Property Developer November 2013 by SAPOA

Developer

PROPERTY

November 2013

ch n lau ue e R iss

Cradlestone Mall

Retail development under way

PDP class of 2013 Rewarding the GSB, UCT, SAPOA course

Futuristic dream or visionary future?

Bridging the gap in the City of â&#x20AC;&#x2030;Tshwane

PROUD SUBSIDIARY OF EPS

2895_JHI_The Property Developer_August_FULL PAGE_PRINT.indd 1

2013/07/17 12:48 PM

ceo and chairman’s message

Redefining development SAPOA CEO Neil Gopal and SAPOA National Property Developers Forum chairman Lionel Kisten welcome a new era for property development

SAPOA is positive and confident that all the role players in the industry

SAPOA CEO Neil Gopal

e have a thriving property industry with many golden developmental opportunities in residential, retail, office and light industrial, in both underserviced and rural areas nationally. Unfortunately, in most instances, the “goose that lays the golden egg” is slowly being killed. The property development industry has been hit by a wrecking ball of negativity, which is obliterating the tools of the trade. Recently the Public Protector, the Ministry of Finance, the Auditor General and the private sector have signalled a significant increase in corruption and poor service delivery at local, municipal and provincial level. Service delivery, especially at municipal level, remains a critical issue. Dilapidated and lacking infrastructure curbs economic growth potential. Local municipalities are closer to their people and must build new, efficient and solid infrastructure as well as regularly maintain existing infrastructure in order to lure investors. One of the solutions to overcome this problem is to ensure that, from the initial planning stages, the consulting engineering industry is included to oversee the infrastructure design, quality cost and sustainability. SAPOA is working hard on building a broader relationship with government in order to solve the issues in a collaborative manner. SAPOA is also focusing more on industry research in order to enlighten sector players, and to ensure transparency and accountability in the property sphere. Such research includes the recent study done on the municipality development costs.

SAPOA National Property Developers Forum chairman Lionel Kisten

Other equally important issues that need to be addressed include property rates, advocacy and competition issues, tax legislation, government liaison, as well as the matter of greening and sustainability. SAPOA is at the forefront of dealing with such meaty issues, which will inevitably impact its members. In light of this, it is imperative for developers to redevelop, reconnect, realign and rebrand – redevelop our metropolises into world-class cities; reconnect with industry peers; realign with best practices; and rebrand organisations and companies that coincide with sustainability and international standards. On the topic of rebranding, the Property Developer magazine has undergone an editorial and design face-lift, with a brand new look, feel and voice that aims to speak more loudly on behalf of the industry. The publication will act as a more boisterous mouthpiece for the sector and its players, bringing to the table focal topics that need to be discussed and solved. We encourage feedback from developers and companies who want to provide suggestions on burning issues, as well as the way forward. SAPOA is positive and confident that all the role players in the industry will nurture the “golden goose” and embrace the many opportunities because this will help to alleviate the three evils of poverty, inequality and unemployment. SAPOA would like to thank all its members for their unconditional support. We welcome our members to the new, revived Property Developer and hope they find it resourceful.

will nurture the “golden goose” and embrace the many opportunities because this will help to alleviate the three evils of poverty, inequality and unemployment

November 2013 l property developer

THERE’S MONEY TO BE MADE

IN COMMERCIAL PROPERTY…

BUT ONLY IF YOU CAN GET FINANCE. FEDGROUP GUARANTEES A DECISION IN PRINCIPLE WITHIN 48 HOURS ON ALL PROPERTY FINANCE APPLICATIONS.

FedGroup is an authorised financial services provider. Terms and conditions apply.

The Alternative to Bank Finance

Slento Little

FedGroup Property Consultant

Diversifying risk and extending cash flow are two of the benefits that lure South Africans to property as an asset class. And, while it makes good business sense to invest in commercial property or own the property from which you operate, many investors are deterred because of the struggle that they face in the finance application process. FedGroup Property Consultant, Slento Little discusses the issue of accessing finance and the alternative to approaching bank finance. A scenario experienced by many investors, sees property finance applications being sent from one institution to the next, with little to no feedback. Despite promising to transform dreams into a reality, these lenders fail to deliver a timely commitment; with feedback often received a month after an application is submitted. By this time, investors have been forced to back out of the deal. According to Little, a significant amount of FedGroup’s property finance applicants share a similar sentiment – investing in property is attractive, but procuring finance through the banks is difficult, if not out of reach. The reality of the scenario; is that demand for finance exceeds supply. This is especially true with regards to commercial property, where high rentals have led to increased interest in the commercial property market. “This has resulted in a niche appetite for lending, where the ‘big deal’ from the wellknown developer receives finance and the ‘smaller deal’, from the average investor does not”, says Little.

Fortunately, for the average investor looking to finance the ‘smaller deal’, there are alternative lenders. Although governed by strict regulation, these lenders are still in a position to tailor property finance to meet an investor’s individual need. They also boast various benefits that other lenders cannot compete with. At FedGroup, these benefits include direct access to decision makers and a decision in principle within 48 hours, says Little. He goes on to explain, that while these benefits may not be a priority for the banks, they form a core focal point for FedGroup. “Direct access to decision makers ensures transparency. It enables investors to have direct involvement in both the application of their property finance and the duration of their payment plan. Having direct access to decision makers also speeds up the application process - a FedGroup property finance applicant is able to receive a timely commitment. The two day turnaround time (which is something the market does not compete with) ensures that investors are never in a position where they may lose a property deal due to finance application delays”. Whether a development or purchase of an income-generating property for investment purposes, or the acquisition of business premises for your own occupation, property is a secure and well balanced investment. “Investors should not be deterred by the struggles of applying for finance. There are alternative lenders within the market and investors should take advantage of the benefits that they offer”, concludes Little. For more information call Slento on 011 305 2321

contents

Abreal

Oilgro

PROPERTY

Developer

6 News 10 Legal matters 13 In the know: The Gauteng Partnership Fund 14 Bridging the gap: Rainbow Junction 18 Playing construction project manager 20 A balance of power 22 Meeting the demand: IHS Developer conference 24 Steyn City: futuristic dream or visionary future? 28 Cradlestone Mall: the evolution of retail development 32 PDP class of 2013 39 Planning the city 40 Last word

Developer

November 2013

PROPERTY

Abland

h nc lau e Re issu

Cradlestone Mall

Retail development under way

PDP class of 2013 Rewarding the GSB, UCT, SAPOA course

Futuristic dream or visionary future?

Cover development: Cradlestone Mall is getting the mix right between property owner, tenant and shopper. The tenant requires sufficient foot traffic and high visibility, while the shopper wants ease of access and an enjoyable retail experience

Bridging the gap in the City of Tshwane

FOR EDITORIAL ENQUIRIES email editorial@sapoa.org.za or managingeditor@sapoa.org.za. Published by SAPOA, Paddock View, Huntâ&#x20AC;&#x2122;s End Office Park, 36 Wierda Road West, Wierda Valley, Sandton PO Box 78544, Sandton 2146 t: +27 (0)11 883 0679 f: +27 (0)11 883 0684 e: sales@sapoa.org.za Editor in chief Neil Gopal Editorial advisor Jane Padayachee Managing editor Mark Pettipher Editor Candace King Copy editor Ania Rokita Sales RiĂŤtte Stevens Finance Susan du Toit Contributors Advocate Portia Matsane, Martin Ferguson, Nicky Manson, David A Steynberg, Tammy Sutherns Photographer Michael Glenister DISCLAIMER: The publisher and editor of this magazine give no warranties, guarantees or assurances and make no representations regarding any goods or services advertised within this edition. Copyright South African Property Owners Association (SAPOA). All rights reserved. No portion of this publication may be reproduced in any form without prior written consent from SAPOA. The publishers are not responsible for any unsolicited material.

P R O P E R T Y

F U N D Designed, written and produced for SAPOA by MPDPS (PTY) Ltd e: mark@mpdps.com

Printed by Printing Solutions e: info@sedmarketing.co.za

property developer l November 2013

CY CMY

on record

Public Works and property sector working together

Sandton CBD attracts new office development

espite the downturn in the office sector, commercial property developers are bringing speculative office developments to market, specifically to the financial hub of Sandton, which boasts a deep-rooted appeal as a premier business locale. “New speculative property developments coming to market include the 20 000m² 15 Alice Lane, the 10 000m² Athol Towers and the 20 000m² at 85 Grayston,” says Fran Teagle of Broll. “This speculative development shows new confidence is entering the market, certainly for Sandton.” Driving this demand is the fact that Sandton is a district that really works for business, featuring excellent conferencing facilities, hotels, retail and restaurants as well as the Sandton Gautrain Station with its direct link to OR Tambo International Airport. “In fact, the city centre is now expanding more strongly beyond the border of Katherine Drive, with new high-rise rights,” says Teagle. The demand for prime-grade offices in Sandton is also driving new Green Star rated office developments in the area. Despite all this, Teagle confirms that most developments still only get the green light from owners and funders once a major tenancy is confirmed for the majority of the building. Teagle explains that central Sandton has lots of rezoned land, which means that older buildings all have the potential to be redeveloped to around double their present size. “Should the older buildings be redeveloped to new heights of 20 or 25 floors, there’s potential for around 1,5-million square metres of available bulk in the Sandton CBD. However, it’s unlikely all will be built.” Besides prime offices to let, Sandton also offers sectional-title offices such as Katherine & West. “There’s a demand for sectional-title units and a shortage of stock in the present market,” says Teagle. “There’s also a big demand for investment stock. There’s little available in Sandton, which means that new development is the only way to gain this.” +27 (0)11 441 4000, Broll.co.za

n an effort to get its house in order, the Department of Public Works (DPW) has appealed to the property sector to assist with key challenges that mutually affect both parties. In June this year, a crucial and long-overdue meeting was held between the DPW and the private sector property owners, where issues and solutions were discussed. The landmark meeting was simultaneously the launch of the Property Charter Council’s (PCC) executive property owners’ breakfast, which it hopes to make an annual event. The DPW signs property leases on behalf of government departments but has never before had a formal discussion with the property sector about issues of mutual interest. Attending stakeholders included the newly established South African Real Estate Investment Association (representing listed property companies), the South African Property Owners Association (SAPOA), the Black Association of Commercial Property Owners (BAPCO), the South African Institute of Black Property Practitioners (SAIBPP), the SA Council of Shopping Centres (SACSC), and the Banking Association of South Africa (BASA), which represented the financial institutions. Keynote speaker, Public Works Minister Thulas Nxesi, pointed to

unstable political leadership as an obstacle for the department, which has had three ministers in three years. He appealed to the private sector to help the department’s turnaround and support it with skilled people, and promised an open-door policy. “If the DPW was a business, it would have been closed down a long time ago,” Nxesi said. “There has been no accountability, resulting in a nonexistent reliable asset register. The DPW’s portfolio is seven times the size of the country’s largest JSE-listed property company, Growthpoint Properties – yet, while returns of listed companies average 10%, the return on DPW portfolio is less than one percent.” The private sector agreed to help the department compile a state asset register while the DPW completes a comprehensive audit of all leases, and ensure a clean audit process. “SAPOA welcomes the engagement with the DPW,” said SAPOA CEO Neil Gopal. “It is good news that Minister Nxesi has confirmed an opendoor policy with its property sector stakeholders. SAPOA looks forward to future engagement, because it’s in everyone’s best interests that the DPW functions well with the necessary skills in place.” +27 (0)11 883 0679, Sapoa.org.za

Green Building Council of South Africa outgrows office space

ith sustainability in the commercial property industry on the up, the Green Building Council of South Africa (GBCSA) has expanded its stance and reach, resulting in the organisation having to take up new residence at its new green office at the Blackriver Park complex in Observatory, Cape Town. From just one rating tool and one certification in 2008, to four rating tools with another two in development, and almost 40 certified projects today, the GBCSA has grown tremendously over the years. “Close to 5 000 professionals have, so far, attended

property developer l November 2013

our training programs; almost 500 professionals are Green Star SA Accredited, and 1 100 corporates have joined as members, showing corporate South Africa’s commitment to sustainability in the built environment,” says GBCSA CEO Brian Wilkinson. The new open-plan office has been designed to accommodate future growth expected at the council, and embraces GBCSA’s increasingly flexible, collaborative and shared approach to office space and the work environment. As one of the founding sponsors, SAPOA enjoys a close collaborative

relationship with the GBCSA. The Cape Town-based SAPOA representative will be based in the GBCSA’s new offices going forward. “SAPOA and GBCSA are committed to advancing the property sector in South Africa and delivering value to members that encourages a quality, sustainable urban environment,” says Neil Gopal, CEO of SAPOA. “We’re pleased to share office space with people who also share our thinking space, and look forward to the positive impact of our growing collaboration.” +27 (0)86 104 2272, Gbcsa.org.za

on record

Construction collusion hurts property sector

APOA has condemned the recent collusive practices of local construction companies. “We disapprove of anti-competitive behaviour,” says CEO Neil Gopal. “We trust this collusion has now ceased and is in the past.” The Competition Commission fined 15 major construction firms a combined R1,46-billion for “rampant” collusive tendering in projects during the time period between 2006 and 2011. In a fast-track disclosure process, the commission had applications for settlement from 21 companies revealing collusion or anti-competitive behaviour in more than 300 projects, both public and private. The value of these projects is estimated to total R47-billion. “Collusion has a negative impact on our members in the form of escalated development costs and reduced yields, with knock-on impacts for demand in the economy and the growth of the property sector,” says Gopal. He adds that SAPOA is unable to remedy the losses potentially suffered by its members but will continue to lobby regulators, like the Competition Commission, to ensure these practices are eradicated from our economy. +27 (0)11 883 0679, Sapoa.org.za

