The world is changing fast and to keep up you need local knowledge with global context.
The Urban Housing Finance (TUHF) CEO Paul Jackson talks to Tim Modise about a quiet revolution taking place in the Joburg inner cIty. The previously red-lined areas of Hillbrow, Berea and Yeoville are now becoming hubs for new property moguls. Where banks saw risk, TUHF saw opportunity; 20 000 housing units and 320 property owners later, Joburg’s Inner City has new lease on life.
Here, on our transformation slot, I’m joined by Paul Jackson, he’s the Chief Executive Officer of the Urban Housing Finance Corporation, and they’ve been in existence for 11 years, doing some wonderful work and creating housing opportunities for thousands of people. Paul Jackson, welcome.
Thanks Tim. Please do call us TUHF. It’s the acronym for Trust for Urban Housing Finance, but TUHF is how we are known.
Right, now the TUHF, Finance Corporation, (throughout the 11 years), you have created how many units?
We’ve financed over 20 thousand rental-housing units. We’re a very specialised company. We specialise in inner cities, so Hillbrow/Joubert Park is the cherry of our particular dartboard in Johannesburg, Albert Park in Durban, also in Port Elizabeth, and we finance rental housing. In other words, we finance entrepreneurs, small and medium sized enterprises, and they’re in the business of low to moderate-income rental housing.
How does the model work? Do people who want to occupy these units, approach you directly or do you work with the developers?
Well, we work with entrepreneurs who want to be landlords. It’s distinct from a developer, somebody who would buy and then sell their units. We focus on people who want to buy a block of flats and run it as a business for a full 15 years, providing good customer service, firm credit control to prospective tenants.
Now, what is the criteria of selection, in terms of the developers that you support?
The main criteria is that you live and/or work in an inner-city area because remember, we specialise in inner cities. That you’ve done your homework and that you have got the entrepreneurial ability to manage the vagaries of real estate, and residential real estate as well, so essentially, our customers are black and white, young and old, men and women, people from all walks of life. We have people who used to be caretakers and ex-domestic workers, right through to CEO’s or former CEO’s of JSE listed companies.
Well, that’s a very important distinction for me because it suggests that you don’t have absentee landlords, in other words, they have got to be part of the neighbourhood, or what does that mean?
Well, the business we finance, we expect very hands on, so absentee landlords, somebody you would tell your friends over dinner, “Oh, by the way I’ve got a block of flats downtown.” They are not the kind of people that we target.” This is a very ‘hands on’ business but we particularly target people who understand the complexities of inner cities because we see so much opportunity downtown and people who will then understand the inner cities, get their heads around that economic vibrancy that is, manifestly there, for everybody to see, and then want to engage in a profitable enterprise.
I’m imaging, I mean, most of the buildings in the inner cities would be blocks of flats, right, so whoever wants to develop and own property in the inner city, does that mean you have to buy the entire block or do you just finance separate units? How does it work?
We finance people who want to buy the entire block. Now, remember when we first started, the state of the inner city was fairly, severe urban decline. It was a function of rapid racial transition. White in capital flight and really back to that, sort of just after the transition period, and the hangover that led to when we started financing, and initially we were financing blocks of flats that were completely dilapidated. They were run down, etcetera. As time has moved on, we’ve increasingly focussed on conversions office and light industrial, to residential conversions, but we do focus on somebody who owns the entire building.
Now, what does that mean? It could be a pair of semi-detached houses. It could be a 200-unit block of flats. You know if you could walk around Yeoville or you walk around sections of the Durban inner city, you’re getting a lot of four-plexes, ten-unit blocks of flats, 20-unit blocks of flats, and that’s sort of, more or less, our bread and butter.
Now, I’m imagining that that developer then, as a requirement that you said is important to you, he must be a resident in the inner city, right. Now if you own, say a block of flats with 200-units, for example. What do you need to do? Do you have to live in that building?
