Foreigners enter the fray
Market abuzz with interest from offshore asset-chasers
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