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JIMMY MOYAHA: For many South Africans, owning commercial property, especially if you are running your business out of that commercial property, could have some really powerful implications for your business and for your strategy.
We’re going to be taking a look at commercial property ownership in a bit more detail with the team at Merchant West. I’m joined on the line by the head of property finance and working capital solutions at Merchant West, Ricco Strydom, to take a look at this and see what we make of it.
Ricco, lovely having you on the show. Thanks so much for taking the time. Let’s start the conversation, perhaps with the importance of property ownership for businesses in particular, and what sorts of strategic advantages this potentially presents for businesses.
RICCO STRYDOM: Thanks, Jimmy, it’s only a pleasure.
I think owning your property in South Africa versus renting – there are such wide benefits that you can actually look at. It strengthens your balance sheet position.
It’s turning an occurring expense – increasing annually – into an investment on your property; rather paying your own property, investing in your property, than paying an equity into your landlord’s property, essentially.
JIMMY MOYAHA: But Ricco, business owners would quite easily argue that commercial property is expensive, and that’s probably one of the biggest barriers preventing property ownership.
How do we approach that? Well, how should businesses approach the barriers that confront them when it relates to commercial property ownership?
RICCO STRYDOM: I think timing the property [market] cuts both ways.
The right property doesn’t wait for a convenient moment to come to the market. I think opportunities suddenly arise.
[Considering] the expensive nature of commercial properties in the business, you can bridge the gap by partnering with the right funding partner.
I think with Merchant West offering a flexible, suitable solution to the commercial property or to the businesses on commercial property will be key to bridge that gap. To have a solution structured that is right for your business, for the transaction and actually for the business cash flow.
I think that’s where we want to bridge the need, structure solutions; meeting the customer’s need rather than providing a solution that is a checklist from a traditional institution, possibly.
JIMMY MOYAHA: Ricco, can we take a look at some of the other benefits of commercial property ownership for business owners. We know that in the residential space, in the private space, property ownership is a strategic tool for wealth creation.
Is this the same case for businesses? Can this be the same case if businesses are to approach it from an ownership perspective?
RICCO STRYDOM: Yeah, certainly.
I think from a rent expense [point of view], it’s always more expensive paying rent versus owning your own property. You can see it still as a strategic investment.
I think South African businesses are more focused on growing their operations and growing wealth into their business, rather than focusing on the wealth that possibly sits tied up in the expense line in the business, whereas specialist financiers structure deals around the business’s actual operations.
I think the key is to have the right structure, and that will create possibly wealth just outside of your normal operation business.
JIMMY MOYAHA: Ricco, let’s talk about where businesses like Merchant West fit in to these types of transactions. Property transactions by their very nature are long-term transactions. They are very high-value transactions and commercial properties at that, [are] exponentially higher than some residential properties in some cases.
How then does a team like Merchant West come to the assistance of businesses to support them in structuring these deals? Because I can imagine the structuring aspect of it is equally as important as things like the financing and the ownership.
RICCO STRYDOM: From a Merchant West perspective, we are uniquely positioned to offer these flexible commercial property solutions to qualifying customers.
How we structure it to assist our customers will be with the flexibility of the structure.
Offering higher loan values [and] reduced deposits are some of the key elements we use from escalations in the property.
We look over a 10-year transaction. So the nature of aligning the funding with the property requirement is crucial to ultimately give the client the most for the solution to fit the business and then to structure it, accommodating all the requirements of the business.
I think from a Merchant West perspective, we are merchants by trade, so we like to think like a business owner first before we think about the financier. I think that’s crucial to provide a correct solution to our customers.
JIMMY MOYAHA: Ricco, before I let you go, we touched on the strategic benefits of considering property ownership as opposed to renting, for example. One of the benefits that came up as we were discussing this, that came to mind for me, was that as a property owner, transitioning from a tenant to a landlord effectively then allows you to take on other tenants.
Beyond just the property ownership aspect of it all, businesses can now potentially look at this as a new income stream in some respects.
RICCO STRYDOM: I think from a business side, outside of building your own wealth or your own balance sheet with owning your property, certainly you can always structure your property in a ring-fenced property holding company or trust that gives you ownership and freedom to invest in your property for various needs that might arise.
There can also then be the option to partially let or lease your property.
Depending on growth, you potentially have a larger property that you need to, over time, grow into.
For the time being, that can be an income-generating asset where you can have a sublease assisting the business for affordability, assisting cost, and also reducing the overall cost of owning your property versus renting a property for an extended period of time.
JIMMY MOYAHA: Property ownership, particularly in the commercial sense, could provide some unique strategic advantages and flexibility depending on what it is that your business requires.
If you are considering this, reach out to the team at Merchant West. They’re more than happy to assist you in taking a look at what it is that you need as a business.
We will have to leave this conversation on that note. Head of commercial property finance and working capital solutions at Merchant West, Ricco Strydom, joining us to take a look at ownership in the commercial property space.
Brought to you by Merchant West.
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