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 Business lessons from a seasoned property entrepreneur

 

 Henk van Coller, a seasoned property entrepreneur who has lived through South Africa's best booms and survived its worst busts, has one main lesson for any business owner thinking of building a property portfolio: be conservative.

This may seem like strange advice coming from someone who has spent his life building, speculating, and, above all, developing office blocks and housing estates where there once was bare land. Surely the actions of a developer – investing millions into a pure vision – are opposite of conservative? The same goes for a successful speculator, who buys when everyone is selling, and sells when everyone buys.

But Henk’s point touches on a paradox that goes to the heart of successful entrepreneurship: while the vision and actions are bold, the calculations that underlie them must be detailed and conservative, with plan B close at hand. The bold vision is foremost in the mind of an entrepreneur, but the worst-case scenario must always be there at the back. It is a difficult balance to achieve, as Henk’s career shows.

“Building is in my blood,” says Henk, the son of a builder who grew up in the northern provinces of South Africa before studying law in Johannesburg. Perhaps because of his family background, he started specialising in property law from the start – first as an article clerk in Windhoek in the early seventies, where he went to live with his wife’s family in Namibia, then South-West Africa. As the country prepared for independence, the economy froze, and the Van Collers went to live in Secunda, which was then just earmarked as the site for Sasol’s massive second coal-to-petrol plant.

It was an ideal place for young lawyer and property entrepreneur to cut his teeth. The town grew at lightning speed, and Henk was able to build up a strong legal practice and a construction firm. He realised early on that while his building firm did well fulfilling contracts for the developers of the new town, “you worked yourself to death”. The real money was in undertaking developments himself. He and his business partners at the time did so well with housing and office block developments that by the time he pulled up roots in the town, he had a substantial capital base.

Family features hugely in Henk’s life and career. Their decision to move from Secunda to Nelspruit in the early nineties was not a business decision, but was based on finding a good place for their three children to grow up. They chose Nelspruit, which they got to know through holidays and their son’s participation in a tennis tournament there.

Henk reckons it was sheer luck, from a business point of view, that Nelspruit also turned out to be a boom town. It became the capital of the newly established Mpumalanga where a wide range of government services had to be housed. Nelspruit also became a shopping Mecca for Mozambicans when the border opened.

Interestingly, Henk “did nothing” for his first two years in Nelspruit, “looking for the right thing to come along”. Perhaps this indicates a conservative, careful aspect of his nature that was hidden by his frenetic activities in Secunda. Actually, he immediately enrolled in a formal course in property valuation, and launched himself as a valuator, doing work for local banks and other institutions. This gave him an excellent feel for the local property market.

Soon, Henk found himself back in the development game, and embarked on the development of the first security complex in Nelspruit. He and his former partner from Secunda also ventured into developments as far afield as Somerset-West and Saldanha in the Western Cape. Office blocks, small regional shopping malls and a massive retirement complex in Nelspruit followed, but it was by no means a smooth ride.

With both economic setbacks of the last decade – the first in the early 2000s when the rand fell and interest rates shot up, and the second with the Great Recession of 2008 – he was caught in a very difficult position: all his money tied up in big projects in a market in which selling property to become liquid was virtually impossible.

Especially during the last crunch money dried up so badlysays Henk, that the banks kept their doors open purely for administrative reasons. Their lending criteria were so strict that funding was practically impossible, even against excellent security such as well let properties presenting stable long term investments.

Henk needed cash to complete the retirement complex and carry it through until the market picked up again. He was faced with two options: either sell some of his investment properties in Nelspruit – in a really bad market – or get a partner to buy in.

Fortunately, Henk found Business Partners, who, unlike the banks, were willing to take a long view on his properties. The company took a bet on two of his properties in Nelspruit, an office block and a small suburban shopping centre, and bought 50% shares in them, giving Henk the cash he needed to complete the retirement complex.

The lesson about being conservative that he learned from the economic slowdowns has a very practical application for Henk: make sure you have a “pot of money” set aside that can provide cash flow when things turn nasty.

The other aspects of the lesson are, first, to be wary of the euphoria that creeps into the market during boom times. All your predictions must be tempered with the possibility that the economy can turn. Second, the property market is exquisitely sensitive to the economy. While it is good to specialise and focus on what you do best, there is something to be said for hedging your property investments with something a little more recession proof.

This is what Henk is doing with a planned investment in a new petrol station situated in the local area. It will be managed by his team, which by now has developed into a powerful family business. His older son, trained in management accounting, helps Henk coordinate from the office, while the younger one has proved himself an excellent project manager. Meanwhile, his wife administers the legal practice that supports the property investments.

The young ones keep him energetic, says Henk, and the next step is to build a portfolio of regional shopping centres with his usual entrepreneurial boldness, tempered with a conservatism born from experience.

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