This is not the time to jump the ‘investment ship’, says Norman Raad

The current economic situation in South Africa harks back to 1998, 2001 and 2009, when everyone was talking about the economic slump we were in and facing, and how we needed to sell and jump all our investment ships, says Norman Raad, CEO of Broll Auctions and Sales.

“But at that time those with the smart money were buying, looking for opportunities and making savvy property acquisitions while the pessimistic and negative were panicking and selling. If you have the ability to buy and raise money for investments, you will look back and enjoy the profits of the challenges in the market we face today.

“And the opportunities are out there. My advice is to focus on position and quality of the property when you are deciding to invest and you will be greatly rewarded. Every property has a value and the well positioned properties will only get better and more in demand.

“Admittedly, sometimes you can only afford properties which are on the periphery, but don’t stay out of the market. Rather divest of properties which are vacant and a cash burden and buy better properties now that will show resilience even through the next economic slump, which is a definite. Bear in mind that nothing lasts forever, including the bad times.”

Raad says the properties on Broll’s national auction this month (12h00 on Wednesday 19 July 2017 at the Wanderers Club in Illovo, Johannesburg) which show tremendous potential in the hands of new owners with energy and vision are the Riviera Hotel on the Vaal River in Vereeniging and a large warehouse facility with adjacent land in Meadowdale, Johannesburg.

“Situated right on the water, this beautiful, former Southern Sun hotel offers magnificent views from every room. The north-east facing building just needs some tender loving care to bring it back to its former glory days. Ideal for conferencing or business and private functions, the retreat overlooks the Riviera golf course and is only 30 minutes from Johannesburg CBD.

“The hotel is ideal for family getaways and the owners’ decision to retire to the coast unlocks the opportunity for a potential buyer. A replacement cost for a new hotel is anything from R1.2 million per key (ie cost per room) upwards depending on the size and star. Expectations that we will achieve half this price make this property extremely attractive to all investors. The potential for this hotel is unlimited as it can easily be converted to apartments or a student campus as each unit is sectionalised.”

Set on 2.5318 hectares, the landmark hotel has 91 rooms with five conferencing rooms and extended supporting facilities.

Raad says the other high profile property is the well positioned Tiger Brands warehouse on a 4.5681 hectare corner site in Meadowdale.  Comprising a gross lettable area of 12 585sqm, the large warehouse facility includes ancillary offices, store rooms and transformer rooms as well as exterior, covered loading docks. “This property has great highway exposure, is well located close to all airports and highway access and incorporates land for extra developable bulk. While the replacement cost for the warehouse is close to R8000 per square metre, the anticipated price will be closer to R5000 per square metre.

“Notably, a number of listed funds have turned to the auction process to market their properties. These vary from commercial office, retail and industrial space to vacant land. Land comprising 4.717 hectares in extent and situated on Malibongwe Drive in North Riding is ideal for a residential development, showrooms, or a distribution warehouse.

“Another interesting trend is office to residential conversions, which are occurring more than ever before. If the floor plates are suitable for a conversion, then the property will extract far greater longevity and provide a better long term financial viability than if they remained as offices. Office rentals are declining and when it comes to B and C grade offices in areas of lesser demand, residential conversions may be far more suitable and easier to either sell off-plan or rent. As mentioned, achieving a lower return or yield on your investment is far more important than having an empty property. Today’s business sector is facing headwinds, with increased costs across the board, so downsizing and chasing more affordable rentals will be the trend for the next three to five years.”

Adds Raad: “There have been numerous office blocks which have remained empty for years and if you are not a fund which can disguise the loss among the vacancy percentage and can afford the loss of income and carry the property for long periods, you must look for alternative solutions which the office building offers. If it’s not residential conversion, then another option is storage. Many people are moving away from large homes into smaller apartments which don’t come with excess space, so there is becoming a real requirement for secure storage space in close proximity to residential suburbs. Most office buildings or complexes, offer this and can easily be converted.”

Among a range of other properties around the country which are going on auction are an art deco block with a GLA of 1508sqm and comprising nine floors of retail and offices in Marshalltown, Johannesburg; a number of vacant development sites in Sandton, Fourways, Midrand, Boksburg, Springs and Elandsfontein; a car showroom and workshops in Roodepoort, a mixed-use opportunity in Austerville in Durban, comprising a GLA of 1 700sqm on an erf of 4298sqm, and office blocks in Bedfordview, Pretoria CBD and Port Elizabeth.