 Good evening and welcome to episode 389 of the Private Property Podcast. I'm your host, Usama Domoakumalo. It's the Monday edition of the Private Property Podcast, which one of us, for the first time, where have you been? You certainly tuned into the only daily property show in South Africa catering to your property needs. It doesn't matter where you are on your property journey, whether you're looking to buy, to sell, to build your tenant or landlord, we're certainly here to hold your hand and make sure that you make better informed property decisions. And all our regular viewers on Facebook and Instagram on YouTube, welcome to it. You know how we do every single weekday. You and I have an appointment at 7pm when we're always in conversation with a property expert who helps us make better property decisions. And talking about making better property decisions, you know, we also have a whole host of great shows that you can tune into every single weekday right here across private properties, social media pages. As it is a Monday, you can catch Chad on the Home Shoppers Show, where he takes you through exquisite properties that you can find on www.privateproperty.co.za. You can catch the same show on a Friday at the same time. And every Tuesdays and Thursdays and by Limoa Gov brings you the farming podcast tackling all things agriculture. And every Wednesdays is the class and brings you the first time home buyers show, where she takes us through incredible profiles of people who've not only walked that first time home buying journey, but have certainly gone on to grow their property portfolios from strength to strength. Well, those are the great shows that you can look forward to every single weekday at 8pm right here across private properties, social media pages. It's a Monday, I want to find out from you how you spent your weekend. If you did any property admin, I know one of the great things about weekends is that you're able to do some of that maintenance that we've been putting off. It's also a great opportunity for you to view amazing properties and of course, even catch up on some of the episodes that you've missed out on. As many of you follow me on my social media pages, I just don't want underscore care with no, I have been hiking quite a lot and I get some of my best ideas when I'm hiking. So you can already be sure that there are quite a lot of great things that the team and I are cooking up to bring you a better show right here on the private property podcast. Well, I can already see some of the love that we're getting on our Facebook page and all that evidence, Sarah, my tears up as well as Gajenian do me watching, sending through those green hearts, continue sending them through and talking about Facebook and the green hearts. As you know, we're running an incredible competition where you stand a chance of walking away with 500 rands in cash every single weekday. And all you have to do to walk away with that cash or stand a chance of walking away with the cash is of course, tune in every single day and make sure that you also comment on the pinned post on our Facebook page where you share with us some of the great property advice that you've picked up while watching the show. If we call your name, then you're certainly going to walk away with that 500 rands and the only way you can do that is to make sure you claim your price. If you don't claim your price, the money rolls over into the money bag and the money bag just keeps getting bigger and bigger. These are on the show, we'll see who the lucky winner is. I'll also go through some of the great entries that we've already seen that many of you at home have already entered. Well, to kickstart the Monday edition of the private property podcast this evening, we're looking at opportunities for investors and developers in the commercial industry and joined this evening by Franz Gmeina who's a CEO and founder at Oranian Group. Franz, good evening and thank you so much for joining us. Good evening. Thank you very much for having me this evening. It's such a pleasure, Franz. I think you and I are really having such a great conversation of a, I will always say to people at home, there's always the conversation before the interview, Franz and I were having the interview of our lives just before we came on, but of course talking about property and looking at opportunities. One of the starting points, Franz, that I want us to look at and we touched on this even off air is you've been in the industry for quite a number of years and have the expertise that I think so many of us don't often have and certainly have been able to walk the real estate path for a number of decades. What have been some of the investment trends that you have picked up in your decades within the real estate industry that you can share with our viewers at home? I think that you mentioned the word trends because properties are not a piggy bank or a savings bank. Properties is an investment category that always needs firstly serious capital and iron a ball. And I think if we take some examples of where things can go wrong, in any city or town, there are what they call demographic shifts. A popular area may become unpopular and if one is caught in the spot where you are holding on to property in an area that is no longer popular, you'll see the values decline and values diminish. Conversely, a student invested with some full site and some vision by a piece of land out in the stick somewhere and before you know it, that piece of land is not becoming very valuable. Of course, in a country like South Africa with a significant and mind-boggling demographic shift to the last 20 or so years and also shopping patterns having changed, online shopping was introduced, so things have changed. So what was fashionable, what was good 20 years ago is no longer good. So we need to focus on not what we know from the past because that knowledge may not serve us well right now. We need to analyze what the trends are, what people do, who shops where, who works where, how do people want to work and live in the old days because of, call it the old bad old days, where people had to commute far away from the place of work and so forth and so forth. In an ideal environment, living near the place of work is ideal. No, we're not nearly there but there are moves happening in that direction. So certainly there will always be opportunity in properties and if one can take it in the sense that as much as there's online and cyber space and IT and artificial intelligence and all wonderful things happening and Elon Musk does what Elon