Secunda welcomes new mall

edbank has provided R52-million in finance to Imojoe International CC for a 10% undivided share in a major regional shopping centre currently under construction, the Sasol Secunda Mall in Secunda, Mpumalanga. The 52 393m² Sasol Secunda Mall is well positioned, with the site lying immediately south of the main CBD retail precinct, bordered by PDP Kruger, Helen Suzman Drive, and Oliver Tambo and Walter Sisulu Roads, and with exposure to at least two arterial routes. The new centre will combine a number of existing retail buildings confined within the streets mentioned above and promises an exciting, consolidated shopping experience for the mostly high-LSM consumers in the area. The development is expected to service a wide geographical catchment area that includes outlying towns such as Kinross, Leandra, Trichardt, Delmas, Evander, Bethal, Standerton and Ermelo. Respected businessman Imraan Salajee, 100% shareholder of Imojoe, says that Secunda is by far the most important business destination in the Govan Mbeki Municipality, which is situated in the southwestern part of Mpumalanga, and that demand exists for middle- to higher-end retail products and services. “Lettability is well subscribed with 83% of national and franchise tenants secured,” he says. Sasol Pension Fund owns 40% of the development, as does the Resilient Group, while Bunker Hills Investments and Imojoe International each own 10%. “Investing in Sasol Secunda Mall through Imojoe International is just another way that Nedbank Corporate Property Finance is funding the growth of the local retail sector and helping to fulfil consumer demand, specifically in areas with less development. “Through this funding of the BEE ownership of the Sasol Secunda Mall, Nedbank is demonstrating its commitment to transformation and to enabling more empowered stakeholders to deliver significant contributions in shaping the sector for continued success,” says Ken Reynolds, a regional executive for Nedbank Corporate Property Finance, Gauteng. +27 (0)11 294 4444, Nedbank.co.za

Further delays for Medupi

skom has announced that the first power from its Medupi plant would hit the grid only in the second half of 2014, a delay of at least six months that will increase the cost of the project and possibly cause a gap in supply in 2014. “The target date of December 2013 is unlikely to be achieved. A more realistic target date for first power from Unit 6 is the second half of 2014,” Eskom chief executive Brian Dames said at a news conference recently. The power utility said it was working with stakeholders to ensure security of electricity supply despite the delay, caused by labour unrest and “underperformance” by contractors. A revised outlook indicated that there could be a gap in supply in 2014, with the most likely scenario a shortfall of about 700MW, Eskom said. “We have done everything in our power to meet the December target date,” Dames said. “However, it is clear that the boiler and control and instrumentation issues cannot be resolved in time for the first unit of Medupi to deliver power to the grid by 2013.” Among the problems at Medupi were welding faults on the boilers, for which Hitachi Power Africa was contracted. Eskom said in March it believed the faults may have been concealed, and had initiated an investigation into how the welds had been certified. The utility also said it was penalising French contractor Alstom for delays in a software system that was a critical part of the boiler safety mechanisms. Senior Eskom executives are paying weekly site visits to Medupi and the project team has been strengthened with specialist support. A bimonthly meeting has also been set up between Eskom executives and the CEOs of all the major contractors to resolve all the issues hampering progress. Eskom said it pursuing a strategy to recover cost overruns from contractors. +27 (0)11 800 8111, Eskom.co.za

November 2013 l property developer

on record

Eyethu Orange Farm Mall a meaningful community asset

UKZN offers BSc in Property Development again in 2014

he community of Orange Farm is set to welcome an exciting new shopping mall, which will bring radical change to the area. The intriguing development of the 27 000m² regional Eyethu Orange Farm Mall will result in the entire Orange Farm community holding a 10% stake in the development, which will help to transform the area into a thriving CBD. A vision that started almost two decades ago with businessman Vusi Tshabalala is now becoming a reality with the mall having broken ground in June 2013. Tshabalala saw a future where the community of Orange Farm could benefit from its own spending power by developing a shopping mall in which the community owned a stake. Tshabalala has steadily converted important partners to this far-sighted thinking. First, his now business partner in Stretford Land Developments, David Lieberman; then award-winning property developers and investors Flanagan & Gerard; and finally the Orange Farm community itself. This is where the City of Johannesburg became involved and, at its request and under its guidance, a formal stakeholders’ forum was established. This forum has met every month since it was formed in November 2008, working towards the visionary development. “A condition for the community owning a stake in the mall was that it should be owned by the community, not by individuals,” Tshabalala says. “The Orange Farm Community Trust was formed to hold shares in the mall on behalf of the community. This trust will fund community needs and encourage investment in, and the development of, Orange Farm. Our hope is that it will ensure that the greater Orange Farm community participates in its own wealth creation and builds that wealth in a sustainable manner.” The National Empowerment Fund, through its Rural & Community Development Fund unit, is providing R50-million on behalf of the Orange Farm community for the 10% equity stake. On completion, Eyethu Orange Farm Mall will be owned by the Orange Farm Community Trust with a 10% stake, Stretford Land Developments with 30% and Flanagan & Gerard Investments with 30%. It has also attracted the investment confidence of Dipula Income Fund, which will own a 30% stake. Standard Bank is currently funding the development. Situated in a prime area and already receiving strong retail support, the mall is set to open in September 2014. +27 (0)10 590 4867, Fgprop.com

APOA has welcomed the education benefits that aspiring property professionals will once again enjoy thanks to the reintroduction of the BSC Property Development programme, leading to an honours degree in construction management and quantity surveying, at the University of KwaZulu-Natal (UKZN). Professor Cristina Trois, dean and head of the School of Engineering at the university confirmed that they can accommodate about 100 first-year students for the degree in 2014. Trois reports that CETA has committed to supporting the programme for the next five years, with a candidacy programme that will be established during 2014. “As the industry body, we are pleased about this positive initiative to address the skills shortage and important development for the benefit of our industry,” says SAPOA CEO Neil Gopal. Gopal has praised the tireless efforts and negotiations to reintroduce the programme by UKZN, SAPOA’s KZN regional committee, the Association of South African Quantity Surveyors, and others. Trois confirms the university has started the process of appointing academic staff. “We will continue to collaborate with everyone who has made this a reality.” +27 (0)11 883 0679, Sapoa.org.za

property developer l November 2013

The rise and rise of Heidelberg

hrough an innovative joint venture between the Lesedi Council and private developers, the town of Heidelberg is set to receive a new regional shopping centre, as well as R600-million in capital investment and up to 1 200 permanent jobs. Co-owned and being developed by Flanagan & Gerard, the 35 000m² Heidelberg Mall is strategically placed, with the site enjoying significant exposure to the N3 toll road, Groenkloof Road and Jacobs Street in Heidelberg. “The site is exceptional and will draw shoppers not only from Heidelberg, but also from Nigel, Balfour, Greylingstad, Villiers and surrounding farming communities, as well as act as an interceptor for traffic passing on the N3,” says Flanagan & Gerard executive director Patrick Flanagan. Flanagan & Gerard’s investment and involvement was facilitated

by Marble Gold (Pty) Ltd, the joint venture partner of the Lesedi Council. The development is located and designed to complement the existing Heidelberg CBD. “Heidelberg Mall will be not only a regional retail destination but also en economic catalyst for the wider region,” says Buti Mokoena, a local businessman who heads up Marble Gold. “Our forecasts indicate that 700 to 800 construction jobs will be created by the mall development, with 80% of those filled by local workers. We anticipate that the mall will also create 800 to 1 200 permanent positions, excluding any seasonal, part-time jobs.” With construction already under way, the mall is scheduled to open for trade in October 2014. +27 (0)10 590 4867, Fgprop.com

on record

Atterbury’s Mall of Africa a colossal feat

Ekurhuleni to welcome Vosloorus Plaza

ituated in Ekurhuleni Municipality south of Boksburg, construction of a new 10 329m² shopping centre in Vosloorus has just commenced in the third quarter of 2013. Located on a prime spot opposite the busy Chris Hani Crossing, Vosloorus Plaza is designed and tenanted as a convenience shopping centre, which will cater for the highly populated townships and surrounding areas, including Katlehong to the east. It is already 80% let through JHI Properties and will feature a 2 875m² SuperSpar as an anchor tenant. “Vosloorus Plaza is developed by iKwezi Development Trust at a total investment of approximately R100-million.

Located on the corner of Brickfield and Bierman Avenues about four kilometres from the nearby N3, the centre is ideally positioned for members of the local communities travelling to and from work on the main routes on this prominent intersection,” says Romy Altmann, retail broker at JHI Properties. “It is designed for quick access to the supermarket and line shops alike. With value for shoppers a key focus, other tenants include Build Rite building supplies, Fair Price, PEP Stores, Cash Crusaders, several fast-food outlets, and fashion and furniture tenants.” The architects, Venter Human and Strydom, describe the design of the single-storey centre as simple, with a lean-to roof walkway to the front of the

parking area, and easy access to and from walkways and parking. There will be key feature elements to the main anchor shop entrances, which will provide signage opportunities and visibility to the centre from the main roads. There is also on-site parking for 389 vehicles. “With high trading densities in the surrounding areas, coupled with the convenience and value offering, there is a huge demand for a centre such as this one,” says Kieron van Rooyen, another retail broker at JHI Properties. “While dependent on size, the rental rate for the remaining space is approximately R100 per square metre.” The centre is scheduled for completion in July 2014. +27 (0)11 911 8000, Jhi.co.za

SAPOA’s persistence helps resolve illegal land uses in Polokwane

hanks to the persistence of SAPOA and its legal department, the commercial and industrial property sector has won a key battle against illegal land uses in the Limpopo province city of Polokwane. Illegal land uses of concern to property owners include the erection of billboards, posting of placards and parking of trailers. After almost a year of pursuing different channels of complaint, SAPOA finally secured a meeting with the Mayor of Polokwane to discuss property owners’ concerns. Furthermore, the city’s chief planner Fanie Muleya recently confirmed that a court order has been granted to impound illegal billboards. The city will be cleaning up all remaining illegal activities in due course. “It was brought to SAPOA’s attention last year that there was a growing problem with illegal land uses in the city of Polokwane,” says SAPOA CEO Neil Gopal. “SAPOA immediately submitted a formal complaint to the municipality.” When SAPOA did not receive a response, the matter was directed to the provincial Office of the Public Protector, which investigated and again forwarded the complaint to Polokwane municipal officials, affording them an opportunity to respond. When SAPOA again received no response, the decision was made to escalate the complaint to the national Public Protector, Advocate Thuli Madonsela. However, SAPOA decided to make one last effort with the municipality by sending the complaint to the mayor, which resulted in the meeting. “We look forward to a successful resolution of these issues with the help of the mayor and the municipality,” says Gopal. +27 (0)11 883 0679, Sapoa.org.za

fter much discussion in the industry, the exciting Mall of Africa retail development is starting to take shape. Atterbury has announced it is developing the 120 000m² regional shopping supercentre for R3,5-billion – South Africa’s largest single-phase shopping-mall development to date. Financed by Nedbank Corporate Property Finance, its biggest funding to date, the two-level Mall of Africa will be situated in the heart of the bustling Waterfall node and will be easily accessible with the first free-flow intersection of its size in Africa at the nearby Allandale Road exit from the N1 highway. Massive road upgrades will also ensure easy access. Besides road transport, the centre will be minutes away from the Gautrain Midrand Station and in close proximity to OR Tambo International Airport, Midrand’s Grand Central Airport and Lanseria International Airport. “Developing a mall in the heart of the fastest-growing urban node in Africa created the prospect for an exciting modern landmark,” says Atterbury Property Developments MD James Ehlers. “Mall of Africa’s sheer scale, distinctive design, exceptional location and top-notch retail mix puts it at the forefront of retail developments.” More than 300 shops, with seven anchor tenants and a carefully considered retail mix, will create a unique retail experience at the Mall of Africa. It will provide a well-balanced variety of local and international brands, services and speciality shopping, as well as entertainment and eateries. Flagship stores for all major South African retailers will be part of its attraction. “Besides striking dimensions and a wide array of retail, the Mall of Africa’s bespoke amenities will set it apart,” says Ehlers. The centre will feature a two-level basement parkade, valet parking, VIP lounge, spa, baby nursery and children’s park and play area. “Mall of Africa sets a new benchmark in mixed-use shopping and entertainment. It forms an anchor around which a vibrant new city, with a modern new urban framework, will grow,” says Ehlers. With earthworks having begun in October 2012, Mall of Africa is due to commence trading in the first half of 2016. +27 (0)11 706 1176, Atterbury.co.za November 2013 l property developer

legal matters

Carbon tax policy The Carbon Tax Policy Paper was published in May 2013 for public comments as an update to the carbon discussion paper published for comment in December 2010. The policy paper proposes the introduction of a carbon tax as part of a package of interventions meant to ensure that the primary objective of greenhouse gas mitigation is achieved. It further seeks to minimise potential adverse impacts on low-income households and industry competitiveness By Advocate Portia Matsane

Basic tax-free threshold (%)

Maximum additional allowance for trade exposure (%)

Additional allowance for process emissions (%)

Total (%)

Maximum offset (%)

Electricity

Petroleum (coal to liquid; gas to liquid)

Petroleum â&#x20AC;&#x201C; oil refinery

Iron and steel

Cement

Glass and ceramics

Chemicals

Pulp and paper

Sugar

Agriculture, forestry and land use

100

Waste

100

Fugitive emissions from coal mining

Other

Sector

The policy anticipates a phased implementation approach for carbon tax through the transition of key sectors such as electricity generation, liquid fuels, transport and certain industrial processes. The Paper proposes emissions tax-free thresholds as outlined in the table above

property developer l November 2013

APOA generally supports the use of a carbon tax and incentives in a policy and legislative effort to change behaviour to ensure the reduction in carbon emissions. The imposition of a broad-based tax needs to be seen in the context of its impact on the economy, its potential to reduce emissions, and the position of South Africa within the global context, particularly given South Africaâ&#x20AC;&#x2122;s relatively low emissions (being at less than one percent, compared to the total global emissions). SAPOA agrees that the potential for change of behaviour that is defined as the objective of the Carbon Tax Policy Paper has, to some extent, already been achieved, as evidenced by the significant reduction in the electricity intensity of the economy, which has largely been driven by the steep rise in the electricity price. In reflecting on these improvements in electricity efficiency, it is important to note that there is not an infinite potential for improvement, particularly on existing facilities. In considering the imposition of a carbon tax, it is not only important to consider the impact on the most vulnerable sectors of the economy but also the dominance of the energy sectorâ&#x20AC;&#x2122;s contribution to the national greenhouse gas (GHG) profile and the existing carbon price included in the electricity price. In respect of the electricity sector, the imposition of a carbon tax will not result in a greater change in behaviour than is already in progress as a result of the mandatory change to the electricity generation mix, which will increasingly include low carbon renewable energy components.

