John Jack — CEO, Property Broker

It's yet another edition of involved a special guest and and I came across my special guest in a rather convoluted manner, but the fact of the Fact of the matter is I've got him. It is John Jack. He is the CEO of Galette. Hello John. Welcome to the show Hi, David. Thanks for having me An absolute pleasure. Okay, so first and foremost, what is Galette? Let's start right there Giletti is a corporate real estate services business So, you know, I was explaining that we have the two different sides of the business The one side represents the landlord and the other side of the business represents the occupier or the tenant So you can imagine which side of the business has been heating up over the last couple of months Um everyone looking for a rental breaks trying to structure new deals and that's what Giletti is we have a team of Advisory a team of consultants and we work with landlords commercial landlords and commercial tenants across the country Sounds fantastic now to to get into the position of of ceo tell me a little bit about about Your history john where whereabouts do you come from? How did you get into property? Is it a passion that that you've always had? Yeah, funny enough. My whole family's in property. My my father was in property development and At some point I think when I was advised he I was at stellenbosch he was working with a company called pangborn, which is now fortress and He was selling them a shopping center at the time and it seemed really interesting. It was quite sort of exciting he used to be a stockbroker sort of in the 80s and I said to him, you know, I always said to him i'd love to get into stockbroking and he said no Property broking is the stockbroking of the of this era so that sounded quite exciting and I kind of looked into it a bit My mother's a state agent for pam golden so you can imagine lots of turmoil there at the moment Um, you know you've seen the recent press with a bit of restructuring I think I think there's sort of a lot of pain in that residential market as a whole at the moment but that's so that was my mother and my mother taught me a lot about negotiation and understanding people and You know, she's there's so many things I can sort of recall that Her saying, you know going going backwards in my life that i've implemented and And so she then introduced I then went to go work for her just off diversity She introduced me to her manager her manager Used to be partnered. Um with Tina roberts tina roberts was married to william wayfield and william wayfield was a director of brawl And that's how I got my first role in the sort of commercial services business Um, so that yeah, that was the beginning and you know, william william wayfield was a great mentor and he really helped us We had such a we had such a brilliant team. Just a good energy, you know, um lots of laughs and William taught us a lot. He is huge experience. He's still involved in the market And um, yeah, we continue to to engage today So well, it's weird that you mentioned role because many many years ago Um, we'd actually started up a family business doing contract packaging and we we were looking for premises in jet park And we actually went through brawl properties and it was a great experience And with them we related to find out that uh, it was a very good experience with them because subsequent landlords were not nearly as nice And as accommodating as those guys were but I think they did some fairly innovative things in their time the brawl guys in terms of of Rentals and how they structured the deals, etc etc um, and i'm just wondering if if that kind of thing is carried forward because now as we know we we're sitting with this this uh Covid 19 pandemic thing whatever you'd like to call it that came out of the blue that that must have affected a whole lot Of businesses and specifically guys you deal with Yeah, absolutely. You know, jonathan brawl set up set up an excellent business It was it was ahead of its time when I was there. That was around the 2000 six to 2010 um time period and it was it was a fantastic business, um And they were really the first that I can remember ken gerber had come across and he was setting up this Corporate services business at the time and we were all the brokers and wondering now. What is corporate services? What does that actually mean?

Corporate services is where the tenant or the occupier is represented and globally, you know The guys are way ahead of us on this, you know, you've got this especially in america's and throughout emir but It's where the the tenant is represented and kind of gives them a voice and more transparency in the in the negotiation Historically an essay the tenant didn't really have a voice and you know, the landlords were very the landlord had Teams of people who were experts in what they did renegotiating rentals signing new deals and of course, we've had this Unbelievable market from sort of the early 2000s running up to 2007 2008 where we had a bit of a fall off And then again another unbelievable market for landlords And and so the guys on the landlord side have really honed their skills, but on the tenant side, they just weren't represented and I remember brawls starting that division up first with with ken and uh And certainly years later when I was part of galette it was it was definitely a focus, um to to have that division To have the corporate representation and that's when we linked up with knife frank, you know It was a big focus if I was to say how can we partner with a big global entity?

