Sedgeley Developments: Developing a Platform for Retail Expansion

One of the key secrets to a successful business is identifying your strengths and best working conditions at an early stage. Within the realms of property development, given the current economic environment, identifying the best size of project is especially salient. At Sedgeley Developments, Managing Director and Founder Mark Batchelor, believes he has found the right combination of project type and size.

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The Johannesburg-based company has built up an impressive portfolio since it began in 1995, with Batchelor highly selective on the type of opportunity that will build a successful project and further enhance Sedgeley’s excellent reputation.

“We are a property development company and provide services for a professional fee but we also undertake property development for our own account,” he describes.

Whilst the company has become renowned for its consultancy expertise, Batchelor has found that the company’s forte lies primarily in the development of small to medium retail and commercial projects, although Sedgeley has in the past dabbled in residential also.

The name Sedgeley has its roots immersed in Batchelor’s own family history, as he recalls:

“The company was originally started by me in a joint venture with a broking company (who were more of a silent partner). My ancestors came from the town of Sedgley in the English Midlands and my grandfather’s home was also named Sedgley – hence the name for the business!

“I bought out the other partners around the turn of the century and since then we have carried out a mixture of consulting work and developments.

“For many years our work was solely for other people and our ability to carry out our own developments was restricted by available funds. Over time the balance has now shifted and the majority of the projects we work on are owned by us.”

In recent years much of Sedgeley Development’s work has derived from shopping centres, with office blocks also playing an important role. Around six years ago, Batchelor says that the company took on the management of its first regional shopping centre, a 35,000 square metre project called Westwood Mall, located just outside of Durban.

A second project of similar size, called Goldfields Mall, followed in the Free State region – and the company is now working on a much bigger, 75,000 square metre project to build the Cradlestone Mall in Mogale (Krugersdorp), with the centre scheduled to open at the end of this year.

If the first two projects represented a significant upscale on Sedgeley Developments’ typical size of consulting project, Cradlestone has taken things to a whole new level:

“Those three projects are significantly bigger for us and present new challenges,” Batchelor acknowledges; “they are harder to handle in the sense that when you are running a company you try to balance the work flow rate with your resources. With larger projects you tend to gobble up all of your resources and when the project comes to an end it can leave a big hole to fill.

“Our defined niche is with office projects up to 4,000 square metres and shopping facilities of between 5,000 and 10,000 square metres, so the new projects are very exciting, new territory for us.”

Batchelor says that one of the biggest operational challenges is red tape – as a consequence of a general lack of skills:

“Financing is difficult but the challenge we find is more a lack of skills which shows itself in the regulatory authorities. Dealing with local authorities and getting plans approved or heritage approvals can prove cumbersome. It is not a lack of willingness at the local authorities, they often just don’t have the skills or resources and people then become nervous making decisions and figure that if they do nothing, they cannot be blamed.

“We find an element of this is true on the financing side also. If you apply for financing, at a high level within a bank you generally receive a quick answer and a fairly positive outcome, however, although staff at the higher level are saying yes, it becomes much harder to take money out at the lower level.”

Part of Batchelor’s solution has been to look at funding projects themselves – up to a point:

“We have tended to look at how we can self-fund projects to quite a long way down the track. We will involve the banks at an early stage and outline our intentions, but we will then put out tenders, find tenants and start to bring the building out of the ground before we go back to the banks.

“It is an approach that aims to reduce the risks to the bank, as they can see at that stage that this is a project that is really happening, rather than just talk or figures on a piece of paper. We have of course become far more cautious in putting our own money up front, but to date it is a concept that has worked well for us.”

Of course finding tenants can prove an equally challenging task. Batchelor’s team will often work with stand alone retailers who are looking to expand, and will look at locations where they are not already represented.

The company also works on existing well located buildings, carrying out urban renewal projects that involve a complete refurbishment and often a change of use, before finding new tenants to occupy the building.

Whilst the economy has slowed business down considerably, it is an environment that Batchelor is comfortable within:

“Different parts of the cycle present different challenges: in the downturn there are fewer developers, which means less competition, and in addition the good contractors are also more likely to be available for projects. So if you find an opportunity, there is a good chance that you can make things work.

“Conversely, when times are better, the opposite can happen and quality can become an issue with projects, as everyone thinks they can start a business as a quick fire means to making money. We are acutely aware however that property is a long-term deal and failure to produce quality results in you only having to go back and fix problems at a later date.

“So when times are less good, this is not necessarily a disaster.”

In an industry where reputation is critical to success, Batchelor and his team cannot afford to compromise quality:

“There is no question that reputation is extremely important and a number of our tenants who have done well have approached us to seek expansion opportunities for them. This is testimony to their belief in both our final product and our conduct as landlords.”

In recent times that reputation has required knowledge of green design. As South Africa’s construction industry comes to terms with Green Building Standards, more and more projects require greater consideration of energy efficiency and water management systems.

Sedgeley Developments is well-positioned to meet demand, as Batchelor explains:

“The green movement is having a considerable impact on our industry and our Cape Town office includes a subsidiary division called Sedgeley Energy, which specialises in energy consultancy. This part of the business is run by my son and carries out energy audits around the country and is accredited by Eskom.

“When we work on projects we have regular design and site meetings, and two topics are top of the agenda at every meeting: safety and environmental issues. The latter not only includes energy issues but also water management systems and affects everything from wall thickness, glass and even the direction that a building faces. We have just implemented a system to recycle ground water in two shopping centres and we expect more projects to incorporate green design.”

Sedgeley Development’s future is very much geared around reinvesting profit into new projects, with Batchelor exacting caution before committing funds:

“The economy is not exactly booming and we tend not to build things on spec, rather concentrating on building against demand. It can be hard to find end users who are enthusiastic and willing to take up a long-term financial commitment to a new project and our location and design considerations have to have a long-term approach.

“This year we will continue to work on the Cradlestone Mall, an existing retail project in Cape Town and offices in Sandton. There are 3 or 4 more projects on the cards including some offices in the West Rand and retail space just outside of Pretoria.

“However, we believe that there is also enormous opportunity over South Africa’s borders and we are excited by a large project we are working on in Mozambique, which would encompass a shopping centre, offices and a hotel. Most of the tenants for this project are South African operators who are interested in expanding into Africa,” he concludes.