No recognition of carbon price instruments in place

The paper does not recognise any of the current carbon price instruments in place, which include the carbon tax on motor vehicles, levy on non-renewable electricity generation, premium on electricity price as a result of renewable energy, and the proposed biofuel levy. In addition, the mitigation measures proposed by other parties addressing issues of climate change, particularly the desired emission reduction outcomes (DEROs) being defined by the Department of Environmental Affairs (DEA), which will be imposed on predominantly industrial emitters, will result in a carbon price as a consequence of the implementation costs.

legal matters

The current electricity tariff already includes a carbon price through the premium paid for renewable energy, currently estimated to be R116/ton CO2, and R35/ton CO2 for the non-renewable electricity levy, which results in an effective carbon price of R151/ton CO2 in the absence of the proposed tax. SAPOA sees no reason for South Africa, which contributes less than one percent to total global emissions, to take a lead in climate change mitigation by being one of the few countries, and the first developing country, to introduce a carbon tax, particularly in light of the fact that the earliest date of implementation of an international agreement will be 2020. In essence, our biggest concern is that the “intermediary” position of a commercial property owner must be recognised in the structuring of any proposed levies, to the extent that these can be imposed on the eventual user.

Seeking clarity

SAPOA seeks clarity and more detail on the effect of the carbon tax on the property development and property management industry. National Treasury (“Treasury”) needs to formulate and share its plan for the carbon tax beyond 2019 as the uncertainty and vagueness in the Paper in this respect is concerning. It is further not clear from the Paper if Treasury has conducted a detailed investigation with a view of ascertaining whether the imposition of a carbon tax in the South African context will indeed result in a reduction of GHG emissions. SAPOA requested more information on the tax settings and adjustments mechanisms to be implemented to give effect to the carbon tax, and a comparative analysis by Treasury and government of the existing legislative framework and the amendments thereto to determine the challenges and compatibility issues that may arise. It is not clear how the carbon intensity of the property sector is established, and whether the Department of Energy or any other regulator will establish this annually or whether it will merely be a matter of estimates. Treasury is required to unpack the revenue recycling process of the carbon tax, to explain in detail how the carbon tax will facilitate the country’s transition to a

low carbon economy and how the tax will mitigate the carbon emissions. Treasury needs to explain what recourse Scope 2 emitters will have against the abuse of the carbon tax emissions by Scope 1 emitters, because the latter parties will most probably pass on the cost to the former, instead of coming up with energy efficiency measures. This is particularly problematic when SAPOA considers the additional tax on the purchase of electricity from Eskom as their power stations are a long way from being energy efficient. SAPOA thus has concerns about the following: a) We do not have any verifiable information about the impact of the carbon tax imposed on Eskom, and neither do we understand the energy efficiency measures to be introduced by Eskom or the costs thereof; b) We cannot influence Eskom to implement energy friendly technologies; c) It is unclear whether the purchaser will benefit from the offset mechanisms outlined in the Paper. If the aim of the carbon tax is to incentivise both producers and purchasers to reduce their respective carbon intensities, then the purchasers should also benefit from the 60% tax-free threshold and all the other offset mechanisms provided for in the Paper; d) The consumer will not benefit from implementing energy efficient measures if the carbon tax is simply passed on in the electricity charges; e) If Eskom does include the carbon tax as a cost in the price of electricity, then when the cost of electricity escalates, so will carbon tax in addition to the 10% escalation of the carbon tax as it will be presented as one cost, thus resulting in a double escalation. SAPOA would like to know about the mechanisms Treasury will implement to prevent this; and f) We are not certain as to the method to be used by Treasury to collect the tax at a municipal level because the electricity distributors include many other charges in their electricity pricing. There is a need to clearly understand how the X in the formula (Z = Y/X) is to be calculated or measured/verified, in order for us to get the accurate energy savings and a 12L deduction.

Advocate Portia Matsane Manager: Legal Services Department – SAPOA

It is not clear how the carbon intensity of the property sector is established, and whether the Department of Energy or any other regulator will establish this annually or whether it will merely be a matter of estimates

November 2013 l property developer

legal matters

Treasury must clarify Adjustment of the

threshold on the basis carbon intensity whether the benchmark of Provision is made for the basic

for carbon emissions

for the different sectors is only for Scope 1 emitters or whether it will also include Scope 2 emitters. If not, a different benchmark should also be provided for Scope 2 emitters; and it needs to be clear whom the sector “other” incorporates

property developer l November 2013

tax-free threshold to be adjusted between 55% and 65%, based on the carbon intensity of a firm’s output. The intensity in this case is based on Scope 1 and Scope 2 emissions. It is not clear how the benchmarks that are clearly necessary for the implementation of this approach will be agreed. An example of the challenges presented by this approach is illustrated by the approach reflected in paragraphs 208 and 209 of the Paper. It appears that the intention is to set the benchmark for the coal-fired electricity sector at the emissions lowest emitting plant 0.91t/MWh in the first phase. This affects the calculation of the Z factor as per section 190 (Box 2) of the Paper, where: l X is the average measured and verified carbon intensity (including both Scope 1 and Scope 2 emissions) of a firm’s output; l Y is the agreed benchmark carbon emissions intensity (including both Scope 1 and Scope 2 emissions) for the sector; l Z = Y/X; and l The adjustment to the tax-free threshold is determined by multiplying the original percentage threshold by Z. Electricity has a basic tax-free threshold of 60%. X for Eskom coal-fired is currently 1,04t/MWh (as per section 191, Table 9). If Y = 0,91 as per Treasury’s proposal, then Z = 0,91/0,99 = 0,92, and the tax-free threshold becomes 60% x 0,92 = 55%. (“Adjustments to the 60% basic tax-free threshold will be limited to five percentage points, up or down.”) So now Eskom’s tax-free threshold drops to 55%. This means that its taxable emissions rise from 40% to 45%. The effective starting tax rate on Scope 2 emissions for electricity consumers will thus be 120 x 45% = R54/ton (and not R48/ton). A further challenge also arises in respect of the electricity sector. For every MWh a company purchases, the national grid loses 10% on Transmission and Distribution (T&D). So while the agreed Grid Emission Factor (excl. T&D) is 0,94t CO2e/MWh based on a company’s purchases, Eskom’s emissions are 10% more than this. Thus in the first year a company will pay 0,94 + 10% x 54 = R56/MWh, and not as stated in the Paper 0,94 x 48 = R45/MWh. The reality is that the tax is calculated on 24% more than what is reflected in the Paper.

It is also important to note that the current 3,5c/kWh is also a tax on the non-renewable energy levy, which in effect is also a carbon tax. This means that the actual starting tax is in effect a total of R94,50/MWh, without taking into account the premium for renewable energy also included in the electricity price. Treasury needs to explain what exactly will qualify as “activities in the production of income” as contemplated in paragraph 278 on page 78. We need to understand whether current provisions of the Income Tax Act will be amended and, if yes, what the proposed provision will be. There is a need to understand what informs the R120/ton CO2, how this is determined and what kind of baseline was used in order to determine it. Treasury must explain what processes have been, or will be, put in place to prevent a double taxation situation from occurring, particularly when it comes to Scope 2 emitters. Treasury must clarify whether the formula used to calculate the basic percentage taxfree emissions applies to Scope 2 emitters as well or whether a different formula will be provided for Scope 2 emitters.

Scope 3 emissions not adequately addressed

The Paper does not adequately address the implications of a Scope 3 emission. It is unclear whether there will be any tax on Scope 3 emitters and what the objective of a Scope 3 emission is if reporting is voluntary and emissions are not taxable. Treasury must clarify whether the benchmark for carbon emissions for the different sectors is only for Scope 1 emitters or whether it will also include Scope 2 emitters. If not, a different benchmark should also be provided for Scope 2 emitters; and it needs to be clear whom the sector “other” incorporates. Will this be defined in the legislation? It looks as though this is a “catch-all” provision – if so, it might cause a lot of confusion among sectors that might fall hereunder in terms of what benchmarking and formula should be followed in order to comply with the applicable legislation.

in the know

The Gauteng Partnership Fund Assisting Gauteng’s housing environment for a better tomorrow By Nicky Manson

he Gauteng Partnership Trust trades under the name the Gauteng Partnership Fund (GPF). Established in 2002 by the then-Gauteng Department of Housing, it aimed to resuscitate the social housing environment in Gauteng. Six years later, the mandate was expanded, and today the GPF operates across the entire affordable-housing value chain in Gauteng. The GPF’s biggest objective is to bridge the gap between government and the private sector on affordable housing projects. It achieves this by forming partnerships to address funding blockages and bottlenecks within the sustainable human settlements sector; facilitating investment capital flows into integrated developments as per the sustainable human settlements policy framework; facilitating equitable risk sharing project financing; and participating in Social Housing Projects. As a development finance institution, the GPF has several goals in mind, including securing and optimising investment in affordable housing within the area.

Kutoane Kutoane, chief executive officer at Gauteng Partnership Fund

This is done by leveraging funds from various private institutions through risk sharing and strategic funding partnerships, securing new and innovative funding streams, gearing private sector finance to ensure better bankability of projects, and ensuring accountability, monitoring and efficiency in the longterm management of projects, thereby ensuring that housing financiers enter the affordable housing market on a sustainable basis. To date, the GPF has committed some R450-million of public funding to gear up approximately R2,2-billion of private-sector funding, and has facilitated the development of more than 18 000 dwellings.

Currently the GPF has three main programmes running. These include the Social Housing Programme, whereby the GPF co-funds entities that are accredited with the SHRA. There is also the Emerging Entrepreneur Empowerment Property Fund. This is a programme specifically designed for start-up HDI entrepreneurs. Applicants submit tenders to the GPF and 10 to 20 participants are selected to be part of that mentorship programme. Finally, there is the Rental Housing Programme. GPF is the co-funder of affordable housing and assists developers who are only able to source 60 to 70% of their required financing through a bank. The GPF assists these developers by topping up the debt and providing funding between 20 and 30%. Current complete rental projects include Highlands, Bertrams –135 units (the project is 75% complete); Sunnyside, Pretoria – 47 units; Montrose Mansions, COD – 120 units; and Lubraco House, CBD – 63 units. +27 (0)11 685 6600, Gpf.org.za

Our vision is to be the pre-eminent partner in the mobilisation and optimisation of alternative funding; and a leading catalyst in the development of affordable housing in Gauteng

November 2013 l property developer

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Bridging the gap There’s a proposed pot of gold at the end of the mixed-use Rainbow Junction® development as it promises to bring new-found investment as well as economic growth and job creation to the City of Tshwane By Candace King

ainbow Junction Development Company (Pty) Ltd was formed in 2005 to bring to fruition the Rainbow Junction mixed-use development on valuable land currently belonging to a property-realisation company. The consolidated properties have been owned by the two neighbouring families for more than 100 years and are prime greenfield sites just six kilometres north of the capital City of Tshwane’s CBD. The properties are strategically positioned in the centre of the city’s Zone of Choice, an area demarcated by the City of Tshwane for infrastructural investment to boost economic growth. Rainbow Junction is highlighted in the city’s RSDF as the catalytic driver to ignite new economic growth to the north of the city. Rainbow Junction has approved rights for over 570 000m2 of high-density mixeduses. This unique site is bordered by four

kilometres of Apies River frontage to the east and major roads and railway to the west, with the Magaliesberg mountain range forming the foyer of the city as the southern border, and the K8 Rosslyn provincial road on the northern border. Wonderboom airport is located less than three kilometres from the development, as is a link to the N4 Platinum Highway, currently under construction to the north of the site. This aspirational development will consist of three precincts integrated into a contemporary urban environment reflecting a rich mix of both business and vibrant lifestyle offerings. The northern precinct will consist of an urban village mix of varied residential apartments, duplexes and simplexes facing the river, with schools, convenience retail, gym and other complementary amenities. The main Rainbow Junction Boulevard forming the mobility spine along the entire

Q&A with Rainbow Junction’s joint CEO Rosella R Dingle Q What are your views on

South Africa’s development and construction industry at the moment?

The current economic climate, while unfortunately still encumbered by slow economic growth and global economic volatility, still offers pockets of opportunity. Such opportunity must be carefully appraised from a standpoint of shared and mutual objectives with current development planning of local authorities, backed by robust research, and intuitive and mindful planning. And then, at the end of the day, listening to one’s gut! We all know where there is oversupply, but we also instinctively understand that keeping a finger on the pulse of economic activity will give signals of where there are opportunities to create development growth that is “anti-fragile” and to design agile and flexible development to cope with the future, which is always going to have to be a responsive and iterative process. An element of bravery is required to be a “market-maker” in these challenging times, but perhaps ignoring such opportunities and being overly cautious carries its own risks too. property developer l November 2013

Q What are the latest trends in the industry?

