Capital Investments, a property portfolio
management company, is turning the commercial property investment industry
on its head by offering a much improved investment product and, at the same
time, sorting out the problems of one of the country's major syndicators.
"We started out doing syndications but quickly realised that the model
wasn't sustainable - for either the management company or the investor,"
says Jurie Wessels, managing director of Capital Investments.
"From the point of view of the investor, it is undesirable to be locked into
an investment in a particular property, or group of properties, without the
ability to use gearing to expand one's investment portfolio and without the
ability to trade out of some properties and into new properties as area
"Our investment model is actually very simple," says Wessels, "We only
invest in commercial properties - office blocks, industrial property and
retail space. The properties in our portfolio are geared with bank-issued
property bonds. As the rental income repays the bonds, we take the money
out of the bonds again and buy additional properties. It is this ability to
add properties without receiving new investments that really enables us to
add to our clients' wealth, much more so than the normal, inflation-linked
increase in the value of the existing buildings in the portfolio.
Syndications are structured to own particular buildings; they are structured
not to have this ability."
Recently, Capital Investments issued a cautionary announcement on all of the
syndications under its management. In October 2007, the company took over
the management of the syndications previously owned by Dividend Investments.
In terms of the legislation governing cautionary announcements, details of
the proposed transactions cannot be supplied before the relevant information
is generally distributed to investors, but Capital Investments has confirmed
that the structure of the existing syndications will change.
"The problem with syndications is that they make their money when they
structure and market the original syndication," says Wessels, "There's no
further fee and, consequently, no incentive for the management company - or
promoter - to manage the syndication with care. This problem was evident in
the poor quality of the records as well as the poor state of management we
encountered when we took over the syndications.
"When Capital Investments took over the management of the syndications that
had been put together and marketed by Dividend Investments, we saw an
opportunity to unlock value for investors because most of the properties in
the syndications were good properties. Nevertheless, although many of the
properties were of high quality, the management of those properties and the
financial affairs of the syndications owning those properties had to be
"We at Capital Investments are very proud of what we have achieved in a very
short time to bring the affairs of the syndications up-to-date.
"Keeping investors best interests at heart, we've spent a vast amount of
time and money to record old transactions and bring records up to date,
traced the flow of money between companies in the group, settled
inter-syndicate loans, conducted audits of share registers and updated
them," Wessels says. "We also supervised proper maintenance of the buildings
and re-established good, professional relationships with syndication
property tenants. The management team recovered as much unpaid rentals as
possible and let empty space to reduce vacancies appreciably. All of this
had to be done for the more than 70 syndications (and altogether more than
160 companies) in the group.
"While we cannot deny that investor interests were sometimes neglected by
our management predecessors, we can assure syndication investors that
Capital Investments is doing everything in its power to obtain the best
possible results from the current situation. In addition, we have to
reassure the investing public that the investment advice they received from
their financial advisors was sound, based on the available information, at
the time. The situation that Capital Investments is rescuing was created by
poor management of the syndications by the original promoter."
As with everything that Capital Investments has always done, the company
wishes to remain transparent in its dealings with the syndications and is
meeting with syndications members. In a recent letter to all of the
syndication investors, Wessels reassured syndication members that a
transaction will only be concluded after all members have received full
information and given their approval.