ANALYSIS: The 'dodgy' property deals

Last Sunday The Sunday Times reported that the Department of Public Works had called for tenders for Durban Police Headquarters despite an ongoing investigation by the Public Protector, Thuli Madonsela, into the previous lease agreement. The previous agreement fell through when the building was bought by someone else.

But why is this lease so controversial? Well, the main reason is that these leases were signed without having gone to tender, which is in contravention of state procurement policies. The other big reason is that they are simply a rip-off. Property is a long-term investment and one would presumable expect it to pay itself off over a long period of time. These deals though result in massive paybacks very quickly. Let's Analyse.

Old Durban agreement (TransnetTowers)

The original agreement to lease Transnet Towers, a ‘shabby’ building in the Durban CBD had a monthly rental of R4,7-million with an annual 10% escalation. This works out to a total lease value of R900-million.

Roux Shabangu was not actually able to buy the building and it was sold to someone else for R15,8-million, only slightly more than three months rental.

Let’s draw a picture…

So, on the graph above, the column on the left shows the value of the lease (money into Mr. Shabangu’s pocket) and the column on the right shows the value of the building (money out). Clearly this would have made Mr. Shabangu very rich.  Unfortunately for him, it fell through.

New Durban agreement (Redefine Towers)

We don’t yet know how much Mr. Shabangu paid for this building - because he hasn’t bought this one yet. Neither do we know much about the lease but according to the Sunday Times, Mr. Shabangu was asking R127/m² and according to Redefine’s 2010 annual report, the building has 46 282m² of lettable space. With a 10% escalation we get a lease value of… mmm… aahhh… yes… R1,1 billion!

But what is the building worth? Well according, again, to Redefine’s own Annual Report for 2010, the building is worth R113-million.

Let’s look at those towers again… Yes this one is definitely not as good a deal as the last one, Mr. Shabangu.

Two other points I would like to make:

• First, if Mr. Shabangu is able to buy the building for the R113-million that Redefine themselves claim it is worth, he will have bond repayments of R1,1-million a month. The police will be paying him R5,8-million in lease payments every month. That’s a pretty good profit.

• Secondly, the average gross rental for the building currently is only R87/m² compared to the R127/m² Mr. Shabangu wants to charge.

Pretoria Building (Middestad)

This agreement, which has caused the greatest stir, is the least profitable of them all. Mr. Shabangu bought the building for R220-million but got a bond from Nedbank for R320-million. That gives Mr. Shabangu a nice round R100-million up front to spend on whatever he wishes. Of course he’ll have to spend quite a lot fixing the building up because from what I’ve seen it could do with some work. And with all the back-handers he’s gonna have to pay out, he may not be left with very much after all.

SEE ALSO
A tale of two cities, some farms and a police station
REFERENCES
Redefine's Annual Reports

Thereafter, the Police will pay him R3,3-million a month for the privilege of using his building while he will pay Nedbank R3,1-million a month for buying it for him.  Not much profit at all for the poor guy. He will have to wait until the tenth year when the rental will escalate to R7,4-million a month before this deal pays as well as the Durban one.

A tale of two cities, some farms and a police station

***This is the second time I'm posting this - Blogger crashed and this post was lost!***

We at the Gravy Train are very pleased with the new Gautrain, especially the station in Sandton, as this now allows us to provide our passengers with all the luxuries to which they have grown accustomed but with more convenience. Until the Gautrain had been completed, our passengers had to catch the train at Park Station in Braamfontein. Now I don’t have anything against the Johannesburg CBD per se – it’s just that in the last few years it has become rather tatty and recently it seems to be occupied by the worst scum imaginable – artists and hippies.

Roux Shabangu

It’s a sad state of affairs – this urban decay – and it’s a pattern that is replicated in city centres across the country. One has to take one’s hat off to those most enterprising of folks who have put so much time and effort into breathing life back into our city centres – people like Roux Shabangu.

Mr. Shabangu is a real revelation – someone who has dedicated himself to rebuilding our country. He has grown from selling mielie meal into one of South Africa’s most successful property developers. So what if he’s a close friend of the president? Where would we all be without a little help from our friends?

Not all of his ventures have been successful, though. He once tried to buy farms claiming to have a mandate from the government but the deals fell through and some estate agents lost a fortune – but who feels any sympathy for them anyway? He’s also being investigated by the Hawks in relation to a payment of R10-million that the Land Bank can’t explain. But how should he be held accountable for their lack of record-keeping? I won't even go into the details on the R20-million police Station in Mpumalanga that never got built.

It’s the lease agreements where he stands to contribute the most to society. This is where he will almost single-handedly turn decrepit old buildings in some of the worse parts of town into property jewels charging top flight rentals.

Of course, he will make some money on it - he stands to rake in R100m up front on the lease of the Middestad building in Pretoria and after 20 years, the police will have very kindly paid it off for him.