As is a trend globally, we note the co-location of compatible and complementary land uses being cleverly planned in new developments. For example, just having retail as a ringfenced destination appears to be a thing of the past. Incorporating intelligent and intuitive supplementary land uses appears to be supported by the development fraternity countrywide in line with contemporary global practice. Land uses such as hotels and even hospitals are being considered for colocation within retail destinations, so that there is an added experience to visiting the facilities by having retail opportunities wrapped into a more holistic offering.

Q What are the industry’s biggest challenges at the moment?

One of the biggest challenges would be the requirement of metropolitan and city councils to provide required infrastructure in support of development, and especially the requisite funding thereof by the local authorities. Although there are various infrastructural

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length of the development forms a buffer between the residential and the Green Economy Campus®, an office park that will reflect Rainbow Junction’s commitment to sustainable development, offering the opportunity for hi-tech and green industry to have a presence at this aspirational address. The Central Precinct is the heart and soul of the development, comprising regional retail development of about 85 000m2, significant conference/expo facility catering for 2 000 delegates, with co-location of hotels and other exciting amenities for accommodating and serving the businesstourism market, currently under-catered for in the capital. Various other complementary land uses will support and supplement this exciting mix in the Central Precinct. The Southern Precinct is alongside the Rainbow Junction multi-modal transport terminal, and is closest to the city centre, thus being the perfect location for bespoke corporate

funds available nationally, provincially and locally – the MIG (Municipal Infrastructure Grant) and the DTI’s Critical Infrastructure Fund being two examples of these – it is found that local authorities appear to have a disconnect with access or capacity to obtain such funding. More coordination is needed to communicate to local authorities available funding for infrastructure to augment their local budgets. An understanding of the capital nature of such expenditure by the local authorities to enable the generation of income-producing economic development is generally lacking, resulting in a challenge to building a business case to support such capital expenditure – and then subsequent lack of funds to deliver infrastructure to enable development. This is but one of the constraints hampering development currently, but it’s notable. Various other constraints are addressed in some of the topics below.

Q How are these challenges affecting companies and development in the country?

It speaks for itself that the lack of infrastructure provision hampers development and economic growth. Service level agreements are difficult to negotiate and get signed off by the local authorities. The whole process of development implementation, from obtaining of town-planning approvals through to service level agreement, is retarded, and in certain cases could lead to a previously viable

development becoming unfeasible because of the unnecessary delays. In some instances, these are more than just local authority constraints, and include provincial authorities – with the slowness of EIA approvals, as one such example – and extend to national processes as well (such as the very slow approval of water use licences). Some frustrated developers have had to resort to court applications to endeavour to address the lack of delivery of crucial enabling decisions, leading to yet more inhibiting costs to further constrain development in already challenging times.

Q How can these challenges be solved? This is a conundrum facing all developers countrywide. Some local authorities have tried to form developer forums and have think tanks to address these acknowledged constraints to development, but there is also a reluctance from the developer community to stick its neck out. At the risk of sounding critical to the authorities from whom they are seeking such critical decision-making, the developer community is becoming a victim of controversial debate around the ability of authorities to deliver. During informal discussions with other developers, it emerges that the sentiment is these conversations could compromise relationships with the very authorities developers have to sit around the table with and negotiate SLAs with. November 2013 l property developer

feature office parks, and a possible specialised tertiary education facility. This rich mix of land uses is further augmented by 35ha of open spaces, with a linear park along the entire length of the river. All development faces onto these pleasant green spaces, which will be landscaped and designed to offer the community the chance to commune with nature while still in sight of the skyscrapers of the capital city, and participating in the newest and most exciting mixed-use development at the northern gateway to the capital city. The development will be well served by public transport, with the main line (1A) of the City of Tshwane’s Rapid Bus Transit system (for which Gautrain feeder links have already been planned), currently under construction, culminating at the Rainbow Junction Terminal. This terminal will be the largest of the city’s three new terminals, and will be a multi-modal transport facility serving BRT, bus, rail, taxi, pedestrian and non-motorised transport for the region. As such, Rainbow Junction fulfils all the criteria

for transit-oriented development, according to national policy. In the last six years, Rainbow Junction Development has been able to acquire all the necessary approvals across the whole integrated node, astutely subdivided into 16 approved townships. Because of the scale of the new node, development will be phased over time, allowing flexibility and responsiveness to market forces. At the moment, the development is being introduced into the market, with the first-win projects currently

in final negotiations, in parallel with service agreements with the city. The necessary infrastructural projects are also under way in accordance with planning for top structure project roll-out for early 2014. Rainbow Junction, with a projected completed value of R8-billion to R10-billion, enjoys strategic priority project status with the Metropolitan City of Tshwane, and as such is recognised as vital for job creation (27 300 permanent jobs) and a significant contribution to the city’s GDP.

Q&A with Rainbow Junction’s joint CEO Rosella R Dingle (cont.) If discourse around the mutual problems could be conducted in a non-critical but constructive environment it would naturally be more conducive to a positive outcome. Obviously, a rational approach to solving what is becoming more and more difficult to solve is required from the top down as well as from the bottom up, acknowledging where the problems really lie and what is at the root of them. We then need an acknowledged common objective of both the public and private sector to bring real solutions to the table. Constant “talk shops” are not the answer, it is commonly felt.

Q What are your thoughts on the latest construction sector collusion?

This unfortunate corrupt practice has given the whole development sector a bad name, with certain participants in the private sector now evidently just as guilty of corruption as certain public sector players. None of this will improve our country’s image globally, and our already dodgy credit ratings will certainly not be helped either!

Q How is sustainability playing a role in the sector? Our development’s personal approach to environmentally sustainable development is that this should be an underlying philosophy of all development going forward. In other words, it should be deliverable as part of the DNA of a development, rather than a marketing tool to merely pay lip service to the notion.

Q Going forward, how can development in South Africa be improved?

It’s a bit of a chicken-and-egg situation right now. At the risk of stating the obvious, with all the constraints and challenges in the current economic climate globally and nationally, economic growth is severely challenged, and banks and funding institutions are hypercautious, especially in comparison to the heady pre-2007/2008 property developer l November 2013

times of somewhat heightened risk appetite. Profitability margins in property development are under heavy pressure, and this, together with the caution of lending institutions to fund development, is further hampering economic growth and development, leading to a further slowing down of the economy and to even more constraints. So it has become a self-limiting cycle, simplistically speaking. The prevailing economic climate is already a very difficult environment in which to operate, with bureaucratic obstructions to development, and this environment is exacerbated by the tight rein-pulling of financial institutions. Improving the enabling and facilitation to development from both a red-tape angle and from access to funding for both infrastructure (public funding) and development funding (private funding) aspects would certain remove some of the blockages that are currently impeding development and the resultant slowing of economic growth.

Q Where do you see this sector in the near future? As developers, if we didn’t have an overriding positive and cautiously optimistic attitude to our sector, we wouldn’t be participating in this challenging environment in the first place. That being said, listening to other participants in the sector, it seems that there is still a long period of very cautious but slow movement forward being anticipated. To quote one such input from JP Landman, we will take a “muddling through” approach to the near future. However, in such “muddling through”, intelligent decisions have to be taken. Pockets of opportunities must be exploited, carefully and with diligent planning. Hopefully, keeping the pot just off the boil but still on the heat will create enough energy to withstand it cooling down altogether – and hopefully when more heat is ready to be added, development can be stepped up with a little more confidence. It’s safe to say that it’s very tough out there at the moment, with no magic bullets expected – just tenacity and very hard work!

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Playing construction project manager Both complex and rewarding, construction project management is a whole new ball game By Candace King

ike those who think of Africa as one entity, rather than a continent with many different countries, some people regard the property industry as a single unit. But, much like Africa, the property sector is multifaceted with several niche divisions of property-related focus. One such division is construction project management, a profession that’s one of the most challenging and, simultaneously, one of the most rewarding in the built environment. According to Mike Taylor, executive director at Betts Townsend, project management for the construction industry is different in many ways from project management in other industries. He notes that it’s highly specialised and that the capital budgets involved are frequently orders of magnitude larger than in any other profession – most major construction projects these days have capital expenditure budgets of hundreds of millions, or even billions, of rand. This translates into massive responsibility for the project manager, so his or her role in managing such a project becomes one of huge responsibility and multiple facets. “Construction project managers are required to understand and coordinate many different professions and trades all under the ‘umbrella’ of a single project,” says Taylor. “Each consultant, contractor or

subcontractor who is appointed represents a separate commercial entity, and each one has his or her own particular specialisation. “The project manager must therefore understand what each of these roles encompasses. This requires a vast technical knowledge of the various professions and trades in order to manage the roles properly.

“Construction project managers are required to understand and coordinate many different professions and trades, all under the ‘umbrella’ of a single project” This may include not only the constructionrelated aspects, but may also extend to IT, environmental and social aspects, among others. In order for a project manager to do a job well, he or she requires huge amounts of technical know-how, the ability to work across several disciplines, and the ability to manage people effectively.”

On a typical project, Betts Townsend would be responsible for managing most of the following aspects by means of regular meetings, site visits, inspections and milestone setting: n Carrying out feasibility assessments and similar for the client ahead of project commencement; n Working with the professional team (architects, engineers, quantity surveyors, etc) to ensure that the design, technical and project planning aspects all dovetail; n Working with the main contractor and any subcontractors and trades to ensure that construction progresses smoothly; n Managing project budgets; n Ensuring that all parties adhere to the project programme and that they meet their milestones; n Managing information flow between the members of the project team; n Managing supply-chain aspects as and when required; and n Managing aspects such as occupational health and safety on site, environmental requirements, community requirements, etc. property developer l November 2013

Add to this the need to be able to work with and understand the roles of everyone from a bricklayer on site to the CEO of a company; an ability to deal with labour issues if required; the ability to understand political risk and to know how to work with it; as well as things that are beyond one’s control such as the weather and construction setbacks including strikes down tools.

Construction project management: another kettle of fish

In most projects, the project manager acts as the principal agent, which means they are appointed as the client’s representative when it comes to managing all the other professions and trades involved in a specific project. This is a legal arrangement that is set down in the contract with the client. The project manager keeps the client updated about progress via regular meetings. The responsibility for managing the professional team and for ensuring proper and timeous execution of a project ultimately lies with the project manager.

The challenges

With challenges always a given for the construction project management profession, the current economic pressures in the market are adding even more challenges to the sector. An example is the prevalent heavy discounting of fees by competitor firms and by contractors. This is partly a result of operating in a highly competitive and economically difficult environment, but it can also be because of pressure from clients, who are looking to maximise their returns on a project. This can be problematic. “When a consultant or a contractor discounts on fees, this has a direct bearing on the risk profile of a project for several reasons,” says Taylor. “If a company is charging a lower fee for its services, it won’t necessarily put its most experienced people on the job – the appointed

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Many construction firms will take on a large number of projects – all at a heavily discounted rate – then struggle to assign the appropriate manpower to the jobs and to maintain the required cash flow to ensure work progress

staff will likely be fewer and of a lower calibre, so the risk of not executing the job properly within the quoted price is heightened.” In general, this makes it difficult for firms that would want to appoint more experienced people to take on a project and make an acceptable margin. Many construction firms will take on a large number of projects – all at a heavily discounted rate – then struggle to assign the appropriate manpower to the jobs and to maintain the required cash flow to ensure work progress. Added to this is the ever-increasing pressure to maintain fasttrack construction programmes. This, too, has the potential to increase project risk as some consultants submit unrealistic project programmes to clients, then end up adjusting them part of the way through the job. Of the problems that can arise on the job, probably one of the most concerning is a lack of funding – or non-disclosure thereof – from either the client’s or the contractor’s side. The risk of these on government and parastatal jobs can be high. Late payment from a client and the consequent cash-flow problems for the contractor can bring a project to a standstill because contractors need to maintain payments to suppliers and subcontractors as and when required during a project.

