African Warrior
Extending the Front line
When other hotels stood empty after the 2010 Soccer World Cup, Marc Wachsberger saw an opportunity to gain a competitive edge in the property market. Here’s how he built his Capital Empire
When you’re travelling on business, you’re not really interested in chocolates on the pillows and posh restaurants—you’d prefer free, stable, fast Wi-Fi and an in-room workstation, right? And perhaps the option of preparing your own meals now and then. All at a reasonable cost.
That’s exactly what The Capital Hotels and Apartments offers. You get the best of spacious apartment living and top hotel-level service, while paying an average of 25% less than regular hotel prices. Plus state-of-the-art conferencing facilities for all your business meeting and networking needs.
What’s more, if you’re keen to invest in real estate, you can elect to lease your unit to The Capital or rent direct to the market—with guaranteed rental for your investment for up to nine years, even if there’s no occupancy! It’s difficult to get your foot in the buy-to-let market, but with The Capital you get a property with a tenant in place and an income yield of 6.5% to 7%, with the company seeing to all upgrades and branding.
The man behind this plan is Marc Wachsberger, who discovered his niche at the tender age of 25 in the wake of the 2010 FIFA Soccer World Cup in South Africa. While other accommodations struggled to get occupancy, Wachsberger came up with the idea of a hybrid apartment hotel: more cost-effective than a traditional hotel for business travellers in particular, with the added option of renting out luxury apartments in prime locations.
Founder and MD Wachsberger says only around 2% of accommodation in South Africa is offered in apartment hotels, while it accounts for up to 9% of the market globally. The sector is ripe for growth, and The Capital Hotels and Apartments has already taken a huge bite. There are six properties in Joburg (Empire, On The Park, 20 West and Moloko in Sandton; Melrose and Bath), Menlyn Maine in Pretoria, Mirage in Cape Town and Pearls in Durban. The goal is to be profitable and grow the company with more apartments—and, most importantly, keep the tenants happy.
TRIBE sat down with Wachsberger to find out more about his business journey to this point, and how his company manages to stay competitive in the property industry. (His equation, “Satisfaction equals results minus expectation”, is probably part of the reason he has been so successful.
“Satisfaction equals results minus expectation.”
I spent years in someone else’s company, learning through mistakes. Eventually, I went out on my own and started something. I can describe my school life as absolute mediocrity; on every report card I would get Cs. I was a lazy, unmotivated kid. But when push came to shove, which was matric exams, I got my act together and started studying hard. My results exceeded my potential, with three distinctions including for maths and accounting.
I didn’t want to go the chartered accounting route, but my mindset has always been around taking the most efficient route to achieve my final outcome. At that time, it was to get a BCom in finance and do a CFA degree as well. I got a little opportunity to start the degrees in parallel, and that became an opportunity to gain an edge. The outcome at that point was to get employed, but it was so hard to land that first job. I had to think of an advantage that I had over my peer competitor group.
My edge was that I had done my first year of CFA, and that’s how I got my first job at the age of 21, in corporate finance. I studied while working, then left the company five years later. I struggled for a year doing nothing. Until I managed to come up with a concept: If I could rent apartments on a long lease for R10 000 a month, then I could sublet them for R1 500 a night. There was clearly money to be made, and that’s how I started my hotel business between the age of 26 and 27.
How did your first year of business go?
Luckily, demand at that moment was high. I’m not afraid to copy other people’s successful methods: I call it ‘copy, paste, innovate’. Basically taking someone else’s model that’s already working internationally.
Right across the road from me was a very similar type of business, renting out apartments nightly, weekly and monthly. I asked the lady who was running that operation: Would you ever strike a trade? Her answer was no, but instead she offered me a share of the business. She’s the one who made us successful from day one.
One thing I’ve become good at is selling. The minute there was a business with revenue, I could start putting systems in place. The first part of a good formula is getting the right people.
When did you move on to the next stage of your business?
The first three years I can categorise as spending without requiring any capital from our side. The 2010 Soccer World Cup really helped us—we made a lot of money because our concept at that time was unique. We used that to our advantage in the second phase of our business, which was raising capital to move from private equity. After the World Cup, a few hotels failed because they stood empty. That helped us in our phase of acquisition. Then the third phase was development, developing our own hotels. That is where we are today: we buy land and develop the hotels, own and operate them ourselves. There are two sides to our business, real estate and operating hotels.
So that’s how you managed to grow and remain successful after the World Cup, unlike other properties?
