 otherwise a crisis. Can you just take us through some of the activity that we saw with office buildings in the past two years? That's something I think a lot of reference has made for the last two years in terms of where we've gotten a lot of vacancies and a lot of opportunity around taking office buildings or building them into a residential. You want to make sure. Thank you. Good evening and welcome to episode 447 of the Private Property Podcast. I'm your host Uzaman Dongwa Komalong. It's the Wednesday edition of the Private Property Podcast. If you're joining us for the first time, welcome to the family you tuned in to the leading podcast in all things property in South Africa. Letting us know if you're joining us for the first time, we absolutely love showing new members of the family some love. Now this conversation that we're having this evening is one that I know a lot of the property entrepreneurs in particular are very interested in. We love seeing the different opportunities that are in the market and really exploring the different ways that we can take advantage of them as much as possible. We're looking at unused office buildings. What are some of the latest trends? What are some of the opportunities that are there because of the unused office buildings that we see due to a lot of us working from home or adopting some kind of hybrid model and to help us get a sense of what some of the opportunities are and what you could potentially certainly explore and what you should look out for if you want to go down that route and join this evening by Grant Smear who's the CEO at Frankie Bell's Real Estate. Grant, good evening and thank you so much for joining us this evening. So Grant, it seems every time I have you on the show you have a different designation. There's always new kinds of business that you are conquering. I think tell us a little bit about that because I know the listeners are like, but we know him as this, we know him as that, but I keep up with the various activities and the expansion of the business and the work that you do. Just share with us and our views at home just a bit on why we keep having you with different designations because I'm sure by now they're like, but we know this guy. But the last time he was here, that's not the company he was certainly representing. Yeah, thanks so much. So I am essentially a property entrepreneur focused on the professional services of property. At core I'm a property business, a spot of art. I basically property myself and then I did find that as entrepreneurs there's opportunities in the property market to expand into the services space. So I am a franchise law of only realty and national estate agency. Frankie Bells has joined that sale and he's a realty Frankie Bells actually. I've also had that once property management, which is a sectional type of management company. So it's just really taking my experience as an investor, as an owner, as a property owner and trying to create a services and professional services company around. But I would expect as an investor and an owner in the properties from a citizen's point of view, from a person's point of view, and really just trying to improve the industry through firing, being involved actively or having these talks and speaking. I think if anything granted, it's testimony to how when you're a property entrepreneur, you find the different opportunities within the broader property spectrum. And this is across whether you're doing property management, you're doing sectional title management, you and I know the different kinds of opportunities, the use of tech, you look at prop tech innovations and finding different ways of integrating them in the businesses, in the different businesses that you're running. I think it really is testimony to how the dots are the way of connecting. And I think when you are in the space and in the value chain, you're able to see the different opportunities along the value chain, which probably brings me, of course, to the exact conversation that we're having this evening, because we've seen some of the different opportunities when we talk about breathing fresh life into the unused office buildings that we are finding. I think first, if we look at the stage of office buildings, particularly from, it's nearly two years to the date when President Ramaphosa announced that we're going to be going into 21 days of lockdown. And of course, when we look at what has happened to the office space, particularly in the major metros and the past two years, it has on the one side has not been the greatest story for some of the landlords, but of course also has created great opportunities for those who are able to tap into what effectively was a crisis. Can you just take us through some of the activity that we saw with office buildings in the past two years? Yes, I mean, I think a lot of references made for the last two years in terms of where we've gotten a lot of vacancies and a lot of opportunity around taking office buildings and converting them into residential. But what I was seeing, and I've seen it in Cape Town early on, is probably three, four years ago, where we had conversations with some of the funds and some of the big property owners there, where they started seeing vacancies increasing and wanting to make better use of their property. So they started looking at converting office blocks into residential. And I think what really happened was, again, the pandemic, just like the digital revolution that's happened over the last two years, is the pandemic and the lockdown just accelerated a reality for large office blocks and large office spaces into space where people were landlords and property owners were realizing, let's