The massive liquidation sale of close to 20 buildings in Maboneng, owned by urban developer Propertuity, the company which kick-started regeneration in the area, appears to be connected to the challenges of a single company as opposed to being a symptom of wider problems with urban renewal in Johannesburg.
In less than two weeks, eager buyers will meet in Melrose Arch to participate in the auction of 18 iconic mixed-use buildings in Maboneng including Hallmark House, Arts on Main, The Craftman’s Ship and Revolution House.
Propertuity, led by Jonathan Liebmann who left the company in 2018, began the transformation of what is known as the “Place of Lights” in 2009 when Liebmann bought a few buildings in the forgotten and run down city block. It was not long before he bought more buildings in the area and Maboneng started to take shape even attracting investors such as RMB Holdings (RMH).
So, what went wrong?
Brian Roberts, chief executive of RMH Property, told Moneyweb that extensive measures were taken by the company to rescue the business including putting in new management, changing the strategy and reorganising the portfolio but “the company continued to materially underperform, and the decision last year to liquidate was inevitable”.
The company filed for liquidation in October 2018. Robert said Propertuity had a number of company-specific challenges that resulted in its liquidation such as an overly-optimistic asset selection, unfeasible valuation expectations, limited management capacity, excessive gearing and operational challenges.
But he said the fact that Propertuity was being liquidated should not have a material impact on the precinct because overtime the company had become a relatively small player owning a minority of the buildings in the are.
“We are confident that the value of development in the region will remain a key driver for other investors so they can continue to support economic development, upliftment and social progress in urban environments like Maboneng,” said Roberts.
In its annual report released in June 2018, RMH declared a full impairment of its R308 million investment in Propertuity.
“RMH, with the assistance of expert advisors, performed extensive valuation and due diligence work on the Propertuity investment proposition and, in hindsight, underestimated the operational complexity of expanding the business,” the company stated in the document.
Robert said the company had learnt a lot from the experience and despite tough market conditions they were pleased with the net intrinsic value of the rest of its portfolio, which has risen from R722 million to R971 million.
Tenants of the buildings should not be worried about their tenure as their leases will not be disrupted by the sale.
“The property managers stay in place and the leases will be transferred to the new landlords after the auction, as is typical with any property sale,” said Roberts.
Liebmann said it would be unfair to tie what Propertuity is doing to Maboneng because there was still a lot of investment going into the area.
Divercity Urban Property Fund is one of the big investors which is injecting a R2 billion investment in an inner city renewal project that will transform the face of the iconic Absa Towers Main building and Jewel City.
Some of the key shareholders and stakeholders in the Divercity project include RMH Property and Nedbank Property Partners, Atterbury Property, Ithemba Property and Talis Property Fund.