Redefine’s Marc Wainer: SA property stocks expensive, at “crazy” levels of 2006/7

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Marc Wainer is to South African property what Jannie Mouton is to the country’s financial services sector. A straight-shooting dealmaker, he says it the way he sees it – even if that makes others uncomfortable. Having built Redefine in 15 years from a modest R400m business to one now worth R40bn, Wainer is deeply respected for his business acumen. He came to the Biznews studio today to talk about his recently published autobiography. You can listen to that in-depth discussion by clicking on the podcast link below (or read the transcript). We also shot a short video where Wainer expresses his opinion on near record valuations in the JSE property sector and offered advice to those who own the shares. – AH

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ALEC HOGG:  South African Property doyen Marc Wainer is with us in the studio, to talk about his book.  Now, lots of people do reviews on books Marc, without actually reading them.  I believe in the opposite.  I think you’ve got to go and get a feel of it and your book felt to me like you’d written it.  I know you had the…

MARC WAINER:  Tudor (Caradoc-Davies) wrote it but it was a lot of him probing and asking questions and responding, then getting drafts and correcting the drafts, and doing things.

ALEC HOGG:  He did well because he brought across the essence of what you are.

MARC WAINER:  Yes, well I think one of the things that came out of it, as I said in the book, it was originally going to be Ian Pheiff and it was his idea, but because Tudor is not a financial journalist, so I think it came across as a ‘man in the street’ kind of book.  It wasn’t too technical.  I think people can follow it and there was just the question, now I’m getting a lot of people saying ‘why didn’t you put this deal in the book or that in the book’.  I didn’t want it to be too long, so a couple of highlights.  Yes, we could have written an encyclopaedia I suppose.

ALEC HOGG:  You didn’t step away from controversy at all.  The one part that jumped out at me was your involvement with Nedbank, and you named names and shamed Tom Boardman for changing his mind, after he’d done a deal with you.

MARC WAINER:  Well I don’t know if was changing his mind.  I just think that he wasn’t straight with us at the time.  I still don’t know why that deal happened.

ALEC HOGG:  Have you not spoken to him since?

MARC WAINER:  I haven’t seen him since.  I cut all ties with Nedbank, until that “God” was out. When Mike Brown came in, we re-established ties.

ALEC HOGG:  Take us through what happened.

MARC WAINER:  Well, what happened was there was a bidding process for Canal Walk.  We, through various things, which I deal with in the book, became the successful bidder.  At the time, we were bidding…  Canal Walk is part of what they call the Century City Precinct, so there was a hell of a lot land around and we said we’d be interested in the land as well.  The guys that we were dealing with at Nedbank said ‘no, absolutely, they want to sell the land but they just inherit it from BOE.  They weren’t to grips with it.  They weren’t sure of values.  What the expenses were and they were putting a pack together and doing it’.  In fact, our offer included the land, subject to a due diligence, so they said ‘look, take it out, but you have a marker.  As soon as we do something with the land you’ve got a marker’.  Fine, we went off.  We concluded that deal in November.  I was in Cape Town in December.

This is ten or 11 years ago now.  I saw the guy from Nedbank in Camps Bay.  ‘How’s it going?’  No, he’s getting the numbers together, so everything is going fine, and when we get back in January, the market, we start hearing rumblings, that the land is being sold to somebody else.  So, make a phone call.  ‘No, not true,’ this and the other, hear some more and make another phone call, and don’t get a return phone call.  Send a letter, ‘what’s happening?  You said we had a marker.’  A nasty letter in response, ‘we’re going to go to our lawyers.  You’re going illegal.’  ‘So what’s going on?  All we are asking for is a week to do due diligence and decide whether we want to make an offer or not.’  At the time, we indicated we thought that it was worth R110m or R120m.  Then we weren’t getting a response, so with Eric Ellerine, who’s our partner in Canal Walk and a big Nedbank client, we went to see Tom.

He had just come back from overseas, from raising the Famous Five Billion.  We said to him ‘look, we don’t know if we want to buy it.  We just want to do due diligence and then we’ll tell you.’  ‘No, absolutely, no problem,’ he knew there was an offer.  It wasn’t satisfactory and he’ll see to it.  That afternoon there was a SENS announcement that they had sold it for R80m.

ALEC HOGG:  That’s extraordinary, but anyway I suppose it’s ‘water under the bridge’.

MARC WAINER:  As I say, as it happened and the way things turned out, it was better for us because the guys who bought the land developed it far faster and had more expertise then we would have had, in developing that land, which was good for the shopping centre but it left a bad taste.  It is just not the way to do business.

