Roaring success in luxury property development: Val de Vie founder shares his strategy

Many of the richest people around the world have built – and lost – fortunes in luxury property development. In South Africa, Martin Venter is the brains behind the hugely successful Val de Vie Estate, which features distinctive homes set against majestic mountains and offering a vast array of facilities and leisure activities – from golf to swimming. Venter is a lawyer who switched to property development to follow his dream career. He spoke to BizNews editor-in-chief Alec Hogg about some of the lessons he has learnt on how to make, and avoid, losing money in the real estate arena. In this podcast, the Val de Vie developer shares insights on how to cater for that elusive top end of the world’s most affluent, offering ideas on branding as well as the finishing touches, such as facilitating organic produce for residents’ dinner tables. As was the case for South African hotel legend Sol Kerzner, for Venter business success lies to a large degree in thinking through the finer details. Click here for more information. – Jackie Cameron

Martin Venter. The man behind Val de Vie Estate. Martin, you’re pretty low profile for a guy who’s created an extraordinary place like this. Have you always been in property?

Thanks Alec. Welcome to Val de Vie Estate, it’s wonderful having you here. I was always passionate about property. I used to be a corporate commercial lawyer which I focused on initially, but I soon realised that – especially after I had a few property law cases where I was involved in rezoning appeals – I was actually in the wrong industry.

I met Louis van der Watt and Francois van Niekerk – the cofounders of Atterbury Property – and I was still busy with my articles as a young lawyer in Pretoria. At that stage I approached Francois – he was then the chairman – and I said to him “I’m passionate about property I like what you do. I can see the vision. I like the vision of Atterbury property’. Then (around 1997) it was a very small company.

When you say very small, what kind of developments had they done it at that stage?

Atterbury actually did Atterbury Value Mart and I met them just after they finished with this development. That was basically the biggest asset on the Atterbury balance sheet, over and above one or two other smaller buildings, but there was something that I just loved about their vision.

What was that?

I think it was a combination of the individuals, who they were and who they still are. I could see I was dealing with people with integrity. They’re dynamic businessmen, hard negotiators, but I just loved the way that they were doing business.

How big was the Atterbury Value Mart?

This development was one of the first developments of Atterbury property and I stand under correction but I think the first phase was round about 12000 square meters of GLA. It was obviously broken up into different phases.

But that’s relatively small compared with your current portfolio.

Correct and the chairman at that stage – Francois van Niekerk – actually advised me to get a more relevant qualification. He actually advised me to either become a CA – after I qualified as a lawyer – and or the other alternative is just to do an MBA. So I took the easier or the shorter route and I went to Stellenbosch Business School where I completed my MBA studies.

Are you from this part of the world?

No.

Where are you from?

I was originally born in Pretoria and I grew up in Kempton Park and I did my legal studies at the University of Pretoria.

So you came here to Stellenbosch Varsity, fell in love with….

Yes. I just loved the cape, I just loved the Cape Winelands. After I finished with my studies, Gerhardt Jooste – another friend of mine with an affiliation company of Atterbury property in the Cape – where I worked for about two years (I gained a tremendous amount of experience) but I realised that my passion lies in luxury residential type of developments. Atterbury was always very much more focused on retail and commercial. So I had a chat with Francois and Louis, and I left the company – they allowed me to keep my shares in both – and I started my own company. I went on a sabbatical for about 12 months. I stayed in Florida and the United States, in Spain, to basically study all the highly successful luxury lifestyle estates. I wanted to understand the trends, to understand the markets, and what people are looking for.

So you love property, have a legal background, you’ve now got an MBA. You go and study the markets, how old are you at this stage?

When I left Atterbury as a director, I was 30 years old. I joined them at the age of 28, left them when I was 30. I did a sabbatical for a year and at 31 I came back and I started looking for the right property to purchase, the right farm and the right location to do this development that I dreamt about.

Val de Vie Estate

Why the Cape?

