Best Practice Workshop Asset Management

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					               Best Practice Workshop

                       Asset Management
                                 23 and 24 October 2008

                                    Report Back

                          Social Housing Foundation

BP Asset Management/SHF Oct 08                            Page 1 of 48

1. Introduction

2. Case Study: Making informed decisions

3. Best Practices

3.1. Communicare Cape Town
3.2. First Metro Housing Company Durban
3.3. Johannesburg Housing Company (JHC), Johannesburg
3.4. International Perspective: Vidomes Housing Association in Delft, The
3.5. Private sector: Affordable Housing Company AFHCO, Johannesburg

4. Property economics perspective: Wits University

5. Recommendations

6. Way forward

    Annexure 1: Evaluation
    Annexure 2: Program
    Annexure 3: List of participants

BP Asset Management/SHF Oct 08                                         Page 2 of 48
1. Introduction

On the 23rd and 24th of October a number of housing institutions and provincial
government officials and private sector players held a workshop on Asset Management
and the Protea Edward Hotel in Durban. The purpose of this workshop was formulated
as follows:

 The purpose of the workshop is to explore asset management as one of the key
 strategic tools for social housing institutions and other social rental housing delivery
 agents to be used in ensuring long term sustainability for the company. Asset
 management needs to ensure that the companies portfolio of assets contributes to the
 long term sustainability of the company and at the same time will be affordable for and
 attractive to their target group (s).

As can be seen from this purpose it starting from the premises that asset management is
a fairly new subject in social rental housing. As a result many institutions are not yet
used to using it as a strategic tool. This is the main reason for that fact that the workshop
was more of an explorative nature then that it would come up with certain solutions. The
workshop also meant to find ways on how to strike a balance between the interests of
the institution and those of the tenants and potential tenants and other stakeholders both
in financial and other terms.

The various presenters shared their views and best practice experiences with the
participants and at the end of the workshop all this was used to formulate a number of
recommendations that the SHF is expected to take forward.

As an illustration of this explorative nature of the workshop the participants were asked
to share their expectations which were the following:

     Best Management of assets and the             Tools and skills
     maintenance thereof (6)                       Real determination of the value of a
     Exposure to different housing models          building vs. maintenance
     and practices (3)                             Becoming      aware    of  a   proper
     Understanding of the concept (2)              professional     asset    management
     How to deal with rentals by the               system

As will be shown in a summary of the workshop proceedings below, most of these
expectations were addressed one way or another. In additions the various presenters
shed a new light on certain aspects of asset management and made it clear that this is a
subject that needs the attention it deserves. Social Housing Institutions as well as other
stakeholders have a lot to gain if they invest more time and energy into this subject.

BP Asset Management/SHF Oct 08                                                     Page 3 of 48
2. Case Study: Making informed decisions

For a start we used a case study from First Metro Housing Company (FMHC) that is
given below. It is about a property that FMHC acquired some time ago. What to do with it
at what cost? Sell? Keep as is? Change completely, i.e. major refurbishments? Do minor
refurbishments? Demolish and build new of the same site? Other?


General Information

Where East meets West in a sub-tropical holiday city.

Durban formerly known as Port Natal - A natural port that has grown into one of South
Africa's best-known and most popular coastal resorts and commercial ports. With
stretches of safe, sandy beaches and abundance of holiday accommodation
destinations available and all-year sunshine attract visitors to this festive city every year.

Experience and view an exotic mix of oriental plazas, cathedrals, mosques, temples and
festivals of traditional Zulus performing tribal dances amongst the rippling folds of the
Valley of a Thousand Hills, while sun seekers ski and swim in the tumbling surf,
sunbathe on Durban’s finest beaches or taste the nightlife of the city where the fun never
sets, and soak up the cosmopolitan atmosphere that is uniquely Durban's own!

DURBAN is a city seized by the golden opportunities being presented, but its citizens
are at sea about eThekwini’s strategic direction. Viewed through rose-tinted glasses
Durban’s inner city is fantastic. It has the foundations of a world-class city. There is
major public investment; favorable geography enhancing trade and the creation of
largely open space on which to develop an Olympic sporting arena around the R1,8bn
soccer stadium under construction. Durban also has a history of sound financial
management. There are many ways to measure the state of downtown Durban. Taking
the conventional measures – office occupancy, rental levels, building values, business
turnover, visitor numbers to key sites, new public and private sector investment and

BP Asset Management/SHF Oct 08                                                      Page 4 of 48
residential property values - there are arguments that things are better now than any
time in the last 10 years. The inner city has made the transition from the haunt of white,
blue rinse pensioners to a funky African hub with relative ease. Yet, Durban has the
lowest per capita income of South Africa’s large cities and a long time transpired before
private investment entered the inner city. Durban’s increased economic growth in the
last few years has attracted job seekers from KwaZulu-Natal’s hinterland.
Accommodation is limited and property prices have risen on the back of big city
investments like the International Convention Centre (ICC) extension, the uShaka
Marine Park and the new soccer stadium. Improved sentiment in the inner city in the last
two years particularly, has prompted financial institutions Standard Bank, Absa and Old
Mutual to make multi-million-rand investments in new buildings within a 1km radius of
the majestic City Hall. However council’s big investments are not necessarily sustainably
leveraging private investment. We need a balance between meeting the needs of visitors
and investors versus the needs of the urban poor for housing and other facilities. This
demands a balance between a confident city acting to meet challenges while seeking to
form durable partnerships with relevant stakeholders. The upgrading of the beachfront;
the beautification of streets around the City Hall; the ICC extension and the pioneering
Warwick Junction project, but concerns continue being voiced about crime and services
to the poor.

Project Information

The Hawaii Project is a high rise block of flats that is located in the South Beach Area of
Durban and is one street away from the beach. The Ushaka Marine World is
approximately 1 km away from the Project. The Project consists of 128 units. It was a
former timeshare resort. The building is approximately 50 years old.

This was an institutional subsidy project that targeted income bands below R 3500.00 at
the commencement of the Project.

        Unit Types                     Number   Rental (1999)      Current Rental
        1 bed – no sea views           93       R 875 – 00         R 1680 – 00
        1 bed – sea views              12       R 975 – 00         R 1870 – 00
        2 bed                          27       R 1575 – 00        R 2738 – 00

The F 2009 budgeted annual rental income is approximately R 3.233m

The Annual Operating Expenses are as follows:

                         EXPENSE                    ANNUAL
                         Cleaning                       R 57 000
                         Electricity & Water          R 540 000
                         Insurance                      R 65 000
                         R&M – Daily                  R 334 000
                         R&M – Long Term              R 173 000
                         R&M – Lifts                  R 179 000
                         Rates and Taxes              R 365 000
                         Security                     R 162 000
                         Other                        R 237 000
                         TOTAL                       R 2 112 000
                         Finance Costs                R 400 000

BP Asset Management/SHF Oct 08                                                      Page 5 of 48
The expected return on investment is a minimum of 10%. Cap rates for residential
projects are between 10 – 12%.

The project offers security, cleaning, on site supervisor and maintenance services. A
typical flat would include built in cupboards, tiled kitchen, carpeted bedroom and lounge.
The non sea view units have baths only. The other units have bath and walk in shower.

The Project cost including refurbishment was approximately R 7.0m. The current Market
Value is approximately R 12.0m

The initial refurbishment comprised mainly the following:
- Health and Safety Issues (Rails)
- Geysers in each unit (previously boiler)
- Individual electrical meters
- Internal painting of communal areas
- Waterproofing
- New lift doors

Due to financial constraints the following was not done:
- External Painting
- Internal unit painting
- No major plumbing was done
- Spalling (cracks in concrete)

During 2007, a Building Condition Audit was done through the EU funded SPSH
Program. The findings of the Audit are briefly outlined below.

    •   Rated 2 - Major defects, poor appearance, structural problems, service failures.
    •   The estimated refurbishment / remedial costs from the BCA is outlined in
        Annexure A

To propose a 5 year refurbishment plan for the Hawaii Project to ensure that the Asset
would retain its value in the future.

