Looking at the bigger picture has always been a must for success; and in the case of Devmark Property Group, it led to a withdrawal from the residential market just before the bottom dropped out. Founder and group managing director Hein Ehlers tells all to Andrew Pelis.
Market research is a vital tool for any business looking to make an impact; and Devmark Property Group has turned this into a fine art as it seeks to stay ahead of fluctuations that have beset South Africa’s property market over the past few years.
Up until recently, of course, the country had been enjoying a property boom. Devmark has coped admirably with the subsequent market wobbles through its policy of shrewd decision-making when it comes to identifying which markets are the best ones to operate in. And this is where in-depth knowledge plays its part, courtesy of the market research.
“Yes, it is true that we have a passion for thorough market research before we decide to do new developments,” asserts group managing director Hein Ehlers. “And equally important to us is to carry out research when we have completed a development—you sometimes learn more from that analysis and how to improve processes for the future.”
As founder of Devmark, Ehlers has been with the company every step of the journey since it started out some 22years ago, initially developing urban convenience centres in the Western Cape Province. “We expanded into residential properties in the early 1990s and then into the commercial market, so that by the early part of this century we had become one of the biggest property companies in this region,” he explains.
Today the Cape Town-based company is split into several divisions: Devmark Construction, Devmark Development, Devmark Design, Devmark Marketing and Events, Devmark Property Administration and Devmark Commercial.
There are clear overlaps across the companies within the group, and Ehlers says that the bulk of the construction work is actually carried out by sub-contractors. “The production and quality is controlled by our site management; we’ve taken good people and put them on sites and incentivised them so they deliver quality projects.
“The main thrust of our business, though, has been the development of three key segments: residential, commercial (incorporating offices) and retail,” Ehlers continues. “We anticipate market trends and move into specific markets at an early stage and move out before the market collapses.”
That ability to think flexibly was richly endorsed when the company decided in 2006 to move out of the residential market (prior to its widely-reported problems) and focus more on commercial development. “We had been working on high rise buildings and freestanding residential properties up until that point, but we pulled out of the market except for retirement villages—an area we continue to work in today, as it differs from much of the residential market because purchases are not that adversely affected by the economic recession. I don’t see the residential market picking up for the next two and a half years, maybe longer.”
The company’s focus therefore is currently on rezoning land for the rights for two upmarket retirement villages comprising of 430 units; and the various stages of planning for two retail centres in the Western Cape. Ehlers says that the company has also started to purchase old commercial buildings with a view to renovation. “We feel these will offer great opportunities for growth and development areas when the market finally turns,” he states.
As the market took a downward turn, Ehlers says that funding and the criteria for funding became much more difficult; but Devmark’s forward-thinking approach had already enabled it to side-step much of the residential woe that was to follow. Today, the group can look ahead to bright and busy times, thanks to its involvement in the redevelopment of the old Bellville Velodrome.
“This is the biggest tender in the history of Cape Town and totals approximately R3.5 billion,” Ehlers describes. “It is a 110,000 square metre site that upon completion will comprise a retail shopping centre, a hotel, conference facilities, the redeveloped velodrome and sports facilities, as well as commercial and residential. The ultimate ownership is not cast in stone, we prefer to develop (our core business), but might end up with ownership.”
The decision to award the tender was taken by the City of Cape Town after a two-stage, public tender process which started in September 2007. The tender was won by Devmet Property Developments, a consortium of Devmark Property Group and Mettle Property Group, through a competitive bidding process that lasted more than two years. Mettle Property Group is 49 per cent owned by Metropolitan Capital, an associated company of the Metropolitan Group, and is a level eight contributor in terms of Broad Based Black Economic Empowerment (BBBEE).
And as BEE is embedded into the fabric of South African culture, it is an initiative that Devmark has fully embraced. “We certainly don’t have any difficulties finding good black management and we have also set up relationships with lots of black suppliers,” Ehlers comments.
So in which direction does Ehlers intend to take Devmark Property Group? “Property operates in cycles, so we have to be careful and focus on projects that fall within our cash flow capabilities,” he states. “We also look at projects that will allow us to maximise our profitability rather than concentrating on volume. That strategy requires a lot of careful pre-planning to ensure we have our figures correct—and a reliance on the excellent long-standing relationships we have built with our suppliers.”
Ehlers says that when the upturn comes, it will be important to be ready. “In any downturn, people start to institute cost-cutting measures and often when the next upturn arrives, they end up without the necessary resources in place. We have always been pretty lean and will be ready to focus on the best sectors.
“I see significant expansion in the construction and events side and we are undertaking lots of external design work at the moment. We will carry on working on the retirement villages and believe there are areas of the city that will be ripe for commercial development; but we will stick to our model. It is imperative to grow your business within the limits of your cash flow and we have a very firm base from which to launch our next growth phase.”