make better use of that space because it's no longer viable for companies as digital was gaining traction to take massive amounts of space. And yes, it's just been an acceleration of a process that I think was coming anyway. And those guys that were looking at it as an option, obviously jumped into that space pretty quickly and created some quite exciting projects. And I think talking about some of those exciting projects, we've seen different players coming into the mix. Some of the big players, your growth points, your sets of property fund, your black bricks hotels, trying to take advantage, of course, of the opportunity that these vacant spaces has effectively created. I think broadly speaking, I mean, talk us through when you are a particular big player. I think before we look at the guys who are still in the relatively early stages of their entrepreneurship journey or don't have the capital. When you're a big player and assessing different kinds of opportunities, especially like these to take advantage of and to potentially make a move, what are some of the drivers that you're looking for that help you in making that decision and whether, of course, to acquire that particular office building and potentially convert it, of course, into perhaps a residential or a mixed use space. So I don't think we actually look at the big players, we're not really looking at acquisition, we're looking at properties that they already own, that are underperforming, that are sitting at high vacancies, that are sort of one of the sore thumbs in their portfolios. And the problem again is, if you come into a space where these properties have high vacancies, I'm performing another need to sell them. It's not going to achieve the value of the needs that they need to or might have paid for those or invested into those properties over the years. So they need to sit in them and make them provide a return and create value so that they can be sold out of the fund if they need to. So I think really it is a necessity out of poor performance that the funds and the big players are looking at this. And when they saw the models sort of working, particularly again, you mentioned Black Creek, I'm a huge fan of their work, when you see the start seeing it working, that's when they went and took the model and then replicated. So I think if it came from necessity and has led into creating an opportunity to grow the model and the footprint to go forward. If you are just joining us this evening, I'm in conversation with Grant Smear, CEO at Frankie Bell's Real Estate, looking at unused office buildings, some of the trends and of course the opportunities that are there. I can see the love coming through on our Facebook page, the usual suspects, Polina and Kosi, Albetta, Albetta, Albetten, Kosochumelo, Lindis, Cicabella, also coming through and checking in with us. And of course, I want to find out from you at home. I mean, what have been some of the interesting conversions that you've seen in, especially in the midterms, because I know that a lot of us have now seen where there used to be an office block, suddenly it's a residential apartment block. I've seen it quite a bit in the Santin area and we're seeing quite a lot of those. So you're even having to change your marker. You used to say this was the X company building and it's no longer X company building because it's been acquired and of course converted into something else. And Grant, I think on the issue of conversion, when you look at to convert or not to convert, because I think that also becomes the big thing, particularly with players who have the real estate and had been primarily focusing on office or that part of their portfolio was office, what are some of the factors that you need to look into when looking at whether to convert or not to convert? And of course, the logistics that comes with that particular conversion. Yes, I mean, the first and foremost thing is with property and this requires lots of properties or locations. So what is the location of the property? Who are you currently trying to service and how convenient is that property to what they require in terms of accessing work, traffic, traffic flow, schools, anything that sort of they need under today or to live their lives, I suppose. And then part two is the actual cost of conversion, because not every single building is going to be convertible enough to be able to change it into the space that they necessarily need to. Some office buildings lack the ability to create or get natural light into them, different kind of creative space. So I think that cost around converting some office blocks into residential is probably the prohibited thing. And I think when we also look at that, I mean, when I reflect on the Blackbrook model, for instance, you want to make sure that you have the right mix, right? On the one hand, you don't want to make it feel too hotel-y. So there certainly needs to be a certain sense of it feeling a bit like home. I think, how do we best do that? I mean, I know that this is particularly big in Cape Town. I mean, in Joberg, it's not as big, but I know Cape Town has now become just massive. There's so many different players who are doing that work, play, live, you know, kind of set up within Cape Town, because they know that some of us Jobergers will probably want to go down there, perhaps take a month, maybe less or even more, and want all the amenities and certainly all the fixtures in a property that feels like home and doesn't feel like I'm actually working from a hotel. Yes, I mean, again, I mentioned the Blackbrook model, in fact, I'm sitting in one of the rooms at the moment, and I stand at Blackbrook when I'm here in Joberg. And the reality here