How Marc Wainer went from grocer to SA property mogul

17 May 2015 - 02:03 By CHIEF LEDIGA
subscribe Just R20 for the first month. Support independent journalism by subscribing to our digital news package.
Subscribe now

High-flying property companies, which have outpaced the rest of the JSE over the past decade and a half, may soon find it a whole lot tougher to keep producing the double-digit growth investors expect.

This is the view of 66-year-old Marc Wainer, a man who began his career working in his parents' grocery and fish shop in Yeoville, Johannesburg, and who, as executive chairman of Redefine, is now one of the most powerful and influential property moguls in South Africa.

"Administered prices - such as electricity, water and rates and taxes - have risen substantially in the past few years and this affects the industry in a major way. The weak economic growth of 2% does not help either. In addition, difficult officialdom and corruption have made us exit provinces such as the Eastern Cape," he said.

The prognosis for the future of property as an investment class is also far from clear, given the uncertain trajectory of interest rates, retail sales, manufacturing numbers (which affect industrial property) and the health of the services sectors for office rentals.

But while property may struggle, investors wouldn't want to bet against Redefine, which has generated a respectable 16% compound growth per year since 2000, when it listed on the JSE. Investors have been kept keen in part by Redefine's juicy dividend yields, which have topped 8% and grown above inflation.

Redefine is now the second-largest property company in the country, trailing only Growthpoint, and Wainer shares responsibilities with CEO Andrew Konig.

Quite how Redefine grew from a small property firm with only 55 properties and a market capitalisation of R450-million in 2000 to a behemoth with more than 300 properties and a market value exceeding R44-billion is a tale that leans heavily on Wainer's overbearing character and skill as an ace deal-maker.

Today, Redefine boasts blue-chip assets that include East Rand Mall, Maponya Mall in Soweto and Sammy Marks Square in Pretoria.

full_story_image_hleft1

And it is always doing deals or building new properties, such as the R1-billion Park Central residential development in Rosebank, Johannesburg, where apartments are going for between R1.75-million and R16-million for "New York-style living".

As you would expect, this steep rise in value means Wainer has made a tidy fortune along the way.

"Look, my Redefine shares are worth R300-million and I have other substantial investments," said Wainer.

Investors - including the Government Employees Pension Fund and Stanlib - have also made a packet, as Redefine's half-year results to February, released last week, illustrate.

For the six months, its net operating profit grew 26.1% to R2.1-billion, while bottom-line profit grew 18.4%, and it hiked its dividend 7.1%.

Even though Wainer's company warned that the "operating environment across all sectors continues to be subject to uncertainty around electricity supply and local service delivery", it said it expected to increase dividends to shareholders for the full year by between 7% and 7.5%.

The strategic steps Wainer took along the road have set him apart from his rivals - even if he has always been quick to play down the complexity of his job.

In an interview with Moneyweb in 2007, Wainer said the property business "is not rocket science, which is why we can do it. We don't have MBAs, we have MBWAs - Management By Walking Around."

And to some extent, Wainer is lucky to have been in an industry that has seen massive growth over the past 15 years, evolving into an asset class that is now valued at R450-billion - many multiples of the few billion rands it was worth in 2000. This is a boon, too, for the retirees who rely on income distributions from the sector.

But right now, the property sector seems expensive. Property yields are hitting 7% to 6% - and because property is priced like bonds, lower yields indicate that the sector is overbought.

block_quotes_start One of our abiding strengths is that we are very quick with our acquisitions. We know what we want and can respond to purchasing a multibillion-rand property portfolio far quicker than our rivals. block_quotes_end

"The main support for property came from the long-term decline in the interest rates since the 1998 interest rates and currency crisis when the South African Reserve Bank raised rates to 25%.

"Quantitative easing has also assisted liquidity by making money available in markets since the financial crisis of 2008-09," said Wainer.

It might be a whole lot tougher to make returns in future.

To explain why the industry boomed so strongly over the past decade, Wainer went back 50 years to when commercial property began to become an investment asset class.

"During my time, beginning in the '60s, property was dominated by private developers and was also largely owned by pension funds and life assurers - and most of the shopping and offices were located in the central business districts, like the city of Johannesburg. We used to dress up and go shopping on Saturday to the CBDs," he said.

The first major malls in decentralised nodes, such as Sandton City and Eastgate, were built by assurer Liberty Life in the '70s.

In 1967, Anglo American Properties began building the Carlton Centre, which was arguably South Africa's first shopping centre and, at 223m, remains the tallest building in Africa.

"For many decades, major corporations such as mining companies and banks owned their premises, long before the office outsourcing trend took hold," said Wainer.

"The big change came when banks started to offer commercial property loans in earnest from the '80s and into the '90s. This availability of finance drove the proliferation of shopping centres and office buildings."

By the '90s, the life insurance giants and pension funds had immense exposure to property and, with interest rates at sky-high levels, they wanted out. Emerging property companies such as Growthpoint and Redefine seized the opportunity and began buying these properties.

Since listing in February 2000, Redefine has ridden the peaks and troughs of the property market well.

