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 Perfecting the art of investing in property

 

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Mooikloof Village Shopping Centre in Pretoria is a model of a small regional hub that was recently added to Business Partners growing portfolio of top-quality commercial properties. The centre consists of a mid-sized Spar, a Total garage, and some two dozen other shops.

This small centre fits right in with other Business Partners Limited (BUSINESS/PARTNERS) commercial property portfolio which includes multi-tenanted retail and industrial properties, says Shane Padayachy, BUSINESS/PARTNERS area manager. “What we always look for when investing in property is a good tenant mix with good lease terms or the possibility to improve the current tenant mix and lease terms. The property must also be located in developing or established areas with good access to main arterial or national roads,” he adds.

“Because for our retail properties, we always focus on centres with good visibility located to conveniently service middle to high income residential areas, the Mooikloof centre seemed like the perfect fit.”

But just because the property looked good, it does not mean that Business Partners skimps when it comes to conducting thorough research before it buys a property. The company’s due diligence process is itself a model that prospective property investors would be well advised to follow.

The result of the due diligence investigation on Mooikloof Village is an impressive report containing exhaustive detail of every aspect of the property. Why would Business Partners conduct such a thorough investigation at its own expense before buying a property even as promising as Mooikloof Village?

“Just like in any other business, or in life for that matter, there are sometimes things that you don’t foresee,” says Padayachy, who worked on the R45m deal. A single defect in a property can cost millions.

When asked to advise prospective property investors on what to focus on when conducting a due diligence investigation for shopping centre investments, Padayachy says the process should include an investigation of the leases, evaluation of the target market, a survey of the competition, the zoning, the supply of services, air conditioning, an assessment by an architect, a structural engineer, civil engineer and a land surveyor, a title deed investigation, an assessment of the area by a town planner, an analysis of the vacancies at the property and rental arrears by the tenants.

“As a property investor, we also use the same guidelines to evaluate properties we invest in. This should not be done in order to swindle the would-be property seller but to reach a fair price,” Padayachy explains. During the due diligence process BUSINESS/PARTNERS works closely with the seller in a positive manner with the objective being to make the deal happen. Once the due diligence has been completed we are then in a better position to issue the guarantee soon after purchase approval date resulting in a much quicker transfer process for the seller, adds Padayachy.

BUSINESS/PARTNERS uses standard industry valuation methods such as income capitalisation or comparable sales; capitalisation rates are determined taking into account the location, age and profile of the property.

Sounds like a fair deal. It definitely is a fair deal, says Padayachy. “I would encourage sellers to approach BUSINESS/PARTNERS with their commercial properties as we purchase properties at market related prices and we are cash buyers and don’t require bank finance,” Padayachy concludes.

The BUSINESS/PARTNERS’ property team is always keen to consider investment and joint ventures in high-potential commercial property, contact:

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