South Africa’s largest listed property fund, Growthpoint Properties, is promising to revolutionise the leasing space by introducing a deposit-free lease agreement for qualifying tenants.
In an announcement released yesterday Growthpoint said it was breaking new ground for commercial real estate globally by introducing this innovation which could release around R350m in lease deposits back to its existing clients.
Growthpoint CEO Norbert Sasse said “The global financial crisis was an awakening for companies across the world to find better ways of doing business. We listened to our clients to discover what they need to keep their businesses sustainable, and how we can help them overcome the hurdles constraining their growth. We decided to take a fresh look at the deposit model.”
“The Growthpoint ‘Undeposit’ responds to our clients’ needs. It’s simple, it makes financial sense, and we believe it will make doing business in South Africa a little easier for everyone.”
The statement said Growthpoint ‘Undeposit’ means businesses no longer face the burden of large security deposits when renewing or signing new leases for offices, shops, showrooms, warehouses and factories.
It also means Growthpoint could potentially release around R350 million of lease deposits it currently holds to boost South African business over the next five years.
The new ‘Undeposit’ is tailor-made for Growthpoint based on the excellent creditworthiness of its clients, its use of deposits over the past decade and its rentals.
Like commercial property security deposit models worldwide, in South Africa the traditional deposit for commercial property equals hefty three months’ rental for premises and its associated space, like parking.
Breaking with the past, Growthpoint now offers an option to waive this security deposit. This way, Growthpoint assumes the total risk for this security. Instead of a deposit, a small non-refundable fee of between 10% and 25% of this deposit amount is charged, based on each business’ risk profile. Growthpoint will pool the fees to create a property reinstatement fund.
Sasse explains that, as leases are renewed and new ones signed, Growthpoint’s property reinstatement fund will also grow, offsetting any risks introduced. Most of Growthpoint’s leases are for five-years, so the fund will be well established by 2018.
Growthpoint is the first publicly traded property company in South Africa, possibly the world, to offer this deposit-free lease. Developed over a three-year period, the breakthrough ‘Undeposit’ creates a win-win for Growthpoint’s clients and its investors. “By helping our clients to be more competitive, Growthpoint also becomes more competitive,” says Sasse.
For both new and current occupiers of Growthpoint’s properties, the ‘Undeposit’ keeps their hard-earned cash working hard for them.
For companies leasing with Growthpoint for the first time, it makes moving to new premises attractively cheaper.
For qualifying clients already occupying Growthpoint’s buildings, it means a cashflow injection for their businesses at lease renewal. “This can be released to each client’s needs, and used to boost working capital, reduce interest costs, expand or launch a new venture.”
With Growthpoint’s over 4,500 leaseholders and more than 6,000 leases, the ‘Undeposit’ could have a big impact on South African business.
Growthpoint Properties is the largest South African listed property company and is included in the JSE ALSI Top 40 Companies Index. It owns and manages a quality portfolio of over 400 properties in South Africa providing nearly 4,5 million square metres of retail, office and industrial space to leading businesses across the country.
By breaking away from the entrenched practice of landlords holding hefty deposits from tenants, Growthpoint is revolutionising commercial property.
“Even though we now offer clients the choice not to pay a deposit, we will continue the meticulous credit vetting which underpins our quality client base,” notes Sasse. Growthpoint is also stepping up its assessment of each premises, from once every lease period to once a year.
Sticking with its client-centred approach, Growthpoint will still offer a traditional deposit model for businesses better suited to this arrangement.
The ‘Undeposit’ comes with no added operational costs or pressures for Growthpoint. However, it does come with massive competitive advantages.