Sharemax: Auditor backtracks on opinion - Special investigation

Sharemax: Auditor backtracks on opinion - Special investigation


Complaint against ACT Solutions prompts a change of heart on clean audit.


ACT Solutions, auditor of the Sharemax syndication companies, has changed its mind on the clean audit it gave Flora Centre Holdings for the 2009 financial year.

It is doubtful whether any of the Flora Centre’s investors are aware of ACT Solutions’ change of heart.

Flora Centre is one of Sharemax’s older and larger so-called income syndications. In 2005 it took R118.5m from investors to buy the West Rand shopping centre.

In August 2010, Moneyweb asked whether the Flora Centre’s 2009 financial statements could be believed. A copy of the financial statements can be downloaded here.

The financial statements appeared suspicious because they had increased Flora Centre’s value by 89%, from R104m to R197m. There was little or no apparent reason for this huge increase.

At the time, ACT Solutions director Jacques van der Merwe told Moneyweb: “We have a detailed valuation report from a registered property valuator. These are the facts. We do not consider wild speculations in the preparation of our audit report."

After publication of the article, a complaint was laid against ACT Solutions with the Independent Regulatory Board for Auditors (IRBA). The complainant claimed that the firm should not have given Flora Centre’s financial statements a clean audit.

In order to respond to the complaint, Van der Merwe did some investigating. What he discovered is that the Flora Centre may not be worth the R197m, as claimed in the 2009 financial statements.

Van der Merwe now claims that the Flora Centre’s valuator, Waldemar Gustav Haese, lacked independence. He also says the Flora Centre’s directors were inaccurate when they wrote in the financial statements that the valuator was independent, and that a capitalisation-rate method of valuation was used.

In the financial statements, the Flora Centre’s directors wrote that Haese “is not connected to the group”. However, WG Haese is the father-in-law of Dominique Haese, the former financial director of Sharemax and current CEO of all syndication companies including Flora Centre.

Moneyweb has in its possession a letter sent by Van der Merwe to the Flora Centre directors (click here to download). It is dated 5 November 2010.

In the letter, Van der Merwe says that Flora had provided ACT Solutions with a valuation certificate which reflects a value of R197m.

“The method of valuation is not properly set out in the valuation certificate dated 25 August 2009 of Mr W.G. Haese which was made available to us for audit purposes,” wrote Van der Merwe.

“We have consulted with Mr W.G. Haese recently and he explained to us in consultation that he used a ‘brick and mortar’ alternatively a ‘replacement value’ method as basis of valuation.

“We have also consulted an independent valuator and he advised us that these methods are inappropriate for this type of immovable property where the income stream (rental income) determines the value and that a capitalisation rate method is the only acceptable basis of valuation.”

Van der Merwe claimed it had always been his impression that a capitalisation-rate method of valuation was used for the Sharemax syndication companies.

However, this excuse may be hard for IRBA to swallow.

A capitalisation rate (cap rate) is a method of valuation in which income is used to derive a property's worth. For example, a property with income of R1 000 a year, capitalised at 10%, is worth R10 000 (R10 000 X 10% = R1 000).

The Flora Centre’s financial statements reveal an operating profit of R5.1m. If this is capitalised at 10.5% (the rate supposedly used by Haese), it gives a valuation of R48.5m, which is less than a quarter of Haese’s valuation of R197m.

It is difficult to imagine that ACT Solutions, when auditing the financial statements, did not pick up this discrepancy.

Van der Merwe claims that Moneyweb’s calculation above is over-simplified. However, he declined to offer an alternative.

Van der Merwe says ACT Solutions has already dealt with its concerns “by following the appropriate audit guidelines followed by an auditor when addressing the type of concerns raised in our letter”.


Revealing e-mails

In his letter to the directors, Van der Merwe refers to an e-mail exchange which took place between Flora Centre’s Matthew Osterloh and valuator WG (Wally) Haese on 24 and 25 August 2009.

In the exchange, Osterloh informs Haese: “We always base our valuation on income”.

The e-mails suggest that Haese valued the Flora Centre without even visiting it. They also suggest a willingness on Haese’s part to adjust his valuation to suit the wishes of the Flora Centre’s directors.

It is also clear that Osterloh did not believe the Flora Centre to be worth anything close to R197m. Osterloh informed Haese: “In its current state I don’t believe that the property would be worth much more than about R75m.”

Moneyweb asked WG Haese to comment on his alleged lack of independence and use of the incorrect valuation model. He declined to comment, and referred questions to Sharemax successor Frontier Asset Management. Frontier CEO Dominique Haese did not respond to a request to comment.


The e-mails can be read below.


24 August 2009, 10:36am

Matthew:

1.What parking is provided (either as number of spots, or as sq. meter)?
From one of the photos, there seems to be some drive-up parking in the office block. If there are indeed parking spots within the office block, as also some covered parking spots, all (or at least some) of these should be income-generating, but I do not note any lettable floor area being allocated to parking in the schedule you have provided.

1.Covered parking
1.1 Within the building (i.e drive-up parking)

1.2 Externally, in the parking area

2.Open parking provided in the parking area.
2.Roof construction:
1.Over retail areas
2.Over office block
I can unfortunately not determine any of the above from the photos provided.

3.What is Sharemax’s own idea of the value of the property? I have the municipal valuation as R171 343 000.
Thanks.

WALLY

25 August 2009, 8:51am

Wally – We always base our valuation on income. In its current state I don’t believe that the property would be worth much more than about R75 million.

