Listed property loan stock company Hyprop Investments said on Wednesday that it had entered into an agreement that would see a new black empowerment property fund formed.

The creation of the unlisted Vunani Property Investment Fund will enable retail-focused Hyprop to contribute to enterprise and skills development in the property industry, in line with the property sector empowerment charter requirements.

Hyprop and Vunani Properties, a subsidiary of black-owned financial services group Vunani Capital, will launch Vunani Property Investment Fund, of which Vunani Properties will hold a 50,2% interest and Hyprop the remaining 49,8%.

Hyprop will provide surety for all debt.

Hyprop MD Pieter Prinsloo said senior debt, debt funding of up to 60% of asset value of the new fund, would be provided by Standard Bank.

Additional funding would be provided between Hyprop and Standard Bank.

The asset management of the new fund would be conducted by a new asset management entity called the Vunani Property Fund Management Trust.

An empowerment consortium led by Vunani would hold 51% of the asset management company, while Hyprop Management Company, the managers of Hyprop, would hold 49%.

Prinsloo said the plan over the next two to three years was to list the fund on the JSE once its asset base had reached a "critical mass" of R700 million. Vunani Property Investment Fund will have an initial property asset base of R350 million with Hyprop and Vunani Properties, contributing property worth R175 million each. The portfolio will include mainly office properties in Johannesburg, Pretoria and Cape Town with government tenants, but the fund plans to diversify across all property sectors.

Prinsloo said the fund wanted to use its empowerment credentials to access other types of acquisitions, which could include government-tenanted buildings.

He said Hyprop would be looking for an equity-based empowerment deal, but it was difficult to make it happen.

"Any black empowerment fund that buys into Hyprop now would find it difficult to make the funding work because of the gap between what the units are yielding and what the interest rate is," said Prinsloo. If Hyprop had to issue units for an empowerment deal at a 6% yield, there would be an income shortfall because interest costs would be 9%.

Ethan Dube, CEO of Vunani Capital Holdings, would be a director of the asset management company of the new fund.

Dube said: "I think it's something that gives us a platform to build our property business."

Business Day
Publisher: I-Net Bridge
Source: I-Net Bridge