vieira and Kurt Geiger to the centre.

Nedbank Ridgeside Durban

Nedbank Ridgeside Durban

Of course Green buildings aren’t new. Twenty-one years ago two initiatives were launched which were foundational to  establishing the concept of energy-efficient buildings and green building: BRE (British Research Establishment) released BREEAM, and BREEAM became the basis for a host of other rating tools including LEED in the US and the much talked about Green Star in Australia.
What about the landlord cost/tenant benefit scenario?  Investor’s landlords may well ask what’s in it them, surely more of a good old pat on the back? The Australian Financial Review explored the importance of green-star ratings, which basically determine how Green a building is, in attracting tenants to buildings. When looking for leasing locations tenants are now demanding at least a four star rating. In Australian cities the demand for the now-coveted green buildings is driving up costs in refurbishing and retrofitting older buildings. Greener adds value and demands higher rents.
According to property investment analysts IPD, Green Star buildings are outperforming non-rated buildings on a financial basis by a significant margin.
Here in South Africa,  Llewellyn van Wyk, Editor at Large for Green Building South Africa writes: “Ultimately I believe green building is in the national interest, and should be an issue driven by Government: for this reason, I strongly supported the establishment of a Part X “Environmental Sustainability” to the South African National Building Regulations and look forward to it being populated with the full range of deep green building imperatives in due course.”

Responsible-Building-Design

The world-class, high-tech design of the Durban ICC building itself incorporates green elements such as large glass facades for natural lighting, reducing the need for artificial lighting, and energy saving escalators which only activate when stepped on. In addition, the Centre utilises energy-efficient air-conditioning systems which build up ice overnight, which is used to cool the building the following day. Indigenous landscaping is a feature of the Durban ICC, with the majority of plants local to Kwazulu-Natal, limiting the reliance on irrigation. The Durban ICC’s water use profile is low for a building of its size. The installation of sensor taps in the bathrooms prevents water waste and even its toilets have been converted to a more efficient water usage system.

In the US the Green standard is held up by LEED, which has not been without its squabbles:  Henry Gifford has made his living designing mechanical systems for energy-efficient buildings in New York City. And he admits the (LEED) program has popularized the idea of green building: “LEED has probably contributed more to the current popularity of green buildings in the public’s eye than anything else. It is such a valuable selling point that it is featured prominently in advertisements for buildings that achieve it. LEED-certified buildings make headlines, attract tenants and command higher prices.”
 

By means of counter point Ben Ikenson reports on the current controversy embroiling LEED and hence whole Green Building bureaucracy in the US:”But for years, Gifford has been a tenacious and vocal opponent of LEED, claiming that the program’s “big return on investment’ is more a matter of faith than fact, and that LEED simply “fills the need for a big lie to the public.” Last October, Gifford filed a class-action lawsuit for more than $100 million against the USGBC, accusing the non-profit of making false claims about how much energy LEED-certified buildings actually save and using its claims to advance a monopoly in the market that robs legitimate experts — such as himself — of jobs. We may ask ourselves if we need this in South Africa.
Back to the benefits, conventional wisdom has it that not only does the environment benefit from the carefully considered construction that goes with Green building, but that people are generally happier and more content working or living in Greener buildings. Comments Dr Suzan Oelofse, IWMSA Central Branch Chairman, “The environmental benefits derived from green buildings can further be enhanced by including waste minimisation and recycling principles in this type of environment.”
Further to this, Oelofse believes that Green buildings should be orientated in such a way as to reduce the heat load and to optimise shade and thereby enabling the use of more energy efficient lighting systems and air conditioning.  This makes economic sense in the light of on-going increasing Eskom electricity costs and it makes sound economic and environmental sense to use renewable resources and to become as energy efficient as possible.
It seems the devil may be in the bureaucracy and that making buildings greener may require state rather than private regulation if the LEED struggles are anything to go by. But there are clearly many practical and financial benefits to Greening up the workplace. Besides there’s nothing quite like that warm approval that comes from cosying up to a superhero or heroine in green tights.

Backleasing, Backsliding, Boom or Bust

images (1)

Cell-C-tower

Cell C, South Africa’s third Cellular operator is now a tenant in 960 towers that they used to own! Huh? It’s true, it’s called a sale-leaseback or backleasing and that’s an investment that may interest you.

American Tower Corporation purchased, through its South African subsidiary Helios, 329 more telecommunications towers from Cell C for R965 million bringing the total to 960. American Tower will is  acquiring up to 1,800 additional towers currently under construction..

Cell C is now an anchor tenant on each of the towers purchased, and its relationship with American Tower is  enabling it to further enhance the quality and coverage of its cellular network.

So what exactly is a sale-leaseback when it’s at home in front of the fire? A sale leaseback option allows a company to sell its assets and lease them back simultaneously. This can be beneficial for businesses that are in need of an inflow of capital.

This practice isn’t new at all. In France it’s been popular for over thirty years. In other Western economies it’s widespread and its trends generally flow from the US.

Originally, sale and leaseback transactions were only applied to tangible assets, such as property, plant, machinery and equipment. However, since the mid–1990’s, its application has increasingly been extended to incorporeal property, including trademarks, patents, designs, copyright and know-how. When applied to intellectual property, the leaseback and associated rental payments are more correctly referred to as licence and royalties, respectively. But we’ll focus on leasebacks in property in this article.

download (3)Looking at world trends first: sale-leaseback’s in the US were at their highest in 2007 when $16.1 billion in sale-leaseback properties traded hands. Transactions have increased over the past 18 months. After hitting a low of $3.7 billion in 2009, nearly $4 billion in sales closed last year and another $2.6 billion had occurred this year so far.

In the US a set of rules was set up to guide such transactions by the Financial Accounting Standards Board in 2003. Crafted after the Enron disaster to force most off-balance-sheet financing back onto the books, these rules are expected to encourage many companies to convert, once popular, but now discredited, “synthetic leases” by which companies maintained control of the property while gaining tax benefits,  into more legitimate “true leases,” such as sale-leasebacks and net-leases.

Companies mainly used synthetic leases as a way to keep real estate debt off the balance sheet while reaping all the other benefits of owning real estate. (A synthetic lease is when the money to finance the asset is borrowed, and the lender takes a security interest against the asset, but has no further recourse against the borrower / operating company.)

There are instances in which prioritising the use of an asset is more important than wanting to own it. Usually in these situations liquidating assets would bring business operations to a standstill as the use of the asset is integral to the functionality of the enterprise.

Unlike a traditional mortgage, which often finances 70% to 80% of the property value, a sale-leaseback allows a company to get 100% of the value from the real estate.

Sale-Leasebacks can be constructed flexibly providing options to both seller and investor. Some examples would include offering a Joint Venture type involvement allowing the seller to share in a certain predetermined percentage capital growth gain in value, or structure buy-back options on certain pre-determined conditions. Investors can also provide themselves with certain down side protection.

Within this context one ought to consider the net-lease too, whereby a company finances a new location by finding third parties to buy the property and then leasing it from them. There is a surge in such transactions currently in Western Economies. It has been opinioned that this is partly because companies with weak credit ratings are finding it hard to get conventional financing and are increasingly turning to real estate as a source of cash.

However it has to be said that even solid companies with strong credit ratings are looking for ways to raise cash to retire debt and improve their financial ratios.  In fact, many of the biggest names in business — including Microsoft, and Wal-Mart have used leaseback over the years.images (7)

Bri-Anne Powell, investment consultant for Pam Golding Commercial in Gauteng is reported as saying “There are investors in the marketplace who have an appetite to purchase sale and leaseback properties, preferably industrial in nature, in visible, strategic locations. In terms of industrial property the areas of the Durban South, East Rand, Midrand and Centurion are favoured, and in regard to very large industrial properties it is preferred that these would comprise a main warehouse or factory which would be located near OR Tambo International Airport.”

Sale-leasebacks ought not to be a prospect for an investor who isn’t going to cope with the potential struggles of owning commercial real estate or an investee who can’t afford to loose his asset. If a company that’s leasing a property goes bankrupt, the court may not uphold the lease. So the’ buyer beware’!

The recipe to being a lucrative investor in sale-leasebacks is not just appropriate decision-making but to make use of one’s asset to maximum effect.  For the purchasing party to a sale-leaseback, they have acquired a property with potential for growth and a long term income flow from the lease. On the sale side of the transaction there is the liquidation of an unwanted or superfluous asset whilst retaining long term use of the same through a lease agreement.

Life Rights, are Reverse Bonds an Alternative?

images (2)Making up for lost time during the Second World War, many soldiers returning home to Europe, North America and the colonies establishing families, the children of which are embarking on their retirement years round about now. Unfortunately this collective has been described as largely asset rich and cash poor.

Given that most people retire later than expected, still working long after retirement age, and having not planned adequately for their sunset years, choosing where to live is arguably the next biggest decision in the retirement process. Faced with the prospect of selling one’s property with the view to purchasing a retirement home, there are some options to consider.

Broadly speaking the options are Life Rights, share block, freehold or sectional title. The latter three are thoroughly marketed and explored. But ignorance regarding Life Rights continues.

Life Rights is the most widely used retirement home model worldwide. Life Rights offers the lowest purchase price relative to product. The fact that there is neither transfer duty nor tax payable is an attractive boon.

download (1)It is important to be appraised of the following facts:

The purchaser does not have ownership of the unit. The ownership of the unit is retained by the development/complex and is not transferred to the individual as with sectional title. The purchaser has a right to live in the unit for the remainder of his or her life. In essence it’s like paying a lifetime of rental in advance. (This usually extends to a spouse or life partner upon the death of the other.) The unit though may not be bequeathed.

When the remaining party dies or chooses to leave the unit they or their estate are paid on the basis that the capital sum paid is returned plus 25% of the profit after costs. The percentage will differ from one development scheme to another and the amount or percentage is usually linked to the period of occupancy.

An additional benefit of entering into a life right scheme is that accommodation costs remain fairly stable, especially if the development offers a fixed for life levy.
images (1)Which bring us to Reverse Bonds or Reverse Mortgages.
It has been suggested by Rob Lawrence of Rawson Finance that some senior citizen consider a Reverse Mortgage. A Reverse Mortgage may be the answer to some who have paid up properties and no or little income to either maintain the properties or provide for themselves. The Reverse Mortgage is a loan paid in a lump sum, or monthly, to a recipient by the bank, against the security of a mortgage bond. No bond repayments are required and the funds advance can be used to purchase a pension or any other asset that can increase income. Alternatively, the proceeds themselves can be paid out as an income.

A reverse mortgage is an arrangement with some of the rules reversed while maintaining the basic principle of a mortgage. It’s still a loan secured by your real estate, but you don’t have any deadlines on payments as long as you live in your home or on your property. With a reverse mortgage, you basically convert the value or the equity of your home into cash.

Although Common in the USA, UK and Australia for many years, there are only two institutions currently that will offer this facility in South Africa: Nedbank and Senior Finance.
Some conditions usually include: 1) the bank, not an independent evaluator, will value the property, 2) the percentage bond advanced on the value of the property is dependent on the purchaser’s age, 3) the mortgagee has to be over 65 years old, and 4) any change in the ownership of the property automatically makes the sum advanced fully repayable.

cartoonLooking at the downside: What if the value of the loan plus interest exceeds the value of the property by the end of the loan period. This means that the borrower or his/her estate may need to sell assets in addition to the house to pay off the loan.

Upon the death of the borrower the surviving spouse may have to repay the debt, which could result in the need to sell the house in the process. A reverse mortgage could undermine your intention to leave an inheritance for your children and others, instead leaving a legacy of debt.

Conventional wisdom would have it that it’s risky business to borrow money to fund living expenses where the interest rate is linked to the prime rate.

The Reverse Mortgage is really aimed at the asset-rich/income-poor senior citizen who isn’t planning to live for decades and decades. A 65 year old taking out a loan and living to 85 has accumulated twenty years of debt plus interest. That’s quite a legacy.

After having spent ones whole life making monthly payments to this or that and worrying about debts perhaps living out ones retirement years under the obligation to ‘keep it short’ or pay up just may make Life Rights seem a lot more attractive.

Visit the Waterfall Community Retirement and Eldercare Page.

A Man and His Butcher are not Easily Parted

2014-02-27-2129s

The ever helpful and courteous Emil from Waterfall SuperSpar Butchery

There’s something very masculine about meat, isn’t there? The immediate image that comes to mind is the braai. Generally and mostly it’s men standing around advising other men about how often to turn the meat, what adjustments the fire needs for different meat and so on. That’s why male vegetarians aren’t really complete men- kind of like missing a testicle.

This is not to ignore the fact that it is actually mostly women that prepare and cook meat but without the fanfare and drama that male meat interaction seems to involve.

An example is the poitjie. Men who wouldn’t know how to boil an egg for dinner and practically strain themselves to find the cereal or burn themselves making toast become experts on all matters culinary when preparing meat for the potjie, its tenderisation, the slow cooking of, flavouring, what spices and herbs to apply, the works.

In fact rarely does one see the high level of sophistication men embrace when it comes to meat outdoors. Wives who try to solicit an ounce of assistance with the evening meal preparation during the week are met with nonplussed expressions and glazed eyes when asked to: “just toss the salad while I:- go to the loo, shift grandpa, change this nappy, move the house to the left.”

Then there’s biltong – do women and children eat it, sure. But who’s the expert on what biltong is the best, most flavoursome and assuming the correct shape – the man. If a woman offers an opinion on biltong, men assume embarrassed looks or bow their heads, and that’s the polite response. What could a woman possibly know about biltong? And let’s not get started on the intricate equipment that men have invented to cut, shave, slice and dry biltong in the luxury of their own home.

This possibly explains something: men and butchers. Men may not be able to find the right deodorant, two-ply loo-rolls, a ripe avo or correct baby formula at the supermarket, but they can be found congregating around the butcher on a Saturday morning. Dozens of them standing around discussing the length of their boerewors, different flavours, contents and uses. (This is the same butcher that housewives have been consulting nonchalantly during the week.)

One may venture that in our society a truly masculine man knows his local butcher – this is the closest men get to hunting in the 21st century. Butchers are the druids or medicine men of the modern western culture. Butchers are greeted with special reverence. Various cuts of meat are discussed, advice is sought and opinions are given. “Would it do better in the Weber, should I debone them before putting them in a potjie, is sixteen table spoons of salt too much, what percentage of fat is optimum in a good wors,” questions that any housewife would come up with a common sense answer for. But men respect the views of their butchers.

So meat is very important to men, it’s a reminder of those cavemen days when bringing home a carcass ensured hugs from small children respect from adolescents and long romantic evenings with Mrs Caveman. Today even bringing home the paycheque is obsolete never mind bringing home the bacon. It’s all done over the net. So ladies give your man a break, when you see him lurking about the butchery for that exciting moment when the butcher comes out, don’t nag, let him enjoy being as close to the kill as he’s ever going to get.

Phoenix Industrial Park- gets well deserved boost.

Phoenix1Phoenix Industrial Park is one of Durban’s oldest and largest. It’s the focus of a new retention and expansion programme which will see the city boosting local business as it reinvests in the park’s future. The knock-on effect to real estate being one noteworthy spinoff.

We’ve heard a lot a of talk about public-private partnerships, so it’s good to see one taking off as the Durban Chamber of Commerce and Industry joins forces with Phoenix industrial Park Lot-Owners Association.

Phoenix is situated northwest of central Durban, KZN. It was established as a township in 1976. It is associated with the Phoenix Settlement, built by Mahatma Gandhi. Today Phoenix is the largest “Indian” town in South Africa.

Strategic business, commercial and industrial growth nodes have evolved along with the new King Shaka International Airport, Phoenix Industrial Park, Riverhorse Valley and the Dube Tradeport are important sources of investment and employment.

Sanlam launched the park in 1983. From disused agricultural land to being part of the economic core of the mushrooming northern Durban corridor, Phoenix Business Park has a lot to celebrate on its 30th anniversary. The commercial and industrial real estate value has mushroomed since those early days.

The presence of well established brand names in the area has provided stability to commercial and industrial property. Big names making their presence felt at the Park are: Masterbake- the largest independent bakery in KZN; SPAR Group’s enormous KZN distribution centre as well as ABI, KZN’s biggest beverage manufacturing plant. The 230ha Park is made up 392 lot-owners and 460 businesses making it one of the largest industrial complexes in the country.

The Park provides employment to over 30 000 people from the surrounding residential communities. Business based here contributes R38K annually to the city in rates, though not cheap, reflect the area’s value as a commercial and industrial hub for the city. This area is part of the industrial growth north of the city including areas such as Springfield Park, Riverhorse Valley, Briardene and Mount Edgecombe.

The Phoenix retention and expansion programme has been welcomed by all stakeholders. Chairman of the industrial and lot-owners association Roy Ramkisson told a press conference that the programme would add to efforts to ensure on-going success of the park and the growth and retention of business during tough economic times. The association has for the last ten years improved the security and cleaning up of the park.

However the association needs help during tough economic times said Ramkisson. So other business organisations and the City have been welcomed with open arms. They work together to grow economic impact of the Park and work to retain and create more jobs.

Issues to be addressed by the partnership include infrastructure, maintenance and power supply constraints.

The retention and expansion programme for Phoenix Industrial Park was launched (hosted) recently at Spar’s regional distribution centre where more than 100 heads of industry from the association and City leadership gathered.

The programme will see a cross-section of about 100 businesses surveyed in the Phoenix Industrial Park on local business concerns, ideas, needs and views as to what makes harder or simpler to run business in the area.

Russell Curtis, head of Durban’s Investment Promotions Unit told a press conference that the retention and expansion concept was an international approach that had had fine outcomes in other countries. In fact the City had already run such a programme in conjunction with Durban Chamber in the areas of Prospection, Pinetown and Mobeni.

According to Durban Investment Promotions Unit, 80 per cent of new jobs are created via existing businesses, so it makes sense for the City and Business to forge ahead with their weighty plans and for businesses to get in line and participate for the full benefits to be realised.

In terms of its influence on real estate, surely anything that promotes the stability of business in Phoenix will promote stability of the real estate. In the words of Rawson Properties one of the area’s biggest estate agents: “Phoenix property offers investors a sturdy, long-term investment, which has proven its ability to thrive in all economic climates. More importantly, Phoenix has great potential for growth.”

 

Eccentrics and Characters in Waterfall

Do You Know This Man?

Do You Know This  ‘Waterfall Character’?

If something strikes me about Waterfall, it’s the characters. Every community has its fair share of oddballs but characters are more than that, they have substance and value. Characters give a community colour and flavour. I’m referring to individuals usually beyond the years of youth who have developed a certain style or manner expressed more for themselves than out of mere vanity.

In more outlying areas there seems to be a tolerance for characters, or eccentrics if you will, as part of the community not dissimilar to a more urban tolerance for youthful self-expression and experimentation. In more remote communities there is usually a smorgasbord of middle aged and beyond, self-expressive, self-styled characters who would ordinarily be shunned in an urban environment. In smaller communities such people are considered features of a whole. Eccentrics and eccentric behaviour thrives in societies that are detached from the greater boundaries of the big city.

Waterfall used to be very isolated from Durban going far enough back. But as roads and communications improved and the Outer West population grew, Waterfall became more accessible to conventional middle class families. But characters still remain, if you take a moment to spot them.

When my friends arrived in Waterfall from Johannesburg 10 years ago they were amused to see a man dressed like a cowboy, singing Country n’ Western music, that was painful to the ears, from the back of his bakkie in the interest of promoting the weekly boerewors and biltong specials from the  local butchery. Not only were my friends amazed that such appalling attempts at entertainment were being unleashed on the good folk of Waterfall but the said good folk were applauding and cheering with great enthusiasm for a performance that would have been lambasted elsewhere. The attitude seemed to be: “so what if he can’t sing, that’s just who he is, he’s doing his best.” Besides, they all seemed to be well acquainted with the man.

Our friends in their snobbishness used to refer to “Waterfall Types”. “Looks there’s one” they would say in amusement. But in a short while their sniggers changed to endearment as they fell in love with the suburb. They still may say: ”There’s one.” From time to time but their attitude has changed from snide to pleasant observation. In fact they’ve noticed that the amount of characters have dropped and feel quite concerned.

But the atmosphere prevails. In Waterfall if you are over a certain age you are allowed to wear your pants as high as you like and as colourful as you like and with as many outrageous patterns as you like. You may also wear dress shoes, short white socks and jeans shorts and even a skirt up round your solar plexus. You may dye your hair and then change colours as often as you want and there’s no shame in wearing any kind of hat either, decorated with small animals or fruit if you prefer. Your opinion on a wide variety of subjects is tolerated by all the staff at the Waterfall Spar, who tolerantly nod and smile, especially on a Tuesday. If you want to use two parking spaces for your 1977 Peugeot 404 –who cares?  Creativity with facial hair is encouraged as is popping into the shops with bare feet. You’re also never too young or too old to wear live flowers in your hair. Nor should one be of a specified shape to wear sleeveless garments or tight shorts regardless of the sex.

Entertainment takes on special meaning out here. I recall a line of towering blue gums running alongside the old Waterfall shopping centre. One week these were systematically cut down in zealous pursuit of all things indigenous, all done under the watchful eye of senior citizens in folding chairs on the pavement with thermos flasks and sandwiches bussed in from the Waterfall Garden Retirement home. For some it seemed that was all just in week’s entertainment.

Just one last example springs to mind: if you happen to travel down Niagara Drive you will notice a spritely lady going for her morning and afternoon walk, as so many safely do. However you would notice she carries with her a bag of litter that she has collected on her way. As a result Niagara Drive must be the neatest road in the suburb. Not the sort of one finds in cities where litter collection is left in the hands of municipal workers. It takes a special sort of character to commit to such a sense of the pristine.

Waterfall has an abundance of entrepreneurs running light industry factories, all manner of shops and small business with names like Clever Little Fish, Quirky Queens, Sham Pooch dog parlour, Crinkly Bottom- sadly missed as is the Thirsty Duck. All types of people build, labour and serve away in Waterfall, thriving in an atmosphere of acceptance and tolerance.

Off I go to the shops then, one glance in the mirror –gasp! It’s one of them!

British Council of Offices Conference- the Ripples Continue

B_B_BCO-BIM-Research2013British Council of Offices Conference Challenges Outmode Approach to Office Space.

The British Council of Offices (BCO) Annual Conference brought together the BCO’s membership – a mix of senior figures in organisations responsible for designing, building, owning, managing and occupying offices in the UK. (Although now done and dusted it is still worth reflecting on in anticipation of May 2014.) Approximately 450 delegates attended the Conference in Madrid, considered to be one of the property sector’s premier events.

The BCO Annual Conference  opened with a warning to representatives that much of the existing London commercial property market was becoming outmoded at a far greater pace than previously thought. Even some properties as young as 20 years were not keeping up with the modern office occupier requirements.

Lord Myners, a former chairman of Land Securities, was addressing the delegates at the first plenary session, ‘A Brave New World’, put forward that growing density requirements and hindrances caused by the antiquated planning obligations of section 106, and a need for on-going  enhancements to basic office functions such as high speed lifts and green-type air conditioning challenged the sector to keep abreast of customers wants and needs.

It was also emphasised by Lord Myners that the sector would need to adapt to a whole new office specification in order to continue attracting this new customer base since increasing demand from the Far East investors for commercial property in London was rising.

Another speaker, Sir Stuart Hampson, called on delegates to continue developing buildings of quality and resist the temptation to prioritise space over specification. He advised that sustainability shouldn’t just be a slogan, neither should energy efficiency; austerity would show up any high energy costs and make buildings seem prohibitively expensive to let if designers did not keep up with the times. Hampson argued that the public space around workplaces is equally as important as the interior –this would require investment in infrastructure and support from local authorities for public transport links to office developments. Hampson concluded by maintaining that it was necessary to treat tenants as customers, working hard to keep them engaged in order for office owners to become worthy landlords.

Research released in 2012 by the BCO found that building owners are underestimating the extent of obsolescence if existing valuations are used.  Those valuations suggest only 6% of UK offices are obsolete. However further interviews done by BCO with investors suggested that figures are more likely to be up to 15%. This suggesting that an even greater proportion of office stock won’t meet their future requirements.

The BCO has managed to identify an opportunity for developers and investors alike to assist in ensuring offices are suitable for the purpose of their occupiers, thereby reducing the proportion of offices classed as obsolete in future, and has previously called for office investment strategies which give as much importance to asset quality fundamentals and location as possible returns.

Next Conference

14- 16 May 2014
ICC, BIRMINGHAM

“The 2014 BCO Annual Conference is taking place in Birmingham, which is one of UK’s most vibrant, cultural and dynamic cities.

The 2014 Conference will focus on discovering new ways to create modern and innovative environments for people to work in. We’ll also be hearing from industry leading professionals on how changing certain elements of the working environment would help increase productivity and wellbeing. There will be topics and discussions on sustainable buildings with the session titled ‘On the Tin’, talks on ‘The Evolving Office’, how information technology is evolving, also how ‘Future Cities’ are re-inventing themselves and much more.. 

Birmingham has its stigma of being the industrial city, but with the investment and time put into reinventing its hub the city has become an exciting and innovative place for modern architecture and design. This conference will provide an excellent opportunity for delegates to visit projects showcasing energy efficient buildings and large campus headquarters.

Make sure you don’t miss out on this exclusive 2014 BCO Conference!” (From the BCO.org Website)

Office REITs Recovering

REITSIn the US the latest economic recovery has been very different from previous recoveries for office REITs, as job growth has been lukewarm and didn’t produce the anticipated demand for office space. In its place, tenants are using space more efficiently, so they require less space as their headcount grows. For example, banks, legal entities, consulting firms and accounting companies have all been growing their employee base, but their overall real estate requirements have actually reduced.

During last year, office market fundamentals improved moderately. Overall vacancy dropped to 16.0% from 16.7% a year earlier, and direct asking rents were up 2.2%, according to Cushman and Wakefield. Likewise, office REIT portfolios showed little, if any, improvement in occupancy and rent growth. Due to their high quality assets and professional management, REIT-owned properties started with stronger fundamentals and had less room for improvement.

• S.L. Green (SLG) occupancy for Manhattan properties was 91.7% at year-end 2012 versus 91.5% one year earlier. Its suburban portfolio occupancy was 81.3% in 2012, down from 82.6% in December 2011.

• Total occupancy for Boston Properties (BXP), the largest office REIT, measured 91.4% at year-end 2012. This was down slightly from 91.7% one year earlier. BXP’s CBD properties, with 96.4% occupancy, are performing significantly better than suburban properties, with 83.6% occupancy. (Source: REITCafe)

Limited new construction has helped maintain balance in the office market. Pipelines are growing, though few markets have had strong enough recoveries to rationalize significant office construction. Cushman and Wakefield reported 4 million sqm of new construction underway at year-end 2012. REITs are well positioned to undertake development projects because they can raise inexpensive money on the secondary market or borrow from lenders with confidence in their track records. Some REITs are turning to development because they can achieve better returns than by acquiring existing properties at aggressive price levels.

• Kilroy Realty completed the redevelopment of two projects in Southern California in 2012. Two additional projects totalling 50,000 sqm, which were 70% pre-leased, were close to completion at year end. The company is increasing its presence in the San Francisco Bay Area and has another four buildings totalling 1.4 million square feet under construction.

• Boston Properties is developing eight office projects in New York, DC, San Francisco, and Boston totalling 250,000sqm. The buildings were 66% preleased at year-end 2012. The Company, along with Hines Interests, recently broke ground on the 130 000sqm San Francisco Transbay Terminal Tower, which is scheduled for completion in 2017.

REITs have expanded through acquisitions by taking advantage of the current low borrowing rates. In 2012, Boston Properties acquired four properties totalling 240 000sqm that were 93% leased, while S.L. Green acquired a fee interest in four properties totalling 81,000 sqm that were more than 90% leased. Kilroy acquired 14 buildings totalling 163 000sqm in 2012 and two additional buildings totalling 30,000 sqm located in Seattle in January 2013.

Office REITs have been sturdy so far this year. As a result of high occupancies, the largest REITs have experienced limited improvement in occupancy and rent growth. Like all REITs, across the board, they are continuing to use their balance sheets, taking advantage of low interest rates, to grow their portfolios through acquisitions and to some degree new construction.

Airport Offices, Conference and Meeting Places – what to expect

 

Fraport's the Squaire mixed-use development

With the advent of the aerotropolis many business people are expressing an interest in office and conference accommodation at airports. Terms bandied about include serviced offices, turnkey premises and virtual office. But how close to the airport can you get?

As it turns out pretty close, but often with no cigar. When searching across the globe for serviced office accommodation at airports the directories, internet or otherwise are all smoke and mirrors. A cursory scan of office space at airports on Google or Yahoo gives you blatant statements like “Serviced Office at Heathrow” or “Turnkey facilities at O R Tambo.” With further investigation you discover that there is a helpful little map with direction on how to get to the said facilities from the airport – not in the airport!

images (1)So don’t be deceived you may not be able to pick up your luggage and push it to your office at the airport. What you can do is take a short taxi or shuttle ride to one of numerous facilities offered close to airports. Of course this isn’t new by any means but the prevalence of ‘designer’ type offices specialising in accommodating ‘on-the-hop’ business people who want to slip in and out to have a meeting with clients in meeting facilities or a conference room, is on the increase.

Having said that there are many airports that do offer virtual offices in the actual airport. Schiphol Airport, Europe’s 4th busiest, is located in Amsterdam. For $130 a month you can have the key to a very basic but functioning office with electricity, shared ablutions, Wi-Fi and a desk.  These seem to be typical.

download (1)So why are serviced office facilities necessary? Minimal capital outlay: In the serviced office, you have the choice of bringing your own furniture and office equipment or renting these items from your landlord. According to serviced office providers, the cost of using a serviced office, with or without conference facilities, is approximately 40 to 50 per cent of the cost of setting up and staffing a comparable conventional office. In a Virtual office you bring nothing at all, just your key and WiFi is mandatory.

So what is a Turnkey or Virtual operation? When you rent a serviced office, you don’t have to waste your time designing an office, installing electric and phone lines, recruiting staff, and taking care of all those other details. With a turnkey you make one call today and have a fully functioning office tomorrow.

The difference with these facilities at an aerotropolis is that your facilities are designed for ease of use from the airport and the airport is seen as the centre of the universe with all its tentacles slipping seamlessly out from it into the world around it. Again there is nothing new in this as hotels and conference facilities have been sidling up to airports for years. But the relationship has now become somewhat symbiotic.

Looking more at the conference facilities in particular most hotels either point you to facilities adjacent to or within close proximity to the airport. Like offices most advertised facilities for airport conference rooms are actually not at the airport itself, in fact the advertisements on the internet are particularly misleading in this regard.

imagesWhere there are conference facilities and meeting rooms at airports, the model, if there is one, is one of outsourcing. Looking at South Africa as an example: The O R Tambo International Airport has the Intercontinental Sun running upmarket and fully serviced conference and meeting facilities. Boasting seven boardrooms and two conference rooms, facilities cater for between 10 and 100 delegates and can accommodate up to 140 guests for cocktail functions in the private Savuti Restaurant.

Looking abroad, Munich Airport has the Kempinski Airport Hotel located at the centre of the airport beside the terminals. The Munich Airport Academy and training centre specialises in conference facilities and meeting places for business people right beside the airport.

The two above examples seem typical of many airports that seem to have handed over the conference model to the professionals

Airport Meeting Places is big business. There are organisations like Alliance Virtual offices. This international network offers both turnkey facilities and meeting rooms for across the globe. Many of these in airports. Typically these networks’ facilities offer:download

  • Wi-Fi Internet: Most locations will offer wireless internet access for free, or for a minimal charge.
  • They promise “Friendly welcome”: All venues are staffed by a professional team who will be ready and waiting to receive you and your guests. Many venues will also offer additional receptionist support such as administrative services.
  • Presentation facilities: Most meeting room venues will have presentation facilities on offer such as screens, projectors, wide-screen monitors and whiteboards.
  • Video conferencing: Many venues now have video or audio conferencing capabilities, perfect for long-distance meetings with remote teams or board members.

Airports and aerotropolis business culture is more than ever focused on the world of networking and connecting people using facilities that are both hospitable and convenient. The important thing is if you really want to meet at an airport make sure the facilities you require are actually at the airport.

The Price of Converting to REITs

Many listed property companies are converting or considering converting to real estate investment trusts (REITs) in South Africa since the April 1st new tax regime for list REITs was enacted. Other countries have gone down this road and one may ask as to how their share prices fared as a result of such action.

 

U.S.-listed real-estate investment trusts, or REITs, are on track to issue more new equity in the U.S. than in any year since 2001, according to Ipreo, a capital-markets data and advisory firm. REITs have raised $16.8 billion in U.S. IPOs and secondary stock sales so far in 2013, a pace that would top 2012’s record $36.6 billion.

 

During the last couple of years, REITs, aided by investors’ rabid appetite for income-producing investments, consistently have trumped the broad market. In 2011, while the S&P 500 was flat, the FTSE Nareit U.S. index jumped 4.3%. Last year the S&P was up 3.8%; the REIT index, 5.9%. No wonder, then, that companies in industries including digital-transmission towers, data warehouses, private prisons, and health-care facilities are seeking to convert to REIT status. And there are attractive opportunities to play this trend through the shares of companies likely to undergo a conversion.

 

In the US, for example, and much of the world follows the lead, a company seeking to become a REIT must satisfy two main criteria: It must derive at least 75% of its revenue from rents and other direct real-estate activities, and it must pay out at least 90% of its profits to shareholders as dividends. In return, those profits are untaxed at the company level, and the hope is that yield-focused investors will flock to the shares.

 

One of the most prominent conversions last year was American Tower, the leading owner of mobile-communication transmission towers, which moved to become a REIT soon after it had used up its tax-loss assets. The switch, effective last Dec. 31, immediately made American Tower the second-biggest publicly traded REIT. Its current market value is $26 billion. The stock gained 14.7% in 2011’s second half, after it started the conversion process, and last year added another 8%.

 

Now, American Tower’s smaller rival, SBA Communications (SBAC), is setting the stage for a conversion, already reporting adjusted funds from operations, or AFFO, as REITs do, alongside its usual operating-company results.

 

According to REIT commentators Online Barrons, Jeff Kolitch, portfolio manager at the Baron Real Estate Fund (BREFX), says that the average REIT fetches 22 times AFFO, a measure comparable to operating cash flow. At a recent price of around $50, SBA was trading at about 17 times this year’s forecast operating cash flow. At 22 times, the stock would be around $66.

 

Datacentre REITs are currently performing well and are popular among investors who are attracted by their high dividend pay-outs as well as by growing demand for datacentre real estate. The strength of the sector could push other datacentre companies to go public or adopt the REIT format. One example of this is Equinox, a company operating datacentres for the likes of AT&T and Amazon.

 

The following three datacentre REITs are good examples of REIT switching success stories;

 

• CoreSite Realty (COR), with market capitalization of $580 million, is most similar to CONE. COR is the smallest datacentre REIT, but its stock value has increased 33% since the end of October, and its dividend yield measures 3.6%.

 

• Digital Realty Trust (DLR) is the largest of the three data centre REITs with market capitalization of about $8.4 billion. Its stock value increased more than 16% since the end of October, and its dividend yield is 4.1%.

 

• DuPont Fabros Technology (DFT), with market capitalization of $1.5 billion, is the second largest data centre REIT. Its stock value grew 14.8% since the end of October, and its dividend yield measures 3.3%.

 

Finally Corrections Corp. of America converted to a REIT and is the nation’s largest operator of private prisons. The company operates 66 correctional and detention facilities, and has a total capacity of about 91,000 beds, yes, that’s real estate, in 20 states.

 

Correction Corp.’s funds from operations (FFO) per share, a key REIT cash flow metric, grew 7% to $2.34 in 2012 from $2.19 a year earlier. Corrections Corp. has provided guidance for a 16% rise in 2013 FFO per share to between $2.72 and $2.87. Some of this growth will likely come from a one-time tax benefit of between $115 million and $135 million from converting to a REIT. Corrections Corp. plans to pay quarterly dividends at an annualized per-share rate of $2.04 to $2.16 this year. At the mid-point of this range, shares yield almost 2%. In addition, the company will pay a special one-time dividend of at least $650 million to investors during 2013. The special dividend will be a combination of cash and stock.

 

The lofty valuations that REITs now command in the US might not be sustainable over the longer term, especially if interest rates rise, offering good alternative income investments. And the requirement that 90% of earnings be paid out to shareholders means earnings can’t be accumulated for future investment, necessitating that still-growing REITs sell equity or debt to buy or build additional properties. REIT conversions could boomerang down the road. But at the moment, the haste to be a part of the REIT club holds rewards for discerning investors.