25 August, 2009, 09:30am

Matthew

Have a look at the attached concept valuations (municipal, insurance replacement and present market), and let me know if it meets your (i.e. Sharemax) requirements.

Regards

WALLY

25 August, 2009, 09:51am

Wally

The valuation will not work for the purpose that we wanted it for.

I want to get a low value, much lower than the municipal valuation of R171 343 000.00

This is the local authority’s latest value of the property and our assessment rates payment has quadrupled in the past month.

There are a few changes to be made on your valuation:

1) ERF 35 has been sold

2) I would remove the word modern under the description of improvements

3) The entrances do not have automated doors

Thanks

25 August, 2009, 11:20am

Matthew, O.K., attached docs refer, for scrutiny and comments:

I have valued Flora down to the lowest level I can realistically, using a balanced mix of present income generated, calculated replacement cost, depreciation / maintenance, etc.

It is not much below the municipal valuation however. The replacement value is just higher than the municipal value.

Bear in mind that my first draft valuations sent to you for comment reflected “true” valuations, as would still have been applicable at the beginning of this year.

If you really need to lower the valuation any further (for municipal reasons only: NOT for purposes of Sharemax share issue), I can do so, based on the purchase price escalated from 2005 to date, which will probably put the valuation at around R152 000 000 after depreciation, etc. Would this help at all?

Please advise.

Regards

Wally

25 August, 2009, 2:19PM

Thanks Wally. Leave the valuation as previously sent to me, that is at R196 700 180 and replacement value of R218 555 750

Can we get it signed off today?

Property loan stock "elimination"

Property loan stock "elimination"

SA listed property will become more like REITs overseas.

Wednesday’s Budget contained a passage that announced the impending elimination of one of the most popular types of listed investment: the property loan stock. Most listed property counters, including the two largest, Growthpoint and Redefine, come in the form of a linked unit. They are part share, part debenture.

The structure is done for tax reasons, so that the companies can pay rental income to investors in the form of interest on debentures.

But the Treasury said that this “dual-linked structure needs to be eliminated so that other entities do not undertake the same structure to avoid tax by relying on excessive debt.

What does it mean for the sector? Growthpoint director, Estienne de Klerk says his company has been working with Treasury to implement new listed-property legislation.

The result will have two main benefits.

The first will be greater tax certainty. De Klerk explains that there are currently tax “anomalies” in both types of listed property: property loan stocks (PLSs) and property unit trusts (PUT). For example, property loan stocks are subject to capital gains tax, while property unit trusts aren’t.

Another benefit will be a listed structure that more closely resembles the overseas norm, namely the real estate investment trust (Reit).

De Klerk hopes that the changes will increase foreign ownership of listed property. He says that Growthpoint and Redefine have the highest levels of foreign ownership but this is lower than 15% for each company. He thinks foreigners may be put off by what appears to them to be an unusual structure.

De Klerk says that PLSs and PUTs are likely to retain their respective company and trust statuses. In other words, Growthpoint, a loan stock, will remain a company regulated under the Companies Act. And property unit trusts will remain trusts regulated under the Collective Investment Schemes Control Act.

One possible way of eliminating the dual-linked structure of PLSs could be to issue new shares to investors in lieu of their debentures.

...

Unexpected reasons to feel positive about Africa

Unexpected reasons to feel positive about Africa

It’s really happening for the continent this time.

It’s easy to be pessimistic about everything these days, with the news headlines full of the crisis in Europe, the brutalities in Syria, unemployment in America, and the growing animosity between Iran and Israel.

However, there are still some things that can serve as a source of optimism, and the economic potential of Africa is one of them.

Let’s take a look at some reasons to think that Africa could be a source of tremendous economic growth and wealth creation over the next few years. Some of these may seem strange, but taken together, they add up to a story of major economic potential.


1.      Reasonably good fiscal positions

Unlike many developed countries, African nations are actually generally going OK on the fiscal front. According to data from the IMF, the average ratio of public debt to GDP in Sub-Saharan Africa is around 42%, much better than the 80% debt-to-GDP burden facing the European Union, or the almost 95% debt-to-GDP burden facing the USA (see table below for details).

In addition, fiscal management in many African nations has improved dramatically over the last few decades. Thanks to stern interventions from funders like the International Monetary Fund (IMF), most African countries have become more disciplined about their spending, and much more careful about maintaining a balance between debt and revenue. All in all, most African economies are entering the 21^st century in a solid fiscal position, forming a marked contrast to the nations of the rich world.


2.      Less reliance on social safety nets

This may sound a little odd, but Africa is, in a sense, fortunate that it has not yet developed the kinds of comprehensive social safety nets you see in Europe and Japan. The rich world is currently wrestling with how to manage the ballooning costs of their pension and healthcare plans; in Africa, such plans have not yet been implemented. Admittedly, this means that life is a precarious business for many Africans. However, it also means that African governments face little in the way of social spending costs (South Africa is a prominent exception to this), and that as African nations grow wealthier and start to develop safety nets, they can learn from mistakes elsewhere, and when designing their programmes, ensure that they are sustainable and sensible.


