Backing the property jockeys

Posted On Thursday, 07 June 2007 02:00 Published by
Rate this item
(0 votes)
Sasfin Bank has entered the R180bn property financing market. As usual with this institution, the target market is entrepreneurs. "We're backing the jockeys, and more often than not taking a stake in them," says Sasfin CEO Roland Sassoon

The new property finance division at Sasfin is led by a former Nedbank expert in the field, Eton Price. He is well aware that competition is intense, with the big four banks and Investec dominating the market. Mortgage finance is the banks' biggest and fastest-growing business, with R728bn advanced to residential and commercial property owners.

Between 20% and 30% of that is commercial property. But Price says he expects to carve a niche in backing small and medium-sized entrepreneurs, Sasfin's primary market.

Other small banks like Imperial and Grindrod (formerly Marriott) are also competing in property lending, but are not as aggressive as Sasfin.

Though Sasfin will arrange first-mortgage bonds, known as senior debt, its main interest is in mezzanine debt (known as junior debt) and taking equity in property projects. Senior debt will usually be arranged through other banks.

A property developer can normally raise senior debt for 60%-80% of a project's cost. The mezzanine financier provides all or part of the rest but for a shorter period than the first bond, sometimes at a higher cost and often subject to getting equity in the project. But the developer or investor gets access to opportunities whose size or equity would normally be out of reach.

Price says the size of mezzanine deals will usually range from R5m to R30m, for periods of six to 24 months. Equity will also be in that financial range, with Sasfin taking a minimum of 20% and a maximum of 50%.

Says Price: "A developer gets a sound financial partner often with an exit mechanism that, through put and call options, gives him the opportunity to buy back our share. Obviously we take equity with developers and investors who have proven track records."

After 10 years of phenomenal growth in the property market, the ground is thick with successful entrepreneurs and Sasfin is not the first company to wake up to this fact. Competition is intense and Nedbank, SA's biggest commercial lender, has been building its share of this market aggressively.

One area where Sasfin will probably also aim to gain a market share is helping clients build up property businesses in preparation for listing. The FM is aware of at least one property fund that Sasfin could be bringing to the market.

"We've done half-a-dozen deals so far," says Sassoon. "We've taken equity in all but one, and we have a participation in the profit of that one."


Publisher: Financial Mail
Source: Financial Mail

Most Popular

Should you rent or buy your business premises?

Jun 23, 2022
Malusi Mthuli_FNB
This is a question that most business owners will face at some point in their journey.…

April 2022 Hotel Accommodation Income Statistics continue to show a very weak picture compared to pre-lockdown times.

Jun 23, 2022
Hotels Monthly Income 2022
The StatsSA release of April 2022 preliminary monthly tourism statistics show the Hotel…

South Africa’s inflation exceptionalism: can it last?

Jun 23, 2022
Carmen Nel
South Africa is often seen as a high-beta play, be it regarding financial market risk…

Hyprop continues to reduce debt and reposition its portfolios in SA and EE

Jun 30, 2022
Skopje City Mall Playground
Hyprop, which manages dominant retail centres in mixed-use precincts in key economic…

Vaal Mall rolls up its sleeves for pothole repairs

Jun 30, 2022
Vaal Mall crew busy repairing the various potholes making easier access to the Centre.
Vaal Mall is showing their commitment towards their community by stepping up to repair…

Please publish modules in offcanvas position.