Musk does and all these things is that the reality is humans still sleep horizontally. They don't stand upright and sleep. We still need a roof of our head otherwise we'll be wet at night or cold at night. So therefore residential space is here to stay. The shape will change, the size will change. People who need to assemble something or manufacture something or put something together need some space. Spaces usually need a front door or some door and a roof over it. So therefore there will be a demand for that. People who do mining, do mining, they will need some structures. So structures in essence will change as much as the Great Pyramid had a reason for being there. Today our Great Pyramids are some of the maybe the monuments sitting in Santon CBT. We don't know. So a student investor will make it his or her business to understand how the market is unfolding, understanding what opportunities may present themselves and somehow by sheer vision, determination, tenacity all those things wrapped into some kind of a magic bowl to go after this thing called property investment. And you know Franz, I think you've actually given us so much great insight to reflect on. The big one of course are the demographic shifts because I think that's one of the things that when you do your real estate market analysis, you need to be able to look at the areas where we know they still quite a huge demand because when we look at migration trends, people are still moving in those areas. I know when we look at the very same trends, people are also moving away from certain areas where it wouldn't make sense for you to be getting a property in that area or to looking for instance to build or develop in that area because there just isn't demand. People are moving away from that particular area. And of course also understanding retail trends or shopping trends as it is also so crucial because those kinds of amenities are things that people look up for when they buy their respective properties. And as an investor, you need to be aware of them when you make your investment decisions. I want to then look at Franz, when people begin to certainly have an interest in commercial property in particular, what are some of the underlying, I'll say investment, let's call it investment assets, should they be aware of when they're looking at commercial property? And we'll look at commercial property holistically even though we know that there are different aspects to commercial property. But when we look at commercial because I know many of us are used to crazy, but when we shift on to the commercial side, what are some of the fundamentals of commercial property that you really need to be aware of as an investor when you're looking to add that as part of your property portfolio? Commercial property by nature is usually a much commercial property by nature will be usually a bigger investment than residential investment. So therefore, the capital requirement is significantly larger and commercial property funding organizations, typically the commercial banks are quite strict in the lending criteria, the lending policies. So therefore, the biggest obstacle in the first hurdle and the challenge would be for potential investor to secure the owner's capital or the owner's equity to invest in the property. And that is usually the biggest challenge. And that's how many people despite their ambitions of entering the commercial property space can't enter because the capital hurdle is precluding them. Assuming one can get over that by some kind of a fund or some some group investment or syndication of sorts, one would then have to make some some decisions around what property to buy or what category of property to invest in. And I think the big thing is there to do a proper due diligence. And by due diligence, although it's such a fancy word, it comes really down to down to the fact of getting to grips with the property itself in terms of physical attributes, is this thing stable or the approved building plans is the zoning in place and so forth. So in other words, the physical elements of the property in terms of its structure and its municipal and zoning rights and whatnot approved building plans. But then importantly comes the commercial aspect of it, the financial aspect, the tenant or the tenants who are occupying the premises, are they financially stable, are they going to be staying there for a long time, or are they expecting to leave the premises, i.e. if it's an office building. And if you want to buy this office building, it might be offered to a very good price. Well, that good or cheap price may be the most expensive mistake you've ever made, because maybe the tenant or tenants or in that property right now are all planning to exit or to leave. Then you'll be the proud owner of a vacant building and that's not so pretty anymore. So the real trick is to do what we call is longevity or duration to ensure that the tenant is stable enough and stays for a long time. So ideally one would want to have what we would call blue chip tenants, i.e. a national retailer who signs a long lease or in a perfect Wilson government department to other big agency or big corporate that would want to rent the space. Now if one can get that, and if you can get a long lease in commercial property investment, is very rewarding, very profitable, and one can really grow and establish, accumulate huge wealth. Of course in the South African context, the third world environment, interest rates are always a challenge because I have lived through 25.5% prime rate, which was my first financial near-death experience way back in 1998, and I promise you that's not pretty. I've had a few of those since and thank God through hard work determination and I'm sure 50 days of blessing from upstairs, I got through all that, but one must be aware of the pitfalls. We've the last week and a quarter percent interest rate hike was announced and it might just be the start of more interest rate hikes that will follow. We don't know. I'm not a fortune teller, so I don't know how these things work. All I know is be aware. And I think being aware is such a huge improvement. I speak to a lot of real estate professional and experts, also to quite a number of economists who are saying that we know that the interest rates were going to go up and if anything, a lot of them are predicting that they're going to go back to January levels, but over a three-year period. So it's actually going to be a staggered increase as opposed to it happening as rapidly as we saw the decreases. Well, I'm in conversation this evening with