ALEC HOGG:  Did you find similar experiences, you don’t talk about many others, but in the South African business landscape, or are South African businesses generally the business people, ‘my word is my bond’, and it’s true?

MARC WAINER:  No, what I do say is if you go back into my early years, and when you dealt with the really, tough old Jewish guys, who were as tough as nails, okay, but their word was their bond.  With many people today, a signed agreement is a basis for negotiation, so it’s…

ALEC HOGG:  A bit like the robots, it’s an indication.

MARC WAINER:  Yes, it’s an indication, so it’s the integrity, I think, the one thing I miss most, when I look back, is integrity.  You never know.  Somebody said to me, ‘When a deal is a deal it is 50/50.’  You just don’t know if people are going to deliver.  They go back on their word.  It is not the same.  The ethics are not the same.

ALEC HOGG:  But you also had a very close involvement with one of the less ethical business people, perception wise anyway, in Jeff Liebesman.  How did you get sucked into the whole CorpCapital conglomeration?

MARC WAINER:  That was very interesting because what happened in 1998, I had left Investec.  I was sitting on my own.  I was doing property syndications consulting.  I had quite a few property syndications where investors had put in an equity and I had signed for the mortgages.  Came…interest rates went up to, as you’ll recall, 25 percent and I’m now paying bonds of 75/80 percent of the property.  Tenants are going bust and I’m writing cheques every month to meet the shortfalls and going bust quite frankly.  I started looking at the listed property sector, found a portfolio, which we could buy from the metal industry’s pension fund.  I was negotiating with them.  I had an Agreement in Principle with Eric Ellerine, who was going to fund it and we would partner it.  As I closed that deal with the Pension Fund, with a 30-day option, the markets fell out of bed.  There was blood in the street.

Eric said he’s not doing a thing and I had this 30-day option.  I went to everybody I could think of, Investec, Liberty, every person I could think of.  The minute it got to property, you didn’t even finish your coffee.  You were shown the door and I was talking one day to Errol Grolman, ex Investec, and he said to me, ‘Have you tried Jeff Liebesman?’  I said, ‘I’ve been to Fulcrum Bank.  He said ‘no, I don’t know Jeff.’  He said ‘go and see Jeff.’  I took in my little three-page feasibility.  He looked at it and said ‘it’s a no-brainer.  We’ll do this.’  I said ‘well, you’ve got one problem.  First of all, I’ve been to Fulcrum and they said no and, secondly, your Chairman, Eric Ellerine, has said no’.  He said ‘I’ll deal with that.’  The option had four days to go.  Within four days they’d done a GD.  They did the deal, so I didn’t get 50 percent of the deal, as I would have had with Eric, but I got a nice commission, which kept me alive and I  had to look after this portfolio I’ve listed.

After that, they invested R32m on R150m deal, and Standard Bank provided the funding.  That was in August.  By February, they had made R40m on their R32m, so I get this phone call to say ‘listen, we like this property business, come and join us.’  I said ‘I’m not coming to join you.  Buy my business if you want me.’  It was really a ‘signed-on bonus’, so I got a nice ‘sign-on-bonus’, which rescued me from almost insolvency, and then I joined CorpCapital.

ALEC HOGG:  How was it there?

MARC WAINER:  You know, it was a fantastic experience, because I know all the stories about Jeff and the whole thing, but the one thing about him and I don’t say ‘yes or no’.  He had an uncanny ability to see-through businesses, and what to buy, so if I look at what was CorpCapital.  Java Capital was part of Corp.  I mean that’s just the most incredibly successful business, the property business.  The other business that he had, Macadam’s, and even the hardware business, which he sold into…and PostNet, all of these things that he did, even the controversy over that big gambling one that became a hugely successful business, and was sold for hundreds of millions of Dollars.  He certainly had the ability to spot deals and do deals.  I remember once, when he was looking at and, in fact, he bought it.  It was MoreSport, or what’s it today, Look and Listen Record Bars and the sporting businesses, and he called me and he said ‘listen, I need a big favour.’  I said ‘what’s the favour’ because we were involved in Hyde Park.  He said ‘I’m going to buy this chain and I want you to change the escalators at Hyde Park, so when people come down the escalator, they’re looking at Look and Listen, and not the way up,’ which we did and it made a big difference to that business.  He had this ability to see things.  To walk around and to understand what was happening in businesses.  Talk to the managers and those kinds of things, and I haven’t seen him since but I believe he’s been incredibly successful in the States with his pallet business.

ALEC HOGG:  Incredible, well that’s lovely to go through the old history like that.  Redefine itself that is a company that you are responsible for having built into R40bn market cap at the moment.

MARC WAINER:  Just over R40bn, yes.

