Post Lockdown Strategy

[Benjamin]

I think big malls will suffer. Edgar's is just the first, and vacancy rates will be up.

I don't think the rental market is that efficient, as the leases are long-term and it will take a while for things to stabilise.

A lot of malls will not be feasible in their 2019 state and will need to change their models.

 

I don't think any new malls will be planned, and the ones currently under construction could be mothballed.

 

For our big little centre, I think tenant relationships are going to be a huge issue and we will need to bend over backwards to keep them in store and in business. And this is mostly financial support

Agreed . I think lots of businesses and stores will actively look for opportunities in smaller strip malls.

[Benjamin]

Reckon the regional mall project is largely bank funded or investor syndicate funded ?

Banks may not be so keen on big property developers

[Benjamin]

Will have been some hard negotiating from some existing solid tenants for better leases and positions in these big Centres as space becomes available and landlords are under pressure , so that may be a bigger focus than new spots in new centers for those looking to relocate ?

[RocknRolla]

Just caught up with this, the best case scenario certainly is very positive.

With this in mind, looking at the refurb (the only experience I have to offer) we may be able to cut the refurb budget freeing up some money to close some other gaps. Due to the possible influx of smaller contractors, that may have been laid off, and are now looking to work for themselves. 

If one works smartly with the budget, one can certainly save some costs. Employ a experienced PM (possibly one who's contract got cancelled during the lockdown) for the duration to manage the project, and keep it strictly on time and within budget.

 

This way, we are helping people in need, hopefully a small kickstart to bigger things within the community.

[River Rat]

Man when I started this process I thought I would have more than enough time on my hands, I have bitten off more than I can chew. Some of you might know that I left corporate life 5 years ago thanks to the Zuptas creating an environment that required an unethical approach to business, which I couldn't stomach. I decided that I would stay out of big business and seek out entrepreneurial opportunities that specifically excluded an involvement with Government or SOEs ostensibly to stay as far away from corruption as I could. Things have been going very well and I have carved out a niche for myself investing in and helping small businesses to grow.

 

Corruption wasn't an issue until July 2019 where a change in leadership at one of our major customers saw some rather suspicious procurement practices emerge. My partner in this specific venture happens to be a player in ANC circles who also left corporate life for exactly the same reasons as mine. We were both appalled that corruption was once again rearing it's head this time in the private sector. We jointly decided that we were not going to let this destroy our venture, we set about stopping this and as things would happen it came to a head during lockdown. My entire Easter weekend and the majority of this week has been taken up in this fight. Thankfully, our efforts to stop this particular crime bore fruit and this morning we have been informed by the board of the customer that the specific contract had been cancelled and an independent board of inquiry had been established to  determine the criminal charges to be brought against those involved.

 

Fortunately, my involvement is no longer required other than answering questions posed by the board of inquiry. Needless to say my partner and I are proud of ourselves as we feel we have played our small part in rebuilding our country. So as I sit here with my Batman crime fighting cape on I am ready tackle anything including this strategy so let's get on it.

[River Rat]

This is where we are on the it's just the flu scenario and we need to look at the whole, then consider the inter dependencies  and the potential impact of one key uncertainty on the others.

 

1.  We expect a spike in activity immediately after lockdown ends but we don't know by how much.

Our customers have a pent up demand for all the non-essentials and there's a run on the shopping centre. The bottle store, hardware etc. will all being under pressure even the restaurants and coffee shops are full as people celebrate being out and about. Tenants are capable of recouping about 30%? of lost revenue.

2. We expect an economic impact on our customers but we don't know how severe or for how long.

Although our customers have lost some income during the lockdown their costs were lower and because the world comes to terms with the fact that this virus is just like the flu it takes about 6 months for the demand side of the economy to come back to normal and with that earnings recovery back to where they were before lockdown.

3. We expect customer shopping behaviour to change but by how much and for how long?

4. Government could extend or lift the lockdown depending on where we are on the curve.

A decision on a further lockdown extension would be informed by the rate of spread seen in average new daily cases between 10 and 16 April, which they were 95% sure would remain between 40 and 80 cases. Above 90 cases a day calculated over a week would result in a lockdown extension. This is according to Professor Salim Abdool Karim, the chairperson of Health Minister Zweli Mkhize's Covid-19 advisory group, who addressed a media briefing alongside other scientists on Monday night. You can read the entire article here https://www.news24.c...entist-20200414.

 

This confirms a Rule of the Game and gives us an excellent parameter to monitor and for the sake of this scenario the average of new daily cases for the period 10-16 April 2020 is <90.

