Earning from student housing
Some affordable accommodation funds may list soon, writes Alistair Anderson
he possibility of more specialised property funds listing on the JSE is increasing.
Fund managers are seeking opportunities in a market that is overshopped with retail assets and suffering from slow demand from corporates for new offices.
While SA’s listed property sector has grown tremendously in the past five to 10 years, it is still dominated by a few funds, which are invested in a mixture of retail, office and industrial assets.
Recently, residential-focused property companies have come to market or announced plans to do so. These include companies that own student housing and affordable housing.
In the US, where the real estate investment trust (Reit) dispensation has been in force for decades, specialised funds are far more common than they are in SA, where the dispensation is just a few years old.
One can find listed hospitality, health-care, telecom tower, storage and retirement asset funds, to name a few.
Various offshore investors, especially those from the US, have said South African property funds need to be worth US$1bn before they even consider investing in them.
Byron Carlock, consulting firm PwC’s practice leader for US real estate, has said he would like to see more specialised property funds in SA.
Instead of specialised funds listing on the JSE, such as funds owning only retirement estates or only hospitals, SA may see some that are geographically specialised in that their properties
Tare located in only one province or one city.
Investec Asset Management portfolio manager Peter Clark says while there are potential specialisations for South African property, many of the companies in SA’s Reit industry still need more scale.
“Generally Reit markets evolve by building scale with diversified funds, and once critical mass is achieved, they specialise.
“Specialist funds make sense when there is sufficient scale, as management can create more value with a deeper set of skills, and fund managers can allocate and get exposure to specific underlying sectors and markets,” says Clark.
“A number of large global real estate securities investors use a $1bn market cap as a minimum threshold for investment; this ultimately comes down to a function of an investor’s liquidity requirement.
“Within SA we should see a specialist retail fund list toward the end of the year; other funds looking to list all have an international angle,” he says.
Evan Robins, listed property manager of Old Mutual Investment Group’s MacroSolutions boutique, says specialised funds may be beneficial for the South African listed sector. “Specialist funds are more focused and tend to outperform and allow investors to better position themselves,” Robins says.
A geographically specialised company that is set to list next month is Spear, a Western Cape-only group. It is run by property stalwart Mike Flax and will contain various types of properties.
International Housing Solutions (IHS), a private equity group that owns a significant portfolio of affordable housing assets, is considering a listing as a residential-focused real estate investment trust in the near future. It partners with financial institutions, real estate developers, private capital groups and the state to provide equity finance for various residential projects. IHS has created about 27,000 new residential units for sale and rent since it launched its first housing fund in SA in 2008.
The company has tended to fund three-storey walk-up developments that cater for buyers in the R400,000R800,000 bracket and tenants who can afford to pay a monthly rental of R4,000-R8,000.
The second residential listing expected to come to the JSE is a student housing-focused listing, Stanlib’s head of listed property funds, Keillen Ndlovu, has said.
Various providers of student housing in SA are growing as they look to fill the tremendous shortage of adequate housing that offers helpful studying facilities.
Researchers have estimated the bed shortage to be more than 250,000 units.
One group that could list is Respublica, a subsidiary of Redefine Properties, which plans to provide 20,000 beds to South Africans by 2020. It is also planning to build properties in Australia.
CampusKey is another potential listing. By January 2017, CampusKey will own and manage 34 buildings with 3,217 beds, 20 clubhouses, 27 study rooms, 12 gyms, and 14 offices with 36 CampusKey staff members, according to MD Leon Howell. The company said in May it was planned to list in the next two to three years, but the listing could come sooner.
Researchers have estimated the bed shortage to be more than 250,000 units