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By Alin Sigheartau ’17
Africa is where it all began, and for us as future Real Estate entrepreneurs, the best way to know it is to become one with it, to explore the vastness of the continent and witness its story. Our school prides itself on being at the very center of business and upholding the highest standards of intellectual pursuit and cultural enrichment. When it came time to act upon this mission, we decided to look no further than South Africa, a bustling democracy 24 years in the making where changes in land use patterns, demographics and workforce automation are beginning to drive significant growth in the real estate market.
On March 13th 2017, 36 students aimed to get to the bottom of all things Real Estate while embarking upon this journey. Joined by Executive-in-Residence of the Paul Milstein Center for Real Estate, Leanne Lachman and Soula Proxenos of International Housing Solutions, we visited Johannesburg and Cape Town, touring established private and public real estate investment firms, banking institutions, local entrepreneurs and non-profits investigating the state of the real estate market in South Africa. What did we learn along way?
South African Real Estate is a study of history, context and reality.
We started our trip by visiting Lillieslief Farm, the place secretly used by African National Congress (ANC) activists in the 1960s and where many prominent ANC leaders were arrested (Nelson Mandela was later arrested here, beginning his 27-year-long imprisonment). It was there we received an overview on the current state of affairs in South Africa from JP Landman, a political and economic analyst researching macro trends in South Africa, and also heard from a treasury representative on the country’s fiscal situation. Our time at Lillieslief Farm concluded with a presentation by Kecia Rust, director at the Centre for Affordable Housing Finance, who drew our attention to the role the government and the private sector are taking in order to increase housing affordability and promote homeownership in South African.
We also got a chance to visit the Apartheid Museum in Johannesburg, which provided all of us with a way to better understand and experience what apartheid was really like. Through the help of the museum’s various individual exhibits, we were drawn into an emotional journey of the now defunct state-sanctioned racial segregation system and the struggle of the majority to overthrow this injustice. Carefully assembled in chronological order, the exhibits showed a clear depiction of the rise and fall of apartheid, from the race classification journeys, the turn to violence, through the rise of black consciousness which culminated in the National Peace Accord, and the historic 1994 elections which represented one of the few times a colonizing force had relinquished control without large scale external intervention or civil war.
How does this translate into real estate?
Before 1994, segregation drove a majority of the population to live outside of major urban centers, solely traveling to large cities for work opportunities. A vast majority of the population did not own land, and upward mobility was impossible. Since 1994, the South African government has prioritized social security programs and made considerable investment in public infrastructure to remedy the situation. The country has accelerated housing reforms and over 4 million households have benefited from the delivery of approximately 3 million government-subsidized homes for lower-middle income earners. However, government-subsidized housing delivery has been slowing down since 2012, while the private sector has struggled to meet the extraordinary demand for affordable housing stock from rising middle-income earners. While a recent report notes that 79% of South Africans (13.4 million households) live in formal dwellings, another 2.2 million households (13% of the population) continue to live in informal dwellings.
The vibrant private sector is looking to fill the public sector void (and doing a good job at it)
South Africa has a sophisticated banking system with approximately 80% of the population being banked and an active consumer credit market. The country also has a well-established property market and a highly-developed title registry system, both of which greatly benefit real estate. On this note, our group heard from Nedbank, a large South African banking institution where Manie Annandale, head of Affordable Housing Finance, provided a brief review of the regulatory environment, current players in the marketplace and opportunities for growth. On the investment side, we visited Growthpoint Properties, the largest publicly-traded real estate fund in South Africa investing in industrial, retail and office assets where the firm’s management introduced us to broad investment strategies undertaken.
Having heard so much in the way of demand housing affordability, our team toured Jabulani, a 1,000-unit multifamily housing complex owned and operated by International Housing Solutions (IHS), a South-Africa based vertically-integrated real estate investment management firm. Located in Soweto, the Jabulani project caters to the housing needs of middle-income individuals looking to live in close proximity to major transportation and employment centers.
Also accompanied by IHS staff, we headed to Fleurhof, a 10,000-unit commercial and residential development community west of Johannesburg in the Roodeport province. Constructed in multiple phases, Fleurhof is expected to house over 40,000 residents when completed. The sheer size of this project is astounding and the completed phases are near 100% occupied, proving the exceptional growth of the emerging middle class in South Africa. Further, this project is expected to include improved community infrastructure, easy access to schools, hospitals, shops and work opportunities, improving the livelihood of its residents.
