Is risk management a determinant of financing sustainable empowerment deals of commercial and industrial properties?
The introduction of Black Economic Empowerment (BEE) was one of imperative economic tools that the South African government established to achieve its transformational objectives of growing the economy, decreasing inequalities, and creating more job and business opportunities for the majority of the population. Although this legislation is not yet fully implemented, more and more companies and individuals are buying into its concepts to address the past inequalities within the economic market. Risk management is at the core of the BEE transactions; while this is the case, the understanding of the profile of the ideal investor by the financiers would enable them to ensure sustainability of the property transactions they finance. The primary focus of all investments is rendering of a return in the future by forfeiting scarce resources, normally capital. Industrial and commercial properties deals are expected to generate rental income so as to realise a capital gain of profit in the long term. Risk management entails the identification, measurement and evaluation of risk associated with the process of decision making. The sustainability of the abovementioned deals ensures that the alluring factor of risk management is indispensable as most activities in the property investments contain risk. The main purpose and objectives of this research were to investigate the general understanding of the BEE partnerships in the commercial and industrial property sector, pre-cautionary measures (risk management) to take note of in such partnerships (investigated as success and failures of the deals), and the financing and the sustainability of such BEE deals. Given a certain risk profile, property investment looks lucrative, but the risk of failure and factors that guarantee the expected positive outcomes by the investors are of paramount importance. The research methodology included a combination of secondary and primary data collection and analysis. The latter included different rounds of questionnaires and interviews and the analysis of data through the use of the Delphi method. A sample of 20 representatives from the insurance industries, banks, trading houses, property valuation market as well as the property investment companies took part in this research study. The findings indicated that there is a general understanding of what BEE is and companies are utilising the legislation. The main success factors raised was that previously disadvantaged participants need not only be part of the deal or contribute financially, but should be operationally involved in the daily running of the business. This in a way minimises the risk of the failure of the deal. Some of the success factors included knowledge, skills and experience of the project team, the application of the codes of good practice, and delivering on the goals set. The most common cause of failure is when deals are concluded for the wrong reasons; i.e. partnering for the purpose of meeting the required BEE scorecard or fronting. Lack of planning and implementation the risk management techniques is another cause of failure. Therefore, risk management techniques are critical to the success of the empowerment property deals and they should be encouraged as a persuasive tool that will ensure that the BEE deals are sustainable.