Specialists can help access capital
IN an economy struggling to grow amid politically induced instability, constrained global markets and uncertainty on the repo rate, many businesses are looking for ways to access capital to bolster liquidity and control risk.
“Against this backdrop we’ve had a number of large blue-chip corporates and industrial businesses approach us over the past 18 months, looking to divest of their non-core property assets,” said Mark Kleynhans, head of Commercial Property at Aucor Property.
He said property as an asset class had held up well over the years with robust returns in value across all asset classes, in and around South Africa’s key economic hubs, where demand was high and supply low for investment grade assets.
“These often large, high-value assets have been sitting on balance sheets of many companies for some time, appreciating at about 10% a year.”
Managing and maintaining property takes expertise and resources that could otherwise be better deployed in core business to create value.
Many choose to unlock that value to fund growth in core business and redeploy capital more strategically, which can in many instances deliver direct returns to the business of two to three times what property can, said Kleynhans.
Even when properties are core to business, many companies decide to move some or all off the balance sheet while still operating in them.
Many companies sell property to outsource building operations and maintenance. “Letting the property specialist do what they do best removes the management and hassle of property ownership,” said Kleynhans.
“There is currently a prime opportunity to offload these assets as demand is being created by South Africa’s listed property funds looking to grow their book and asset base through acquisition and redevelopment of prime locations.
“There is high demand for properties across asset classes, in major metropoles, from blue-chip corporates looking to relocate and centralise operations, or expand to accommodate growth,” Kleynhans said. “However, despite having the capital to build, many companies are forgoing the capex, preferring to secure long-term leases instead.”
Sellers increasingly prefer auctions, especially for smaller deals, said Kleynhans.
Auctions were often the quickest, most effective and transparent route to a sale at a fair market price for seller and buyer. All funding approvals and administrative elements are completed before auction.
Big auctioneering players have relationships with the key figures on both sides of a deal: property fund managers and developers and property owners. “Having relationships on both sides enables auctioneers to advise on the best strategic path to unlock the greatest value for both parties, and tailor something to benefit everyone.”
Clients often have costly properties that don’t add value to the business. “We can help executives identify these properties, offer a valuation, and then advise them on the benefits of getting them off the balance sheet through a sale or possibly regearing their asset to extract the value.”
Aucor Property recently offered this advisory role to blue-chip clients planning to shed non-core property assets. “To consolidate made sense,” explained Kleynhans.
If a listed property fund does not want to buy all the noncore properties a business is trying to shed, an auctioneer can help with packaging and disposal of non-core assets to ensure the whole portfolio is sold.
“In many of these instances, we’re also able to advise on how sellers could potentially unlock greater value from these assets,” said Kleynhans, “be it through rezoning or the further development and expansion before selling via auction. In other instances, it may make more sense to run properties as a separate ‘property fund’, which generates its own profit and loss. We can assist with that, too.”
With so many options, Kleynhans said, property specialists who facilitate deals by connecting parties deliver the greatest returns for sellers and the best value for buyers.