The rewards

Mike Taylor, executive director at Betts Townsend

With the many demands on the project manager and the complications added by the current economic climate, what makes the job worthwhile? “Quite simply, it is incredibly rewarding,” says Taylor. “The demands of the job may end up giving even the very best of project managers sleepless nights at times but there is bound to be an incredible sense of accomplishment that goes with doing a difficult job well and getting the recognition that goes with it. “The fact that you can have a landmark project in your portfolio brings constant recognition for the company, and the positive reinforcement that goes with that makes it all worthwhile.” November 2013 l property developer

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A balance of power With electricity tariffs pegged to increase at around eight percent over the next five years, the property industry braces itself By Tammy Sutherns

Koeberg power station

skom submitted its MYPD 3 application in October last year to the National Energy Regulator (NERSA), in order to determine what the tariff increases for electricity will be over the next five years. While the Eskom MYPD 3 application was reduced from 16% to eight percent, the property industry is still expected to be hit by the increases. “The compounded effect of the increases has already placed a huge strain on the property industry,” says Essop Basha, divisional head of utilities/sustainability at Growthpoint Properties and chairperson of SAPOA’s Sustainability Committee. “There was a slight sigh of relief when the Eskom MYPD 3 application was reduced from 16% to eight percent, but eight percent is still way above inflation. This will have a negative impact on our tenants because the total cost of occupancy will increase. This will also affect the property owners’ ability to grow their net rentals.” While the tariffs increases are above inflation and will hit not only

property developer l November 2013

Essop Basha, divisional head of utilities/sustainability at Growthpoint Properties and chairman of SAPOA’s sustainability committee the commercial property sector but the residential sector as well, Eskom has stressed that its MYPD 3 application sought to strike a right balance for the country and that it looked hard at costs for efficiency. However, its main issue is that the current electricity prices do not cover the full costs of supplying electricity. In a presentation to the South African Council of Shopping Centres (SACSC) in July this year, national spokesperson for Eskom Holdings, Hilary Joffe, said, “The application aimed to continue the migration to cost-reflective tariff increases, but recognised the impact of tariff increases on the economy and on households.” Eskom also needs to repay the debt and interest to fund the investment in electricity infrastructure for South Africa in order to keep the lights on. Debt stood at R203-billion at the end of March 2013 and will increase. Joffe said at the presentation that despite these difficulties, Eskom would be undergoing a careful process of looking at themselves and reshaping the organisation to fit within

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Eskom has been encouraging South Africans to partner with them to keep the lights on and save 10% of their electricity usage

Hilary Joffe, national spokesperson for Eskom Holdings NERSA’s decision on the tariff increases. In an effort to address some of these issues, Eskom has been encouraging South Africans to partner with them to keep the lights on and save 10% of their electricity usage. According to Eskom, “This will make it significantly easier to manage the power system during this challenging time, while also enabling us to do planned maintenance to ensure the reliability of our plant.” Those in the property sector have also undertaken ways to reduce electricity usage and costs. “Growthpoint has been working on various solutions to reduce electricity costs for its tenants over the past two to three years,” says Basha. “We are currently in the process of rolling out energy-efficient lighting across our portfolio. We’ve also successfully introduced the Green Addendum with the shared savings model in our office portfolio and have already achieved an excess of 70% signed addendums.” However, Basha says that the carbon tax will compound the

problem further, because it will directly affect the cost of electricity. Finance Minister Pravin Gordhan said in his budget speech in February that carbon tax would be introduced to counter the effects of climate change. “We have made representation via the South African Property Owners Association (SAPOA) through Business Unity South Africa (BUSA) to treasury, highlighting the significant impact of taxing Eskom on the economy, as this will be passed on to every electricity user,” Basha says, adding that Growthpoint will continue to partner with tenants to find solutions to reduce the energy and water usage in its buildings. For Eskom, the issue remains finding a balance between sustainable tariff hikes and its own costs. As its MYPD 3 application said, in line with the 2012 State of the Nation Address, “We need an electricity price path which will ensure that Eskom and the industry remain financially viable and sustainable, but which remains affordable – especially for the poor.” November 2013 l property developer

conference

Meeting the demand With the affordable housing sector on the rise despite the many challenges, the annual IHS Developer Conference served as the perfect platform to flesh out ideas and find solutions for this burgeoning gap market By Candace King

he world is rapidly urbanising, and South Africa is not far behind. In search of improved employment opportunities, South Africans have been migrating to urban areas since the birth of our democracy in 1994. While private sector residential developers continued to serve their traditional high-end market and government offered highly subsidised housing units to the very low-end market, the housing needs of South Africa’s middleincome bracket remained largely unmet. The affordable housing sector – or the gap housing market – is now finally being addressed due to the huge demand for such homes, coupled with the very low existing stock and a growing market. Provision of housing in this segment addresses the “missing middle” in residential housing, which would be widely inaccessible to many South Africans. This includes households from the 60th to the 90th percentile of household income. Government estimates that, in the gap market, there is a backlog of 600 000 units, and that this backlog grows annually by about 100 000 units. To solve this problem, the sector is experiencing a boom, with new funding by the World Bank Group’s International Finance Corporation (IFC) and the South African National Housing Finance Corporation (NHFC), and plans for improved housing and employment

Government estimates that, in the gap market, there is a backlog of 600 000 units, and that this backlog grows annually by about 100 000 units opportunities for thousands of families in sub-Saharan Africa being unveiled. Such issues and more were addressed at the fifth annual Affordable Housing Developer Conference, hosted by International Housing Solutions (IHS), a private equity firm focused on the development of residential housing. Held in September 2013 at the Johannesburg Country Club in Auckland Park, it was attended by leaders in the public and private sectors, as well as developers and funders to discuss trends and the future of the sector. New investments and partnerships in the affordable housing space were also in the spotlight. Apart from its stellar line-up of keynote speakers, the well-attended event boasted a full programme that addressed current trends in housing in South Africa, government support for affordable housing, end-user finance, green technology, student housing and rental, and the development and construction of affordable housing.

About IHS IHS was the first global private equity investor to identify the investment value of funding development of affordable housing. Since the launch of its first fund, the South African Workforce Housing Fund, the sector has transformed from being practically unknown to exponentially attracting local and international investment from several sources, and securing significant returns for investors. IHS not only brings capital resources but also research experience and risk assessment to local partners who are providing affordable housing to low-tomiddle-income families. IHS uniquely tailors every investment to the dynamics of the market and the specifics of the transaction. For institutional investors, IHS offers opportunities for excellent risk-adjusted returns in residential markets that may otherwise have been out of reach. Following the success of its first SA-focused fund, IHS recently launched its second fund, IHS Fund II. property developer l November 2013

Laying the foundation Opening the conference on a high note, esteemed property economist Professor Francois Viruly addressed the critical notion of key market-related data for the affordable housing sector. “If we want to develop this sector, it is critical that we create the right level of data for the market,” he said, noting that as markets develop, the risk decreases, and that we need to establish transparency in the sector. Thus, in order to deal with the major challenge of how to take the market forward, the industry needs to rely on the ability to create a level of education in order to stimulate growth in the sector. “We need to think about the market data, the players, the consumers, and especially about he rules of the game,” said Viruly. Viruly noted that, at present, there does exist a level of market data – but there are question around who it serves. He also noted that, with regards to the commercial sector for example, we have a lot of data related to year-on-year capital growth, yields, and so forth, and that the same level and amount of data needs to exist for the residential sector. In time this is bound to change, and there will eventually be more information available for the industry. By 2014, it is estimated that the population rate will increase in South Africa, with 10-million people residing in Gauteng. The income pyramid is rapidly changing, and small towns on the outskirts, such as Burgersfort and Lydenburg, are becoming the new bustling hubs of our country. As a few words of advice, Viruly said that over the next two years we need to start to collect critical data and that we need to understand all the elements of the market. We also need to improve transparency and market efficiency as well as attract investors. “Let’s not just build houses, let’s build a market,” said Viruly.

conference On the economic front, things are still “bombing along”. FNB property economist John Loos pointed out that the affordable housing sector is no different from the traditional residential market, but that it is generally seen in isolation. He noted that, in general, the market has been good but nothing is shooting the lights out. “ Currently there are no meaningful differences. We’re experiencing a mediocre economy,” he said. Loos also indicated that affordability has improved, but real prices are still very high and property price levels are relatively uncompetitive. Interest rate policy looks increasingly US-like, ignoring huge deficits. In addition, long-term fiscal weakness continues to constrain economic fixed investment, although improvement has begun. Personal tax burden is set to rise again, and fiscal constraints are a negative for housing affordability. He further noted that household net saving is cut to the bone and that there is no savings culture in South Africa. “When the going gets tough, the tough seem to go shopping,” he said, adding that the future of the South African consumer as well as the market will involve low savings, heavy taxation, densification, high expenditure on health services, an aging population, and continued mediocrity of the economy.

banks need to assist the broader economic landscape and find innovative ways of working together to stimulate growth in the sector. Over the past several years, the market has evolved and new trends have emerged. The concept of RDP housing has been a revolutionary programme, replicated nowhere else in the world. But with the RDP emblem still visible and with housing and living conditions improving daily, this policy has served its purpose and something more sustainable is likely to take its place. “In the last decade, policy has moved on and has become more complex,” said Andrew Donaldson, deputy director-general responsible for public finance in the National Treasury. “The clutter of thresholds, income tax, and household limits are the issues that we face today. There’s also the current challenge of dealing with large projects that have emerged in the last decade.” Another great challenge, according to Eugene Perumal of the Social Housing Regulatory Authority, is the large migration of individuals into city centres, which the government unfortunately has not catered for.

Bridging the gap

“We need to work on bringing outlying populations closer to the city centre, which will assist with household expenditure, especially with transport and travel costs,” he said. Apart from the biggest concerns, including consumer debt, funding, social risks and inequality, volatility and high interest rates (among others), there are the positives: more recognition that is coming out of the good work being done and the inroads being made; the thought that goes into the design of homes that benefits the end user; the transformation of communities; the positive collaboration between institutions; and the promising emerging middle class that will pull us through the tough economy as well as our social issues. The middle class is also driving the development of the student accommodation market, a sector that JHI Residential is very involved in. Thea Bezuidenhout, managing director at JHI Residential Property Management, discussed the student market with great enthusiasm and delved into JHI Residential’s student accommodation portfolio.

In his address at IHS’s conference last year, Planning Minister Trevor Manuel estimated that only 15% of South Africa’s housing is efficient. In order to lessen the gap of the gap housing market, the support of the government and end-user finance need to be implemented. The chief executive of the National Housing Finance Corporation (NHFC) Samson Moraba discussed this gap market in detail, highlighting the importance of this sector and how the NHFC is assisting it. The NHFC is a development finance institution established by the South African government to fund and facilitate the development of affordable housing. NHFC’s principal mandate is to broaden access to affordable housing finance and housing structures for the benefit of the low- to middle-income households. Cas Coovadia, managing director at the Banking Association of South Africa, said that

“We need to work on bringing outlying populations closer to the city centre, which will assist with household expenditure, especially transport and travel costs”

She noted that, despite its tedious challenges (think students and their shenanigans), this segment is highly rewarding.

Developing affordable housing In its final and most lively panel, the conference addressed the development and construction of affordable housing, which raised several concerns by the panellists. One challenge is related to service agreements. “I believe that what we are delivering now is not what the market wants,” commented Nicholas Buck, CEO and financial director of Probuild Construction Group. “Our end user is not seeing the end value.” He also noted that our policies are too fragmented and need to come together – to be aligned. Francois Grobler of Raubex Housing said that dealing with local authorities/municipalities is proving to be a huge challenge as there is no security with them. Bulk infrastructure is almost nonexistent and there’s a lack of engineer transparency. And according to Gaff Kahn of Asrin, “There is also a lack of planning skills on all levels and it appears that there is a lack of interest on behalf of local government.” Buck added that municipalities are delaying development time processes due to their lack of skills and structure. “We have a market but it’s not very functional,” he said. Another issue is delivering to market. “It’s a long process with many procedures and approvals. We need to close the gaps in order to deliver. Also a formalised body of some sort needs to be created in order to flesh out all the issues,” said Kevin Strydom, development director at Group 5. Other challenges include high prices of servicing land/stock, which is not sustainable. Kahn pointed out that the problems run deeper than just service agreements. “People living far away from their places of work is the common ground,” he said. “This needs to be addressed by town/city and provincial planners. Thought has to be given to future expansion for this market.” As a way forward, developers need to come up with solutions and work as a collective to tackle issues. There are pockets of excellence in this market, especially in terms of price, location, skills and efficiency. “We need to educate the end user on this asset class, which is key to wealth and savings,” said Buck. “This is a way out of poverty for many. Banks need to assist here and to educate the end users on all the possibilities and benefits.” November 2013 l property developer

new development

Steyn City: futuristic dream or visionary future? With a focus on community and lifestyle that harks back to the â&#x20AC;&#x153;good old daysâ&#x20AC;?, will the grandiose Steyn City live up to its promised expectation of being a secluded utopia with all the bells and whistles? By Nicky Manson

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teyn City, a mixed-use lifestyle estate currently being developed along the Jukskei River in Johannesburg, between William Nicol Drive (R511) and Cedar Road, has already faced much judgment despite being only two years away from completion. The infrastructure-planning phase began in late 2008, when ground was broken. Today development is well under way and will tally a staggering total of R6-billion at the end â&#x20AC;&#x201C; and thatâ&#x20AC;&#x2122;s before the residential sector is built. Douw Steyn is the person behind the development. First finding fame with Auto and General Insurance, heâ&#x20AC;&#x2122;s amassed his fortune by launching the Budget Insurance Group. This is his latest project. The initial land was acquired by property developer Giuseppe Plumari and earmarked for November 2013 l property developer

new development industrial development. After Steyn acquired the remaining tracts that make up the site today, Plumari changed tack and together they are fulfilling their vision of building a city like none other – “a lifestyle estate founded on the principles of community and quality of life, an ideal that has been lost today in urban living.”