"From day one we wanted to be innovative. We wanted to do something different," said Wainer.

"We used to pay distributions quarterly to those seeking income. We also invested in direct property and simultaneously actively invested in and traded the listed [property companies] as opportunities presented themselves - the so-called hybrid structure."

For most of the time, the trend was for funds to own properties but outsource the management of those properties to another company.

Redefine went the other way, bringing the asset management function in-house - a move that "boosted our brand because clients deal with us directly".

sub_head_start Broken the Mould sub_head_end

So how else has Redefine broken the mould to move ahead of its peers?

Said Wainer: "One of our abiding strengths is that we are very quick with our acquisitions. We know what we want and can respond to purchasing a multibillion-rand property portfolio far quicker than our rivals."

Redefine has not been afraid of clinching chunky, transformative deals.

The deal that put Redefine on the map was its 2009 purchase of ApexHi and property asset manager Madison, which was managed by Wainer and his longtime (now former) business partner Wolf Cesman.

It was a ballsy deal, not just because of the R13-billion price tag, but because it was done in the middle of the global financial crisis, when hardly any deals were being closed.

The result was that Redefine's portfolio swelled to more than 300 buildings.

Hyprop, the highly rated shopping centre operator that owns lucrative assets such as Hyde Park Corner in Johannesburg and Canal Walk in Cape Town, was supposed to be part of the deal, but that fell through in the end.

This rankles Wainer, who describes the failure to nail down Hyprop as one of the worst losses he has had to suffer.

In 2011, Wainer opted for another strategic shift by choosing to focus on its upscale buildings and clients.

It unbundled its less-glamorous properties - the "B-" and "C-grade" assets - to Arrowhead and empowerment groups Dipula and Mergence. "These companies have continued to do well, too," he said.

In the past four years, Redefine has bought or developed premium properties worth more than R25-billion.

Another coup for Wainer is the fact that Redefine is buying mall operator Fountainhead for R12-billion, a deal that will add Centurion Mall and Benmore Gardens to its bulging portfolio.

"Make no mistake, the competition is intense at many levels in the property sector. We compete for deals especially with Growthpoint, and we also lock horns for tenants. Some of our rivals offer free electricity and specialised tenant installations to 'steal' our tenants when leases expire," Wainer said.

Wainer spoke of the trend for property companies to expand offshore, given South Africa's tepid growth.

"We now have properties in the UK and Australia. The offshore component will, however, remain about 20% to 25% of our portfolio in the foreseeable future. Investors will also enjoy some rand-hedge qualities. The rest of Africa is not in focus yet," he said.

His rise to the top, as well as Redefine's climb, is captured in his memoir, Making My Marc: Lessons from a life in property, which chronicles his major deals as well as his failed ones, his sometimes frayed business relationships, and even his irascible nature.

So, what about those reports that he is hot-tempered?

He does not dispute this, but adds: "I have had only a few [fallings-out] in my life." His bust-up with Cesman over an employee was the better known. Tempers bubbled over, and Cesman left the company.

After 40 years in the industry, when does Wainer intend to hang up his landlord's hat?

"As long I can add value, I will continue. The day I am unable to, I will inform the board," he said.

sub_head_start Cutting a deal - and other life lessons sub_head_end

"We're not landlords, we're people" is the slogan for Redefine Properties - but it might just as well apply to founder Wainer.

Born in 1948, he spent many childhood hours in his parents' grocery and fish store in Yeoville. After a stint in the army, he began working full-time in the shop. But this all ended badly when they tried to sell the store, and were ripped off by the buyer, who fled to Greece and left them with hefty debts.

Badly shaken by his retail experience, Wainer wanted a change. So, in 1973, he applied for the job of managing Kempton City - one of the first shopping centres in South Africa - and got the position.

Wainer personally made a success of his role, but the owners of Kempton City, Summit Construction, were eventually liquidated. Since then, Wainer has launched a series of business ventures, including starting Investec's property group in the '90s, and a stint with Corpcapital Bank.

In 1999, while still in the Corpcapital stable, Wainer formed Redefine with longtime backer Eric Ellerine at the age of 51. When Redefine listed in February 2000, it had only 55 properties on its books, as well as interests in other listed property firms. The growth in value in the past 15 years has been immense: when it listed, Redefine was valued at R450-million; today, it is valued at more than R44-billion.

In his book, Making My Marc: Lessons from a life in property, he offers lessons about life, business and big deals. These include:

When a deal is on the go, move fast and do a solid but limited due diligence to make an offer quickly;

Think for the seller, and understand what the seller wants and structure a deal so that each party benefits;

Be patient when working on a (prized) deal - sometimes it takes years to get the right conditions to do one;

Do not just kick out your tenants when they are struggling. Get out of your office and go and see them to work out a plan to assist them; and

Do not leave victims behind when you conduct business. Even if you have beaten someone, leave them with dignity. - Chief Lediga

Lediga is a specialist strategy writer and businessman

subscribe Just R20 for the first month. Support independent journalism by subscribing to our digital news package.
Subscribe now