That has all of this ip. How do we learn and so we linked up with knife frank? um And you know illustrate alistair elliot runs knife frank globally He's the managing partner and we met some brilliant people over there collin fitzgerl All of these guys have really really experienced deal makers and tenant representatives and we learned so much and we brought it back to south africa and sort of Expanded on it elaborated create our own models and really built that division. So that was a that was sort of a In certainly in galette. It was a new sort of pioneering direction for us. Um But we we weren't the first in the game Um, but we are we are very skilled at it now. So we've learned

Uh-huh. Okay now You you represent and I think that's fascinating because you represent um tenants and landlords. That's the two facets of the business but now covid's come come Into the picture here john and how has that affected you guys and and how you do business? Because I would imagine you're now being sort of affected on both sides of the business Sure, I think you know The message on the on the corporate services side has always been let us look at your portfolio Let us look where we can strip out costs And and that's certainly every it's something that everyone wants to hear at the moment, you know Everyone wants to know how they can strip out costs across the board Um, even landlords want to know how they can reduce costs on their portfolio But usually they're quite good at it on the tenant side we go in and say, okay Well, you know your head count is reduced. Maybe we can reduce the size of your office or you have 10 officers Maybe we can reduce that to one single office there by cutting down head count on let's say security and gardening et cetera et cetera, some of the operations costs And and we also look to benchmark them back to market and that was that was another key thing that we started doing years back in about 2012 we created a system an online system which literally maps out all of the commercial and industrial properties across the country and we Every single time there's a new vacancy in that property. We add it every single time a vacancy is removed from that property We remove it and so obviously you get a trend over time So we have this very very accurate information giving us a sort of heads up view of the market and that's helped us enormously in this market because as you can imagine you had such a radical tip of such a radical drop in demand such a radical sort of impact on the market where no one is able to pay rental of course certain certain larger retailers are able to pay rental when they They're still operating but pretty much across the board. Everyone has just put their brakes on on cash flow on spend And so, you know, everyone's come to the landlords to say can we pay a half rental? Can you give us a break this month?

How do we structure it and that's what corporate services is very good at doing they've created the models They've created the structures. They're excellent at having negotiation with a landlord And so that's just been a you know That that sort of service line has been in high demand over the last two months On the other side of the business on the landlord representation. That's really looking for tenants looking to source new tenants to um to full buildings and interestingly, you know where you've got massive sort of decline in demand you've got this increase in demand for distribution centers for e-commerce for people who've been awarded ppe contracts And so you're seeing this demand for this very clean warehousing. And so that's where the activity is at the moment also, on the other hand, you've got Let's say a law firm who had a hundred people now has 50 people They would like to at the end of their lease, which might be now downsized from Whatever it is 1500 squares to 750 squares and so those deals are also Available and you know, they want to move quickly. And so the brokers are able to help them So it's interesting in our in our business as long as there's Transactional activity as long as people are making decisions. There's business as soon as people don't make decisions There's a problem and now you know that reminds me of sort of 2008 where people were just it was this Decline and it was a long much longer decline and no one knew what to what to do Do we downsize? Do we stay where we are? What decision to make and so that was a real problem for our industry But this is a this is an interesting market lots of transactional activity actually This is this is the the thing because as i'm thinking about it and not really being involved in in that sort of Formula business at all. Um, you know i've now if i'm a a company that's got a hundred employees Um now with the social distancing, etc, etc. I can't fit all a hundred employees back into that space Um, maybe i'm going to need to downsize. I mean What is our new normal going to be going forward?

What do you think this market is going to look like jack? Should we talk about that when we come back because I notice it's it's time for us to have a break now Let's talk about uh, you know this new normal some predictions that that john jack is going to make going forward In terms of whether you are a company that's renting premises or a landlord because I know a couple of landlords Ask my kids some people and they are they still in shock. They don't know what to do More of that when we come back. It is what's involved and my special guest CEO at galeti. It's john jack. We'll be back in just a bit