He would have only needed three months of rental to pay off the Durban property he was due to lease to the Police. This ridiculously profitable deal was scuppered by only one thing – somebody else bought the building before he did. So he’s trying again – he’s considered the preferred bidder for the new Durban Police HQ lease even though he doesn’t yet own the building. He may not make the killing he was hoping for now that the current owners know how much the lease is worth however.

REFERENCES
Hard work got me here
Omstrede ryke ‘koop plase vir die staat op’
Roux Shabangu and the Land Bank loot
Roux's R20m bungle
Property tycoon Roux Shabangu has hit the jackpot
Police building deal back on track

Roux’s got a raw deal in the press lately with the furore over the lease agreements for the police headquarters making headline news and even the Public Protector getting her grubby fingers all over everything. It’s so unfortunate that those that try to help to make South Africa a better place are treated with such contempt by the media and society at large. Okay, so he stands to make a ton of money but who ever said philanthropy should not be profitable as well?

Zuma, the Grand Master

I don’t know about you but I have never been one for chess. Moving small chiselled pieces around a chequered board has always seemed a little unnecessary for me – and hardly great entertainment. I find there are many other activities that keep me entertained. For a good laugh, there’s little to beat watching the evening news – although I do have a strange sense of humour. I’m not sure how our president enjoys chess but I suspect he would be rather good at it if he gave it a try.

Jacob Zuma

Let’s face it, most of us view our president as a bit of a dim, bald Casanova. Personally, I imagine him at the G20 summits, World Economic Conferences and various other shindigs that those in power tend to congregate at spending less time paying any attention to any of the serious discussions and a little more time checking out the ladies. I can imagine him leaning across and seducing Angela Merkel with goat herding tales from his youth during debates on the effects of global warming on developing economies, all the while nonchalantly resting a hand on her knee.

This is, I am sure, a misconception, and one which Mr. Zuma uses to his own advantage. The skilful way in which he manoeuvred himself out of standing trial for the arms deal irregularities testifies to his understanding of the system, how to circumvent its controls and the enormous loyalty he enjoys with those whom he carefully deployed in key positions. It’s a story that books have been written about and there’s certainly no space to go into the details here.

Recently, Bheki Cele has caught a fair amount of flack for the property deals in Pretoria and Durban. The media have been eager to see his name dragged through the mud and the opposition have jumped at the opportunity to call for his head. But I wonder if he was not merely another pawn – a minion – in the grand scheme designed by Mr. Zuma.

Let’s consider the facts:

• After the Public Protector was asked to investigate the deals, she instructed that the agreements be put on hold until the investigation had been completed. The Minister of Public Works, Geoff Doidge, did exactly that.
• Shortly thereafter he was relieved of his position by Mr. Zuma and a new Minister of Public Works, Gwen Mahlangu-Nkabinde, was appointed in his place.
• One of her first actions was to re-institute the lease agreement for the Pretoria building in contravention of the Public Protector’s instructions.
• The original lease agreement for the Durban building fell through on the small technicality that Shabangu didn’t actually own the building.
• Not one to be upset by such small set backs, Mrs. Mahlangu-Nkabinde immediately put the lease to tender again. Roux Shabangu again seems to be the frontrunner to win this one for twice the rental for the Police’s current building.
• When the Public Protector came back with the results of the investigation, i.e. that the lease was illegal, it was all but ignored and no action has yet been taken.

The Public Protector will find it very hard to hold anyone to account – she can approach the NPA and ask for charges to be raised but Menzi Simelane is a Zuma stooge; Cele is involved in the whole affair so the police won’t be interested… if only we had an independent crime fighting unit – just like that envisaged in the constitution… Oh, yes… what ever happened to them?

See what I mean? Zuma has shuffled all the pieces around the board and left us with very little room to move. He only has one or two more moves left to make – the Protection of information bill and a Media Tribunal are dangerously draconian measures which would make it impossible for the media to report on any of these issues without serious repercussions – and it will be checkmate.

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In other news…

REFERENCES
Police building deal back on track
The SAPS and the 'dodgy' office deal
Free-spending Shiceka's head is set to roll

Sicelo Shiceka may well have his comeuppance after all. After lying on his CV, wasting huge wads of cash on trips to Switzerland to visit his girlfriend in jail, building himself a mansion in an impoverished part of the Eastern Cape and getting service delivery the fellow residents could only dream of, generally not doing a very good job and making the entire government under Zuma look even more inept and corrupt than they already did by getting all this splashed all over the papers, he’s finally ticked Zuma off: by naming Cape Town as the best run municipality. I’m glad to see that Zuma has his priorities straight. I hope that Zille has taken full advantage of this gift from the ANC government – we’re unlikely to see a DA-run municipality win anything from the government again, even if they are the only municipalities that are not bankrupt.