Bargains in the bunkers
- By http://www.fm.co.za/Article.aspx?id=164516
Not everyone joined the frenzy at the height of the property boom. While overzealous developers launched one new golf estate after another, building up mountains of debt, Century Property Developments sat quietly on the sidelines.
The Gauteng-based developer last bought land in 2006. Back then, managing director Mark Corbett knew the market was heading for a crash, which would present bargain buying opportunities for patient investors with cash .
The Wits BSc Building Science graduate, who founded the company in 2004 after a seven-year stint with the family’s retail property arm ( formerly Century Retail Developments), re-entered the market in April last year, snapping up a number of distressed properties from banks at deep discounts.
Corbett’s first big-ticket acquisitions were the Bel Air and Lonehill malls north of Johannesburg, which he bought for an undisclosed amount from Absa. Market talk is that Corbett paid between R600m and R700m. Absa was owed more than R1bn by the previous owners of the malls, the controversial Theodosiou brothers. The brothers, Tony, Dimitri and Sedrick, achieved notoriety for building shopping malls without the required council permission.
More recently, Corbett acquired three of Investec’s bankrupt golf estates, including the Ernie Els-designed Highland Gate Golf & Trout Estate in Dullstroom, Le Grand in George and The Hills in Pretoria. He also bought the Blue Hills Estate in Midrand.
The three semi-completed developments taken off Investec’s hands are part of a portfolio of at least 10 struggling golf estates financed by the investment bank during the boom days.
Corbett’s entry into the ailing golf estate market at a time when few other developers — if any — have the appetite for large, capital-intensive residential projects has raised a few eyebrows. But Corbett believes he can turn a decent profit on investment within two or three years. “The property market is cyclical and will boom again.”
Besides, Corbett picked the golf estates up at an 80% discount to peak prices, which allows him to bring competitively priced housing products to the market at attractive margins.
“At the height of the boom, developers were paying R5m/ha for land. But you can’t make a proper return on a large- scale residential development if you pay more than R1m/ha. We are back at those levels now.”
Corbett can afford to sit on the land for longer if he has to. Century Property Developments, which owns around 3000ha of land, including its flagship 800ha Waterfall Estate near Midrand, typically has a five-year development pipeline.
But Corbett isn’t buying struggling golf estates because he is a proponent of golf estate living. In fact, he believes golf estates are overtraded and overrated. “Not only are golf courses costly to keep up but they also pose a security risk to residents due to the coming and going of golf players, caddies and the like.”
Out of the four recently purchased golf estates, Corbett plans to keep only Highland Gate’s golf course. Blue Hills, Le Grand and The Hills will be redeveloped as lifestyle estates. The golf courses will be turned into green belt s and lifestyle amenities such as gyms, crèches, schools and restaurants.
Because of its prime location in the picturesque Trout Triangle, within a three-hour drive of Johannesburg and Pretoria, Highland Gate will be retained as a second-home golf estate.
Corbett believes there are two reasons Highland Gate failed: a difficult access road suited only to 4x4 vehicles, and inflated prices. He plans to address both issues. The entry road to the estate will be fully upgraded before Highland Gate is relaunched in mid-2012. And asking prices for the 200 unsold stands (out of a total of 500) will be slashed by 60%. Stands (1500m? ) that were on the market for R1,8m in 2006 will be on offer at R650000. Corbett’s confident that all 200 stands will be sold within 18 months.
He is keen to add more troubled assets that offer turnaround potential to his rapidly expanding real estate portfolio. But he believes the window of opportunity to acquire good properties at discounted prices won’t stay open for long.