For­eign­ers en­ter the fray

Mar­ket abuzz with in­ter­est from off­shore as­set-chasers

Finweek English Edition - - Property - JOAN MULLER

GET­TING HOLD OF IN­DUS­TRY spokesper­sons for com­ment is cur­rently prov­ing quite dif­fi­cult. Those who aren’t tied up in board­rooms plot­ting their next ac­qui­si­tion or takeover are on road shows over­seas punt­ing com­mer­cial prop­erty op­por­tu­ni­ties to fund man­agers.

It seems that the sale of Cape Town’s V&A Wa­ter­front to Lon­don-listed de­vel­oper Lon­don & Re­gional and its Dubai part­ner Nakheel in Septem­ber last year has paved the way for prop­erty play­ers in SA to sell this coun­try as a value propo­si­tion to in­ter­na­tional in­vestors.

Th­ese ef­forts are start­ing to pay off, with a num­ber of off­shore as­set-chasers poised to tap into SA’s com­mer­cial prop­erty mar­ket, no doubt cre­at­ing plenty of up­side in our prop­erty val­ues over the next few years.

In what’s be­lieved to be the first off­shore private eq­uity fund to en­ter SA, a con­sor­tium of wealthy Ir­ish in­vestors is plac­ing around R1bn in di­rectly held of­fice, re­tail and in­dus­trial build­ings. The fund was re­cently set up by au­di­tors BDO Simp­son Xavier in Dublin, which ap­pointed SA cor­po­rate fi­nance out­fit and des­ig­nated AltX ad­viser Bridge Cap­i­tal to man­age the fund on be­half of its Ir­ish clients.

Sea­soned prop­erty as­set man­ager Ron van der Bos re­signed as a di­rec­tor of RMB Prop­er­ties in Oc­to­ber last year to join To­bias Hegele and Jeremy Clarke to head Bridge Cap­i­tal’s prop­erty as­set man­age­ment di­vi­sion. Van der Bos says the team made its first ac­qui­si­tion for the Ir­ish­backed fund (named BDO Spring­bok Fund) in De­cem­ber: an of­fice/re­tail block in Hyde Park bought for R40,5m from listed prop­erty fund Cap­i­tal Prop­erty Fund. They plan to add an­other 20 to 30 prop­er­ties to their port­fo­lio over the next 12 months.

Says van der Bos: “Our client has a fiveto seven-year in­vest­ment hori­zon. They’re not in­ter­ested in buy­ing prop­erty for in­come pur­poses but purely as a cap­i­tal gains play.”

That means that the fund won’t nec­es­sar­ily com­pete for in­vest­ment stock with JSE-listed funds. Van der Bos says the listed sec­tor typ­i­cally has a more con­ser­va­tive approach, favour­ing build­ings with long leases that of­fer a steady, grow­ing in­come to in­vestors. “Our man­date is more ag­gres­sive. We’re look­ing for value op­por­tu­ni­ties with shorter leases and turn­around poten- guage fac­tor should also not be un­der­es­ti­mated. Says Hegele: “For ex­am­ple, Ger­man in­vestors feel more com­fort­able en­ter­ing an English speak­ing coun­try such as SA than neigh­bour­ing Poland, where lan­guage is a bar­rier.”

Prop­erty bro­ker Pace Prop­er­ties is cur­rently ne­go­ti­at­ing a R1bn deal with a Euro­pean private eq­uity fund in­ter­ested in buy­ing a sin­gle, mixed-use wa­ter­front prop­erty in SA. Pace MD David Green says they’re also talk­ing to large in­sti­tu­tional in­vestors from the United States, the Mid­dle East and Europe keen on en­ter­ing SA’s com­mer­cial prop­erty mar­ket. Those in­vestors typ­i­cally want to in­vest US$1bn (R7bn) or up­wards.

Green says the fact that a highly re­spected but rel­a­tively con­ser­va­tive player, such as Lon­don & Re­gional, is pre­pared to in­vest R7bn in SA (via the V&A Wa­ter­front) has no doubt prompted other off­shore in­vestors to fol­low suit.

Green says many are keen to en­ter SA through joint ven­tures with SA de­vel­op­ers familiar with our mar­ket con­di­tions.

The only prob­lem, says Green, is that SA faces a grow­ing short­age of in­vest­ment stock. That could see over­seas in­vestors in­creas­ingly go the listed route, par­tic­u­larly now that the JSE’s real es­tate sec­tor is step­ping up its con­sol­i­da­tion drive. Sec­tor heavy­weight Growth­point Prop­er­ties has al­ready, through var­i­ous ac­qui­si­tions and merg­ers, pushed its mar­ket cap to around R13bn, giv­ing it the size and liq­uid­ity to be in­cluded in the high profile FTSE EPRA/NAREIT global real es­tate in­dex this year. An­a­lysts say such a move should place SA listed prop­erty firmly on the radar screens of Euro­pean fund man­agers. tial.” Bridge Cap­i­tal’s prop­erty team is also in­volved in talks with other off­shore con­sor­tiums keen to set up sim­i­lar private eq­uity funds in SA.

Hegele con­firms that SA is start­ing to lure more in­ter­na­tional in­vestors to its shores. He says Bri­tish and Euro­pean in­vestors, in par­tic­u­lar, are hun­gry for growth op­por­tu­ni­ties. Says Hegele: “Off­shore in­vestors see SA as a huge value propo­si­tion. They re­alise that the mar­ket is set for strong rental growth, which should trans­late into healthy cap­i­tal re­turns over the next three to five years.”

SA’s well-de­vel­oped le­gal and fi­nan­cial frame­work is an­other draw­card. The lan-

In­vest­ing R1bn on be­half of Ir­ish in­vestors. Ron van der Bos (left) and To­bias Hegele

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