You can’t blame the media for this mess
What do you do when your multi billion rand property syndication business runs into financial difficulty? In a press release carried on realestateweb.co.za, André Brand, chairman of Sharemax Investments’ board of directors, seems intent on blaming the media. He said that the media “tried to sensationalise” Reserve Bank concerns over the group’s investment structure, thereby forcing “many potential investors and financial advisors to adopt a ‘wait and see’ attitude regarding further investments in The Villa.” And without fresh capital – Sharemax’s most ambitious retail project to date – is floundering.
The third paragraph in Brand’s release will send shockwaves through the investment community. He writes: As a result of [new inward investment drying up] Capicol, the developer of the regional shopping centre [The Villa], is experiencing cash flow problems and the completion of the centre is being delayed. This also means that the developer is currently not in a position to service the monthly income to investors, and this situation may continue for several months. Investors’ investment capital is however not at risk.
How serious is the problem
What do we know about the extent of the crisis? On 6 September, Julius Cobbett penned an article on moneyweb.co.za. The article included claims from Capicol’s legal representatives that it is owed an undisclosed amount for “final adjustment” at the now complete Zambezi Retail Park syndication and as much as R526 million for work done at The Villa. It was also suggested that the Zambezi property hadn’t yet been transferred to investors. Brand confirmed the Zambezi allegations in his press release, saying: “Zambezi Retail Park has been developed by the same developer as The Villa (Capicol) and the final adjustment account has not yet been completed. As a result, the building has not yet been transferred into the investors’ name and the developer is still responsible for interest payments to investors.”
Pity the investors who are now confronted with a cash strapped developer on one hand and Sharemax on the other. The developer cannot pay them interest until it receives funds from Sharemax, which in turn says interest is for the developer’s account.
This press release is very close to an admission that interest payments are being made from new investor capital! At the very least the directors of Sharemax (or its investment vehicle) have proceeded with massive capital projects (R2.6 billion for the two syndications mentioned) without adequate funding in place!
Directors to the rescue
As the questions about Sharemax stack up its directors are adamant they’ll save the situation. “The directors of the property companies have pro actively investigated transactions to protect the investors’ interests,” continues Brand, referring to the potential sale of Sharemax’s property portfolio to Bonatla Property Holdings. “Should the transaction have the support of the investors, it could contribute to the completion of The Villa project as well of the completion of the transfer of the Zambezi Retail Park project, with the resultant resumption of monthly income payments,” he says.
It remains to be seen whether the JSE allows a small listed company with a market capitalisation of some R42 million to gobble up a property portfolio worth approximately R5 billion. But if it does investors will quickly shoot holes in the “capital is not at risk” statement made earlier. The selling price of the properties is bound to be inflated to make up for the massive administration fees and interest costs already sunk in the various Sharemax projects. And – to make matters worse – the “best of breed” listed property companies only pay yields of around 8% versus the considerably higher interest offered by Sharemax.
Should brokers be concerned?
If the Sharemax problem escalates brokers should be very concerned indeed! We asked Ian Middleton, managing director at practice management company Masthead, if disgruntled investors could lodge claims with the FAIS Ombud. His response: “Yes, absolutely – if financial advisers didn’t follow the principles and processes set out in the FAIS Act and the General Code. The Ombud has of late taken a very strong stance on this. Reliance on a prospectus is not enough. Due diligence entails more than simply investigating an opportunity and presenting the benefits of the product to the client. It includes a sound understanding of the prospectus as well as questioning the excessive commissions (as much as 6% in Sharemax investments).”
While intermediaries suffer a few sleepless nights, it’s business as usual at Sharemax. They’re still selling investments in The Villa, and are about to expand their product offering. “Sharemax will soon make a project of the Sharemax Income Plan available to the investor network and the public, and the focus will be on suburban convenience shopping centres which are running concerns,” says Brand.
Editor’s thoughts: The latest Sharemax rumour to surface was that Dawie Roodt of Efficient Group and Steve Booysen (former Absa CEO) had been appointed directors in all 39 of Sharemax’s property investors. When we spoke to Roodt he stated categorically neither he nor Booysen were directors of Sharemax or any of its divisions. But he was tight lipped on whether Efficient Group would get involved in Bonatla in any way. What do you think is happening at Sharemax? Add your comment below, or send it to [email protected]
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