BP Asset Management/SHF Oct 08                                                   Page 6 of 48
Estimated Maintenance Costs as per SHF Building Condition Assessment

ELEMENT CATEGORY                               2007-2011       2007         2008         2009       2010        2011         2012-2016

1. Structural frame                             475,000       225,000     250,000          0          0           0             0
2. External envelope (including
parapets, gables, balustrades and                                                                                             247,380
handrails)                                      406,920        93,530     128,050       130,420    14,960      39,960
3. Roofs and rain water goods
(including waterproofing to concrete                                                                                          17,700
roofs)                                          215,810        41,650       5,540        5,540     12,540     150,540
4. Interior (Including walls and finishes,
ceilings, floors, doors, fittings)              797,510        79,660     233,580       210,160    201,120     72,990
5. Lifts                                        390,000        70,000      80,000       80,000     80,000      80,000         400,000
6. Plumbing/mechanical (including
sanitary fittings and taps, extractor                                                                                         342,420
fans, etc)                                      392,480        82,020      63,300       80,660     82,260      84,240
7. Life safety systems                          115,300        64,500      11,600       19,100      6,300      13,800         70,780
8. Electrical                                   121,000        25,000      24,000       24,000     24,000      24,000         120,000
9. Security/access control                      330,000        36,000      18,000       276,000       0           0             0
10. Grounds/site (Including
underground services)                           219,000        80,000      25,000       90,000     12,000      12,000
11. Other (Including sundry daily
repairs, touch-ups and emergencies)             450,000        90,000      90,000       90,000     90,000      90,000
TOTALS                                         3,913,020      887,360     929,070      1,005,880   523,180    567,530        2,468,690

      In four groups we looked this case study and answered the following questions:

      1. What information do you need to make an informed decision about the future of this
                Group 1                          Group 2                     Group 3                    Group 4
            What must be done                Conversion and/or          Purchase price              Expenses to
            implications                     refurbishment costs        Feasibility and risk,       operate
            Cost                             RoI                        i.e. maintenance            Income current vs
            Priority                         Funding/soft loan          Escalations                 income needed,
            Time frames                                                 Location building           affordability =
            Demographic                                                 Target Market               deficit/profit
            potentials                                                  Market survey               Right size vs.
            Restrictions                                                analysis                    eviction
            o Funding                                                   Health and Safety           Loan repayment
            o Zoning                                                    audit                       period?
            o Sale options                                              Rental policy               Feasibility/viability
                                                                        Provision for special
      2.    What would your decision be and why?
                 Group 1               Group 2                               Group 3                     Group4
            Bring building to       ???                                 Cost everything             Investment needed
            basic minimum                                               from Q1.                    vs. value for money
            quality                                                     If answers positive         Management of our
            Adapt standard to                                           carry on, if negative       stock and tenants
            target market                                               try to make it work         Partnerships with
            Integrated tenancy                                          through financial           Municipality to
            Product                                                     model or else               assist with right
            differentiation                                             cancel.                     sizing
                                                                                                    Professional mgt
                                                                                                    Tenant becomes
                                                                                                    supervisor on site

      BP Asset Management/SHF Oct 08                                                                          Page 7 of 48
3. Best Practices

3.1.     Communicare Cape Town
Oscar Norton, Area Manager presented some ideas on asset management from

Background and objectives
Communicare currently manages 2 960 social rental units with increase of the number of
units over the next 5 years of 2000 units. It presently services a target market on
household incomes of R2 500 – R7500 pm.

Business Principles
Some of its business principles are:
   Provision of supportive social development programmes and services
   Commitment to recover operating costs through appropriate rental charge structure
   and systems
   Provision of an efficient, effective and responsive decentralized housing
   management service for existing that will achieving following:
      o Three properly functioning area offices with required resources for provision
           of relevant services
      o Rentals that permit this service to be self financing
      o Collection of 97% of Economic Cost Recovery (ECR) Rental levels
      o Average of 14 working days for re-occupation of empty flats
      o 95% of all repairs done within the agreed timescales

Business Model
The company works with the following business model:

Revenue streams
Communicare has currently the following revenue streams:
   New Property Development
       o Land is purchased beyond city limits and “banked” to be developed and sold
          to economically strong Capetonians at later stage – internal social housing
          reserve account (internal equity)
   Life Rights
       o Tenants buy the right to occupy unit for the remainder of their lives, where
          after unit is resold and capital amount is repaid to deceased estate and profit
          is shared between estate and Communicare
   Economic rental units.
       o Units rented at market related prices.

The company works with a central support office and three area offices.

Central support office
This office deals with the following:
   Property development and maintenance
   Life Rights
   Human Resources

BP Asset Management/SHF Oct 08                                                 Page 8 of 48
    Overall Social Housing management
       o Waiting lists, public relations, legal etc.
    Community Development

Area office
There is currently one area office for each 900 units. There will be more area offices as
the number of units increase. The main functions of and area office is:
    Decentralized property and tenancy management
    Community development
    Senior Service Centre (Seniors Clubs)

Each area office has the following staff complement:
   Area manager
   Service Centre Admin
      o Home Based Care Person (Minor nursing and domestic service)
   Social Worker
   Housing Liaison off.
      o Housing Assistants
   Maintenance officer
      o Maintenance Assistant (Managed by Property Development from Support

                                 Some of the Stock of Communicare

BP Asset Management/SHF Oct 08                                                 Page 9 of 48
Characteristics of housing stock
Communicare manages the following types of units:
   Free standing houses
       o Cottages 2, 3 & 4 bedroom
   2 & 3 Storey walkups
       o Ranging from 20 units to 165 units per property
   “Tree” flats (all named after trees i.e. Olive House)
       o 4 apartments on 2 floors
   Service Centre (Seniors Club)

Characteristics of revenue and vacancy targets
The current collection levels stand at R2.6 million per month. The arrears are less then
3% and the vacancy is less then 2%. Turn around time for is 3 weeks flats and 6-8
weeks for freestanding units. The last long time is explained by the extent of work
required due to the age of the units.

Economic Cost Recovery (ECR)
With effect of 1 July 2008 the new tenants of Communicare will charged within the new
ECR system. Existing tenants will be phased in over a specific period with adjustments
to commence from 1 July 2009. The adjustments will be spread out over a number of
years in the following manner:
    Special Needs over 10 years
    Families over 5 years

The ECR system was adopted for the following reasons:
   Increasing operating and capital development costs
   Phasing out of old subsidies : historically low rentals
   Need to make a return: through appropriate rental recovery
   Alignment to charging fair and equitable rental charges across the totality of our
   rental assets
   Decrease the current annual operating deficit over 5 years
   Sustain the running of the housing service and long term new delivery: new social
   rental projects

ECR Formula
The ECR formula is based on an average rate per square meter per month of R31.35.
The basic rental for a unit is its size multiplied by R31.35. The rental based on the size of
the unit is subsequently adjusted through a weighting process for each unit. The
weighting is based upon the following factors:

    Location (Safety and security, close to amenities, public transport etc.)
    Quality of unit (finishes, garden, balcony etc.)

In respect of the above weighting system it became necessary, as the oldest properties
and properties in the less choice area’s are often those that attract the highest cost and
the newer and more prestigiously located properties are generally cheaper to operate.

BP Asset Management/SHF Oct 08                                                    Page 10 of 48
This creates a disparity in that the nicest units in the better locations are cheaper to rent
and the older units in lesser locations would be more expensive. In the interests of
providing a unit at a fair and equitable rental Communicare was forced to factor in a
correction to adjust this anomaly, which was done via the implementation of the
weighting factor. This is also an industry norm.

Cost recovery
In terms of cost the following is covered and not covered by the ECR:

          Cost covered by ECR                          Cost not covered by ECR
    Operating expenses 58.9 %                      Social services
    Area offices 17.4 %                               o Area office social worker
    Support office 7.8 %                              o Satellite social service centre
    Capital upgrade 8.9 %                          Senior Service Centers
    Other charges 6.7 %                               o Staffing
    Indigent fund 0.3 %                               o Transport
                                                      o Facilities
                                                      o Subsidies
                                                   Community Development

Implementation Challenges
The implementation challenges have been identified:

    Accommodating beneficiaries on special needs and “hard times” e.g. social grants:
    R940, loss of job/affordability, etc.:
        o Surety ship by relatives
        o Housing Benefit Scheme (reduced rental over three months)
        o Rightsizing: internal transfer to smaller/affordable unit
    Buildings in worst conditions attract highest cost
        o Leveling factors through weighting system
    Training of staff – proper and consistent administration
    Communication to Tenants – common understanding
    Consistent implementation of model – self sustainability

3.2.     First Metro Housing Company Durban
Ismail Khatib, CEO, presented the asset management approach of First Metro. The
company has currently 9 projects of which 483 units are divided over 8 blocks of flats
and 213 units in a Greenfield Development. The flats are 35 to 45 years old and well
located in the Inner City.

The key problem with the flats is the backlog in maintenance. When the buildings were
purchased, only health and safety issues were addressed. One has to understand the
Durban context and its implications for maintenance of high-rise buildings. The last high
rise that has been done on Durban is more than 20 years ago and that is possibly for a
reason. Maintenance of the buildings has the following challenges:

BP Asset Management/SHF Oct 08                                                    Page 11 of 48
    Galvanized Pipes
    External Painting
    Steel Windows

In addition to this there are a number of other maintenance concerns such as:

    Infrastructure unable to cope in certain areas (Albert Park)
    Theft – Copper, Steel, Hydrants
    Lifts – old - no spares

Asset Management Strategy
The Mission of FM states that the company will provide ‘affordable quality homes’. This
means that a major refurbishment needs to be done on all FM buildings particularly on
inner city buildings.

