Large property firms are setting up BEE-controlled property funds

Posted On Wednesday, 03 October 2007 02:00 Published by eProp Commercial Property News
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The listed property sector is developing black-owned enterprises to meet its black economic empowerment (BEE) requirements.

Brian AzizollahoffIn the past year four black-controlled property funds have been set up by listed property funds Redefine, ApexHi, Hyprop and CBS. If things go according to plan, these could one day rival their principals on the JSE trading floor.

Large players in the property sector certainly believe that enterprise development is a more effective form of bringing BEE firms into the business of owning and managing commercial property than selling equity directly.

Their move is in line with recently amended BEE legislation, which gives enterprise development equal weighting with equity ownership on the broad-based BEE scorecard. Besides giving black individuals a more practical exposure to owning and managing commercial property portfolios, these enterprise development initiatives offer a more efficient fund in Africa Property Fund mechanism: debt is located closer to the underlying asset and is less vulnerable to the vagaries of financial markets.

"Through the creation of new businesses and unlocking opportunities, enterprise development ventures contribute more significantly to BEE than simply making equity available without any value being added by the new shareholders," says Redefine Income Fund CEO Brian Azizollahoff.

Redefine forms part of Madison Property Fund Managers, which also manages two other prominent listed property funds, ApexHi and Hyprop. All three property funds have set up comprehensive enterprise development initiatives.

Most recently, Redefine announced the creation of black-controlled Mergence . A joint venture with BEE group Mergence Africa, it was launched with an initial property portfolio valued at about R230m. It is 49%-owned by Redefine and 51% by Mergence, and the portfolio is managed jointly by Mergence and Madison.

"We intend to increase the Mergence Africa Property Fund portfolio in accordance with sound investment principles. Ultimately we could list the company on the JSE," says Azizollahoff.

The Mergence deal follows the launch of the Dipula Property Fund by Redefine last year. Held 49% by Redefine and 51% by black-owned Dijalo Property Services, the fund was launched with an initial property portfolio worth R300m.

Redefine's sister companies, Hyprop and ApexHi, run their own initiatives. Towards the end of last year, Hyprop launched R600m black-controlled Vunani Property Investment Fund. Hyprop owns 49,8% of the fund. The rest is held by the largest black property company, Vunani Properties.

ApexHi in turn aided the creation of Isivuno Apex Properties, which was given the contract to manage Pretoria office properties worth R500m in the ApexHi fold. ApexHi itself is 10% BEE-owned.

Other BEE initiatives include the African Capital Property Fund, launched late last year by a broad-based BEE consortium led by Zwelakhe Sisulu and property fund CBS, which is soon to be delisted. The fund was established through the acquisition from CBS of a portfolio of Gauteng-based properties valued at about R80m last year. The acquisition of the portfolio was partly funded through a CBS loan. CBS would provide technical and administrative support as well as skills transfer.

But CBS has since been taken over by the state's Public Investment Corporation (PIC), which leaves the fate of the African Capital Property Fund in the PIC's hands. CBS's 45% interest in African Capital is now held by the PIC. African Capital would undoubtedly have benefited more from an independently run CBS portfolio, as these tend to be more actively traded, creating opportunities to offload new properties into the fund.

By contrast, the PIC is on a mission to bulk up its property portfolio to 10% of its current R720bn total asset base over the next few years. That offers minimal, if any, favourable acquisition opportunities for African Capital.

In addition, unlike the independently run CBS, the PIC has no pressure to amass BEE points through enterprise development and sales of assets.

African Capital MD Jacques van der Heyde sees things differently. He says the PIC association brings additional capital resources and credibility - crucial to Africa Capital's growth objectives. He says African Capital's medium-term objective is to boost the portfolio to about R2bn over the next five years.

Last modified on Wednesday, 23 April 2014 12:01

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