is that the first thing that they've done very, very well is, like you said, they've created amenities around the level of their space. And also what they've done is they've made very good use of the building. It's not a hotel. And I think what that does is it creates a bit of personality. And what I'm saying in is the first version of Blackbrook, and it's a very industrial sort of work, but everything is different every time you stay here. It's interesting. It remains interesting. I mean, and it's just something that I really like coming back to every single time. Quality wise, the fixtures, fittings, furniture is done very, very well. It feels like an item, and they provide a kitchen space. You don't go into a place where you're quite cooking. You can actually cook if you want to, or go out and have a meal. So I think it's just really giving them a lot of thoughts to people who are travelling for work. I think people who travel really like I do don't always want to have to go to a restaurant. You want to feel like you're sort of sitting at home and have the X to do the things you normally do at home as you cook yourself and feel very comfortable. So again, the Blackbrook models are done very, very well. I've seen the version 2 in Sanctum that they're doing. I've seen some of the show you'd say they've even made that a bit of a softer approach, much more, well, much less industrial, much more homey. And again, they're doing very well and so are some of the guys. And the capital hotel group have done very well in that space as well, creating a nice hotel, but also residential spaces that people rent out, which also feel very, very much like you're staying at a home away from home. You know, Grant, I think one of the things when it comes to these conversions is getting a sense of whether the structure works or not. I mean, I won't name any names. I've been in somewhere. It didn't feel like home, but also you could just tell that this wasn't properly thought out. I could still see the remains of the office, so to speak. And so we either came across budgetary constraints or just a lack of imagination in terms of how to best approach that particular conversion. Perhaps, you know, walk us through looking at whether a structure is in fact right for a conversion and would be best place for that kind of conversion. Because we also know that the capital, the costs of converting are quite high. Sometimes in, you know, they've been instances, I've looked at certain buildings where I've wanted to do conversions and you realize that, and this isn't the unused one. So these are old buildings and you realize that it would actually be cheaper for you to build from scratch than trying to build to the building you currently have and then obviously put your plumbing fixtures, your electrical fixtures in an apartment format. So how do we then handle that almost sort of say misplaced conversion? Because there are a few, unfortunately, that are should either have been done better or just shouldn't have been converted at all. Yes, I think, you know, you were speaking about the two main ones that we know of, the capital and the black brick. I think what they've done very, very well is the first thing is that I think they've done it by just very well. They've done focus on quality of fixtures and fixtures and made sure everything sort of feels seamless. And I agree with you, when you go into spaces where they don't necessarily feel like that's the case, it usually comes down to vaginal shortcuts, you know, just straightforward shortcuts. And unfortunately, the island development in the country, regardless of of conversions or new builds that do just take shortcuts to try and get a building up and you end up with loads of issues, be that electrical, you know, damp private damp or water ingress or worse, these conversion where like you said, doesn't feel like they actually make the effort to convert it. So again, you know, when you are doing a conversion, it's less about looking at the building itself and making sure you've got the right experts in place to take the building that's in front of you and convert it into what you need to. So considering again, you know, the full structure of a building where windows are in particular for particularly going to go into the residential space. And then the big one, which I think is just some time is just popping. I mean, it's particularly enjoyable when you need popping and sufficient popping to cater for people to be around. So there's a few elements here. And what again, you know, you look at the blacklist model and what they've done very well is create that community feel. So, you know, there's lots of events at the ethyl tile. So the management of ethyl itself or of the building itself is done very, very well. I am this evening in conversation with Grant Smith, CEO at Frankie Bell's real estate, looking at some of the opportunities and of course trends in unused office buildings and reflecting on some of the examples Grant has seen that have worked well, some of the things that we have to bear in mind when you want to do that conversion. And I think Grant, and you've already started touching on this, perhaps take us through mistakes to avoid. And I say this particularly to I want to say slightly smaller players because I've seen, you know, let's call them the slightly smaller players. So not your growth point or your black breaks, those those would consider the bigger players who are seeing some of these opportunities and, you know, looking at potentially making a play may not be a very massive building, but certainly starting relatively small, they've, you know, built up a bit of capital where they want to have a conversion. What mistakes