ALEC HOGG:  You’ve got through R40bn, so was that or did you set yourself that target?

MARC WAINER:  Never, when we listed it, February this year, 2015, it will be 15 years since we listed it.  We listed in 2000.  Our market cap was R400m, so 15 years later, R40bn.

ALEC HOGG:  What a journey.

MARC WAINER:  It’s been a hell of a journey and it’s been so much fun.  I think that’s really the nice part of it.  Sometimes you get calls from these pensioners, some of whom took the shares when they were R2.00 but not so much the capital appreciation.  They’ve had the income and they’ll phone you and tell you ‘thank you, because if I didn’t invest in this, I wouldn’t be able to live’, so that gives you a big kick.

ALEC HOGG:  If you look back over that career, and particularly those 15 years, had you built up to it by the time you started?  In other words, reading your book you had a fascinating career up to that point, starting off in a small shopping centre in Kempton Park and learning, very much, from the roots upwards.  Do you think that you were ready 15 years ago, when you picked up with Redefine?

MARC WAINER:  For the size, it was – yes – because firstly, it was new.  What we were doing was new in terms of the hybrid structure but I knew nothing about corporate finance (or very little).  Today, I’m pretty good at corporate finance and doing deals that way so I think that as the business grows, so you grow, I’ve grown, and my people have grown.  That’s why last year; I was able to say ‘you know what; I’m getting on in years.  I want to focus on particular parts of the business, not the day-to-day.  I’m not saying ‘the book’.  I’m not good at day-to-day and details’.  I had a fantastic MD – Andrew Koenig – and I’ve passed the CEO reigns onto him.  Even below him, there’s quite a lot of succession planning that we’ve built in – good people.

ALEC HOGG:  And you do things you like and enjoy.

MARC WAINER:  We do things we like.

ALEC HOGG:  Like sponsoring the Lions rugby team.  I think you’re finished with them now.

MARC WAINER:  That was a very difficult choice.  It was really, our COO David Rice who pushed for it because I’m actually a Blue Bull supporter, but we ended up sponsoring the Lions.  It did very well for us in terms of positioning Redefine because when we internalised our property management business and our leasing, we known in the investment community but not to people who were looking for space.  They would see a J.H. Isaacs or a Broll Board, so we needed to get the Redefine brand across and rugby helped us do that very successfully.

ALEC HOGG:  Marc, property is the ultimate long-term investment in any economy.  The way South Africa’s going at the moment, there are any number of businesspeople who would tell you, you should be putting your money anywhere but South Africa.  How are you reading all of this?  When it comes to business, do you just forget about what’s happening, politically?

MARC WAINER:  Not at all.  It’s become very discouraging to invest in South Africa.  We still do, but we’ve become far more defensive than we were.  What we’re looking for now is long lease, Blue Chip tenants with a good escalation.  Unless (in my view) you don’t have a 10-year lease or a long-term lease with a good tenant with a good escalation (and it’s really, only the escalations at eight percent that make property worthwhile here), I’m far better off going to Germany, Australia, or somewhere else.

ALEC HOGG:  Why?

MARC WAINER:  There’s no growth in this economy.  There’s no real demand for space.  We have problems with electricity – electricity supply blackouts.  We can’t develop easily.  We have so much bureaucracy and red tape with local authorities and we waste so much money dealing with this and to get a project off the ground.  Because of the shortage of stuff here, I go and buy a Macsteel portfolio (it was a good one) at 8.7%, but if you’re buying a good property today…seven-and-a-half percent to eight percent.  If you don’t have a long lease…if you have short leases, you can go backwards.  There isn’t strong demand.  Why buy it when I can go and buy seven-and-a-half or eight percent in Australia with five percent borrowing costs or Germany, where we’re busy with a deal now…six-and-a-half percent with one-point-six percent interest rate, fixed for seven years.

ALEC HOGG:  The numbers don’t really work out.

MARC WAINER:  That gives you 12.5/13 percent cash-on-cash.  If I’m buying at eight percent with an eight percent escalation, it’s seven years until I get 13 percent.

ALEC HOGG:  But paradoxically, from what you’ve just said: if it’s so difficult with the local authorities…if it’s very difficult to get Eskom to provide power and you have the services, which are critically important if you’re going to build new properties, then the existing properties are probably going to be valued at higher than they would be because you don’t have the competition.

MARC WAINER:  They already are.  I don’t believe that any of the existing properties – the prices we pay on our opposition – are paying, relative to the rest of the world.  We’re too expensive.  We have interest rates.  Let’s call it prime minus half/nine percent but you’re buying properties at eight and seven-and-a-half whereas in developed countries, you’re buying at seven or eight with interest rates at five.  If you take that analogy, our property should be trading on a ten or plus, but they’re not.