3.       Many African economies have grown dramatically over the last two decades, and diversified

A large number of African countries have grown very rapidly over recent years – indeed, Angola was the fastest-growing economy in the world between 2001 and 2011 (thanks to its oil boom). Overall, African countries have grown at an average of close to 5% a year since the 1990s, according to IMF data. This growth, while coming off a low base, represents the fruit of a number of reform efforts and has been sustained even in the face of the global recession. The IMF predicts that growth in Sub-Saharan Africa will stay reasonably strong over the next few years; the organization predicts an average of 5.5% GDP growth in the region this year, and 5.3% next. This is solid, sustainable, and attractive growth, and means that there are plenty of economic opportunities in the continent.

What’s more, the growth in African economies over the last few years has come from multiple sectors, including consumer goods like mobile telephony and clothing, and not just from resources. In other words, African economies are becoming more multi-dimensional, and are no longer just simple commodity plays.


4.      Demographic advantages

As we’ve discussed before, Africa has the potential to reap enormous economic benefits from its demographic profile. With its large youth population, Africa is unique in a world in which most populations are aging rapidly (including the population of China). With good policies, African nations can turn this youth boom into an economic bonanza.

There are a lot of reasons to feel optimistic about Africa’s economic future, although it often seems as if Africans themselves are reluctant to see them. However, if you still have your doubts, consider the activities of China in Africa; for the last fifteen years, China has been investing heavily in the continent, buying mineral rights, farmland, and even building manufacturing plants. Africa has the potential to be the growth story of the new century, and South Africa has the chance to benefit from this growth. Let’s hope that the country doesn’t let the opportunity slip away.







...

What happened to the buyer's market in property?

What happened to the buyer's market in property?

We read headlines like "Property Bloodbath" and yet somehow I don't see too much blood being spilt out there, says Geoff Stroebel, principal of Stroebel Properties.

It is presumed that in this time of serious recession in South Africa, that house prices would have stagnated considerably, and been at levels stable or low enough for buyers who were previously perhaps unable to enter the market due to price constraints, to indeed find affordable homes and perhaps a few bargains.

Perhaps it is more evident in Cape Town, but this seems to be clearly not the general case, as sellers continue to expect to make unrealistic profits, even out of properties purchased 12 to 18 months ago as the market was entering its supposed decline. Yes, there are distressed sales occurring where people are forced to dispose of their asset due to financial woes, but one would naturally expect that after the rampant seller's boom of the mid-2000's, that there would be some impasse. One surely must agree with Rode that in general, house prices remain 20% to 25% over-inflated.

So the phenomenon's of the "sellers' market" and "buyers' market" need to be studied and questioned. If it was truly such a "sellers' market" in the mid-2000's, (which caused prices to virtually sky-rocket and huge profits to be made), then one has to pose the natural question; "so who was buying all the property that caused this frenzy?" Well simply put, it was indeed our fellow South Africans themselves, many of whom got caught up in the fracas and radically overpaid for their properties and who now expect to not only get their money back, but to even profit thereon!

Then there is the other problem thwarting the precious buyer. It's that of our estate agency business itself. "I truly believe that if the property market could be kick-started, then it is up to my fellow agents themselves to adopt a more professional approach and cease overpricing properties in their apparent frenzied ritual of securing mandates", says Stroebel.

"It's dog-eat-dog out there at a time when the market is stagnant, and whilst competition is always healthy, I believe that many more properties would be affordable for purchase if they were priced correctly to sell by both sellers and agents alike". We perhaps have to remind ourselves what a good (and reasonably realistic) return on a property investment is considered to be. Is 10% compounded growth per annum unacceptable? Let's get real.

Stroebel Properties Press Release

Auction Alliance Board Statement : Property News from IOLProperty

Auction Alliance Board Statement

The Board of Directors of Auction Alliance has commissioned an investigation by an independent company into allegations that have been levelled against the firm in recent weeks.

"The Board considers the allegations against Auction Alliance and its CEO, Rael Levitt, to be of such a serious nature, that such a step is warranted," says Auction Alliance Board chairman Sango Ntsaluba.

He adds that in order for the investigation to be properly conducted, the Board will make no further statements until it has been concluded.

Auction Alliance Board Statement
www.auction.co.za

Budget in a nutshell

Budget in a nutshell - 2012 Budget

The budget and your wallet...

The budget and your wallet:

• Personal income tax relief of R9.5bn. 54% of the relief will go to taxpayers who earn less than R260 000 a year.
• General fuel levy increases by 20c a litre, the Road Accident Fund levy increases by 8c a litre.
• Sin taxes: A packet of 20 cigarettes will cost 58c more, a 750 ml bottle of liquor (spirits) R6 more, a 340 ml can of beer 9c more and a 340 ml can of cider will cost 8.84c. A litre of wine will cost 18c more.
• A new tax credit will replace the tax reduction for medical aid contributions.
• Tax incentive to encourage savings that may replace the current interest exemption thresholds.
• A 15% dividend withholding tax to kick in on 1 April. Pension funds, companies are exempted from this tax.
• Significant tax concessions and reduced red tape for small businesses.
• Electricity levy increased by 2.5c/kWh.

Economic outlook:

• Budget deficit of 4.6% in 2012/13, 4% in 2013/14 and 3% in 2014/15.
• Government spending to reach R1.1 trillion in 2012/13.
• National government’s net loan debt to reach R1.5 trillion in 2014/15.
• The national treasury expects economic growth of 2.7% in 2012, 3.6% in 2013 and 4.2% in 2014.
• The national treasury expects headline inflation to be 6.1% in 2012, 6.2% in 2013 and 6.1% in 2014.