No, not at all, you either live and/or work in the inner city, so you don’t have to be a resident in the inner city, and often people who are resident in the city, when the businesses go well, move to a neighbouring suburb, but it’s got to be very ‘hands on’.
Yes, I see.
Your company needs to be resident in the inner city, so all of the people that we finance have an office, or a set of offices, depending on the size of their business, located in the inner city. The requirement is that you understand the inner city.
I see, and the sizes of the loans?
We like to finance, our particular market niche is between two and R20m. We will finance up to R30m. If you’re an existing customer of ours, I mean our largest loan is R55m, but we are comfortable in that two – ten million Rand mark, with some stretch, depending on competence, and your character as a borrower, for us. If that all stacks up and you’ve got a building that suits you, we’ll certainly look at a larger loan, up to R30m.
Very interesting, and so far, the success rate of your model, your approach, how do you rate it over the 11-year period?
We’ve had a very successful time. If you look at the performance of our Loan Book, we’ve outperformed all the commercial leverages. We have a very, very low bad debt percentage. We have a very, very strong growth of us, as a business, and our business is we seek to a successful, commercial property financing company, with very strong commercial objectives, but we also seek to have an impact, access to finance, low-income rental housing, urban regeneration and, of course, Black Economic Empowerment.
We really go out of our way to promote a new breed of landlords. Not to say that Black Economic Empowerment is all we do but there’s a very strong focus on this because urban land reform is as important as rural land reform, but we have very successful and very important customers from all the race groups, and from all the age groups.
Now, we’ve spoken about the housing units, over 20 thousand of them that you’ve financed so far. In terms of the entrepreneurs that have benefited or emerged as a result of your support, how many are there?
We are what we call a high value/low volume financier, so we have very few customers who have larger loans with us. We’ve got 320 (actually just a little bit more) active clients, but some of them will own the duplex. One of our clients, who started in 2004, owns 3000 flats. That’s the biggest, so we’re a progressive lender, in that once we’ve done a loan with you and you’re a successful entrepreneur. Good customer service, really pride in owning your building, it is spotlessly clean, your tenants are getting the service they deserve and that works, we will then back you again, and again. This particular client that I was speaking about has 21 buildings.
Yes, this one is in Johannesburg.
Now, it actually reminds me of the main problem that led to inner city decline, especially here in Johannesburg. Red lining of areas such as Hillbrow, Berea, Yeoville, Bertrams, and so forth. How do you overcome that? How do you negotiate your way around Red Lining?
Well, we have made a business because we finance in Red Lined areas, and let’s be clear, Tim, the inner city of Johannesburg is comprehensively Red Lined, to this day. There are some of the banks who are starting to offer finance to established clients, but if you’re a starter or you’re a small businessperson, wanting to get a loan, you will not get one from the commercial banks.
That’s given us a market niche. This is changing but there is a very strong Red Lining of most of the inner cities in decline that we focus on, and we only focus on inner cities in decline because where some people see crime and grime. We see a bustling economy, large demand for rental housing, lots of honest people trying to find a place close to work, close to amenities, close to transport, and looking for accommodation, and the entrepreneurs that we finance provide that product to these people.
Well, it’s a noble attitude and approach on your part, on the part of TUHF.
Yes, please call us TUHF, yes.
How do you mitigate the risk then because you can finance the buildings that you finance, they are surrounded by Red Lined buildings anyway, and those buildings are located in the Red Line Districts, which imply that, in time, they may regress back to their original state. Are you not concerned about that?
Not at all. We are a solution to Red Lined, at its most basic. I’m an economist, forgive me, but inner cities have substantial market failure. They have a little bit of government failure but they have substantial market failure, and if you address the causes of market failure and you introduce liquidity, which is what we’re doing as a financial services company, you will get market growth but, more importantly, Tim.
We, in South Africa, are following an urbanisation trend that is entirely consistent with the history of most of the nations of the world. Urbanisation, urban densification, is a very important part of National Policy. It’s an economic reality, and the last thing about inner cities is they multi-sector economies.
