In property, there is an upside to a downturn
While the passion for property investments gets him up in the morning, it also occasionally keeps him up at night as well. But the best part is the satisfaction of taking something that is broken, fixing it, creating jobs and boosting the local community and the wider economy.
If you play your cards right, the property market is one of those industries where you can do good business both on the gentle upward slopes of the economic roller coaster as well as on the white-knuckle downward spirals.
Take Gary Gould, for example. He started his property business from his Durban home in 2003, a mere five years before the biggest economic meltdown since the Great Depression, and one in which the property market was the epicentre. Yet he describes the timing as “fortuitous”.
At that stage, Gould had been working for his father’s company for eleven years and had hit a bit of a slump. He was uninspired and wanted “to do something that would get myself up in the mornings”. The family business supplied interior fitting and materials to the building industry, so Gould managed to gain some insight into the local property market. It was a hard decision, he said, but he quit the family business, cashed in his provident fund of R250 000, and set up Gary Gould Property Syndication Services, which consisted at that stage of little more than Gould himself, working alone in his home office.
A property syndicator is someone who identifies an existing property or a new development as a good investment opportunity, and then sets about convincing investors to pool their capital into the project, which is ring-fenced as a separate legal entity in which the investors hold shares.
Starting out, Gould had no specific property project in mind, but he knew a few investors. His first investment projects were small enough – “a couple of duplexes” – but it yielded excellent returns and was a good start for Gould to build his reputation as an astute and fair property player.
The timing was good, he says, because he was able to catch the wave of the property boom which started in 2003 and ended with the crash in 2008. It was fairly easy to make a good return on residential property then, and Gould could move on to bigger projects. It was not all plain sailing, though. At least one major project ran into zoning problems. It eventually yielded the expected returns, but took four years instead of two.
It seems that the secret to riding the property roller-coaster is to have a feel for its cycles. Gould believes the cycles span roughly ten years, but is attuned to various sub-cycles, including the slight differences in the cycles of the various sectors of the property market such as residential, commercial and industrial.
In 2005, Gould “sensed that the market was turning” for residential properties, and he started seeking out opportunities in retail and small industrial units, thus avoiding being caught up in large unfinished residential project when it all came tumbling down in 2008.
In fact, Gould was then able to look for bargains as others investors were clambering to get rid of distressed assets. The Colony, a small convenience shopping centre in Hillcrest, was one such opportunity. The centre was poorly managed, suffered vacancies and tenants were unhappy despite the fact that the Hillcrest area was a growth point. Gould set about gathering investors and managed to raise some R20m.
The idea was that a roughly similar amount would be raised in loan finance from the banks, but because of the economic climate, bank finance had all but dried up. Gould had to increase the investor contributions and scale back the project by leaving out an adjacent office building at first. Only after they had successfully revamped the centre, did the banks show an interest in the project.
The Colony project entailed both the best and the worst aspects of property investments for Gould. The on-again-off-again nature of such deals is stressful, says Gould. While the passion for property investments gets him up in the morning, it also occasionally keeps him up at night as well. But the best part is the satisfaction of taking something that is broken, fixing it, creating jobs and boosting the local community and the wider economy. That is on top the gratification of giving his co-investors a good return.
The Colony was Gould’s first experience of working with Business Partners, who came in as one of the investors. He found Business Partners’ experience in retail property investment useful as well as the gravitas it lends to an investment opportunity once it decides to buy in. Business Partners also helped Gould to increase his network of investors.
Gould decided to change the name of his company to Unity Properties because its scope had widened to much more than syndication services. Gould takes a long-term approach to his projects, preferring to hold on to them rather than fast buying and selling. His company, which already has fourteen employees, is therefore building up an infrastructure that can administer and manage its growing portfolio.
Gould is optimistic about the future of the property market, believing that a “perfect spring” is about to blossom to mirror the perfect storm of the recession. “South Africa is about to sort out its power crisis, the government’s infrastructure spend is about to roll out, and the world economy is surely going to tick upwards,” he believes.
He therefore sees strong growth for his company, also outside of his “home turf”, Durban. And even if his predictions do not all come true, the ability to see the upside of a downturn is reason enough to remain optimistic.