It’s actually a good question. I looked at the property hotspots in South Africa, certain areas in the Joburg region and there were a few spots in Pretoria East I identified, I looked at spots near Zimbali then obviously the Cape. I knew what I wanted to do, I had the vision, I had the concept. I ran quite a number of feasibility studies to try and carve out something because as we all know, the important thing is to bring your dreams practically into reality. It doesn’t help if you’ve got a dream and you try and live out the dream and there’s no economic or financial feasibility involved. So I had the concept and tried to find the right properties to buy and that was my biggest challenge in those days.

Most people would have said what about the money? I have a look at this incredible thing that you’ve created here, did you have the money?

Well, luckily I made a few bucks with Atterbury in those first two years. Remember that was also the time when interest rates dropped from about 22% down to 12% – from 1997 to 2000 – so we were quite successful from a timing point of view. When you develop a retail shopping centre – I remember one of the first that we developed when I was with Atterbury – we developed at a 16% neat yield and interest rates came down during the time to about 13, 14% – dropping 10% – so you had that whole momentum in South Africa were cap rates came down, so you literally do very favourable evaluations of assets on a yearly basis. And remember we had  escalations due to the high inflation rates in those days. So you had tenants who were signing 5 year leases at 12% escalations. So you can imagine what that did to a shopping centre if you developed at the 16% initial nett yield, you’ve got 10% to 12% escalations and cap rates dropped from 15% to about 11 – 12%, so you literally doubled your money almost every six months.

Val de Vie Estate

So you had the knowledge and the money and the dream.

Obviously today everything’s relative, but I had enough money to take a sabbatical for a year and to look for the right property – and remember properties were relatively cheap in South Africa – so I was lucky with the timing. When I found this farm I purchased it, I think in those days with R20m, it was roundabout 220 hectares. It was serious money in those days, I purchased the farm in 2002. So it took me about a year to find the right property, I tried all over and what I liked about this property – I actually started doing chartered flights over the winelands and eventually got frustrated because I couldn’t find the right spot – but what I liked about this property was the fact that it’s about 3 kilometres from the N1 highway which makes it a 35 minute drive during average traffic hours to the Cape town waterfront and about 35 minutes from Cape Town International Airport. It’s quite a good location but also I think one of the most important aspects that I realised when I did my research overseas, (looking at the most successfully states) you need to develop these type of estates in a primary residential area. Very important. So in other words your live and work position. You need to offer resort style activities so you can get the tourism market, which make no mistake – if it’s the right location – it’s a very strong market. But I realised that especially in South Africa – because the market is relatively small in comparison to Europe and America – I realised that I needed to target primary residence buyers as well. So in other words, if I was on the other side of the mountain with this estate, that extra 15 – 20 minutes drive would make it a dead duck.

So when you say primary residence?

People living and working on the estate. Remember, 60% of the people living here have got kids under the age of 12 years old so you need good schools, you need hospitals, you need shopping centres close by. And luckily that’s one of the offerings of Paarl. They’ve got, we’ve got fantastic schools here.

That’s why it took you so long to actually find the place. So once you found it, what was on the land?

This was an old wine estate, on the one side of the estate they had a sand quarry which was mined – when I saw that I realised that my rezoning was going to be much easier – and there’s quite a number of factors for an estate like this that  need to taken into account. You can’t be too far out and I think that’s a mistake that the guys from Dubai World, the mistake that they made with Pearl Valley in the early days. When I purchased this property, Pearl Valley was already established, you could play 18 holes.

That’s next door.

Correct. It’s directly adjacent to us.

Val de Vie Estate

Did you have any idea back then that maybe one day you could acquire Pearl Valley?

No. It’s always been such a fantastic golf course and it was a great estate. I think that the mistake that Dubai World made was that they completely missed the right positioning in the market. They positioned themselves as a very elitist estate far away, aimed at foreigners. The Arabs wanted to sell R50m and R40m houses (villas) off plan – which can work in Dubai but not in South Africa – and that’s why they missed the plot. So they position the Pearl Valley estate as very elitist, very exclusive and they succeeded in that, but the problem is the South African market. We never had a strong foreign buying market in South Africa.

