Developers, property owners and service providers are initiating new functions for buildings in a time when flexibility is key to securing a positive outlook for property investment
WORDS: DEBBIE LOOTS – PHOTOS: SUPPLIED
In the face of economic hardship and political insecurity, deciding to hold on to your property when everyone else is jumping ship is a difficult decision. Yet it is wise to wait and consider new initiatives, says Paragon Lending Solutions CEO Gary Palmer. “As the effects of a stagnant economy drag on, many are trying to minimise their exposure. This may be good in theory as more people are trying to reduce their debt by selling homes and investment properties, sometimes at bargain prices,” says Palmer. “It is not ideal for the client in the long run.”
Industry findings paint a bleak picture as well. A recent Sanlam Employee Benefits survey found 16% of retirement fund members requested access to their savings because of reduced or lost income. The Experian Consumer Default Index, which measures rolling default behaviour, shows composite levels are at their highest in five years. The spike in first-time defaults on secured lending products was one of the major reasons: the home loans index increased from 1.68% to 2.32% from April 2019 to April 2020, and credit cards and personal loans from 6.56% to 7.47% and 8.61% to 10.19% respectively. “We are seeing some very high net-worth individuals snapping up properties,” says Palmer. “Property brokers and bankers are now laser focused on these individuals and big deals are coming through.
However, it’s often at the expense of distressed buyers who are victims of this pandemic economy.” Palmer advises against selling fast. Rather adopt a new strategy, capitalise on the very low interest rate and reimagine investment properties, such as turning a commercial building into a shared space offering, creating storage or student accommodation, or converting B-grade office space into affordable residential apartments. “If clients have a solid business plan, we’d rather see the property improved and our clients sweat their assets,” says Palmer. “Worst-case scenario, if a client wants to consolidate their debt, they should talk to a financial partner to help them see the opportunity and the risk. It would be foolish to lose your asset now, only to struggle to get back into the market when rates go up.”
On November 1, the developer BlackBrick is launching a new residential concept in Sandton in the converted former offices of SAB and AB InBev. Comprising 208 apartments and a hotel component, it offers tenants a community and a hotel-type lifestyle, as well as a world-first residential club membership. Buyers and tenants of BlackBrick apartments automatically become club members, gaining access to facilities such as a café, work spaces and boardrooms, a boxing gym, a rooftop boma, a dining lounge, a cinema room, a library and a meditation garden. The vision of BlackBrick founder Moritz Wellensiek is to offer members flexible accommodation, work and lifestyle options. This includes future access to “a network of residential clubs that allow for fluid, facilitated movement between properties in various cities on a short-or long-term basis”. Wellensiek says BlackBrick is a strong investment opportunity because it is a low entry point into Sandton, offering investors good rental value and returns. Other member benefits include on-site staff to cater for residents’ needs, a mobile app and access to BlackBrick’s Accelerator in Residence (Air) programme, where experts provide guidance in fields such as the arts; business and entrepreneurship; science and innovation; design and architecture; and technology. Air will also connect members with local and global funding opportunities.
A global study by market data analytics company STR and AirDNA, a provider of vacation rental data and analytics, shows an uptick in short-term accommodation rentals, which nearly match pre-lockdown levels. In the short-term accommodation category, consisting of apartments with two or more bedrooms, including serviced units in the aparthotels sector, revenue per available room (RevPAR) was down only 4.5% from the same time last year. In the hotel category, which includes studios and one-bedroom apartments, RevPAR has decreased much more, by 64.8% from 2019.”We’ve never received as many enquiries as we’re getting now from developers and private investors wanting to know how they can re-equip their unsold residential properties for aparthotel running,” says Rael Phillips, co-owner and director of aparthotel operator Totalstay. Annual global hotel occupancy before the pandemic exceeded 66% for a record 58 consecutive months, whereas the US short-term rental peak-season occupancy rate grew at 2.3% annually, reaching a record high of 58.6% in 2019 from 52.6% in 2015.
However, as indicated by the study, the pandemic and its subsequent travel ban seriously affected the hotel industry, mainly because of the drastic cuts in business and group travel. These findings confirm that the short-term rentals industry has had success, having just wrapped up a half-decade of nearly 300% total revenue growth before the pandemic, as travellers sought more affordable and special experiences. Although performance plummeted during the global lockdown, the fall wasn’t as severe as that of hotels. “Aparthotels have shown decade-long growth because they offer far better value for money than conventional hotel accommodation,” says Phillips. He ascribes this category’s steady growth to benefits such as greater living space, more amenities, better locations and a now enhanced social distancing and sanitisation offering. These may also indicate why property developers and investors see the aparthotel market as presenting them with a sustainable return on their spend.
Phillips says an experienced centralised aparthotel management infrastructure is an important aspect to ensure yield for investors. “When choosing an operator, investors shouldn’t overlook crucial aspects like a solid, well-run infrastructure that provides access to the best knowledge and resources; the ability to hire, train and retain excellent staff; the backing of an established, reputable aparthotel operator brand; and a flexible pricing model.” As the STR and AirDNA study suggests, short-term rentals offer full-service amenities that allow for longer-term stays that became more popular as families looked for spaces to which to retreat. The average length of stay increased by 58% during the crisis.
“It would be foolish to lose your asset now, only to struggle to get back into the market when rates go up” Gary Palmer, CEO, Paragon Lending Solutions