should they avoid when you're looking at acquiring an old office building or a vacant office building and doing a conversion to a mixed use or an exclusively residential building? Yes, I mean, I think you touch on probably the biggest one, which is and it's making the cost of converting an existing building into what you sort of envision as a residential building or mixed use building. And again, you know, you buy a building with so many underlying issues and you start a conversion, you know, I think anybody that's ever done a conversion on older property realizes that you take the budget and sometimes you just doubt it because, you know, when you start paving back the layers, you start finding a lot of stuff that doesn't necessarily work infrastructure that you thought was working, that you touched once and it falls apart and they have to replace everything. So I think the first thing is the underestimation of the costs and then part two is actually and I've seen this happen a few times like is over capitalizing the assumption that on particularly in the short because what these models rely heavily is the short term portion of the model. So the hotel room, the Airbnb type, short and making structure and what they do is they overestimate the pricing that they're going to be able to achieve and don't look at competitors in the area. So try and put, you know, make a 7-star building, try and get 7-star rates and that's just not the market. And it's a few particular that have fallen apart through the capitalization and over assumption of pricing. Where it just hasn't worked at all and vacancies have been high and therefore the property set empty in terms of extremely low competitive investment. And I think, you know, grant on that for again the players who are looking to embark on this and really almost want to say diversify their, you know, the business model and even their property portfolio. One of the key things of course is going to be capital and getting investors on board to, you know, to help with your particular project and with the conversion. You know, any tips for proper entrepreneurs when it comes to communicating that to investors because I think that's one of the things we already know we're not always going to get money from the banks, right? I mean, that's, you're going to go there, you're not always going to get the full amount. Sometimes you may not necessarily even go there because the nature of your deal may not land itself particularly well for that kind of financing. So the moment you're looking at different investors to approach, how do you even position the particular property deal to prospective investors? And what are some of the key fundamentals that you should always have when building a business case for your investors? Yeah, something like saying, you know, grant in space and this is just to make it something that you protect the blackboard model and go into an individual investor. You really look at the short term meeting model, you know, black and bitter with the Airbnb model. And I think the most important thing is when you approach investors firstly to have a test case running and you can take the blackboard of the capital model and put it into a one bedroom flat for example and make sure that you're ending up with one bedroom flat on a longer basis, achieving half of these because the quality of property and you can then take that model and run it out and pull this further and further. And once you put that test case in place, you can use that information to create your investment proposal and approach investors that may look to invest into that into the property. So a few things on the investment side is you always show that the absence of the best case scenario but also should wear the best case scenario and then offer the mediums, offer the middle ground for the investor to make the informed decision and provide the investors with all the allocation of the capitals, where is the capital gain and what is the area change going to be? The biggest mistake I see in property investment where you bring the investor in is the person actually doing the operations on the investment business. So the new investor or the investor themselves is inevitable in a portion of income for themselves to the salary. So we take it from a company point of view, you put your directors or your operational staff that get paid salaries and then you get your shareholders, your investors, you then get returns on dividends or property share. And probably in a one-on-one scenario is that a lot of investors, especially new guys, don't build in the cost of their time, the cost of the effort and energy as a salary into the model and therefore the returns are really, really hard for the investor because they haven't taken that cost out. But for the newbie running around and doing work, the returns often don't seem like it's worth it. So you need to build in that more salary for that newbie way to put it for your time if in an MGV. And then, yeah, I mean, you know, you could approach several investors and always, always highlight the downside, the risks, but make sure that they realize that they could use the capital although you have a test case that you've proven through the model. Well, Grant, that's where we're going to leave it this evening. Thank you so much for joining us on the show. Thank you. And that's Grant Smear, the CEO at Frankie Bell's Real Estate, wrapping up of the Private Property Podcast with myself, Usaman Dunwan-Kumalo. Well, we'll be back on your screens tomorrow evening at 7 p.m. as usual, and you can look forward to Ace of Classroom and the first time home buyers show at 8 p.m. Until then, hoping you're staying home and staying safe.