The company has as its main objective to be a service oriented organisation. The assets
have up till now not been viewed in the light of ‘Asset Value Protection’

The change in the business plan has been that this protection has to take place will FM
be able to survive in the long run. The company has implemented the following step by
step approach to ensure that this is done.

Step 1: Strategic Objective
This is outlined above. FM wants to have all its stock meeting certain quality standards
by a certain date.

Step 2: Assess stock
Two assessments were done on FM stock, an external and an internal. The external or
Building Condition Audit (BCA) was done under the SPSH program and gave a good
insight in the technical condition of the FM buildings. It spelled out the maintenance
needed within the next 5 to 10 years and the cost implications. (See above under Hawaii
case study for a detailed overview.

The internal assessment was the implementation of Trafalgar Units Survey template.

Step 3: Identify Need
The next step was to identify the needs of each building to get it to an acceptable
standard. The following needs were identified:

BP Asset Management/SHF Oct 08                                                  Page 12 of 48
    External appearance of stock
    Internal unit condition
    Condition of Lifts

Step 4: Prioritization
Subsequently the priorities have to be identified. This will be determined by market
demands, technical demands in terms of the building and health and safety
requirements and lastly but not least important by the company as well as the target
market can afford. This is all together a very challenging balancing act specifically in
social housing that is already financially stretched to the limit. FM identified the following

    Structural Integrity
    Painting (Internal & External)

Step 5: Options
The next step was to see if these interventions should be outsourced, usually at a higher
cost, or done in house. The following was decided:

    Structural: was outsourced to an engineer

    Painting and waterproofing: was decided to be done in house. This turned out to be
    40 % cheaper and surprisingly even the quality of the work done was better.

    Lifts: the big companies (OTIS, Schindler,) failed us. We need to find a solution.

BP Asset Management/SHF Oct 08                                                     Page 13 of 48
Step 6: Implementation

    Appoint Structural Engineer
    Waterproofing, Spalding and Painting – 2½ year program
    Lifts up & running with contracts in place
    Cupboards and internal unit refurbishment – from daily budget

The presentation was summarized with the following 4 point conclusion:

   Inner City Maintenance is a challenge. The building can be as beautiful and
   comfortable as they are but be prepared for all kinds of hidden defects and budget
   for it.

    Overcrowding through too many visitors in too small buildings will affect the lifespan
    of a building if not managed properly and will put the maintenance costs up much
    more then one can imagine. Don’t wait to put your access controls in place before it
    is too late. It is well worth the investment!

    Balance you rentals against the services you can offer. In the end anything you do is
    paid for by the tenant.

    A building is always part of a broader environment in which a community lives and
    the behaviour of that community is affecting the quality of the living environment you
    are offering to your tenants. This means that as an SHI, sooner rather then later you
    need engage with the broader community. An SHI shouldn’t do this on its own as
    there are many other stakeholders that can be roped in, such as: SAPS, NGO’s
    Religious organizations, schools, medical centers, Chamber of Commerce etc.

3.3.    Johannesburg Housing Company (JHC), Johannesburg

“Asset management is not just about hard objects but should include human
value too”

Debbie Johnson, maintenance officer of JHC gave an overview of how JHC ensures that
its assets keep their value. She started of with mission of JHC which guides everything
the company does and definitely asset management.

The JHC is committed to urban regeneration through the provision of quality, value for
money accommodation and service for all who choose to live in JHC Projects and
neighborhoods, in a manner that is both sustainable and promotes growth.

Asset management is a key component of achieving this mission. In JHC view the
management of its assets is a responsibility of everyone working in JHC, from selecting
the correct tenants to live in the buildings to the day to day interaction with the tenants.

BP Asset Management/SHF Oct 08                                                   Page 14 of 48
Property Management
The Property Management team is primarily responsible for the day to day interaction
with tenants, suppliers and the JHC regarding the day to day operational requirements
that make the JHC buildings successful.

In its thirteen years of existence JHC has developed 2884 units in 24 buildings adding a
further 8% to the residential stock of Johannesburg’s inner city.

All these buildings need management and maintenance to ensure that their value is
kept. The property management division needs to ensure that this is done at standards
that JHC has set for itself. The division has the following areas of operation:


              New                                        Housing
          Developments                                  Supervisors


          Administrators                                 Portfolio


Leasing                    Selection of tenants and admin of the leasing procedure. Ensures the
                           appropriate financial and social fit in the buildings
Housing Supervisors        Management of the allocated buildings and the community living in
                           these buildings. Roles include administration, coordination, social
                           management, tenant budget management and hardship assistance in
                           the building.
Portfolio Offices          Management of the costs and performance of the buildings within their
                           area. The role includes staff management, procurement, quality review
                           and financial responsibilities.
Property Manager           Provide clean, well-maintained, safe and comfortable homes for tenants
                           in JHC owned, or managed buildings. Ensure the financial viability and
                           social sustainability of each project. Encourage the upgrading of the
                           precinct, manage the responsive and long term maintenance process in
                           the JHC and manage the commercial portfolio of the JHC. Ensure
                           trained, committed staff. Ensure effective and efficient procedures and
                           the monitoring of the implementation of these
Administrators             Offer administrative support to the Property department
New Developments           Responsible for the sourcing, feasibility analysis and project
                           management of new projects.

BP Asset Management/SHF Oct 08                                                        Page 15 of 48
The asset management objectives JHC has set for itself are as follows:

    Roles and responsibilities
    Assess existing assets
    Identify the building needs to improve sustainability
    Plan and prioritise
    Implement and evaluate

Maintenance is at the heart of sustainability which was explained with the following
ongoing sustainability cycle:

As can be seen from the cycle above the three elements new developments, building
management and maintenance inform each other. Maintenance can’t be seen in
isolation and will always be linked to the way new buildings are developed and how the
people who are living in the building treat the building. Only when a company is able to
successfully integrate these three aspects it will be able to protect its assets

New Developments
To be able to develop good quality future homes successfully JHC has to learn from the
past. This applies at least to the following aspects of new developments:

BP Asset Management/SHF Oct 08                                                 Page 16 of 48
   Owners vs. Developers
As owners we are not interested in making a quick return on our investment and rather
need to incorporate sustainability and company values in all aspects of the projects

Proper investigation into sustainable building materials that are hard wearing, less
maintenance yet cost effective. Weighing up initial building costs vs long term

Incorporating design features which encompass human vale ie green areas and
functional common areas. Correct use of space to maximise tenant satisfaction.

   Professional Services
Complete buy in from professionals in the company values and developing a sense of
responsibility and ownership of the Social Housing initiatives.

   Social Provision
Again use of space, developing communities. Building services aim to achieve safe
environments. Ensuring the sustainability of a satisfied tenant base.

    Commissioning, Training and Handover
The project manager ensures the professional team responsible for the completion of
the project have scheduled time to commission the building before it is signed off.

Apart from the fact that a good building results in a happy tenant who is willing to pay,
the main objective for the SHI to maintain its building is the protection of its asset and to
extent its lifespan. The JHC has put the following measures in place to ensure this:

    24 hour turnaround
    Maintenance Registers
    Exit/Entry Snags
    Tenant approves
    Panel of approved contractors
    Procurement Process
    Budget control and reporting
    Backlog turns to Long Term Maintenance
    Customer Service Survey

In addition to the responsive maintenance outlined above JHC also runs a long term
planned and preventative maintenance program which contains the following steps:

    7 Year Maintenance Plan
    Stock condition survey
    Set objectives
    Set parameters
    Identify cost
    Continued Improvement

BP Asset Management/SHF Oct 08                                                    Page 17 of 48
If one looks at the expenditure on maintenance one can get an idea of the importance of
this part of the work. The expenditure over the last financial year 2007/2008 was as

 Responsive Maintenance Expenditure              Long Term Maintenance Expenditure
General Maintenance R35
Electrical          R23
Painting            R13
Plumbing            R69
                    R140 p/u, p/m              R205 p/u, p/m

R3,655,680 per annum                           R7,097,800 per annum

Lesson Learned
To end the presentation Debbie highlighted the following lessons learned:

    Low income housing does not mean low cost housing
    “Buy in” from professionals
    Feasibility studies should include long term maintenance budget
    Maintenance Manuals
    Long term plans should not disallow daily maintenance
    Institutional Knowledge lies with individuals
    Development of systems
    Financial recording

3.4.    International Perspective: Vidomes Housing Association in Delft,
        The Netherlands
Marja van Leeuwen, former managing director of Vidomes housing association in Delft in
the Netherlands gave us some international perspective in Asset Management. Sjhe
structured her presentation by giving us some background about social housing in the
Netherlands and its history after which she focused on Vidomes Housing Association
and more specifically Vidomes in Delft, followed by some remarks on the housing policy
of the Delft Municipality and finalizing with practical asset management of Vidomes.