The 2 000-acre lifestyle development will feature a densely wooded parkland, in and around which the residential units will be built The 2 000-acre lifestyle development (that’s bigger than the entire suburb of Sandton and three times the size of Dainfern Estate next door) will feature a densely wooded parkland, in and around which the residential units will be built. It aims to relive the city planning of yesteryear, where forests and parks were part of city planning, and children could cycle and parents could jog, safe in the knowledge that no traffic could harm them. So what does Steyn City offer that other lifestyle estates such as the newly created Waterfall Estate don’t? According to Properties CEO Giuseppe Plumari, “Today cities appear to be built to cater for the motor vehicle. Steyn City will be built and designed for people. One of the biggest

barriers to our lifestyles of old, where children grew up playing on suburban streets, is the motor vehicle.” One of the most important aspects of Steyn City is its parklands. It is indeed a green lung with 50% of the property dedicated to flora. As the densification of land inside the urban edge continues, it will be the only development that can strike the balance between park-like living and urban convenience. The property also has a highly pedestrianised layout. A strategic network of paths interspersed within the parks will be accessible to all homeowners and business owners, and will link all of the residential dwellings with the numerous parks and woodland. Add to this a designated 70km track for off-road cycling and a 42km route for runners, as well as a number of bridle paths, and it is evident that space is certainly not a problem. At completion, the size of the actual property development will be 900ha. This will include about 11 000 residential units, from bachelor apartments to free-standing homes. Another unique feature of the development is that the estate will be fully built before marketing and sales begin. Thanks to a number of private funders behind the project, developers are already investing in improving surrounding infrastructure, including road, water, sewerage and telecommunications upgrades, as well as establishing the estate’s wooded parkland, streets and pathways, city centre, the golf course and clubhouse, building of internal roads and bridges, leisure facilities and the city centre before any plots or

residences can be purchased. This means that selling off-plan is not a necessity as it is with most other lifestyle estates, and ensures that potential buyers will be able to see the development and, therefore, to purchase with confidence. The ethos behind Steyn City is that it has been designed to encourage the relationship between a city and its inhabitants. Houses will be set among hundreds of thousands of indigenous treetops and the openness of landscaped green spaces, but with every property developer l November 2013

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conceivable urban amenity within reach. Steyn City will transform how Johannesburg residents view city life. From cafés, restaurants, and office parks to medical facilities, private schools and crèches, homeowners will have all the amenities of city living on their doorstep. The estate will also boast an 18-hole Nicklaus Design championship golf course and a variety of additional recreational, health and fitness facilities, not to mention a fully equipped equestrian centre.

At completion, the size of the actual property development will be 900ha. This will include about 11 000 residential units, from bachelor apartments to free-standing homes

With all this on offer it seems that residents of Steyn City need never leave the confines of their estate. The question is, will Steyn City sprout estates like it nationwide? Will it cause a divide between “them” and “us”, those who can afford estate living and those who can’t? Because how long will we be content with driving our kids to parks across town just so they can run around safe and free? Currently Steyn City is scheduled to launch to market in early 2015. November 2013 l property developer

new development

Cradlestone Mall:

the evolution of retail development Getting the mix right between property owner, tenant and shopper when developing a regional shopping centre is vital: the client wants an asset with longevity, the tenant requires sufficient foot traffic and high visibility, and the shopper wants easy access and an enjoyable retail experience. Cradlestone Mall ticks all of these boxes – and it’s going to tick more By David A Steynberg

he basic principle of retail has not changed much in the past 2 000 years. Sure, we’re a little more sophisticated in our algorithm models and our shopfronts certainly carry a little more bling, but the principle is the same today as it was then. That’s according to Bentel Associates’ Jan Loubser, the principal agent on Johannesburg’s newest gem: Cradlestone Mall. This double-storey, 75 000m2 single-phase behemoth sits snugly at the intersection of N14 north and Hendrik Potgieter – arterials that link the West Rand with Sandton and Lanseria, as well as with Soweto and the South Rand. It is also home to one of the country’s fastest growing and highest LSM markets in the country, according to Loubser. “Every retail centre wants visibility, accessibility and the right demographics,” he says. “The demographics are positive in the sense that there is exponential future growth in the area. The only other place I can equate that with is a very similar scenario that happened in Pretoria East over the last five years. And even though the mall sits on the periphery on the highway at the moment, we foresee that, within about a decade, it is going to sit smack in the middle of its node.” Despite the mountains and the topography, there are still swathes of land surrounding it, begging for more mass residential development. Once this has happened, Cradlestone will enjoy a large, loyal and moneyed market from Hillfox to Krugersdorp, and Cosmo City to the Cradle of Humankind. “We’d be looking at a footfall of 450 000 to 600 000 per month to start off with,” says Loubser. “You have to take cognisance of the demographic. This demographic is very much

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that of the upwardly mobile family, and that’s why a typical North American mall model applies – which means accessibility close to a highway so that you can come from a far distance with your car. It’s not an inner-city mall where public transport becomes more important. This mall is specifically designed for car-traffic access.”

The India connection

This is an aspect where regional influences are important, says Loubser, using the example of Indian retail versus South African retail to make his point. “At Cradlestone we have six parking bays per 100m2 of GLA,” he says. “In India, a small portion of the overall population owns cars. There are a lot of motorcycles and public transport, and those who do have cars tend to use a driver. So what the parking bay looks like and how you get to it is completely irrelevant to them. The reality is that you’ll be get dropped off by your driver, right in front of the entrance; then he’s going to park and you’re going to shop. When you’re done, he’ll pick you up at the entrance. So whether he struggled to get in and out of his parking bay is not important. “South Africa is completely different. Typically, you’re going to get a fairly well-off woman with a large SUV driving into the parking area, and if she finds it uncomfortable or confusing, or battles with small parking bays, she’s not going to return. So our focus on parking is completely different to what we would do in India.” Another retail concept that works well in India but is less successful in South Africa is that of the family-entertainment centre, purely because we have the freedom to spend

new development

November 2013 l property developer

new development our leisure time in different locations and don’t have to do it inside a mall.

Generation WiFi

One demographic, Loubser says, that has been specifically catered for is the youth market. “It’s important that the food court and movies are vibey,” he says. “We’ve taken cognisance of the fact that these days there is little tolerance among the younger generation for places without internet access or with slow connections. In this LSM people see WiFi as a given. To laboriously access and type in passwords is just unacceptable. They want to walk into the entertainment area, sit down, grab a hamburger and have WiFi on their phone. And that’s what we’re going to give them. We will also have a 360-degree LED screen in that space.” The design and incorporation of the food court into the fabric of the mall was deliberate. “Our food court is on the upper level, connected to the movies for late-night trade, and instead of creating a whole platform up there that is disassociated from the rest of the mall, we’ve decided to take the area that we would have used for the platform and cut holes in the slab to create free-standing pods for seating, so there is a connection with the upper and lower levels,” Loubser says. “This means it’s not a completely disjointed level that sits above the retail, but rather that you’re aware of the people sitting up there and they’re aware of people walking down below them. It’s a three-dimensional, interactive space.”

Translating place into space

Adopting the vernacular of the area ensures that this mall will have a sense of place, and will not lose its identity and relevance over the next 20 to 30 years. Elements of the Cradle of Humankind and our planet’s evolution run beautifully throughout the mall: from the zigzag lines representing the rock strata, to the light and earthy tones within, Cradlestone can only belong to the area in which it is constructed. “In terms of the architecture, it’s not an off-the-shelf cookie-cutter approach where it looks like every other mall,” Loubser says. “We needed to hang our hats on something. We looked at the sort of primordial layering and the strata that you get when you cut a piece of rock and see there was a major fire in 2000BC because you can actually see the ash layer in the strata. We used this concept in abstract form throughout the mall. It says we’re in the cradle of humankind vernacular, it’s about those evolutionary finds, it’s about the layering and the strata that gets built up over the years, and the geological profiles.” property developer l November 2013

On a practical level, the mall has been made friendly and inviting. “It cradles the parking it sits around,” says Loubser. “It’s a fairly long mall and doesn’t have a racetrack configuration. Due to the cradling effect, when you’re on the parking deck the three entrances are all relatively close to each other. It folds in on itself.” This design ensures that the three entrances and the line shops along the spine benefit from as much of the foot traffic as possible. Because our malls don’t get the masses of people you’d see in Asia or North America, for example, we’ve got to maximise our relatively low foot count. “One way to do that is to design our malls critically so that they are as efficient and as functional as possible,” says Loubser. “We can’t afford to make mistakes or have little dead alleys because we haven’t got the masses of people that ensure they’re going to work. If we make a design-flow mistake, it’s going to be seen in the retail performance. To give an example: a lead-in mall is the short run that connects the parking to the spine of the mall. The spine is where most of the shopping happens. Now, if you’ve got two entrances, it means that 100% of the foot traffic from those two entrances walks the spine and those shops get the benefit. But in that lead-in mall, only 50% of the foot traffic walks past your shop. And if you’ve got four entrances, it’s 25%. In the past we had these lead-in malls and the shops in them struggled due to insufficient foot traffic. What we do now is design as minimal a lead-in mall as we can. We’ll typically place a bank there, which is a destination, and the next shop is in the spine of the mall. “What you will also see at Cradlestone is we have a diagonal splay at the entrances that is narrower at the entrance and widens towards the mall. If you walk past that entrance while in the spine of the mall, you will be able to see the shops in that lead-in mall. And that’s important to those shops because they’re not stuck outside of the retail flows.” In terms of energy efficiency, green building concepts were implemented on a practical level to ensure that the centre has an operating cost that’s as low as possible. And because both Sasol and Retail Africa are long-term owners of the projects they develop, this was very important to them. The retail concept may not have changed much over the years but what Cradlestone has managed to achieve is to give tenants and shoppers a back-to-the-future experience. The area’s rich history combined with its promising future makes this development certainly one to watch.

Elements of the Cradle of Humankind and our planet’s evolution run beautifully throughout the mall: from the zigzag lines representing the rock strata, to the light and earthy tones within

new development Q&A with Retail Africa’s Jannie Kruger Tell us about Cradlestone Mall. We are building the dominant regional shopping centre offering in the North West of Johannesburg. We decided to ensure a complete retail offering for the customers, which is evident in the fact that Cradlestone Mall will have all the major South African anchor retailers trading in it: Woolworths, Edgars, Checkers, Pick n Pay, Game, Ster-Kinekor, Food Lover’s Market, Dis-Chem, Clicks, all Truworths brands, all Foschini Group brands, all Mr Price group brands, all Pepkor group brands, Spur, Famous Group brands, all four major banks, as well as Cotton On, Factorie and Gap as international brands.

Why was this specific site chosen? This site was chosen as it has all the attributes of a great regional shopping centre site: it is located at the intersection of two main provincial roads, Hendrik Potgieter and the N14, and is highly visible and accessible from all directions. It is located in one of the fastest-growing higher-income nodes in South Africa.

What challenges did the site present, and did you anticipate all of them? We had to secure external services such as electricity, and upgrade the infrastructure of the roads to the site. The site has a steep slope aspect which had to be considered during the design development phase.

What did you do to overcome these challenges? We upgraded a new 20MVA electrical substation. We also upgraded the above intersection at considerable cost, widened Hendrik Potgieter and built Furrow Road. We built a speed ramp to connect Furrow Road at the bottom of the site to Hendrik Potgieter at the top. It connects the parking levels, and results in convenient and fast access to all parking levels.

What is the issue with the proposed flyover, and when will this start? The flyover is fully designed and the cost to build it was approved by government. However, a legal battle ensued between Gautrans and a tender-entrepreneur who “won” the contract to build it. This legal tussle is ongoing and it is therefore difficult to know when construction will commence. This is the reason why we have spent considerable funds to upgrade the above intersection and to widen Hendrik Potgieter as an interim measure.

How much has the road widening cost? Will it be complete before the mall opens? About R60-million was spent on widening the road, which will be complete by the time the centre opens.

How has it been working with the local municipality? Would you choose to work in its jurisdiction again? Mogale City was a pleasure to work with and we would like to thank the municipality for the assistance. The people involved understand the positive impact of such a major investment in the region as well as the economic spin-offs such as job creation and further development. November 2013 l property developer

property development programme

PDP class of 2013

The Property Development Programme (PDP) for 2013 ran from 21 July until 2 August. As in previous years, this course, presented jointly by the Graduate School of Business (GSB) of the University of Cape Town and SAPOA, proved to be a huge success and was proudly sponsored by Standard Bank

he PDP is South Africa’s premier property management programme. The selection criteria and the typical profile for delegates are as follows: l Seven to 10 years of commercial and/or industrial property experience; l Middle to senior management level; l A tertiary qualification is preferred when considering candidates.

The brief

The following project requirements and site briefing were given to the delegates:

Transnet wishes to dispose of a collection of undeveloped adjacent sites located in central Cape Town. l The well-located properties are situated in the Roggebaai Canal Precinct of the Foreshore. l Approximately 8 000m2 of land is to be made available for development. l It is intended that design and land use parameters be left extremely broad, and that a wide variety of innovative proposals are solicited. l The overall development framework is provided by the Central City Urban Design Strategy. l Proposals are invited from interested developers and will be adjudicated on the following basis:

METHOD This year’s PDP was presented to a total of 70 delegates, and the programme’s first week of intensive lectures (a 58-and-a-half-hour lecture week) focused on the full property cycle. This included property finance, property economics, property law, contracts and tenders, property tax, investment, architecture, viability studies (which included feasibility and valuation), property development, marketing, town planning, and property and asset management. The culmination of the course is the application of principles learnt during the first week to a theoretical property development project in or around the city of Cape Town. The provincial government of the Western Cape provided the vacant

n Innovative and appropriate development concept and innovative land use mix; n Price; n Contribution to broader social and economic goals and City objectives, including possible contributions to affordable housing; n Support for the vision of the City of Cape Town, and demonstrable benefit to the citizens of Cape Town will feature strongly in the assessment by Transnet;

four stands in Canterbury Street for this year’s PDP development project. Delegates were divided into eight project groups to develop the land within specified guidelines. Each group had to have at least one member with the following background, skills and qualifications: l architecture l quantity surveying l building engineering l project management l valuation and town planning l property development l property/asset management l brokers/legal/property executives l accounting and banking institutions l finance

n Highest financial offer will not necessarily be accepted.