Franz Geminer, who is the CEO and founder at Oranian Group. We're looking at opportunities for investors and developers in the commercial industry. I want us to take a quick break, see who the lucky winner of the 4,000 rounds that is in the money bag this evening. I hope that whoever it is is actually watching and can claim the prize. Of course, we're going to have another roll over and when I come back from the break, we're going to be looking at certain mistakes that people typically tend to make when it comes to commercial property investment, but also what the opportunities are for investors who are looking to go into commercial real estate and also for the developers, because I think we also have relatively small scale developers, so we're not even talking about the big listed companies, but slightly smaller scale developers that are filling a gap and of course making really decent profits in their respective projects. But in the meantime, let's see who the lucky winner of that 4,000 rounds that is in the money bag. And the lucky winner this evening is Polina Nkosi. Polina Nkosi, you're the potential winner of that 4,000 rounds that is in the money bag. I hope that you're tuned in. You're watching, drop us a text down here below in order to claim your prize. That's 4,000 rounds. That is up for grabs. And of course, some of the great entries that we've received from you at home, Bugega, Malphro, Munkaniso, or Nunkaniso rather, saying podcasts is the best great lessons there each time. Or Refilo Precious Malibana saying learning about being a new home buyer was my favorite podcast. And actually Polina Nkosi, one of the posts that she had seen through was, I also enjoyed the Home Shopper Show because I'm motivated that one day I will end up earning such beautiful properties in upscale estates. Well, Polina Nkosi, I hope you're watching 4,000 rounds is up for grabs. Do make sure that you drop us a text down here below in order to claim your prize. Continuing our conversation with Fran Skimena, who is the CEO and founder at Orangun Group. We're looking at opportunities for investors and developers in the commercial industry. I think, Fran, before you even look at some of the mistakes, let's look at what the opportunities for the investors and developers effectively are. I think there are certainly very big opportunities serving the upcoming communities, the upcoming money earners and the LASM category, which is lower LASM, but the numbers are big and there are people have spending power. So if one looks at particularly township retail, I think there's opportunity in township retail, not informal retail. There's a lot of informal retail happening really in the townships. We happen to own properties in the Cape flat townships, so I frequent the townships from time to time. I have a reasonable understanding of what plays out there and we are successful in that space. So certainly there's room to develop stuff and to sign up for national retailers who are keen to expand their footprint in the townships. Then I think there's always opportunities where there are big developments. Maybe there's a manufacturing happening or big manufacturers starting out. There would be opportunities again for retail. So I think in short, formal retail in previously or currently underservice to unservice areas certainly there's an opportunity. That's a bit of opportunity right now. If one then links up that you have a ready and able tenant, stable tenant, blue chip tenant to pay the rent, then to translate that opportunity into what the banks call a bankable transaction. Because funders and banks always look at the viability and if one can take such a transaction to a funder, it is easy to get funding or secure funding for that. And you know, Franz, I actually want to piggyback on the tail end of what you've just said around something being a bankable transaction or a deal potentially being a bankable transaction. I think if you could give us some insight into and I know that you're not really a financial institution but you certainly have enough deal making experience to be able to give us a sense of firstly what makes it a bankable transaction? What are the fundamentals that you should be including in your deal? Because I think sometimes people are able to identify an opportunity by virtue of perhaps using some of these amenities or having done their research but don't quite know the next step which is fundamentally crucial, communicating it to the financial institution or even other investors, private investors that you want to get on board in your deal. How do you then go about packaging that bankable transaction so that whether it's fine? I think the first part is that the first part would be to have a professional team and that includes a quantity surveyor, QS, an architect and of course a professional builder who are on your professional team because the banks or funders would look at your professional team to be convinced and comfortable that you will be able to execute on the development. That's the first part. The second part is you need to do your financial numbers meaning that at the total cost the delivered cost of your product which means on opening day at the day of the ribbon cutting but on the day when all the costs are counted that your return on the investment the initial what they call yield or the return in my view should be at the very least 12% or more. If your return on investment in year one does not meet 12% your funders become quite scared and hesitant and they'll do all sorts of wonderful stories while they can't finance the deal. So the return on investment is very important professional team number one in other words number two return on investment and then thirdly the bank would want to see what is your and they use the term skin in the game what is your owner's equity in this business and ideally the owner's equity particularly for a startup developer could be that he or she or the consortium or the partnership own the land maybe they inherited the land or maybe they I don't know found the land somewhere where they they have some somebody else who's lending them the property or financing the property unofficially so there are different ways to squeeze through the cracks in terms of this owner's equity so that which means for the next part is the owner's equity so and then the last not least part would be to secure a tenant i.e. a national retailer who's prepared to sign let's say 10 year lease and then the lease and the rental payments including the rental escalations over the 10 year period must at the very least pay