 

5. Will the development of regional shopping mall continue?

 

Under this scenario it would suggest that shopping patterns will be back to normal within the next 12-18 months. Regional shopping centres are usually based on long term demographic studies which are incorporated into a feasibility study with a 20-30 year time horizon. The worst of the economic impact would be felt during the construction phase so it follows that there would be no reason to halt the development.

Edited April 18, 2020 by River Rat

[River Rat]

So now we have to review these key uncertainties and how they could impact on each other. The best way to do this is to consider the last one first because like it or not when we developed number 2 we would have been cognizant of number 1. However  we would not have known what 2 is when we developed number 1.

 

So the question is to what extent would the development of the regional shopping center impact on the expected spike straight after lockdown ends?

 

Clearly these are different time frames so the answer is no.

[River Rat]

Let's go to the next one the long term economic impact of the regional shopping center on the economic impact of the customer/ Again I can't see an impact so no change necessary here.

 

However, number 3 could be impacted by the development of a regional shopping center and it follows that we have to debate whether the COVID virus would have been sufficiently beaten for our customers to go back to mall shopping. There are two potential outcomes the roughly 24% who said they would avoid malls overcome their fears and go to the mall even if it just to see what the fuss is about or they avoid the malls regardless of where the virus is on the curve.

 

I'm not sure how to call this one.

[Dicky DQ]

I am sitting on the sidelines here and probably missed a lot. But do you believe there will be a significant spike in non essentials (except tobacco and liquor)? There are issues regarding disposable income and the fact that the lift will definitely be a soft lift with travel restrictions etc. This is also going to add to reduced spend available. Or am I wrong here?

[River Rat]

I am sitting on the sidelines here and probably missed a lot. But do you believe there will be a significant spike in non essentials (except tobacco and liquor)? There are issues regarding disposable income and the fact that the lift will definitely be a soft lift with travel restrictions etc. This is also going to add to reduced spend available. Or am I wrong here?

I think you're right and it will be an even deeper cut and slower rebound in the at worst scenario. But I think we have it modeled correctly in the it's only the flu scenario which shows a 12 month rebound.

[Dicky DQ]

I think you're right and it will be an even deeper cut and slower rebound in the at worst scenario. But I think we have it modeled correctly in the it's only the flu scenario which shows a 12 month rebound.

The it's only flu scenario could work if lockdown is lifted soon. However if the latest numbers are an indication lockdown will continue through May. If this happens I think all bets are off. I have been speaking to a number of SMe/SMME's that are in a similar position to myself and things will be significantly bleaker if the lockdown extends. 

[River Rat]

The it's only flu scenario could work if lockdown is lifted soon. However if the latest numbers are an indication lockdown will continue through May. If this happens I think all bets are off. I have been speaking to a number of SMe/SMME's that are in a similar position to myself and things will be significantly bleaker if the lockdown extends.

 

That's why we need to develop an at worst case scenario and of relevance here is the mortality rate. I have started a discussion on the General Discussion thread I can only hope that we can get a real debate going there if not we'll have to bring it back to this thread.

[River Rat]

https://mybroadband.co.za/news/business/348835-life-after-lockdown-4-scenarios-for-south-africa.html?source=newsletter

4 scenarios done by the master himself.

[I FLY]

Agreed . I think lots of businesses and stores will actively look for opportunities in smaller strip malls.

 I live near (600m) from a new strip mall in what is a booming high density living zone.

 

In less than a year one restaurant and four niche tenants have closed their business and these premises are still empty. In addition two other premises have never been occupied.

[SteveFW]

https://mybroadband.co.za/news/business/348835-life-after-lockdown-4-scenarios-for-south-africa.html?source=newsletter

4 scenarios done by the master himself.

Thanks for the link, perspectives are shifting rapidly as we try to imagine what the future might be!

[River Rat]

I need to explain what happened to this thread, you see I got a PM from a Hubber who works for a company that owns a property very much in line with the hypothetical business being discussed here. He wanted me to chat to his boss (the owner) who was at his wits end trying to keep the business afloat because of the impact of COVID. After a brief Zoom meeting it was decided that we would enter into a Non Disclosure Agreement to see if I could assist with the a strategy for the company, the owner was particularly concerned that my inputs here could disclose  the strategic thinking and the direction the company was taking so there was a blanket ban from posting on this thread. Not an unreasonable request when seen from his point of view whilst from my perspective it was a business opportunity and easy to agree to. For the record I am a very bad consultant in that I hate making recommendations that aren't followed, so my approach is simple I will help you create a strategy going forward and if I co-invest  there's no charge if I don't it's a small fee to cover my costs.

 

So as of yesterday I have a small equity stake in a shopping center within a highly competitive but opportunity filled environment and now I am the one that doesn't  want to disclose whats transpired or the strategy going forward.

 

Apologies but that's business! I guess if there's interest we could tackle another hypothetical business case if someone want's to propose one.