Social Housing in the Netherlands
Housing Institutions in the Netherlands were established for the first time around
1850/1860 as philanthropic organisations. As a result of that the Government started to
think about legislation and only after almost 50 years this lead to the Housing Act of
1901 which connected SHI’s to the government with building regulations, planning
permission as well as loans for the SHI’s.

Up to this day SHI’s are private organisations, recognized by government as so called
‘registered institutions’: this is a special legal entity that has been designed for social
housing. The legislation dictates that SHI are allowed ‘to work only in the field of housing
or issues related to housing.’

BP Asset Management/SHF Oct 08                                                   Page 18 of 48
SHI’s in the Netherlands have to give priority to certain target groups, i.e. the people who
are not able to acquire accommodation them selves. They are non-profit organizations
and get financial support in the form of construction subsidies and rental allowances and
loans. In addition the government exercises rent control tenant protection and controls
land prices etc.

There was a rapid growth of SHI’s during the first part of the 20th century from 20 SHI’s
in 1900 to more than 1700 in 1920 (although all very small ones with 30 to a few
hundred units per SHI). From the 1970’s we see a steady decline in the number of SHI’s
from more than 1000 to about currently 500 because of mergers.

In the 1990’s we see a radical change in Housing Policy
The government ends its financial involvement in the sector and forces the SHI’s to
become more independent. The only financial instrument that still assists SHI’s is the
rental allowance which allows people to stay in a unit even if their income drops. This
however has been limited both in terms of the amount of allowance as well as the rental
for which this allowance applies.

As a result of all this SHI’s were forced to build up a strong financial position and had
become much more professionalisation through regionalisation and mergers.

Another aspect the SHI’s were given responsible for was building and retaining vital
communities. This is currently one of the key performance areas of SHI’s.

Vidomes Housing Foundation
Vidomes is established in 1921. Nowadays it owns and manages18.000 dwellings in the
region of the Hague.

It has a variety of dwellings: for young bachelors, families with children and elderly
people. The rents for social housing in the Netherlands are limited by the Government to
630 euro per unit per month maximum. This rental is affordable for most households and
if not they can apply for a housing allowance.

The Foundation has four regional offices in four cities and a central office. It employs in
total 200 staff members.

Vidomes Delft: Stock
The regional office of Vidomes in Delft has 3.362 rental units. The oldest houses are
from 1923 and the most recent houses are from 2007. Vidomes owns houses in all
neighbourhoods of Delft with means a market share of 12% in Delft. Of this share 98% is
in the social rental sector, with rentals of 200 to 630 euro’s. The foundation has 4
projects in the pipeline.

Build in 1923: 323 euro p/m      Build in 1957: 245 euro p/m   Build in 1987: 471 euro p/m

BP Asset Management/SHF Oct 08                                                      Page 19 of 48
Vidomes Delft: Target groups
The target group of Vidomes is diverse as can be seen in the following box:

                            Vidomes Clients

                                 30% young singles and couples

                                 25 % families with children

                                 35% elderly people

                                 10% people with special needs all with low incomes

Vidomes Delft: Staff
The office in Delft has 26 staff. This is divided over the following functions:

    Client Services or front office: tenant participation, all kinds of management, rental
    collection, property management and local network

    Central office or back office: strategy, financial services, property development, HRM
    and PR.

Delft: Vision on Living
The Municipality of Delft develops a policy vision on living in the municipality. This policy
is a co-production between the municipality and the 4 SHI’s operating in Delft. The focus
areas for this policy are:

    Delft city of knowledge and innovation
    Delft city of quality
    Delft city of chances

Based upon this policy the Municipality and the SHI entered in 2008 in performance
agreement. This becomes the target for both the municipality and the SHI’s.

Asset Management Process
Vidomes uses the following process for asset management:
Every year we look at the key performance indicators (KPI’s) of all 35 residential
projects. We use the following KPI’s:
    Rates of tenant turnover
    Expenses for maintenance
    Customer satisfaction
    Rent arrears,
    Financial figures,
    Waiting list and so on.

BP Asset Management/SHF Oct 08                                                    Page 20 of 48
If these KPI’s result in a bad situation, we give a closer look to these figures and we
make different scenario’s for the future of these projects: 10 till 25 years in advance.

Asset Management Approaches
Vidomes uses the following 5 approaches in asset management:

    Market approach: developments in demand and supply

    Demand approach: to be based on lifestyles and housing requirements of clients

    Area approach: opportunities in an area

    Partnership approach: to look for synergy with local partners (care suppliers,
    schools and so on)

    Business approach: strategies must be in line with the mission and vision of the

      Market               Demand              Area          Partnership          Business
    In the Delft        Housing              Near urban       Are there        Themes:
    Vision on           consumers will on    amenities:       opportunities        Quality of the
    Living there        average become       young            working              living
    are figures         wealthier, more      working          together with        environment:
    about supply        demand for           people or        local                community
    and demand.         quality and more     elderly          organisations?       building
                        houses with a        people.          You don’t
    The average         higher rent                           have to do it        Living-
    age will                                 Near schools     yourself!            wellbeing-
    increase,           Flexibel houses      in an suburb:                         care for
    therefore a         for all ages         more            For instance a        elderly
    growing                                  suitable for    building with         people
    demand for          Energy-efficient     families with   care for
    houses for          houses               children.       elderly people        Low-energy
    elderly people                                                                 housing
                        Lifestyles live      In an area      Or a
    Families            together             near a park:    protective            Houses for
    become                                   more            environment           people with
    smaller             Full furnished       expensive       for mentally          special
                        houses for foreign   houses          handicapped           needs
    More single         professionals and                    people
    households,         students             Near the                              Financially
    especially                               university:     Or for ex-            healthy
    foreign                                  units for       psychiatric           organisation
    students                                 students.       patients

                                                             Or school-

When these approaches in mind Vidomes also reflects on its Mission Statement:

“Vidomes is a non-profit organisation providing good living. The supply of quality is very
important. Vidomes delivers a wide range of residential products and services and
promotes a good living environment in districts and neighbourhoods. We aim in

BP Asset Management/SHF Oct 08                                                       Page 21 of 48
particularly at people who because of their income or other reasons are not capable to
reach their own housing requirements independently.”

Asset choices
With this in mind, one has to make choices between different scenarios within financial
preconditions. For instance: which target group, what rent price, what quality of the
houses, which facilities, more neighbourhood management and so on. You bear in mind
the business approach. You can even think about buying or selling houses, demolition or
new developments.

If you have done this for all projects, you put your plan together. You add these
strategies and compare it with the business approach. If the result is not good, start the
process again. If the result is good, you make management implementation plans for
every residential project AND communicate it with all your staff members!

                           Management implementation plan
                                Sterflats, 372 apartments
              Strategy: Continuing exploitation, target group elderly people

District: Buitenhof
Addresses: Griegstraat 1-124, Buitenhofdreef 231-355, Diepenbrockstraat 1-124.
Size: 124 one-bed apart. (45 m2), 124 two-bed apart (60 m2), 124 three-bed apart (75m2)
Buildings: three buildings, 13 floors. Deck-access flats with two lifts per building.
Rent: euro 219 (1), euro 305 (2), euro 353 (3). Rent increase: inflation rate.
Allocation criteria. 1 bedroom: above 40 years, 2 and 3 above 55 years.
Maintenance: normal. Painting in 2009, new heating system in 2010.
Durability: till 2032.
Financial figures:
    Historical cost price per unit: euro 100.000
    Management value = euro 145.000
    Market price = euro 165.000

   All apartments are adjusted for elderly people: no thresholds, shower floor is nonslip, special elderly
   lock and elongated casement fasteners
   Automatic entrance doors.
   Medical care is given by Careyn (care organisation)
   Jan Pfeiffer is our warden. He is in the building Monday till Friday.
   Near a shopping centre, public transport and recreational facilities
   Two lifts per building

BP Asset Management/SHF Oct 08                                                                   Page 22 of 48
Decision Making Process
      Market                 Demand                    Area             Partnership               Business
     Growing                                         Near                Partnership              Theme:
     demand for            More quality              shopping            with Careyn,             living-
     houses for                                      centre              healthcare               wellbeing-
     elderly people        Flexible houses                               organisation             care for
                                                     Near public                                  elderly people
                           Lifestyles (elderly       transport
                           people) live                                                           Cost-benefit
                           together                  Near                                         analysis:
                                                     recreational                                 positive cash
                                                     facilities                                   flow

                  Decision: Do adjustments to accommodate elderly people

Key Performance Indicators
The following is an example of a decision making matrix with KPI’s that Vidomes is using
to arrive at a decision per project.

