Property Wheel caught up with Marcus Susman, Managing Director of property investment and development company Capstone Property Group to chat about their interesting residential conversion, Atholl Yards.
Atholl Yards strives to become Sandton’s premier lifestyle development by offering the added value of all-in-one living.
Originally Nampak’s head office, the residential development will feature 195 modern apartments offering a wide range of amenities.
Available for rental only, Atholl Yards is scheduled for completion in October 2020 with occupation from the 1st November 2020.
Describe what the process of acquiring the old Nampak building was like?
Capstone first viewed the building in 2015. It formed part of a listed property fund’s office portfolio and at the time, listed property shares had just hit all-time highs. At approximately R18 000 per square meter, there was no way that a conversion to residential would have been feasible.
In 2018, we viewed the property for a second time, and we indicated our firm interest. It always takes a few interested parties to assist a seller in realizing what the real market price of property is and in 2019, after a few of those other deals fell through, we were able to acquire the building for less than half of its 2015 book value. This dramatic variance in value over a short space of time illustrates the situation that many listed funds holding B&C grade offices find themselves in due to the lack of office demand in the suppressed South African economy.
Atholl Yards is quite different from the rest of your portfolio. What is unique about this development and what attracted Capstone to the old Nampak building?
With the decline in the commercial property market after 2015, we began asking ourselves where we could still find opportunity and value?
When you couple the deterioration of the office market with the demand for affordable accommodation close to where people work, the argument for office to residential conversion becomes attractive.
When modelling these projects, you are assuming approximately 3 – 4% in escalations over time. The overall return is lower than what we are used to, but they are defensive assets, and they should offer continued growth over time.
If you have a five-year lease on an office building, there is a chance that at the end of that lease period your rental would have escalated beyond the local market. You run the risk of needing to take a major rental reversion or to be left with a significant vacancy. In residential buildings (and in Atholl Yard’s case), you have 195 individual leases. The risk of a major permanent vacancy, if rental levels are correct and the building is well manged, is almost nil.
The old model of buying a commercial building, putting 70% debt into it, and expecting to receive escalations of 8% – 9% throughout the term (with a 20-25% return on your cash) are gone. What we are now seeing is that at the end of a lease term, there are massive reversions with far lower escalations. Property was an easy business in a growing economy.
It is this shift in the fundamentals of the South African property market that led to Capstone’s transition from commercial into residential.
Were there any massive development challenges or changes in the transformation of the building?
Before purchasing the building, we needed to be sure that it had the bones which would allow for the residential conversion. The width of the floor plates and the structural integrity of this building meant that it lent itself very nicely to a residential conversion. We gutted the building completely and essentially, started from scratch with completely new plumbing and electrics etc. The building consists of two blocks and adding a new floor to each of these blocks was the most significant structural change.
We started on site in October 2019 and then in March 2020, Covid-19 hit. We lost two to three months of what would normally have been a ten-month process.
I would say that the biggest design challenge with this building was the transformation of its 1970’s pebble-dashed façade. In those days, buildings were developed for practicality, low-maintenance, and longevity, but they did not necessarily build for aesthetics. As a residential building we felt that it needed to become something more attractive and welcoming.
You do not have massive budgets on these types of projects to achieve anything architecturally ‘over the top’. The overall elevations and the look and feel of the façade was designed by a firm of architects from Durban called Bloc and implemented by a local Johannesburg firm called Entity. I think what they have achieved in the transformation of the façade is quite impressive.
Working with the experienced team at HB Realty on this project also gave us a lot of comfort that we would be able to complete the transformation without too many challenges.
Who would be Atholl Yard’s ideal tenant?
What we hope Atholl Yards achieves is to provide young commuting professionals the ability to live closer to where they work at an affordable price of under R8 000 per month. They will be able to experience the lifestyle that living in Sandton affords outside of working hours too.
What is the value of the hour and a half spent in traffic every day? This is our selling point.
Atholl Yards’ specs:
- Within walking distance of Sandton’s CBD and the Gautrain Sandton Station.
- Modern studio, one and two-bedroomed open-living apartments of 30 – 36 square metres each.
- Rentals will start at R7 200 each including uncapped and super-fast internet, high-end finishes, secure basement parking, convenient laundry facilities, a fully equipped gym, concierge services, storage facilities and co-working space.
- State-of-the-art security with high perimeter walls and electric fencing, 24-hour guarded access, biometrics, and CCTV.
- Landscaped gardens with designated braai and picnic areas and a rooftop entertainment area.
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