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 Entrepreneur tells of hair-raising race to find finance

 

 Having been in the Johannesburg property industry for more than twenty years, Gigi Demetriou immediately saw the potential in a dilapidated guest house he found in Rivonia. But he had no inkling of the hair-raising struggle that lied ahead before he would own it.

It was a big old residence that had been going as a guest house for years, but it belonged to an aging widow who could no longer manage it. In fact, she was in financial trouble and Gigi had to negotiate with a company of liquidators in order to buy it. 

They agreed, on condition that he took over the business immediately and raised the finance to buy the property within a few months.

For Gigi it was a no-brainer. The fire-sale price was good and the position as a guest house for corporate travellers to Africa’s business hub was perfect. All that was needed was some serious maintenance and a bit of entrepreneurial redesign for the Dunton Guest House to become a gold mine. 

Gigi and his wife packed up their home in Roodepoort, moved onto the property and started running the guest house with its then leaking roof as best they could until the finance for the sale and renovation came through. 

Gigi, a 55-year-old estate agent and former banker of ten years, did not doubt for a moment that he would be able to raise the funds. As the owner of an independent estate agency and property management service he had a proven track record. Apart from the guest house it ‘self that would stand as collateral, he owned several other paid-off properties that he could borrow against. What bank would not want such a deal?

None of them, it turned out. Much to Gigi’s alarm, every last bank turned down his application. 

Gigi had started his career as a banker and got into the real estate industry by working his way up through a bank’s property division, before stepping out to start his own property business. He was always aware that the banks had become more impersonal in the years since he had been there, and that the discretion about who got finance had largely been centralised and computerised. But the sheer degree of impersonalisation shocked him.

“They all turned me away and said: ‘We’re not prepared to help you. There are so many guest houses that went belly up after the (2010) World Cup.’ Obviously guest houses had a bad reputation at the banks at that time,” says Gigi. 

He went so far as to fetch a young loans officer at one of the banks to show him the guest house. “I said: ‘You guys don’t even recognise the fact that I have two paid-up properties worth more than the loan amount.’ I showed him that I was buying the land, the buildings, the fixtures and the business - all for the price of a plot. I said: ‘Can you see the potential?’ and even that did not work.”

In a last-ditch effort, Gigi sought the help of mortgage originators who had come out of the banking industry. “I spent a week compiling documents. The mortgage originator and I took two and a half hours just to check that all the documents that the bank wanted was collated correctly,” but to no avail. 

Gigi was devastated when that bank also turned him down. He believes that at the core of the problem is the loss of discretion by the bank manager to lend money based to a certain extent on the character and reputation of the entrepreneur. “It’s become a sausage machine - they input all the information into a computer, and if it spits out ‘Declined’, there are no discussions, you can’t relook at it, you can’t question it. You just have to accept it.”

Meanwhile, the deadline for raising finance crept closer. If he could not get a loan by a certain date, the house would be put on public auction and Gigi would lose the opportunity of a lifetime, as well as the place that they had decided to make their home.
“By divine intervention,” says Gigi, he chatted one day to one of his guests who introduced him to a friend who worked for Business Partners Limited. 

The attitude of Business Partners could not have been more different from the banks. The application was taken seriously. Senior investment officers visited the guest house to see the potential for themselves. Gigi’s track record as an entrepreneur and manager was evaluated. 

No fewer than two days before the auction, Business Partners’ offered Gigi of a ten-year term loan at prime plus two, with an added royalty on turnover.  

Since then, Gigi and his wife had transformed Dunton Guest House into a thriving accommodation business with ten guest-house rooms for overnight stays and seven furnished apartments for longer-term rentals. 

Interestingly, Gigi’s three-year projections for the rental apartments - an industry with which he is very familiar - proved to be too pessimistic, while his projections for the guest-house rooms - a business he did not know - were overly optimistic. Taken together, though, his projections turned out to be spot-on.

Gigi managed to settle the Business Partners finance early. It’s been seven years, and he feels that the business is now ready to be sold as a thriving enterprise with room for further expansion. 

Apart from the satisfaction of turning Dunton Guest House into a success, Gigi has the added pleasure of answering the occasional phone call from one of the banks who, now that he is cash flush, make him all sorts of offers of finance. “I tell them I’m not interested,” he says.

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