Government spending plans

• R9.5 billion for the Economic Competitiveness and Support Package, including R2.3 billion for dedicated special economic zones;
• R6.2 billion for job creation;
• R3 billion for equalisation of subsidies to no fee schools and expansion of access to Grade R;
• R1 billion for National Health Insurance Pilot project;
• R1.4 billion for Early Childhood Development;
• R4 billion for Passenger Rail Agency of South Africa for coaches, as the start of a programme to replace the current fleet;
• R1 billion for Signalling and depot infrastructure related to this new rail transport programme;
• R4.7 billion for electricity demand side management grant: Eskom for the installation of solar water geysers;
• R1.8 billion for municipal water infrastructure;
• R3.9 billion for upgrading informal settlements.

...

Gareth’s Glance at BUDGET 2012

This is just my quick look at yesterday’s budget speech by Finance Minister Pravin Gordhan and particularly its impact on property.

I have included a brief Summary of the Budget in a clear and concise PDF version on my LinkedIn Page at http://za.linkedin.com/in/shepperson OR if you are not connected on LinkedIn, it is available via e-mail on request.

Whilst there would not appear to be any direct impact on the Property Investor or Property Owner, for example changes to the Transfer Duty or VAT Rates, there is nevertheless an impact by means of the following:

1.            There are changes to Personal Income Tax that will affect investment properties held in the Owner’s own name.

2.            There are changes to Dividends Tax that will affect those who invest through corporate entities and those who invest in listed property shares.

3.            There are changes to taxation of small business for those who hold property in small Companies or Close Corporations.

4.            There are changes to Capital Gains Tax.

I would like to focus on Capital Gains Tax for a moment.  There has been a tax window for some time to transfer your private residence (including holiday homes) out of your Company or Close Corporation and into your personal name.  There have been substantial reasons for doing so, and I would encourage you to read my slideshow “Moratorium Transfers” on my LinkedIn Page at http://za.linkedin.com/in/shepperson .   This slideshow clearly demonstrates the massive savings to be gained.  Please contact me if you want advice on how to take advantage of this opportunity.

Minister Gordhan has just given you TWO more reasons.  Firstly, the rate at which Capital Gains Tax is being levied has been raised.  Secondly, the threshold for exemptions has been increased.

BAA-BOOM … a double whammy saving for you if you choose to take advantage of it!!

I would also urge Estate Agents to contact me for advice on how you can use this to your advantage and make massive commission whilst simultaneously assisting your clients and securing client loyalty.

Sharemax: Big bucks for syndication directors - Special investigation

Sharemax: Big bucks for syndication directors - Special investigation

Fees of R4.3m paid on top of normal salaries. Reserve Bank’s concerns revealed.

JOHANNESBURG - Directors of the Sharemax syndication companies have been well paid for their efforts to restructure the schemes. In total five directors stand to make R4.3m, mostly for consulting services billed at R1 500 an hour.

For the two executive directors, Dominique Haese and Dirk Koekemoer, this money is paid over and above normal salaries received from Sharemax successor Frontier Asset Management. Haese’s salary at Frontier is R80 000 a month. Frontier is the company that manages and administrates the old Sharemax property portfolio. For this work it collects a percentage of assets under management.

The amounts paid to directors are disclosed in rescue scheme circulars which were sent to all 34 000 investors of Sharemax syndication companies. When the circular was compiled, R2.5m had already been paid to the five syndication directors, and a further R1.8m was budgeted, bringing the total to R4.3m.

Haese had already received R1m for consulting fees. Koekemoer had received R780 000. Accountant Rudi Badenhorst, who is supposed to be an independent, non-executive director of the syndication companies, was paid R600 000 for his consulting services. For each of these three directors, a further R500 000 was budgeted.

An amount of R240 000 has been budgeted for the chairman of the syndication companies, retired judge Willem Hartzenberg. An amount of R76 000 was budgeted for independent director Koos Maartens. A portion of this amount had already been paid.

It appears that no payments were made to former independent director Dawie Roodt, who resigned in July last year.


Reserve Bank concerns

Moneyweb can reveal that the Reserve Bank-appointed statutory managers, Jaco Spies and Neels Alant, raised a number of concerns about the directors’ income flowing from consulting services. These managers were appointed to ensure the syndication companies’ compliance with the Banks Act. They were relieved of their duties earlier this month, after investors voted in favour of the rescue scheme and it received court sanction.

Initially, Haese, Koekemoer and Badenhorst used entities to invoice the syndication companies. An example of these invoices can be downloaded here.

Haese invoiced in the name of a sole proprietorship called D. Co Financial Services. Koekemoer used a close corporation called Ruwach Properties and Investments. Badenhorst used his firm, Badenhorst Auditors and Accountants.

This use of entities did not sit well with the statutory managers. In May last year statutory manager Jaco Spies instructed Haese not to “make any payments to director-related entities”.

Later that month, Spies’s co-manager Neels Alant wrote to Haese: “Based on independent advice Jaco Spies and I have identified a number of concerns relating to the remuneration of directors and which concerns require the board’s urgent attention.”

Alant continues: “We have conveyed these concerns to the Chairman [retired judge Willem Hartzenberg] and have also decided to postpone decisions on whether or not to consent to any of the payments that have been claimed by directors or their entities thus far.”

With the advice of an independent legal firm, it was later agreed that the directors’ fees were to be fully disclosed in the scheme circulars. The directors also agreed to claim remuneration in their personal capacities, and not through corporate entities. Invoices in the names of the directors’ entities were cancelled and never paid. New invoices were prepared in their personal capacities.


