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Commercial property over the ages

The sector will continue to provide opportunities to the brave and the bold.

In the 1930s, 40s and 50s the grandest buildings in South Africa were usually the vast cinema and theatre complexes that were found in the heart of every major city and town in the country.

With names like the Alhambra, Colosseum, Savoy, Empire, Plaza and Embassy these gracious theatres, which accommodated 900 to 1 700 people at a time, were the centre of a city’s social life.

The Schlesinger Organisation, which was the largest property company in the country at the time, owned many of these theaters, though smaller proprietors also existed.

As the interest in cinema began to wane, so many theatres – which occupied prime space on the High Street – were converted into department stores or offices.

The years between 1963 and 1973 were particularly prosperous and city centres around the country were infused with new developments. Well established landmarks like the Schlesinger Centre, The Civic Centre, Absa towers and Carlton Centre were built in this time.

It was around the 1970s that South Africa’s financial institutions – denied a range of investment opportunities by the apartheid economy – waded into the property sector in a big way, recalls Geoff Chait, a property developer who has been involved in the sector since the late 70s. Until then property was developed and owned by entrepreneurs, or by the tenants of the buildings themselves – banks and department stores in particular.

Insurers like Sanlam and Old Mutual and other pension funds dominated the sector until the early 1990s, building up their real estate holdings to as high as 27% of total investments.

Anglo American Properties, which bought the Schlesinger property business in 1974, was another big player in this time.

The influx of institutional funds resulted in the demise of the ‘high street’ as developers began to invest in shopping malls across the country. First it was Sandton City, then East Gate and the Gardens Centre in Cape Town. “The retailers did not get it at first,” says Chait, who developed the Gardens Centre. “They did not see why they would want their shop fronts to face inwards?”

They, and the property developers, soon realised the commercial opportunity in malls – there were many more opportunities than there were high streets.

Democratic renaissance

As the world opened to SA after 1994, the institutions began to shed their property interests to invest overseas. This led to a renaissance of property entrepreneurs in SA. The new owners came forward in droves first picking up everything the institutions disposed of, and then increasingly developing their own properties. “Development in South Africa had lagged the rest of the world,” says Marc Weiner, who entered the property market in the early 1980’s. There was lots of catching up to do.

Property tycoons began to emerge. These, according to the late Ian Fife, property writer at the Financial Mail, included the likes of Aiden Liebenberg and Rodney Weinstein, founders of Zenprop; Norbert Sasse of Growthpoint; John Rabie of Rabie Properties, Stuart Chait founder of Land Equity, Thys Neser and Frank Brick of Abland and Marc Wainer.

Others, like Jorge de Costa and Cas Cavalieros, who had been around for decades, carried on as they had always done.

The listed sector began to grow as institutional properties were converted into listed holdings. Property unit trusts had appeared on the JSE in the mid 80’s, but these were not initially very popular, and investors were usually the institutions themselves.

However from about 1999 investor choice grew following a marked increase in property unit trusts and property loan stock companies. These were companies that were run by property experts rather than institutional fund managers and were designed specifically to enhance yields.

Transformation

Black property entrepreneurs and black-owned funds also began to appear. Entrepreneur Mzi Khumalo was one of the first to invest in property, though his involvement was indirect, through asset management companies, notes Musa Ngcobo CEO of the Lulama Fund. Another early player was Richard Maponya’s Maponya Developments which was focused on commercial and light industrial developments.

As with transformation across the economy, the going has not always been smooth for black commercial property developers, says Ngcobo. Just 10% of listed properties are in black hands, and even that figure is disputed. But it is changing, he says. “Governments stated intention to lease property from black landlords is driving changing change,” he says. In addition, recently changed BEE rules will see smaller property companies having to engage with transformation.

Delta Property Fund, founded in 2002 and listed in 2012, is a black-owned company that focuses on acquiring commercial government tenanted buildings with secure income streams located and underpinned by long-term government leases and low vacancies.

There are now five listed black-owned property funds, including the Dipula Fund, Vunani Property Fund and Rebosis.

Rebosis was established by Eastern Cape property entrepreneur Sisa Ngebulana, founder of the Bullion Group. It was the first black-managed and substantially black-held property fund to be listed on the JSE in 2010.

Evolution

The commercial property sector has evolved and grown over the decades. The personalities have changed and perhaps an individual’s word is no longer his bond as was once the case. But the sector will continue to provide opportunities to the brave and the bold.

“There are always opportunities for the new and smaller operators,” says Wainer. “The challenge is that banks will only provide 70% of the debt. New and unlisted entrants need to find equity – but everyone had to start somewhere.”

Read Moneyweb’s inaugral, September edition of Property Mogul here.

To read on a smartphone or iPad please download the Joomag application first, here.

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