Durban’s Watercrest Mall Finally Putting Waterfall on the Map

aerialview

(See my article at Skyscraper City and eProp too http://www.skyscrapercity.com/showthread.php?p=100579753)

The ‘Outer West’ area of Durban, also known as the Upper Highway, is a swiftly developing residential node, but with some distinct commercial nooks and crannies worth watching.

Durban’s Outer West retail landscape is thrusting into another phase of development with the development of The Watercrest Mall in Waterfall.  A number of years ago the Hillcrest CBD experienced much upheaval of the local arterial R102 Old Main Road as it was converted into an all dual carriageway. This was to accommodate the expansion in the area which included the rebuilding of Christians Shopping Centre and the bigger Hillcrest Corner.

Now a dual carriage way is being built, the first few kilometres already completed, for Inanda Road, the road that runs to the centrally located suburb of Waterfall. What were once sugar cane estates on either side of the 8km road from Hillcrest to Waterfall is now made up of luxury estates like Cotswold Downs Golf Estate, Kirtlington Equestrian Estate, 101 Acutts and Cotswold Fenns.  Construction of the dual carriageway up to the new Watercrest mall is expected to be complete within six months of the mall’s completion which is January 2015.

Watercrest Mall

Watercrest Mall

Demacon and Fernridge market research companies have supported the development of a 43 410sqm Regional shopping centre in Waterfall. The primary catchment area of the centre is Hillcrest, Kloof, Forest Hills, Assegai, Gillitts Botha’s Hill, Molweni, Crest view, Crestholm and Waterfall.

The centre is configured on two levels. There are to be two supermarket anchors, Checkers and Spar as opposed to the current single anchor, Superspar. There is a Pick n’ Pay across the road at the smaller Link Hills shopping centre which has taken up many of the old tenants that have vacated the old Waterfall shopping centre. Link Hills was completed just a few years ago with much controversy over permissions and occupancy with eThekwini Metro.

Watercrest Mall Inside

Watercrest Mall Inside

Other representations in the new centre include electronics stores, mass discounters, fashion and homeware. A big plus for the area is the announcement of the arrival of Ster-Kinekor Theatre which includes six cinemas to replace the old Waterfall cinemas that serviced the greater area for many years. An important ingredient to keep the centre alive at night and in creating a community feel – a stated aim of the developers.

Just over 65 per cent of the total lettable area is under lease and some of the 120 tenants include Dion Wired, Game, Edgars, Truworths, clicks, Dischem, Ackermans, Jet, Pep, Cape Union Mart and a full Woolworths. The mall will have both lifts and escalators as well as 2600 parking bays of which two levels are to be covered parking. All the variety and components of a regional shopping mall are promised. The mall’s GLA is estimated at 43 410sqm with the view for a pre-planned further expansion at a later date of 20 000sqm.

Watercrest Mall Inside

Watercrest Mall Inside

The centre was the brainchild of current owners of both the old centre and the Link Hills centre across Inanda road, local family business The Rowles Group, who incidentally live next door to the proposed centre. In the seventies George Rowles developed his dairy farm into a residential area in what was ostensibley a farming community. From there he developed a small centre with a Saveway Spar and couple of shops. This centre went through several expansions over the years adding more shops and more floor area for the Spar, all this hnd in hand with the growth of the Waterfall community. Now the last morphing of that centre is to be replaced by the new Watercrest Mall.

The Rowles Group now shares 50% of the old centre with Acucap. Acucap properties is a JSE listed property company with a retail asset base that exceeds R 5 billion. The acquisition was based on the intention of the co-owners to invest R700m in the re-development of the existing property.

Researchers found that upmarket shoppers in the area are travelling to the Pavillion and Gateway centres due to “lack of critical shopping size and fashion mix” in the area. The Watercrest Mall should meet that need as a one stop retail experience. Its variety of shops alone, should help plug the leak of shoppers from the area.

Watercrest Mall Plan

Watercrest Mall Plan

The developers have secured planning rights and overcome many challenges including environmental applications as well as formal access to a suitable bulk sewerage treatment plant. This initial phase of 7000sqm is currently opening, the Spar, Tops and adjacent parking are being made ready for customers as this area is self-contained. This is so the old Spar can close and the remaining lower level demolished, this way work can commence on the rest of the mall.

My article also appaears  on the Skyscraper city and eProp websites too http://www.skyscrapercity.com/showthread.php?p=100579753

REITS: Internal Verses External Property Managment.

They’re like non-identical twins, opposite sides of the same coin – internal and external management of REITs seems to be very much a case of “what you lose on the swings you gain on the round-abouts.’

Generally, REITs are either internally managed, with management as employees of the  REIT/operating partnership, or “externally managed” pursuant to a management contract with no direct  employees. Usually, private REITs and registered-but-not-traded REITs are externally managed for a fee by a related party manager. The related party fees for these types of vehicles can be significant and will vary based on the underlying investment premise and effort involved (e.g., “core” investment portfolio strategies typically have lower fee arrangements than those of more “opportunistic” vehicles).

In a REIT with an internal management structure, the REIT’s own officers and employees manage the portfolio of assets. A REIT with an external management structure usually resembles a private equity style arrangement, in which the external manager receives a flat fee and an incentive fee for managing the REIT’s portfolio of assets. The debate over which management method is preferential is favouring the internal management model. The controversy has centred on which method of management produces higher returns for investors, with some arguing that conflicts of interest underpinning compensation arrangements for external managers create incentives not necessarily in the best interest of the shareholders. Internalising management has emerged as the conventional wisdom for removing any conflict of interest between management and investors.

An external manager will typically receive a flat fee and an incentive fee. Generally, the flat fee is based on the asset value under management, which gives the manager incentive to purchase assets, while the incentive fee is based on the returns from the sale of assets. Most incentive fees for external managers are structured with a high water mark. Therefore, external managers will receive incentive fees only when the net asset value of a REIT increases above its highest historical net asset value.

External structures can create governance risks (at least when compared to REITs that are internally managed) and these governance risks can translate into credit risks. The central governance risk is that the external manager uses its control to extract value from the REIT to the detriment of shareholders and bondholders.

Curiously, data is not supportive of the thesis that internally managed vehicles outperform externally managed vehicles, despite popular opinion to the contrary. The potential for conflicts of interest are still greatest in externally managed vehicles and thus will continue to be actively debated. Ensuring maximum alignment of interests between investors and managers seems to be the key to regaining investor trust and support for externally managed REITS.

Having said that the following benefits for external management have emerged:

  • An external manager has larger scale than the individual REIT, so it can provide services at a more economical cost than managing the REIT internally.
  • With regards to management succession, externally managed REITs have a broader set of employees from which to select senior executives, thereby broadening the skills and experiences available to the REIT.
  • When external manager service agreements are specific and outline strict performance criteria, boards of REITs are better placed to oversee the manager’s performance. (Source: Moody’s)

On the other hand the external manager uses his/her influence over the REIT to further his/her own interests over those of the REIT’s shareholders or bondholders; external management representation on boards limits the board’s capacity to independently oversee the external manager and there are few, if any, independent control structures.

As South Africa is still feeling its way into the REITs market it may be worth our while examining what the trends are internationally: The US has typically internally managed, with a few externally managed REITs. External managers are often controlled by owner managers and may manage multiple and related REITs. In the United States, most REITs have now adopted the structure of internal management.

Australia seems to value both internally and externally managed REITs however a large portion of REITs have transitioned to internal management structures over the last few years.

Canada has some externally managed REITs but most are internal as are European, Hong Kong and Singapore.

Good governance is essential for the continuing success of the REIT, as the market places a premium on this attribute. The market needs to be made aware of the REIT’s commitment towards a strong corporate governance mandate.

Clearly the advantages and disadvantages speak for themselves and there’s no doubt that internal management is the favoured option around the world. South Africa is already following that trend it seems as emerging REITs are internally managed.

Aerotropolis KZN – putting King Shaka on the World Stage.

King Shaka departures Hall - courtesy Marc Forest

King Shaka departures Hall – courtesy Marc Forest

The Airport Cities World Conference and Exhibition for 2013 has come and gone at the end of last month where Dube Tradeport Corporation unveiled plans for Aerotropolis: KZN.  South Africa’s bigger player on this field, O R Thambo International, had to share some of the limelight as ambitious plans were unveiled for South Africa’s third biggest airport.

Despite the fact that the term aerotropolis has its origins in the late 1930’s and mainstreamed in 2000 by academic and air commerce expert  Dr. John D. Kasarda, one may be forgiven for a lack of familiarity with the word. One definition has it as: an urban plan in which the layout, infrastructure, and economy is centred on an airport, existing as an airport city. In September 2011, the Ekurhuleni Metropolitan Municipality officially announced its intention to transform the municipality into a functioning Aerotropolis with OR Thambo at its hub sending local real estate soaring.

The logic behind the Aerotropolis concept is that airports offer connectivity to suppliers and customers across the globe. Many of the businesses around airports can often be more dependent on distant suppliers or customers than on those locally. The aerotropolis encompasses a range of commercial facilities supporting both aviation-linked businesses and the millions of air travellers who pass through the airport annually.

Growing numbers of firms and service providers are gathering around airports. The aerotropolis is emerging as strategic urban destination where visitors and locals can conduct business, network, shop, even  eat, sleep and play with no need to travel more than a quarter of an hour from the airport. With 7.5 million passengers annually, Aerotropolis KZN plans to be one such destination and has already set its course.

Dube Trade Port

Dube Trade Port

Aerotropolis:KZN – the heart of which is Dube TradePort and King Shaka International Airport  is considered to be becoming a major trade and business hub in Sub-Saharan Africa right on the doorstep of KwaZulu-Natal’s biggest city and primary manufacturing centre, Durban.

What surfaces here is a highly competitive business operating environment, with all the necessary infrastructure in place. All of which gives the area an advantage in accelerating business efficiencies and enhancing the global supply chain. All this potentially sending local commercial property skyrocketing.

The Aerotropolis:KZN  website stipulates that there is a 60-year Master Plan and expresses the belief that airport city is “poised to become South Africa’s business gateway to South Africa, Southern Africa… and the world.” Admittedly there are some components that set Aerotropolis: KZN apart, arguably affording it a competitive advantage over other South African and African destinations.

  • It is a freight-orientated development with world-class cargo facilities, managed by a single handler and considered the most secure in Africa;
  • It is being purpose-built, in particular that which is within a radius of 7,5km of Dube TradePort;
  • It seems  that it is one of few such developments around the world utilising a Greenfield site, with an additional 32 000 acres, ready for planning and development.

Given its unique location between two of Africa’s major seaports of – Durban and Richards Bay – its 32 000-acre ‘Greenfield’ site and the longest airport runway at sea-level in South Africa  (3.7km), capable of accommodating the largest aircraft in the world, King Shaka made its presence felt at the Airport Cities conference.

Finally the development provides for public and private cooperation, co-ordination and alignment with Government planning, ensuring both direct and indirect involvement in its development and growth by not only the Provincial Government, but also attendant Local Government structures, organised business and the private sector.

It’s worth noting that such a strong public-private relationship is rare in the growth of aerotropolis developments anywhere else in the world.

Dube logistics - Ready to Roll

Dube logistics – Ready to Roll

A criticism levelled at aerotropolises in general has been the belief that there is an overstating of the number and types of goods that travel by air. While many types of high-value goods, like electronics, tend to travel by air, larger, bulkier items like cars and grain do not. Those who point this out suggest that the relationship between seaports, airports, and rail facilities should be studied in more depth.

“Airports will shape economic activity and urban development in the 21st century as much as highways did in the 20th century, railroads in the 19th, and seaports in the 18th.” So Dr John Kasarda, says.

Whatever the case may be, Aerotropolis KZN seems very much on track with private sector and government backing. The knock-on effect on local commercial property is worth watching. It’s clear that King Shaka will be the spear in the hand of the people of Kwazulu-Natal in the foreseeable future.

Green Construction – What’s left after the hype?

Green OfficesBack in 2011 regulations were put in place that officially launched South Africa into the world of green buildings. Of course there had been those who had pioneered a path years before but it’s since then that South Africa has chosen to walk in step with the much of the world on the green buildings front.  In fact between the 16th-18 of October this year will see Cape Town play host to the “Green Leaders for the World GBC Congress” at the 6th annual Green Building Convention.

Internationally much of the hype has died down and a vast body of people in the industry are knuckling down and getting on with the business of building better quality buildings. Many of those previously sceptical players in the building industry have realised that Green construction isn’t all that different from the conventional kind. Both need to be vigilantly organized and both need skilled labour to be brought to the table. The difference is that conventional construction doesn’t take the welfare of the environment into account nearly as much as green construction does. A building with certain green guidelines will even see construction of mechanisms whose sole purpose is to greatly reduce the overall impact the building has on the environment. Conventional construction often doesn’t have any such additional mechanisms.

images (35)Current technology facilitates buildings getting a significant allotment of their energy from clean/renewable sources. Green guidelines have the wherewithal to demand that a building receive a given portion of its energy from solar or wind power sources. The infrastructure for such energy delivery would have to be put in place during the early stages of construction.

Inevitably the issue of construction costs of green buildings surface regularly, but these have come down significantly, making green buildings more affordable. Dr. Prem C. Jain, Chairman – Indian Green Building Council says that in India the construction costs of a green building which is about 3-5 per cent higher for Platinum rated green building than a conventional building, the incremental cost gets paid back within 3-4 years with substantial reduction in operational costs.

The conventionally held view is that the initial or capital cost of energy efficient and green buildings is higher than that of other buildings. However, it is well established in studies done in the US, UK, Australia and India that when considering the total costs over the life of a building, including capital and operational costs, energy efficient and green buildings are typically more economical than conventional buildings. Specifically, the Intergovernmental Panel on Climate Change (IPCC) has noted that the energy consumption in both new and existing buildings can be cut by an estimated 30 to 50 per cent without significantly increasing investment costs with proven and commercially available technologies. The IPCC further notes that this potential for greenhouse gas emission reductions from buildings is common to developed and developing countries.

images (2)Some construction that follows international green guidelines merely involves using the most efficient equipment possible. Take central air conditioning for example; previously used units weren’t nearly as efficient as many of the units currently available. Certainly, a building could still be fitted with a less than efficient unit. Green guidelines, though, would most likely stipulate that the building be equipped with an efficient Energy Star compliant unit. Measures would have to be taken to ensure no leakage of heat from the building. A unit working overtime to keep a building at a desired temperature would defeat the whole purpose of getting an efficient unit in the first place. The best way to make sure heat doesn’t easily escape from, or enter into the system, is to make sure the building is sealed and the ducts don’t leak, which is best accounted for during construction- which is the whole point.

Coming back to South African standards: in 2011 government in South Africa put forward the National Building Regulations, SANS 10400 which includes requirements for energy usage in buildings. Now mandated, SANS 10400 is mandatory on all new buildings and major renovations requiring building plan approval.

Energy regulations such as SANS 10400 are important components in energy efficiency of buildings, and energy use equal to or less than that of SANS 10400 is also a minimum requirement for a Green Star SA rating. Extra points are then awarded in the rating system for exceeding the minimum requirements of SANS 10400X. However, Green Star SA goes beyond the requirements of only energy efficiency, addressing other environmental and human health impacts of buildings.

green-building1Furthermore, in its current form, SANS 10400X can only be applied in the design of new buildings and major renovations, and does not specify requirements for the operation or “in-use” phase of buildings – whereas Green Star SA rating tools are being developed for the operation or “in-use” phase of buildings. (Source: CIDB)

According to the Green Building Council of South Africa (GBCSA), an independent body, the country has seen a massive increase in the Green Star SA rating of buildings. Based on the Green Building Council of Australia’s Green Star rating system, it is the official green certification measure for buildings in South Africa, authorised by GBCSA. The first few examples of Green Star rated building in South Africa were; the Nedbank phase-two head office in Sandton;  Xenprop’s Ridgeside project in Umhlanga,  The Villa Mall, in Pretoria and more recently Standard Bank’s Rosebank Office. Many more have followed.

downloadA building development can receive either a 4-star rating signalling that it has employed “best practice”; a 5-star rating which recognises “South African Excellence”, or the coveted 6-star rating indicating that the project is a world leader.

Green guidelines are about trying to save energy and resources, with the ultimate goal of saving the environment. Towards that end, every little bit helps. The sample guidelines above are some of many new initiatives in the construction industry, many more come on to the table as this process rolls out. Time will tell how many were constructive and what failed to make an impact in drive for sustainability and the reduction of the carbon footprint.

Affordable Housing Lessons from Chile

imagesDespite both Chile and South Africa battling with the problem of housing, each country has its own unique circumstances, whether historical factors, political, financial or geographic influencing the character of their housing challenge in a singular way. To quote a specialist in the field – “There is no such a thing as a successful recipe which must be learned and then applied everywhere.” De Souza (2003). But this doesn’t stop South Africans learning a few lessons from Chile, among others.

Section 26 of Chapter 2 of the Constitution enshrines a citizen’s right to adequate housing. The South African Government in an effort to realise this right for all South Africans has built over 3 million subsidised housing units since 1994. Current estimates of the backlog stand at about 2.1 to 2.5 million units. It is estimated that approximately 12 million people were still without adequate housing.

Affordable housing is housing deemed affordable to those with a median household income as rated by country, province (state), region or municipality by a recognized Housing Affordability Index. (Bhatta, Basudeb (2010-04-15). Analysis of Urban Growth and Sprawl from Remote Sensing Data. Advances in Geographic Information Science. Springer. p. 23.)

In Australia it’s: “…reasonably adequate in standard and location for lower or middle income households and does not cost so much that a household is unlikely to be able to meet other basic needs on a sustainable basis.” As it turns out most countries in the world have their own tailor-made definition.

A commonly accepted guideline for housing affordability is a housing cost that does not exceed 30% of a household’s gross income. In Canada that’s 25% and India  40% for example.

chile049Chile had the first, and best known, example of a capital subsidy scheme for housing. It was first introduced in 1978, and was subsequently widely replicated by other countries in Latin America, for example, Costa Rica (1987), Colombia (1991), Paraguay (1992) and Uruguay (1993). South Africa’s housing subsidy scheme introduced in 1994 was also partially based on the Chilean model. There are problems with the capital subsidy model, but generally the experience of developing countries that have implemented this is that it has been considerably more successful than the public provision of housing in the past and that “the capital subsidy model  a la Chile and Costa Rica continues to represent current best practice” (Gilbert, 2004: 16)

The biggest weakness with capital subsidies and a good lesson for South Africa has been that the whole rationale behind choosing this type of easily-budgeted-for subsidy, as opposed to the open-ended subsidies associated with public rental housing, is generally to restrict government expenditure. As a result, resources allocated are generally inadequate, which means that too few subsidies are delivered and the subsidies are of insufficient size to provide good quality housing on well-located land. Only where housing has been made a priority and has been adequately resourced, as in Chile, has there been success in reducing housing backlogs.

Chilean housing policy is widely regarded as being successful: “Chilean housing policy is exemplary. It is meeting many of the goals set by all developing countries, such as bringing an end to the illegal occupation of land, providing housing solutions for all families that need them (including the poorest), and making basic services available almost to the whole population” (Ducci, 2000). Two of the many policy success stories in short are: sustainable allocation of resources and having a range of subsidy options and subsidy types. Worthwhile lessons for any country.

green_housing_onpageOn the down side Chile’s housing policy has been criticised for its many poor locations of its housing projects. For example on the edges of cities with it’s obvious transport and facilities shortages among other things.

Social Problems there are increased problems of violence and insecurity in the new housing estates and low levels of community cohesion and participation.

Lack of an integrated development approach: Due to a housing-only policy emphasis, there is a lack of economic activity in new housing projects – they are basically dormitory suburbs.

2010'S BRIT INSURANCE DESIGN AWARD FOR ARCHITECTURE WENT TO ELEMENTAL'S AFFORDABLE, AND ADAPTABLE, HOUSING PROJECT IN MEXICO, SKIPPING OVER BIG SHOTS LIKE ZAHA HADID AND JAMES CORNER. USED TO BUILDING IN CHILE, THIS WAS THE FIRST TIME FOR THE COMPANY TO BUILD IN MEXICO.

2010’S BRIT INSURANCE DESIGN AWARD FOR ARCHITECTURE WENT TO ELEMENTAL’S AFFORDABLE, AND ADAPTABLE, HOUSING PROJECT IN MEXICO, SKIPPING OVER BIG SHOTS LIKE ZAHA HADID AND JAMES CORNER. USED TO BUILDING IN CHILE, THIS WAS THE FIRST TIME FOR THE COMPANY TO BUILD IN MEXICO.

The dominating role of big construction companies in Chile has resulted in a lack of participation by communities, which in turn has resulted in new subsidised housing that sometimes does not meet the real needs of low-income people, especially in terms of location.

There has been government reluctance to evict beneficiaries for fear of a political backlash, so there are high arrears (over 60% of loans are in arrears of over three months); so many loans effectively end up being converted into grants (Rojas, 1999)

In South Africa on the other hand, challenges included a slow standard of delivery. Something Chilean homes are never accused of.  Homes have had to have been demolished or repaired due to poor workmanship. This is not only inconvenient for government and residents but causes demoralisation among both communities and local government.

It’s not news that ownership creates civic pride which ultimately raises the value of an area as people attend to their own homes. So encouraging a system where homes are affordable and not just as a result of a grant continue to be a worthwhile model to continue with down the road.

Typically Chilean

Typically Chilean

Integrated developments as seen in the Chilean challenge above are vital to avoid projects from becoming merely dormitory like nodes with no sense of community. Retail needs to be mixed into communities to encourage local secondary markets to thrive returning investment into the community.

Chilean official realised early on the need to meet with local communities. History has shown that target groups reject the final product when they are not consulted. Government feels the work they have done is unappreciated and thus consults even less. This vicious cycle results in civil unrest and endless delays in creating communities of affordable housing.

There seems to be conspicuous absence of any substantial dialogue and engagement between government and civil society around the shape and content of housing policy and its practical application.  In order for affordable housing to thrive in South Africa we would do well to learn from those who have pioneered the way before us. Chile has not got it all right but where they’ve done well we can learn from and where they have failed should be adequate warning for us.

Indigo Skate Camp – Skate and Create

Indigo Skate Camp

I was asked by Ian Wittenbur and Patrick Cummings of US online magazines Again Faster and Evolve to visit a little village in the Valley of 1000 Hills and experiance a fascinating project started by South African skateboading supremo Dallas Oberholzer that started with some skateboads and ramps and has blown up into a full on community enrichment project. Read on.

Indigo

Driving through rural KwaZulu Natal is a reward in itself. Travelling through the rambling beauty of the Valley of thousand Hills comes with a boxer’s bob and weave type of driving through dips and around bends that are loaded with surprises from docile cows to 100 ton trucks.

A cool autumn day presents itself with fat little cumulous clouds floating toward the distant horizon. Colourful wild flowers line the narrow roads.  I feel a sense of excitement at the prospect of the novelty of my intended destination of Isithumba village.

The Indigo Skate Camp is my target amidst all this rural beauty. The skate camp is the brainchild of Dallas Oberholzer, South African skate boarding icon. With the intention of giving back to a community that would almost certainly have never heard of skate boarding, over eleven years ago he put down some roots in the humble yet idyllic surrounds of the village of Isithumba, named after an imposing and impressive rock overlooking the life-giving Umgeni River.

Indigo Skate Camp has giant ramps and a ‘kidney bowl’ structure you would see at any urban skate park. The children from the surrounding area learn skate boarding and other life-skills brought to the camp by overseas tourists who come for a skateboarding holiday. Here the tourist is treated to Zulu hospitality of good food, story-telling and bush walks. Indigo Skate Camp was the beginning and now foundation stone to the Indigo Youth Movement (IYM) which is the road show, if you like, of what’s been happening at Indigo Skate Camp for years.

images (6)Driving into the deep valley toward Isithumba the road is lined with school children on their way home. Friendliness is one of the first things that greets an outsider. People smile and wave as you drive tentatively between goats, cows and curious pedestrians and potholes. I’m a little lost so I stop and ask some mischievous looking primary school children where Indigo Skate Camp is. “Lift, lift, can we have a lift?” The spokesman chances. I say “sure, just show me where Indigo is please.” My dinky Toyota which normally takes four adults is now filled to the brim with possibly as many as 12 under twelve’s’. We travel a kilometre or so and they stop me and hop out. “Is this Indigo?” I point to a driveway. “No” they chorus with shiny impish faces surrounding sparkling white teeth. “Indigo is that way.” They point to the opposite direction. Rascals. Every South Africa urban dweller’s nightmare is being hijacked. I’ll be able to tell my friends about the friendliest hijackers in the country!

Upon arrival at Indigo the impression is not of a scintillating establishment transplanted into the midst of poverty. Though the area is poor it’s neither derelict nor slumish. It’s rural, simple and peaceful. The ‘camp’ is reflective of the community in which it resides. A collective of the traditional Zulu rondavels and other out buildings around the ‘elephant in the room’. I refer to the enormous skateboard ramp, skate pool (kidney bowl) and other ramps. It’s totally out of character with the rest of the scene.

images (5)Wading through the long grass I see a slim, athletic looking man in his mid-forties. He greets me with friendly surprise. He introduces himself as Dallas. Hooray, I’ve caught the big fish in his natural habitat first try. Despite being very hospitable, Dallas is very busy with his financial advisor and doing financial transfers over the phone- not quite aware of the incongruousness of the scene of high tech business world juxtaposed to the rural African backdrop. My appointment is with G. But G is still on his way so I’m privileged to eaves drop on Dallas’ financial meeting cum skateboard lesson on one of the ramps.

I meet a couple of overseas visitors who’ve come to hangout and help-out at the camp. We chat casually about the camp and how impressive the structures are and how beautiful the area is. Helle is from Denmark and is travelling around South Africa to: “Get a feel of the place, to be exposed to other cultures and people.” Indigo welcomes her with open arms and puts her up for a few days while she helps with odd jobs about the camp. Surprisingly she has no interest in skating just learning about how another people live.

It’s now after four in the afternoon and seemingly out of nowhere emerge little bunches of children, some primary school age, other’s well into their teens. Let the skating begin! Some seem content at first to play with their own inertia as they use a little exertion to get their skate boards up one side of the ramp and then up the other. Then comes the madness, four or five kids on the big ramp chase each other in a circle up and down the curves creating a whirring that’s almost manic. Their faces a mixture of intense concentration and abandoned joy. One takes a tumble – the board flies in the air and smacks one of the spectators on the shoulder. He dives to the ground in mock agony, or is it? Everyone laughs as he waves his finger smiling, telling the culprit that he needs to learn to skate. There’s anuproar of laughter and gestures. Then everyone joins in the skating. It’s crowded and it’s difficult to see what’s going on- some kids are practicing tricks others seem content with the rhythm of going up and down at either end of the ramp. The girls look on.

images (7)I approach a stand where about fifteen girls sit. They come from the village after school to watch the skating they say. I ask them: “So why aren’t you skate boarding?” There’s uproarious giggling. “No, no, no not for me.” says a 13 year old. “How, I am too scared to do that” says another. They all laugh and dismiss my challenges to them as foolishness. I make a mental note to myself to ask G about this. While I wait for G to arrive I chat to one of the other leaders of the camp, T. T, short for Thabang, comes from the village and makes it clear that Indigo Skate Camp has provided him with a hope and future that he believes would not others wise be there.  He goes on to explain that as many as 50 kids come and participate in the activities at the Skate camp. On a skating note T reckons that some of the kids have become so practiced that they are more adept than he is on the ramps.

With that I meet G who has arrived after his long trip by minibus taxi having had errands to do in Durban. G is a friendly easy-going young man, although when among the kids he has a very discernible sense of authority. He is naturally hospitable. We settle down under the canopy of some thorn trees upon some makeshift benches made from branches. I switch on my recording device and ask what I know people from outside are bound to want to know.  There is an elephant in the room – a skateboard park in rural Kwazulu-Natal, what is that all about?

images (10)G nods and smiles, he knows exactly what I’m talking about. “It started with the skate camp in 2001 for the guys who came from the cities to come and visit Indigo, we used the tourism centre near the primary school where we used to have our skate camps during the school holidays, bringing the kids from the cities and different provinces to interact with the village kids.

We use skate boarding for social change to stop drugs and alcohol and to talk about life and also to learn more English.  So Indigo, I can say, is a beautiful place and I’m sure you wouldn’t expect to find a skateboard park here.  It is so beautiful, we are surrounded by the mountains of the valley of a thousand hills and the Umgeni River which flows into the sea and usually in January or February we have the Duzi canoe marathon comes past the camp.

From my side, Indigo made me what I am today.  I have learned things in school but I can say I’ve learned more here because I’ve learned things from tourists and courses, learning how to communicate with different people and experience different things.  For me, I am doing the right thing because I love the kids and I love being around the kids seeing them progressing, that was one of my dreams.  Now one of the guys here is better than me, which is quite amazing.”images (3)

I asked about some construction work going on below us.  G explained: “At the moment as you can see we are upgrading the place – we are building some chalets so that when we have a skate camp we will have more accommodation for our guests. “

Dallas had expressed to me earlier that day that he didn’t believe anyone could take what there is at Indigo and plant it, replicate it, elsewhere since what is here is unique. “So G how would you take the concept, at least, of Indigo to say, Tanzania?”

G is unfazed: “Well what I can say is that it is not about me and my ambition but it’s about the camp itself.  You plant a seed and then the seed starts to nurture and becomes a tree.  I feel that we need more youth leaders and role models because we are lacking in role models for the kids (in the community).  Some of the kids drop school at an early age and some of the young girls get pregnant.  We can’t wait for the government to do something, it is our village and we need to do something to make better lives.  For my life it’s not about having fancy clothes and what, what, it’s about my village and making it a better place, that is my main mission.”

G then got pensive and shared his thoughts: “To go into Africa , I think it will be quite a challenge because first I need to get some connections with other people before I leave South Africa.  Luckily we have another project, I think in Kenya, which is funded by the Laureus Foundation.  If I can get connected with them, then maybe they can make a suggestion of where I can start a project for them.  You wouldn’t know what you are going to meet along the way but as long as you are passionate about what you are doing then anything is possible.”

images (9)Wanting to get back to skate boarding for a moment I asked G if he was familiar with the concept of a Holy Grail. I likened it to surfer searching for the perfect wave or the fisherman and the fish that didn’t get away. “What is the Holy Grail for you as a skate boarder? Is there a moment in a skate boarder’s life when you say: ‘ah that was perfection.’”

G took me straight back to Indigo, as if trying to emphasise his main passion and the passion of Indigo Skaters:  “it’s not about skateboarding but how skateboarding can change a life.  This project started out just being about skateboarding but now it’s about changing people’s lives.  To me it’s about people who get trained to build some life-skills, to up-grade peoples knowledge and of course the kids.  Indigo up-graded my knowledge and now it’s time for me to give back to the kids.  I feel that if I wasn’t skateboarding I wouldn’t be having the life I’m having.  I was born in a township, not here, but I came here 15 years ago.  Whenever I go back to that place I see life differently.  I see the guys that I grew up with smoking and taking drugs.  I don’t think they have a future.  They used to be ahead of me but I thank skateboarding that it made me into a better person because I didn’t know what I wanted to be after matric.  We’ve got people around, people who have done matric but they are doing nothing.  There are fewer job opportunities and this is like bread to me because even at home I am the bread-winner, I am the one that is supporting and putting bread on the table since I do this project.”

I’m distracted by an ever-growing commotion behind us. Uproarious laughter, jumping up and down and very cheerful faces. T,  is leading a group of about 30 to 40 children ages, ranging from 8 to 18, in a game of Simon-says Zulu style. Although in Zulu it’s immediately recognisable to me as the children squirm, straighten and flap in response to the key words. Everyone is involved, no one is on the side lines and those who are ‘out’ are cheering on and laughing with those who are in. The little boy in me immediately wants to play too, but instead I take photos and enjoys watching the action catching the vibe of the crowd. Apparently each day there are activities like this or something similar to include all the local children and not just skaters in the camp’s activities.

I chat to an older woman who is watching from the side-lines vicariously taking part. She introduces herself as Kosi. I know everyone calls her Mama Kosi. We chat about the children and she tells me that she was very pleased the day Indigo came to the village. She lives adjacent to the property. Mama Kosi gives me a wide toothy grin and tells me how she cooks for the guests. I ask what she enjoys cooking for the foreign visitors. She responds with no hesitation:” Mngqusho en Mbotyi,” that’s samp and beans in English, it’s a traditional Zulu dish. The samp is made from crushed mealie kernels and the beans are usually sugar beans. Mama Kosi is a lady of few words but clearly likes it when there are guests to cook for.

I call it a day and we agree to continue the interview tomorrow. I drive on up out of the valley under a grey sky but with a spring in my step as some of the spirit of the camp has rubbed off on me.

On day two of my sojourn at the Indigo Skate Camp I  arrived on a fresh sunny morning with just the faintest wisp of cloud in the otherwise deep blue sky. The ramps are empty and quiet given that the children are all at school. The little collection of rondavels are not quite as silent as people are preparing for a day of work, smartening up the site and building the next rondavel.

G emerges and politely smiles and greets me. He is natural hospitality with a warm friendly face immediately putting one at ease. After some small talk I asked G if Dallas was on his own when he started this endeavour – or if there was a partner involved? G answers: “Actually, I can say that it was him (Dallas) from the start and I feel that I am living his dream I can say thank you to him for the partnership, because this is something that he wanted to do with the community and I think it worked out very well.  He had to eventually get funds from somewhere; ‘Element’ and then we used to be funded by the sports trust ”Laureus Sports For Good Foundation” now fund much of Indigo Youth Movement’s road show as well as some of the day to day running of the Skate Camp. The skate camp ensures up to 40 people for the village receive stipends and over 50 local children are learning to skate. The activities also include life-skills, exposure to reading, music and dance too.

Aware of how one can’t just buy and build on land in rural Zululand I asked if Dallas had to get permission from the local authorities and the chief. G explains: “To get this piece of land we spoke to the headman of this village and after the headman agreed you still have to go to the Chief. They give us permission to build this park on the land because they know it is for the good of the community.”

Having read up on the net that 74 per cent of skateboarders are male I relate my questioning of the girl spectators becoming skaters to G, also how they found that an hilarious concept.  G:”Ja, I can say that a couple of years back we had some ladies who tried on skating, and they skated good, it was just that they grew up and felt that they cannot skateboard anymore.  So now we are just grooming these small ladies but we have a special day to teach them.  We teach them how to balance and stuff– we’re still going to bring a balance board. It will take time but we’ll get there.”

I ask G if he has a story of someone who stands out for him that epitomised the Indigo Skate Camp?” G doesn’t hesitate: “There is, like my own story – I was born in 1988 in Mpumalanga Township and I grew up there as a township boy playing in the street and doing all those rough things.  We didn’t have a chance as children, we were always on the street, running around, breaking the rules.  But since I came here it was quite funny because we went down to the river and I didn’t know how to swim.  I couldn’t experience what they had experienced.  But strangely I gelled together with the life here and I think I came here at the right time because that’s the time Dallas came also with the idea of starting the skate camp and then it was easy for me to make new friends because we were all beginners by then.  I knew about skateboarding but I wouldn’t have tried if he hadn’t come around here, I thought it was dangerous and I thought it was for white people only.  I came here as a random normal child and they groomed me to be like a role model, but it wasn’t easy though, I had to go through some tough times.  There will always be moments when you have to come out of your shell and share your experience with other people.

But when I look back into my life I think that if I wasn’t skate boarding I would be in jail because that is where most of my friends are at the moment.  We all make decisions and sometimes it is hard to judge but I would like all of us to walk in the same pathway I am walking to try and change the world, although we can’t change all of it but to start from places like this valley of a thousand hills and then to take it to the next level.”

Many missionaries and churches and government programmes try to make a place for themselves, seeking acceptance in the Valley of a Thousand Hills. So I ask G what sort of opposition they have encountered from the community toward the camp.

G:”I remember about 8 or 9 years ago there was a guy who was good at skating and he was skating around here on the street and he had an accident and he was killed by a car so they wanted to stop everything.  They couldn’t stop it though because we were passionate about it and we told them that we weren’t going to skate in the street and that it had been an accident.”

Dallas was telling me that he wants this to be more than just a skate park, that he wants more activities and programmes. I ask G about the life skills programmes.

G: “All I can say is that it’s not just about skateboarding but what we want is maybe like 10 computers in our clubhouse and teach some IT skills to the kids while they still young so that they can grow up with some knowledge. We do also have our own life-skills manual where we teach the kids to work amongst the people and to work together as a group.  We talk about drugs and alcohol abuse.”