        Tenant     Expenses        Customer       Rent       Cash     Waiting   Vacancy   .....     Conclusion
       turnover   maintenance     satisfaction   arrears   flowflow    list       rate
P1       2%           60              8,1        0,20%       pos       265        0%                 Positive
P2       5%           77              7,2        0,65%       pos       148      0,76%                Positive
P3      15%           90              6,1        0,90%     negative    32        1,8%                Negative
P4       8%           66              7,4        0,53%       pos       156      0,54%                Positive
P5       6%           54              8,5        0,49%       pos       196      0,27%                Positive
P6      11%           72              6,8        0,62%     doubtful    108       1,3%                Doubtful

Targets per project

     Tenant turnover below 8%
     Expenses responsive maintenance per unit per month below euro 15 (R 175)
     Customer satisfaction (inquiry) above 7 (on a 10-point scale)
     Rent arrears below 0,70% of rent per year
     Cash flow for next 10 years positive
     Waiting list more than 100 per project
     Vacancy rate below 1%

3.5.      Private sector: Affordable Housing Company AFHCO, Johannesburg
Renney Plit, MD, took us through the way AFHCO manages its assets. In his view
anything a property management company does is in the end meant to ensure that the
company’s assets keep their value. As AFHCO is a commercial company, its second
most important asset after its staff, is (the value of) its property. This value should be
maintained if not increased over time and each staff member plays a role in this process.
Asset management is about the contribution of each department and every staff member
of an organization.

BP Asset Management/SHF Oct 08                                                                     Page 23 of 48
AFHCO is the longest performing developer in the Johannesburg inner city. It was
established 12 years ago in 1996. It first major conversion for the inner city in 2002 was
converting Castle Mansions in Eloff Street from offices to 122 residential units. The
current portfolio includes:

    83 Properties
    3500 residential units
    250,000 m² Retail/commercial and light industrial space

AFHCO is currently rolling out 5500 apartments, investing in excess of R1 Billion in the
next 5 years.

The AFHCO Group is currently actively involved in driving the creation of Central
Improvement Districts. The property management benchmarks are looking healthy:

                     Retail vacancies are at 0%.
                     Commercial occupancy is at approximately 70%.
                     Bad debt ratios are currently less than 0.5%.
                     Residential vacancies are currently 0%.
                     Residential unit turnover is less than 30 per month out of
                     3500 apartments.

Property Management
AFHCO currently employs 280 people and this number will increase with the growth of
the portfolio. The company is structured in the following manner

                                        RENNEY PLIT


    SOLLY                    RAYMOND               CLIFFORD              LEBO MASHEGO
 RAMALAMULA                  MDLALOSE             ALEXANDER
  PROPERTY                  PROPERTY                CREDIT                DEVELOPMENT
  PORTFOLIO                OPERATIONS              CONTROL                  MANAGER
   DIRECTOR                ACCOUNTANT              MANAGER

These four departments manage the business of AFHCO and ensure that the assets
keep their value or increase in value over the years.

BP Asset Management/SHF Oct 08                                                    Page 24 of 48
Property Portfolio
This department focuses on maintenance and letting split up in commercial and
residential properties. The department employs a number of area managers, building
managers and cleaning supervisors who ensure that buildings are managed properly.
Other operational focus areas are residential and commercial leasing, maintenance, and
residential and commercial administration.

Proper maintenance is one of key success factors for a property manager. Effective and
efficient maintenance management pays off. AFHCO has the following maintenance
policy directions:

  Kind of Repairs                              Example                  Response Time
 Emergency              Unsafe and dangerous situations
                            Electricity failure                      ASAP
                            Blocked drain or block main sewer line
                            Broke main pipe
 Urgent                 Inconvenience and damage to building         Within 7 working days
                            Hot water supply interrupted             from notice
                            Faulty light fitting
                            Roof leakage
 Not - Urgent           Minor problems                               Within 14 working
                            Doors                                    days from notice
                            Window frames
                            Minor plumbing

Target market
The target market AFHCO is focusing on is the affordable housing market. This means
people earning between R3000 and R10000 per month.

The rentals charged are ranging from R1200 and R3000 per month. Tenants are looking
for safe, clean and well-managed homes. The demand is big enough to ensure a bad
debt of less than 0.5% and zero vacancies. Monthly turn over of units is less than 30.

Overcrowding is a serious problem for inner city buildings and needs to be managed
very strictly. Overcrowding results in:

    Noise pollution
    Unsafe environment for tenants
    Broken lifts
    Tripping of electricity
    Blocked and overused sewerage system
    Shortage of hot water
    Unwelcome sub-tenants

To protect the tenants and to protect the buildings AFHCO has put strict rules in place
that specify the number of people allowed into a rental unit. The maximum number of
adults allowed in a unit is as follows. Children over 14 are counted as adults.

BP Asset Management/SHF Oct 08                                                  Page 25 of 48
                             Room                            2
                             Bachelor                        2
                             1 Bedroom                       3
                             1 ½ Bedroom                     3
                             2 Bedroom                       4
                             3 Bedroom                       6

Account Management
The Account Management Department is made up of the following functions: cashbook,
debtors, creditors, residential lease admin and municipal analysis. It is important to have
the last function because the council meter readings are not always as reliable as one
would expect and one has to check the meters. The following is an overview of what
keeps the accounts management department busy:

           All units separately metered for water and electricity.
           All meters read and charged monthly.
           2 staff dedicated to working with council accounts only.
           ± R2 Million per month paid in council accounts.
           Rollover by the 20th of each month.
           Processing and printing of statements from the 20th of each month.
           All statements hand delivered to all tenants by 25th of each month.
           All creditors, including council, reconciled and paid monthly.
           All cash books reconciled and balanced monthly.

Credit Control
This department is ensuring that the arrears percentage stays within target. This is done
rather by a more pro-active than a reactive approach. Apart from credit controllers there
are also staff members who focus on vetting of tenants. The credit control and the
vetting procedure are equally important although the one is more reactive and other
more pro-active. A good credit control procedure however has a pro-active positive
impact on tenant’s payment behaviour.

Monthly Credit Control Procedure                                 Tenant Vetting Procedure
 st        th
1 -7 All payments and RD follow ups. All RD must be              Application form fully completed and signed by both
followed up within 24 hours                                      parties
3 After telephone call or SMS final demand letter send           Certified Copy of ID
4 Rent rolls sent to caretakers                                  Original pay-slip or letter of appointment if employed
                                                                 for less than 1 month
7 Lights off list sent to caretakers. After telephone call       Latest 3 months bank statement or latest 6 months
and SMS, termination letter is sent                              bank statement and/or CIPRO company documents
                                                                 if self employed
8th Light off                                                    Debit Order form complete and signed
10 Documentation for legal handover to be sent to                Only ‘Net Salary’ will be taken into account: 100%
Credit Control Manager for approval                              for main applicant, 60% for co-applicant
12 Collections cut off                                           In case of over time 3 months pay-slips or 6 months
                                                                 bank statements
15 Termination of Leases                                         TPN and ITC check to check for any judgments or
16 Final charges sent to Debtors Clerk (RD, Legal                Affordability Model based on 40% of take home pay
etc.) authorized by Credit Control Manager
20 Arrears reporting to Credit Control Manager
   th    nd
20 – 22 Action list as per arrears report to be

BP Asset Management/SHF Oct 08                                                                         Page 26 of 48
For AFHCO the above works well as can be seen from the arrears percentage and the
given that AFHCO only has 1 or 2 evictions per year and so far has not lost one case at
the Rental Housing Tribunal.

Becoming an AFHCO tenant

As can be seen from the tenant vetting procedure it takes something to become an
AFHCO tenant. Not everyone will be accepted as can be seen from the following tenant
rejection policies:

            Application Rejected                              Instant Rejection
    Affordability i.e. shortfall of more than R200   Application form not signed
    Judgment with no regular payments                Asylum seekers
    Listed on ICT or TPN by previous landlord        People under Administration
    Lack of required documents                       Temporary staff or casual workers and
    Expired residence permit or invalid foreign      person on social welfare
    Presentation of false information
    Existing tenants with poor rental record
    Insufficient deposit paid

Urban Development

AFHCO is actively involved in creating City Improvement Districts (CID’s). The Urban
Development Manager who has an MSc (Honors) in Urban Management is overlooking
this process. The CID’s AFCHO is or will be involved in are outlined below:

BP Asset Management/SHF Oct 08                                                     Page 27 of 48
AFHCO is purchasing dilapidated, usually non-residential building in the areas outlined
above and is converting them into residential flats with high standard specification as
illustrated in the pictures above. The buildings can often be purchased at prices that
allow for affordable rentals after thorough conversion of refurbishment. Given the
successful implementation of these types of projects AFHCO is running the risk of
becoming a victim of its own success as prices are going up and it will become more
difficult to keep affordability levels low.

AFHCO Projects (PTY Ltd)
In order to deal with the affordability problems outlined above AFCHO has established a
development company that focuses on:

    Controlling construction costs
    Encouraging innovation
    Speeding up delivery
    Retaining key skills

In-house research and development work has resulted in the development and
application of a lightweight structure which not only combats the shortages of brick and
mortar, but provides for effective floor plans and accelerated rollout.