Long hours

The invoices mentioned above show how the directors put in long hours for their work on the rescue scheme.

Haese’s sole proprietorship, D. Co Financial Services, submitted an invoice for March to the Sharemax syndication companies for R120 000. Haese billed her services at R1 500 an hour, which means she worked 80 hours. Assuming a 160 hour work month, this left just half of her available time for full-time employer, Frontier.

Haese says this indicates that she worked many late hours and lots of overtime.
Koekemoer’s close corporation, Ruwach Properties and Investments, invoiced for 69.5 hours totalling R104 250.

Badenhorst’s firm issued an invoice R103 500 in March 2011 for 69 hours of consulting services.

If you think these directors were burning the candle at both ends, spare a thought for Connie Myburgh, for whom 250-hour work months are not unusual. In just one week, 23-29 April, which included a 21-hour work day, Myburgh billed Sharemax investors a total of 102 hours. Myburgh’s rate is R3 000 an hour. (See the details of the invoice below this article.)


The rescue scheme’s piggy bank

But the statutory managers’ concerns did not stop at director remuneration. They were also worried about the manner in which the Sharemax rescue scheme’s costs were to be funded.

To pay the millions that the Sharemax rescue scheme would cost, the directors needed cash, which they sourced from one of Sharemax’s better-funded growth syndications, Country View.

Not that Country View, a proposed retirement resort, was in good financial health; it simply had not yet spent all of the R83m it solicited from public investors. This made it an attractive piggy-bank to fund the rescue scheme.

Once Country View had received the R83m from its investors, sometime in 2007, it loaned the money to a private company called Planet Waves 110. Such loans were standard procedure for Sharemax’s 12 growth syndications (see Sharemax’s black hole syndications).

Around April last year, Haese and her co-directors, with the assistance of corporate lawyer Connie Myburgh, created a R5m loan facility, which they used to borrow money from Planet Waves to fund the Sharemax rescue costs. This loan is to be repaid by all syndication companies on a pro-rata basis.

The Reserve Bank was concerned that this loan might be illegal. In May the Reserve Bank’s Michael Blackbeard informed Chairman Willem Hartzenberg that the Bank was concerned about the loan’s legality.

A copy of this letter can be downloaded here.

Haese says that the board of directors obtained external legal advice, which caused the loan to be structured and implemented in such a manner that the concerns raised by the statutory managers and the Registrar of Banks were addressed, and subsequent approval was granted for the incurring and implementation of this loan.

Blackbeard instructed Hartzenburg and his co-directors not to exceed the original loan limit of R5m. However, when it came to the Reserve Bank’s attention that the limit of R5m may be exceeded, it took the drastic step of freezing the Country View cash.

In an e-mail dated June 7 last year, Alant informed Haese that her wings had been clipped: “I have exercised stricter control over the investment account held at Mercantile Bank in the name of Planet Waves 110 (Pty) Ltd,” he wrote. “The bank has accordingly been instructed not to allow the withdrawal of funds held on behalf of Planet Waves 110 (Pty) Ltd.”

Future withdrawals required Reserve Bank approval.

Haese says that at no time was the R5m exceeded: “In fact a further agreement was entered into requesting a provision for further funding and approval was given by the Reserve Bank thereon after due consideration.”

The cost of the rescue scheme has been budgeted at R19m. The single biggest item is legal fees.
Says Haese: “One needs to consider that R19m divided by 34 000 investors equals R559 per investor, nothing in terms of potential astronomical – and now avoided – liquidation costs, where investors would have been left with nothing.”                                                                             

Coenie Willemse, a lawyer representing the directors, stated on their behalf that without the Planet Waves loan it would not have been possible to implement the various steps of the Section 311 scheme of arrangement. (Click here to download Willemse's full unedited response)

“Every one of the legal entities in the Sharemax syndication group of companies, is obliged to, in terms of the approved loan agreement, contribute its share of this funding on a weighted pro-rata basis.

“This loan is based upon an approved valid and binding loan agreement, which will provide Country View with a better return as previously,” Willemse said.

A copy of this article was sent to Willemse, lawyer for Haese, Koekemoer and Myburgh last week.

Willemse’s full unedited response to the article can be read here.

