Presenter: Lindsay Williams Guest(s): Stuart Chait

Property Partners company Southern Palace buys Melrose Arch for R1.27bn. Melrose Arch, combining residential, entertainment, retail and commercial buildings in a single secure precinct - combined with state-of-the-art technology - is part of a worldwide property trend, so why was it sold? Property Partners chief executive Stuart Chait

LINDSAY WILLIAMS: Are you pleased?

STUART CHAIT: I’m very pleased. We’ve been wanting to enter the Gauteng market for the past six months, and I think the Melrose Arch development is strategically located, and has about 250 000 square meters of un-utilised bulk still to be built. It was the right move for us.

LINDSAY WILLIAMS: What about the tenants? Are they fully booked, if that’s the right phrase?

STUART CHAIT: Yes, the development is fully let. All rentals are paid up to date. There is a waiting list of tenants wanting to come into further phases of the development. We’ve taken the view that we want to first sell off the residential component, and then develop about 20 000 square meters of retail shops. We, hopefully, are going to include things like Woolworths, Pick ‘n Pay, movie cinemas, and up-market boutiques.

LINDSAY WILLIAMS: So it’s going to become more broad based? At the moment it seems to me it is quite an elite spot - you’ve got the Melrose Hotel that charges you R85 for a glass of Shiraz, and some lovely restaurants, and some very expensive shops - you’re going to broaden the appeal are you?

STUART CHAIT: We’re going to broaden the appeal. You must remember that Melrose Arch - the broader design is to be a mixed use development, to live work and play in a secure environment. In order to create a true mixed use development, you’ve got to increase the residential component over there, and you also have to increase the retail component - so that people are able to get whatever they want, and have any sort of entertainment, be able to shop, be able to go to the gym... there’s the new Virgin Active over there. In order to be able to attract further office tenants - and the right office tenants - you’ve got to be able to attract them with an attractive environment. At the moment it’s working, but I think a lot of tenants are there in the hope that further phases are going to come in line. That’s why we bought it - we actually want to unlock that value.

LINDSAY WILLIAMS: It’s always been fairly controversial as a centre - in terms of how much it cost to develop, who made money, who lost money - what is the history? Did the original developer make money out of Melrose Arch?

STUART CHAIT: I think they did. They assembled the site in 1993, and then got it rezoned. They then built that massive super-basement... I’m not sure, but I think the first major tenant was Arthur Anderson, and then, obviously, the rest came into line quite quickly. The reason they sold it is because the trend, nowadays, is for pension funds in South Africa to no longer hold property directly. They prefer to hold it indirectly through listed property companies.

LINDSAY WILLIAMS: So Sentinel didn’t sell it because it was a troublesome investment for them?

STUART CHAIT: No, I don’t think that was the case at all. I think it became more of a time thing for them. They were spending too much time trying to deal with the issues - rollout of a development like that takes an enormous amount of management time...