Community Development
The above may give an impression of AFHCO as a no-nonsense company that first and
foremost is looking at making a good return on investment. That is the right impression
because in the light of asset management, and the need to develop financially feasible
housing and repay our funders, it is the only sensible approach. This principle applies
whether you are a for profit or a not for profit institution. If your financial model is flawed,
you will fail.

But that is not where it should stop. Given the South African environment we are working
in with its vast history of inequality and huge disparities between the rich and the poor,
the well-educated and the not so well-educated, all companies should take their social
responsibility seriously and engage with the communities they are working with. For
property management companies this makes even more sense because in creating an
environment that empowers people and gives them opportunities, and will install pride
and a positive attitude in our tenants, with all the benefits that flow from it.

One cannot fix buildings in isolations. Tenants must feel free to walk the streets and
develop a belonging to the neighbourhood. If not, the property company will either face
vacancies or attract poor quality tenants.

BP Asset Management/SHF Oct 08                                                      Page 28 of 48
These are the main reasons that AFHCO is involved in or initiated a number of
community development projects such as:

    Development of a pre- and a primary school - Citykidz
    Nutritionally balanced feeding programmes at the school
    Activity programs for kids
    A project to employ deaf employees. 12 Deaf cleaners already employed
    Redeveloping the accommodation of an abused woman centre – “The Shelter”
    Salvation Army collections from staff and tenants
    Tenant newsletters that include lifestyle, safety and educational information
    Community Ambassadors that patrol specified city blocks. Afhco supplies
    management, fluorescent jackets, and radios and pays each Ambassador a daily
    stipend. These youngsters undergo skills training over a 12 month cycle to make
    then employable.

                           Community Development
                                 Deaf Employees

                    Program started late 2007 with 2
                    deaf cleaners.
                    4 deaf cleaners now employed
                    6 deaf cleaners on learnership
                    Key staff members have
                    weekly training in sign
                    language in order to
                    communicate fluently with
                    deaf employees

BP Asset Management/SHF Oct 08                                                  Page 29 of 48
4. Property economics perspective: Wits University
Professor Francois Viruly head of the School of Construction Economics and
Management shared his views on asset management.

Social Capital
Housing is much more than about a shelter. Housing plays a role as social capital and
improves the ability of households to, for instance, find employment. Each investor will
be interested in the RoE of a property, i.e. Return of Equity or does one need to say
Return on Ego? The issue is that the individual investor does not take into account
issues that go well beyond the property itself. These can be of a positive or negative

To have the right portfolio is to have the following things in place:

    The right property
    In the right place
    At the right time

Asset management needs to find the best balance between returns (social, economic
and financial) and the risks. From an optimization point of view it is either maximizing the
return for a given level of risk or minimizing the risk for a given level of return.

If one looks at the risks versus the returns in the following graph it is clear that property
is giving an acceptable return against a limited risk. Currently property sits at 21%
average and for Greenfield it is even 30%. For social housing Government should be
happy with 10% which it can be argued is the present cost of capital.

          20                     Retail
                                 Property      Industrial                Equities


               0           5           10                15         20              25

The problem in South Africa however is that there is no to little investment in residential
property by big investors contrary to the rest the world as is shown in the following

BP Asset Management/SHF Oct 08                                                           Page 30 of 48
South Africa
    Norw ay
   Sw eden

               0%   10%    20%       30%       40%    50%       60%      70%   80%       90%      100%

          Residential                 Office                    Retail               Industrial

Higher Densities
The main explanation for the non-investment in the residential market in South Africa is
that it is perceived as to high a risk. The typology of our housing, one-house-one-plot, is
too much of risk for investors, they rather invest in high rise buildings which also offer
economies of scale.. This could give opportunities for high density high rise apartment
buildings that have been advocated by social housing.

The BNG policy or the Sustainable Human Settlements Strategy also makes the point
that human settlements only will be sustainable if the densities are much higher then the
current density in SA. It will make infrastructure, amenities and other facilities financially
viable and at the same time will encourage investors into this sector of the property

         1                       2                          3                        4

                                           4 rather than 1….

Another aspect that makes low density unsustainable is the price of land, this stands at
lmost 50% of the total costs, higher densities can make the land cost percentage of total
building cost much more acceptable. But of equal importance is the observation that
high density residential units are able to compete against commercial uses of land.

The Public Sector Asset Management Problem
“The Government is confronted with service delivery expectations which have to be
matched with an efficient use of limited resources.”

BP Asset Management/SHF Oct 08                                                           Page 31 of 48
The current total costs for the development of a RDP house are in the range of
R130000. Francois posed the question that given the quality one gets for this amount of
money, if it wouldn’t be better to give the beneficiary the amount and let him/her buy/built
his/her own unit in the market. In other words stop the RDP program and use the
resources in a different way. The question also arises whether subsidies should also not
be targeted at a higher level of the market. The sector of the market that is financed by
the banking sector.

Government and Efficiency
Efficiency has at least the following meanings:

    Production efficiency: produce the highest quality at the most affordable price
    Consumption efficiency: get best/most affordable product as smoothly as possible
    Administrative efficiency: manage the whole process best way at lowest costs

Given these meanings government is faced with the challenge to balance the objectives
of the housing policy with the asset management issues as illustrated below:

        Housing Policy Objectives                     Asset Management Issues
    To obtain the optimal use of existing         Are assets suitable for the effective
    housing resources                             delivery of the services they are
    To ensure adequate housing for all            intended to support?
    households                                    Are existing assets appropriately
    To be responsible for the housing             located for effective service delivery?
    needs                                         Are existing assets sufficient to provide
    To guide the future requirements and          the required services?
    location of new housing                       Are the assets correctly and
    Improve social wellbeing                      adequately managed?
                                                  Are the users receiving value for

A further challenge is formed by the financial legislation as spelled out in the Public
Finance Management Act of 1999. This stipulates that government has to plan things
properly, i.e.:

    3 Year strategic plans
    Expected outcomes – measurement of outcomes
    Programme outputs
    Acquisition, management/maintenance, and disposal /rehabilitation

Furthermore sustainable development needs to take a holistic view as illustrated in the
following graph:

BP Asset Management/SHF Oct 08                                                   Page 32 of 48
                                                          Power, policy


                            Social                                 Economic

                                                                                 Jobs and money
   People living together                     Biophysical

                                Living things and life support systems

The role of government in all this is pivotal. It is clear however that the private sector
also has a role to play. If the proper asset management principles are followed and
government makes investment attractive through certain changes in legislation this can
be done as will be spelled out below. The challenges are still big but not insurmountable.

Portfolio Asset Management Cycle
Asset management boils down to the following cycle, each element of which must be
managed as effective and efficient as possible.


                             Monitor                                        Analyze
                             Results                                      Environment

                            Managing                                          Making the
                              the                                             Investment
                             Asset                                             Decision

Investment Objectives

The objectives are usually clear. The main challenge however is to realize that they are
connected and changing the one will have repercussions for the other.

    Financial                                                             Social
    o IRR, Yields, Rentals, Capital Growth                                 o Housing/ Shelter
    o Ling term Sustainability
    Economic                                                              Political
    o Economic Growth, Economic Efficiency                                 o Broader Social Objectives ( Inclusionary

BP Asset Management/SHF Oct 08                                                                             Page 33 of 48
Investment Environment
There are a number of factors that determine the investment environment. The
challenge will be to meet as many factors as possible at the same time as they are
almost mutually exclusive.

   Political Factors
       o Laws and Legislation (i.e. PIE Act)
       o Government Policy
   The Social Environment/Ecology
       o The type of Housing
       o Home, Work, Play and Education
       o Demographic Trends
   The Economic Environment
       o Interest rates / the local economy
   The Infrastructure
       o Energy, roads, communication etc.
    The Environment
       o EIA, making a positive contribution
   The SHI Environment
       o Current and future demand
       o Tenure type
       o Define standards
       o Management risks
The main challenge will be to densify existing inner cities through brown field
developments instead of Greenfield. This also means that there has to be a shift or
power from National to Local and Provincial as it is there where the action should be.

Conversions of dilapidated inner city buildings: a disaster in the making?
In a discussion with Renny Plit of AFHCO which has purchased a number of dilapidated non-
residential buildings in the inner city of Johannesburg and is in the process of converting them
into residential flats, Francois raised his concern about the use of these buildings for residential
purposes without there being a long term view of the city in place in terms of infrastructure and
amenities like, schools, clinics, recreational and sports facilities. Johannesburg has plans to
bring more than 75000 people back into the inner city before 2015 which is laudable from a city
management point of view but how about the social infrastructure that will ensure that there are
‘living spaces for people’? What AFHCO does in terms of social programs is very much
appreciated but can one expect the private sector in the long run to take full responsibility
without there being a proper long term Municipal plan in place to address such issues?