A week in the life of corporate lawyer Connie Myburgh
Date	Description	Amount
Saturday	Attend to drafting scheme documentation
23-Apr	pertaining to Income Plan project. (4 hours)	R 12,000
Sunday	Attending to further drafting of scheme
24-Apr	documentation. (8 hours)	R 24,000
Monday	Attend to drafting further documentation
25-Apr	pertaining to Villa and Income Plan documentation,
	attend to checking documents as tracked,
	amending same and further processing, attend
	to numerous telephone calls with various parties
	for purposes of collecting and checking
	information for purposes of incorporating into
	documentation, attend to discussing various
	aspects of structures and documentation with
	counsel and Mr Derek Cohen. (16 hours)	R 48,000
Tuesday	Attend to further drafting of documentation,
26-Apr	checking of documentation and various
	discussions with various parties in regard to
	various aspects of structures and documentation
	being prepared. (19 hours)	R 57,000
Wednesday	Further preparation of documentation, including
27-Apr	finalising documentation pertaining to Villa
	project, attending to Mrs Cohen, Rembe and
	Badenhorst during consultation when financial
	aspects of Villa transaction discussed, debated
	and incorporated into final Villa documentation,
	attend to arranging signature of Villa documentation,
	finalising , all Villa documentation, including
	pagination and the like, copies and the like, and
	procuring dispatched to Pretoria and issuing at
	Court for purposes of hearing the matter at 10h00
	on Friday, 29 April 2011, attend to further intensive
	drafting after discussions with various parties
	providing information, and in particular, attending
	to the checking of numerous documents having
	been prepared and typed, attend to extreme urgent
	drafting of documentation pertaining to Income
	Plans project, including discussions in regard to
	financial aspects thereof with various parties,
	including Messrs Cohen, Badenhorst and
	Koekemoer. (20 hours)	R 60,000
Thursday	Attend to finalising Villa documentation and
28-Apr	procuring filing at Court, attend to working further
	on extreme urgent basis in regard to Income Plan
	documentation, including discussions in regard
	thereto, both with regard to structure and financial
	implications. (21 hours)	R 63,000
Friday	Attend to discussing Villa transaction with
29-Apr	counsel for purposes of briefing counsel for
	hearing of the Villa matter in Court, attend to
	finalising Income Plan matters under great urgency,
	attend to procuring the signing of Income Plan
	matters and documentation, attend at Court when
	counsel briefed and matter heard in Court, attend to
	assisting counsel in Court when order with regard
	to Income Plans transaction granted, attend to
	travelling back to Johannesburg, attend to further
	drafting of documentation required for Income
	Plan matters, attending to perusing documentation
	and finalising further drafting, attend to further
	checking of documentation and discussing of
	various aspects of documentation and structures
	with Mr. Badenhorst, attend to discussing Villa
	transaction with Counsel and finalising. (14 hours)	R 42,000
		R 306,000

...

Tenants vs landlords: Concourt mulls whose property rights take precedence

Tenants vs landlords: Concourt mulls whose property rights take precedence

In a case brought to the Constitutional Court, a group of ousted tenants claimed their right to adequate housing was violated by the owners of their building, Aengus Lifestyle Properties, which cancelled their leases and raised rents by up to 150 percent.

The tenants at Lowliebenhof in Smit Street, Joburg, argued that the cancellation was not compliant with their lease agreements. They claimed that the impact on the tenants would decrease their quality of life and leave seven of the group homeless.

The Inner City Resource centre submitted that the landlord's right to increase its profit was not a plausible reason to deprive tenants of their rights. The lease cancellation and increased rent would have a disproportionate impact on the tenants and was tantamount to unfair practice.

Aengus, a company that focuses on inner-city revitalisation and developing upmarket living spaces in Joburg, argued that its action was compliant with its contractual obligations under the cancellation clause in the lease agreement.

It also said it was compliant with the Prevention of Illegal Eviction Act, which specifies that landlords can evict tenants only if they have alternative accommodation. Aengus said it offered each tenant alternative cheaper accommodation and three months' notice of cancellation. Residents were also offered new rental amounts in new leases.

Michelle Dickens, managing director at TPN property credit bureau, says: "Eviction procedures have often been the subject of SA court cases and each outcome has the potential to inform future rulings and stipulations. If the court finds against the landlord, cancellation of leases, even when done within the terms of a lease agreement, could be set aside as unfair or unreasonable.

"As Aengus took these measures to increase its profit, this case sets the rights of tenants to adequate housing against the landlord's right to pursue profit. The big questions in this case are: who is responsible for the social costs of cases like these; do constitutional rights exceed contractual rights; and how should the rights of tenants and landlords be balanced when situations such as this one arise?"

She says that in a developing economy and industry, capital accumulation is vital to the regeneration of areas like Joburg's inner city. Although this may cause hardship for certain tenants, the long-term effect will create wealth and generate economic progress, ultimately benefitting all sides.

The tenants escalated their case against Aengus, starting at the Rental Housing Tribunal, moving on to the High Court and Supreme Court of Appeal and now to the Constitutional Court. The parties are awaiting a decision from the Constitutional Court, where judgment has been reserved.

Weekend Argus (Sunday Edition)

Machanik trial lawyer change hitch

Machanik trial lawyer change hitch

On Thursday former property doyenne Wendy Machanik and her lawyer Cyril Ziman appeared in the Commercial Crimes Court where the attorney withdrew his services because Machanik can no longer afford his fees.

Machanik and her financial adviser, Bruce Bernstein, are facing charges of fraud to the tune of R28 million.

At every court appearance her lawyer Cyril Ziman has been by her side. But this time the attorney was there to withdraw his services because Machanik can no longer afford his fees.

"Because of a lack of funds by accused number one (Machanik), my mandate has been withdrawn," said Ziman.

He will still be acting for Bernstein.

Machanik's legal woes are not so far gone that she cannot afford an attorney, however.

A new attorney, Michael Salomon, and advocate, Sam Cohen, will now be acting on her behalf.

Machanik is alleged to have dipped into trust accounts and embezzled more than R28m of clients' money.

She was once known as the best estate agent in SA. Last year she had to auction off her home and her company is under liquidation.

The luxurious Athol home - boasting four bedrooms, a chef 's kitchen, a scullery, walkin cold room and a Zen bathroom - was sold to a businessman for R7.8m.

A liquidator's report last year indicated that Wendy Machanik Properties (WMP) had a shortfall of more than R16m. The report, which estimates the shortfall from preliminary investigations, was sent to estate agents who worked for the agency.