ALEC HOGG:  It’s interesting.  On a personal side, your wife had now also decided to write a book.  Did she get her incentive created by all the money that you’re making from yours?

MARC WAINER:  Yes, it’s wonderful how much money we’re losing.  Firstly, if you’re going to be an investor, don’t be in the business of journalism.  You should know.  Journalism’s not a business that you make money out of.  We lose money.  What happened was that many years ago…  My wife’s book is the true story of a toy teddy bear that her granddaughter got at birth.  Her granddaughter’s 15.  She still has the bear.  The bear has all kind of adventures.  She still sleeps with it and carries it, but it gets lost and recovered on cruises and all kinds of things.  She wrote a little story a couple of years ago, for her granddaughter.  When I was writing my book, I said to her in a joke almost, ‘why don’t you write yours as a book’.

Of course,  you know that women always have to have the last word, so she started with her book and I’m very proud of her because Dean Simon (the artist, who’s a world-renowned artist and his stuff really is incredible) is a cousin.  She wrote him and somehow got him off all his crazy projects to draw 23 or 24 illustrations.

ALEC HOGG:  Well, I’ve seen them and they are magnificent.

MARC WAINER:  I’m not computer literate.  He only draws in black and white (if you’ve seen his stuff at the Saxon Hotel etcetera).  Then he sends it to somebody on a computer.  They colour it, the story’s nice and…  Then she wanted to have a little teddy bear attached to the packaging, so the whole thing came out into the bookshops pretty late in December but I think it’s going to do quite well.  The people who’ve bought it and given us feedback tell us their kids love it and they have to read to them every night, so well done to my wife Lesley.  I think she’s done well, but I hope I get some good marks from her for this interview.

ALEC HOGG:  I’m sure you will because hundreds of thousands of people are going to hear this and say ‘what a great family man’ but it is, in reality.  It’s very close to your heart – the family.

MARC WAINER:  It’s very close to my heart.  At the end of the day, family is what it’s all about.  Your daughter’s just joined you here in business so that’s what it’s all about.  If you don’t have family and people to share these things with, then what’s the point?

ALEC HOGG:  Marc, just to close off with, one of the other areas…one of the other strings to your bow is Redefine International, which has been a very popular investment opportunity for people looking for offshore exposure.  Where did that whole idea come from?

MARC WAINER:  What happened was…  There’s a guy – Mike Watters.  We were involved in High Prop.  The management company was held by David Barnes and the guys from Coronation (it was called CIREF).  Mike was part of that.  He went offshore and started a fund, which he listed.  He came to us.  We took a very small stake in it at the time and went through rough times after the GFC, but we stood by it.  We invested more money.  It’s been very successful.  I think it will become more successful.  It really took a lot of pain after the GFC with gearing.  Everybody was throwing money…

ALEC HOGG:  That’s Global Financial Crisis, for those who don’t know your acronyms.

MARC WAINER:  It’s come right.  It’s growing nicely.  It has some nice deals on the go, but inward listings (or these kinds of things) have become flavour of the month so you have things like NEPI, which is Romanian.  You have some new German listings and they’re trading at yields of four/four-and-a-half percent so at six or six-and-a-half, Redefine International is a steal but we think it will get rerated further.  In my view, it’s the only true inward property listed, other than Capital Counties because it’s listed on the main board of the LSC.  It’s in the LSC 250, it has a register, and more trade takes place on the LSC than it does on the JSE.

ALEC HOGG:  So it’s the real thing.

MARC WAINER:  It’s the real thing.

ALEC HOGG:  As is Marc Wainer.  It’s been a privilege chatting Marc, as always.  I know that you’ve given over your Chief Executive roles but you’re still pretty involved at Redefine.

MARC WAINER:  Very involved.  I still sit on the Exco, so what I don’t have to do is I don’t have to get involved in drafting the annual reports, other than the Chairman’s statement.  I don’t have to get involved in the medical aids, the pensions, and the leave policies etcetera.  I’m completely up-to-date on a daily basis, on problems and what’s happening.  We’ve just had a situation where a very small tenant in a small shopping centre couldn’t get her lease renewed for some reason.  She sent me an email.  I followed it up.  There was no reason why her lease shouldn’t have been renewed.  Some manager decided to throw his weight around and we sorted it out.  Come to me.  I’ll sort it out.  Yes, I do those things.  We have funds, but the bulk of my focus is on new deals (and we have a few exciting ones in the pipeline) and growing the International.

ALEC HOGG:  Marc Wainer, the Chairman of Redefine.