Southern Sun to fork out R1bn to retain iconic Durban beachfront hotels

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30-09-2024
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Hotel giant Southern Sun has been awarded a 50-year extension by the eThekwini municipality on its lease agreement for the lucrative Maharani and Elangeni hotels on Durban’s beach front thanks to a promise of a R1bn investment. 

Mayor Cyril Xaba confirmed the deal during a media briefing at the hotel’s Sky Venue on Friday.

In November last year the city said Southern Sun's 60-year lease would expire in 2025 and it wanted to evaluate new bids in keeping with its strategy to revitalise Durban’s promenade.

The city said at the time it was inviting proposals from the private sector to redevelop properties where leases are expiring.

In response Southern Sun said if the city accepts other lease bids, it would be disastrous for the beachfront.

On Friday Xaba said Southern Sun will, as part of the agreement, develop the hotel sites and also renovate the Sunken Garden, a municipal park opposite the property.

“The redevelopment entails an estimated capital investment of over R1bn. This includes R622m on the Elangeni and Maharani, R157m on movable assets and R348m on hotels owned by the same entity in line with a functionality requirement that required bidders to further invest on the Durban beachfront precinct and stipulate which property /properties the investment is going to be made,” he said.

“If bidders do not own a property on the beachfront, they must identify a municipal infrastructure asset that they will renovate or upgrade and additional R5m to be invested on Sunken Garden.”

While the municipality owns the land, the Elangeni and Maharani hotels were built and paid for by Southern Sun, in 1973 and 1983 respectively. They were built on the site of the old Myhill Mansions and Rialto Court.

Breaking down the financial commitments involved in redeveloping the two towers and maintaining it five-star elements of the entire complex, Xaba said there will be a R226m capital investment for the Maharani tower which will be used for:

• An upgrade of the lobby.
• Enhancement of the second-floor level.
• Full refurbishment of the suites which will bring a five-star element back to the Durban beachfront.
• Rooftop pool bar which has some of the best views Durban has to offer.

The Elangeni tower will require R354.2m for the modernisation of the lobby and refurbishment of the bedrooms and introduction of a new restaurant concept.

Marcel von Aulock, Southern Sun Ltd CEO, confirmed they will also be paying more than R43m per year rent for the entire complex, which features 734 rooms, 11 food and beverage outlets and multiple conference spaces.

“There was a minimum rental that was required of about R43m a year that needs to be paid into the city and there is a reset mechanism with the city every five years to make sure that the rental stays market-related.”

He said Southern Sun built the hotels more than 50 years ago.

“The city had the land and after 50 years the land and whatever is on it goes back to the land so we’re renting back buildings that we built 50 years ago, which is how the original agreement worked.”

He described the two buildings as a “unique set-up” which is “more than iconic” on the Durban beach front.

“This was the first really big commercial hotel that was built in the country. If you lose these buildings you really do lose the beach front so it was really important for us to stay committed to this.”

Despite being marred by negative publicity over the past few years, Von Aulock said the Durban beach front was not as bad as it is being portrayed and he was confident the city’s “enormous potential” would result in a positive return on their significant investment in the long term.

“The PR of Durban is worse than the reality. Some of this negative tone is absolutely wrong. It was the fastest recovering city from Covid-19. It gave us enough cash in 2022 that kept us alive when the hospitality industry was hammered by Covid and Durban came back quickly. I think the upside potential in this town is magnificent,” he said.

“Durban has a lot of problems but they are not hard to fix. It’s just the basics: maintenance, keeping it clean and enforcing bylaws. What you have got is a spectacular location. God and nature has given you the setting, just look after it and I think the city realises that so I’m confident this is going to work. It has enormous potential and that’s why we have stayed the course.”

The company is also expected to spend R348m on two other hotels in its stable — the Garden Court South Beach and the Edward Hotel.

Musa Mbhele, eThekwini municipal manager, said Southern Sun was a company that had always believed in Durban from the time it invested “a couple of billion rand” in the expansion of the Sun Coast complex.

Despite Southern Sun being the only bidder for the lease, Mbhele insists the process was procedurally fair.

“No favours were done, it would just be very difficult for anything of that nature to creep in. It was just a good bid that we received. It’s people who have experience, they dominate this market in the country and their proposal really revealed that.”

Xaba said this is part of the eThekwini’s “inner city regeneration” programme and that the municipality is finalising the procurement processes for additional six beachfront properties including Joe Kools, The Deck and the old “Funworld Site” which have a combined capital investment value of R440m.

“We anticipate to finalising this process before the end of this year.”