So you’ve to Pearl Valley next door, you buy this piece of land – not thinking you could ever buy Pearl Valley at some point…

No. They were established already. They had a fantastic golf course and that’s also one of the reasons why I didn’t go for Golf on our Estate. Why I’m more focused on the other unique selling points that I identified in successful luxury states in Europe and America.

And Polo. It’s got to be one of the most expensive sports in Europe?

Yes. I’ve always loved horses. I had this dream about an estate for families with horses and vineyards and all of that. but the interesting thing that I identified in those days – when I did my sabbatical in Florida in the United States – was that the luxury houses on the polo fields in Florida sold at a huge premium as opposed to the traditional Jack Nicklaus signature golf courses which was an interesting phenomenon. Talking as a hard core local developer, from a feasibility point of view, if you look at your costs – especially phase 1 at Val de Vie – (the equestrian side of things) building stables and polo fields is actually one big lawn and not nearly the size of a golf course. We’ve got two international standard Polo fields (we’re actually busy with construction of 2 other fields as well) but the point being with the question side of things, if you’ve got a show jumping and dressage arena – like we’ve got over here – and you’ve got polo fields which you cater for the equestrian lovers, you need paddocks which is essentially white fencing with green lawns. So there’s a double use for everything. You’ve got your horses that must go into paddocks during the day – a horse can’t stand in a stable the whole day – and you’ve automatically got your landscaping for your residence. The interesting thing is it’s more private than a golf course. With golf, if you’re on the fairway, you’ve got golfers driving into your back lawn from time to time.

I think that from a feasibility point of view, where some developers made mistakes in the old days (when the golf course estate, residential estate phenomenon kicked off) – Jack Nicklaus and all of those fantastic golf course designers – they designed a golf course and then the developer fitted the residential houses around this, which is actually – if you think from a feasibility point of view, civil services, electricity and roads – it’s not always economical or feasible to do it that way around. What we did at Val de Vie was, we designed the estate and made provision for green areas in between the houses.

But polo is expensive and people who keep horses have a lot of disposable income, Looking back, was this a huge risk? If you didn’t get the right people who have the horses to play the polo, might it not have worked?

Yes. You’re quite correct. The other interesting thing that I realised with my research, was that I was pleasantly surprised to find that in established golf estates – even in those days in Florida and in Europe – only about 15% of the people buying onto golf estates were playing golf. So in other words that showed me that your market is not actually golfers, it’s a portion of your market, but it’s not the market. And exactly the same with other types of estates. So you would find that say 10% of the people buying into Val de Vie might have a horse here in the stables, who might play polo, might be into show jumping, The big reason why people buy into estates is security, the open green spaces and obviously the combination of all the lifestyle and sports facilities that one can offer.

You mentioned lifestyle is that a big part of this?

Yes, the Val de Vie brand is wellness – and not wellness in the sense of the old traditional concept of having a spa with manicures, pedicures and Swedish massages (obviously you will always have that as a component of wellness), we are taking a much more holistic view on wellness. So in other words we’ve moved away from being identified as an equestrian estate, for the simple reason we believe that the wellness component – and we break wellness down into the physical, into the nutritional and also the emotional psychological side – we focus on community living. When you speak to people living in Val de Vie, most will tell you that there’s something alive here, that when they got here the first time, there was something that they identified with and that they liked about this state. Everyone greets each other, when you jog or when you cycle, in the gym or in the restaurant etc. I think we’ve established a strong community lifestyle at Val de Vie. The whole estate is focused on family living, security – we’ve got an extremely high level of security not that visible because obviously you don’t want to create the institutional prison type of feeling – but security unfortunately as we know in South Africa, is very important. Interestingly, security all over the world – even if you’ve travelled to some of the safest countries on earth like Monaco, West Palm Beach, – you will find gated communities. So they’ve also got security. I think the subtle difference is in South Africa the security is more important from a crime point of view, whereby with them the security and the gated communities is considered more for exclusivity reasons. So there’s a slight but subtle difference between security in America and in Europe versus in South Africa, but it’s a similar trend. So all over the earth you will find that your most expensive houses and villas are found in gated communities.