“We play games like icebreakers and we do these energizing things after stretching exercises, then we have a chance to include everyone. After lunch everyone can go crazy if it’s a skating day, everyone can do what they want, but if it’s the life-skills day, then after eating we will sit down and learn.”

“Normally, it’s not only me who does the life-skills we also have other skate coaches like T who also teaches life skills,  I am good with the older guys and T is good with the younger kids.  So we know what they want, and we know how to create fun amongst them, we know how to make them laugh.”

Matt: “What role do the people from overseas play – I see you have 2 young ladies here from overseas.  How often do you get people here from abroad?”

G: “We don’t often get people from overseas, and my own dream is to have this place filled with people.  These people that are coming here they have something that they have learnt back home and they want to take it to Africa. For example we have an art teacher like Natalie, she will be doing some classes with the kids soon.  It depends on the interest that you have something that you want to teach the kids and then we will create some space for you and then you do it with the kids.”

I explain the impression I got from the website (http://www.indigoskatecamp.co.za/) that the Skate Camp offers a skateboarding holiday, experiencing African culture, the bush, the food. Did I understand the Website correctly?

G:” You’ve got it right but it’s something more like a day trip where people come from the cities or from overseas, stay in town and can come visit us. For example: you see if you walk along the river you can see over this hill – the village and we will talk about the village because you can see a big rock, which is called ‘Isithumba Rock.’ The village is named after the rock, and we normally have some interesting stories which we tell them.  We introduce the visitors to the headman because he is living more like the style of the 80’s or the 60’s.  Most of the guys are more traditional here.  I have a friend who is a healer and I normally take them to him. And we tell them about the ancestors and why we have ceremonies where we have to slaughter goats and cows, that sort of thing.” Apparently skate camps are for kids aged 9 and 18 where they can stay for a few days at a time. There is often survival training and exposure to Zulu culture as well as visits to skate parks in surrounding towns.

I put it to G that skateboarding is perceived in South Africa as a pastime mostly for white teenage boys. What is Gs take on this? “Have you ever been under pressure from your peers to be spending time doing something more traditionally Zulu?”

“It doesn’t matter to me what I do, it only matters that I know my roots where I’m from.  It doesn’t matter who I hang out with, I can go and stay in London, but so long as I don’t lose my culture, my roots and where I from. I know this mentor from ‘Laureus’. He’s like the African Project manager who runs the ‘Laureus Sports For Good Foundation’.  He lives in London, but you can see he has never lost his roots, he knows where he is from, whenever he phones me he doesn’t appreciate speaking in English, and he speaks in Zulu. I don’t want to lose my ground and lose who I am, and when it’s time for my ancestors, I have to act traditionally, I have to act as I was born.  I know that we have some different destination, and they (the ancestors) know I have a different destination and they understand and are happy that I’m doing this, they know I’m getting something out of it as long as I respect them and know that they exist and know that they are still around making sure that I always go safely and do what I ought to do.”

I can see G is eager to get back to work. Dallas arrives in his pickup with cement and supplies for the day’s work party. I can see that he too is in work mode and I don’t want to disturb his rhythm. We chat briefly. I can see everyone is motivated and ready to labour.

I catch up with Dallas later and he explains all the activity: “We’ve had a push for more accommodation, to develop more hospitality skills.” The intention is to build more rondavels for the planned increase in accommodation for visitors and similar buildings to facilitate Dallas’ drive for hospitality training.

Dallas is animated as he tells me how volunteerism is the key to the future of Indigo: “We need more volunteerism. Locals enjoy interacting with the visitors. It enlightens and encourages the locals and they are amazed that these outsiders show an interest in their lives. So the big push is going to be for more structured interaction with volunteers so that they can feel directly engaged in the community’s life. “

Then there’s tourism. Dallas is focused: “everything from day trips to month-long stays. I see us developing trails, mountain biking and so on. We’re more than just the niche market of skateboarding, we’re also a playground. We want to create a kind of park and play situation… to be a place where you can park your car, ride your bike, have food – we can spray down your bike and so on, to be a hub of outdoor fun.”

Looking further into the future, Dallas considers the English language, IT, Internet studies and communication playing a role. One of the buildings I see being worked on is planned as a computer centre where volunteers can train local children in computer skills. But language is a key component of Dallas’ dream: “We can create something unique. Some people want the African experience – lets create a unique destination where you can learn English, sitting among African people. I’m trying to find ways of benefitting the community and also to create another reason for a person to visit, creating reasons beyond just skateboarding. Initiating a language centre can do that.”

Asked if there are more ‘Indigos’ down the road, Dallas explains that the situation at Indigo is unique and not likely to be replicated, however he does say: “I might consider the whole model elsewhere in Africa. We have considered Mozambique or maybe Uganda.  Of course we want to finish getting this thing (Indigo) running fully on its own. We want to see it generating its own revenue. I believe in two years’ time we’ll be there.”

images (11)Watching the skaters fly in the air and glide up and down the ramps I had to ask what the future holds for the guys who are just here to skate.  Dallas offered these thoughts: “I’m sure a few of them will become standout skateboarders and a few will be the next instructors, some will run the facility. The skateboard community needs to provide jobs for skateboarders and skateboarders need to run the skateboarding fraternity. I’m on a mission to create jobs. Guys will never stick with skateboarding if they are forced to go and sell hotdogs at the race track. I’m trying to create jobs that will keep them in skateboarding. I couldn’t find a job in skateboarding.  I created this place to create jobs and somewhere down the line guys will see me as a role model having created this entity. Skate and Create is what we’re doing, that’s what this is about -skating and creating.” As an afterthought he adds: “That should be the name of your piece!”

Has Commercial Property Been Shot in the Foot by Construction Collusion?

mbombela-stadiumSo have you hung out with commercial property developers lately? The complaining, the belly aching- it’s like being in the room with an unoiled machine. One may sympathise with much of it, we’re all under the same pressure – inflation, weak Rand, strikes, higher electricity prices and corruption. Oops did I say corruption?

The construction industry and commercial property development are a two piece bathing suit and one piece has just shot the other in the foot. So the news has been out for a while. Those squeaky clean corporates who’ve been tut-tutting at government corruption with the rest of us have had their snouts in the trough all along apparently.

But before we join the rest of the rabble and chorus: “off with their heads,” we may wonder what the implications are for the future of construction, commercial or otherwise. The rot runs so deep and apparently for so many decades that prosecuting authorities may struggle with the implications of action against this network of crooked scaffolding.

images (4)It’s possible that upon the conclusion of investigations, top executives and manages could face jail time and companies are looking at burdensome fines. Twenty of the country’s largest construction firms continue to be under investigation by the competition authorities for running a cartel over a number of decades and roughly 20 more subsidiaries will also face the music after being fingered by the larger firms, the penalties have been awarded, but the singing isn’t over yet.

The investigations have left the industry in a royal flap, with firms doing damage control to minimise the impact on their bottom line and executives and managers who have only just managed to avoid going to jail. The effects on the bottom line will be passed on to – you guessed it, future clientele, future development- that include private sector commercial property developments.

Moses Mabida

Moses Mabhida Stadium

But here’s a twist: the country’s currently engrossed in one of the most momentous infrastructure rollouts in its history; the NPA is faced with the predicament of pursuing the culpable parties with the necessary force and potentially decimate the sector. The knock-on effect could have dire consequences for large scale construction in general but also for private sector commercial property development.

There are calls to black list guilty firms. However the collusive practices are so widespread that there would be scant companies left in the country with the ability to handle major construction projects if the blacklisting is carried out. Of course this would only effect the most sizable private development– but the effects would be felt down the line.

The government is faced with some hair-raising decisions as the private sector has been one of the most vocal in the cries for an end to government corruption. Now the construction industry’s dirty washing is out for the world to see, some of those cries have become quite muffled as arguments calling for the government to think of the good of the industry and the future of jobs emerge. No doubt all with some merit perhaps.

Schalk-Ackerman

Schalk Ackerman -Guilty

Senior executive from Stefanutti Stocks Holdings, Schalk Ackerman, was been granted Section 204 immunity by the NPA. Others followed. But now as we face the aftermath of this saga it’s difficult to tell whether commercial property development will suffer until the full consequences of corruption, exposure and prosecution take place. One optimistic fellow is Afrifocus analyst Hugan Chetty who despite the debacle told media: “I think a recovery in earnings will only take place in 2014. I would start looking at construction stocks’ earnings from the third quarter of 2013.”

In the words of Aveng Group chief executive Roger Jardine, responding to the collusion activities: ” this is a thorn in the side of our economy,” and that may be the rub, a thorn doesn’t go deep enough to kill but pierces sufficiently to cause widespread infection. Perhaps it would be best for the industry in the long run to rid the industry of all its infected members. Time will tell.

Green Leases – All You Need To Know

images (4)The mention of something called a green lease may conjure up something by a sea-sick lawyer or scribbled on elephant dung paper. But it is far more practical than it may sound to some who still have the idea of green being about separating the garbage or wearing daisies in strategic places. Green leases are here to stay and it’s likely if you have a foot in commercial property in South Africa that you’re going to need to know what one is.

Crudely a green lease would include obligations on the landlord and tenant to achieve targets for energy consumption and sustainability, among others.

At a residential level green leases would encourage landlords and tenants to agree to work together to make a home greener. The property owner typically commits to manage the rental in a sustainable way while the tenant pledges to reduce energy consumption, to recycle whenever possible and to follow other green lease terms.

green-leaseIn the world of big buildings and commercial interests such discussions can leave one quite discombobulated. As serious as these matters are, in order to understand the necessity of green leases we need to extricate ourselves from some of the genuine earnestness and angst with which the subject is typically approached.

No better place to do so than the good old land of Oz. No worries mate! Well it’s true, despite the rumblings for things to go green in the construction world in the US and Europe for many years, it was the practical Aussies who have played such a pioneering role in the world of green building and thence the accompanying lease framework.

The essential motive for the bringing about green leases in Australia was its federal government’s resolution not to inhabit structures that did not make a 4.5 star NABERS (not the soap opera) rating. NABERS is the operational rating system for carbon emissions in Australia. South Africa is in the process of developing a similar system. More recent legislation relating to mandatory disclosure has further strengthened the Australian regulatory framework and has had a positive impact on green leasing. The carbon emissions legislation in the UK has played a similar role in framing green leases.

Since the Australians have been down this road before, let’s consider what has typically been present in their green leases. According to Commercial Property firm Cousins Business Lawyers, experts in green leases, indicate the following ingredients in Australian green leases:

  • A commitment on the part of the landlord to maintain the central services of the building to such standards to ensure the Australian Building Greenhouse Rating is retained.
  • An obligation on both parties to consider “in a reasonable and co-operative manner” whether an improved rating can be achieved during the term of the lease and, if they agree, to take whatever steps lie within their control to achieve that rating.
  • Both parties to commit to an energy management plan to operate the building in accordance with prevailing government policy on energy conservation.

green-lease1Over in the UK there are increasingly stringent building regulations requiring developers to build more energy efficient buildings and Green Leases may be being used as a device to attract “Green Tenants”.  It is anticipated that in the EU and UK in the future, property owners will be under pressure to improve the energy performance of their buildings as a result of the introduction of Energy Performance Certificates (EPCs) for commercial premises and Green Leases may have a key role in enabling the implementation of the recommendations that will form part of EPCs. The commercial property industry is trying to anticipate legislative pressure that may manifest itself in the same way as it has done in Australia.

Here in South Africa, just last year, The Green Building Council and SAPOA (South African Property Owners Association) put their heads together and rather helpfully released a “Green Lease Toolkit” similar to the UK version and those used in some US cities. The Toolkit aims to facilitate a smoother path than some of the pioneers in this field have experienced thus far. In the Toolkit are some contemplative thoughts like:

“Green buildings present a textbook example of economic game theory. Each party stands to gain if the other acts, but loses if they act and the other doesn’t. The challenge is in negotiating an agreement where both parties act for green buildings to achieve an optimal equilibrium – a ‘win-win’. An informed tenant may be willing to pay a higher base rental if the costs and efficiencies of occupation are improved, so that the joint gain needed to stimulate investment into green development, can be achieved.” PG17 Green Lease Toolkit.

images (1)The Green Building Council and SAPOA’s document make the point that mutual understanding is what underpins any green lease.  They believe the primary purpose of the lease is to a) improve the operational performance of green buildings and b) deliver to landlords and tenants an “equitable share of the incremental value provided by green buildings.”

Finally the toolkit, which has a wealth of information and opinion from South Africa’s leaders in the field, States that a Green Lease seeks to achieve its goals through the governing of:

  • The base building and fit-out quality in buildings
  • The contractual requirements of facilities managers
  • The behaviour of tenants from an environmental perspective
  • Regulation of governing bodies (through continuing education)

Clearly conceptualising of the practical elements as well as articulating the more abstract notions has come together in a very sober yet encouraging document that behooves potential tenants and landlords to seriously consider the work of those who have gone before, as well as follow the advice of men and women who have laid a foundation on which others may build.

images

Whilst the aims of green leases are admirable enough, the provisions that impose obligations on the parties may have some unforeseen consequences:

•      For tenants, the cost implications of the green provisions may only become apparent some way into the lease.

  • For landlords, the level of rent on review may be lower if the green provisions are deemed to be onerous on the tenant.
  • As these provisions are largely unknown and untested in this South Africa, the uncertainty surrounding them may make green leases more difficult to sell on.

Regardless of one’s opinion of matters green it’s clear that green is the future and green has benefits. One thing is certain; if you’re going to get a green lease drawn up make sure you use someone with green fingers, that is someone who knows all about the new strides in green leases.

Private Prison REITs Released

xlarge_chinopenPrivate prisons are big business and two big players with facilities in South Africa, US, Australia and the UK have just undergone REIT conversions. Corrections Corporation of America (CXW) and GEO Group (GEO) each received favourable Private Letter Rulings from the IRS and began operating under REIT rules.

By reducing their corporate tax liability, improving their access to capital and lowering the cost of capital the REIT structure provides more opportunities for these companies which are capital intensive by nature.

South Africa

thumbTo zoom in on a South African example: MMSP( Mangaung Maximum Security Private Prison),was the first of two South African Private Prisons and  the brainchild of the first Post-Apartheid Minister of Correctional Services, Dr. Sipo Mzimela, who, upon taking office in 1996, was appalled by South African Prison conditions, up to 300% overcrowded, and a seething hotbed of corruption.   In such conditions reformation is impossible. The GEO Group promised and by all reports delivered, more humane conditions.

The South African government signed two 25-year concessions for maximum security prisons in Bloemfontein and Louis Trichardt (Makhado) as part of its Department of Public Works’ Asset Procurement and Operating Partnership Systems (APOPS) in 2000. The two winning consortia were responsible for designing, building, financing, operating and transferring the prisons. The facilities hold about 3,000 inmates each and were fully operational in 2002 at a cost of about $245 million (Bloemfontein) and $259 million (Louis Trichardt), respectively. The Geo Group now manage these.

The prison gets 60% of its revenue from company-owned or leased real estate.

The Geo Group is the second largest of the two big players in the US. It has a current market capitalization of $2.5 billion and/or manages 100 correctional, detention, and community re-entry centres with 73,000 beds across the US, Australia, South Africa, and the UK. (The prison gets 60% of its revenue from company-owned or leased real estate.) The company estimates $45 to $50 million in annual tax savings from its REIT conversion. In January, GEO raised its quarterly dividend from $0.20 in 2012 to $0.50 a share, resulting in an implied yield of 5.6%. Shares of GEO have more than doubled (+105%) during the past twelve months.

Biggest Operator

imagesThe bigger name on the block is  one of the largest prison operators in the United States. CXW’s current market capitalization is $3.8 billion. The company operates 67 facilities and owns or controls 51 facilities in 20 states with a total capacity of about 92,500 beds. CXW’s REIT conversion greatly reduced corporate tax obligations. The company increased its quarterly dividend from $0.20 in 2012 to $0.53 after the conversion, resulting in a 5.5% implied dividend yield. Shares of CXW climbed 47% between March 2012 and March 2013, at least in part due to the REIT conversion.

No Shortage of Prisoners

Private prison facilities have increased their percentage of all prisoners growing steadily over the past few years, increasing from 7.9% in 2010 to 8.2% in 2011. Currently 10% per cent of total prison capacity in the US is operated under contract with private companies such as CXW and GEO. The remaining 90% of total prison capacity is operated by state and federal government. In light of government budget constraints, both federal and state governments have increasingly turned to private prisons. With only a few companies in the private sector and high barriers to entry, private prisons face limited competition.

Unaffected during a recession

The private prison industry is largely unaffected during a recession. States/countries may release some prisoners early to control costs, but overcrowding means demand is unlikely to fall significantly. According to a 2008 study by the Pew Centre, the US incarcerates more of its citizens than any other country and people are staying in prison longer, underscoring strong demand for facilities.

Controversy

2347746278It’s worth noting that some of these facilities are controversial because their profit motive encourages incarceration. In contracts to operate state prisons, CXW requested a minimum guaranteed occupancy rate of 90%, which did not go over well with many public interest groups. Private prisons achieve profit margins by controlling costs and spending less for personnel than their public counterparts, which raises the issue of the quality of staffing at these privately-run facilities. By way of example CXW now faces a staffing scandal in its Boise, Idaho, facility where 4,800 hours of supposed work time were falsified. That’s a direct violation of its contract with the state, and an internal and external investigation is underway. We’ll see how it plays out.

REIT conversion for CXW and Geo Group has unequivocally improved their financial positions and contribute to sharp growth in their stock values during the past year. Although prisons are relatively immune to the negative impacts of a recession, inmate populations generally accelerate when economic growth resumes and governments have more to spend on incarcerations. With the recession behind us, demand for these REITs should improve.

Isiphingo CBD is set to become a Dynamic Commercial Node

isphingo_image_previewThe multipurpose area of Isiphingo is to see itself transformed into a business and public transport hub.  Upgrades and infrastructure projects are intended to transform the node by guiding development, improving the built environment and restore business confidence in the area.

Isiphingo town centre (CBD) has strategic value within the city, serving as both a key business district and an important public transport node for Durban’s Southern Corridor.

eThekwini Municipality is calling this venture The Isiphingo Town Centre Renewal Programme. The first phase of which is to upgrade portions of Watson Road as well as Kajee and Jadway Streets in the Isiphingo CBD. This will includ the resurfacing of roads, improvement to sidewalks, parking, lighting and landscaping.

The Isiphingo town centre has grown over the years, becoming one of the Durban’s largest intermodal transport points with both formal and informal business activities. Sadly the lack of a supportive or approved framework to guide development has resulted in the town centre’s decay.

An initial framework plan in 2004 began outlining a vision and conceptual framework for the CBD as well as looking at some key proposals. One such proposal that emerged from this framework was the redevelopment of Old Main Road running through the centre of Isiphingo.

An action plan was developed in 2010 which tagged key projects, their anticipated budgets, time frames and the necessary municipal departments for taking the projects forward. Linked with this, some smaller projects were undertaken: a key informal taxi rank on Old Main Road between Alexandra and Church lane was formalised; a taxi shelter constructed and the public area was upgraded and spruced up for a more pleasing aesthetic experience for all, as well as for functionality.

The knock-on effects for the future of retail and commercial developments is very important. Potential retail and commercial value in the area has immediately bounced back. Further investigation into commercial and retail development is being investigated by eThekwini with the relevant land owners.

An early result of studies has been the proposal of a multi-use complex with retail opportunities on the ground floor and taxi rank activities accommodated on the upper level. This would be a partnership between eThekwini and the current land owners of Erf 2255.

Accommodating all the role players in the Taxi industry is going to be of utmost importance in the reconfiguring of Isiphingo as a multi-modal transport hub. The multiplicity of taxi rank sites currently will have to be taken into serious consideration.

is quoted as stipulating that: “The importance of Isiphingo as a multi-modal public transport hub means that its renewal programme should aim to cater to all users.” This includes motorists and pedestrians. “- in particular with regard to ease of access and linkages in and around the CBD.” The quote goes on to say.

It is anticipated that this process will improve the logistical movement of goods and services as well as commuters in and around the CBD, which in turn will revive Isiphingo as a viable commercial node for mixed use developments and encouraging a revival of retail and commercial property values.

Three US Student Housing REITs Dominate through Growth and Acquisition

Three public REITs, with total market capitalization of $6.4 billion, focus on student housing. The fragmented nature of the industry provides room for growth through acquisitions.  These REITs represent just 1.0% of the overall REIT industry. Student housing is a specialized real estate sector that experienced significant acquisition and development activity in 2012 and that continues to shine in 2013.

Solid dividend yields that currently range between 3% and 5% reflect the main attraction of the public student housing REITs. Investors envisage long term growth for the sector fuelled by positive demographic trends, including growth in the college-aged population. Colleges and universities have become less willing to invest their capital in housing for students, creating an opportunity for private owners and developers.

Student housing proved relatively recession resistant during the credit crisis because college enrolment did not decline. Students stayed in school during the recession rather than face the uncertainty of the job market.

  • Campus Crest Communities (CCG) recently announced an acquisition that will make it the second largest student housing REIT. CCG is purchasing a 48% stake in Copper Beech Townhome Communities with an option to acquire the remainder of the company over several years.
  • Education Realty Trust (EDR), which owns and manages 34 communities with more than 25,400 beds and provides management services for an additional 10,000 beds, is repositioning its portfolio through acquisition, development, and sales activity.
  • American Campus Communities (ACC) is the largest student housing REIT and has been one of the most active buyers and developers of student housing. ACC added 51 properties with more than 30,000 beds totalling $2.2 billion in 2012. Its acquisitions included a 19-property portfolio containing 11,683 beds and 366 beds under development at an existing property.{Forbes}

The supply of student housing is also increasing, as illustrated by the REITs’ aforementioned strong construction pipelines. This risk is highly location specific. Supply and demand conditions vary widely by campus. Additionally, projects closer to campus bear less risk.

Notwithstanding the hazards, it is important to note that the sector’s positive influences compensate for the negative implications. Healthy dividend yields should attract investors while interest rates are low. The solid outlook for long term demand is another important factor that should attract investors. While supply is high, the risks are limited and location specific, since many colleges and universities need new student housing to accommodate growth, or to replace outdated housing. All these factors combine to ensure that public student housing REITs should remain well sort after by investors.

US Trend Favours the Single Tenant Office

Single Tenant

Single Tenant

The most movement and interest in the US commercial property market over the last couple of years has been the single-tenant side of the market.  A feature of US commercial property correction and recovery has been the lack of construction especially among the office market. Some would put this down to the imbalances in the relationship between property and financial markets.

We now know how the office market was overbought, and although pricing was in line with fundamentals, it was not always properly aligned with underlying risks. Most would agree that the financial crisis rectified many of these imbalances, but with a price tag that included a severe recession and a swift correction in commercial real estate pricing and fundamentals.

The upside is that the financial crisis squashed funding for projects in infancy and impeded a development cycle that was already underway in many markets. The slow pace of recovery in the economy has translated into a comparatively tame office recovery as well. Vacancy rates are still tracking 15.5% and effective rents still 13% below pre-recession peak real rents remain well below replacement costs. Landlords are still struggling to maintain operating income.

If you’re and investor it makes far more sense to invest in established properties rather than in new buildings that will need to be leased up from scratch. As a result, new supply is now coming online at the slowest rate since the early 1990s. In a small but growing number of office markets, employment has already reached its pre-recession peak and rents are growing fast enough that new supply could be handled tentatively.

However multi-tenant development remains below trend and in line with the US average. The most movement and interest in recent years is on the single-tenant side of the market, where development now accounts for nearly half of all new office construction. Due to weak fundamentals and soft leasing trends, the development pipeline has shifted away from multi-tenant buildings, in favour of single-tenant and owner-occupied buildings.

From a market perspective it makes sense, as new buildings have lengthy lease-up periods that can be lengthened by a soft market. Single-tenant buildings are often built to suit and do not break ground without a tenant having already committed to a lease, so this is one way for investors to mitigate risk. New construction can be an attractive option for occupiers, assuming they have the capital to undertake such a project. Configuring space themselves is one plus. It also allows tenants to design specific IT requirements directly in the build-out process. Both Amazon and Microsoft have gone this route, developing impressive corporate headquarters in Seattle. Vertex Pharmaceuticals have done this in Boston and Devon Energy in Oklahoma City.

New single-tenant buildings may suit the needs of occupiers, but they also leave a void in multi-tenant buildings, as tenants tend to relocate within the same market. Much of this, however, depends on individual market characteristics, and we have yet to see significant negative effects from recent single-tenant development. Investors have shown interest in targeting single-tenant assets. These assets can offer competitive pricing, but also stable and simple-to-manage lease structures that likely include long-term tenants. They also carry a higher rollover risk in that, if a tenant does leave, it immediately reduces operating income to zero.

Throughout the recent recession in particular, single-tenant properties have performed well from the perspective of stability of income and occupancy. Simply put single-tenant office and industrial properties today are achieving higher yields than their multi-tenant counterparts. Concerning the single-tenant trend, the costs are high. Capital requirements may not be an issue for well-established high-tech firms or energy companies, but smaller start-ups will have different requirements. As we see the economic recovery mature this trend will likely firm up and include small firms as capital becomes more readily available.

Two Cities Get Terminals

Durban Harbour

Durban Harbour with Mouth Widened

Residents of Cape Towns have been complaining for lack of one for years and Durbanites believe their city deserves one too. We are talking about cruise ship terminals. It’s in the spotlight as South Africa’s two largest coastal cities seem to be pushing for the same thing. The news came recently that there has been approval for both the projects to go ahead with new cruise terminals in mind.

One may ask what the benefits are. The Durban Port Authority sees a dedicated cruise terminal, close to the ports entrance, as a natural extension of the development around the Durban Point Waterfront. The idea being that this is the most sustainable way to interface the operations.

In Cape Town, Future Cape Website, claims that a ground swell of Capetonians have had the cruise terminal as part of a broader vision for Table Bay Harbour by 2040 in mind for some time. The potential of using the E-berth as the dedicated site for the cruise terminal seems an important part of their vision. Regardless, Transnet has finally given the go-ahead for building a dedicated berthing terminal for cruise liners in Table Bay harbour.

This is in the wake of last year’s decision by the Department of Home Affairs to ban cruise-liners exceeding 200m in length berthing at the V&A Waterfront, citing safety concerns. The move got well-to-do travellers a little bent out of shape as they had to condescend to the likes of the Duncan Dock at Table Bay Harbour.

In Durban the planned terminal will be operated on a seasonal basis in line with the cruise liner schedules, but to ensure an on-going stream of income during the off season, the terminal will double as a meeting, conference and exhibition venue.

The recent breakthrough of Vetch’s deal between the Durban Point Waterfront developers and water sports clubs will also see development towards the harbour’s North Pier, which has been closed to the public since the harbour entrance was widened. Planned development of hotels, restaurants, shops and other facilities will mean the public can enjoy views of the harbour’s entrance channel again.

Transnet claims that the development of cruise terminals in Durban and Cape Town came in response to the tremendous growth that the cruise industry had enjoyed in recent years. Cruise tourism was the fastest-growing sector in the global tourism industry, and was set for continued growth.

Queen Mary in Cape Town

Queen Mary in Cape Town

In Cape Town the plan is to complete the terminal within the next two years. Identifying suitable investors and operators is still in process. The development has been widely welcomed. Last year 19 visiting cruise liners brought approximately 11 144 passengers to the Western Cape which sustained a number of jobs in the tourism industry.

Opposition to the plan has often been centred on the competing priorities surrounding basic services, and the need for other areas of infrastructure which would serve broader Cape Town. But it seems that tourism will win this one since new jobs are a certainty in this regard.

No numbers are being bandied about yet by either Transnet or the port authority. However digging back to 2010, the ports authority boss Khomotso Phihlela told a press conference that an integrated cruise terminal in Durban could see an investment of not less than R500 million, and possibly up to R2 billion. This would include leisure and retail components, as well as a new Transnet office block.

Regardless of the costs it seems both Cape Town and Durban will see new terminals built. These will most certainly be another tool to bring in tourism to the two cities, boosting their prestige a little and causing a knock-on effect to commercial property value, certainly in precinct of the cruise terminals.

Catalyst Focuses on Real Estate in East Africa

Paul Kavuma

East African Chief of Actis Paul Kavuma

Catalyst Principal Partners, the Kenyan based private equity firm is surveying the real estate opportunities across East Africa, where consumer demand is growing and the knock-on effect is being felt from recent oil and gas discoveries.

Another force to be reckoned with in East Africa would be the emerging markets focused Actis. The East African Chief of Actis Paul Kavuma left in 2009 to form Catalyst, taking a wealth of experience with him.

Paul Kavuma told the Catalyst Web News Room: “We have a strong pipeline of deals and are at advanced stages of completing a number of new investments which will be announced by the end of the year,”

In Kenya, Catalyst Principal Partners has started making investments from a broad $125 million fund and from a partnership dedicated to real estate.

The World Bank’s International Finance Corporation, accounts for about 70 per cent of cash raised for the first fund, and the rest came from individuals, insurance firms, fund of funds and others. The firm may approach the market to raise a second fund in the next two years.

Catalysts original investments were in Tanzania. It seems that some of the most attractive opportunities were outside Kenya, the region’s biggest economy. So far in 2013 Catalyst plans are focusing 35 per cent of the first fund on industries such as building materials and cement, technology and financial services.

Catalyst has set up a partnership with Acre Solutions, an international property developer. Together they have identified real estate projects. Investors are being sought. The partnership is also working on a mixed commercial, residential and hospitality development in Kenya requiring about $2 billion in investment over 10 years. Real estate investment trusts (REITs) are planned for the future.

Middle income homes, among other housing in east Africa has surpassed supply for nearly twenty years, and the sector has outperformed other asset classes such as fixed income and stocks. Catalyst, among similarly focused entities, expects the region’s already booming consumer demand and growing economies to get a further shot in the arm from oil and gas finds.

Reported in the Catalyst website newsroom:  CEO Paul Kavuma says, “capital has been raised from leading international and regional institutions and from credible regional high net worth private investors, with the quality of investors in being reflective of the attractive fundaments of the region and is a positive signal of the growing confidence in the economic prospects for East Africa”.

The Modern Office, Where Space Counts

Home Office

Home Office

“Size isn’t everything,” goes the saying but apparently size is everything according to a recent report from the British Council of Offices (BCO). Everything seems to be getting smaller and supposedly more efficient and South African remarkable similar.

Looking at how office space is carved up, it’s up to the business decision maker to find a balance between ‘too much’ and ‘not enough’ space in order to facilitate productive, heads-down, focused work and supply a variety of team spaces that foster collaboration.

77% of the properties sampled by the BCO had a density of 7-12 sqm per workstation, 5% between 5 and 7 sqm (now that’s a squeeze,) and 18% had 14-38 sqm.

The skewed distribution around the 11.8 sqm mean indicates that occupiers are generally driving space hard, with the exception of the legal profession which sits at 20.9 sqm, probably indicating the continued reluctance by some in the profession to relinquish their personal offices.
What’s universal is the missing element of how much the individual workstations are used and, therefore, the efficiency of the overall floor space.
Employees today often feel as though the walls are closing in around them. And, the truth is: they are. Workstations are shrinking, technology is smaller and sleeker, collaboration is the new buzzword, and it’s now possible for employees to work from home. These changes have had a dramatic effect on how and where people work, as well as the allocation of space in the modern office.

The PC has shrunk; Computers no longer determine the formation of workstations.

“What is bigger than a bread box, smaller than your office chair, and weighs the same as an average 5-year-old child? If your guess is a PC monitor from 1990, you’re right.” Michael Schirnig

In the short amount of time that the PC has been around, it has changed dramatically (not just in terms of its capabilities, but in terms of its appearance, too). Slimmer flat screens and the proliferation of laptops and iPads means workstations don’t have to be as deep or as large, in particular if workers don’t have to have access a huge amount of filling/“stuff” around them.

Increasing privacy and collaboration in open-plan offices; More team space is designed into office space – sometimes at the expense of individual-workstation size.

The notion of collaboration is more in vogue, as is the amount of space devoted to it and some companies have reduced individual workspace size in order to facilitate the team spaces within the same overall size premises.

The result of increased workstation densities and employees working in closer proximity is communication – much to the benefit and bane of workers. More interaction facilitates collaboration, synergy, and brainstorming, but it also creates distraction.

Aside from designated rooms for collaboration, designers are factoring in comfortable furnishings to the places where people naturally congregate – outside lift lobbies, stairwells, kitchens and copy/fax/printer stations to facilitate informal, short-term collaborations.

The increasingly mobile Employee; Alternative office strategies mean smaller drop-in workstations, satellite centres, and an overall reduction in real estate.

Studies done on workstation usage typically indicate relatively little time is spent by staff at their desks – perhaps 40% on an average day. The balance is spent in meetings, discussion groups, sales calls etc – but essentially away from their workstations.

While not a huge factor in SA yet, in the UK and USA where office rental rates can be 10-12 times higher than in SA, this has been quite widely adopted – Sun Microsystems’ iWork programme has a target of reducing their ratio of desks-per-employee to 0.8, and has already saved them $50 million/annum on their way to a savings target of $140 million/annum.

Although it’s not possible to predict future workspace design changes, the interest in designing offices as efficiently as possible is not likely to wane.

When workspaces don’t work, employees can’t work, either.

Transnet has Big Plans for the Port of Richards Bay

01SK85-IM1001-richards-bay-1475The Port of Richards Bay is set to expand in a big way but not necessarily in the direction some would like. At a media briefing Transnet’s director of projects within the port Sudesh Maharaj announced that a R30bn Capex Plan for the port was being thrashed out.

The intention is to expand the country’s main bulk port up until 2020. Transnet is investing more than R15bn on immediate and medium to long term capacity improvement initiatives to expand and upgrade the Port of Richards Bay to ensure that the bulk port accommodates the growth in export demand.

Maharaj told the press briefing that Transnet commissioned a study in 2010 that projected demand for bulk export commodities through Richard’s Bay was expected to increase from the present throughput of 23 million tons per annum to a demand of about 50 million by 2040. Approximately 40 per cent of the volumes projected for 2040 are expected to be export coal, 25 per cent domestic coal and the balance general freight bulk.

The port is currently the location of the world’s biggest coal terminal, the privately owned Richards Bay Coal Terminal (RBCT). Owners are Anglo American, BHP Billiton, Xstrata, Exxaro and Glencore. The terminal has a capacity to handle 91 million tons of coal a year.

The estimations are that a new terminal would be able to export 14 million tonnes annually, with the room to expand to 32 million. Currently operations are at near full capacity of 23 million tonnes a year.

R15bn was earmarked by Transnet on a new coal terminal for emerging mining companies that struggle to get access to RBCT. However Transnet was set to spend R15bn of the Capex on upgrading the general freight side of Richards Bay Port as well! This would include a container handling facility to handle approximately 100 000 TEU (Twenty-foot equivalent unit) containers a year by 2020. Maharaj doesn’t believe there is any need for a dedicated container terminal, like the one at Durban. Maharaj points out that the port already has a container handling component. He believes that the general freight expansion will bring more than enough capacity at the port for container traffic and that there is no need for a dedicated container terminal.

The Zululand Chamber of Business has been calling for a dedicated container facility at the port. However Maharaj says Durban was the main container port which would be enhanced by the dig-out port, while Coege in the Eastern Cape was a future transhipment container port.

The projects are being undertaken as part of Transnet’s market demand Strategy (MDS) which has earmarked R300bn to capacity development projects over a 7 year period.

The Capex earmarked for Richard’s Bay was for the expansion and the replacement of equipment and for new infrastructure. Maharaj said there was a major reconfiguration planned for the Port. It included expanding the handling and offloading capacity of terminals, replacing redundant equipment, reconfiguring the Bayvue Rail Yard and building a proposed new open access coal terminal to unlock coal exports for emergent miners.

Transnet is approaching the construction process with scalability in mind so that the transition from the current port design to the expanded design is seamless. Of course time will tell as to how Transnet handles the process and to what degree the Port is disrupted.

The repercussions for Richard’s Bay in general are immense. Greater capacity for the port means increased flow of freight and containers not just coal. More storage space, increased warehousing as well has tertiary services will need to increase capacity too. Richard’s Bay commercial property should see a boom as the knock-on effect is felt from the activity at the port.
{Sources: Mercury; Ports.co.za;Transportworldafrica.co.za;Sturrockshipping.com}

South African Listed Property On the Growth Path

2013 is expected to see note-worthy growth for South African listed property according market experts. We are well into the year and from this vantage point the rest of 2013 is looking healthy as the sector out-performs equities, cash and bonds for the fourth year running.