back the loan to their institution and once the lending institution is convinced that you can actually that the tenant in fact will indirectly pay back the loan because if the tenant pays you the rent and you pay the rent over to the bank the loan will be serviced once you have the tick those boxes it is possible to in fact become a new developer and once you have the first development over the line and off the ground and and the part is over then the second development can happen and it's possible that a person who started with one little retail store i.e. a typical boxer or a use safe or something in the township could end up having dozens of those particular structures but a must caution that a property development is not a get rich quick scheme it's like planting a tree or planting a plantation it's going to be a little plant which takes a lot of care and nursing and a lot of patience with this tree to mature to eventually harvest the tree and it's not a one or a two-year project the investor must be patient enough to say that maybe he will have to get to my age 63 to be able to get a return on their investment in terms of caching on so it's it's not it's not for the guys who want to make a quick buck it really is that it's not a quick buck business it's not a get rich quick scheme it's for long-term investors who have patience and tenacity and i think that's actually is just such a crucial point to make that when we look at property it is a long term a long term pool a lot of people are trying to persuade people to go into property investment you know offering all kinds of ridiculous returns sometimes even saying 25 percent 30 percent returns anybody offering that kind of returns is scamming you you know you just do not get those kinds of returns especially when you know that you're working with credible people who are running you know a proper office and and and france as we wrap up i think what what mistakes have you seen firstly investors and then perhaps secondly developers make when it comes to your commercial property in particular well i think i can draw from my own personal experience now i've made a number of very expensive mistakes over the years almost costing me the business so certainly i i'm testimony to to the fact that we can make the wrong property where the tenant moves out that can become very costly number two if you're if your leverage is meaning gearing meaning too much borrowing is out of out of control you're going to be in too much debt over the eyeballs and then you're going to be struggling to pay the mortgage the minute you get into that ugly territory the the friendly banker will become a very unfriendly banker very quickly so so it's about it's about making sure that that one deals with these things cautiously and so it's another to recap don't buy the wrong property make sure that your your your lending partner or funder is also equitable because some some funders are are not as as nice as they fit out to be and some of the guys might have an idea of at some point wanting to grab your property so one has to be careful which means in terms again in terms of your professional team you want to have reliable trust with the integrist professional people working with you you perhaps want to have a very smart trustworthy reasonably passed attorney that also assist you with the contracts because contracts are crucial alice agreements if a lease agreement is drawn up incorrectly unscrupulous tenants will take advantage of that and not pay your rent and when you take them to court they will have wonderful good reasons why they shouldn't be paying you so therefore that's important to have those people on your side and have good documentation so and again administration is critical if one makes a mistake in terms of the producing the monthly rent statements and what not that's important so that I've made many many mistakes and some of which I've mentioned now and certainly one wants to avoid that but it's all about relationships it's the relationship with the bank is good things can go better as a relationship with the service providers or people that work with you or people that work for you is very very important because ultimately IE is a security service property is a 24 seven business when you fast asleep at night there's some some hard-working soul who's protecting your property in the middle of the night and you need to have good relationships with those people and and and France as we wrap up what can we look forward to uh you know from yourself and your team in the years to come we're very fortunate that we survived uh the our financial crisis prior to COVID 2018 we're very fortunate that that uh COVID uh has not uh impacted on our business negatively if anything we we learned how to tidy up and to be more efficient and we're also very blessed to have uh a good tenants and tenants who believe in us and also some properties in very good positions so we're in a very good space right now to grow and develop the business so in the years to come we want to expand the business uh in two ways one is organic growth meaning we want to extend to expand our current properties we want to buy some purchase additional properties and potentially we want to merge with uh another property firm even larger than ourselves and create a larger entity which will give us more muscle more footprint more capacity to do more deal making it will take me to my favorite uh activity which is deal making and of course more properties to visit and to see what goes on then and I think that's certainly uh you know exciting exciting chapters for yourself but for the team we'll be watching very closely those developments uh France thank you so much it's been such a pleasure to have you with us on the show thank you very much for spending time out as often with me and thank you for inviting me to the show and all the best for your show and also good luck to the viewers who want to get into the commercial property space and that is France Domainer who is the CEO and founder at Iranian group wrapping up the Monday edition of the private property podcast of my self for someone don't walk Malo Polina and Gossi did claim that four thousand rands congratulations to you Polina you're a lucky winner uh that means we're back to five hundred rands tomorrow of course in the money bag well that's it for myself for someone don't walk Malo and the rest of the team I'll be back tomorrow at 7 p.m but it's a Monday you can look forward to chatting on the home shopper's show until then hoping you're staying home and staying safe goodbye everybody