In July ApexHi decided to acquire a residential portfolio worth R246m, in two separate transactions. This does not seem significant in relation to ApexHi's R10bn portfolio of offices, retail and industrial properties, but management's statements plus new market dynamics make the move worth watching.

A few years ago, this could have spooked the markets. Consider how, in 2004, the proposal to list the first residential-focused income fund, Habitat Investments, at an initial yield of 12%, bombed out in 2004.

Things have changed.

First, the increasing scarcity and declining yields of quality commercial stock will push listed funds that want growth into the residential market.

Second, in itself the residential market is a compelling investment case. This is largely a result of the country's growing shortage of housing for middle-income earners, who are pushed into renting.

Given supply-side constraints in the creation of new stock, buildings that have been empty in CBDs are coming in handy. ApexHi specialised in turning old CBD commercial properties around.

ApexHi joins the Alec Wapnick-led listed funds, Premium and Octodec, in the residential property market. Through City Properties Administrators, Wapnick is building a large portfolio of flats in the Pretoria and Johannesburg CBDs. Similarly, ApexHi has a joint venture with an expert in the field, Aengus Property Holdings.

ApexHi's exposure is made up of the R115m former Dunwell portfolio (15 blocks of flats in Braamfontein) and the R131m former Softstone portfolio (nine properties in Hospital Hill, Hillbrow, Braamfontein, Parktown and Berea).

ApexHi CEO Gerald Leissner says the group has entered the residential market for two reasons. It will derive rental income from part of the portfolio, and will sell another portion to earn development profits. Leissner adds that ApexHi is looking at growing its portfolio by R500m by June next year, part of it from the residential sector.

Once dismissed by many as a hopeless portfolio of low-grade properties, ApexHi has performed beyond expectations. Distributions show a steady and sustainable increase since the group listed in 2001.