Property Loan Stock Association (PLSA) chairman and CEO of Growthpoint Properties Limited believes investors can expect distribution growth from the sector to average between 5% and 8% in 2013. He anticipates listed property total returns between 10% and 16%. These figures are well below the total returns of 2012, though positive nevertheless. The advantage of this sector is that it can uniquely predict its short-term performance with good levels of accuracy, as its performance is underpinned with rental income from contractual agreements.

Sass reported to the Property Loan Stock Association (PLSA) that “With tougher market conditions overall, companies that can manage vacancies and costs are better positioned to deliver performance for investors,” says Sasse. “Sectoral portfolio composition will also influence performance. Weak demand will continue in the office sector. However, retail and industrial property will perform well off a base of low vacancies that should remain stable.”

The Property Loan Stock Association (PLSA) is the representative umbrella body of the property loan stock sector comprised of voluntary members, with the weight of nearly all of the funds within the sector behind it. The association has been modelled on NAREIT (National Association of Real Estate Investment Trusts) in the United States.

The PLSA newsroom quotes head of Listed Property Funds for Stanlib’s Keillen Ndlovu, who anticipates growth in the sector equal to or greater than inflation, thereby protecting investors’ income against inflation. She said: “listed property income should grow by over 6% in 2013 and improve to 7% in 2014. Our base case for listed property total returns in 2013 is 9%. Our bull case forecasts 16% total returns and our bear case only forecasts 2.2%.” The conventional wisdom here is that listed property is a great diversifier. It produces a regular source of growing income and capital growth over time.
Norbett Sasse predicts corporate activity from the sector carrying into 2013, especially the merging of smaller funds creating a critical mass in defence of hungry larger funds aggressively pursuing acquisition strategies.

It seems that newly listed property companies are continuing their growth strategies. However, they are beginning to step on each other’s toes as there’s limited physical property stock out there. Most listed property funds are playing in similar territories. Limited stock means that listed property companies will start to eye each other. This could lead to mergers and takeovers.

During the last two years, the sector saw a spate of new listings. While more companies are expected to join the sector, the number is likely to decrease in 2013. South Africa’s first residential listed property fund could debut this year. Equity raisings are looking to remain prominent in the sector, but not to the same extent as in recent years. About R11 billion of equity came into the listed property space in 2012. In 2011, it was about R16 billion.

April saw REIT (Real Estate Investment Trust) legislation being introduced in South Africa. Spearheaded by the PLSA for its positive impacts on the sector, this legislation will provide tax certainty and align South Africa with global investment structures and established REIT markets like the US, Australia, Hong Kong, Singapore and the UK.

Durban beach front restaurant facilities remain vacant.

Vacant Facilities - Durban Beachfront (courtesy IOL)

Vacant Facilities – Durban Beachfront (courtesy IOL)

Back in 2010 there were pessimists and optimists arguing it out over the potential embarrassment or pride at the outcome of eThekwini’s plans to pretty up the beach front and revamp its facilities for international guests coming to town for the world cup. The optimist won, projects were completed on time and even the pessimist were impressed with the outcome. But alas three years later there remains a big nasty wart on the pretty beachfront’s comely face.

Last month the sustainable development and city enterprises department tabled a report before eThekwini Municipality’s Executive Committee (exco). In short the report confesses that the tender process for the beachfront restaurant facilities has failed.

The report reveals that more recent interest in the facilities leaves potential tenants unimpressed and dissatisfied with the tender process. The two main bones of contentions being: 1) Experienced restaurateurs consider the unfamiliar process to be excessively complex and lacking engagement, whilst, 2) Large retail property owners follow the public tender route for the tenanting of retail space because tenant mix is never left to chance. Exco has now responded by planning to approach restaurateurs directly.

The beachfront restaurant facilities costs the metro R64 000 a month for maintenance and security. Unfortunately the facilities have deteriorated due to neglect and vandalism and now need to be refurbished.

It’s not like the facilities are poor or inappropriate. There is a reasonable range of amenities with small kiosk-like spaces that could accommodate tuck-shops and curio/beachwear businesses which go for as little as R1000 to R3000 a month, to potential high-end and franchise ready facilities with monthly rents ranging from R40k for 300sqm of floor space to R60k for 500sqm of floor space. Commentators in the industry aren’t faulting any of that.

However when examining these rents one ought to take into account that trading is generally only while the sun is up, from roughly 6am to 6pm. People don’t feel safe to come down to the beachfront at night. If the city wants to attract restaurateurs they are going to have to, cut the red tape, improve security, and bring rents down so they can make a profit and be willing to put their roots down.

There’s no argument about the Durban beachfront infrastructure – it’s world class. What’s required for beachfront restaurants to work is to get large numbers of people down en mass. Although the rents seem competitive compared to higher priced shopping centres, it’s the sheer volume of the foot traffic that a shopping centre can offer that compares.

There is something very discouraging to potential investors in local property and that’s a white elephant. In short the bureaucratic nature of the tender process is partly at fault for their empty structures and eThekwini will have to give potential patrons a reason to go to the beachfront at night for the facilities to seem viable to prospective restaurateurs.

South African Self Storrage – Ripe for a REIT?

Self Storage

Self Storage

There are REITs (real estate investment trust) in the US buying up self-storage facilities, speculating their high investment potential in commercial property.  Which begs the question: is there much of self-storage market in South Africa waiting to form part of a REIT?

To give you an idea of self-storage REITs in the US, Real estate investment trust W. P. Carey Inc. has acquired three Florida self-storage facilities from Safeguard Self Storage for approximately $25 million. The purchase was made through CPA: 17 Global, one of W.P. Carey’s publicly held non-traded REIT affiliates.

“We believe that these are very well-positioned and attractive assets. The quality of the assets in combination with the capabilities of the Extra Space management team and our own experience in the self-storage sector makes us confident that this will be a good and stable investment for our investors,” said Liz Raun Schlesinger, W. P. Carey Executive Director

Through its publicly held REIT affiliate CPA: 17 Global, self-storage investor W. P. Carey & Co. LLC has acquired five self-storage facilities : Alabama (1), Louisiana (1) and Mississippi (3) for approximately $17 million. The acquisition comprises approximately 117 348sqm. The properties will be rebranded under the CubeSmart name and managed by the self-storage REIT’s property-management division.

W. P. Carey Executive Director Liz Raun Schlesinger added, “We believe that adding these seasoned assets while retaining the experienced CubeSmart management team will enhance the value and stability of this investment. We know the CubeSmart management team well and look forward to working with them to maximize the value of these assets for our investors.”

outdoor-self-storage-spacesOne may want to argue that self-storage is an American phenomenon. Not so. It is true that self –storage in South Africa was practically non-existent 10 years ago. However, a few agricultural-land owners began building 25 to 50 garages on their plots on city outskirts. They developed the properties in phases as they generated cash flow, building an average of 300 units per facility. These facilities enjoyed an average occupancy of 90 per cent and a decent rental income.

The residential market was the target market for most self-storage firms.  The consumer was largely unaware of the industry’s existence. Marketing was scarce and almost no value added services were included.  It was also extremely difficult to buy an existing facility as the original developers were getting excellent returns and had no motivation to sell. Nor were there any specialty self-storage property-management companies, or an association to welcome potential investors into the industry.

Many of these shortfalls have been rectified. There are now roughly 70,000 self-storage units in South Africa, with an average occupancy of 80 per cent, meaning 56,000 units are occupied at any given time.  As the self-storage industry grows in South Africa, it also evolves. Innovations have been introduced such as precast concrete building systems, which allow a 400-unit development to be completed in just six months at half the cost of brick buildings. Sectional title developments are also available for small investors, who can purchase and register any number of units in a facility, much like purchasing apartments in a complex.

Storage Genie, started by Father and son Herbert and Dylan Wolpe,  is in the process of finalizing deals with American steel-building suppliers to import buildings based on a unique joint-venture strategy. The idea is the buildings are supplied on a rent-to-buy basis. Storage Genie provides the land and management, and the building supplier shares the revenue and future profit from resale.

The South African self-storage industry ranks fifth in the world in terms of the number of operating facilities, according to SASSI. Based in Cape Town, the company promotes the development of and investment in institutional-quality self-storage assets throughout South Africa. Pritty Woman

“The S.A. self-storage sector remains highly fragmented, and recent market turmoil could have the effect of hastening the first round of consolidation or hindering its progress.” Gavin Lucas of ISS (Inside Self-Storage) Depressed market conditions mean there is less capital to support an attempt to take the industry through an initial consolidation. However, the distressed trading environment will also present the opportunity for an established operator with the correct business model and platforms to acquire facilities that are struggling due to their own inefficiencies.

We may not be quite in the ballpark of REITs for self-storage yet but  the self-storage industry is pregnant with possibilities and waiting for savvy players to swoop in and make a go of an industry that shows a great deal of promise both for expansion and investment potential.

US REITs Keeping an Eye on your Neighbour

So it’s a well-worn phrase, “when America has the flu the rest of the world catches a cold.” But it’s hard to deny the influence of US trends. Following trends in the US REIT market may just give you the edge here in South Africa as REITs begin to manifest.

The Property Loan Stock Association have been working with National Treasury for over five years to formalise Real Estate Investment Trust (REIT) legislation in South Africa. The internationally-recognised REIT structure exists in countries such as the US, Australia, Belgium, France, Hong Kong, Japan, Singapore and the UK. So it seems prudent to keep an eye on the international ball as more and more REITs are going to be making their presence felt here in South Africa soon.

Scanning the US, February results highlight the role that dividend yields are playing to attract investors to the REIT sector. Total returns in February were largely driven by dividends, rather than price appreciation. REITs continue to attract investors because their dividends are more appealing than other investment opportunities in the current low interest rate environment.

The strongest in the REIT sector is the mortgage REIT’s 11.49% February dividend yield, although the sector’s total return was 1.65%. Everything once ‘tainted’ with the word mortgage seems to be shaking that stigma as each month progresses. In February, two new home financing mortgage REITs announced IPOs, Maryland-based Zais Financial (ZFC), who raised $201.1 million, and Florida-based Orchid Island Capital (ORC), that raised $35.4 million.

For lodging, regional malls, timber, self-storage and industrial REITs, February dividend yields measured between 2.5% and 3.0%. With the exception of timber, total returns for each of these sectors were negative in February, indicating that investors may not have the stomach for REITs with lower dividend yields.

REITs that own single tenant retail facilities, free standing Retail REITs, climbed to a steady 5.37% in February. Since tenants are liable for all costs, free standing retail REITs’ leases are not unlike bonds in that they generate regular income over extensive periods of time with low risk, especially if the tenant has a strong credit rating.

With monthly returns of 5.35%, returns for Health Care REITs were similar to that of free standing REITs. The positive effects of Obamacare as opposed to the negative impacts of the sequester have influenced investors here. The 4.44% dividend yield helped to fuel the strong monthly returns. It’s becoming clearer to investors that the Healthcare REIT market is less dependent of the US government than previously believed.

A number of REIT sectors had February dividend yields in the 3% to 4% range. Boosted by their dividend pay outs, general shopping centres (3.80%), manufactured homes (4.32%), and office (2.85%) REITs had solid monthly total returns.

One may note that the S&P market did better than the REIT market In February. Although US REIT return growth slowed in February, performance was on a par with wider international market trends. Improving market fundamentals and higher dividend yields continue to attract investors. As we wait for March results there is anticipation that it will be a stronger month than February.

Redefine Restructures Debt Gains Health and Redistribute Dividend Locally

Redefine International, the diversified income focused property company, continues to see significant progress in restructuring its debt facilities. A knock on effect has been the lifting of distributable earnings by 6.6%. In 2013 Redefine will be using its healthy status to acquire distressed properties in the United Kingdom with banks under pressure to dispose of them to reduce their leverage.

The firm has reported that £250million of legacy facilities have been repaid or successfully restructured. This after the reverse acquisition of Whichford, a property investment company based in the UK, which exposed the company to the high level of short-term debt.

The Near term debt maturity profile has been de-risked. There have been advanced negotiations to renew £70.7m of debt maturing in FY2013, the balance of which is to be refinanced or repaid. The Company used £7.8 million to repay the Coronation Facility last year. The £20.0 million facility remains available and is currently undrawn. The extension and restructuring of the £114.6 million Delta facility was also completed last year.

The UK central government, a stable occupier, occupies six of the seven income producing assets which were recently released from security for a £33.5 million repayment. One of the assets is the prestigious Lyon House development site in Harrow, North West of London. Excluding Lyon House the net initial yield from the above assets is pinned at 7.6% with a weighted average unexpired lease term in excess of 17 years.

Subject to meeting limited annual disposal targets the remaining £81.1 million Delta facility balance was extended to April 2015. The disposal proceeds, together with amortisation requirements, will be applied to reducing the facility balance.

Current Debt Repayment and Investment

  • Equity: £8.6m
  • £17.15m Crewe facility cancelled in return for £11.0m cash payment (part funded by Coronation facility)
  • Reduction in interest of £1.0m p.a.

Future Debt Repayment

  • Equity: £8.9m
  • Assumed c£70.0m of near term facilities are refinanced at c60% LTV
  • Approximate annualised reduction in interest charges of £0.5m p.a.

[Source: http://www.redefineinternational.com]

The company which is the JSE listed holding company of Redefine International PLC has reported, in terms of the South African business, distributing 4.38 pence per share. It had also raised around £127m in London, supported by RIN that contributed about £75m.

After restructuring the amount of debt on the balance sheet in relation to the value of the property assets is now below 60% on a pro forma basis.

Income returns accruing from future acquisitions and investments will flow to underlying shareholders in South Africa invested in RIN which has a 65.7% shareholding in Redefine International.

Durban’s Playground Continues to Expand

An aerial view of the Natal Command site and surrounds.

An aerial view of the Natal Command site and surrounds.

The Durban Beachfront will never be the same as 2013 sees yet more changes to the landscape of the holiday city. A local Movie producer won his court case over the Natal Command headquarters last year and the Save Vetch’s Association called a truce with developers over water front developments recently. 2013 will see Durban’s playground getting a little bigger.

A legal dispute had been underway for over 9 years over the Army’s old Natal Command site, where many a young Durban man coveted a posting during his national service. In short the city sold the land in 2003 to local movie producer Anan Singh’s Videovision Entertainment, now Rinaldo Investments, for R15million. At the time the plan was to build a film studio.  The 21 ha of land is currently valued at R400million.

The dispute with Pietermaritzburg entrepreneur Sunny Gayadin has recently been resolved. This isn’t the only legal fracas in which Gayadin has been involved of late; he is also disputing the sale of a property adjoining the Pietermaritzburg’s Liberty Midlands Mall.

An aerial view of the Natal Command site.

An aerial view of the Natal Command site.

Durban ratepayers have been up in arms for some time about the neglect of the Natal Command site and the fishiness of the transaction.  The deal was criticised as being political, rate payers claim to have lost out due to the land not being sold for its true value. In the end the Constitutional Court made a unanimous, comprehensive judgement by the full bench of the 11 judges in Singh’s favour, dismissing an appeal against a decision of the Supreme Court of Appeal (SCA).

Right from the outset, apart from a film studio, a hotel has been planned. The land is perfectly positioned.  The site is across the road from popular Sun Coast Casino and near the Moses Mabhida Stadium.

The Singh’s Video Vision website reports that they would have to revisit plans for the site since some time has lapsed since the original concept. Some are speculating that an experience like Universal Walk in Universal studios or other theme park ideas could come to fruition. Singh has made it clear before how the project had the support of the city making it a viable option all along.  Tourism and entertainment will be the biggest spinoffs for the city.

Latest from Video Vision is that the development should take five to six years. At the time of the initial sale the development was reported to the press as R1.5billion. It seems no one is speculating as to how much the final cost will be.

The ratepayers association has made it clear that it has little confidence that the city could run such an operation and that it would be best if Singh just got the movie studio going, paid rates and created jobs.

There’s no doubt that a theme park would complement the current Beach Front Walk, Moses Mabhida Stadium and uShaka Marine World as well as the Sun Coast Casino.

This brings us to another dispute. The Durban Point Development Company (DPDC) an equal partnership with Malaysian based Rocpoint group and the eThikwini Municipality, the Save Vetch’s Association (SVA) and the Durban Paddle Ski Club have made a combined press statement to say they have “ceased hostilities” and have come to a compromise settlement on how the Vetch’s Beach is to be developed as part of the on-going Point Waterfront Development.

SVA and the Paddle ski Club fought the development on the basis that they believed it would shut out the community from the beach and destroy the diving reef. The compromise plan should save about 200m of the beach in question and still allow the DPDC to go ahead with its ‘super basement’ which will form part of the phase one of the development.  The new club site will have direct access to the beach, with 4×4 vehicles and trailers will be able to park on it. The public will have access to the beach and Vetch’s Pier with all the marine life remaining unaffected.  No hotel will be built alongside Vetch’s Pier. All categories of sailing craft will be able to launch, either from the beach or from a hard and sheltered slip-way. Not everyone is entirely happy but not everyone is entirely dissatisfied – such is compromise.

Developing Durban continues to be in line with the city’s claim to being South Africa’s playground. But not every development is easy to set in motion as the above investors have discovered.

Latin Lessons in Retail – Africa Take Note

Screen shot 2011-10-11 at 3.21.32 PMWith the death of Hugo Chavez dominating news a while back many commentators continue speculating on the future of Venezuela’s property and retail markets, Will the current Latin Socialism continue? But despite the spread of so called Latin Socialism, Latin America is experiencing free market forces not unlike those influencing much of Africa. Have emerging markets of Africa and Latin America anything in common when it comes to the development of retail space for their growing middle classes.

Africa in general and South Africa in particular has much in common with Latin America’s labour force. Although Asia’s, for example, current competitiveness relies considerably on its working-age population, Latin America and Africa’s outlook for labour force growth is much stronger, as young inhabitants set to join the labour force make up a higher percentage of those continents’ populations.

Like Africa, Latin American consumer demand is rapidly growing and the expanding middle class currently represents about 60% of the total population and approximately 40% of total purchasing power. With demand for newer retail infrastructure increasing, opportunities exist for developers and retailers who seek to expand their consumer base.

However, people are asking questions about whether the emerging African middle class is as big as the experts believe. Rapid urbanisation rates are pushing up potential consumer numbers but not necessarily incomes. These factors, among many others, are inhibiting the intention of developers and retailers to build critical mass quickly in African markets. It may still be a while before their high expectations manifest in the real world.

In Latin America however, development is increasing shopping centre space. In most of the region’s countries, traditional high street retail has gradually deteriorated as retail markets mature, with retailers migrating toward shopping centres. This has for some time been considered one of the drawbacks of the shopping centre invasion. Small businesses are seen to suffer and local decay of commercial real estate creeps in. This seems to be universal, with stark examples in both Africa and Latin America.

Latin American supermarkets have already seen notsable expansion and, among retailer types, they are expected to expand the most quickly—with new developments anchored by Wal-Mart, Carrefour and strong local players such as Commercial Mexicana (Mexico) , Pao de Acucar (Brazil) and Jumbo (Chile & Argentina).

By way of comparison, international brands such as Nike and McDonalds and KFC do currently have a presence in shopping centres in Africa. But an international study of retailers by South African property management company Broll, indicates very few players are prepared to commit. Out of over three hundred companies surveyed, scant few were considering African markets at all. There is evidence of interest in SA and North African countries but little attention has been paid to markets that South African companies are eyeing like Kenya, Nigeria and Mozambique and Zambia.[Broll]

Enter the Power Centre. A power centre is an unenclosed shopping centre with 23,000 m2 to 70,000 m2 of gross leasable area that usually contains three or more big names retailers and various smaller retailers, usually located in strip malls, with a common parking area shared among the retailers. [Wiki]Power Centres seem to have less of an appeal in Africa in that big retailers get behind the big conventional mall developments or not at all. Also the Power Mall presupposes a culture of one-shopper-one-car. Not a common African phenomena.  In Latin American markets, Power centres have increased their footprints, with larger areas leased to specialized retailers. Power centres are also beginning to play a more important role in second-tier cities, targeted at lower income groups.

Changes in local government policies in Latin America as well as attractive yields and moderate risk have encouraged major international developers to focus more on commercial development in the region, and local investors to expand their operations to neighbouring countries. Companies such as BR Properties, Westfield and Brookfield began to invest extensively in retail property development nearly four years ago, and they have grown their retail asset portfolios across the region.

Alas in Africa problem-free land title is one of the challenges. Litigation from multiple claimants remains an ever-present threat. Disproportionately high costs of land and obtainability of large parcels of it in choked-up urban areas is a huge challenge.  Similarly, Africa is challenged by the limited availability of long-term debt and a relatively low level of interest by international institutions in African property funds. Electricity outages and all sorts of other elements in the supply chain push up costs hence high rentals are required in order to achieve a reasonable return.

In 2012, retail commercial real estate transactions in Latin America represented 37% of the region’s total volume of U.S. $12 billion, and 25% of the number of deals. [Source CBRE] The lack of adequate supply, especially in secondary locations, and consumer fundamentals such as credit availability, will continue to be key drivers for retail expansion, regardless of the specifics of each country market. Africa lacks a certain sophistication compared to its Latin rivals for foreign direct investment. Both these developing markets are hungry for attention from international developers and investors. Local government legislation and infrastructure may play a more important role than the emergence of a middle class with spending power to release the funds and set the wheels in motion for African retail space.

Aveng Grinaker-LTA, Shows Clean Hands and is Ready to Work

Stadia+2010+FIFA+World+Cup+3APHlxny1WDlSA Construction Industry May Need to Wash their Hands before Going to Work.

Avenge Grinaker-LTA has been twiddling its thumbs waiting for the government to stop sitting on its hands. CEO Roger Jardine has a few choice words to say about the future significance of government infrastructure spend and corruption in the sector too.

Roger Jardine - courtesy IOL

Roger Jardine – courtesy IOL

“South Africa is on the verge of one of the most significant infrastructure rollouts in our country’s history. A growing economy needs a strong and vibrant infrastructure and engineering sector. It is important that the procurement process around infrastructure projects be handled with integrity and transparency. Public money matched with private sector capacity can deliver an ambitious vision to grow our economy, create jobs and develop our people. For us to deliver sustainable value for all South Africans, each and every stakeholder needs to clean up all elements of the industry and its relationship with its government and private sector clients.” Announced Aveng Grinaker LTA CEO Roger Jardine on the company website recently.

This comes as South African construction companies wait with baited breath for government to get a move on with its many promised infrastructure projects. The announcement by Jardine is not an exaggeration as time immemorial has seen how government infrastructure projects in history have either been stunning swan dives providing jobs and attending to a country’s failing infrastructure or disappointing belly-flops of red tape, white elephants and corruption. We could be faced with one or the other. Hopefully not the latter, especially in the light of possible investigations by the Hawks and the National Prosecuting Authority into allegations of fraud and corruption in the construction industry.

Since 2008 the South African government’s public infrastructure spend has decreased significantly. Despite ambitious plans announced by government in the 2012 National Budget totalling R844.5 billion, the construction sector has not seen this impact on the order book and only expect this to impact results in the next 18-24 months

Aveng Grinaker -LTA Event Pic 10Aveng Grinaker-LTA is active in the commercial, industrial and retail sector and has an extensive track record of successful contracts in all types of buildings. The Group’s capabilities encompass design, engineering, material selection, procurement and construction. Though last year the firm announced that while most of Aveng Grinaker-LTA business units delivered improved results, a number of problem contracts in Australia and South Africa, combined with the continued challenging construction market in South Africa, negatively impacted the headlines earnings which are down by 58%. .

In Roger Jardine’s press release he said: “We have a big thorn in the side of our economy. Collusive and anticompetitive behaviour, which appears to have been entrenched in the construction and other sectors of the South African economy, has left our country with a disgraceful economic and ethical legacy that must be rooted out as a matter of urgency. We need not only the right skills but also the right ethics and values if South Africa is to thrive and jobs are to be created. It is not only the responsibility of elected politicians to foster trust and integrity in our society. The private sector has a vital role to play. This goes to the heart of the society that we want to build.”

It’s clear that Jardine is taking the allegations very seriously and steps have been taken within the firm to create transparency even including anonymous hotlines for whistle-blowers. In its SENS announcement on the Aveng website the firm advised the market that a provision had been raised for a potential penalty by the Competition authorities.

It’s clear that Aveng Grinaker-LTA are not taking the corruption in the sector allegations lying down, but it’s also evident from Jardine’s statements that he is neither unaware nor doubting the truth of those allegations. South Africa’s construction industry is going to have to wash its own hands before putting them to work.

 

Boutique Hotels -there goes the neighbourhood

Grand Dédale Country House

Grand Dédale Country House

Boutique hotels in South Africa are showing an inclination to follow international trends, focusing less on luxury and more on unique niche themes like culture or IT convenience. The use of property by Boutique hotels is unique in that old buildings are often focused for restoration as opposed to building brand new structures. Each individual hotel has the potential to both reflect the status of its neighbourhood and influence the character of the adjacent real estate in a specific locale.

In 1984, Ian Schrager opened Morgan’s Hotel on an unremarkable stretch of Madison Avenue in Manhattan, New York. Together with a number of other hotel properties and subsequent Schrager projects, the hotel is credited with ushering in a new design milieu and launching the era of the boutique hotel.

Now, over 28 years later, the influence of the boutique hotel has permeated every facet of the hospitality industry. Boutique, no longer the sole province of the rich and hip, is now big business, and its impact is increasingly felt, from once-forlorn airport hotels to luxurious urban resorts.

Last year saw two South African Boutique hotels winning awards at the World Luxury Hotel Awards at Pan Pacific Kuala Lumpur in Malaysia: the Upper Eastside Hotel located in Woodstock and the Robertson’s Small Hotel in the town of Robertson.

Most South African boutique hotels are up-market; in fact they litter the five start alliance list of 41 best hotels. In South Africa boutique hotels caught on like anywhere else but up until now it remains the domain of the upmarket and luxurious, renovating old buildings like the Rosebank Post Office in Rosebank or transforming old Mansions with rising

The Winston- Melrose

The Winston- Melrose

rates and pricey upkeep, the Winston in Melrose for example. The influence on an area is marked. Where a boutique hotel has moved into an area there has been a discernible up scaling effect on the location as a whole.

Similarly there is an influence from the outside in. Many boutique hotels, particularly those in buildings that have undergone adaptive reuse, draw their uniqueness, brand character and guest experience from the place and underlying building fabric in which they are located. The neighbourhoods, civic realities and historical context are all highly influential in the design themes of many boutique hotels thereby making them one-of-a-kind, memorable experiences that are targeted at a specific kind of audience.

An international trend that has seen its mark in South Africa is the movement towards the budget boutique hotel. Some may argue that by definition budget is not boutique. A rudimentary perusal of the web reveals many a budget hotel marketing itself as boutique these days. In 2013 we will probably see increased conversion and consolidation as less successful hotel businesses get scooped up or shut their doors. There is likely to be a continued lack of financing for both early and late stage hotel businesses without a clear road to profitability. We may expect an ultra-cautious approach to first-time hotelier entrepreneurs with little track record on the back of continued economic uncertainty.

Since the 2007-2009 recession, independent hotels have been more open to joining a larger entity to gain access to a larger customer base through global reservation systems and marketing campaigns. Established hotel operators have used their “conversion” brands to grow and capture high entry-barrier sites despite restricted debt and stifled new developments.

In South Africa there is a clear movement to take what used to be the bigger B&B’s and expand properties, creating boutique hotels with the view to up scaling the class of clientele and raising capital expenditure to increase profits in the long run. This narrows the gaps between upmarket B&Bs and the conventional boutique hotel. This trend shows a further influence on suburban areas and commercial nodes alike. Not unlike the canary in the bird cage, if the local boutique hotel closes down it’s bad news for the neighbourhood.

Sea Five Boutique Hotel Camps Bay

Sea Five Boutique Hotel Camps Bay

Boutique hotels around the world have an authenticity going for them. They are particularly suited to conversions of historic or interesting buildings. By doing this with sensitivity to the materials used and the original structure, they can be among the most sustainable and authentic hotels in terms of the built environment. The influence on local real estate proves to be a positive one and South African’s are keeping up with world trends. If you want to get started in the industry you can pick up a five star boutique hotel in Camps Bay for R31 million, on the market this month.

Building Boom Builds Rural Economy

Picture Courtesy of Global Giving Foundation

Picture Courtesy of Global Giving Foundation

Rural South Africans, powerless for so long, are being empowered  as  schools, shopping malls, roads and residential developments in often, remote areas, have seen increasing development. Social grants have a great deal to do with this empowerment. Rural towns are humming with the sound of busy building as people are improving their homes.

“Social cash transfers promote human capital development, improving worker health and education and raising labour productivity. “ [Michael Samson, EPRI – Social Cash Transfers and Pro-Poor Growth]

A firm which sells building materials directly to cash-paying customers, JSE-Listed Cashbuild has over 190 outlets around the country, fifty of those outlets are in rural areas. The company reports that its rural business revenue has outperformed the revenue of its city outlets. The average revenue per rural store increased by 80%, compared with the company’s average of 60% over the last few years. [www.cashbuild.co.za]

Cashbuild’s outlying outlets attract home owners who want to make their own improvements to their homes.  The firm’s urban customers frequently buy from stores in cities like Cape Town, but arrange for their purchases to be collected at a rural store, in Thembalethu, a more rural location for example. This way money is sent home from the urban place of work.

The firm gives back to rural communities in a big way keeping the circle of development going. According to the Cashbuild website the firm regularly pumps prizes of building materials into rural communities, facilitating competitions for schools and NPOs giving away large cash prizes, clearly the Cashbuild is seeing something in rural South Africa that others could benefit from investing in.

Rural areas are seeing the benefits of social grants. In many house-holds a slice of the grant money is spent on alterations and additions to the family home. In the Northern Cape, for example, building activity rose by 86, 1%, when comparing the first quarter of 2012 with that of 2011.

Building activity in rural areas is being boosted by the government’s infrastructure plan. With the promulgation of the Special Economic Zones Bill, government intends to develop multiple and geographically scattered pockets of industrial development. Even SMEs confirm that building activity in rural communities is increasing.

Unlike what has become conventional wisdom on the matter, cash-paying rural customers are sufficiently advanced to be discerning about what they purchase. There is just as high a level of appreciation for quality goods as one may find among city dwellers.

Building materials supplier Afrimat says contract values are diminishing. Three years ago, it was common to tender for contracts valued at between R800m and R1,5bn. Today, contracts are more commonly valued at about R100m, says CEO Andries van Heerden in a 2012 Afrimat Newsletter. One interesting observation is that lesser sized contracts result in more jobs. This is at one with government’s plan to create jobs via infrastructure spend. [www.afrimat.co.za]

Sadly on the down side, the Expanded Public Works Project has failed to direct money appropriately. To date very little government funding has found its way to its intended targets. Infrastructure projects have yet to reach their full potential partnering with private sector to uplift rural communities together in a complimentary and supplementary relationship.

Picture Courtesy of Global Giving Foundation

Picture Courtesy of Global Giving Foundation

The US Continues to Diversify its REITS Sector

The US continues to see the diversification of its REITS sector. South African REIT watchers are viewing US REITs with interest as their own country saw laws changing this year that are freeing-up the market.

Businesses aim to enhance shareholder value by taking advantage of REITs’ favourable tax treatment. Timber and cell phone companies have already established REITs. Other non-traditional real estate companies, ranging from riverboat casinos to sports arenas and prisons, are also considering the REIT format. Among the emerging subsectors are billboard REITs, which are expected to debut in early 2014.

You may ask how billboards qualify as a REIT? As it turns out the infamous US tax department, the IRS, has relaxed REIT rules by widening the definition of what constitutes “real” property, which is eligible for REIT status, versus personal property, which is not eligible for REIT status. Prior to recent years, the IRS considered whether structures were physically moveable. Recently, however, the IRS has shifted its view to consider the owner’s intent for a structure. Therefore, if owners intend for structures to be permanent, like billboards or cell phone towers, the companies can now qualify for tax treatment that is appropriate for real property, making them eligible for REIT status.

Quite how the South African players will manipulate the market when the new REIT structure will come about this year is hard to tell but it may be worth watching how the US trends play out. The case in point is an arguably obscure Billboard REIT.

There are just a handful of players in the US billboard markets.
– CBS Outdoor America is to be converted to a REIT. The plan is to sell outdoor operations in Europe and Asia. Analysts value the business at $4-6 billion. Upon IRS approval the REIT conversion should be up and running by 2014.
– Louisiana-based Lamar Advertising, with a market cap of $4Billion has announced plans to pursue REIT status.
– Clear Channel Outdoor, the second largest firm in outdoor advertising in the world, reported that they have no current plans to convert to a REIT.

But alas, the billboard REIT subsector is considered to be looking at very modest growth over the next few years. Any growth that is forthcoming  is likely to come from acquisitions, given the fragmented nature of the industry and hence the scope for consolidation.

Another challenge faced by billboard REITS is that of rents which are exceptionally dependent on the health of the economy. In difficult economic times, it is easy to pull back on billboard advertising.

On the up-side, growth is expected from digital billboards and posters, with higher rents as they become more commonplace. Digital displays allow advertisers to change their messaging more often, allowing them to target demographically at different time periods. Wifi technology also enables advertisers to send ads from billboards to mobile phones adding further flexibility.

The IRS has ruled that billboards qualify as real property. Specialized REITs have been very popular in recent years, but in the crowded REIT space, it remains to be seen if this new property class with modest organic growth prospects will pique the interest of US investors. Whether South Africa will see this same rush to ’REITise’ every industry remains to be seen. If all the property companies currently listed on the JSE adopt the REIT structure, South Africa will boast the eighth largest REIT market in the world.

Umhlanga Continues to Expand

Aerial view of Umhlanga Ridge (foreground) and Umhlanga Rocks (on ocean beyond) Wikipedia

Aerial view of Umhlanga Ridge (foreground) and Umhlanga Rocks (on ocean beyond) Wikipedia

The greater Umhlanga commercial/mixed development space continues to grow in both sophistication and property. While other similar nodes in the country consolidate or taper off, Umhlanga development seem to be on track.

Recently property developer Vejan Pillay’s Misty Blue Investments launched its 6th major development in 10 years. The development is a multimillion-rand residential development nick-named ‘Central Park’.

Central Park is situated besides the landmark Umhlanga Porsche dealership and another of Pillay’s projects, the R150million Urban Park mixed use development near the Parkside precinct.

It’s clear that the focus in the last few years has been the development in front of Gateway and around Parkside, but these developments of Pillay’s are likely to be a catalyst for development around the Porsche dealership which overlooks the N2. Direct access to this location from the highway is planned and includes a new interchange.

Central Park is to be developed over two phases: phase one will be made up of 177 residential units hugging a park area with a running track. Other features include an in-door pool and the uniquely designed vehicle access to apartments feature.

This all comes on the heels of the recently opened mixed use Urban Park and Spa with its 92 room,  four star hotel, 159 residential units with commercial and retail outlets planned for the lower levels. The hotel is situated on the corner of Meridian Drive and Umhlanga Ridge Boulevard. The hotel is managed by the Durban based Three Cities Group that manages The Square Boutique Hotel also developed by Misty Blue.

The word on the street is that there is still a huge demand for residential flats in the area, the twist is that it is estimated that up to 60% of the buyers are investor buyers looking to rent out the properties.

On the horizon, and expected to be completed by mid-2014, is the Gateway Private Hospital. Construction has begun already on the corner of Aurora Drive and Umhlanga Ridge Boulevard within the Umhlanga Ridge New Town Centre. The 160 bed hospital will be equipped with six theatres, an ICU and high care facilities. The focus will be on high-end specialties. A casualty, pharmacy and various out-patient facilities are to be included.

Beacon Rock is another development recently opened, situated at the entrance to Umhlanga Village. The mixed use building offers a variety of top brand restaurants as well as a Mini, Rolls-Royce and Aston Martin showrooms. There are also 24 luxury apartments with exquisite sea views.

You can’t keep the town down; Umhlanga remains a force to be reckoned with in the greater Durban landscape.

Gateway & Umhlanga Ridge

Gateway & Umhlanga Ridge

 

 

Cromwell On Track for Diversification

Cromwell announced on the Australian Stock Exchange on 7 December 2012 that it was undertaking an equity capital raising of up to AUD163 million to seed a new unlisted property trust, reduce debt and provide additional working capital. Cromwell announced this month that an increase in  operating earnings is driven by the secure revenue stream from its Australian property portfolio.