South African inner cities are very inefficient when it comes to space and they are almost
‘unlivable’ compared to many big cities across the globe. Social Housing and Public Housing
could take up the opportunity to change this and create the social space including the amenities
that the SA cities deserve successfully, but only if proper policy and legislation is in place.

Other Developments
The following developments need to be taken into account as well when looking at the
investment environment, such as:

     Consumption Growth
It is very unlikely that SA will escape the current worldwide economic decline and
therefore the government has to take measures to ensure that people can still have

BP Asset Management/SHF Oct 08                                                           Page 34 of 48
access to affordable (rental) housing in places where there are opportunities in terms of
employment, education, recreation, etc.

     New Cities of Gold
It seems that under the influence of increased prices of commodities like platinum, new
cities of gold are emerging in places like ‘Burgersfort’, ‘Steelport’ and ‘Lydenburg’. Small
towns can become bustling hubs. The Restructuring Zones as described in the New
Social Housing Bill are a too limited approach, because they only look at 13 areas, to
adequately respond to these developments.

    Shortage in affordable market
There is a growing shortage in the affordable ownership market (units below R500, 000).
Although this could become a growing problem given the general decline in the
economy, it also creates opportunities for the rental market if sufficient affordable higher
density units should be developed.

    Price of land
As illustrated in the graph below the price of land is in most parts of the country an area
for growing concern.


                     1997:4        2002:4          2006:4           2007:4           2008:1

        Central Witwatersrand         East Rand                        Durban

        Cape Peninsula                Port Elizabeth

This development will force the public and private sector to come up with more
affordable solutions. Some of these we already see happening, such as development
around new infrastructural projects and in the inner city.

     Gautrain/Public Transport
     Watch the stations (Bulk)
     The Development of Existing Buildings
     Urban Regeneration
     The greening of developments: here there is huge potential for employment

     Type of society

BP Asset Management/SHF Oct 08                                                   Page 35 of 48
In the end all of the above boil down to what kind of society we want to be and if we will
have the political will to built a society that is inclusive and has a strong economy instead
of being exclusive with a weak economy, as illustrated below:

                 “We can’t have 20% - 30% of the
                    population playing “….

                “Populist ”                    Asgi SA /         “VIVA”

          WEAK ECONOMY                                      STRONG ECONOMY

                 “The Way We                                  “Where we are ”


Linked to all issues spelled out above is a myriad of legislation that doesn’t enhance the
property environment to say the least. If one looks at the list below and realizes that
some of this legislation is not even finalized and other pieces are subject to serious
debates and differences of opinion about the way they should be implemented, one can
see that we still have a long way to go in which a lot of political will is needed to resolve

    Prevention of Illegal Eviction from the unlawful Occupation of Land Amendment Bill
    Housing Development Agency Limited Bill
    Sectional Titles Schemes Management Bill
    Housing Amendment Bill
    Land Use Management Bill
    Inclusionary Housing
    The Expropriation Bill
    Foreign Land ownership
    Council on the Built Environment and Professional councils Amendment Bill

Making the Investment Decision

By making the investment decision one needs to take the following into account:

    Capital availability & funding requirement (WACC)/tax

    Market disaggregation and segmentation
       o Market disaggregation (finding the sub markets – tenure)
       o Market segmentation (different income groups)


BP Asset Management/SHF Oct 08                                                     Page 36 of 48
        o   Sectoral - (the type )
        o   location - geographic area
        o   the type of tenants

    Determine the mix
       o Complement each other or not ( risk/return)
       o Providing the necessary flexibility

The decision will be influenced by where one sees one self on the following Real Estate
Clock. It needs good analytical and subsequently coordination and alignment skills to
‘see what time it is’ and act adequately.

Managing the Investment

Managing an investment is ensuring that the investment doesn’t become obsolete.
Experience has it that this doesn’t happen overnight, although there are situations of
buildings that became all of a sudden obsolete through ‘(natural) disasters’ that
happened in their direct environment. One has to protect the investment from:

    Economic obsolescence
       o Rentals
       o Operating costs
       o Market conditions

    Physical obsolescence
       o Maintenance
       o Life cycle costing

BP Asset Management/SHF Oct 08                                                  Page 37 of 48
    Functional obsolescence
       o Keeping up with market requirements

Needless to say these three types obsolescence influence each other and need to be
managed in relationship to one another.

Monitor Results

The last element in the Portfolio Asset Management Cycle is also the one that will trigger
the first one: investment objectives. The key in this process are:

    Determine life of a building
       o Physical life
       o Economic life

    Develop benchmarks
       o Economic /financial
       o Social

    Determine efficiency
       o Consumption
       o Production
       o Administrative

This process is actually the same as identifying the risks one takes when investing in a
property, which is spelled out very detailed below:

                                                       • Does it make sense?
                                                       • Does it meet market needs
                                                       • Does it have long-term durability?

                  • Pricing                                                                         • Where are the Needs
                  • Genuine                                         Conceptual                      • rental/ vs Buying
                  • Speculative                                                                     • Efficiencies
                                                   Sales                            Economic

           • Adverse publicity
           • Lobbying                      Environmental             RISK            Demographics
                                                                                                          • Family Size
           • Sensitive areas                                                                              • Age Structure


          • Volative markets
                                                       Development            Structuring
          • Rising markets                                                                              • Volatile environment
          • Margin squeeze                                                                              • Exchange rates
          • Controlled environment                                                                      • Long lead times
                                                                         • Security                     • Action groups
                                         • Impact of delays              • Tax needs
                                         • Phasing                       • Entity
                                         • Attorneys                     • Rising fencing
                                                                         • KISS

           Viruly Consulting (Pty) Ltd

BP Asset Management/SHF Oct 08                                                                                                   Page 38 of 48
Other things that need to be in place when monitoring the results of the properties own
ones are:

    Have an asset register
       o ensuring that it is up to date
       o reflects portfolio objectives

    Develop buy/ hold/ strategy
       o prime properties for sale

    Determine properties that no longer meet objectives

In the end one can do only three things with a property: sell, renovate or redevelop. If
one keeps the property is needs to be kept for the highest and best use in the future.

Highest and best use needs at least to answer the following questions:

    What is physically possible?
    What is legally possible?
    What is financially possible?
    What is socially possible?
    What is maximally productive?

The answers to these questions are dependent on a number of assumptions which will
be influenced by the role one plays and the interest one has in the process as shown in
the graph below:

              The Roles Played by the Key Decision-Makers

                Managers                           Developer                   Managing equity investor

            Money Partners               Construction          Joint venture   Permanent       Passive equity
                                           lender                 partner        lender           investor

               Time Period               Development period                      Ownership period

              Commitment                          Short-term                     Medium to long-term

              Degree of risk                            High                               Lower

              Common goal                         MAXIMIZE RETURNS RELATIVE TO RISKS

           Viruly Consulting (Pty) Ltd

It is a daunting but exciting challenge to change the South African build environment
through effective and efficient asset management. It is clear that we can’t do that only

BP Asset Management/SHF Oct 08                                                                                  Page 39 of 48
with the current way of thinking: a paradigm shift is evidently needed. From what to what
is maybe something that will become clear along the way but it should at least have an
element of what is illustrated in the picture below- the issue is that the residential
property market always delivers – the issue is whether it happens in a sequence that
starts with occupation or whether one starts with town planning. :

                             Maybe We Need To Start
                              Thinking Differently

                                                  – Town Planning

                                                  – Servicing

                                                  – Building

                                                  – Occupation

As said earlier in the end successful asset management is determined by the clarity one
has in terms of the objectives and the extent to which one is able to implement these
objectives. Experience has shown that one will never have all the clarity up front and that
one needs to take decisions along the way as an when the situation requires. This is not
only a matter of knowledge and skill but also of ‘gut feel’ and intuition. Maybe one could
call it the art of asset management.

5. Recommendations

1. Comprehensive tenant education program needed both for SHI’s and CRU.

2. Credit controls – tight – measures leading to realistic threat of eviction and

3. Political buy-in and councilor education lead by National. (Indaba?)

4. Interdepartmental communication on all spheres of government needed so that
   education, health, infrastructure etc, are aligned: the quality of an asset is to a large
   extent determined by the area in which it is located.

5. SHF to keep sector updated on good practice by role players.

6. Learning from best practices of other countries and evaluate lessons learned in the
   South African context and implement.

7. Create more affordable interest rates for social rental and CRU projects by private
   sector and NDoH.

BP Asset Management/SHF Oct 08                                                   Page 40 of 48
8. Encourage product mix (in all respects: affordability, size, tenure etc.) and ensure
   that an integrated town planning and urban design is developed.

9. We need to find a system of incentives and funding apart from the subsidies for
   projects that meet certain requirements.

10. We need to find a more efficient way the land identification and release process,
    especially IEA approval.

11. For the Restructuring Zones the Local Authority should restructure the subsidy
    component: E.g. electricity is not part of the subsidy - this can reduce building costs.

