Improvon – Time to Rebuild
Improvon shows us how cooperation has helped this commercial developer and its clients survive the pandemic.
It’s been a year since we last spoke with Improvon, a commercial developer investing in industrial properties and developing its own assets. The company is unique in that it carries out the construction, development, leasing and administration for industrial developments and distribution warehousing. It is the brainchild of four directors with 80 years of combined experience in the property, investment and construction industries. That experience translates into the capability to handle every stage of a project, from buying land to construction and the administration of the completed building. It also means they are able to understand their customers’ needs and the needs of the sector at large. For 25 years these qualities and experience have made Improvon a powerful competitive force in the industrial construction sector. But this year has really put the developer to the test.
“It’s been a tumultuous year. South Africa having a hard lockdown has been problematic,” admits Stefano Contardo, the company’s CEO. “70% of our tenants did not trade over the lockdown. We had to put plans in place to assist them. As a result 98% of tenants have come through the crisis and we’re back on track catching up on our plans.”
Improvon has been able to address the fallout from the pandemic thanks to its unique position as a company that constructs, develops, administrates, leases and owns its own properties, providing a one-stop solution to tenants. Indeed, before the pandemic struck, the company was still doing well with its process of identifying land, designing a facility to tenant specifications, and managing it for that tenant over time.
“We’ve completed the infrastructure and first stage of development in Kenya for a 400,000 square metre industrial park,” Contardo says. “The infrastructure works included: roads, an electrified perimeter fence, a 24-hour manned central gatehouse to enforce access control, services, and landscaping. While the first phase of development will reach practical completion at the end of this month.”
While Improvon started the year off well, like all of us they soon had to deal with the consequences of the COVID-19 pandemic.
“In the first eight weeks of lockdown, April and May, 70% of our tenants shut,” Contardo recalls. “The remaining businesses were also impacted, but where possible we looked at finance suppliers and banks and negotiated forms of relief which we could pass on to our tenants in the form of deferrals.”
As well as leveraging relief with their banks, Improvon also drew support from its own shareholders, making sacrifices where necessary.
“As it turned out it was the smaller financiers we work with who gave us deferrals,” Contardo says. “The deferrals and relief we passed on ultimately came from shareholders on our side. We’re not declaring dividends this year, because obviously where we can we’re helping tenants ensure their longevity.”
It seems that Improvon is not the only one optimistic about the opportunities available in a post-COVID world, as demand for their newly available spaces has been high.
“We were worried there wouldn’t be any demand for our vacant spaces but we’ve seen reasonable demand and have been able to fill the vacant space that we had,” Contardo points out. “By the end of June, we had a vacancy of 1.6% among our properties, where offices and retail were suffering substantially higher vacancies. We worked our backsides off to get to that point and we’re seeing the benefit of that now. We’re currently in negotiation for a new lease on one of the only buildings we’ve got vacant.”
Contardo points to improving performance among Improvon’s tenants to demonstrate South Africa is already recovering well.
“We’ve seen most of our tenants, specifically in warehouse distribution, trading at previous levels,” Contardo says. “The sub-sector with the biggest recovery ahead of it is manufacturing, purely because their clients are slow to get back into the swing of things. It takes time to convert tenders into cashflow so there’s a delay there, but we have little exposure to manufacturing. E-commerce has been flying. They’ve been the winners of the lockdown and warehousing distribution has picked up some turnover while third-party providers are looking strong coming out of lockdown. Anyone with manufacturing or a vertically integrated business is a bit slow to pick up but otherwise, we’re in a reasonable position.”
Location, Location, Location
Some of the challenges Improvon faces haven’t changed since before the pandemic. The developer is still continually on the lookout for quality land at the right price and in the right location. When we spoke with Improvon last year the price of land had accelerated and become more expensive, and that remains the case.
“It’s been competitive. The biggest challenges are about competing with other players in the market and having land holdings in the right locations. We want small bite-sized chunks of land that can take stand-alone developments instead of 10-20 hectares of land all in one place,” Contardo says. “By taking putting everything in one place you’re limiting the amount of opportunities.”
Fortunately, Improvon still benefits from the land bank it has built up over the years. Improvon is still a company that knows how to make sure a property is viable, assessing tracts of property and avoiding pitfalls that aren’t necessarily obvious to less experienced prospective buyers.
Indeed, when we talk to Contardo he’s already excited about the prospect of new developments.
“Our focus at the moment is on our Nairobi site,” he says. “40% of our land exposure is in Nairobi and we want to convert that because we see that market being buoyant. We’re focusing on that over the next year. We’ll ride out 2020 in South Africa, consolidate and start developing new projects for 2021.”