Cromwell Property Group (CMW, formerly Cromwell Group) is an internally managed Australian property trust and funds manager with an Australian property valued in excess of $1.8 billion and a funds management business that promotes and manages unlisted property investments. Cromwell has two key business units which focus on property investment activities; from equity and capital raising to property management and leasing.

The Cromwell Capital Raising is being undertaken by way of underwritten institutional placements of new Cromwell stapled securities (“New Securities”) at an issue price of AUD0.785 per New Security to raise up to AUD143 million and a non-underwritten security purchase plan (in terms of the rules of the Australian Investments and Securities Commission) to eligible Cromwell security holders to raise up to AUD20 million (GBP13 million)

The Company subscribed for AUD40 million (£26 million) worth of new securities in the capital raising. Furthermore, the placement was subject to a sub-underwriting commitment from Redefine Australian Investments Limited (the Company’s 100% owned subsidiary) for which it received a cash fee of AUD800,000.

The Company’s current shareholding in Cromwell is 321.5 million securities or 22.84% (31 August 2012: 22.08%)

The transaction is in line with Redefine International’s objective of increasing its presence in the Australian property market and is expected to be earnings enhancing for shareholders in the medium to long-term.

Cromwell Property Group (ASX: CMW) today reported at the end of February a 24% increase in operating earnings to AU$45.9 million for the six months to 31 December 2012, driven by the secure revenue stream from its Australian property portfolio.

During the period, Cromwell completed an institutional placement, raising $143 million and an SPP for existing security holders closing in early February 2013, raising approximately $39 million. Both were materially oversubscribed.

Cromwell announced this week that it will continue to seek investment property and funds management opportunities consistent with its strategy of providing superior, risk-adjusted returns to security holders and investors over the long term.

 

“We are seeing increased competition for property assets, indicating property values may soon enter a new period of growth as cap rates reduce to close the yield gap between property and other asset classes.” Chief Executive Officer Paul Weightman .

 

“We have the skills, resources and capital to take advantage of opportunities for growth, however we remain, committed to maintaining the disciplines that have contributed to our consistent outperformance.”

 

 

 

Social Grants – How They Influence Rural Retail.

Social grants queues in Vosloorus.photo by Simphiwe Mbokazi

Social grants queues in Vosloorus.photo by Simphiwe Mbokazi

Keillen Ndlovu, head of Property Funds for Stanlib has been widely quoted of late, saying: “When it comes to retail property investment, the lower income market is still the place to be. It is where the population is and where the growth is. There are still opportunities for smaller retail centres with a convenience element.”

For small town and township retail, food and fashion are basic ingredients. Proximity to public transport is a further need. Banking facilities: branches and ATMs also contribute, given low Internet penetration and a preference to transactions in cash.

Shopping centres in this subsector show a monthly shopping cycle. Pronounced spikes in shopping at month ends and early stages match payments of government social grants and salaries for the growing working middle-class, less reliant on discretionary spend, providing more stable trading densities.

Someone else to weigh in on the subject is Marc Wainer, chief executive officer of  Redefine Properties, in an interview with Denise Mhlanga from property 24 said “with interest rates expected to remain low for a while, consumers appear to be spending more than in previous years and rural shopping centres are benefiting from the Government social grants.”

Marietjie Oelofse of the Aida Lichtenburg office says “This is in stark contrast to the situation five years ago, when many retail shops in town centres stood empty. But minimum wage payments and better distribution of social grants have increased disposable income, creating a demand especially for clothes and furniture.

As a result, there is strong demand for space from retailers catering to this growing buying power.

Clearly social grants paid by the state are helping retailers in township shopping centres weather tough economic conditions.

Two Shoprite stores owned by Futuregrowth’s community property fund, Diepsloot Mall and the other in Tembisa, enjoyed the highest turnover per square metre of any Shoprite outlet in SA over the past two years.

Futuregrowth portfolio manager James Howard told Business Day Briefing that the fund’s shopping malls in Diepsloot and Tembisa were consistently rewarding despite “harsh” economic conditions, thanks largely to the social grant money that was being spent by the two communities. The centres improved turnover even during the credit crunch since few community members were in the market to borrow.

Shoprite has a long history of investing in township and rural property even before returns looked promising. Howard said: “Shoprite has backed rural development for the past 15 years, before these areas were seen as investment hotspots. We have seen land in places that are considered ‘no-go areas’ develop into attractive stores.”

The influence of social grants is even more visible when looking at the payout points themselves. But there are pro and cons.

Talking to the Mail&Gaurdian, Andrew Mills, director of Boxer Superstores, part of the Pick n Pay group, said spending on social-grant payout day at the 95 Boxer outlets in South Africa was bigger than it was on payday. He said recipients who lived in remote areas often did all their shopping after collecting their grants at a store to save on transport costs.

The recipients are encouraged to spend 10% of their grants on goods in the store before the remainder is withdrawn as cash from the tills. Mills added that Boxer consumers were “wise” and the stores tried to offer promotions on pension-payout days to discourage people from shopping elsewhere.

Mike Prentice, Spar’s group marketing executive also talking to the M&G, said its supermarkets also experienced “massive spikes” in sales on social-grant day and the days that followed. “It’s definitely the biggest trading day of the month. It changes the entire complexion of the store over that time.”

Spar has 850 stores throughout South Africa and, like Boxer; almost half are located in rural areas. Many Spars are payout points for the grants, although the biggest spikes in spending that Prentice speaks of, are seen in rural areas. Preparation for payout days involves extra staff at certain stores. Shelves are restocked with top-selling items such as rice, maize, long-life milk and airtime. Social-grant payouts totalled close to R100-billion in 2012. More than half was for child support and the remainder was largely for old-age pensions and disability grants.

But not everyone is happy, “Retailers acting as payout points for social grants are problematic” said Social Development Minister Bathabile Dlamini in a public statement. Dlamini said the department was concerned that those drawing their money from retailers were not given the full amount and were obliged to buy a certain amount of goods at these stores.

“The retailers are only interested in money, not the quality of food our people eat. We don’t mind communities coming to this kind of agreement, but not when they are forced into it.”

Back to Mills, who says customers were encouraged, not obligated, to spend 10% in the store at the month’s end. “They do their shopping at the same time, because it is more cost-effective for the customer and saves in transport costs.”

Mike Prentice, Spar’s group marketing executive, said its customers were not expected to buy in the store. “It is not even implied,” he said. “People just tend to do their shopping there anyway.” The fees cost each store 0.25% of the total payout, he said, but the resulting revenue surge more than made up for it.

Social grants are an important source of cash income for households with eligible members. While these are important for poor and vulnerable households and individuals, there is a disturbing trend – the number of people (households and individuals) dependent on social grants as major or only source of income is increasing.

According to Booysen and Van der Berg (2005) HSRC paper, the number of beneficiaries increased between 1998 and 2003 from 2.8 to 5.8 million, which represented an annual growth of 15% or an increase from 67 to 125 grants per 1 000 of the South African population. However, the increase in 2003 could be attributed mainly to the introduction of the CSG (Child Social Grant) and the increase in public awareness of eligibility for grants. Nonetheless by 2009, the number of beneficiaries was estimated to be 13 million (22% of the population) and, rightly so, the government has started to get concerned about this high dependence on social grants. The social grant system transferred about R78 billion in cash grants (DBSA 2009) and has continued to grow, putting enormous pressure on the fiscus.

Depending on what measures government chooses to take, to reign in the growth of social grants, will determine the level of reliability dependence those social grant will be on influencing secondary market spend trends. An entire commercial and retail industry may be dependent on the outcome.

Rivonia and Sunninghill Suburb Profile

rivonia squareRivonia has had significant roles to play in Johannesburg’s history, variously as a farming area, mink & manure belt, to upmarket suburban area, to commercial property node. Together with its junior partner Sunninghill, Rivonia has become known as something of an IT hub with promising rentals for property investors.

Sunninghill, considered to be both commercial and residential, is bordered by what used to be Johannesburg’s outlying suburbs of Kyalami and Woodmead, now commercial nodes in their own right. Once open land is now occupied by residential complexes and businesses.  The N1 forms Sunninghill’s southern boundary with access via the Rivonia off-ramp.

Sunninghill has a large concentration of offices, mainly in the form of office parks, including Sunninghill Office Park, Unisys Park, The Crescent and Ariel Office Park. A growing residential demand and an Inadequate road infrastructure has been the biggest disadvantage for the development of the node, with Witkoppen Road and Rivonia Road suffering from severe traffic congestion. Significantly the new K60 has been laid out through the centre of the suburb. This should assist enormously.

Buses and minibus taxis provide public transport on the main arterials. Further road upgrading is underway, and continues to be necessary. Pedestrian connections between offices and shopping facilities have been planned, though continuous pedestrian linkages are still lacking.  A number of high-density residential developments are emerging in the node. The node has limited social and community facilities. One of Johannesburg’s better hospitals, Netcare group’s Sunninghill Hospital is located in the area. There are also a number of religious facilities, pre-schools and a post office

Rivonia lies between the Braamfontein Spruit and the Sandspruit, and was the location of Liliesleaf Farm, where in 1963 many of the accused in the notorious Rivonia Treason Trial were arrested. A Carmelite Convent, accommodating Carmelite Nuns, sat in the centre of the village until displaced by commercial pressures.  In a commemorative move, the large shopping centre first built on the site was named The Cloisters.  The main retail thoroughfare in the area, Rivonia Boulevard, is the location of several shopping complexes as well as many other shops and restaurants.

Rivonia and Sunninghill are lumped together by brokers and others in the real estate business for practical reasons. They have much in common both being outlying suburbs of Sandton, and intermeshed with each other’s economies. Together they are considered an IT hub. For example, Hewlett Packard’s main Southern Africa and South Africa offices are located here as is the registered office of Fujitsu South Africa. Companies located in Sunninghill include Acer, Eskom, PriceWaterhouseCoopers, CA, AstraZeneca, RCI and Unisys.

Primary shopping centres in Sunninghill include Chilli Lane, comprising better known retailers such as Woolworths, Pick ‘n Pay and a Virgin Active gym; The Core including offices and restaurant retailers; Sunninghill Shopping Centre comprising speciality restaurants and retailers Spar and Woolworths. Low rentals and good value in Sunninghill resulted in a number of large users taking up space in 2012. The area continues to be popular with small to medium businesses.

Recently a few modern individual buildings have been developed. Refurbishment of older office parks and buildings continues. Most notable would be 345 Rivonia Boulevard, Tuscany Office Park, Homestead Office Park and Bentley Office Park. The need for office space is on-going, mostly  from private, medium-sized businesses and owner-occupiers. As these businesses grow, they will require more space.

According to Broll Research a peak of R125sqm gross was reached for rentals of prime-grade offices back in 2008.However as 2009 hit, rentals began to drop to R115sqm before making an upward movement. Prime-grade gross rentals are now looking fixed at R125sqm. Average rentals for A-grade offices are between R85 and R100sqm gross. Vacancies are fluctuating due to disruptive road-works on the main thoroughfare – Rivonia Road.

So as things stand demand remains steady to flat as do sales and supply. The space that reports to be in demand is from 150-1000sqm; Cap rate 9-10%; Lease escalation 9-10 % and Operation cost escalation is pegged at 10-11%. [Stats courtesy Broll]

US REITs Reward Investors With Solid Growth and Strong Dividend Pay-outs

REIT

REIT

Believe it! The FTSE NAREIT ALL REIT Index returned 6.05%, outperforming the NASDAQ (+5.53). So far this year the US REIT sector has experienced steady, healthy growth. Analysts’ predictions, looking into 2013, range from a firm thumbs-up to cautiously optimistic.

To kick off, there seems to be an increased demand for warehousing which is being attributed to the US general economic recovery. Industrial REITs are benefiting as a result.  Year-to-date, the sector posted 8.90% return. Many believe that Prologis (PLD), whose $16.75 billion market capitalization represents almost 75% of the US industrial REIT sector, has driven the sector’s expansion.

In January, Prologis announced plans to set up a REIT in Japan through Nippon Prologis. PLD has also announced an agreement with Amazon.com to build a more than one million square foot distribution centre in Tracy, California!

Lodging REITs are also performing well in the new year, most probably based on the anticipated economic strengthening in 2013. Year-to-date through February 15th, the lodging sector returned 9.74%.

As the U.S. housing markets strengthen, the demand for lumber is growing. In December, housing started climbing to an annual rate of 954,000, the highest rate in more than four years. (In the US most houses are made of timber.) The result sees the timber REIT sector growing by  (8.89%).

Bucking the trend slightly is retail. Despite an improving economy, concerns remain about growth in the retail sector. The overall return for retail REITs so far in 2013 is 5.59%. Market fundamentals have benefitted from the lack of new construction (of retail), but retailers are cautious about expanding. Retail sales growth in early 2013 is positive.

On the other hand Office REITS are up (5.59%) – looking steady. Office market fundamentals in the large coastal markets are good, but office returns have been moderated by many markets that have not yet recovered.

Returns for healthcare (6.42%) REITs are solid. Many believe that the healthcare sector received a boost from Obama’s November victory and the early stage implementation of Obamacare, with increased demand for health services.

Of all the REIT subsectors, mortgage REITs are among the strongest, with a return of 11.44% year-to-date. Coming into the New Year, Annaly Capital Management (NLY), a residential financing REIT, announced plans to merge with CREXUS (CXS), a commercial mortgage REIT in late January.

” The real estate sector is currently benefiting from a number of tailwinds that include the general search for higher yield (REITs pay dividends) and lower volatility, better data emerging from key markets and the U.S. Federal Reserve’s continued focus on the mortgage and housing markets, EPFR Global said in a press release on Friday,” Kenneth Rapoza wrote for Forbes

The positive effects of low interest rates for mortgage REITs continue to outweigh the negative implications of mortgage prepayments that drew the sector down in 2012.

So it’s clear that Lodging and Industrial REITs are benefitting for the US economic recovery. Retail and apartment fundamentals are good, though a little uncertain. Housing market recovery is fuelling growth among timber REITs. Due to their strong dividend pay-out and improving market fundamentals investors continue to favour REITs.

 

 

Opportunity Knocks in SAn Rural Areas

ShopRite2Shopping Centres in rural areas are becoming more sophisticated and formalised; it’s the place to do business rurally.

Some towns have up to 600 000 people, and consumer demand for convenience as well as steady population growth offers major prospects for retailers.  In South Africa, people living in rural areas and townships (or second economy locations) spend more than R 308 Billion annually, representing 41 per cent of total consumer spending. [The Retail Lab]

The similar research shows that South African Shopping centre development trends are moving towards an oversupply situation in urban areas, yet retailers are still cautious when it comes to considering the opportunities within township and rural areas.

Some of South Africa’s most successful retailing operations have ploughed this field for some time. Shoprite is a prime example.   Shoprite had the foresight well ahead of their competitors. Shoprite has over 1500 stores, making it Africa’s largest grocery chain and in a prime strategic position not only in South Africa but on the African continent.

Other retailers active in this arena include cell-phone retailers, some of the banks and clothing outlets who trade in areas where there is currently little competition.   Opportunities abound for retailers, especially franchises and stores in fast food, groceries, fashion, mobile, electronics, financial services, furniture and hardware.

Secondary Market shoppers are brand conscious, no-name knock-offs don’t impress. Those in the market encourage interaction with the community, becoming involved in community life is essential. One must find ways to of make goods and services relevant and be seen to be socially active and responsible.

Retail in South Africa’s rural areas or “emerging economic areas” is growing and this success is evident in the retail sales and trading densities in these centres. Statistics show that the last decade has seen a significant increase in the number of retail centres being developed in townships and rural areas in South Africa.

“Townships and rural areas in SA have emerged as a new market for national retailers as we see an upward movement amongst township communities in terms of expendable income. This progressive movement has resulted in a considerable increase in shopping mall development in these previously untapped areas.” Said Marc Edwards of Spire to Cyberprop recently.

Edwards goes on to advise partnering with experts in the field; to appoint strong community based centre managers; to stay close to the community and to ensure the centre is valued; to ensure public transport is available to shoppers; to sponsor community events; to cater for bulk buying and above all carefully research what the needs of the community are.

“Rural areas offer a real cash economy and well marketed tenants who have done their homework will be successful,” concludes Edwards.

 

 

A Darker Reason Why SA’n Business is Moving into Africa?

Reports abound of more and more South African companies doing business in Africa, but why are they not investing that money locally, are there challenges to making development work locally? Looking back over the last few quarters some disturbing stories have emerged.

It can’t be a good sign when you hear the news that a company like Resilient is looking elsewhere to do business.

Des De Beer (courtesy FM)

Des De Beer (courtesy FM)

Johannesburg-based real-estate investment company Resilient, which has a local market capitalization of 11 billion Rand is looking to Nigeria to expand its business. This on its own is not a worry since many SA firms are expanding into Africa. However it’s the stated reasons and comments from its executive that raise some eyebrows.

According to The Citizen’s Micel Schnehage, Resilient’s Director Des de Beer explained that it’s the firm’s struggle with local government. “(Resilient) is hampered by extensive bureaucracy and red tape, resulting in expensive delays.” He went on to state that the era for Resilient to develop non-metro malls was over.

What seems to have been the last straw was the loss of documents pertaining to the Mafikeng Mall by local authorities 17 times. “They’re not accountable to anyone so they don’t really care,’’ said de Beer.

Unlike South Africa, is the implication, Resilient believes there is a sincere intention in Nigeria to see the country raised up and that officials are largely positive facilitators of the investment process.

Another big player in the industry, Redefine, the second largest listed SA property loan stock company by market cap on the JSE, with assets exceeding R37bn, claims to be hampered by red tape.

The value of the group’s properties declined by 1.7% in the review period while the South African portfolio valuation increased by R260million. Red tape involving local authorities and other government departments are holding back developments in rural areas.

Redefine’s CEO Marc Wainer

Redefine’s CEO Marc Wainer

Redefine’s CEO Marc Wainer announced last year that Redefine intended to launch a shopping centre of between 20 000m² and 30 000m² in a rural area which could create between 4 000 and 5 000 jobs. This includes cleaners, security guards and other workers needed by retailers.

However, Wainer said instead of the authorities welcoming these developments, processes are being frustrated by officials wanting their palms greased before setting the ball rolling.

The Redefine head said retailers are keen to enter into rural areas with a growing segment of the market’s buying power increasing in terms of social grants, but are now rather opting for Africa. Wainer cited a recent announcement by Liberty Properties to opt for its new growth in Zambia. “It’s easier to do business in Africa than South Africa,”  Wainer told reporters. He added that money being spent offshore should be spent locally, but conditions frustrate this.

In an interview with CitiBusiness  Wainer lashed out at government, criticising the administrative practices of local authorities. At the time he added Redefine was not going to invest in areas where bribes were expected, citing the former Hammanskraal as an example.

But this doesn’t mean everything’s rosy in Africa either, doing business where local authorities are concerned can be a red tape head ache for developers in general. By way of example consider Steven Singleton’s  story.

Steven Singleton wrote to the Daily Maverick about his struggle in setting up a Private hospital in Zambia where he was frustrated at every turn by Zambia’s top banker and business mogul Rajan Mahtani: “Business in Zambia is very much like this and magnates such as Mahtani make sure it stays that way and he retains control.

In my case I offered him what I considered to be “a project on a plate” and, instead of rewarding the provider, he not only took the project, but the plate as well. Why? Because he could, and there was no recourse to be had.

This is all too often the nature of doing solo business in Africa. Powerful and politically connected parties are able to move with relative impunity as long as their alliances are intact or until a change of regime shifts the balance of their power base.”

Although not the same situation, the dynamics are similarly reported when trying to do business involving local authorities in South Africa it seems.  Whether this is an African challenge or a South African challenge, developers have their work cut out for them as they try to invest and develop under

Cement Property’s Gauge of the Future

PPC Cement

PPC Cement

So you may have heard the old adage: “When they’re a’ pouring cement, property prices are a’ rising.”  It’s not rocket science – for a gauge on future of the property market, find out what’s happening in the sloshy world of cement.

The latest news on this front is that of South Africa’s Pretoria Portland Cement Company (PPC ) planning to build a cement factory in Zimbabwe. PPC has been upfront that it plans to increase its proportion of sales outside South Africa to a least 40%. In November PPC received its Zimbabwean indigenisation certificate which opened the way for the firm to expand its operations there.

A former executive told a local newspaper that the project could cost as much as R1.7bn. The same source said that PPC had its sights set on four new opportunities in Africa. The company already has two plants in Zimbabwe with the intention of building another in Mashonaland province.

This comes in the wake of PPC acquiring a 47% Habesha Cement Share Company (HCSCo) of Ethiopia with South Africa’s Industrial Development Corporation (IDC) in a deal worth US$21million. PPC’s $12m cash injection secured 27% equity in HCSCo, whereas IDC’s $9m secured a 20% equity stake.

PPC is not the only cement company capitalising on the fast growing cement consumption in that region. Dangote Cement of Nigeria and Athi River Mining of Kenya are also competing for market share. Dangote Industries Limited (DIL), formally increased its stake in South Africa’s Sephaku Cement (Pty) Limited, on PPC doorstep, from 19.76 per cent to 64 per cent. The transaction, which comprised a R779 million investment into Sephaku Cement by Dangote, was the largest ever foreign direct investment (FDI) by an African company into South Africa.

Coming back to the cement gauge, some would suggest that PPC is looking for greener pastures since South Africa is said to have a glut of buildings in the shadow of the building boom that ended in 2010.  And yet French based African cement giant Lafarge Group with operations in 11 African countries, is making its presence felt in South Africa. The Group’s subsidiary, Lafarge South Africa was a Gold Sponsor of the Advances in Cement and Concrete Technology in Africa (ACCTA) conference on 28-30 January 2013 at Emperor’s Palace, Johannesburg. Apart from the heavy sponsorship, the company contributed two important technical papers showing a commitment to its presence in the subcontinent. Lafarge’s confidence in Africa reflects its global strategy of investing in emerging countries.

Revisiting PPC’s position: it paid $69million for control of Rwanda’s only cement maker in December. The company plans to spend $300million expanding into the other parts of the continent. The company announced that the first quarter of the financial year saw mild growth in South African, Botswana and Zimbabwean cement volumes. The company admits that there are limited options on major infrastructure projects in South Africa but there is sufficient increase in demand to be cautiously optimistic about Southern Africa.

Property investment, it seems, is like standing on wet cement; the longer you stay, the harder it is to leave, and you can never go without leaving your footprints behind.

Durban’s Center of Gravity Adjusts Northward

Durban continues to see a significant move North for its commercial and industrial developments. This poses the question, is this at the expense of the Durban South Basin?

Some might say Umhlanga is to Durban what Sandton is to Johannesburg as it becomes a commercial pivot to the industrial exodus north of the city.  Placing congestion in the South Durban industrial basin under the cons column and King Shaka International Airport under the pros column it’s not difficult to see why industry is  mushrooming in areas north of the city like Springfield Park, Riverhorse Valley, Briardene and Mt Edgecomb.

The significant labour pools of Kwa Mashu and Phoenix also add value to the mix, not to mention what kind of future the new Conubria development holds for labour. Another draw card is the proximity of the R102, N2 and the N3. Industry needs to be close to robust transportation networks. Throw in the new airport and the picture is complete.

Heading North has made sense for some time given the availability of large parcels of land. Such land is not available in the South.

South Durban is not helping itself as infrastructure is neglected, services falter and environmental quality declines. Clearly some vision is has been required with regards to urban management and wise forethought needed in future town planning.

Andrew Layman, CEO of the Durban Chamber of Commerce has been at pains to point out that the move North was not necessarily a move from South Durban. He pointed out that the type of industry moving North is that which favours the airport and is not reliant on the port.

There has been much commentary on the future of the South Durban Basin. One can’t help but find the optimism about the area infectious. The advent of the new cruise terminal is expected to add greater activity to the port in particular and the area in general.

Then there’s Transnet’s new R75 billion dig-out port, to be built at the old Durban International Airport site. Ethekwini aims to rezone Clairwood from residential to industrial to create a back-of-port logistics hub that will complement the dig-out port. Residents fear that they will be forcibly removed, and held mass protests last year, while the city aims to pacify their fears and reassure them that this will not happen. A series of public engagements was held in 2012 and will continue intensively this year to gauge the views of affected community members who reside in and around Clairwood.

It seems clear that although there is a commercial and industrial shift North. The future plans for the South could see twin hubs developing in the city based more on function than history.

Redefine Acquires Earls Court Holiday Inn Express

Holiday Inn Express

Holiday Inn Express

Diversified income focused property firm, Redefine, announces that it has through its 71% held subsidiary Redefine Hotel Holdings Limited, acquired  60% of the issued shares in BNRI Earls Court Limited from Camden Lock and Earls Court LLP for the purchase price of GBPounds8.7 million. The purchase price plus transaction costs of £0.4 million reflected a net initial yield of 7.5% and was funded by the Company and its co-investors in RHH on a pro-rata basis.

BNRI owns the 150 bedroom Holiday Inn Express Hotel in Earls Court, London valued at BPounds27.0 million.

This follows on the heels of Redefine’s acquisition of the Caversham Hotel Thames Side Promenade Reading and the leasehold on which the hotel was situated for a purchase price of GBP12.75 million. Redefine Hotels Reading Limited concluded an agreement with Pedersen (UK) Limited.

Holiday Inn Express is well located close to the Earls Court Exhibition Centre and Arena and the Olympia Exhibition Centre. Both these facilities are all-year-round honey pots for local and international tourists requiring the type of accommodation the Holiday Inn Express offers.

The area is earmarked for large-scale redevelopment including several thousand new homes and a potential new International Convention Centre. This process is expected to take several years and is likely to boost the occupancy of the Hotel during the development phase, not to mention leaving the hotel well placed for a future boom expected upon completion.

The hotel is held under freehold title and is subject to a franchise agreement with IHG Hotels Limited until 2023. There are two meeting rooms for up to 50 delegates, a restaurant/bar and 16 car parking spaces. The Hotel is in excellent condition and has been well maintained.

The Hotel formed part of the Splendid Hotel Portfolio comprising seven hotels that were originally co-owned by Bashir Nathoo, five of which were acquired by the Group in December 2010.

Redefine International Hotels Limited has been involved in the operational management of the Hotel since December 2010 and therefore has a good working knowledge of the business prior to the Group’s investment. The Hotel will complement the Group’s existing portfolio of six high quality hotels.

Mike Walters of Redefine told a press conference: “During our recent £127.5 million capital raise we stated that we had identified a strong pipeline of acquisition opportunities, and this transaction represents the first of these. The limited service hotel sector continues to thrive in pockets of London and, together with our in-depth knowledge of the performance of this particular hotel and our belief in the potential of this sector, we believe this transaction illustrates a compelling investment opportunity which will deliver a high quality income to our investors.”

Lodging REITs Looking at a Healthy 2013

Shangri-la Hotel

Shangri-la Hotel

The US lodging sector is looking more and more attractive to investors in 2013. The sector has emerged as one of the strongest players in the equity REIT markets, with sector returns of 9.09% year-to-date through January 29th. In comparison to the equity REIT market, whose overall return was 5.30% over the same period, 2013 is looking promising indeed.

Market watchers Seeking Alpha have commented that the hotel REIT sector as a whole is drastically undervalued relative to other REITs, pointing out that the sector trades at an FFO multiple of 11.7, as compared to the SNL Equity REIT Index, which on average, trades at a multiple of 15.1.

You may ask, why the discount? This has been blamed on everything from: an inactive congress resulting in low Washington D.C. hotel room occupancy, to Hurricane Sandy and reduced travel from Europe to East Coast hotels.

In 2012, Smith Travel Research reported 6.8% RevPAR (revenue per available room) grew to $65.17, a growth that was driven by a 4.2% gain in ADR (average daily rate) and 2.5% increase in occupancy. Despite this positive upturn in 2012, factors like the fiscal cliff, international economic concerns, and Hurricane Sandy took a toll on the travel business. But by the end of December, the lodging sector was comprised of 17 REITS with total market capitalization of $30.3 billion, an increase of almost 25% from $24.3 billion in 2011.

Looking ahead, an updated lodging forecast released last month by Price Waterhouse Coopers US, anticipates stronger RevPAR recovery in 2013, compared to the previous outlook. Lodging demand growth, which had eased in the third quarter of 2012 on a seasonally adjusted basis, gained more strength than expected in the fourth quarter.

Regardless of near-term economic challenges, lodging demand and pricing, are expected to remain on positive trajectories.  PWC expects lodging demand in 2013 to increase 1.8 per cent, which combined with still restrained supply growth of 0.8 per cent, is anticipated to boost occupancy levels to 62.0 per cent, the highest since 2007. Hotels in the higher-priced segments are expected to experience the strongest gains. Hotels in the lower-priced segments have not experienced as solid a recovery in occupancy, but are still expected to realize increased room rates as demand gradually strengthens.

Supply growth is expected to accelerate in 2013; however, by historical standards, supply will stay low and will not negatively effect market performance. The STR/McGraw Hill Construction Dodge Pipeline Report indicates that about 87,000 new rooms will be added in 2013, representing about a 1% increase in supply. Most of the new development will involve properties in the upscale and upper midscale segments. While not large in numbers, upper upscale openings are also expected to increase pointedly.

The improvement in the lodging sector in 2013 is expected to be a result of ADR rather than occupancy. U.S. residents and business will increase spending on travel as the economy continues to strengthen in 2013. International tourism to the Unites States is expected to grow, as regions like Hawaii and the West Coast are expected to experience an increase in tourism from Asia.

Prospects for 2013 for the lodging sector are positive as the US economy continues to firm up. If domestic or international markets suffer significant economic setbacks, the performance of the lodging sector will be affected.

REIT commentators RETI Café sum it up thus: “Lodging sector REITs will benefit from the market’s improving fundamentals. With a low interest rate environment, and large dividend pay-outs, lodging sector REITs have become particularly attractive in 2013.”

 

 

 

River Horse Valley Estate, a Durban Success Story

River Horse Valley

River Horse Valley

A pristine valley stocked with Hippos, Elephants and Waterbuck descended down the slippery slope of pollution and neglect as ‘civilization’ crept north into what is now Riverhorse Valley. Today some of that environment is being restored as a precondition to the establishment of what has become The Riverhorse Business Estate.

Investors are patting themselves on the back as River Horse Business Estate North of Durban appreciates handsomely in the midst of a slow economy.

The Estate is a Joint Venture between the eThekwini Municipality and Tongaat Hulett, the first thoughts of which go back to 1994. Now over 150 businesses are established in the area.  Today the 300 hectares that make up the unfenced Estate consist of 160 hectares of developed sites and 142 hectare to reclaiming green spaces.

Strategic Planning Services, responsible for a recent report commenting on the green aspects of the Estate, proclaimed that the development is without national parallel.

Trevor Pierce Jones of management company SID Urban Management (PTY)Ltd, reports that 17 000 people are employed across the estate with a permanent workforce estimated at 12 629 of which 4249 are new jobs augmented by a contract work force of over 4400.

The Estate is contributing over R80 million in rates annually, far above previous expectations. 61 per cent of the 90 per cent of companies interviewed in the 2012 socio-economic impact assessment, said they had moved to the estate from else where in the city, 22 per cent suggesting they had outgrown their existing premises, 7 per cent are new businesses.

R200 million was spent on establishing and serving the estate, two thirds of which was from eThekini. The 2012 valuations roll values the properties at and estimated R3.2Billion.

Spin off developments include the upgraded Queen Nandi Drive, the forthcoming rehabilitation of 41 hectares of wetland, a R750 000 indigenous tree planting programme and the addressing of public transport issues.

The bulk of the development consisted of the creation and cutting of developable platforms for the various Erven and careful consideration and survey was conducted to ensure that all sites were above the 1 in 100 year flood plain level.

Infrastructure developments include the construction of 2 new bridges over the N2; the construction of 2 new bridges over the Umhlangane River; the creation of 7 new roads and the diverting of the Umhlangane River.

The

Riverhorse Valley Business Estate

Riverhorse Valley Business Estate

Management Association now administers an area of 304 hectares comprising: developable industrial, commercial and mixed use activities – 150 hectares; internal road reserves – 13 hectares; Umhlangane river and flood plain – 78 hectares; Huletts Bush – 37 hectares. The above areas exclude the N2 freeway, Rail reserve, Total petro-ports, Queen Nandi Drive and Newlands East Drive.

To quote one example of happy investors, Shree Property Holdings brothers Pavan and Mayur Shree say: “As leaders in Grade A warehousing, we simply couldn’t ignore the opportunity. We bought three prime properties – two in the front of Builders Warehouse and the other next to the Unilever site, we began developing immediately.” One of these sites was snapped up in an adroit sale while the others were subdivided and leased off relatively quickly.

 

 

 

Datacentre REITs Take Off

Datacentre

Datacentre

Demand for datacentre space has grown as more companies are using cloud-based data storage. Growth in Internet traffic and smartphone usage, including mobile apps and online video, is also driving demand. Datacentre REITs are currently performing well and are popular among investors who are attracted by their high dividend pay-outs as well as by growing demand for datacentre real estate.

The sector became overbuilt during the dot.com bubble and suffered when the bubble burst and demand dried up. The strength of the sector could push other datacentre companies to go public or adopt the REIT format. One example of this is Equinox a company operating datacentres for the likes of AT&T and Amazon.

REIT watches, REIT Café, recently drew attention to three particularly strong datacentre REITs:

• CoreSite Realty (COR), with market capitalization of $580 million, is most similar to CONE. COR is the smallest datacentre REIT, but its stock value has increased 33% since the end of October, and its dividend yield measures 3.6%.

• Digital Realty Trust (DLR) is the largest of the three data centre REITs with market capitalization of about $8.4 billion. Its stock value increased more than 16% since the end of October, and its dividend yield is 4.1%.

• DuPont Fabros Technology (DFT), with market capitalization of $1.5 billion, is the second largest data centre REIT. Its stock value grew 14.8% since the end of October, and its dividend yield measures 3.3%.

“This combination of low leverage and adequate liquidity places datacentre REITs in a good position to take advantage of acquisition and development opportunities that are in the best interest of the company,” said Jim Stevens, an analyst with SNL Financial. The data centre sector could double in size in the next few years, according to Stevens.

Exciting news concerns a new kid on the block CyrusOne (CONE). CyrusOne has raised $313.5 million when it sold 16.5 million shares at $19 on January, 18th. CyrusOne hails from Texas with 24 data centres in Texas and Ohio. The company is 72% owned by Cincinnati Bell, therefore bringing the total market capitalization to around $1.3 billion. Cyrus One has performed well during its first week. By Thursday, January 24th, shares of CONE were up more than 15% to $22.01. Cincinnati Bell, who purchased the company in 2010 for $525 million, will make a significant profit from the sale.

Notwithstanding on-going growth in the data centre industry, the sector faces increased competition, as firms like CONE show up on the doorstep and existing REITs look to grow. The increased competition could effect future expansion opportunities and result in lower returns. Although oversupply hasn’t emerged yet, investors ought to caution on the side of future overbuilding.

Cromwell and Redefine Raise Funds in Australia

Cromwell Property Group has announced on the Australian Stock Exchange that it was undertaking an equity capital raising of up to A$163 million to seed a new unlisted property trust, reduce debt and provide additional working capital.

Cromwell has two key business units which focus on property investment activities; from equity and capital raising to property management and leasing.

Redefine Properties International Limited, the JSE-listed holding company of UK-based Redefine International, has made it clear that it plans to participate in and sub-underwrite a capital raising of up to A$163m by Cromwell Property Group.

Redefine is internationally diversified through its direct interest in ASX-listed Cromwell Property Group and JSE-listed Redefine Properties International Limited, which has a 71,7% stake in LSE-listed subsidiary Redefine International.  Redefine Properties, in turn, owns 54% of Redefine Properties International.

Cromwell subscribed for A$40 million worth of new securities in the capital raising. The placement was subject to a sub-underwriting commitment from Redefine Australian Investments Limited (the Company’s 100% owned subsidiary) for which it received a cash fee of A$800,000.

Redefine’s current shareholding in Cromwell is 321.5 million securities or 22.84% (31 August 2012: 22.08%).

A$16m had been advanced to the Box Hill Trust to enable it to acquire a proposed development site for a new 20 floor Australian Tax Office building in Melbourne. This in keeping with Redefines objective to increase its presence in the Australian property market.

The capital raising was being undertaken by way of underwritten institutional placements of new Cromwell stapled securities and a non-underwritten security purchase plan to eligible Cromwell security holders.

Cromwell looks to acquire properties producing stable income and capital growth through trying to pick markets with the most potential over rolling 3-5 year periods. The Group also creates and manages unlisted property funds which are mainly invested in by retail investors.

