In an increasingly constrained economy characterised by low growth, poor business and consumer sentiment, the property sector has not been immune.
According to CEO of Heartwood Properties John Whall, the key to surviving – and even thriving – in the current economy is to ensure that you are correctly positioned in terms of sustainability, both from a financial and environmental perspective.
“From a financial perspective, we are focused in our specific market and have adopted a conservative approach to risk management” he says.
A unique tenant shareholding business model which provides lower than usual risk has been one of the cornerstones of the company’s success. The model works whereby tenants sign a long lease of ten or more years and in return, they receive a 20% shareholding in the property, depending on their lease terms, financial stability and equity contributions. The benefit for Heartwood is tenants who are fully committed to the building, through their investment.
Whall says that this type of model creates a long-term property partnership with tenants which encourages longevity. To date, the company has successfully completed a number of these tenant shareholding developments with The Media Connection, The Business Centre and D4 Electrical.
Property with long-term leases lends itself to increased debt levels explains Whall, adding that the return on investment increases the higher their debt levels: “It’s a relatively low risk strategy as the debt is matched to the long-term lease profiles”.
Heartwood uses a combination of both debt and equity to fund new developments – typically 30% to 40% is equity and the balance is made up of debt for each development, reveals Whall.
Heartwood’s longstanding focus on implementing green building principles and solar installations provides additional impetus to its sustainability efforts. Not only are commercial buildings which offer solar technology more attractive to tenants than those which solely rely on unpredictable Eskom power but they also offer significantly reduced energy costs.
“Solar technology has become increasingly more efficient and effective in recent years, particularly as battery storage facilities have improved and costs have been reduced,” says Whall.
Heartwood has installed solar solutions at a few its properties in recent years, a move which, says Whall, allowed its tenants to successfully weather Eskom load shedding earlier this year without any interruption to their business activities.
Green building principles, he says, are no longer a nice-to-have, but rather an essential component of any sustainable property development company.