And we're back so uh just before the break john we just said we're going to ask you for for some peering into your crystal balls and predictions, um in in terms of this market going forward because Um, I know from a from a commercial Point of view or residential rather. I mean we've been trying to sell my mom's house and it was all Good to go before covet 19 hit and then it's just all gone down the toilet quite dramatically What's been happening like that on your side and what are your predictions there? Yeah, you know you hit the nail on the head. Uh earlier basically the social distancing is actually creating a strange phenomenon in the market. So Like you said you've got potentially less stuff But the same amount of stuff would take up the same amount of office Okay So what does that mean? It means that people can't sit as close to one another as they used to so they have to spread out a little bit more Now either if you're a business who's actually reduced your staff component You can maybe not fit into the office with the social distancing If you're a business that hasn't reduced your staff component The social distancing actually requires you to take up additional office space And this is this is fascinating. We've seen some of the banks doing it Um where they take a very specific executive team and they just move them away from everyone else Uh, you know, we saw discovery doing it. They've they've placed People in pods and really spread them over that building and sent a lot of people home In fact, some of the things discovery have done are amazing. You know, they they literally have, uh commandeered drivers for all of their staff back and forth I mean, you know, it's that they've not dropped one call it, you know So you get these businesses that really sort of thrive in this type of market but This is this has caused a strange demand for office space and I think one of the huge beneficiaries of this market is going to be the the co-working space the business exchange we work regis, etc, etc Because imagine now you have to take up some additional office to fit your people in Do you want to sign a long-term lease?

Probably not because you don't know when you're going to have to go back to normal or is there going to be a normal or what? What does it actually mean because there's not been a lot of clarity coming from government in terms of how do you occupy space exactly? And how long will this last for? So yeah, certainly going forward. I think there's going to be a massive demand on this co-working space And so we've you know at the moment, obviously the guys take a little bit of pain or during a lockdown level five because everyone with a Short-term contract which is some of you know is what they offer Cancelled it they said oh, well just work from home for the next two months And but now they're starting to resign and actually take up that space again And so chatting to dave sanco from the business exchange. They're actually looking at taking additional sites you know and and this might be a Absolute boon for landlords because landlords are sitting there going Well now we have big vacancy and you're going to get the the co-working guys coming to take that vacancy up um I was chatting to another mate of mine who owns a furniture business And he said the the deal that he's been able to negotiate is a hundred percent Turnover clause and I mean that's just a gem for any retailer because they don't have to pay Rental it's all based on what they sell. So if they selling then they pay rent if they're not selling they don't pay rent So it's almost a quid pro quo, which seems quite fair Um under the circumstances and maybe we'll see more of that in retail Um, so landlords with retail properties are going to become retailers themselves. There'll be a partnership So that's going to be quite interesting but industrial Industrial doesn't seem to be very impacted if i'm honest it it's it really seems to continue It's it's just it's continuing to to operate and it has been the darling over the last Couple of years you see funds like equities who have lots of distribution centers long-term leases They've performed really well in the jsc. Um, but you see other um funds with exposure to A lot of offices a lot of retail that have had massive massive setbacks in the on the market in the last Well in last year definitely, but since the beginning of this year, you've seen some of the funds fall of 75 percent type of thing Uh where for the last 20 years they've been just Delivering the results delivering year after year increased dividends increased capital value. So we're seeing a huge rebase Um in the market. So yes Co-working that's what it's going to be about and maybe the land builds also create some of their own um strategies with regards to that, you know, we saw Growth points in workshop 17 workshop 17 is a co-working space. We saw them Enter into a jv agreement and maybe that's what's going to happen Maybe there's going to be more landlords competing with the co-working spaces offering more flexible terms Offering to fit out the space because that costs an massive amount of money. You want to fit out of an office?