Redefine Restructures its VBG Portfolio

Redefine International

Redefine International

Redefine is sticking with its strategic business objectives to realign and enhance the overall quality of its core property assets by restructuring all four of its VBG assets.

In line with its strategic business objectives, Redefine has started disposing of non-core properties and replacing them by acquiring large, well-located high-grade investment properties that are intended to expand and enhance the earning capacity of the prime properties in its portfolio.

In an interim Management Statement, Redefine Chairman Greg Clarke highlighted the successful raising of capital and how it had addressed many of the company’s legacy debt issues as well as positioning the firm into an acquisition phase. It is reported that 94 million pounds have been invested to date. The restructuring of all four of Redefine’s VBG assets is now complete.

Menora Mivtachim and Redefine are 50/50 partners. Menora Mivtachim, one of Israel’s largest finance and insurance groups, acquired the VBG portfolio as part of a joint venture. The portfolio comprises four office properties located in Ludwigsburg , Berlin, Dresden and Bergisch-Gladbach with approx. 44,000 sqm of space let under long term leases to the main tenant Verwaltungs-Berufsgenossenschaft (VBG), a public accident insurance institution.

The transaction was performed with the support of Cushman & Wakefield (C&W) who advised Redefine International on the restructuring and identified the joint venture partner as part of a structured bidding process. The portfolio was burdened with liabilities which were securitised in 2007 in the form of commercial mortgage-backed securities (CMBS).

As part of the restructuring, Redefine International sold a nominal amount of 49% of shares of the holding company to Menora Mivtachim and a further 2% to a private investor and increased its equity base. The investor consortium acquired DG Hyp as a new equity provider. At the same time, Redefine International and the newly formed consortium negotiated with the credit administrator and creditor special servicers regarding details of the credit restructuring and the disposal of the portfolio.

Greg Clarke

Greg Clarke Chairman of Redefine International

After completing a purchase agreement, the properties were sold to anew property company subsidiaries for a net amount of 80 million Euros. The proceeds from the sale enabled the restructured CMBS financing to be repaid.

Redefine also announced the acquisition of a recently developed retail property in Hückelhoven, Germany. The property was acquired through the Group’s jointly controlled entity RI Menora German Holdings representing the fourth acquisition in the joint venture with the Menora Mivtachim Group. The property has a value of €11.6 million and has a non-recourse senior debt facility of €7.9 million secured against it from Bayerische Landesbank.

Greg Clarke, Chairman of Redefine International, commented: “The period under review has been transformative for the Company… into a more proactive acquisition phase which will lay the foundations for the future delivery of shareholder value.”

Serviced and Virtual Offices Take Off in Kenya

Kenyan Offices

Kenyan Offices

Back in 2005 a UK expat, Alexander Andrewes, set up a business in Kenya dealing in interactive media services. Having scoured office space in the capital Nairobi for serviced offices he came up empty handed. That didn’t stop Andrewes who now heads up Eden Square Business Centre (ESBC) a business he started that is the leader in the field of serviced and virtual offices in Nairobi.

Back in the beginning Andrewes was looking for a firm that provided serviced offices, meeting rooms, virtual office packages and administrative support. He told HowWeMadeItInAfrica in an interview that what he wanted back in 2005 was the convenience of walking into an office that is fully serviced, complete with furniture, internet, telephone networks and other administrative services.

As an entrepreneur Andrewes quickly spotted the gap in the market and acquired financing to the tune of US$150 000 with which he launched ESBC. In April 2006 he procured 14 offices at the Eden Square building the Nairobi Westlands and was open for business. All the client needs is his/her own computer when moving in, everything else is taken care of right down to the teaspoons.

On the Virtual Office side of the business, companies that are not in a position to handle huge overheads can acquire offices too. These clients are set up with a fully functioning office, though only at agreed time slots.

Both types of clients are freed the burden of water, electricity, security and other administrative aspects of running a business. This frees them up to focus more on the main core of their business.  Andrewes told HowWeMadeItInAfrica that they had seen small entrepreneurs that started at ESBC with virtual offices, move on to serviced offices and eventually relocated to their own office premises.

But it was not all roses in the beginning. Andrewes explains that at the initial start-up property owners were reluctant to lease to him, selling the serviced office concept to locals was a heavy task. From humble beginnings ESBC now have 180 office units in five locations with plans for a further two locations.

The ESBC client portfolio has grown to over 200, comprising big corporates, non-governmental organisations (NGOs), as well as small business start-ups. Some of ESBCs former and current clients include, Grey Marketing Limited, the Louis Berger Group ,General Motors, Rockefeller Foundation, Google, General Electric and Ericsson.

Now there are other players in the market who have cottoned on to the whole serviced and virtual office concept. But Andrewes seems unfazed by the competition. He reckons the market is big enough. In fact the growth in the industry has affirmed the necessity for it which is good for business as the office community is becoming conditioned to the need for such a market.

The grass doesn’t grow under Andrewes feet though. His plans for ESBC is to provide a service offering financial and strategy business advice to start-ups, NGOs and international firms opening branches in Kenya for the first time. He has his eyes on Uganda and Tanzania next. So watch this space.

Basel3 – As Basel 3 Relaxes will Property Funds Grow?

6679ae72-bff7-4f42-b13d-3448ce5e570c_453122_EN_BaselIIIIf South African banks save on costs following a decision by the international banking authorities to ease global banking liquidity standards, will listed property funds benefit? The short answer is that nobody is speculating, but what of Basel 3 in general and its effect on African real estate.

In short local and global banks have been told by the Basel Committee on Banking Supervision to raise capital levels, as a buffer against losses and unexpected shocks to their business.

It has been expected that costs will increase especially for longer term products e.g. mortgage products, which would see individuals finding it more expensive to acquire homes. Banks would require larger deposits before providing mortgage loans, and coupled with the fact that the savings rate among individuals in South Africa has always been at low levels, would mean that fewer individuals would be able to afford properties. This would have an adverse impact on the property market, with lower demand for properties likely to cause further downward pressure on property prices and thence property funds in a market still trying to recover from the effects of the 2008 credit crunch.

So Basel 3 — the most stringent of regulations enacted on local and global banks since WW2 and which comes into effect this year — will have a huge effect on real estate funding for investors and developers moving into Africa, so says Standard Bank head of real estate for Africa Fergus Mackintosh in an interview with Business Day.

Mackintosh said his biggest concern is the effect the implementation of Basil 3 would have on debt-funding requirements, especially for investors and developers moving into Africa. “There are going to be huge changes in terms of funding requirements from the banks and the reality is that investors and developers would need to come up with a lot of their own equity and have good partners and deep pockets,” he said.

However, this week saw announcements that international banking authorities will ease global banking liquidity standards. Following the 2008-09 financial crisis, the Basel Committee on Banking Supervision developed a “liquidity coverage ratio” to ensure banks had enough unencumbered, high-quality liquid assets to survive a 30-day stress scenario. However, the Basel committee this week endorsed a package of amendments to its requirements. The committee said the liquidity coverage ratio “will be introduced as planned on January 1 2015 but banks will be given up until January 2019 to meet all the standards”.

In short this means South African banks’ need for a liquidity facility is reduced. The knock on cost savings to banks is welcome. How this will affect property funds is up for much speculation. One point of discussion is an increased general confidence in the sector is expected. Investors feel more comfortable knowing the banks have less pressure placed on them by Basel 3.

Some analysts believe that aggressive regulation risked inhibiting economic growth and a consequent tightening of purse strings for property funds, as some banks raised concern that this could push up the cost of lending. So will relaxing of regulations see a drop in the cost of lending, property funds could benefit in this regard? Watch this space.

Do you want to invest in Westville? – You should!

University of Natal - Westville

University of Natal – Westville

Given the green leafy suburb label associated with Westville one may not consider it a node for commercial property, well that’s just not true.

Westville businesses can be found in prestigious office parks across the area. Westville’s commercial properties are in demand and its shopping malls are frequented by shoppers across the greater Durban area and beyond.

Westville is located approximately 13km west inland from the city centre of Durban. With the M13 running through it, Westville is on the route of the world-famous Comrades Marathon between Durban and Pietermaritzburg. Traffic flows steadily through the area which is bound by the N3 and M19 highways making Westville easily accessible for commuters based in Durban, as well as those from the southern and northern regions. This serves to make it a popular base for corporates that service these regions. Westville offers good infrastructure such as shopping malls, top schools, university, sporting facilities and medical services.

A decentralised hub west of Durban, Westville was named after Sir Martin West, Lieutenant-Governor of Natal in the mid-19th Century. Originally a farming area, his farm was transformed into this upmarket residential area, which has expanded and developed into a commercial market.

From a business perspective Westville is an established area that hosts long term tenants. Commercial and retail space is in high demand, especially due to the convenient accessibility to the Durban central business district and surrounds.

Pavillion Mall

Pavillion Mall

The Westville area has a mix of retail and office properties. There are three notable shopping centres, namely The Pavilion Mall at 119 000m², second only in size to Gateway in the Durban area, Westville Mall at 12 793m² and the relatively recently completed Westwood Mall at 34 940m².

One can neatly divide up Westville into four distinctive commercial zones: Westway Office Park, beside the N3; Derby Downs, north of the M13; Essex Terrace between the M19 and the N3 and Westville Central. If one was asked for the zone that stands out it would have to be Westway Office Park – it is in very high demand due to its proximity to the super-regional Pavilion Shopping Centre, accessible public transport and high visibility from the N3.

Featured in a recent Broll Report, Westway Office Park is a fine example of the strides commercial property is making in the area. When complete the office park will release 19 000sqm of AAA office space, highly visible to the N3. There is a parking ratio of five bays to 100sqm of space. Even small retailers are to be included with a coffee shop and a landscaped park.

Westside

Westway Office Park

According to Broll research, rentals have risen consistently achieving a high of R130/m² toward the start of 2010. In the second half of 2010 rentals fell to R120/m² and are holding steady at this price. Vacancies achieved highs of 19% in 2005 and then fell to 6% at the end of 2005. Since then, vacancies have swung back and forth, falling to 0% in the second half of 2007 before climbing to a current 9%.

In short, Westville commercial property demand, sales and supply are up. Space in demand is between 120-600sqm. Highest rentals are pegging at R135 per sqm; medium rentals at R100 per sqm and the lowest are at R75 per sqm. The scope for growth is real and demand is being met. [Stat Source: Broll]

Kenyan Retail and Property Sectors are Alive and Buzzing


IF
Kenya’s property industry is seeing unprecedented growth. Retail and office space is in very high demand. Foreign investors and local business are seeking out and snapping up opportunities across the country especially in Nairobi. But there are challenges as well as rewards.

Players in the construction and property industries refer to last year as a year of equilibrium in demand and supply. Though there was a reported slowing down toward the end of last year in anticipation of the elections. Looking back to 2007/2008 elections where there was violence, foreign capital stayed away and is eyeing the situation this time around with caution.

Those watching the property/development sector are doing so with interest in the extraordinary amount of international companies moving into the country. This naturally results in a greater demand for buildings.

A saying has emerged: “everyone in Kenya has become a real estate expert.” So looking for skilled advice is a little more challenging. This is where Actis owned Mentor Management comes in. In an interview with HowWeMadeItInAfrica, James Hoddell, chief executive explained that to his mind there are very few competitors in this market, at least those who do the full development and project management. “We are experiencing a real estate boom that is set to continue for years.” People are realising that you can’t just build whatever you feel like and sell or rent it.

Nairobi Business Park

Nairobi Business Park

Mentor Management has two notable developments currently on the table. One is the Garden City development. Upon completion it will be the largest mall in East Africa. It includes residential units, a public auditorium, a hotel and offices.  The other is Nairobi Business Park, which has a substantial waiting list. Hoddell is at pains to point out that projects like these are bringing in much needed foreign capital.

Foreign retailers in particular are sitting up and taking notice. Last year Mentor signed the first unit for Massmart in Kenya that will employ several hundred people. They are currently touring South Africa and Dubai to meet retailers winning them over to Kenya. Retail is a big growth area in Kenya.

It’s clear that the expanding population coupled with the growing economy is driving this property boom. If there weren’t tenants for these buildings, no one would be building them. Hoddell points out that for 20 years there was inadequate availability of property, there was very little development and the economy had stalled. But now, there is a renewed impetus in re-starting the economy. There is growth in Indian and Chinese investment as well as other international money, like the Actis fund.

“This is a relatively cost effective market to operate in. It is a cheap country to build in; it has a developed construction industry with developed sets of consultants and a functioning real estate market, which a lot of African countries don’t have.” Says James Hoddell.

One challenge faced by developers is the acquisition of land is becoming punitively expensive. The expectation of owners some may argue is unrealistically high.  It gets to a point where profitability is reduced such that it is not worth developing. This despite the rise of rentals.  Regardless the property and retail sectors in Kenya are alive with the sound of investment.
[Main Source HowWeMadeItInAfrica]

Serviced Offices are Booming, Why?

Corner_Suite2
Serviced offices are among the fastest growing sectors in global property today. The rate for growth over the past few years, despite the global economy, is impressive. With the growing market of serviced office space has come many questions. What type of business would make use of serviced offices and what practical reasons are there for changing to a serviced office environment?
A major difference between serviced offices and traditional offices, which is one of the main reasons for deciding to use them, is the length of the lease. A serviced office lease may be as short as 3 months, or more typically 6, 9 or 12 months. This is very different from the long lease normally associated with a traditional office and gives many organisations the much needed flexibility to shrink or expand as their business dictates.

But, some may say, more importantly, serviced Offices are a total solution in the sense that they are fully fitted and furnished, ready for immediate occupation. The Serviced Office Operator should take responsibility for all of the services to the building, and in addition provide a range of business services including reception and telephone answering services, secretarial support, conference and meeting facilities, video conferencing, networking and high speed internet access.

officeAlthough costs may seem high at first glance, the rent that you pay includes almost all of the costs that you would normally expect to pay on top of rent in a regular office. There are no additional costs for business rates, air conditioning, lighting & power, security, cleaning, building & plant maintenance, lifts, insurance etc. The only additional costs, on top of rent, are for telephone/internet usage, extra rooms if you use them, charged by the hour.

Similarly there are no charges for furniture. Operators often compete offering the latest workstations with chairs, filing systems and tables for meeting rooms. This is usually a weighty cost for any occupier and is included in the serviced office rent.

One may well enquire as to what type of company is using serviced offices. Many new, but not necessarily small, businesses cannot accurately predict their headcount figures over a two or three year time span. These companies take flexible leases in serviced office buildings where they will be able to take additional space when it is needed. A traditional office may feature in the next stage of their property strategy, but for the time being they don’t want large overheads with high set up costs. Flexibility is one of the key drivers that persuade an organisation to use serviced offices.

Of course there are also many firms that have chosen to reduce their exposure to property. Real estate often consumesBoardroom capital and time that could be better invested in a company’s core business. Serviced offices virtually eliminate real estate capital expenditure and leave property management stresses to the property owners.

So it seems that there are some distinct advantages for many a firm to switch to serviced offices.

But one must consider a few niggles that come up with regard to serviced offices: Shared facilities may not be available when you need them. Also, it is difficult to exert personal and corporate style to the office space because serviced offices can be rather uniform than distinctive. Some office buildings come fully branded, meaning they have their own over-door and internal signage, making it obvious that companies are residing in a shared, rented business building or office park. Although some offices do come totally unbranded so that companies can give the impression of owning their own space.

Finally rental costs may be more expensive over the long-term for larger companies with >30 staff if you don’t need to make frequent office changes.

The Latest from the US on E-commerce effect on ‘Bricks and Mortar’ Shopping Centres

1-1258209737k5bGSouth African commercial property trends may differ in some respects to the US, but we still take many cues from that influential country and South African trends are certainly affected by American ebbs and flows. No less so in the realm of e-commerce shopping’s influence on how we build our retail centres.

It’s undeniable, for some time online shopping has had both a complimentary and supplementary influence on the retail industry. E-commerce has altered how consumers shop and retailers do business. The knock-on effect has been an influence on how stores are designed and a long term transformation of how retails centres are built.

But what about right now, do shopping trends confirm or deny the shift, what could be coming our way here in South Africa? Well if the 2012’s holiday shopping is anything to go by; it’s more of the same. Abigail Rosenbaum, senior economist for CBRE reports that online sales are on track to outperform brick-and-mortar holiday sales for the fourth year in a row.

Rosenbaum reports that “Taking core retail sales (total sales, ex auto and ex gas) as a gauge for brick-and-mortar sales, a performance comparison against online retailers shows e-commerce’s impact to be undeniable.” It seems that consumers are ‘choosing sides’ if you will. Outside of a two-quarter span during the recession, e-commerce sales growth has consistently beaten core sales. And the momentum seems to be in e-commerce’ favour. As of the last data point (Q3), growth was 17.3%—its best rate since 2011Q1. Core retail sales growth, on the other hand, has decelerated to around 4%, its lowest rate in several quarters.

According to ICSC, sales growth among chain stores went into the red in November (down 0.1% compared to one year ago). According to ShopperTrak, sales at brick and mortar stores decreased by 1.8% on the day after Thanksgiving (a high watermark for US shopping). However, IBM saw online sales on that same day increase by 20.7%, which seems to indicate that consumers favoured shopping online on the day after Thanksgiving.

NRF’s Stores Magazine, consumers’ 10 favourite online retailers are 1. Amazon.com, 2.Walmart.com, 3.eBay.com, 4.BestBuy.com, 5.Kohls.com, 6.JCPenney.com, 7.Target.com, 8. Macys.com, 9.Sears.com, 10.Google.com.

So, you may ask, how is this strong e-commerce performance translating into changes at retail centres—specifically with regard to their development?  As Rosenbaum has looked at the pipeline of projects currently under construction or in the phases of planning or final planning, she has picked up a discernible trend. It seems there are a significant number of examples of retailers announcing reductions in the size of stores due to the increasing popularity of sales growth, but the trend seems to extend to shopping centres as well.

In the US smaller centres tend to be anchored by a grocer or smaller convenience-stores, and tend to comprise of tenants whose focus is on daily necessities, not unlike South Africa. The retailers of daily necessities tend to be more resilient to the impact of online shopping; between 1999 and 2010, e-commerce’s share of food and beverage sales in the US  climbed from 0.1% to 0.4% while clothing climbed from 0.8% to 14.6%.

On-line retail sales are continuing to improve and strengthen, not only in the US but here in South Africa too. Rosenbaum believes the trend is here to stay.

Consumers are recognizing the opportuneness and the more robust inventory of shopping online. It seems that certain retailers, grocery stores and other daily necessities stores, for example, are somewhat invulnerable, though no retail should consider itself immune. These tenants and the centres that accommodate them appear to be the current focus of retail centre developers. Brick-and-mortar retail is certainly not vanishing due to increases in online retail, but some changes are coming; retailers and retail centre developers are adjusting to focus on smaller store formats and centres that are more resistant to e-commerce expansion. It will be interesting to see if/when these trends are taken up by South Africa shopping centre designers, if not already.

This last Christmas, whilst shopping for CDs/DVDs, like I have done for years, yes I’ve been slow to buy music online; I noticed the amount of CD/DVD shops closing had increased, yet further. Even bookshops are fewer, scaled down and not as important as they used to be. However, it’s more likely that we should look in the direction of how retail centres are designed and refurbished as influenced by e-commerce rather than trembling at the prospect of vacancies increasing. On-line shopping is making its mark and will not be ignored. It seems it will change how we build not whether we build shopping centres.

Disaster Recovery Offering Value to Office Parks

server-rack2013 is set to be a year when disaster recovery will be a principle feather in the cap of office parks wanting to add value to their office space products. This trend is scoring big business among leaders in the field.

So says managing director of property development and marketing company, Abacus Divisions, Org Geldenhuys. He points out those office parks like multi-billion rand Route 21 Corporate Park in Irene and Highveld TechnoPark in Centurion are prime examples of disaster recovery locations.

Geldenhuys says that Route 21 “offers redundant fibre optics and is well geared from a technology point of view. We are noticing an increase in tenants who are looking to house disaster recovery sites for their clients.” Such value added qualities lead tenants to see this as a way of reducing capital spend.

It’s clear that there is a trend among landlords to think smarter offering what could be argued as a full-service approach including shared networks and telephone infrastructure.

Geldenhuys also explained that in some instances there are even server rooms and sophisticated security that is available for sharing. Ancillary services such as generators are also increasingly available to apportion.

Given the austere financial circumstance business finds itself in right now, multinationals and other corporates are itching for something more for their trouble than just conventional same-old, same-old that’s been offered by many landlords up till now. It seems that disaster recovery, for many, is scratching the itch.

 

Crowdfunding – Will South African Real Estate Bite

Crowdfunding

Crowdfunding

Is it possible that investors will second guess putting their cash into Real Estate Investment Trusts (REITs) in favour of Crowdfunding? Why hasn’t South Africa got a Real Estate Crowdfunding platform? Shouldn’t someone be considering it?

It may seem unlikely that anyone will waver in favour of Crowdfundings whilst pondering investing in REITs right now, especially in South Africa since no such option exists, but already in the US, Real Estate Crowdfunding platforms have emerged. For instance, Fundrise was founded by Ben and Dan Miller, who spent the last few years building up a booming commercial real estate business. Frustrated with Wall Street investors, the brothers decided to build Fundrise to democratize the process of investing in commercial real estate.

Given the novelty of Crowdfunding many remain in the dark. According to Wikipedia Crowdfunding, or hyper funding “describes the collective effort of individuals who network and pool their resources, usually via the Internet, to support efforts initiated by other people or organizations.” Crowdfunding is utilised widely to fund blogs, political campaigns, scientific research, start-up companies, music, the arts, as well as so called Angel Investing and now even real estate.

Ben Miller of Fundrise: “We felt that the private equity funds we looked to raise money from typically had no natural connection to the neighbourhood buildings we were developing,” So the brothers cut out the traditional middlemen and created the opportunity for direct investment. Now Ben says they believe that Fundrise “provides a platform that can revolutionize who influences neighbourhood development by giving the general public the opportunity to invest in and own local real estate and businesses.”

Forbes estimates that annual Crowdfunding transactions go as high as $500 billion annually compared to 2011’s $1.5 billion (anticipated to be $3 billion in 2012).  If Crowdfunding even begins to approach that scale, it will completely change the landscape for start-up financing.

To get one’s head around the concept of Crowdfunding a trip back in time may be required. Wiki describes Crowdfunding as having an historical antecedent in the 18th century idea of subscription. Back in the day many artists and writers found it difficult to find publishers for their books, and instead persuaded large numbers of wealthy benefactors to ‘subscribe’ in advance to their production.

Marillion

Marillion

Today Rock groups like Marillion and Electric Eel shock have funded tours and albums using Crowdfunding platforms. Independent films are booming thanks to raising funds with Crowdfunding.

In essence Crowdfunding is a form of “Micro patronage”, a system in which the public directly supports the work of others, donating via the Internet. This is as opposed to traditional patronage now many “patrons” can donate small amounts, rather than a small number of patrons making larger contributions.

Sticking with our example, how does Fundrise work? The first offering on the site allows users to buy shares in 1351 H Street NE , a restaurant location on the booming H Street Corridor in Washington DC. The building is leased to Maketto that combines a Japanese-themed culinary “night market” with a clothing boutique for DURKL, a popular DC-based street-wear company. By investing in the project, you get a portion of the 10 year lease proceeds (projected to be 8.4% year), a portion of the profits of Maketto, and a portion of the future appreciation of the building.

Allen Gannett of TNW explains about Fundrise thus: a $100 share qualifies you for Kick-starter-style rewards, as well as access to shareholder events and parties. For $1000, you get a 10% discount on all food purchases and DURKL clothes and for $10,000, you get an annual dinner prepared by their chef. By combining economic rewards with Kick-starter-style benefits, Maketto gains a population of customers who are literally invested in its success. Ben explained that “by giving the neighbourhood and potential customers the opportunity to become your partner, Fundrise creates a whole new form of brand loyalty.

Other African countries are emerging as if Crowdfunding was designed for Africa. Countries long considered on the periphery of the world economy are benefiting. “We want to get Africans into the crowdfunding space to invest in Africa’s own start-ups,” said Munyaradzi Chiura, head of GrowVC’s Africa operations in Harare, Zimbabwe to Crowdsourcing.org. “Crowdfunding is particularly suited to the African context because the amounts are small, thereby reducing the risk, and investors are not going it alone.” Projects in which “anyone can invest” could receive backing from outside Africa.

South Africa’s has an important Crowdfunding platform in Crowdinvest. Investing with the businesses it backs may allow unusual rewards: investors in a film, for example, would get walk-on roles or on-screen credits. On the other hand, it also offers more conventional schemes, with investors in small firms and start-ups getting a share of the profits or of the company’s ownership. It runs checks on any business wanting to register: “It’s not open to anyone to upload a pitch,” said CEO and founder Anton Breytenbach.  Crowdinvest returns the funds to users if the full amount sought isn’t raised, after which the project will shut down.

Barak Obama

Barak Obama

Considering that the US leads the way in so much, it’s worth noting that this year, President Barack Obama signed the JOBS (Jumpstart Our Business Start-ups) Act; this piece of legislation effectively lifted a previous ban against public solicitation for private companies raising funds. As of August 13, 2012, the Securities Exchange Commission has yet to set rules in place regarding equity Crowdfunding campaigns involving unaccredited investors for private companies; however, rules are expected to be set by January 1, 2013. Currently, the JOBS Act allows accredited investors to invest in equity Crowdfunding campaigns. In South Africa no such legal framework has been ventured and so far no one has challenged existing legislation that may impede the growth of Crowdfunding.

Considering the ups and downs, one has to look favourably on Crowdfunding in that it allows good ideas which do not fit the pattern required by conventional financiers to break through and attract funds through the ‘wisdom’ of the crowd. Proponents also identify a potential outcome of Crowdfunding as an exponential increase in available venture capital. On the down side, business is required to disclose the idea for which funding is sought in public at a very early stage. This exposes the marketer of the idea to the risk of the idea being copied and developed ahead of them by better-financed competitors.

So is there someone in South Africa ready to take on Crowdfunded real estate? It may not hold the lofty promise of creating high growth tech companies, but it does offer people the chance to own a piece of their neighbourhood. “Its social innovation meets investing” says Ben Miller of Fundrise. He believes that Crowdfunded real estate is providing a means for community member’s access to collaborative investment, while becoming part owners of the spaces and people they support. We could do with some of that in South Africa. Right?

Eskom Under Fire in Cape Town and Beyond

Courtesy Engineering News

Courtesy Engineering News

We’ve just seen credit ratings agency Fitch downgrade the ratings and outlooks of two of the country’s most significant state-owned enterprises, Eskom and Transnet. This as business, the City of Cape Town, trade unions and a host of civil society organisations opposed Eskom’s request for an average annual increase of 16 per cent over five years at Nersa’s hearings on Eskom’s tariff application.

The Cape Town Chamber of Commerce made damning statements about Eskom’s management stating that its fundamental thought processes were flawed and outdated. It put up front that “the proposed increases are unaffordable and will have a devastating effect on the economy and small business in particular.”

The chamber expressed what it called “grave” concerns about the management of Eskom. “We believe that maintenance was neglected in the good years to improve the bottom line and we are now paying the price for this in an expensive catch-up operation.”

In terms of the government’s electricity pricing policy, Eskom was required to revalue its assets by a multiplier of five so that it could generate sufficient cash flow. Its desired rate of return would be calculated on these revalued assets. This, together with the use of depreciation replacement cost of accounting, meant the provision for depreciation has soared from R10bn in Multi Year Price Determination2 (MYPD2) to R43bn at the end of the next five years. Nersa allows Eskom’s tariff to cover its operational costs, which include depreciation.

A number of business and other parties have postulated that there was something very flawed in Eskom generating profits for its sole shareholder, the Government. There is a broad body of thought that believes that Eskom, as a utility company, should operate on a non-profit basis in the interests of the country and the Government should be content with its VAT income from electricity sales.

Another issue the Cape Chamber took with Eskom was the policy of keeping electricity flowing to the domestic market whilst cutting or rationing supplies to major industrial customers such as the mines and through buy-back schemes. The point made that since mines and industry are the backbone of the country they should have preferential treatment. Of course rationing electricity to the domestic market would be very unpopular politically.

Other issues raised were: the alleged abuse by municipalities in the passing on of Eskom tariff increases to the consumer; under investing in electrical infrastructure and 13 reasons why gas powered power stations are superior to coal.  This in the light of world-class gas discoveries off the coast of Mozambique and Tanzania.

What’s interesting to note is Eskom’s regarding gas as unimportant. By contrast the National Development Plan produced by Minister Trevor Manuel and Cyril Ramaphosa does see gas as very important and a more affordable alternative to Nuclear power.

On matters of depreciation of Eskom’s assets, other parties made their voices heard: City of Cape Town director of electricity Les Rencontre told the hearing that Eskom’s revaluation of assets and its use of depreciated replacement cost had added R64bn, or over 2 per cent, to the depreciation charge. He urged that the “adjustment” in the value of the assets be disallowed as it added to the increase in tariffs.

Business day quotes Independent Democrats-Democratic Alliance (DA) MP Lance Greyling as saying that the return on equity and depreciation costs reportedly comprised 34 per cent of the “unreasonable” tariff increase applied for and should be “thoroughly interrogated”.

On a more populist note the National Consumer Forum branded Eskom a “parasitic institution” for wanting to increase the price of electricity by 16 per cent, and suggested that electricity be tax-free like brown bread and milk.

Liz McDaid of the Southern African Faith Communities’ Environment Institute criticised the power utility for prioritising its revenue over service delivery.eskom

In short Eskom’s proposal, if accepted, is for a five-year determination for MYPD3 to ensure a predictable, longer-term price structure.  The increase would take the price of electricity from 61 cents a kilowatt hour in 2012/13 to 128 cents a kWh in 2017/18 – more than doubling the price over five years.

The Cape Argus reports  Eskom chief executive officer Brian Dames and chief financial officer Paul O’Flaherty on Tuesday told the hearings the application supported investment by independent power producers and by Eskom. An average annual increase of 13 per cent is intended to meet Eskom’s needs over five years, plus 3 per cent to introduce new independent power producers. Eskom boss Brian Dames told Nersa he believes the company has struck an optimal balance.

The hearings are continuing around the country.

 

 

Oh Wither are we Bound?

fghjklRemember those old printer’s trays that young girls, mostly, now a little older, used to put on their bedroom walls filled with the most hideous useless junk. I think the trays then moved to more sumptuous parts of the home and became centre pieces for more ornate and tasteful knick-knacks as the girls grew up. If you have printers trays in the house you now know what to buy for Christmas at the end of this year and if you were the recipient of some irksome little trinkets last Christmas, you know where you can put them now.

Well, as a pre-Christmas chore I found myself chipping and scouring away the layers of paint, especially from the corners, from my daughter’s printers trays that she inherited from my wife, that she had as a teenager back in the, never-mind. Clearly instead of their beautiful virgin wood, paint was applied with whimsy and little skill to the trays as often as a new fashionable colour got their attention. Alas the burden of restoration is a heavy one. If you find yourself being asked if you think the current colour of the printer’s trays is suitable, whatever you do gush madly at its beauty in order to avoid hard labour.

This got me thinking about when I was a library prefect at King Edward VII School. I had an unorthodox and engaging library master called Mr Sandom. He encouraged us to read all manner of works from the classics to the then, recently in vogue, fantasy literature.

Just before the Christmas holidays Mr Sandom took us library geeks, as we would be called today I suspect, to the then arty-farty suburb of Melville where we visited a house with a ye-olde genuine printing press, cabinets with draws similar to the printer’s trays that people used to put up on their walls in the 80’s. They were full of letters, numbers, punctuation, and many other characters, as well as space blocks.

We all got into the spirit of the occasion and learned from the Mr Sandom how to create a page that we would print and place into our hardcover books that we had manufactured out of old maps as Christmas gifts the previous week. I distinctly remember that I had Iceland on the back and Nyasaland on the front. We didn’t just learn the rudimentaries of what it took to create a page of text the manual way we came away with a sense of achievement that a print out from our state-of-the art dot-matrix couldn’t do for us.

Which causes one to reflect, wither are we bound? Elsewhere in this magazine you will have read that inkjet technology exists that can produce droplets smaller than bacteria. Talk about sending the ‘flu a message. Then some Japanese guy had the bright idea while putting on his deodorant one morning: “if inkjet printing is just firing liquid at a surface why not spay stuff with perfume and other smells.” So maybe you’ll receive Christmas card smelling of roast turkey. And to think we got all excited in the 80’s about scratch-n-smell.

Whether it was yesterday, today or tomorrow, in the printing world higher and higher resolution seems to be that holy grail or fleeting horizon, reaching ever further, to working harder to produce clearer and better images and text, faster and faster, with less and less, in narrower and smaller spaces, cheaper and cheaper, with fewer and fewer people, using the fewer calories and lower wages, during reduced hours and….okay I’ll stops now.

Confronting the Slumlords – Jo’burg Innercity Renewal

Johannesburg_HillView_2colJohannesburg ‘s inner-city is continually in the news as a place to invest in property despite the crime and grime factors at play, the City claims to have attracted R9billion in investment into the restoration of derelict buildings. With organisations like Joshco and TUHF making strides in seeing buildings restored and viable for investment one has to ask what’s being done by the City to push back the forces of decrepitude that bedevil so many of its high rise buildings.

Enter the multi-disciplinary task force that has been given the task of the seeing the inner city restored and the criminal elements ejected. On the team are the South African Revenue Service (SARS), the Johannesburg Emergency Management Services, the National Prosecutions Authority (NPA), the SAPS as well as the Metro Police.

The-Vinuchi-building-cnr-of-end-and-kerk-streets-in-the-Joburg-cbd-is-one-of-many-buidlings-that had been-taken-over: Herbert Matimba New Age.

The-Vinuchi-building-cnr-of-end-and-kerk-streets-in-the-Joburg-cbd-is-one-of-many-buidlings-that had been-taken-over: Herbert Matimba New Age.

Thirty-six properties have been restored to their rightful owners since the team began its work. But it’s not all rosy, alas a thousand building are reportedly in the hands of hijackers.  This defrauds the City of revenue from rates and taxes, pushing up costs for potential property investors.

It’s specifically on this point that culprits have been pinned down. Previously police charged building hijackers with minor offences such as trespassing and intimidation. Unfortunately complainants were informed that it was a civil matter and that they could not be helped. But with the establishment of the task team, offences related to building hijacking – which is not a crime on its own – include the more serious charges of fraud and tax evasion.

Regrettably this is a process of three steps forward, two steps backward. Since the restoration of 36 buildings restored to rightful owners seven have been re-hijacked. This is blamed on not having the resources to guard all the buildings.

William Pudikabekwa

William Pudikabekwa

Looking at the broader picture, according to William Pudikabekwa, manager of properties and investigation in the council’s development planning and urban management department:  “But from when we started, when Joburg was a ghost town, I think there has been a turnaround in that to date more than 2 000 hijacked bad buildings [this precedes the work of the task force apparently]  have been given back to their rightful owners. I am seeing the changes happening now in the inner city since we started with this process.” He said in an interview with the Saturday Star.

The Johannesburg website announced last month that the task team had arrested 50 slumlords and reclaimed 50 bad buildings from hijacking syndicates, there seems to be a lack of continuity with regards to numbers. Louis Geldenhuys, the head of the City’s Legal and Special Investigative Unit  is reported to have said that his unit had in some cases reached an agreement with the rightful owners, who had since signed compliance agreements.

PArks

Parks Tau

Recently Executive Mayer Parks Tau did a tour of the inner city. Tau and his colleagues wanted to see for themselves the challenges in Berea, Joubert Park, Yeoville, Bertrams, Fairview and Jeppestown. They visited hijacked and abandoned buildings and overcrowded houses, all of which are connected to illegal electricity supply.

In one instance, more than a dozen people were found living in a tiny shack without running water or ablution facilities. They told the delegation that they paid R200 each for electricity and that they were not aware they were living illegally. This revealing some of the challenges faced by the task team.

There are an estimated 22 000 buildings in the Jo’burg inner city. Some are the very picture of sophistication, others are in a deep state of dereliction. However it’s clear that getting from one end to the other has required hard work and high risk for the private sector. But the block by block recovery of the inner-city’s buildings from criminal elements is going to require the on-going dedication of the multi-disciplinary task force the City of Johannesburg has assembled to fulfil this heavy task.

Kodak Yesterday, Lexmark Today what of Inkjet Tomorrow

It’s a mistake to think Lexmark’s ditching of inkjet printers is some kind of portent for the inkjet and allied industries. Industrial inkjet technology is booming and its future uses are broadening.