You said Val de Vie Estate was different. Physical I get that, with the mountain bike courses you can go and ride your horse, what about the nutritional?

So on the nutritional side we focused – especially in the last phases of Val de Vie – on cultivated grazing, we’ve got a lot of agricultural land which must always stay agricultural. That was just part of our rezoning approvals that we got. We focused on this farm to table concept, we are busy growing our own fruit and veg. You’re going to see some of my stud cattle there that I’m going to bring down from Namibia soon and even in our Polo Club Restaurant on Wednesday evenings we’ve got our Argentinian inspired steak evenings where we serve grass fed steak.

And all organic?

Well, no. I don’t know if everyone’s going to agree with me, but our opinion is that the whole organic train is not completely sustainable. The simple reason is it’s extremely difficult to grow organic foods on a huge scale and to make it feasible. It’s really difficult. So we are more focused on avoiding the harmful insecticides and pesticides and all of that. And yes you must always try and be as organic as possible but we are not convinced that just going organic is completely the answer for the world over the next few decades.

Martin, how big is the investment – not just your investment – the whole investment?

I think the total asset value is I would say around R15bn.

This extraordinary development of a dream that you had. Was it always in your mind, did you always have that vision?

It was a dream I had – to be quite honest – since I was a young boy, but obviously not to this level of detail. When I was a little boy, I loved going on holidays to the Cape to farms and for me personally there was always this synergy between horses and the Cape Winelands and living on a farm. Eating, having a drink of wine – made from the vineyards partially that you overlook – so the concept was always there.

Val de Vie was already successful, but then the next door neighbour – Dubai World –  hit problems. How did you know that it was worth taking that huge leap in acquiring them?

As I mentioned earlier, I think the mistake that Dubai World made was they incorrectly positioned Pearl Valley as a very elitist exclusive estate, far away, so they didn’t position themselves like we did, as a primary residence – live and work – position. All of us obviously suffered during the credit crunch, but roundabout 2010, we started correcting. We could see the correction in the market. We could see that our properties started selling again and I think in 2011 2012 we were selling 50 properties a month. At that stage Pearl Valley didn’t sell anything. I think they sold 1 or 2 properties every 6 or 12 months. I knew where the problem was, their product was wrongly positioned and they also didn’t have this focus on community life that we had. But, it’s always been a fantastic golf course. I visited Jack Nicklaus and Ernie Els earlier during the year and I could see that Jack had a soft spot for Pearl Valley. It’s really fantastic – in my view from what I’ve seen in the rest of the world – a great golf course. It’s a living thing but you constantly need to renew it…

But it’s still a calculated risk? 

Definitely. Remember when they ran into trouble, they literally were almost liquidated. But they did the deal eventually with Standard Bank who was the main creditor at that stage – I think they owed roundabout R600m – they swapped the shares and Standard Bank just took over the whole of the estate, which I think was a good move from Standard Banks side. If they physically liquidated it, they would have destroyed the brand completely and it was already a difficult one because no one buys into an estate where they aren’t doing that well. So they lost a lot of credibility in the market and I think people bought into Val de Vie and kept on buying – and we were selling it at a premium – and we didn’t make nearly the same capital investment. I realised that if we could take over Pearl Valley and merge it into Val de Vie it would just become one of the other lifestyle offerings. We had quite a number of different smaller body corporates within the bigger Val de Vie stable and obviously since we didn’t have a golf course – I knew it could work. We bought the estate and just copy and pasted what we did at Val de Vie. We tried to create more of a community life at Pearl Valley as well and to make it part of the Val de Vie family. I think the market realised that, I think people realise that it’s actually not that far away from the schools and hospitals because it was now positioned – under the Val de Vie umbrella – as a primary residence. I think that was where I saw the gap which worked for us.

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