If you come to my office and look out the window, I’ll show you a transport hub, where 240 thousand people go through every day. I’ll show you mining, I’ll show you manufacturing, I’ll show you Provincial Government, I’ll show you Local Government, and I will show you financial services. All of those different industries contribute to the inner city economy.
Rentals is a flexible form of tenure. We are providing a product, into a multi sector economy, and thus even over the last five years, we’ve had in increase in churn vacancies, but there’s been no structural vacancies throughout our portfolio.
You see this. You get this. You’ve just explained it. Banks have got economists, they’ve analysts, they’ve got good balance sheets and all the financial backing. Why don’t they see the same opportunity that you see? What do you think?
I had a very senior team of Barclays Professionals in our office, as part of a leadership group about three weeks ago, and I had to admit, I don’t think they don’t see it. I think they won’t see it, and it’s an important distinction because I think there’s a lot of hangover of what happened to the banks 25 years ago.
Let me repeat that, 25 years ago, the banks got burnt in the inner cities, with urban decline, but I think that hangs over into the Credit Committees of the banks, currently. This is brilliant for TUHF’s business, but the inner cities of our country are incredibly important hubs and they need all the help they can get.
By the way, I do want to say that TUHF can only lend as much as it can borrow. We have to borrow money to lend to, and our single biggest constraint to growth is we’ve been unable to persuade the banks and the Asset Managers, not the Development Finance Institution, but particularly the Banks and Asset Finances. That we need and this is a sound investment. Not only will we give you hard returns but we’ll give you great impact and if you don’t want the impact, that’s fine, we’ll give you hard, very secure terms, and it is incredibly difficult.
When we started, we had to raise R100m a year. Now, we’re raising R600m to R700m a year, and it’s an entirely different ball game. With the help of the Jobs Fund, with the help of some important Asset Managers, particularly future growth, particularly the Public Investment Corporation, etcetera. We are breaking that and, hence we’ve embarked on a very aggressive financial expansion programme, opening in Bloemfontein and in Cape Town, and in East London. Together with our existing offices in P.E. and Durban, and then throughout Gauteng, so we’re in a… We’re extremely bullish about the future of inner cities and we’re very excited about the diversity of our entrepreneurs. We just have good stories to tell.
Well, I’m curious about you now. That what is it that persuaded you and your partners to embark on this journey?
Well, you know, it all boils down to what you see. I like that comment of yours. I started working in the Development Bank and I’ve always wanted to do Development Finance, where you are doing sustainable on replicable lending, with high impact. I then ended up working at the Johannesburg Housing Company, where I met my very dear friend and colleague, Nano Makwela, and I’d love to tell you. I walked into the street and it dawned on me but actually over time. It occurred to me that you have this vibrant economy. We saw past the crime and the grime. We have these lots of existing building stock and nobody was lending. Nobody was lending, and Nano and I sat against a wall once and we said…we persuaded a bunch of people, like the National Housing Finance Corporation, like TUHF-21, which was the original, like a few other investors, and we said, “Let’s form this mortgage financing company that’s going to focus on ordinary South Africans.”
Just ordinary, you don’t have to connect. People who walk around the city, and we have unbelievable stories to tell, so I think it was the economic vibrancy. It was the gap in financial services that was apparent and, to this day, there’s no reason why the gap is there, because if you look at the performance of our Loan Book, it can stand next to that of Standard Bank or Nedbank or any of the banks, and stand shoulder-to-shoulder. In fact, it’s a better performance.
Where can people get in touch with you?
They can phone us at our office in Braamfontein. We are currently on the 17th Floor, 222 Smit Street. Phone us at 010 595 9000 or, most important, go onto our website, it is very comprehensive, www.tuhf.co.za.
TUHF – being tuhf.co.za.
Yes the acronym for Trust for Urban Housing Finance.
All right, thanks very much for this chat, much appreciated, and changing the inner city of Gauteng, and KwaZulu-Natal, as well as Port Elizabeth, one housing unit at a time. That is Paul Jackson. Thank you.
Thank you, Tim.
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