Kodak1The year began with the announcement by Eastman Kodak that they would file for bankruptcy. Kodak which was synonymous with the world of photography had become a force in the printing market too. So it’s been a heads up for those in the industry to hear of Kodak’s cutbacks.

Before filing for bankruptcy, Kodak had already started to close factories and photo labs. It has laid off employees, declaring an end to the production of video and digital cameras and photo frames. Kodak had planned to sell off 1,000 of its patents to raise funds but has postponed the sale indefinitely and may set up a new company which will license the technology to generate revenue. Kodak is now officially out of the inkjet printer market, however press releases state that it will continue to supply ink for its legacy inkjet customers.

download (1)In the wake of this, came the news that Kentucky based Lexmark will stop making inkjet printers, focusing instead on laser printers, which are used predominantly in businesses. The decision will lead to a factory closure in the Philippines by the end of 2015. Combined with other job cuts, Lexmark will get rid of 1,700 jobs worldwide according the Washington Post.

Intriguingly shares of the company rose on the news, jumping over 15 per cent for a high of $22.75 on Wall Street as investors welcomed the news that the company would get out of what some have called a faltering consumer inkjet printer market. Lexmark’s division that included inkjet printers and supplies fell 35 per cent compared with the same period last year. This compared to 9 per cent decline for its laser and business inkjet division. Unlike Kodak, Lexmark is still planning to stay in the printer business just not the inkjet business.

How much of this has to do with a specific decline in the desktop inkjet printer market and how much is to do with big companies weakening at the knees in the current economic climate is uncertain. What is certain is that Kodak and Lexmark are sacrificing inkjets to save their business. In Kodak’s case, as part of jettisoning a bulk of its other business interests.

Of some concern for consumers is the closure of Lexmark’s cartridge manufacturing facility in the Philippines  by the end of 2015. All development work on inkjet printing is also to be ceased, with all equipment and stock sold off. Conversely, in the short term, Lexmark’s exit from the inkjet market could spell savings for consumers: as the company sheds its stock, expect to see Lexmark-brand inkjet printers being sold at considerable discounts. While the closure of its official consumables plant could prove troublesome, compatible cartridges from third-party manufacturers should remain available for some time yet.

The Washington Post quoted from Paul Rooke, Lexmark chairman and chief executive officer, in a company statement that: “today’s announcement represents difficult decisions, which are necessary to drive improved profitability and significant savings, our investments are focused on higher value imaging and software solutions, and we believe the synergies between imaging and the emerging software elements of our business will continue to drive growth across the organization.”

The decision to pull out of the consumer inkjet market may be symptomatic of an on-going change in this sector. Comments on the blogs reflect that, while we’re taking and sharing more photos than ever before, most of them never get printed. Smartphones and tablets are changing the market as people can now easily keep stored documents on hand, obviating the need to print.

Also on the blogs are inkjet printers complaints about the cost of the ink – one often reads phrases like “a set of inks costs more than the printer” or “by volume, printer ink is more expensive than vintage champagne”. Of course there are reasons for this, however the fact remains that people are becoming resistant to paying for their printed photos among other things. Not that inkjets are just about photos. However despite having the ability to be a paperless society for decades, we insist on having hardcopy in our hands for far more than we would like to believe.

Of course when one speaks of inkjet there’s a whole world out there besides desktop printers that most office workers would not be familiar with. The industrial inkjet printing market was valued at $33.4 billion in 2011 and forecast to grow to $67.3 billion by 2017, according to Smithers Pira, the worldwide authority on the packaging, print and paper supply chains.

According to a study by the Smithers Pira see (http://www.smitherspira.com/future-of-inkjet-printing-to-2017.aspx) inkjet is growing because it provides significant advantages across many supply chains. This inherent flexibility has attracted the attention of many leading print equipment suppliers and they have invested a great deal of money to develop new printing systems, much more than in any other printing technology.

As one might expect, inkjet printing is used for printing on paper and card in a wide variety of scenarios, including printing product labels, packaging, and paper media, but inkjet technology is also applied to printing tasks that many are unaware of.

To be precise Inkjet printing technology is the digitally controlled placement of small drops of liquid onto a surface, and it works just as well with dyes as inks. Inkjet printing on textiles is widely used in the fabrics industry. Inkjet printing is also frequently used for printing onto glass and ceramics to create decorative tiles and other interior decorating and architectural objects.

A recent study from Smithers Pira reveals that with recent and coming advances in inkjet technology, the global market value for inkjet printing is expected to more than double in the next five years, and the proportion of printing tasks utilising inkjet printing as opposed to other methods is set to increase from 4 per cent to 7 per cent of the market value of the printing industry.

Solar cells are an important part of building a sustainable energy infrastructure, and by using inkjet technology to lay down the components onto a substrate, photovoltaics can be produced more quickly and cheaply. Using inkjet printing techniques is significantly more efficient than traditional methods, and reduces wastage of expensive and environmentally-damaging chemical components by 90 per cent.

Quo vadis you may ask. What about tomorrow? Digital nanoprinting uses newly developed technology to produce droplets that are much tinier than ever before, tinier than bacteria. Using drops these results in radically more precise and high-resolution images. Scent Printing: Since inkjet printing is basically just shooting fluids at a surface, there’s no reason they have to be inks or dyes. Japanese scientists have been working on printers that can print long-lasting scents onto documents. Soon the rose on your Valentine’s card really might smell as sweet. Pharmaceuticals:  Many people have to take carefully-dosed regimens of multiple medications and precise times during the day. Imagine if instead they could take exact, personally-tailored combinations and doses printed onto one pill with inkjet technology. (Sources: InkSplash and InkTech.com)

We’ve come a long way since the daisy wheels and dot-matrix. We’re now in the world of speedy and precise memjet printing and the like. Richard Remano VP of Technology and Solutions for Netherlands based Oce says that his company has been a toner based firm up until now and they have switched to being an inkjet based firm to take on the future. (see  Interview  at http://whattheythink.com/video/51850-oces-view-future-inkjet/) Inkjet’s future looks bright from here.

African Growth: Competitive Investment and at What Price?

Courtesy - The Economist

Courtesy – The Economist

Africa for so long a collective of querulous bankruptcies and killing fields has seen its coffers increasing and democratic advances reaping peace and prosperity.  The International Monetary Fund predicts sub-Saharan Africa growing at 5.4 per cent this year compared to 1.4 per cent for developed economies.

Africa’s is home to some of the world’s fastest growing economies and rapidly rising disposable incomes. A decade of relative political stability has also helped the case for African investment.

New investors come expecting bargains because the continent is still seen as poor. However investors looking to buy into future growth are now paying a premium due to sellers savvy to opportunities being fewer and further between.

Sub-Saharan Africa’s attractiveness as an investment destination has risen to fifth place in 2012 from seventh in 2011, according to a survey by the Emerging Markets Private Equity Association. Opportunities traditionally existed in mining but speakers at Reuters Africa Investment Summit in September have pointed to consumer and banking services sectors as the next big thing.

Africa’s largest telecoms operator MTN is a perfect example of a company that paid what was considered a weighty price at the time, for the right to commence operations in Nigeria 11 years ago. It paid $285 million for a mobile license, now it has over 41 million subscribers and banked revenues of 34.9 billion rand ($4.47 billion) in 2011.

Actis, a private equity firm in emerging markets, said it was recently outbid in a North African deal by a trade buyer that offered 12 times EBITDA (Earnings before interest, taxes, depreciation and…). Valuations on the continent are, however, cheap compared with price demands in bigger emerging economies in Asia. Speaking to Reuters, John van Wyk, the firm’s co-head for the region said: “Valuations, depending on the sector, can be quite high but … compare that to the 16 times EBITDA multiple you are being asked for in India or China, that’s kind of stratospheric stuff.” “We are quite bullish about the continent but Africa doesn’t come without its challenges,” van Wyk said.

It seems that it is not unusual for new investors on the continent to make the mistake of coming with preconceived ideas of where valuations should be.

The world’s biggest retailer Wal-Mart bought a majority stake in South Africa’s Massmart for $2.4 billion in 2011, a 19 per cent premium to the 30-day volume weighted average price. With that has come a great deal of political and legal manoeuvring that remains to be finalised.

Even where companies are willing to pay a premium for a good target, companies of the right size are hard to come by. Every big African brewer, for example, has been nailed down, according to SABMiller’s head for the region, Mark Bowman. “No one is getting anything for a reasonable price any more; you are paying for a future opportunity a significant premium. Anything that would become available would be aggressively priced and one would have to take a view if it’s worth it,” he told Reuters. Diageo, consumer goods companies with a portfolio of world-famous drinks brands, dug up a heavy $225 million for an Ethiopian state brewery last year, months after Heineken paid $163 million for two other beer makers in that country.

Emerging Capital Partners is opening an office in Nairobi, its seventh office on the continent, to grab east African opportunities. Alex-Handrah Aime, a director of the Africa-focused ECapitalP: believes that one way of bridging the valuation gap is for buyers to start with a convertible bond, instead of taking up equity at the onset. Private equity firms need to avoid auctions to keep a lid on valuations, she told Reuters. “It’s a competitive process. If you end up in an auction situation … the person who pays the most is going to win. That’s not necessarily the valuation that is going to be most sensible.”

Some investors have turned their backs on what they see as inflated prices. South Africa’s second-largest banking group First Rand dropped its bid for Nigeria’s Sterling Bank last year after the two disagreed on price.

Interestingly Middle East investors, though slow to join the fray, are competing for investment opportunities on the continent. Not short of oily billions and short of investment opportunities in the developed world, Africa is looking attractive.

However challenges have been quickly recognised. One is the relatively small size of potential deals. “The Middle Eastern sovereign wealth funds are very interested in Africa, the challenge that they face is the increment at which they need to invest is way too large for the continent at the moment,” Diana Layfield, Africa chief executive at Britain’s Standard Chartered Plc. told Reuters in an interview on the side-lines of the World Economic Forum on Africa.

“Definitely there will be more (investment) coming to Africa,” Saudi Arabian Minister for Agriculture Farad Balghunaim told Reuters. “With the clear vision that is building up in African leadership now, there will be more and more investors from Saudi Arabia,” he said in Addis Ababa.

However accessing growth is not a given. There is a lack of liquidity in public capital markets. For private equity bankers, there is often a shortage of deals that can meet their mandate when it comes to size. For example, emerging markets private equity firm is reportedly aiming for individual deals of $50 million or more in Africa, meaning it has to focus on the continent’s biggest economies – South Africa, Egypt and Nigeria – to find deals.

Dubai’s Abraaj Capital is in the process of acquiring UK-based private equity firm Aureos Capital, which invests in small and medium-sized businesses in Africa, Latin America and Asia. “We tend to have a sweet spot at around $10 million, but we have investments as low as $2 million and going up to about $35 million,” Davinder Sikand, Aureos’ regional managing partner for Africa told Reuters.

“Our focus has been to build regional champions. So we’ll take positions in businesses that can demonstrate management vision and build (them) out, recognising that each of our markets other than Nigeria and South Africa are fairly small markets, and you need to build that scale.”

Due to the constraints in their home markets, Middle East investors are familiar with Africa’s challenges, such as the poor infrastructure, the shortage of a highly trained workforce and the lack of liquidity in capital markets.

Frederic Sicre, a partner at Abraaj Capital told Reuters: “Behind us are 200 of the wealthiest merchant families, royal families from the Middle East, and sovereign wealth funds from the Middle East. We can pull them in to looking at the infrastructure development space, or the big utility development space, into looking at the opportunities here.”

Clearly the continent has become a far more competitive place than it used to be. Despite many target deals being on the small side for the bigger players, the expected returns are considered reward enough in the long term. Africa, -keep doing what you’re doing and you’ll keep getting what you’re getting. If democratisation continues, peace will abound and prosperity should follow the necessary hard work buoyed by investment.

Burger King Enters the South African Commercial Real Estate Market

Burger-King (1)You may have heard of Grand Parade Investments (GPI) but you have almost certainly heard of Burger King. It’s all about branding. But the fast food business is also all about real estate.

When McDonalds first came to South Africa with their real estate policy, insisting on owning every freehold site, they encounted many obstacles souring their early days in the country. Steers has landed with their proverbial bum in the butter acquiring access to scores of outlet sites at service stations country wide. With arguably most of all the best sites taken up already what will be left for Burger King?

Slot+machines+gambling+casinoIt’s now well publicised that JSE listed Grande Parade Investments has struck a deal with Burger King, (the US’s second biggest Burger fast-food chain after McDonalds) after 18 months of negotiation with the view to the fast-food franchise setting up shop in South Africa. Intriguingly GPI has a long range vision set on the pizza, pasta and chicken market too.

GPI is no stranger to the food franchise market with Cape Town Fish Market and Leonardo’s under its belt.  GPI is known primarily though for its casinos, slot machines and hotels. The first Burger King outlet will open on Adderley Street in Cape Town, around May next year. Initially all the stores will be company owned. The financial side of the deal has not been disclosed. GPI will make a substantial investment in the venture, which will be funded from existing cash resources and new debt. The deal is still subject to the SA Reserve Bank approval. This is required because royalties will flow out of the country.

Hassen+Adams

Hassen Adams of GPI

The competition is very high but Hassen Adams of GPI seems unfazed. MoneyWeb’s Hilton Tarrant asked Adams about sites and whether landlords and property management companies had been calling them? He replied: “I am absolutely gobsmacked by the interest. We said that we would sort of roll out this whole concept in Cape Town very, very conservatively. I can tell you, we are going to have to do it in a very aggressive way. I’ve got the go-ahead from my board to now go full-steam, and I think that we will be rolling out a lot of these Burger Kings much quicker than we anticipated. We obviously are going to start in Cape Town first, then Gauteng and then Durban.”

According to Wikipedia “Burger King derives its income from several sources, including property rental and sales through company owned restaurants.” According to NetLeaseAdvisor, Burger King generates revenues from three sources: retail sales at Company restaurants; franchise revenues and property income from restaurants that BKH leases or subleases to franchisees.

We already know the maxim: location, location, location. So what of the fact that other fast-food chains are way ahead of Burger King in this regard? What does Burger King want in a store? “Burger King’s restaurants are usually free-standing buildings, located on outparcels in shopping centres and on high-traffic urban streets”, says Randy Blankstein, president of the Boulder Group, a net lease brokerage firm based in Northbrook, Illinois, US.

To get really specific, the highly regarded Net Lease advisor rates Burger King as similar to other quick-service hp photosmart 720restaurant (QSR) operators, Burger King prefers locations in high traffic areas with superior access. Accordingly, net lease Burger King properties are usually supported by strong real estate fundamentals. The underlying asset is typically a 278.7sqm building with a drive-thru window, situated on 2023.4sqm to 4046.8sqm of land. It is important to note that Burger King franchises the majority of their locations, while only 15% of Burger King locations are corporate-operated. Therefore, there are a number of various lease agreements and guarantors operating under the Burger King banner. Corporate-backed leases have been trending towards ground leases of 10 – 15 years in length with rent increases of 8% – 10% every 5 years. Franchise guaranteed lease terms vary, as do their respective cap rates based on perceived credit-worthiness of the operator. However, if a site has high quality real estate and strong sales, some leases have been known to offer annual rent increases or percentage rent.
The nearest indication we can get with regard to Burger King’s intentions are, real-estate-wise here in South Africa, is Adam’s answer to a question about the location of outlets. “We will find the right sites. But also we have 400 slot-machine outlets, (mostly in pubs), and this creates opportunities. Why go the quick service route? In those sites we can create a Burger King that is a hole in the wall. You need to be creative.” It seems quite an ingenious move to piggy back the roll out of Burger Kings through the already tried and tested market of GPIs slot-machine outlets.

china-burger-king-2009-12-2-6-40-21But it won’t end there if Burger King’s move into China is anything to go by. A recent article in Business Journal about Burger King Worldwide, opening 1,000 new restaurants in China offers a bullish insight into the future of the commercial real estate market in the People’s Republic.

That Burger King Worldwide is moving into China in such a massive manner is bullish for the commercial real estate in the country for a variety of factors.  The most obvious is that there will now be 1,000 pieces of commercial real estate in China that will have a Burger King restaurant as a new tenant. The commercial real estate market in China can only benefit from that development.

Also of significance is that Beijing is welcoming new businesses into the country. That will only increase the demand for both residential and commercial real estate in China. This new demand from foreign investors, by the basic laws of supply and demand, will raise property prices in China both in the commercial real estate sector and market for homes in the People’s Republic. These same principles apply in South Africa. If Burger King is coming to town this is an encouragement for other foreign direct investment in South Africa in general and in commercial real estate in particular.

So we wait with baited breath to find out what GPI and Burger King plan for South Africa’s roll out. The 400 slots outlets are not quite the same since no purchase of land is taking place but when the foot is in the door, given Burger King’s record, it shan’t be long before real estate is being bought up.

BurgerKingSo how stable is Burger King you may ask? Well to start with the company has a ‘B2’ rating with Moody’s’ – judged as being speculative and a high credit risk. By way of comparison McDonalds has an ‘A2’ rating. Standard and Poor rates Burger King ‘B’. An obligor rated ‘B’ is more vulnerable than the obligors rated ‘BB’, but the obligor currently has the capacity to meet its financial commitments. Adverse business, financial, or economic conditions will likely impair the obligor’s capacity or willingness to meet its financial commitments- according to S&P. McDonalds is rated ‘A’.

Net Lease advisor rates Burger King as a solid net lease investment set of properties. “For a non-investment grade net lease tenant, Burger King provides stability in an uncertain market.”  Apart from adding some jobs to the markets and variety to our fast food habits, Burger King seems to have the track record to suggest that a move into South Africa can only be a confidence boost to the commercial property market even if its direct effects are delayed by the strategic embedding of Burger Kings into GPIs slot-machine outlets. Not everyone who wants a burger plays the slots and Burger King knows this. Commercial real estate will have to be purchased for the proposed big roll out in the Cape Town, Gauteng and Durban.

Legal News on the Property Front

Recent legal developments on the property front have been attracting a great deal of attention. From Wendy Mechanic and Renette Block representing the Estate Agent end of the spectrum to Ndlambe Municipality demolishing unapproved residences. Last but not least is a breakdown of the process leading to the new steps recognising women’s property rights.

Wendy Machanik pleads guilty to theft charges

Wendy MachanikThe latest on the , former estate agent Wendy Machanik’s case is that she has pleaded guilty to 90 counts of theft, totalling R27 million, according to a recent report. Another two counts were for failing to keep accountable records of her trust account.

Due to Magistrate Phillip Venter’s concerns about terms of sentence, Machanik would only know her fate next month. Sapa has reported that Venter said she should be sentenced for two counts of contravening the Estate Agency Affairs Act separately from the 90 counts of theft, which are regarded as a common-law crime.

The plea and sentence agreement, however, stipulated that sentencing should take all 92 counts together. The case continues.

Meanwhile Jawitz Properties is taking legal action against its Jeffrey’s Bay franchise owner, Renette Block amid allegation of theft. It is also alleged that there have been misappropriations of funds held in trust and funds paid to the franchise on behalf of their clients.

Herschel Jawitz, CEO of Jawitz Properties says they were alerted to possible irregularities when their head office started receiving complaints at the end of 2011 from property owners who were not being paid their rent, which had been paid to the Jeffrey’s Bay franchise office by tenants.

The group has cancelled the franchise agreement and is seeking a court interdict against Block, preventing her from having any access to the business and the business bank accounts. Jawitz Franchise Systems has also laid criminal charges against the franchise owner Block with the Jeffrey’s Bay police.

In addition, the matter has been reported to the Estate Agency Affairs Board, the industry regulatory body, for further investigation. The EAAB has frozen the franchise’s trust account and if found guilty, Block could have her license revoked. “Our first priority is to our clients and we are doing whatever we can to manage the situation.” Jawitz told IOL.

In Ndlambe Municipality v Lester and Others’ the wall come tumbling down.

05102012_18

Whether it is erecting a new building, making additions or deviating from the original plan of a house there may be the temptation to think you don’t have to abide by municipal rules.

The court is able to issue a demolition order even if the municipality has granted approval. All due processes are necessary including the neighbour’s approval as in the case mentioned above. This is according to Lanice Steward of Knight Frank Anne Porter who recently reviewed a case in the Smith Tabata Buchanan Boyes newsletter.

In the case of Ndlambe Municipality v Lester and Others, the property owner had his plans submitted and approved by the municipality.  The plan was to build a second, larger building on the property as the one that existed was too small.  The problem that arose is that a second dwelling was actually prohibited by the township conditions and a neighbour, Haslam, objected and applied, successfully, for an interdict against the building going ahead. Lester amended the plans and these (“the 2002 plans”) were also approved.

Lester then decided to proceed with a building that differed from the amended set of plans (things changed and he needed to make provision for his mother to live with him) and submitted another set, which were approved by the municipality but Haslam was never informed of the subsequent changes.

Once the building was almost complete Haslam realised the difference in plans and he brought an application to the review board because the building took away 75% of his sea view. After a series of amendments and re-submissions, which were rejected by Haslam, the last review ended in an order prohibiting the municipality from approving new plans, which meant that the only set approved were the original 2002 plans. As the building was substantially different from these, Haslam applied to the court to have the building demolished.

The court ruled in Haslam’s favour, ordering the building to be demolished, citing Section 21 of the Building Standards Act.

“The court has the discretion to issue a demolition order on a building even if the municipality has approved them, and this shows that all due processes are necessary, the neighbour’s approval in this case being the all-important step that was miss
ed,” says Steward. “There is a question to be asked here though – how did the municipality approve the plans in the first place?”
Recognition of Women’s Property Rights

Female_RoseIn recent court judgements, women’s matrimonial property rights in South Africa were recognised, according to Simphiwe Maphumulo, a director in the property and conveyancing department at Garlicke & Bousfield Inc. (Reported by Property24)

Maphumulo says that back in December 2008 the Constitutional Court delivered a milestone judgment in the case of Gumede v The President of the Republic of South Africa.

In the case the Court declared certain provisions of the Recognition of Customary Marriages Act, 1998 (the Act), inconsistent with the Constitution and invalid insofar as they did not recognise customary marriages entered into before the commencement of the Act.

Recently another matter of similar significance came before the Supreme Court of Appeal, but this time section 7(6) of the Act was under scrutiny.

That section provides that, a husband in a customary marriage who wishes to enter into a further customary marriage after the commencement of the Act must make an application to court to approve a written contract, which will regulate the future matrimonial property system of his marriages.

In this case, Ngwenyama v Mayelane & Another, a subsequent customary marriage had been concluded between the second wife and her deceased husband, but had not been preceded by the required application in terms of section 7(6).

The first wife brought an application in the Pretoria High Court to declare the subsequent marriage null and void on the basis that it lacked compliance with this section.

The High Court agreed with her and held that failure to comply with the mandatory provision of the Act cannot but lead to the invalidity of the subsequent customary marriage.

The second wife (the appellant) then appealed to the Supreme Court of Appeal against that decision and that Court was therefore faced with the task of interpreting the provisions of section 7(6) in light of the reasons provided by the Pretoria High Court in making its order.

Those reasons included a finding that failure to comply with the subsection leads to invalidity of the subsequent further customary marriage because of the peremptory language of section 7(6), i.e. the use of the word “must” and the provisions of section 7(b)(ii) which gives the Court powers to refuse to register a contract.

The High Court’s interpretation is also at odds with the Constitution and the Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW) to which South Africa is a signatory.

The Appeal Court held that the stated purpose of the Act is to regulate the proprietary consequences of customary marriages and the capacity of spouses of such marriages.

It was also noted that some authors on the topic have concluded that noncompliance with section 7(6) does not lead to the nullity of the customary marriage and that such marriages would be regarded as out of community of property.

The discriminatory interpretation of section 7(6) excluding women in polygamous marriages is deeply injurious to women in such marriages as it adversely affects them in such areas of, inter alia, succession, death or divorce.

The effect also extends to their children who would, by virtue of the disputed interpretation suddenly be rendered illegitimate.

The Appeal Court accordingly upheld the appellant’s appeal and set aside the order of the Pretoria High Court, which had declared her marriage to the deceased null and void.

It was also held by the Supreme Court of Appeal that, the second customary marriage must be out of community of property as it cannot be a marriage in community of property which would imply the existence of two joint estates.

Though a complicated weave, it’s another step forward for South African women’s property rights and for South African law as a whole.

Cape Town – Making the City Work

Cape Town CBD

Cape Town CBD

Cape Town’s CBD, the business hub of the South Africa’s second biggest city, is working hard on its image as a functioning and healthy city centre where things work and business gets done. Investment, infrastructure upgrades and improved systems all reveal a sober and progressive approach to making Cape Town’s heart functional and competitive.

In the last four years the Cape Town CBD has been the target of nearly R5 billion’s worth of upgrades and development. A recent survey commissioned by the city’s Central Improvement District values CBD property at about R22.3 billion.

Recent or current developments in the city include:

Cape Town Convention Centre

Cape Town Convention Centre

The R690 million expansion of the Cape Town International Convention Centre (CTICC) which is in its planning stage. This redevelopment will see the venue double in size. The completion date is set for July 2015.

The R138m Provincial Government building upgrade in Dorp Street is to be completed in July.

The R1.6bn 32 floor (tallest in the CBD) Portside Building between Bree, Mechau, Hans Strijdom and Buitengracht streets. This is an enterprise by FirstRand Bank and Old Mutual Properties aimed at completion in 2014.  The building will be the provincial headquarters of First National Bank, Rand Merchant Bank and Wesbank.

The R32.8mil Civic Centre refurbishment has begun, the completion date is still uncertain.

The R1.4bn Cape Town Station upgrade, phase one is underway and phase two is still in the planning stage. The date for completion is not certain.

Port Side Building

Port Side Building

Ingenuity Property Investments are redeveloping the Atlantic Centre in Christiaan Barnard Street to the tune of R160m and should be completed early 2013.

The R80m development of Touchstone House on the corner of Bree and Mechau Streets is in its planning phase.

The R150m upgrade to Newspaper House in St George’s Mall is to be completed this year.

The Cape Town City Hall is also due for refurbishment. It is estimated that it will take R20 million to upgrade the historic building. A variety of repairs as well as major upgrades to the roof and auditorium are required if the building is to remain functional. The timeline is likely to be between two to three years.

The Cape Argus refers to a “turnaround strategy” that was put into place for the building back in 2009. Since then R4m had been spent on repair projects. This includes R1m to refurbish toilets and R500 000 to restore woodwork. Portions of the ceiling have been repaired, light fittings replaced and walls painted. But major repairs are still required.

Cape Town City Hall

Cape Town City Hall

By way of justification for all this expense, is the offering of City Hall as a nucleus for the city’s arts community. The intention is to position the venue as a location for various creative activities. Clearly this is already the case. Between January and September, more than 70 events were held at the City Hall. The Cape Argus reports that another 40 are planned up until the end of this year. The city has been meeting with the Cape Town Partnership and the arts sector with the view to working on arrangements to secure events until 2015.

From art to infrastructure. Cape Town’s foreshore dead-ends and unfinished freeway are finally to be looked at with a creative eye. The City of Cape Town, with the help of University of Cape Town (UCT) engineering students, is hoping to find a viable design to complete the structures.

Students from the university’s engineering and built environment faculty will be asked for draft innovative design proposals for the incomplete freeway in a way that will improve access to the city. It has remained incomplete for many years due to lack of funding.

Unfinished Flyovers

Unfinished Flyovers

For some they have been a blot on the landscape for others an icon, regardless the unfinished flyovers are to be examined and considered for more constructive use. Proposals include; creating parking beneath them, a museum and even providing viewing spots of the city.  One main focus is on how to use the structures to help ease access to the city centre, and in this way improve working and living conditions for residents.

The project would start in January and the tenders would go out in early 2014. One possibility mooted is for an international consortium to be responsible for the construction work. This would be a long term project that would change the landscape of the city.

CCTV cameras - CBD

CCTV cameras – CBD

There’ s a great deal of attention being paid to crime and grime issues in the CBD too and people seem to be  enjoying their work environment. The aforementioned survey commissioned by the City’s Central Improvement District (CCID) reveals that 82.6 per cent of people feel safe in the streets and eighty-three per cent of businesses also rated the CBD the safest in the country.

The report found that over the past three years property investment in the central city brought in R4.6 billion and a GDP contribution of R1.5bn was generated from events hosted in the city. According to the survey between 2001 and 2010, the residential population in the city had increased by 76 per cent. A further 79.3 per cent of the people interviewed felt the city was clean and orderly while the remainder said cleaning could be improved.

Just over 85 per cent said they felt safe in the city at night and 90 per cent of businesses were satisfied with the overall services of the CCID. The CCID reported that crime rates fell by half in the central city. In social development, the CCID said they were working with 16 social service providers to help homeless people. Evidently of the CCID’s budget of R37.5m, more than half would be spent on safety and security.

Golden Arrow Busses

Golden Arrow Buses

Finally, improved transport is very much in the vision of the city. Cape Town is moving closer to gaining complete control over Cape Town’s public transport operations. It will see the city managing the subsidies of the Golden Arrow Bus Services, which currently fall under the provincial government. In 2011, Golden Arrow Bus Services received a R600 million subsidy. It has more than 1 000 buses on 900 routes across the metro. Now the city is applying to the national government for the contracting authority functions to be taken over by the city.

At the moment, rail services are managed by the national government while the MyCiTi service is city-run. Eventually these will fall under the Transport Authority. Going forward, the goal is a single payment method for all modes of transport. This can be done with the myconnect card. It will also affect scheduling of services, allowing for a shared timetable. The entire integrated public transport system is expected to be complete in the next five to seven years.

Cape Town seems to be focused, industrious and committed, as people in the CBD make their city work.

South Africa is Part of Africa, but will it Take Part in Africa?

The World Bank has likened the doubling of African manufacturing output over the last decade to China’s position thirty years ago. Emerging Markets Investment firm Actis’ real estate director Louis Deppe believes that South African investors who ignore the potential in African markets do so at their own peril.

Ivor Ichikowitz, founder of Paramount Group, a privately owned defence and aerospace company, believes South Africans have looked to Asia and the West for the best ideas and viewed them as their natural competitors, as opposed to our African neighbours.

Louis Deppe of Actis

Louis Deppe told Moneyweb at an Africa Property Investment Summit in Sandton. “You have no choice not to care about Africa. It’s on your doorstep. Some significant economies are going to overtake South Africa in a very short space of time. They’re growing faster and have far more potential to grow.”

An example Deppe probably has in mind would be Ethiopia, their economy is expanding at 7.5% annually and that’s not just traditional industries like mining and agriculture, it’s also manufacturing. An example on the periphery of Addis Ababa is Chinese shoe maker Huajian, which has built a factory employing around 500 workers.

An economist at the World Bank who recently wrote a report on light manufacturing in Africa cites this as an example of how Africa could overtake Asia to potentially become the world’s next manufacturing hub.  Low labour costs, the availability of natural resources, and preferential access (duty-free and quota-free access) to the US and EU markets are all some of the advantages of operating in Africa.

It is predicted that Nigeria, with a growth rate of 7% should overtake South Africa by 2015. Louis Deppe warns that up until now, South Africa, being, arguably, the most democratic and stable country on the continent, has been able to attract foreign direct investment (FDI), often getting the lion’s share compared to other African countries. Once other countries also start fulfilling some basic requirements, this will no longer be the case.

South Africa used to be the gateway to the rest of Africa. If foreign investors wanted to set up and go into Africa, the FDI would come to SA first, before moving up north. This is no longer happening and foreign investors are now moving directly into Africa from China, Europe and the United States.

Nairobi – an “African Tech Hub”

By 2035, the continent’s work force will be greater than any individual state on earth.  Nigeria and Ethiopia will add over 30 million workers by 2020, whereas South Africa is looking at adding 2 million.

However, it’s not just manufacturing that Africa is excelling in and challenging South Africa. The Economist recently (August 2012) named Nairobi an “African tech hub” because of the hundreds of start-ups that have sprung up in the last few years. Kenya’s exports of technology related services have risen from $16m in 2002 to $360m in 2010. It is also a world leader in the adoption of mobile payments technology – and is far ahead of China and India.

According to Ivor Ichikowitz, within a few years Kenya could soon emerge as a world leader in mobile payments and export the technology to countries across the world.

He also refers to the African film industry. The Nigerian movie industry, which has overtaken South Africa’s to become the strongest on the continent worth £500m and producing more films than Hollywood every year. The films may not be international blockbusters, but they have huge appeal across Nigeria and Africa, and prove that Africans have the creativity to compete in non-traditional industries.

Nigerian Movie Industry Worth R6Billion in 2011

Clearly we need to be at least aware of what our neighbours are doing if our market is shrinking or stagnating and the world around us is getting bigger, we risk becoming less relevant in the grand scheme of things. Alas it seems the South African economy is sliding backwards while the rest of the continent is in first gear. Most African markets that Louis Deppe’s Actis group invests in are experiencing 7% GDP growth. “Despite claims of corruption, a lot of that money still filters down into the economy, there’s a lot of economic drive and growth.” he said. He added that on the development side, Actis was getting returns of between 13% and 14%.

But Ivor Ichikowitz has a positive spin on this: “it’s a positive opportunity for us to export our products and knowledge and generally expand trade with other African nations, which in turn will generate jobs for the youth of our country.”

South Africa has some great assets – its infrastructure, mature private sector, well developed services sector, stock exchange – that give us the opportunity to provide a range of goods and services to help grow our own economy, but we can work harder to maximise these advantages.

IVOR ICHIKOWITZ

Ichikowitz says that countries like Ethiopia, Kenya and Nigeria are rushing forward and emerging as serious competitors for destinations of foreign capital.

This is pressuring our government and business leaders to look more closely at their policies and approach to business. The harsh reality is that if South Africa is to retain its position as the leading economy on the continent it can’t for a minute ‘rest on its laurels’.

Ichikowitz doesn’t see South Africa as being in competition with the rest of Africa, but rather in a position to learn from and impart learning to neighbouring states, which is why it is essential that we share technologies and collaborate to build strong regional industries that bolster inter-Africa trade.

Deppe looks more into the nitty-gritty glancing back to what he refers to as a watershed year for property investments in South Africa, 2010, after the World Cup. “We had all these infrastructural projects, the economy had withstood the 2008 global recession. Then suddenly: what’s next in SA? There’s not much left in South Africa, we are a saturated market.” Deppe said by way of illustration that vacancy rates had increased in many shopping centres across the country. As a result, investors’ returns at 7% or 8%, which were not great to begin with, are shrinking and are likely to be impacted further. He said with GDP growth in South Africa being below 3%

New South African Bank Notes

“you’re not even going to get out of the starting blocks. You’re actually going backwards in real terms.”

The troubling dynamic among South Africa investors is their reluctance to invest in Africa stems from an unfounded conservatism. “With the South African base not as strong as it was, it’s forcing people into a mind-set to look abroad. I don’t think they have a choice.” Deppe said.

Hilton Buy-to-Let – Opportunity Knocks

Hilton College, synonymous with the town of Hilton, caught headlines earlier in the year for its announcement that it plans to sell off a substantial bundle of its estate for a housing development.  Since the school claims it’s in no financial difficulty one can’t help feeling if the time is right to invest in the small but prosperous town.

One may ask, ‘what do they know that we don’t’. Hilton’s trustees have made available 100ha of prime land for an exclusive residential estate expected to net at least R90 million when complete. The school spokesman told the press that it all had to do with the school becoming prohibitively expensive at R190 000 a year and how it needed to be more relevant and offer opportunity via bursaries to the previously disadvantaged.

The Gates of Hilton, as the development will be called, is not about charity, it’s about some very wise investing as Hilton sees itself become the target of people moving up the hill from Pietermaritzburg and even Durban. The first 50 sites of The Gates of Hilton have already been made available to those with connections to the school.

Not far away is Ambarlea, an excellent rent-to-buy residential development, more than 40 units of which have recently been sold. Gated communities are so commonplace that they are springing up unnoticed. Ambarlea offers automated access control and palisade perimeter fencing. Hilton has long been regarded as an upmarket residential destination, with a wide range of quality family homes but very little suited to first-timer buyers, investors or retirees. Developments like Ambarlea are offering one and two bedroom apartments, among others. Entry level pricing is at R595k at one bedroom, the two bedroom apartments are priced at R850k. The complex is within walking distance of the village, hence the buy-in from Hilton College parents, young professionals, retirees and investors.