In the report sent out by liquidator D&T Trust, estate agents, which are named as preferent creditors (creditors who are paid first), have been told they will each be paid R12 000 in salaries owed to them.

This does not include their commission from houses sold, which has been placed in a trust account and will be paid to them as concurrent creditors (creditors who are paid last, if there is any money left).

The report shows that WMP had encumbered assets - or book debts owed to banks - of more than R21m. Secured creditors are claiming R6m, and preferent creditors, including Sars and staff, are owed R5.5m.

Concurrent creditors are claiming R26m, which includes claims from Machanik herself under members' loans and inter-company loans.

Machanik will return to court next month.

The Star

Joburg residents hope for justice after billing hearings

Joburg residents hope for justice after billing hearings

Joburg residents, aggrieved by the City of Joburg's billing chaos, are waiting for the outcome of the National Consumer Tribunal hearings to be held this week.

The hearings are the result of consumers having lodged complaints with the National Consumer Commission (NCC) about unfair treatment at the hands of the council.

The consumer commission upheld the complaints, and after following legal processes, including giving the city the opportunity to rectify its mistakes, issued 65 compliance notices against the council, ordering it to abide by its decision.

However, the council objected to the compliance notices and appealed to the tribunal to set them aside.

The consumer commission is opposing the application to set the notices aside.

The hearings will be heard over three days.

If the council loses and refuses to abide by the tribunal's decision, it faces fines of between R100 000 and R500 000 per matter, but the commission can issue it with fines of up to R1 million, or 10 percent of the Joburg council's turnover.

The hearings revolve around cases in which residents feel they have been unfairly charged, had their services cut off, were being charged incorrect rates, had their properties incorrectly valued or were not getting their pensioner rebates.

Last year, the commission became involved in the city's billing debacle after receiving about 450 complaints from aggrieved residents.

At the time, NCC commissioner Mamodupi Mohlala vowed to see justice done for the residents. She followed due legal processes and timeframes, but claimed the council had not co-operated.

She said numerous meetings had been held, with promises made and broken.

There had been an opportunity for mediation, but the council had not sent representation.

Mohlala said the objections the council had raised with regard to the complaints were not sound in law.

The tribunal said the hearings would be conducted "in an informal manner and in accordance with the principles of natural justice".

Spokeswoman Ruth Coggin said an "informal manner" meant that anyone can appear before the tribunal without needing to be represented by an attorney; and "in accordance with the principles of natural justice" meant that the tribunal does not allow technical barriers to unduly prejudice any party before it.

The hearings will be held at the Braamfontein Recreation Centre from Wednesday from 10am.

The Star

Capco gets planning permission for project

Capco gets planning permission for project

United Kingdom - The project includes 200 affordable homes.

(I-Net Bridge) - Plans to redevelop the Seagrave Road car park site in Earls Court into a new residential quarter containing more than 800 new homes have been endorsed by Hammersmith & Fulham Council (LBHF), Capital & Counties Properties PLC (Capco, CCO) said on Friday.

Capco welcomed the decision by the Council's planning committee to resolve to grant detailed planning permission for the proposals, which will replace the existing car park with a high quality, mixed use scheme comprising 808 new homes, ranging from townhouses to apartments around a new public garden square.

The project includes 200 affordable homes that will be made available for the relocation of some residents of the Gibbs Green and West Kensington Estates in the event that regeneration of these estates occurs.

As announced in December, Capco has a conditional agreement with entities in which certain members of the Kwok family are interested to form a 50:50 joint venture in respect of Capco's interests in and around Seagrave Road.

Completion of the JV is expected upon expiry of the three month statutory period which follows finalisation of the section 106 Agreement and sign off from the Mayor of London.

Ian Hawksworth, Chief Executive of Capco said: "We are delighted by the Council's decision on Seagrave Road. It confirms our long term view of the value which can be unlocked from Capco's holdings in the area through a residential-led scheme. The site is an exciting opportunity to begin the transformation of the area, creating hundreds of new homes and jobs. We look forward pursuing our plans for the project within the joint venture with the Kwok Family Interests."

Vukile dispels poorer quality portfolio myth

Vukile dispels poorer quality portfolio myth

JVs and emerging markets form part of its growth drive amid Sanlam acquisition.

The Vukile Property Fund says its immediate plans post the acquisition of an R1.5bn portfolio from Sanlam is to continue looking for growth, especially in the retail sector.

CEO Laurence Rapp says while it wants the fund to be a balanced one in having exposure to retail, industrial and commercial, the focus will be on retail. Once the R1.5bn Sanlam transaction is closed, it will take Vukile’s gross assets up to around R7.3bn.

Speaking after a tour of Vukile’s malls in Daveyton east of Johannesburg and in Dobsonville, Soweto, south west of Johannesburg, Rapp said emerging markets are attracting business as suburban markets become more and more saturated.

“We are very passionate about it through our experiences over the years and we want to capitalise on that by finding more space next to strong commuter links like taxi ranks and rail links,” Rapp said.

He added that while value to spend per basket was not nearly as high as those in the regional malls, there was growing disposable income in those areas with an increasing footfall.

Anton de Goede of Coronation Fund Managers who was on the tour of Vukile’s properties said the retail assets in the form of the Daveyton and Dobsonville malls had come as a bit of a surprise as the foot traffic was impressive being on a Monday morning and mid-afternoon. De Goede said trade seemed to be doing well indicating the malls were “nicely performing assets”.