12. We need to find a way of managing the risk of tenants who are in financial difficulty
    and are not able to pay (the full amount) in a certain month. The example of JHC’s
    hardship cover is good but possibly not affordable to not so wealthy SHI’s. Maybe a
    national fund?

13. SHF to compile a database of credible social housing and CRU construction
    companies including the names of directors. It should also give information about the
    track record of companies and shame them if needed. (Need to look into the legal
    implications of a ‘shame list’)

14. SHI’s have to a future evaluation of the following:
    14.1.     Assets
    14.2.     Location
    14.3.     Usage
    14.4.     Infrastructure

15. SHI’s to sit with local council and together identify roles and responsibilities for
   future housing projects in terms of:
   15.1.      Council role and involvement
   15.2.      National/Provincial government
   15.3.      Sustainability
   15.4.      Private sector

16. SHI’s to ensure that they maintain the value of their properties through
    16.1.      Physical maintenance
    16.2.      Social Programs
    16.3.      A holistic approach

17. SHI’s to exercise collective buying power in terms of:
    17.1.      Management Information System
    17.2.      Lifts
    17.3.      Knowledge sharing:
       17.3.1. Maintenance plans
       17.3.2. Sustainability measures
       17.3.3. Rent setting
       17.3.4. Procedures
       17.3.5. Customer relations
       17.3.6. Etc.

BP Asset Management/SHF Oct 08                                                   Page 41 of 48
        17.3.7. Etc.

18. SHF to influence SHIs to adapt.

6. Way forward

The following was decided as a way forward.

1. The SHF to compile a report and to send to every delegate. Suggestion to send also
   to at least all SHI’s who did not attend.

2. SHF to follow up on recommendations and to report back

3. SHF to look into the possibility of a publication on this subject and/or a follow up

BP Asset Management/SHF Oct 08                                                   Page 42 of 48
Annexure 1: Evaluation

What did you like about this workshop?
  Presentations, experts and professionals (6)
  Interactivity and participation (5)
  Informative and constructive (4)
  Common understanding and sharing amongst delegates (3)
  Presentations from different SHI’s (2)
  Discussions (2)
  Facilitation (2)
  Real stories
  A lot of different examples
  Importance of maintaining buildings to extent lifespan of buildings
  To learn that in house maintenance is much cheaper than out source (FM)
  AFHCO’s presentation
  Exercise Hawaii
  Presentation Francois Viruly
  Good food

What did you not like about this workshop?
  Nothing (7)
  Small room and no windows (2)
  Too long sessions from 08:00 to 16:30 hrs, we are not students
  Chairs and air-conditioning
  Participants going in and out
  They don’t allow scenarios from other companies
  Too little time for such a vast topic

General Comments/Suggestions
   Make a two week workshop for such a topic
   None (2)
   More and other SHI’s
   To include important government departments as well
   Very important initiative
   Looking forward to see SHF uniting the SHI’s
   Thanks to SHF for bringing SHI’s together
   Looking forward to other BP workshops
   More exercises and less presentations
   Other accommodation
   Good to have workshops in other places than Johannesburg
   Good workshop: gives opportunity to identify gaps and challenges
   Well structured and organized

BP Asset Management/SHF Oct 08                                              Page 43 of 48
    Annexure 2: Program

 Programme for a Best Practices Workshop about Asset
  Management to held on 23 and 24 October 2008 at the
           Protea Edward Hotel in Durban

The purpose of the workshop is to explore asset management as one of the key
strategic tools for social housing institutions and other social rental housing delivery
agents to be used in ensuring long term sustainability for the company. Asset
management needs to ensure that the companies portfolio of assets contributes to the
long term sustainability of the company and at the same time will be affordable for and
attractive to their target group (s).

At the end of the workshop the participants:

    Have a good understanding of the key aspects that constitute social housing asset
    Have insight in and understanding of a number of good practices used in the social
    rental housing sector
    Have explored a number of ways in which asset management can contribute to the
    long term sustainability of a social housing institution in ensuring that the units are
    attractive and affordable to the target group
    Have defined a number of recommendations that will enhance asset management as
    a key strategic tool for the social rental housing sector.

Thursday 23 and Friday 24 October 2008

Protea Edward Hotel
149 Marine Parade
Tel: 031 3373681

SHI’s and Private Sector Management Team members

BP Asset Management/SHF Oct 08                                                  Page 44 of 48
Thursday 23 October 2008

09:30 hrs        Opening, Welcome, Introductions and Overview of the Program

10:00 hrs        Asset Management
                    Question and Answers, Discussion

10:30 hrs        Asset Management: making informed decisions (1)
                    Case studies

11:15 hrs        Coffee Break

11:30 hrs        Asset Management: making informed decisions (2)

12:00 hrs        Best Practices, 1: First Metro Housing Company (FMHC), Durban
                    Presentation by a representative of FMHC
                    Questions and answers

12:45 hrs        Lunch Break

13:30 hrs        Best Practices, 2: Johannesburg Housing Company (JHC)
                    Presentation by Debbie Johnson, Maintenance officer of JHC
                    Questions and answers

14:15 hrs        Best Practice 3: International Perspective
                    Presentation by Marja van Leeuwen, technical advisor to the SHF and
                    former Managing Director of Housing Association Vidomes in Delft,
                    the Netherlands
                    Questions and answers

15:15 hrs        Tea Break

15:30 hrs        Similarities and Differences, Do’s and Don’ts: Analysis of what has been
                 presented so far.

16:30 hrs        Closure

BP Asset Management/SHF Oct 08                                                  Page 45 of 48
Friday 24 October 2008

08:15 hrs        Brief summary of day 1

08:30 hrs        Best Practices, 4: Affordable Housing Company (AFHCO)
                    Presentation by a Renney Plit, Managing Director of AFHCO
                    Questions and answers

09:15 hrs        A view from the property economics perspective
                     Presentation by Francois Viruly, Professor, Wits University School of
                     Construction Economics and Management
                     Questions and Answers

10:30 hrs        Coffee Break

10:45 hrs        Asset management and the long term sustainability of a rental housing
                    Case study and discussion

11:45 hrs        Recommendations

12:30 hrs        Way forward

12:45 hrs        Evaluation

13:00 hrs        Lunch

14:00 hrs        Closure

BP Asset Management/SHF Oct 08                                                   Page 46 of 48
Annexure 3: List of participants

Name              Surname         Organisation                   Designation                     Tel                           Email

1.   Oscar        Norton          Communicare                    Area Manager, Brooklyn          082 573 6623        

2.   Julie        Hallows         Kevro Consulting               Managing Director               083 309 7844        

3.   Alex         Persent         Govan Mbeki Housing            Property Officer                017 620 6300                  a.persent@gmhco.coza

4.   Michelle     Le Roux         Msunduzi Housing Assoc         Finance Manager                 033 345 2184        

5.   Helga        De Villiers     Habitat for Humanity SA        Regional Credit Controller      031 309 8482        

6.   Malesela     Masekoameng     Polokwane Housing Ass          Accountant                      082 803 9050        

7.   Mapitja      Makgato         Polokwane Housing Ass          Credit Controller               072 433 3739        

8.   Ndumiso      Jikela          Cape Town Community Housing    Project Manager                 083 409 3995        

9.   Ismail       Khatib          First Metro Housing Co         CEO                             031 307 7676 / 082 381 2103

10. Thulisile     Lukhele         Greater Middelburg HA          Financial Accountant            013 282 9595 / 082 661 5007

11. Thabile       Mbowane         Greater Middelburg HA          Management Accountant           013 282 9595        

12. Lawrence      Nugbelanga      KZN Prov. Dept of Housing      CRU coordinator                 031 336 5204        

13. Mannie        Naidoo          KZN Prov. Dept of Housing      CRU coordinator                 083 283 0727        

14. Robert        Sibya           KZN Pro. Dept of Housing                                       031 336 5294        

15. Marja         Van Leeuwen     SHF                            Technical Advisor               011 274 6252 / 076 861 8833

16. Harmen        Oostra          SHF                            Technical Advisor               011 274 6230 / 082 712 9283

17. Debbie        Johnson         Johannesburg Housing Company   Maintenance Manager             011 241 6900        

18. Gafee         Vengedajellum   SHF                            Program Manager                 011 274 6233 / 072 800 2983

BP Asset Management/SHF Oct 08                                                                Page 47 of 48
19. Renney        Plit           Affordable Housing Company   CEO                  011 224 2403 / 083 658 2464

20. Francois      Viruly         Wits University              Professor            011 717 7658 / 083 675 6090

21. Heather       Maxwell        Social Housing Company       CEO                  031 209 0506 / 083 776 4526

22. Stuart        Talbot         Social Housing Company       General Manager      031 209 0506        

BP Asset Management/SHF Oct 08                                                  Page 48 of 48

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