It's going to cost you You know 5 000 rand a square meter where your rental is only 100 rand a square meter 150 rand a square meter You've got to drop 5 000 rand a square meter as you move in so you can see the impact that's going to happen. No one's going to be Overly enamored to be doing that in the next sort of 12 to 24 months. I'd imagine

It is a fascinating thing and I must admit john as you know, as you as you've been speaking i've been I've sort of gone Okay. Yeah, you know, I thought it was just doom and gloom. I thought you know, that's it Bottoms dropping out of everything. We're all going to go and sit in a corner and eat worms But as i'm speaking to you, I think you know This kind of thinking of of yours is is certainly a very positive outlook You know, you are this positive and I thought everything was was was going to be uh A doom and gloom but if I am a a businessman of some description i'm listening to the show now um Can I come to you and say listen, um, you know, we've got um, where we currently are there's We've got a hundred or two hundred or a thousand people I need to do some renegotiating Will you guys do it for me? Is that something that you offer? Yeah, so so that's typically what we offer. We actually represent the tenants of the occupier, you know, it's it's It's a brilliant, you know idea in general I mean just going backwards, you know when we when I sort of first saw it and talking back to the brawl days I wasn't 100 sure how to sort of Juggle it in my mind. How does this work now a bit later when we engage with the knife rank guys You really saw it all sort of fitting together. It's giving yourself An expert in commercial real estate and negotiation and structuring To go and bat for you. That's that's all you're doing and it gives you Arms length from the landlord so you don't end up fighting with them You can someone else can be the bad guy or the good guy as it as it happens And it gives you transparency of the market and and really in the end of the day It's the landlord's best retention tool. So what would happen historically is You know a tenant would either get you know Decided to be over their landlord or they would get an offer from their landlord a renewal offer And they might go to a broker and say, you know What else can I see and the broker might offer them something else?

And I say well this landlord's offering me 200 and a square meter and this broker's offering me another Building it a hundred random square meter. I'm gonna move and they just move that's it. That's the last landlord ever hears of them Sometimes they start that process without speaking to their landlord. They they look at what they're paying And they chat to a broker and the broker just moves them and that's the first the landlord he has of it So a big focus for the landlords is tenant retention and maintaining relationships, etc, etc What we're allowed to do is we we go in we look at their situation their current lease agreement We look at market. We look at their options and we run it all into sort of a a model that we've built And it brings it all back to a net present value so the net present value of staying versus the net present value of leaving and we try and get these to An equitable value where we can go to the landlord and say we you need to match this level In order for your tenant to stay if you believe that you can replace This tenant at a better value and on top of that you you'll have to pay commission to a broker You might have a vacancy. You might have to provide a tenant incentive. So a lot of those numbers that adds up to sort of 12 months rental and You're willing to take that risk and lose this tenant rather than negotiate to this level And so the landlord will often say actually, you know what that is actually market And we we'd love to retain this tenant. And so that's how it happens They you you know, you resign the deal and everyone's happy. The tenant's got a fair deal. The landlord's got a fair deal And we walk away and we represent the the tenants on that basis So it's it's it's just an elegant solution. It works really really well. Um, and we love doing it It's like a it's like a tetris puzzle, you know You can imagine there's just so many moving pieces and you've got to try and fit them together and in the end of the day You get a win and that's that's what it's about It is what's involved my special guest is uh, john jack from giletti will be back in just a bit And we're back my special guest john jack from giletti It sounds fascinating what you do because i've always you know, I I sort of I suppose It's something that we we pick up but I mean, you know in in my business experience landlords have always been the adversary They're those horrible people with lots of money and all they want to do is guard you for as much as they can etc, etc Um, you're helping me to see that this is not necessarily the case and during specifically now during this this covet 19th Um, I think there's been a lot of wake-up calls Uh across the board now in terms of commercial property and stuff like that though Um, john a lot of people have let's face it have lost their jobs. This must impact on what you guys do Yeah, I know it does. Um, you know There are actually two sides to it again. There's the positive side and there's the the negative side So the positive side to it is interesting because in in our business We're always looking forward for great people, you know, great people with experience commercially minded And our industry is typically specifically on the broken side has been far riskier or perceived as far riskier You know, you're you're almost an entrepreneur with a with a support base, you know You've got a support system around you. You've got information you're working for a business. That's what they do Um, but it is risky because at the end of the day on the broken side you earn on a commission basis So you only if you place a tenant then you'll get paid if you sell a building you get paid So it's like an agency model and and so that's quite risky But what we're seeing at the moment is well It's also quite risky to work for a big corporate because you know, you could end up in a section one eight nine process and lose your job Um through no fault of your own just the fault of the market. That's what it is So this allows people to get into a very different market um, great people and we you know at the moment we're talking to some some really great people to come and join us and And historically, you know, there's a far smaller market of people who have that risk appetite to come and Do what we do? I suppose on the broken side And and so that's a positive for us. I suppose And on the other side the negative is you're seeing businesses that you're working with That are just unable to survive. It's it's just It's horrible to see, you know, we were chatting to a

