Unity Properties worked on the negotiations with the seller for approximately one year before the deal was finally concluded at R25m and we took transfer in June 2012.
The investors raised R10m in equity to buy the property and initially borrowed R16,5m to cover the purchase price and acquisition costs.
At the time the property had a vacancy rate of 40% due to OK Furnishers, Dunn, Nedbank, Jam Clothing and other major tenants vacating Dube Mall in preference to the newer, larger Bridge City Shopping Centre. With Bridge City being promoted as intermodal transport hub for the area, the proximity to Dube Village and the owners being inflexible in rent negotiations this was an obvious choice for these tenants to make.
Basically overnight Dube Mall went from being the only centre in the area to being the ugly sister. Shoprite’s turnover dropped 20% and something needed to be done to reposition and rebrand the centre. Along with mass exodus of tenants the centre was run down, inadequately managed and it was experiencing a multitude of security issues and major tenant discontent. There were also plan approval issues to deal with. In other words it was right up our alley.
We then embarked on a R6,0m revamp project which focused on completely overhauling the look of the centre. We refitted the toilets, retiled the passages, put in new bulkheads and lighting and repainted the buildings. We also added landscaping which was non-existent and rebranded the centre with a new logo and new tenant signage for both the interior and exterior of the buildings.
The next part of the strategy was to boost the income. We did this by subdividing the bigger spaces, which had been valued at R60/m2 in the purchase price, and achieved rentals of between R100/m2 and R220m2 for the reworked space. The additional value we created came from repairing several water leaks which had been left unattended, and by installing water meters and recovering the water used by tenants which alone added R3,2m in value at 11%.
The net result was very positive for all concerned. The property was independently valued in July 2013 for R44m. All in all, we had spent R33m. Investors enjoyed a 100% return on their R10m equity invested within 14 months. At the final cost, we had achieved a 15% net yield. The community now has a better centre that is cleaner and safer to shop at. The tenants are trading better, with some, as much as 40% year on year improvement. We also created a centre manager position, 2 extra security shifts, 2 extra cleaning shifts, 2 landscaping contractors and all the vacant shops led to employment creation as well.
This achievement was really rewarding for us as it was a win / win for all concerned. We created jobs, serviced the community better, improved the aesthetics of the area, helped the tenants improve their businesses and gave a great return for the investors. This kind of project really excites us and we love the challenge of fixing properties and giving great value for our investor clients and it is something we want to repeat as often as we can.
Our work does not stop there and we are always striving to reduce costs and increase our average rental over time in order to add additional value.