Public sector land: competitive proposal call l Transnet corporate/parastatal obligations and objectives l Height, coverage and bulk restrictions: no restrictions – think out of the box l But consider the guidelines and 2003 site conditions

SPECIAL THANKS All of this would not have been possible without the following: v The Executive Education team at the Graduate School of Business of the University of Cape Town, with its quality assurance and administrative support of the programme; v The PDP Committee, which plans the PDP months in advance, supported by the SAPOA education department and the SAPOA marketing department; v Our sponsors Standard Bank, who have been sponsoring this fantastic programme since 2010; v The lecturers, who are always willing to contribute to the success of the programme, regardless of the time of their scheduled lecture slots; v The judges, who work through the night to evaluate and assess the various submitted projects;

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v Derek Chittenden, who sourced a suitable site and helped with the preparation of the brief for the development of the site, taking the delegates to the site and preparing the criteria for the judges; v Professor Francois Viruly, who is responsible for the academic c ontent of the programme and for general support. SAPOA wishes to thank everybody for their support and sterling efforts to make the PDP a success year after year. SAPOA and the Graduate School of Business are proud to have Standard Bank as the main sponsor of the PDP, a programme of the highest quality that attracts outstanding participants and supports the development of young professionals in the commercial property industry. The experiences shared and friendships formed are the true legacy of the PDP, and the two-week programme has proved invaluable to delegates as they move forward in their career.

property development programme

Winning project:

Indawo Development Proposal (Group 6) Looking north

Looking south FROM LEFT Henry Chitsulu (PDP chairperson); Jacques Pienaar; Jodi Davids-Harber; Ben Salomon; Victoria Lekolwane; Shaughn Botes; Shevira Bissessor; Hopson Shezi; Tony Gebhardt (Ist prize sponsor)

Analysis of the site and its context

Looking west

l Proposals to have a meaningful “fit” and “appropriateness” l Consider city context/appropriate land use mix/impact of parking ratios l Improve urban intensification and integration of use: mixed use (commercial, business, entertainment and residential) It was up to individual teams to decide on the most appropriate land use mix based on their market assessment, financial viability, urban design, traffic/parking, architecture, and so on.

Ensure “integrated” consideration of: n Central City policy frameworks; n Roggebaai Urban Design guidelines; n Encumbering legal frameworks, title deed restrictions and current approval; n Inclusion of “affordable” residential, gap or inclusionary housing; n Green building and Green Star rating (www.greenbuildings.co.za). After an actual visit to the site, the delegates returned to the GSB for lunch and started with their projects. On the last day, the groups presented their projects to a panel of judges, and the winners were announced at a certification dinner held at the Clock Tower Building at the V&A Waterfront. Some excellent projects were presented and the competition this year was very close.

he Indawo development is situated in the Roggebaai Canal Precinct in the Foreshore area of Cape Town and consist of three separate sites. The sites are of prime orientation, with the longest portions facing north and south. No buildings of considerable architectural value or heritage have been identified on the sites or in their immediate surroundings. Based on the assessment of the immediate existing context, the assumption has been made that extensive EIA investigations have already been carried out and approved for the canal-adjacent site prior to construction.

Market and market analysis The South African commercial property market is still performing well compared to its counterparts around the world, where uncertainly remains a recurring theme. Demand for office space (and the associated rentals) has remained relatively flat in the Cape Town market, with vacancies remaining at marginal rates. Premium and A-grade space continue to outperform the lowerquality sectors. Low interest rates will continue to support the residential property market, although growth will remain under pressure, given continuing increase in inflation. The demand for rental properties in the Cape Town metropolitan region continues unabated, with an unflagging appetite for rental homes across all areas of the city as well as all price ranges.

The proposed development offers the dynamic tenant, patron and resident an integrated socioeconomic product. It is aimed at the conscientious executive and young working residents. Optimisation of the existing public transport and public space infrastructure for access and exposure are central to the development. Marketing will be driven primarily through the use of direct marketing, and the internet, social media and business will be fostered and leveraged as optimal marketing avenues.

Site development framework “Indawo”, the Xhosa and Zulu word meaning “The Place”, is the chosen name for the development. It symbolises the intention of creating a public space that will develop and grow to become a point of attraction, interaction and social integration. The development incorporates a mixed-use commercial office/residential complex, conceptualised and designed to leverage off the strength of its locality and accessibility.

1st place sponsor

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property development programme

2nd place project:

Quantum Gate (Group 7) The main driver of the concept for this development is to create a dynamic tenant, patron and resident mix in a manner that will be financially feasible and socially responsible. “Integration” is the prevalent theme.

Cost estimate The method of determining the building costs is based on a rate-per-square-metre estimate, also known as an Order of Magnitude Estimate. Rates were based on market-related rates on projects of a similar nature. Total development cost/capital expenditure of the project is R427 667 836 (excl. VAT), which equates to R18 574/m² based on a construction area of 23 025m². The development produces a viable yield of 9,5% on rental income for Blocks B & C and the retail portion on Block A, and a yield of 10,3% on sale residential portion of Block A.

Programme The programme was developed taking into account project stage conceptualisation through to design development, documentation and procurement, construction and close-out. See project programme (Annexure B).

Legal Many legal implications must be considered as part of the development programme, including heritage impact assessment, environment impact assessment, building plan approval process, title deed restriction implication, land claims, zoning rights, existence of servitudes, and all associated legal documentation in respect of procurement and capital raising.

FROM LEFT Henry Chitsulu (PDP chairperson); Martin Ferguson (SAPOA); Yankho Chitsime; Pressag Nyoni; Khulile Nzo; Jane Downing; Jaco Swanepoel; Zoon Jacobs; Karyn Southgate; Kreason Naidoo; Adrian Mentz (2nd prize sponsor); Makhosana Msezana

s property development practitioners, Group 7 has been requested by the Board to prepare a development proposal for erf 166674 RE, 172009 RE, herein after referred to as the site, within the Roggebaai Canal Precinct of the Foreshore of Cape Town. The property is strategically situated at the bottom of Long Street, with a view of the ocean and Table Mountain as well as Lion’s Head. The team that has put the proposal together comprises the following individuals:

c. Parking located on five floors above the ground floor; d. Affordable residential units on floors 1 through to 5; e. Three towers comprising a mix of office and residential units.

Zoon Jacobs Architect Khulile Nzo Quantity surveyor Pressage Nyoni Project manager Karyn Southgate Finance and asset manager Spatial economic Makhosana Msezana development planner Jane Downing Banking Jaco Swanepoel Developer Kreason Naidoo Town planner Yankho Chitsime Deal maker

Finance of the development

Type of development proposes This is a mixed use development comprising the following property usages: a. Basement level to be used for parking, refuse and services; b. Ground floor retail space encompassing a restaurant and arrival lounge, convenience shop, “pop-up” retail and line shops catering to tourist market;

LAND USE MIX AND PHYSICAL SIZE

2nd place sponsor

(Excluding the land) R1,14-billion

Price offered for the land? R81-million payable in 24 months from the commencement of the development.

a. Twenty percent of the improvement costs of the development will be funded by the developer. This will be contributed by way of an interest-free loan account as the first disbursements towards the improvement cost. b. A building bond will be provided for 80% of the improvement costs. c. The land will be sold to the SPV by Transnet, for a purchase consideration of R81-million, with the purchase price payable from the developer’s equity contribution.

Development period Forty-eight months, of which the construction period will be the last 24 months, as per the attached development programme.

Profit/Return

The IRR return in the SPV will be 15%.

GBA (in m²)

GLA (in m²)

GBA%

GLA%

Retail

6 050

4 538

5,5%

5,2%

Private open space

7 990

7,3%

Parking

27 900

26 469

24,7%

30,3%

Offices

13 206

11 885

12%

13,6%

Residential – affordable TOTAL

property developer l November 2013

Total development cost

55 477

44 522

50,5%

50,9%

109 813

87 414

100%

property development programme

3rd place project:

Bayrock Canal Development (Group 4)

he site is an 8 000m2 site held under three erven by Transnet, which erven are to be sold by private treaty. There are multiple conditions on the site, which need to be adhered to. Subdivision, notarial tie and opening of a sectional title register will be required. Encroachment aspects shall also have to be addressed. Noting improving market conditions and the unique attributes of the site, it is intended to build a mixed use development on the site, focusing on office, and high and urbanised residential and retail sectors. The key to the concept will be to bring life to the streets in a live, work, play dynamic. The development will seek to develop for the purposes of letting office and residential (urbanised) space, and to sell the high-end residential space. The developer or final owner shall nonetheless remain as a party to the sectional title scheme for the luxury residential, noting the intent to create ground-floor retail in a circular fashion all around the precinct. The key here is to revitalise the area and create a public precinct that reconnects the area back to the main CBD, while accepting the proximity to a working harbour.

Salient details of the product offering:

1. Four buildings comprising the said mixed use across the sectors of office, retail prime and urban residential. 2. 10 500m² of office space being rented at R145 per square metre (/m²), with a fit-out contribution of R1 800/m² from base shell or R600/m² (as a more generic carpets and painting type allowance, assuming infrastructure is in place). Length of lease is expected to be five years. Escalations of 8,5% shall apply. 3. 2 500m² of retail (ground level), at rentals ranging from R120/m² to R220/m², depending on size and location of retailer. Fit-out contributions will be limited to about R200/m², save for the anchor (national retailer), for which R3 500/m² has been budgeted. Length of lease is expected to be five years. Escalations of 8,5% shall apply. 4. Rental residential will be set at R6 000 and R9 000 per apartment (one- or twobedroom flats), inclusive of parking. Consumption charges are separate.

FROM LEFT Tim Smith (3rd prize sponsor); Cecelia Ndaba; Mkhululi Gaula; Erika Smith; Sakhile Ndzimandze; Burger Bothma; Selemeng Mokosi; Gregg Huntingford; Ndabezinhle Mkhize; Martin Ferguson (SAPOA); Themba Maluleke

Green features will be encapsulated into the development. These include water cooling, shading and air ventilation techniques. Appropriate glazing (and volume thereof) will similarly be taken into account. Urban park areas will be created, touching on heritage issues and seeking to have some connection with historic waterways running through the old city. A four star Green Star rating will be sought.

The feasibilities show a solid return Professional quantity surveying expertise has been brought in from the outset. The NPV of cash flows exceeds the cost of the property development. The IRR is at 15,5% compared to a cost of equity funding of 13,98% and a WACC of 9,5%. Debt funding has been secured at favourable rates on loan-to-value ratio of 60%, interest-only basis. Allowance has been made for a blend of floating and fixed debt funding, resulting in blended debt financing at 8,98%. It has been presumed the bank will finance 49% of the remaining equity required. On the basis of these covenants it is anticipated further equity investment should be manageable. Cash flows have been run over five years. Works will be run via a tender, and will occur via the JBCC format. The duration of the build is expected to be 18 months. Strict controls will be required so allowance for a project manager and principal agent has been made. Phasing the project has been ruled out in order to avoid delays in selling and letting premium stock. Clients are unlikely to commit while the site remains under construction. Key to the development is the interaction with the urban fabric. Consideration to the area and to the neighbours has been given in

the aesthetics. Further allowances for longerterm growth are present, with design in place for future links to the liner berthing at the Duncan Dock. The intent is to create a village within a city that links back to the city framework via the CTICC corridor, and the Long Street artery. Importance has been placed on the existence of open spaces, appropriately sheltered where necessary. Rooftop gardens and recreational areas are allowed for. These provide added ventilation benefits to the buildings. Traffic and heritage issues are not expected to play a major part, but will require some consideration and monitoring. Parking in the city always presents a challenge. Thus parking has been split between basement and above-ground levels to lower costs, but also to allow for flexibility should parking ratios decline in the future, and the need arise to convert areas back to office. Parking ratios for commercial have been set to three bays per 100m² in an effort reduce the number of bays in a sustainable commercial fashion. The development will link intrinsically to the new public transport IRT systems in the CBD. Social clubs/activities are to be set up in an effort to encourage a sustainable urban living environment. Use of the public areas is to be actively encouraged. Promotional events will occur in this regard.

3rd place sponsor

November 2013 l property developer

property development programme

Reflections on the 2013 PDP adjudication process By Professor Francois Viruly

Over the years, the SAPOA adjudication panel has attracted a dedicated group of professionals willing to share their experience with the next generation of South African property executives

he PDP is well known for its almostimpossible deadlines, which everyone somehow gets through. In just one week syndicates are not only required to prepare a comprehensive, bankable property development but also have to have it reviewed by a panel consisting of some of South Africa’s top property professionals. For the panel, the task of analysing and arbitrating eight to nine complex developing projects in one evening is an equally daunting task. The role of the PDP adjudication panel is twofold. First, it has the responsibility of choosing the winning project. But equally important, by sharing opinions on the quality of the projects, the panellists provide a critical component of the overall learning experience provided by the programme. In one evening, the panellists are expected to read through hundreds of pages, analyse the contents and develop opinions on the quality of the submissions. Although the panellists come with their own set of expertise – namely legal, urban design, finance, quantity surveying and marketing – the challenge ultimately lies in determining the overall merits of each project. Which means that cash flows have to be balanced against title deeds endorsements, and urban design principles.

Equipped with an understanding of the proposed projects, the panel is presented on the last day of the programme with a full day of project presentations. The syndicates are offered 15 minutes to present their projects, and this is followed by 15 minutes of questions from the panellists. It gives the panellists an opportunity to question the project while at the same time providing valuable input to the participants. During these sessions the “non-financial” members of each syndicate could be asked to discuss the intricacies of residual valuation calculations while the financial modellers are asked to respond to questions that are focused on design and urban design. Every member of the syndicate needs to know everything about the project. The objective of the session is to also ensure that participants are offered as much feedback as possible on their project. The final task of the panel is to choose the winning project from the submissions. This is never an easy task and often results in discussions that attempt to find an appropriate balance between the different criteria that define a winning project. Typically the question is asked whether a project that has provided an excellent financial feasibility study but that has failed on urban design principles, should be in the running for first prize.