Travel business, um employing a hundred people and You know the guy says to me, you know next month our revenue is zero And the month after that the revenue is zero and we don't know how long it's going to be zero for and and the reality Is is that no one can afford that no one, you know, you might have as a business A couple of months in reserve unless you really really really strong balance sheet business You might have a couple of months in reserve but if you've got to carry on paying a hundred people And you've got no income and no idea when it's going to turn around It's devastating, you know that you know those people are in the market and and of course not people looking for Positions in the market where you're going to go? Everyone's holding so it's just a it's just a horrible thing to see, you know but for us it creates transactional opportunity, um people downsizing people consolidating um People selling their selling their property to generate some cash flow into their business. That's another opportunity for us Where the guys say hang on we're actually sitting on an asset We can sell this and lease it back, you know another landlord would be happy to have them as a tenant You could sell a lease back or alternatively you could just sell and downside us There there are always people with money. There are always balance sheets And and and so that that on the other side as you can get out of it Obviously, there's a discount in the market at the moment, you know, you're not gonna you're not going to sell your building for it You could sell it for two years ago, but it hasn't fallen through the floor completely It's not like there's no value in these buildings and no one's buying people are buying there's money and there's transactional activity Yeah, I suppose. Yeah, I suppose there always isn't it's those those people that uh, Are able to hang on I just you know, i've got i've got a lot of friends and people I know that are in the event industry Conferencing, um, they supply decor sound lighting, etc etc And those poor people have I don't know what they're going to do and and you know We talk of we talk of pivoting and doing things like that um, and in In my other life, we do a lot of sales training When i'm not on doing the radio thing we do sales training And we had a whole bunch of stuff that was that was set up that just got canceled and um We we obviously now are trying I think along with everybody else and their dog trying to get stuff online How does this online and social distancing thing?

Affect you guys because I mean surely, you know When you're wanting to rent, you know, if you're looking to to to rent or buy a residential property You kind of want to see it if you can but I could understand how you could maybe do a video tour of that But in your instance, what are you what are you guys have you got any plans, uh in that regard? you know, it's so difficult because We sit on I mean if I go into our our system There are thousands upon thousands of Vacancies and these churn every month there's a new vacancy So we get what's called a vacancy schedule it comes from the landlord and and this is another thing that could be optimized in the world But inside Africa for sure you get a a word document from one landlord You get an email from another landlord you get a spreadsheet from another landlord and basically what these things are is containing Details regarding the vacancies in their portfolio of properties, you know, the bigger landlords the growth points and the redefines Obviously, they do it better than someone who owns two three buildings a private guy You know just happens to own these things, you know So they send these vacancy schedules out what our system does is collates all of them So from the broker's perspective, they can just go and search the system and pull information out and sort of brochures ready to go, right?

but What happens is because of all this churn and because there's so many properties for us to go and spend a lot of time Filming these properties really takes a lot of time, you know You got to do one by one by one by one and it always it's always changing The nice thing about having a database is it it stays there. It'll always be there So you can use it the next time but it is a massive process and we started doing it You know walking around the offices where this thing called a gimbal the gimbal is basically like it stops the it stops You're the tremor in your hand, you know when you're videoing the office But you're right in the end of the day it's it's quite a it's quite a clinical decision when it comes to commercial real estate because you're going to employ the likes of a trend or Whoever it is to come and actually design your space They literally will take your space and design where the desk's gonna go Where will your meeting room be can you fit the number of people that you're looking to fit into the office? But one thing I bound is and you know moving away from the videoing of space Is having these types of meetings having a skype meeting having a zoom meeting a google hangout?