You have to have the client and some revenue to work with. Our other hotels were doing well, so we had a competitive advantage to start building rooms. We didn’t buy the entire hotel on the first day, we bought what we could afford. We told the seller we would buy half—if we did well with that half, we’d buy the second half. We made good money which, within a month, enabled us to exercise the option to buy the second half. We were very focused on the downside risk; we didn’t take on more than we could afford.
Explain your business model.
Eighty percent of our rooms are in a business environment, for the business traveller who’s not necessarily prepared to risk a bed-and-breakfast not being what they expected. We offer consistency; our clients know their rooms are going to be perfect when they arrive, and they know that if they’re in a group, their friends or colleagues will have the same room.
We almost always get five-star grading from the Tourism Grading Council. But we don’t utilise that five-star certificate—we get it then put it far away because of my equation of satisfaction equals results minus expectation. The expectation of a client arriving at a five-star hotel is that it’s going to be overpriced and expensive. Which we are not. We are well priced and have a higher expectation around service and standards that we can economically provide.
We’ve done so well in the technology field that today we have an app, and our website provides travellers with a three-step booking process. It makes it easy to do business with clients because it explains things in a quick, simple way.
When someone buys a unit in any of your hotels, do they become part of the group system of that hotel? How integrated are they in the day-to-day services?
The first overarching feature is that we sell because we can’t afford to own everything—owning everything would be taking on too much risk. By selling, we’re lowering the risk. Take this scenario for instance: There are two clients who buy apartments from us. The first wants to live inside our hotels and ecosystem. They can live in an apartment that gives them all the benefits of a hotel. The second client is someone who wants to buy an apartment, then lease it back to us. We become their tenant. For this buyer, it’s a great investment because they get a beautiful apartment that comes with a tenant that’s stable and pays the rent at the end of the month.
Is there any property you’re particularly proud of?
It’s incremental if you’re doing something that performs ahead of your expectation; satisfaction and pride are generated. I’ve formulated an equation: “Satisfaction equals results minus expectation.” Acquiring our first property and seeing it yield results was my most prestigious moment. From successfully acquiring some property, we moved on to developing our own property which was called The Capital Empire. The next proud moment came when we built The Capital On The Park in Sandton, a mega hotel with over 320 rooms as well as residential apartment blocks. In terms of where I am today, we just opened The Capital Melrose, which is a stunning boutique hotel with 109 rooms.
As an entrepreneur, what gave you the confidence to take a risk?
I grew up knowing I didn’t want to be a policeman or a fireman. In school, when asked to draw a picture of what I’d like to become when I’m grown up, I always drew a man with a tie. (Funnily enough, I don’t think I’ve ever worn a tie!) I knew I wanted to be an entrepreneur or a businessman because I grew up in a household with a father who was—and still is—a fantastic entrepreneur, and talking about business around the dinner table was our norm.
The fact that I was mathematically inclined was a tool in achieving that entrepreneurial goal. But I wasn’t the best at maths, I was third in class. Which I consider important because, in a way, the ones who are the best mathematicians in class don’t usually go the entrepreneurial route but rather get jobs in fields such as actuarial science and do incredibly well. I built several skillsets because my mind was not just focused on maths. One of the skills I’ve built up is the art of negotiation.
Businesses are ultimately a game, so if you’re not having fun in business, that’s a problem. You need to have fun every day. I have fun and love coming to work every day. Sometimes it’s a game of labour and adding one block after another until you build something.
As a business person in real estate, what are your thoughts about land expropriation in South Africa?
We think it’s the biggest opportunity that’s ever been present in South Africa. While others are fearful of land expropriation, it has single-handedly created our ability to grow. The minute land expropriation talks started, we were suddenly able to buy land at the right price and grow our business. That kind of talk creates opportunities, but there’s also a significant risk increase caused by land expropriation. Farmers who are not utilising their land face the possibility of their land being expropriated. But I’m prepared to say with 99% certainty that our land is not going to be expropriated. Call me crazy, but I still think rationality ultimately prevails.
What’s your long-term goal?
Our long-term goal is to drive our business into every city centre in South Africa, expanding into Africa as a whole. There’s consistency in all our hotels and apartments.
What do you do when you’re not being an entrepreneur?
My family is incredibly important to me. I’ve been married for seven years and have three kids, ages five, three and one. Family and business are both huge focuses in my life. I’m not a socialite, I don’t have time! I’m quite introverted socially. My hobbies are mountain biking, a little bit of golfing and sleeping a lot.
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