Judging from the property division's R28-million contribution to Corpcapital's R78-million recent interim profits, it could be contributing at least half next year's profits. But it is the record speed of setting up the fund, and the innovation behind it, that have sealed the seven-man property team's reputation.
Marc Wainer and Wolf Cesman, who head the division, met German industrialist Klaus Daun for breakfast in Johannesburg on April 4 and proposed buying his syndicate's 78% holding in Prima, a small, seemingly aimless property unit trust (PUT). Daun immediately set three conditions to a sale: an 85c/share price, an offer letter delivered to his hotel by 5:30 pm that day setting all the terms of the purchase, and the R110-million payment in his bank by April 23.
Because of Easter, the bookover had to take place on Monday April 14 to ensure Daun received the cash by April 23. It gave Corpcapital six working days to finalise a detailed agreement and another to buy the management company, carry out a due diligence on the PUT, management company and properties (in Cape Town, Nelspruit, Witbank and Gauteng) and borrow R75-million to top up immediate cash resources.
"A huge advantage to us is our close relationship with Corpcapital's corporate finance division [now bought by management and renamed Java Capital] and with Standard Bank Properties," says Wainer. "Standard could confirm our finance within hours and Java had the letter ready for Wolf to deliver to Daun's hotel on his way home."
Cesman finalised the agreements, loan and due diligence over the next week, while Wainer prepared the transformation of Prima into one of the listed property sector's three most innovative funds. Wainer and his team also conceived the other two property loan stock (PLS) companies, R1,2-billion market cap Redefine, the first hybrid fund, and R1,7-billionn ApexHi. They make up the Corpcapital property stable.
With ApexHi, Wainer ignored property's sacred cow of location as the main criterion and bought good, long-term tenants instead. Then he created a dual capital structure with A units getting first call in the income and the remainder going to B unit holders. ApexHi has risen to the buy list of almost every analyst and fund manager this year.
The property arm started in 1998 when CEO Jeff Liebesman persuaded the board to divert R32-million from industrial investments into a R150-million portfolio of listed property units. The portfolio was brought to them by Wainer when interest rates were 25% and nobody else would touch it. Corpcapital property has grown to R6-billion in assets and R2-billion/year turnover in five years. Wainer wants Prima to add another R1-billion by the end of 2003.
Prima's innovation is to invest in small properties with blue-chip tenants. Wainer says he got the idea after his funds' investment committees regularly rejected top-rate properties because they were less than R10-million. "It irritated me intensely when we threw away a handful of prime properties at R5-million and 15% yields in favour of a R25-million property at 12%."
To overcome the investment community's fears about managing small properties, Wainer has added another innovation: "Mom and Pop" managing agents who each manage 30-40 properties, netting about R40, 000/month, with performance incentives promising as much as R100, 000/month. They make sure the properties are properly maintained and the tenants are happy. They will also scout new properties and tenants in their area.
Wainer says Corpcapital property has further to go: after the launch early this year of a property hedge fund. Wainer is also keen on a residential fund, but this has so far proved difficult to assemble.
As property grows, the rest of Corpcapital will shrink by selling its investments . So why not keep going and sell the property division, too? Wainer and Cesman would undoubtedly head a long line of their supporters to buy it.