It saves an incredible amount of time You know where we would go, you know We would drive all the way out to the east end or we drive all the way out to praetoria to have a meeting That takes time. I mean it really does consume time It'll consume a couple of hours in a day now everyone's very comfortable with having a zoom and skype hangout And that saves a lot of time, which means that you can be a little bit more flexible in terms of where you are I've seen even now this week with us going back to the office I've seen that people are using the office as more of a project station, you know people go there, you know internally The guys will go to meet each other because they're working on something together or they want to touch base or share some ideas That's what the office has become the rest of it. You can do it home Now obviously you need to have the luxury of having somewhere to work at home. Um, and you know, you're not not with kids and cats and dogs running around but If you do it it it really makes things Uh a lot easier you you can be flexible and and use the office as and when you choose So that that's that's a lot of what we're seeing at the moment We are having a chat to a ceo of galette. It is john jack. What's involved?

uh, when we come back we'll be wrapping up and asking uh, john once again to to look into his uh, His crystal ball and tell me what the future is. Uh, he well what he believes the future may be For tenants and landlords. It is what's involved

And we're back my special guest, uh, john jack co of galette Wrapping it up john. Um, so Yeah, where to next for for galette? How do you see the future panning out for you guys? Yeah, I think you know moving, you know continuing online discussion, um in the states online bidding is massive You know so that that's what we historically, we have what they call ball ballroom auctions where it's open cry and you know, you've got a lot of people standing in a room shouting and that that creates a lot of energy and it's and it's It's a it's an exciting environment to be in Um, and you've got different businesses in south africa that do that. You've got orkor. You've got high street. You've got brawl They all have the the ballroom auctions, but what we're seeing now is the Incorporation of online bidding so high street has an app Um, you've you've got different guys coming into the market and like I was saying in the states That is the norm. You might still have a ballroom auction, but you'll definitely have online bidding alongside So what that is is a it is an app either developed in-house or alternatively developed by a software provider And literally you have an app and the property comes on the app It's got all the information which has been sent to you and in commercial property The beauty is a lot of the time is you're buying Um, you're buying it as an investment or to occupy yourselves in And but when you buy an investment you don't have to it's it's you know, there's not as much sentiment involved There's an idea involved. Maybe you can do something and add value to it But there's not much sentiment how many square meters? What's the rate per square meter? How much are you paying for rates?

What's the yield on this property? It's clinical and so to get an idea of the property Get all that information you literally bid online and you put your bid in and if your bid's been, you know Exceeded you can bid a game and so you can do it literally from the company own home And what's exciting about the app is that it also builds some pressure, you know You see the new bid come in and you know you're behind and you want to go look, you know, so it's it has this element of You know, they call it gamifying so there's this huge trend to gamify as much as possible anything that you're doing because it it creates excitement I suppose and we even do it internally, you know when you know, sometimes we might game a gamifier process of Contacting clients or whatever it is We try and create that excitement in it because at the end of the day you want to have fun at work You want to have fun at what you're doing and even on the investment side that is a business themselves, you know These guys are building a portfolio. They're managing it They want to get better assets at a good price And so it's exciting to to have these opportunities and that's where I see the market going and we we certainly Are looking at that at the moment very carefully. So that's that's probably the next step for collecting Wonderful stuff john. I always I like to ask all of my guests Just you know when we as we're about to say goodbye. What is one thing?

About uh, john jack that nobody knows what tell me something about yourself that nobody else knows Wow, uh, that is a huge question something that no one else knows Um, yeah, you know the guys who work with you people are listening on the on the on the radio listening to the podcast They go really I never knew that Probably maybe something that no one else knows is I got all the way through stellenbosch and the only thing I didn't write was my final economic exam much to the Shegrin and my mother she's really annoyed about that But that's that's the one thing I went all the way through stellenbosch. I didn't write my final economic exam I didn't get my degree. So that's probably the one thing that

John thank you so much for taking the time out having a chat test If somebody wants to get hold of you guys and go listen, I need some help here I need help renegotiating whatever the case may be. What is the best way to get hold of you guys? Our website's probably the best way to get hold of us So that's uh Yo, galetti dot ca dot za galetti spelled with two l's, huh? single l double t Single l double t. So there we go. Www dot galetti dot ca dot za single l double t John Jack, thank you so much for chatting to us. We wish you all the best. Thanks, David.