The Jabulani and Fleurhof tours made us realize that the market for rental housing is becoming a significant component of new housing supply. We also learned that a new investment target in South Africa has been the delivery of student accommodation, where the growing middle class pursuing higher education finds itself at odds with the rising cost of housing and the limited supply within the city-wide area. Consequently, we headed to the Braamfontein area of Johannesburg where HIS also owns and manages Studentdigz, a 948-unit portfolio of student housing accommodations with access to University of Johannesburg and Witts University.
Cape Town is world class
Over the course of our weeklong trek, we had the opportunity to spend the last two days in Cape Town. It was there we toured the V&A Waterfront with members from the South African Green Building Council, discussed sustainability with Allan Gray, visited a local development firm, hiked Table Mountain, enjoyed wine tastings in Constantia & Steenberg, and took plenty of advantage of the coastal night life.
First, our group received a presentation on the V&A waterfront from Colin Devenish, Executive Manager of Operations and a member of the Green Building Council. The Victoria & Alfred (V&A) waterfront is a mixed-use complex located on the Atlantic Shore, in Table Bay Harbor. Designed in the late 19th century, the complex is situated in South Africa’s oldest working harbor and comprises over 300 acres developed for both residential and commercial real estate use. In light of the size and high utilization (over 23 million of annual visitors), we were pleased to learn the steps that management has actively undertaken to reduce its carbon footprint since 2008. To date, the waterfront has invested R45 Million into energy efficiency, water savings and waste recycling across the 300-acre property, as well as introduced a number of other greening initiatives across the precinct. Efforts such as these have allowed the waterfront to nearly halve its waste going to landfills, significantly reduce electricity and water consumption, increased recycling and lower carbon emissions due to increased use of bicycles and public transportation to the area.
On the note of sustainability, our group had the pleasure of touring the headquarters of Allan Gray, a global investment management firm located in Silo One at the V&A Waterfront. Seated inside the 200-person auditorium, we were delighted to hear that the building achieved the first ever six-star green rating for a building in South Africa, by incorporating features such as high-performance, fully-glazed, double skin glass façade to optimize the use of natural lighting and advanced cooling system that rely on cold Atlantic seawater. A beautiful anchor to the waterfront, this visionary project has stunning views of Cape Town and of the surrounding harbor.
Having witnessed the remarkable success of the Allan Gray development, we met with Jean Pierre Nortier, development director at Devmark Property Group, a development firm in the Western Cape specializing in mixed-use projects. The firm owns all aspects of the development process from land acquisition to entitlement, construction and marketing. Devmark’s pipeline encompasses investments such as a 1,000-unit integrated housing project, 111 luxury homes and 54 assisted living facilities as well as a full-scale R3bn retail development in the Western Cape. Playing off its 30-year old local advantage, the firm analyzes opportunities in the region with an eye toward demographic trends in urbanization and capital migration.
Last, but not least, we had a lot of fun in Cape Town. Hiking up Table Mountain at 7 a.m. after a late night out gave each of us the opportunity to test our limits while enjoying the pristine views of the Cape Town skyline. Fittingly, our trip concluded with a drive along the coastline of the Atlantic Ocean right before sundown. We stopped the bus and gathered around to watch the sunset, reminiscing the memorable times we had had over the past few days and celebrated being in the moment with yet another standing ovation to Africa, a land of stunning natural beauty and fascination for all things real estate.
What a well-planned out trip by the REA Trips team! On behalf of all students in attendance, I want to thank Seema Hirsch ’17, Brian Hinds ’17, Einat Aldaag ’18 and Mandy Yeung ’18 for methodically organizing every aspect of the trip, and for keeping the group together and on task throughout our many endeavors. Furthermore, we want to thank Leanne Lachman and Soula Proxenos, whose breadth of experience helped us bridge the gap between South Africa and US real estate and allowed us to experience South Africa through their eyes. Lastly, we want to thank the Chazen Institute and the Paul Milstein Center for Real Estate for their generous support in making this trip happen. As future business leaders in an ever-changing global market for real estate finance and investment, we are incredibly thankful for the help received from the Columbia Business School community and friends around the world in showing us what makes South Africa truly special.
Alin Sigheartau ’17 is a second year MBA candidate focused on Real Estate Finance and Investment. He received a Bachelor of Science in Accounting from Caldwell University. Prior to business school he worked in acquisitions for a Florida-based Private Equity Real Estate firm investing in value-add multifamily assets in the Southeastern US. During his tenure, the firm deployed over $1bn to acquire ~15,000 apartment units where he was intimately involved in the underwriting, capitalization and asset management aspects of all assets throughout the deal process.