Champagne air and cooler summers lacking the humidity of the coast, spacious properties and abundance of good public and private schools, including Hilton College and St Anne’s, this is a location which is ideal for healthy family living or entertaining in country style. Security is an increasing need among home buyers, which makes the freedom of a village such as Hilton and its low crime profile so desirable.  Houses with large well-kept country gardens on stands of 2000sqm are available as an excellent buy-to-rent opportunity.  Prices range between the R1.4m to R2.5m mark.

With the upgraded Oribi Airport in Pietermaritzburg so easily accessible and today’s advanced technology and connectivity, they are also finding that more residents choose to live in Hilton and commute on business to other areas and regions, including Gauteng. Gateway to the popular Midlands Meander, Hilton is only an hour from the Drakensberg Mountains and 10 minutes from Pietermaritzburg.

Other developments in the Amber –range are Amberglen,  Amber Valley and Amber Ridge offers a range of unit options and pricing within a secure and picturesque environment.  Also on the buy-to-rent list of opportunities is Amber Ridge, the latest of nearby Howick’s popular “Amber” retirement villages. Since its late 2011 launch, 65 of its intended 200 units have been sold, with first occupation having taken place in May 2012. While a separate village in its own right, with its own body corporate, frail care, community centres and wildlife conservation area, it will share these facilities with its neighbour, Amber Valley. In turn, Amber Ridge residents will have reciprocal access to Amber Valley’s facilities, which include a large frail care unit, two heated swimming pools, a library, communal dining room, snooker room, various function rooms, a gymnasium, a pub, Astroturf bowling green, two tennis courts, bass and trout fishing dams, and walks in the designated game estate area.

Hilton is clearly emerging as a property investment magnet with everything from small units, gated communities and grand old homes with bed n’ breakfast potential to retirement accommodation.

,

Taking Africa Seriously

Whether it’s private equity firm Actis’ movements in Africa, surprising news about Ugandan oil reserves or South Africa’s PPC cement eyeing Ethiopia, it’s all part of the growing trend to take Africa more seriously.

Actis continues to dig deep and wins an award too.

Actis

Emerging markets private equity firm Actis is looking to invest around $300 million annually in Africa. The firm aims for individual investments of $50 million or more, meaning it focuses on Africa’s biggest economies – South Africa, Egypt and Nigeria for example – where there are more opportunities for bigger deals.

Actis was formed in July 2004, as a spinoff from CDC Group plc (formerly the Commonwealth Development Corporation), an organization established by the UK Government in 1948 to invest in developing economies in Africa, Asia, and the Caribbean. The Actis management team acquired majority ownership of CDC’s emerging markets investment platform.

According to Wikipedia on 1 May 2012 the Secretary of State for International Development, Andrew Mitchell, announced that the state’s remaining 40% stake had been sold to the Actis management for an initial £8m. The deal also included a share of future profits that could be worth over £62m to the UK Government.

Actis Spokesman John Van Wyk a veteran South African private equity banker told Reuters recently “I tell our investors that I think Africa is still probably the best-kept secret because we continue to make superior returns,”

Actis, which has about $1.5 billion deployed in Africa, last year led a $434 million buy-out of South African firm Tracker, which makes vehicle tracking equipment.

A feather in Actis’ cap is that they have won ‘Best Developer in Africa’ in Euromoney’s 8th global real estate survey – official recognition of the private equity firm’s track record in investing in the real estate sector on the continent. Actis launched their first real estate fund in 2006 and focus ‘institutional quality retail and office developments in high growth markets.

Despite its challenges, the real estate sector is growing in popularity for PE funds – Kenyan Britam (recently rebranded from Britak) is planning to include the sector in their targets for their first PE fund.

Ugandan Oil Deposits

Ugandan Oil Deposits 40% greater than expected.

An additional 1bn barrels of oil has been discovered during exploration on Uganda’s oil fields, pushing the figures of commercially viable deposits to at least 3.5bn barrels and pushing Uganda up from 43rd place to 32nd place among the world’s oil producers, just ahead of the UKs North Sea Oil.

Ernest Rubondo, the commissioner for petroleum exploration and production at the ministry of energy and mineral resources, made the announcement in September. The Ugandan Daily Monitor quotes him as saying: “From about two or three wells we have increased our oil barrels to 3.5bn,” Rubondo said. He further disclosed that out of 77 wells drilled so far, 70 have been proven to contain oil and gas.

The Albertine Graben in which oil has been discovered in Uganda is located in the western part of the country, mainly in Masindi, Kibale and Hoima districts.  Unfortunately, according to the energy ministry, production has been hampered by squabbling over contracts and taxes. Infrastructural inadequacies are not helping either.

Enter corruption: three ministers are facing allegations of accepting bribes. The government has not been forthcoming with information about these irregularities and this has just fuelled suspicions of high level corruption.

British explorer Tullow Oil, want commercial exploitation to start immediately, saying it is unreasonable for it to be expected that they hold their capital idle. Howwemadeitinafrica.com confirms reports that Block 1, found on the northern tip of Lake Albert, is operated by a local unit of France’s Total SA, while Block 2 is operated by Tullow Oil. Total entered Uganda’s oil industry early this year after it signed onto a joint venture with China’s CNOOC and took up a third each of Tullow Oil’s exploration assets in the country worth $2.9bn.

The Ugandan government says only about 40% of the Albertine Graben has been explored to date and has stated it will be demanding tougher terms in new oil deals. This tale is far from over.

South Africa’s PPC Cement and the IDC acquire 47% of Ethiopia’s giant Habesha Cement.

PPC cement

Acquiring a 47% share in Habesha Cement Share Company (HCSCo) of Ethiopia, South Africa’s Pretoria Portland Cement Company (PPC), joined hands with South Africa’s Industrial Development Corporation (IDC) in a deal worth US$21million. PPC’s $12m cash injection secured 27% equity in HCSCo, whereas IDC’s $9m secured a 20% equity stake.

PPC is not the only cement company capitalising on the fast growing cement consumption in the region. Dangote Cement of Nigeria and Athi River Mining of Kenya are also competing for market share, reminding South African business that it’s a new kid on the block. PPC’s stated intention is to grow revenue earned outside of South Africa to 50% during the next few years.

According to Imara Africa Securities Team, in addition to the injection from the IDC and PPC, the company secured $86m debt financing from the Development Bank of Ethiopia. The first phase of HCSCo’s plan is a $130m state of the art cement plant with an annual capacity of 1.4m tonnes per annum (mtpa) specifically for the Ethiopian market. The plant’s future development plan includes an option to double the capacity to 2.8 mtpa. The plant, which is currently in the early stages of construction, is located 35km north-west of Addis Ababa. Cement production is planned to commence during the first half of 2014.

Ethiopia

During the initial construction phases, PPC will assist HCSCo by providing operational and technical expertise and with the training of plant personnel at its operations at the PPC Academy in South Africa.

At 85 million, Ethiopia is the second largest country in Africa by population. However the per capita GDP is $354. Worth watching though is that the country’s economic growth rate was at 8.8% in 2011. Ethiopia’s government has launched a 5-year (2010/15), Growth and Transformation Plan (GTP), which is geared towards fostering broad-based development. The scheme seeks to double the GDP and the agricultural production and to increase electricity coverage from 41% to 100% and access to safe water from 68.5% to 98.5%. Since 2003, the government has embarked on a housing reform programme – a modest 11,000 homes have been completed to date providing individual ownership of affordable quality housing. The future market in Ethiopia for construction and thence cement is substantial.
{Sources: Howwemadeitinafrica.com/ Imara Africa Securities Team/ Businessmonitor.com}

Three examples of where Africa is being taken very seriously is a just the tip of the ice berg. There’s more where that came from so watch this space.

Cape Town’s Community Upgrades – bread or cake?

Fairhaven-playground-spray-park Washington

When there are Royal weddings and countries jostle to hold grand sporting events it’s often to distract the people from recessions, wars and scandals. So it’s hard not to be a little cynical about grand gestures by politicians purportedly for the good of the masses. Some would suggest a connection between the ANC youth league’s intention to make Cape Town ungovernable and the latest announcement by the City to spend R132 million on community facilities this municipal financial year.

Perhaps it’s disingenuous of those who may be casting aspersions on the motives of the council and we should all just be grateful that something tangible is in the pipeline for underserviced communities, even if it isn’t infrastructure, housing or education related.

According to Mayoral Committee Member for Community Services, Councillor Tandeka Gqada: “It’s important that residents of all communities have the kind of facilities that ensure an improved and more enjoyable quality of life. We are committed to providing this for the people of the Cape Town municipality and this upgrade plan is just one of the many ways we are doing that” the SA The Good News website reports her saying.

In short the City of Cape Town’s Community Services Directorate is embarking on a series of planned upgrades, with the intention of providing quality recreational and educational services across the City. In total, the upgrades will cost more than R132 million over the next municipal financial year.

The City will be building brand new facilities and upgrading established facilities in order to attain what it says are “world class standards.”

Plans include sports centres and swimming pools, halls, libraries and parks. One of the main buzz phrases to come out of the announcement is ‘spray parks’.  A spray park is a water feature which sprays water so users can play in it. Essentially, it is sprinklers installed intermittently in a grassy area.

Gqada has explained that the spray park concept is being applied worldwide with great success. She has pointed out that as a spray park has no standing water, it “eliminates the need for lifeguards or other supervision as there is practically no risk of drowning”.

Spray parks are intended to service communities where there is no municipal swimming pool, school pools or pools in private houses. The City has mapped every single swimming pool in the metro to ensure that new pools and spray parks are built in the most ‘appropriate’ areas of the city.

Areas in which community upgrades and new developments are planned include Khayelitsha, Gugulethu, Imizamo Yethu, Du Noon, Nyanga and Athlone. The City’s position is that identification of these areas form part of the City’s long term redress plan to eradicate the historical legacy of Apartheid.

Athlone is an example area for Community Service upgrades and development. The City of Cape Town’s Community Service Directorate has added Vygieskraal Stadium, the Manenberg municipal pool and the Athlone municipal pool to their list of facilities to be revamped.  A total of R3.2 million of the project’s funds will be spent in Athlone. The project is set to be complete by June 2013.

Tandeka Gqada said via a press release that two primary methods are used to identify and prioritise under-served communities. “Firstly, community research is used to determine from communities what their needs and preferences relating to community facilities are,” she said.  “Secondly, the Council for Scientific and Industrial Research (CSIR) was commissioned by the City to analyse current community facility provision and distribution, and model future needs spatially, for the whole metropolitan municipal area.”

Kewtown and Heideveld will be receiving a full-size artificial soccer field in the next municipal financial year to the tune of around R5 million each based on the above facility planning methodology.

People’s Post spoke to Kewtown resident and high school teacher, Ian McLean, who believes not upgrading any educational services in Athlone “is an indictment on the City itself”. However, he is thrilled that the Athlone pool will be upgraded. “An upgrade for that pool is long overdue,” says McLean. “We were promised it would be fixed up before the 2010 World Cup but nothing happened. I’m glad that something will finally be done about it now,” he says.

Ian McLean at least has a positive attitude despite concerns about unattended areas of need. One can only hope others do to, especially since these upgrades and developments can only have a positive spin-off for the communities involved. However when communities are in turmoil about basic service delivery spray parks and the like may seem like offering “Qu’ils mangent de la brioche” that is: “let them eat cake.”

Hotels in Rosebank, the latest

Holiday In at the Zone

Less than two years ago saw the opening of the 4 star, 8 floors Holiday Inn joining the Zone in Rosebank. The 5 star Monarch boutique hotel was auctioned off last year. The 5 star Winston hotel was featured on Top Billing and renovations of some of big-name hotels continues.

The five-star Hyatt Regency in Oxford road, adjoin the Firs shopping centre, is to be refurbished to the tune of R100m. The hotel was established in 1995 and has had “soft” refurbishments over the years, but an extensive overhaul is now needed according to Hotel manager Michael McBain talking to MoneyWeb last month.

The hotel has been under pressure from regular local and international guests to update its technology and to bring the establishment more in

The Winston Boutique Hotel

line with global standards. One of the items on the refurbishment agenda will be the rebuilding of the walkway between the hotel and the Gautrain station about 100 metres away. The hotel’s banqueting business has soared since the Gautrain opened in October 2011.

The Hyatt Regency

Other areas for refurbishment include the guest contact areas, basic facilities of the rooms, reception area, kitchens and so on. The overall refurbishment is expected to take 2 to 3 years.  The hotel is owned by Investec and is managed by the Hyatt.

This comes on the back of the opening of the new Tsogo Sun’s, 54 on Bath, a five star boutique hotel located on Bath Avenue which opened on 9 July. Sold by Hyprop Investments Limited, the JSE listed property company that own and is expanding the Rosebank Mall next door.

This building used to house the iconic Grace Hotel and office buildings but is now owned by Tsogo Sun Holdings, one of the largest Johannesburg Stock Exchange listed companies in the hotel and tourism sector.

Tsogo Sun’s 54 on Bath

54 on Bath is Tsogo Sun’s first hotel offering in Rosebank. The company owns 14 casino properties located in Gauteng, Western Cape, Eastern Cape, Free State, Mpumalanga and KwaZulu-Natal, and over 90 hotels in South Africa, Africa and Seychelles.

54 on Bath’s featured Level Four Restaurant offers distinctive dining, classical cuisine with a contemporary twist. “The complete remodelling of the hotel redefines us as a modern yet classic, urban chic, city hotel.” Jacques Moolman, hotel manager was quoted as saying recently. He says they hand-picked significant pieces of art from the old hotel and then commissioned local photographer Ryan Hitchcock for a series of compositions of the surrounding neighbourhoods in Johannesburg.

The property boasts 60 deluxe rooms, 12 executive rooms and three executive suites elegantly styled with views over

The Monarch Boutique Hotel

the garden or the green city skyline. It also has three meeting rooms catering for up to 120 people each and a boardroom that seats 20 people.

Another breath-taking feature of this boutique hotel is the famous roof garden on the fourth level as it creates a bridge from city scape to suburban tranquillity.

The Grace Hotel which was closed down in August 2011 was sold to Tsogo Sun Hotel Group for R85 million. Between R20 million and R25 million was spent on refurbishing the property.

Announcing its six months to June results in August, Hyprop said the downturn in the hospitality industry impacted negatively on the performance of the fund’s hotels, The Grace Hotel in Rosebank and Southern Sun Hyde Park.

Rosebank Hotel Crowne Plaza

It wasn’t that long ago that the independent The Rosebank’s Hotel was the only hotel in town, beside the old Residential Oxford Hotel. The Rosebank was whisked away from the Protea group into chic international sophistication by the Crowne Plaza chain of hotels with a R254m refurbishment. Now it stands proud among Rosebank’s other 5 star hotels.  The Rosebank is the only Crowne Plaza in South Africa.

The City Lodge Courtyard

With The Courtyard and The Don representing one end of the market and The Crowne Plaza Rosebank, The Hyatt and the Holiday Inn representing the international brands, that just leaves the boutique hotel business with Tsogo Sun’s 54 on Bath, The Winston and The Monarch. Eight hotels, five of which are five stars, serving one square kilometre, Rosebank is certainly on the map for international and national visitors.

The Don Apartments

Rosebank – While you were sleeping

Looking at the Rosebank skyline one gets used to seeing cranes. As one comes down so another pops up. Although many observers are sitting up and taking notice of Rosebank as an area under redevelopment, locals will tell you how refurbishments, acquisitions and new buildings have been rumbling on for some time now.

Rosebank Skyline

According to the Broll Office Market Report, Rosebank is being revived with great retail and exciting new office developments supported by the surrounding residential nodes and the Gautrain station. Rosebank is fast becoming the city’s third high-rise business centre after Sandton and the inner city.

Artist Impression of the finished Standard Bank Complex

The cranes are certainly busy in the block bordered by Oxford Road, Baker Street, Cradock Avenue and Bolton Road.  This was the short lived address of the office building 30 Baker Street, the Lindsay Saker dealership and the Sanlam Arena. Some may remember how the Sanlam Arena was built on the site of the old Arena Theatre- hence the name. Prior to that, this was the site of the Rosebank Primary School before it moved to its current location in 1974.

Johannesburg City council relaxed its height restrictions and approved SBREI’s high-density office and retail development on the southern side of the precinct. Phase one is the construction of an 11-storey building. The bank has the rights to go up to 20 storeys but has opted for a lower building with a larger footprint. Standard Bank was one of the first companies to join the Green Building Council in 2008. As a green building, it should be more energy and resource efficient. The Standard Bank development will comprise 125,000sq m mixed-use development. The bank’s new property will cost R1.6 billion and should be finished off this year.

The property will accommodate 5 600 Standard Bank employees and is aimed at alleviating some of the stress placed on the bank’s current infrastructure. Standard Bank has over 60 000 square metres of office development and the iconic Oxford Corner is all but complete offering 9 000 square metres of premium-grade office space.

The news that has slowly unfolded over the last year has been Hyprop’s intentions for the block encompassing the Rosebank Mall, Tsogo Sun (formerly The Grace) and Cradock Heights.

On the corner of Cradock and Tyrwhitt Avenues Hyprop has purchased Cradock Heights, a commercial property with a GLA of 4,745sqm. Hyprop also purchased a 70% undivided share in the office park Nedbank Gardens on Bath Avenue directly opposite the Mall. This landmark building was demolished earlier in April this year.

The demolition of Nedbank Gardens

“Through the two acquisitions Hyprop is consolidating its presence around the Mall to maximise densities and improve connectivity to the office precinct and Gautrain station,” said Financial Director Laurence Cohen.

In short Hyprop intends on almost doubling the Rosebank Mall’s lettable area from 35 000sqm to 62 000sqm, an increase from 101 stores to 161 at a cost of R920 million. The expected yield is 7%. The extensions to the mall will span Bath Avenue and link to the former Nedbank Gardens site. Five new basement parking levels will be constructed here and will be accessible via both Sturdee and Bath Avenues for increased convenience.

The existing centre will remain accessible via Baker Street and the entrance adjacent to the Shell Garage on Bath Avenue. Construction on the 25 month project began in August and is expected to be completed by September 2014.

A number of well-known local and international brands are already secured for the new space. New tenants include retailers with household names like a full line Woolworths Platinum store, a double level Edgar’s department store, Dis-Chem, Mr Price Sports and Jet.

Existing tenants including Stuttafords, Truworths, Mr Price, Queenspark and Foschini, will all be upgraded or expanded to offer the latest new store concepts and merchandise.  Other new boutique offerings include Pringle, Ben Sherman, Kurt Geiger and Earthchild.

Rosebank is one of the few urban areas in Johannesburg with a strong pedestrian culture and a thriving street life. When asked about the new development’s influence on that, Hyprop chief executive officer Pieter Prinsloo told property24 that: “We intend capitalising on these characteristics by creating strong physical linkages with the natural urban corridors that connect the lower Rosebank office blocks to the upper retail parts and the Rosebank Gautrain Station.”

The redevelopment will also connect to the new Tsogo Sun hotel, 54 Bath, as well as create a north-south pedestrian walkway between the Standard Bank development on Baker Street and the taxi rank on Cradock Avenue.

The Tiber

But the Rosebank Mall isn’t the only mall where there is movement. Diagonally opposite the Firs on Biermanann Avenue is the Tiber on Oxford Road which is still taking occupation. After many years of contentious redevelopment applications constrained by the remainder of a half-destroyed historical building, development approval was finally given in mid-2008 for an office building at the well-known corner of Jellicoe Avenue and Oxford Road. The building is intended for offices only and measures 8,416 m² of offices over eight floors.

What’s coming to the other part of the same block housing the Tiber is the big news. Directly opposite the Firs will be “The Bierman”, the name may change, designed by GLH Architects, it will comprise two linked structures made up of glass and green walls. This will bring over 30 000 square metres of office space to let to the Rosebank office market. The Bierman will accommodate three floors of basement parking space, an atrium level, three above-ground parking levels, and 9 floors of office space. That’s 12 floors above ground.

Artist’s model of the Bierman

Although still at the proposal stage, it’s disappointing to note that there is no mixed retail component in the plans given that Rosebank is such a pedestrian friendly community. The Firs is in the heart of pedestrian movement in Rosebank which is strongly emerging as an investment node. The centre was originally built in the 1970s and underwent a multimillion rand redevelopment in September 2009.

A more recent redevelopment included a new restaurant piazza which provides synergies with the rest of Rosebank’s pedestrian and street-level shopping complexes. The restaurant piazza opens onto Cradock Avenue and is intended to create a seamless flow with the rest of the Rosebank shopping node.

The Firs itself has changed hands – Investec Property Fund has acquired the landmark, mixed use retail centre for R272m. The fund purchased the property in a related party acquisition from Investec Property as part of its intention to build its portfolio. Investec Property Fund CEO Sam Leon describes it as “a trophy asset for the fund in that it’s a high profile asset poised for on-going growth.”

Perhaps just a footnote as far as development is concerned but worth mentioning is The Rose, a development going up on the corner of Sturdee and Jellicoe Avenues. This high-end four-storey building, which offers 2,852m² of office space and 100 parking bays, is being built opposite the Rosebank Primary School.

Finally The Zone. Already a formidable presence in Rosebank with some 123 shops and a four star Holiday Inn, The Zone II is still a long way from completion. The Standard Bank building on Cradock Avenue is still to be torn down and further building to take place. The Zone Phase II offers loft offices and two floors of retail. Pedestrians can gain access from Oxford Road and Tyrwhitt Mall, and via a direct entrance to the Rosebank Gautrain station and Bus Rapid Transport system. The Zone Phase II integrates with The Zone Phase I on the south side and The Firs on the north.

The Rosebank Management District and Lower Management District have been working in conjunction with various government and private partners to reduce crime, clean up the area and increase service delivery.

“Rosebank is reviving, with great retail and new office developments which are well-supported by the surrounding residential nodes and the Gautrain station,” said Jane Parker, area specialist and commercial broker at Broll commercial property services group.

Rosebank has so much more to offer than mere office space: A pulsating African Craft Market, a Sunday rooftop market, 8 Hotels, 220 retail outlets (with more to come when The Mall redevelopment is finished and the Zone phase 2 is complete.) nearly 50 restaurants and cafes, 7 night clubs, 10 art galleries, 20 cinemas all linked with a vibrant pedestrian friendly network of concourses and walkways. It’s no wonder that there are cranes on the Rosebank skyline.

Ghana’s Economy, Sending Mixed Signals

Ghana’s economy is sending the world mixed signals. Last year it saw growth skyrocketing, influenced largely by the launch of oil production at its Jubilee oil field in November, sending GDP soaring by nearly 15 per cent. But that growth rate is expected to nearly halve to 8.2 per cent this year as oil production has averaged 80,000 bpd as opposed to the 250 000 bpd that was anticipated for 2013. Either way it’s all growth and the spinoff for the rest of the economy is worth taking notice of.

Ernst & Young defines Rapid Growth Markets (RGMs) as countries with economies and populations of a certain size that display strong growth potential and are, or could be, strategically important for business. Ghana will this year be among the three fastest growing economies from a group of 25 global RGMs, according to a new Ernst & Young report. Ghana’s burgeoning oil industry is credited with the recent rapid economic growth.

Jubilee Oil Fields

The sudden slowdown in growth since the beginning of 2012 is expected to be just a phase. “Our analysis suggests that RGMs are likely to weather the on-going Eurozone crisis and remain engines of global growth, though many will see expansion slow this year,” says Alexis Karklins-Marchay, co-leader of the E&Y Emerging Markets Centre. “Their expansion is expected to accelerate once more in 2013, helping stimulate a wider pick-up.”

The report is dependent on Ghana’s oil output rising, be it gradually. Nevertheless, Ghana’s growth is comparable with other African oil producers. Angola’s economy is expected to grow 9.1 per cent this year, surpassing the rate of stalwart Nigeria, seen growing 7.0 per cent this year. Ghana’s Oil exports should also help to sustain the public finances and the balance of payments, which have been affected by higher government spending.

Ernst & Young forecasts GDP growth of approximately 7% for 2013 and an average of 5% annually over the medium term. “While Ghana will only be a small oil producer, production of the commodity has boosted medium-term growth prospects,” says E&Y.

Growth’s knock-on effect on infrastructure is worth noting. Foreign direct investment into Africa in 2010 fell by 9% but rose significantly in Ghana. The promise of an oil boom has attracted the interest of global construction and infrastructure companies.

An example of this interest has been the signing of a $2 billion letter of intent by Hasan International Holding, a Chinese corporation, to develop an advanced industrial facility near the port of Takoradi, which handles 60% of the country’s crops and mineral exports according to a report by Euromonitor International.

The expected on-going effect should be the creation of jobs in the region, attracting local and foreign workers, which could provide a substantial consumer foundation for retailers looking to expand outside of the capital, Accra.

Another example of infrastructure growth is Helios Towers Africa, a company that leases space on telecom towers to mobile network operators. By owning and managing the towers, Helios allows the network operators to focus on their core business. Helios Towers Africa (HTA) was founded in 2009 and is the leading independent, telecoms tower company in Africa with operations currently in Ghana, Tanzania and the Democratic Republic of Congo (DRC).

Pioneers of the sale-leaseback model in Africa, the Helios model of shared telecoms infrastructure, is helping to deliver improved operating and capital efficiency for mobile network operators, reducing costs, increasing accessibility and improving network quality of service for users. Together with subsidiary HTN they own and manage 3,500 telecom towers, the largest number held by an independent company focused exclusively on Africa.

Due to the infrastructure investment deficit in most sub-Saharan African markets, the timing is perfect. Unless telecoms infrastructure investment in Africa increases, it will be impossible to serve the burgeoning levels of consumer demand for 2G voice, let alone the site densification required for 3G coverage, improved capacity and the rapid growth in data traffic.

More than 60% of Ghana’s population are mobile phone subscribers. Mirroring a trend common throughout Africa, mobiles are increasingly used as a means for cashless payments/transfers, and target the large unbanked population. An example is MTN’s Mobile Money, a service that allows users to send cash and purchase goods from participating retailers.

Retail space has not gone untouched by Ghana’s growth.  Accra, Ghana’s capital is a microcosm. The majority of modern retail space has been developed in Accra, due to better infrastructure and access to a large population. An Euromonitor report notes that Ghana’s retail industry achieved 14% value growth between 2006 and 2011, which reflects the strength of fast-moving consumer goods (FMCG) companies in the country.

An example is Danish-based dairy firm Fan Milk Group. It is reporting 10 times the turnover per capita in Ghana than in Nigeria. In 2010, Ghana was the largest market for the company and, with a turnover of US$67 million, accounted for 48% of the group’s revenue and 64% of its operating profit. Other cases include Unilever and PZ Cussons “The presence of such manufacturers provides a good opportunity for retailers as they can source these manufacturers’ products cheaper locally rather than importing them,” says Euromonitor.

On the retail front, according to Howwemadeitinafrica.com:  RMB Westport, a South African property firm, is also working on two mixed-use developments in Accra. The first is West Ridge Head Office where the ground floor will offer retail space while offices will occupy the rest of the building. The second location is Icon House, close to the airport and Accra Mall, which will also offer retail space.

Artists Impression of Takoradi Port after redevelopment

One place which is a microcosm of the effects of growth in Ghana is the port city of Takoradi. It is expected to see significant growth because of its proximity to the country’s offshore oil fields. Before Ghana began with hard-core commercial oil production in 2011, Takoradi was designated as a backwater town. Nevertheless, it has since risen to prominence due to being the nearest commercial port to Ghana’s offshore oil industry.

In a recent development investment firm Renaissance Group announced a new mixed-use urban development, called King City, to be located 10km from the Takoradi harbour.

King City will be developed on 1,000 ha of land and is designed around a live-work-play concept. It will accommodate residential and commercial growth associated with the region’s mining and energy sector boom. According to Renaissance, the development will feature shopping facilities as well as residential and commercial components. King City will be built in phases over 10 years and is expected to eventually be home to over 90,000 residents.

Other news is that the International Finance Corporation (IFC) has provided a loan of US$5.45 million to Alliance Estates Limited, to build the first Protea Hotel in Takoradi. The 132-room, three-star hotel will help meet demand for business infrastructure as more investors are venturing into the oil producing region of Takoradi. The Protea Hotel will be amongst the first to provide international-standard rooms, rates and conference facilities.

Potential boom towns in Ghana like Takoradi offer attractive opportunities from a property development perspective – especially for hotel and retail developments.

Ghana moved up the World Bank’s Ease of Doing Business rankings from 102nd in 2005 to 60th in 2011. Also internal tariffs are being abolished, allowing for a greater level of intra-regional trade. All good news. Yet analysts remain concerned about a weakening cedi currency due to rising imports for the oil industry.

Inflation has trended upwards, making life difficult for locals, even though economic growth is on the rise from the oil production. A Reuters poll forecasts inflation averaging 9.6 per cent this year and 9.3 for 2013. The inflation rate rose for a fourth straight month in June to 9.4 per cent from 9.3 per cent previously. The cedi has lost over a third of its value since it began producing oil in November 2010, trading now at around 1.95 per dollar.

So it is mixed signals for the investor. Ghana’s growth is coming in ebbs and flows. The development of Ghana’s infrastructure, catalysed in part by the discovery of off-shore oil reserves, and the country’s movement to political stability, has paved the way to sustainable economic growth. With this has come retail potential and prospects that could see Ghana emerge as the next retail hub in the region.

3 Renewable Energy Fallacies

Three Renewable Energy Fallacies

So it’s the 21st century and we can watch TV on our phones and be informed about anything and everything via the internet. Though sometimes what we consider a blessing can also be a curse. An abundance of information means we require discernment to judge between truth and fiction.

This brings us to a world in transition. We currently find ourselves suspended between two eras: a time dependent on fossil fuels such as oil and coal, and a future potentially dominated by renewable energy sources. Not everyone is on board though. Options vary on just how dependable some of these renewable energy sources are, as well as how well they’ll be able to sustain us in a post-fossil fuel era, if there is such a thing.

Such hesitation gives birth to fallacies, misconceptions and even blatant falsehoods. Below we’ll ignore the conspiracy theories and obvious tomfoolery and focus on what seem to be the fallacies that have been given credence of late.

Solar Power is Impotent

Okay so your kids can have sparkly calculators that can get by on solar power and yet the latest formula one racing cars use fossil fuels. This doesn’t help the image of solar power very much.

Even if solar electricity, also known as photovoltaics (PV), was only capable of energizing our low-power gadgets many experts identify the statement “little steps can’t make a difference” as a major myth surrounding the green movement.  While such gadgetry may seem to make little difference to global energy consumption, it’s a small change that forces others to think about the ecological matters at hand and possibly make both small and substantial changes in their sphere of influence.

PV power may not be in a position to solve all our energy problems this year, but its potential for the future is great. Think for a moment, we are referring to acquiring energy from a gigantic star — one that drives our solar system, our atmosphere and pretty much all life as we know it. The United States Department of Energy (DOE) estimates that the solar energy resource in a 100-square-mile (259-square-kilometer) area of Nevada could supply the United States with all its electricity.

South Africa is one of the best located regions for Concentrated Solar Power (CSP) with some of the highest levels of Direct Normal Irradiance (DNI) in the world. The Northern Cape region of the country experiences levels of more than 2 900 kWh/m2, significantly more than some of the other CSP hot spots such as Spain and Southern California in the USA and the Department of Energy’s (DoE) Integrated Resource Plan allows for 1 GW of CSP of a total of 18 GW to be delivered from renewables by 2030.

Initial research by the University of Stellenbosch’s Centre for Renewable and Sustainable Energy Studies (CRSES) indicates that there is a short term potential of 262 GW for viable CSP taking factors such as DNI, land slope, dispatchability, land use and water availability into account, and 311  GW in the medium term with further transmission infrastructure upgrades.

Now that could blow the numbers out of your calculator.

Cleaner Coal Will Make Solve Everything.

Clean Coal is an oxymoron. In short coal is filthy stuff. Scientists argue that the coal mining process alone prevents it from ever being “clean,” without even considering the other pollutants.

South Africa’s energy resource is almost solely dependent on coal. For every unit of electricity produced and consumed, nearly 1 kg of carbon dioxide and pollutant by-products are released into the atmosphere.

Coal-fired power plants spew out sulphur dioxide, carbon particles as well as carbon dioxide (CO2). But coal continues to play a vital role in global energy production, and it would be unreasonable to expect people to return to pre-Industrial Revolution days either. Clean coal technology theoretically mitigates the impact of coal pollution until a better option is found.

However there are a great deal of clean coal technology centres around capturing and storing pollutants that would otherwise be released in the burning process. This involves either pumping the gas down wells or into deep-ocean depths.  Not only can the latter option potentially endanger marine ecosystems, but also they both require care and monitoring to prevent polluting the environment anyway. Some scientists insist that these measures amount to a redirecting of pollution, not a true reduction of it.

The fallacy of clean coal solving everything is easy to unveil. We may have to put up with it for a while but we should never be fooled into believing that it is either green or renewable. It certainly isn’t inexhaustible.

Wind Power Kills Birds and Deafens Humans

Wind farms are accused of being bird deboning and feather-plucking plants. Alas this is not entirely untrue, wind turbines do kill birds. One may argue that so do many other things do too: vehicles, buildings, pollution, poison, transmission lines, communication towers and the introduction of invasive species into their habitats. Despite the daunting sight of a field of wind turbines the statistic for bird deaths is low, that’s 1 in 30 000 according to the U.S. Department of Energy.

As for noise, modern turbine technology keeps turbines relatively quiet- essentially no more than the soft, steady call of wind through the blades. In Canada the Ontario Ministry of Environment breaks it down like this: If 0 decibels is the threshold of hearing and 140 is the threshold of pain, then a typical wind farm scores between 35 and 45, sandwiched between a quiet bedroom (35) and a 40-mile-per-hour (64-kilometer-per-hour) car (55).

Regarding the cost: research indicates that the average wind farm pays back the energy used in its manufacture within three to five months of operation (source:BWEA). Since wind farms depend on variable weather patterns, day-to-day operating costs tend to run higher. Simply put, the wind isn’t going to blow at top speed year-round. If it did, a wind turbine would produce its maximum theoretical power. In reality, a turbine only produces 30 per cent of this amount, though it produces different levels of electricity 70 to 85 per cent of the time. (source:BWEA)

This means that wind power requires back-up power from an alternative source, but this is common in energy production.

Wind power has huge potential as a renewable energy resource.

Something worth noting when examining such fallacies is that while renewable energy certainly offers the prospect to reduce carbon dioxide emissions, regrettably, solar and wind power requires substantial parcels of land to deliver relatively low volumes of energy relative to fossil fuels. By way of an example, a natural gas well producing 60 000 cf per day generates more than 20 times the energy per square meter of a wind turbine. Transferring to renewable energy will result in a substantial “energy sprawl” that will pose challenges for the conservation of bio diversity.

Sources: Rainharvest; Energy Find; How Stuff Works; CIA Factbook; New York Times; The Sustainable Energy Society of Southern Africa)

Orange Farm Steadily Moves out of the Darkness

Orange Farm, 380 000 families strong, South Africa’s largest ‘informal settlement’, a fading label, has steadily been empowered over the last few years and is now on the brink of getting its own shopping centre.

Typical Orange Farm Dwelling

Orange Farm is described by some observers as unique among South African community settlements. Its people are particularly vibrant, resilient and unusually resourceful, with a high level of political mobilisation.

Located 42 kilometres south of the Johannesburg CBD, Orange Farm has flourished to become the biggest and most populous informal settlement in the country. It is also one of Johannesburg’s most geographically isolated communities.

Well known for its high levels of poverty and unemployment challenged by the multiple needs of housing, infrastructure and economic stimulation the region has huge economic potential which has, up until recently, been largely unexplored.

Taking a step back in the story, signs of intent by the City and business became clear a few years back when Internet Solutions decided to use the Orange Farm ICT Hub as a test bed for its wireless voice over technology. The intent was to take Orange Farm from a low-tech informal settlement to a high-tech centre of modern technologies.

ICT Hub

The Orange Farm Hub – for information and communications technology (ICT) – is housed in the settlement’s library. Through the centre numerous community members have already been trained to use computers for office and administrative purposes. Students are taught various skills, from a basic introduction to computers and using Microsoft Office, to using the Internet and learning about desktop publishing. Internet Solutions erected a base station at the hub that provides connectivity to centres located within a 15km radius.

Another project that was demonstrative of the changing infrastructure was the new Ridge Walkway. Getting from one side of Orange Farm to the other became a whole lot easier. Twenty years ago when people first settled in the area – originally an orange farm, from where it gets its name – was an informal settlement, marked by a cluster of corrugated iron shacks, with a lack of sanitation or satisfactory infrastructure. The area was difficult and dangerous to navigate from one side to the other.

Using funds from