Sujean Property Investments: The pragmatic approach pays off

One of the biggest challenges many family run businesses face is the transition to scaling up successfully. At Sujean Property Investments, the involvement of Sean McCarthy, gave the business a new impetus and direction.

SujeanHis father had started the business back in 1974 and brought him into the fold around a decade ago, as Sean, present Managing Director, recalls:

My father started out buying houses many years ago. He repaired them himself and then rented them out. He then started buying commercial buildings and gradually built up a substantial portfolio. Then about 12 years ago he asked me to join the business, to assist in growing it.

I had been a property developer myself for the previous 13 years and started to look for the right opportunities for the Sujean portfolio.

That grew the business substantially; investing in properties which provide a rental income is fine, but the growth is really just tied to inflation. By purchasing buildings and redeveloping them, you are adding value which offers a much bigger return” McCarthy asserts.

Today our core focus is investing in properties to which we can add value, we then hold them for the long term – some of the properties we acquire are ready to let, others need cleaning up and in some cases we will carry out a complete renovation.”

Sujean Property Investments has sought to diversify its portfolio and as a result, successfully rode out the economic downturn, which had such a damaging effect on the construction industry.

We do havesome opportunities in the residential sector but that market has been relatively dead in recent years,” McCarthy acknowledges, “but at the same time we have identified opportunities in the industrial and commercial sectors. The only area that we don’t really focus on is shopping centres as these are more specialized.

We have learnt that you have to be nimble and able to react fast as South Africa’s property markets change quickly. On a residential project, we aim to sell rather than hold,” he continues.

The company has focused its business on the Cape Town area and recently completed a deal to develop a property on the beach front area of Camps Bay. McCarthy is comfortable with the company’s current status as “a small fish in a big pond” for the time being and feels there is plenty of opportunity in the Cape Town area, which his team are familiar with and live in.

The business has grown significantly since McCarthy’s arrival and is measurable in a couple of ways,

When I started we had 14 people working for Sujean; today we have a 114. Our portfolio of investments has also grown significantly; it was around R30 million in 2001 and today is at approximately R550 million. Of course that takes into account growth of the original portfolio, acquisitions and redevelopments.”

Among the most significant projects over the last 3 years has been the purchase and redevelopment of Mega Park. Sujean Property Investments acquired the old SA Nylon Spinners plant and has converted the site into a 65,000 square meter industrial park, with an additional 1.6 hectares of land available for further development.

We have our own construction division and employ project manager’s, draftsmen, plumbers, electricians and everyone else necessary to redevelop a property,” says McCarthy. “Each project is extremely price sensitive and everything has to be done at cost.

The big challenge we face is finding the right properties at the right price as it can take upwards of 2 years for us to realize a return on these investments.

Our strategy is to research and carry out our homework and costing before we purchase. It comes down to pricing and delivering a product that we can let at the end of the day. This approach means that we are not developing a year on year pipeline, it is more important to find properties that are viable” he adds.

McCarthy suggests that recent amendments to the fire legislation have put additional cost pressures on industrial upgrades, while the age-old issue of red tape continues to frustrate and delay projects from getting off the ground.

As the Mega Park project continues, McCarthy nominates the Somerset Square project, on the edge of Cape Town’s Central Business District, as one of Sujean’s flagship developments.

This project is located near the water front and is not yet completely redeveloped – the market has slowed down but is coming back gradually. We have a 1.4 hectare site with 17,000 square meters of buildings on it. “This development contains good quality tenants and consists of retailers, restaurants, and office premises which house amongst others a number of media companies. The property comprises of 8 separate buildings, we are presently doing the planning to redevelop some of them in the future. The challenge will be to develop these without impacting on the tenants in the neighbouring buildings.” he explains.

The property market has proved a challenging environment in recent years, but McCarthy is upbeat about the performance of Sujean, citing the company’s pragmatic approach to risk management as a reason why the business has done well in the face of so much adversity.

Alongside the red tape and legislative changes, financing projects became a very tough proposition at the lowest point of the economic downturn, but it is a situation McCarthy feels is improving:

“We have a conservative approach and generally self-fund our projects,” he says. “Once the tenants are in place the banks are more inclined to lend, so obviously the business needs substantial capital and a good risk management strategy.

“It is difficult for us to tailor properties to a tenant’s exact requirements as it is rare to find a tenant willing to sign a lease 8 or 12 months in advance. As a consequence most buildings are built or redeveloped and then tenanted,” he continues.

Marketing tends to focus on relationships with commercial agents although McCarthy says that the Internet and Smart Phones have had a small impact on consumer marketing of the company’s properties except for its storage unit facility where internet marketing has been very affective.

There was a time when green building credentials were a potential marketing enhancement, particularly for corporate clients. Now that greener designs are being enforced at building plan approval level it has very much levelled the playing field,” which McCarthy says is not a bad thing: he states. “Products are becoming more cost efficient in areas such as lighting and air conditioning and payback periods are reducing making certain green products more viable than before.”

We are also presently working on a R400m social development/project called Philippi Village. Sujean is assisting with the creation of an economic village in a previously disadvantaged area on the Cape Flats where there is a hive of business activity taking place from old tin shacks with very few formal business premises for business to grow from. Phase one is complete and houses 29 local commercial tenants. Phase 2 which is under construction is a R80m redevelopment of an old cement factory into a 6500m2 business hub which will include a conference centre, an exhibition venue and business premises ranging from 40 to 1000m2.

We are working on this project in collaboration with the Bertha Foundation and have obtained additional funding from the Jobs Fund. Once we have completed this next phase we intend building an industrial park and community entertainment zone. The project will cover an area of 12 hectors when completed.

Whilst McCarthy says that finding the right new properties to keep the pipeline flowing is a challenge, Sujean Property Investments has plenty of opportunity at present:

We are finishing off our Mega Park redevelopment and have additional land available; we will start the construction of another 8000 square meters of new industrial units on that site in the next 3months.

We have also recently acquired another 3 industrial parks, 2 in Blackheath which comprise of 20 factories and a 3rd in the Strand.  Most of these properties are already let but have the potential for upgrading in the future.

The key to our future will be to remain flexible; we will look to continue along the same path as the past 10-12 years. We are a family business but only in ownership – where necessary we select the best man for each job’s challenges.

Our intention is to stay focused on what we do best and continue growing our portfolio.