R1,6 billion Cape Town CBD office development could prompt more corporates to look at UDZ tax scheme

Portside site in Cape Town’s central business district.

The R1,6 billion landmark co-development office project planned by FirstRand and Old Mutual for the Portside site in Cape Town’s central business district could prompt other corporates to follow suit and invest their capital in upgrading or constructing new buildings within the demarcated urban development zones (UDZs) in South Africa.

That is the view of the Portside dealmakers Colin Young and Michael Anderson, executive directors and co-founders of Nine Cubed Capital, which proposed and brokered the sectional title co-development of what will be Cape Town’s tallest building.

It will be the provincial headquarters for the three divisions of FirstRand – First National Bank (FNB), Rand Merchant Bank and Wesbank. Co-owners Old Mutual will offer an additional 25 000m² in the lower portion of the tower for leasing to corporate office tenants.  

Young and Anderson say the South African government’s UDZ tax incentive was introduced to encourage office and residential development projects within carefully selected UDZ areas of major cities. 

“The UDZ tax incentive scheme offers real benefits to those corporates wanting to invest in inner cities , notably to own and occupy their own buildings,” they say. “The challenge is that those corporates considering investments, for instance, to consolidate space, need to move quickly if they are to benefit. Construction needs to be completed before the UDZ tax incentive expires at the end of March 2014. ”

Young and Anderson first learned in January 2010 that the First Rand Group was considering a consolidation of satellite offices in the Western Cape metropole, and was reviewing various  development proposals. This was shortly after they had founded Nine Cubed Capital, as a private equity property investment business offering corporate finance and property investment expertise.

“The Nine Cubed Capital proposal highlighted the multi-faceted financial benefits of the development, underpinned by the UDZ tax allowance as well as the appeal of the site as a key new CBD financial district location,” says Stephan Claassen,  provincial  head of FNB. “ The final investment case was extremely compelling and eventually accepted by the FirstRand board. “

Young and Anderson say the deal took many months to finalise, given the complexities of a sectional title co-development scheme and to ensure that the interests of both Old Mutual and FirstRand were covered. 

“Fortunately, both parties embraced the vision and the detailed legal co-development agreements were finally signed in June 2011.”

Once the deal had been concluded, the existing FirstRand and Old Mutual development teams were successfully integrated and the final Portside development design and costings completed. Cape Town City plan approval processes are underway.

When completed, the 32-storey office building, designed by dhk in conjunction with Louis Karol Architects, will help entrench the surrounding node as Cape Town’s newest financial district. The unique design will give Old Mutual and FirstRand their own separate business addresses within the building. 

Derick Henstra of dhk Architects says the gateway location of the site presented a unique intellectual and design challenge.

“It encompasses an entire city block of 6 642m², with a bulk utilisation of 60 000 m², and is bounded by Bree and Mechau Streets, Buitengracht, and Hans Strijdom Avenue. The conceptualisation took account of FirstRand and Old Mutual‘s business requirements and the vision of a new multi-tenanted dual-entranced tall office tower.

It was critically important to ensure the building integrated with the pedestrian street activity, complied with all tall building heritage, traffic, wind, structural, environmental and green building considerations, as well as contributing to the pedestrian and retail revitalisation of the area.“