The judging criteria used were as follows: Market analysis and marketability

10%

Social equity: BEE/Compliance/Ownership

Urban planning & architectural design

25%

Legal structure

10%

Building cost and programme

10%

Financial viability

20%

Financial structuring

Team presentation of project:

property developer l November 2013

a) Submitted project document:

b) Executive summary

c) Oral presentation

TOTAL

100%

property development programme

The group dynamics that made us the winning project

From the team leader of Group 6

aving survived (and recovered from) what can only be described as PDP boot camp, we are finally able to reflect on the course. The high calibre of lecturers and delegates, relevant and interesting course content and the poignant manner in which it was delivered, and the efficiency with which the programme was run all made for a memorable and worthwhile experience. I’m inspired and motivated by the professionals with whom I interacted, the extensive knowledge acquired, the priceless networking opportunities and the friendships made.

Spartan Development, a name which arose in jest during the early hours of one of many late nights during project week, later came to symbolise the inherent qualities that we wished for our group and our project to represent Spartan Development, a name which arose in jest during the early hours of one of many late nights during project week, later came to symbolise the inherent qualities that we wished for our group and our project to represent. “Resolute in the face of danger or adversity, possessing courage and resolve.” The intensity of the first week of lectures and in-depth immersion in the subjects presented on the course merely opened the door to the mammoth task of project week. Presented with the complexities of a site on the Foreshore in Cape Town and a group of relative strangers with whom I had to try in just five days to accomplish a project with an end result that would be equal parts innovative, appropriate, creative, responsive, practical, dynamic and financially feasible,

I realised that PDP project week would prove to be the ultimate test of the success of group dynamics. Consisting of seven dynamic, talented and skilled professionals from a diverse range of disciplines within the property industry, the success of the group, though not without its challenges, stemmed from the commitment of each member to the task at hand, every person’s willingness to share his or her expertise as well as to learn from and assist others, often stepping out of our respective professional comfort zones in order to do so. Coupled with sleepless nights, intense debates and a few hiccups was gutwrenching laughter, interesting characters and ultimate relief at the completion of the final product. We established early on in the process the primary principles, concept and financial model as a basis for the project, this being developed through the response to extensive market research and contextual analysis, and we used these to routinely test the merits of the proposal from start to finish. As a group, we were confident that the development proposal that we had submitted was well researched, and developed in line with the brief as set before us as well as the objectives we had set out to achieve. After a day of incredible presentations it could only be described at the proverbial “cherry on the top” to have our project announced as firstprize winner for 2013. PDP 2013 has proved to be an experience of great professional value, and I feel privileged to have been part of a group committed to investing in development and positive change to the built environment in is South Africa, Africa and beyond. Jodi Davids-Harber Architect (Pr. Arch/M. Arch) TJ Architects (Pty) Ltd

Jodi Davids-Harber

PDP 2013 has proved to be an experience of great professional value, and I feel privileged to have been part of a group committed to investing in development and positive change to the built environment in South Africa, Africa and beyond November 2013 l property developer

property development programme

Are we developing spreadsheet people or property people? By Craig Whitson, FNB wealth manager: specialised lending

eventy delegates from around South Africa and various international destinations descended on Cape Town’s Graduate School of Business on 21 July 2013, in anticipation of attending one of SAPOA’s flagship management courses, the Property Development Programme (PDP). The delegates came from various disciplines related to property development and management. They included property analysts, CEOs, lawyers, bankers, property developers, property managers, quantity surveyors, architects, town planners and project managers. There was a sense of overt exuberance as we all congregated around the coffee-andbiscuit table in order to have our magazine photos taken and talk to fellow delegates. This area would soon become our primary meeting point after presentations to discuss what we had learnt and express our opinions. It also helped to top up the sugar levels. We eased into the programme on Sunday with introduction to the PDP and orientation. At 11am we kicked off with a presentation on “Group Dynamics”. This seemed mildly relevant – but would turn out to be incredibly relevant going into week two – the infamous project week. On Monday and the following five days, presentations started at 8.30am, followed by a mid-morning coffee break and lunch at 1pm. Lunch was an opportunity to discuss that morning’s presentations and wolf down food at the V&A Waterfront before returning in time for the afternoon session. The afternoon sessions began at 2pm and ran to 10pm, which allowed us time after the day’s presentations to discuss key points and interact with fellow delegates, over a drink or two at the hotel or another local establishment. This was an ideal opportunity to apply our new-found knowledge of “Group Dynamics”, which would only stand us in good stead at the social-quiz evening held on day four. We soon realised from the quality of the presenters imparting their knowledge of the industry, that we’d grow not only as property professionals but also as individuals. property developer l November 2013

This would allow us to build long-standing business and personal relationships. People are what make organisations great, and the different cultures they bring to those organisations are born from their interactions with others. Both macro and micro aspects of property development were discussed, all with the goal of giving us a fighting chance of delivering a great development proposal and presentation after week two. Week 1 presentations covered all aspects of property development, which was further enhanced through class discussion, group breakaways and project work. These included: l Economics l Investment and asset management l Marketing and research l Viabilities, feasibilities and valuations l Contracts and tenders l Town planning l Property management l Property law l Property taxation l Strategic thinking l Stress management l Ethics and corporate governance. Week 2 began with a bang, with the projectsite brief and a visit to the site – a Transnetowned site in the Roggebaai Canal Precinct. The realisation dawned that we would need to take this undeveloped piece of land and

develop it into something tangible and marketable – all within 100 hours. All the teams focused on a clear vision of what they wanted to achieve, and forged ahead. The diversity of experience of the individuals within the teams added to the mix, and a new-found respect was gained for each other’s disciplines. Who knew that architects need no sleep? As the week progressed and the hours of sleep diminished with no thought of social life, the group dynamics were severely tested. This was exacerbated by having nine people crammed into meeting rooms – which, ironically, were converted jail cells. This not only challenged us but also inspired us all. Needless to say, we all managed to complete the projects, which were all handed in on time, prior to the 1pm deadline on 1 August 2013. This, however, was not the end because PowerPoint presentations needed to be created and presented to the panel of judges the following morning. This was followed by a question-and-answer session with the panel of judges. All presentations were completed by late afternoon on 2 August. The final dinner and awards ceremony followed, allowing us finally to let down our hair, secure in the knowledge that we had worked as team, charged the hill and won. What is clear is that we all learnt a lot a and made great friends. People do business with people they like and trust – hence the collaborations that have transpired after the course. The fact that the projects were innovative and contributed to the broader social and economic goals and City of Cape Town’s objectives shows that the face of property investments is changing. The drivers of this change are certainly “property” people with property coursing through their veins, and not “spreadsheet-driven” people. We wish to thank all the staff at SAPOA and the GSB as well as the lecturers for adding value to our lives and taking us on this incredible journey.

Planning the city

face to face

If home is where the heart is, then Cape Town is where Japie Hugo, executive director of economic, environment and spatial planning for the city of Cape Town, is By Tammy Sutherns

apie Hugo has a lot of responsibility. He is in charge of several functions in the Cape Metropolitan area, is required to align these with the city’s strategies, and also finds himself baboon monitoring along with shark and hippo spotting from time to time. It is no wonder that the executive director of economic, environment and spatial planning for the city of Cape Town says, “This is the most exciting city-planning position on the planet.” Following a degree in building science and master’s degrees in town and regional planning and business leadership, Hugo worked his way through the ranks to become Johannesburg’s first director of city planning by 1991. Three years later, he returned to his home town of Cape Town, then worked his way up to the Metropolitan Municipality’s first director of planning and environment in 2002. In 2005, he joined an international property development company and was actively involved in major mixed-use developments including commercial, residential, hospitality and retail over the next seven years.

Making strategic connections

“When the City of Cape Town combined economic development with the environmental and planning functions in 2012, I jumped at the opportunity to make these strategic connections happen,” Hugo explains. It is an optimistic time to be a part of Cape Town’s development, shark spotting and baboon monitoring aside. “It is still a very tough time for the property industry, but at the risk of being too optimistic, we may be seeing the first green shoots,” Hugo says, adding that the number of building plans submitted and, in particular, the value of those plans is significantly higher on a year-to-year basis. In the past year, the city has also approved a city-wide spatial development framework (SDF) with eight district SDFs, and has replaced 18 “archaic” zoning schemes with modern integrated zoning schemes. With the One Cape 2040 long-term vision for the Western Cape including a settlement

In the past year, the city has also approved a city-wide spatial development framework (SDF) with eight district SDFs, and has replaced 18 “archaic” zoning schemes with modern integrated zoning schemes transition to well-connected, liveable affordable and safe neighbourhoods; a cultural transition to open, tolerant business and residential communities with a “can do” attitude; and an ecological transition to a low-carbon, zero-waste environment as the cornerstone of the economy, Hugo says the challenge is using the available resources and influence within their networks to create momentum for such transitions. In line with this vision, one of the big aims for Cape Town’s development in the future is not only to grow its recognition as an international tourist destination but also to ensure it’s recognised as a destination for business. Hugo says that a significant amount of work has been done in this regard, with council having recently

approved an investment incentives package for identified strategic sectors and specific spatial areas. They are also in the process of making detailed analysis of property market trends for each of the 71 business and industrial nodes within the metropolitan area, which will be available on the web within seven months. Sustainability plays a bit role in this, with the City of Cape Town promoting a low-carbon energyefficient agenda and integrating climate adaptation across all line departments. “Developers should familiarise themselves with the pragmatic publications that Cape Town has put together,” says Hugo. “These include sustainable options for developers and a Smart Building Handbook, as well as sustainable landscape options.”

Cape Town is the place for blue-chip investment

Enthusiastic about his role in Cape Town’s development, Hugo says the city is the place for blue-chip investment in all property sectors. “It’s not about speculation and the making of fast bucks. There are no quick fixes. We aim to systematically create environments where investment values will continue to grow as Cape Town will be a place that everyone will call home; where everyone will have the opportunity to lead a dignified and safe life; where infrastructure is sufficient and well-maintained; and with capital replacement programmes in place. Property investment is fixed in space.” He adds that their role is to make sure that urban spaces will be working better in 10 years’ time, and to reward long-term property investors for sinking their capital into the city. It is the city itself, however, that keeps Hugo invested in Cape Town. “A city on every global travel blogger’s bucket list, 300km of some of the world’s most breathtaking coastlines, one of the Seven Natural Wonders of the World, a World Design Capital, unique biodiversity with highly threatened vegetation, a population that grew by 850 000 in the last decade (with the number of households growing by 38%), an unemployment rate still high at 24% despite coming down from 29% in 2001… What other motivation do you need?” November 2013 l property developer

last word

A country in the dark When the going gets tough, the private sector needs to get going

he lights in South Africa have quite literally gone out over the last few months – and in more ways than one. Development in the country, when it is needed most, is stalling. Our industries move one step forward and 10 steps back as we flounder in what is becoming a dangerously unstable pool of commotion. We might be quick to point a finger at the public sector and the governing bodies, but the private sector is in trouble as well. We’ve seen an abundance of strikes in a variety of sectors this year. Our airports have been without workers, our petrol pumps without attendants, our automotive industry without automotive workers and our mines without miners. Between the demands of NAAMSA, NUMSA, NUM and SATAWU, it can be difficult to keep up. As financial journalist David Gleason wrote recently, South Africa is simply at the mercy of trade unions and is being held to ransom by their leaders. At a time when the rand really doesn’t need another round in the ring, we’re throwing our economy in there too, for good measure. The hits just keep on coming. “The culture of endless expectancy, assiduously cultivated by union bosses and aided by captains of industry ever willing to capitulate, will take us apart,” Gleason reported in Business Day on 10 September. Then there is the issue of the City Power strikes. Not only did workers down tools by refusing to work after hours, leaving power

property developer l November 2013 October 2013

By Tammy Sutherns

outages in areas such as Killarney, Bramley, Randburg, Cresta, Wynberg and Atholl, as well as many neighbourhoods in the West Rand in Gauteng, but there was also evidence of alleged sabotage in certain substations, which caused further damage and left areas without electricity and hot water for days. These power outages are said to have cost the city of Johannesburg in the region of R100million in revenue per day. Gauteng Premier Nomvula Mokonyane called the strikes “economic crimes and acts of sabotage” on The John Robbie Show on Talk Radio 702 recently, and said that stability and investor confidence needed to be created in the country. The question is, how confident are we feeling about ourselves? When the poo has quite literally hit the fan, with protests about the lack of sanitation in informal settlements prompting human-

waste dumping across the Western Cape, it’s time to take a long, hard look in the mirror – preferably with the lights on. Our private construction sector is not flying the South African flag high or proud at the moment, either. The Competition Commission recently levied R1,46-billion in penalties against 15 companies in the industry as a result of collusive tendering related to projects that were concluded between 2006 and 2011. In the wake of the recession and the high costs of infrastructure developments, projects and investments, the last thing our economy needs is any kind of hampering of the competitive culture. It is understandable that things are looking a bit dim. People are struggling in tough times, trying to make ends meet, to utilise (if not manipulate) the Labour Relations Act, and to ensure that there is a constant flow of work and income. Striking, colluding, downing tools and flinging faeces may not be the answer, though. Tough times yield innovation – and this is where the private sector can thrive. Integrity, honest practices and healthy competition are a good place to start. Because if we don’t start making some changes – and soon – all that we will be is a bunch of individuals who have had to shower in cold water, have missed their morning coffee and have been left to clean up everybody else’s mess. It’s time to turn on some lights in South Africa.

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Contact Tim on: +27 32 814 0000, Email: property@dubetradeport.co.za or visit: city.dubetradeport.co.za

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