On the office front De Goede was less optimistic saying the sector was facing some vacancy and re-letting challenges, for example in the Sunninghill precinct. What does count in Vukile’s favour in terms of the Sanlam acquisition is that the fund is extremely familiar with the assets thereby reducing risk.

Director of Meago Property Investment Managers, Jay Padayatchi, concurs that Vukile’s retail offering in nodes like Daveyton and Dobsonville are doing phenomenally well and will continue to do so provided they remain dominant in the area.

In its current form, these malls are the only substantial offering within at least a ten-kilometre radius of competition like Maponya Mall in Dobsonville. The same applies to Daveyton. Currently they cater for the lower LSMs which include pensioners and people dependent on grants. Many don’t have alternatives in terms of where to shop, making them a very captive market. Commuters are another niche market in that the Dobsonville Mall is adjacent to a bustling taxi rank.

Retailers that are doing particularly well in these malls are Webbers and Studio88 which Vukile believes will soon be giving the nationals a run for their money.

While Rapp believes that its office sector has “tremendous potential” with vacancy rates coming in below national averages and in many cases better than its competitors, fund managers believe this could prove to be a challenge.

“Offices are a work in progress due to vacancy challenges and potential re-letting challenges. The office space in a tough letting environment, could cause some head wounds,” De Goede said.

Padayatchi says while the office vacancies in this acquisition are pretty much in line with the national average there is a substantial expiry of office space in the next 12-24 months which could pose a re-letting risk. He also expressed some concern over the number of B grade offices in the Vukile portfolio with increasingly high vacancies in the B and C grades.

In spite of this, Padayatchi believes Vukile is offering an “overall good quality, relatively defensive portfolio. In terms of the upside that may be generated from the Sanlam acquisition, Vukile is intimately involved with the assets and this takes a lot of risk out of the transaction.”

Rapp says Vukile is trying to dispel perceptions that Vukile has a poorer quality portfolio. “We think the quality of our retail, while not talking about regionals like Sandton, is very high given the percentage of national retailers and high footfall. Retail is the core of our portfolio.”

Office blocks included in Vukile’s portfolio in the northern suburbs include: Sandton St Andrews Complex; Sandton Rivonia Tuscany; Sandton Sunninghill Sanhill Park; Sunninghill Place and the Johannesburg Isle of Houghton.

I am still a fan of Rael Levitt and the Auction Alliance business model (with reservations)

I am still a fan of Rael Levitt and the Auction Alliance business model (with reservations)

I have been hesitant to re-post this Article because I am a fan of Rael Levitt and the Auction Alliance business model. Only about a week ago, I was in the company of several prominent role players in the Property Industry, who were (ironically) expressing nothing but admiration for Auction Alliance and Rael Levitt's business model and business acumen.


I mention that the conversation was ironic because of the headlines only a couple of days later. Take the headline of this Moneyweb Article as a prime example. At the end of the Article is an explanation of the circumstances involved in all the accusations against Auction Alliance, which is not reflected in the headline, so I will rather reserve my judgment until all the facts are revealed.


I remain a big fan of Levitt and the Auction Alliance business model but I always have reservations when people have a preferance for "cash transactions". Let's see how this plays out.


- Gareth


Auction Alliance is accused of colluding with banks, liquidators and attorneys.

Auction company Auction Alliance has allegedly been colluding with banks, liquidators and attorneys in a money making racket, according to reports on Saturday.

The Saturday Star reported that a 13-year old paper trail revealed that the company had paid kickbacks to attorneys, liquidators, and bank staff to ensure business went their way.

The report claimed CEO and founder Rael Levitt said in emails the kickbacks would be paid "in cash".

The paper's sources claimed two staff members at Investec were paid large sums of money to insure the company received preferential treatment.

A former Absa bank manager in Gauteng was "ousted" by employers some years back when a kickback trail revealed him as the alleged recipient.

The kickbacks were typically 50 percent of the commission Auction Alliance earned. These rose up to 75 percent during market slumps - to ensure business in bad times.

The company also reportedly trained auctioneers on how to rig an auction and told them what to do if they were caught.

The newspaper reported five insiders wrote affidavits supporting their allegations, which they said were supported by reams of documents.

Billionaire Wendy Appelbaum was disputing the legality of an auction where she bought the wine estate Quoin Rock.

Appelbaum claimed she later found out she was the only genuine bidder and consequently lodged a compliant with the National Consumer Commission, citing irregularities. Levitt responded by suing her for defamation.

Appelbaum's bid was later rejected by the estate's liquidators.

Levitt has denied all the allegations, calling them "defamatory". He said it was not uncommon for law firms to refer auctions to auctioneers and when they did, they could agree to give the attorney concerned a referral commission.

"We leave it to the attorney to make the necessary disclosure to their clients," he said.

He said the practice was long-standing and widely accepted in the industry.

Vendor bidding -- the practice of a seller bidding on their own stock to drive up bid prices -- was "internationally and nationally regarded as an acceptable and lawful auction industry practice", he said.

Levitt also published a rebuttal alongside the newspaper's story.

He attributed the allegations to the competitive nature of the industry and disgruntled former employees.

In an open letter published in a full page of the newspaper, Levitt said he had approached a High Court asking them to interdict the newspaper and prevent them from publishing the story because his side wasn't expressed in his own words.

"We do not resort to unethical and corrupt practices to secure business deals," he said