Stafford Thomas

BEE in the commercial property sector is set to get a boost from Old Mutual, which has thrown its weight behind two black-owned property management companies to be launched soon.

The initiative pre-empts the property sector charter, says Amelia Beattie, COO of Old Mutual Investment Group Property Investments. Omigpi will have 50% stakes in the companies, which it will sell once they are firmly established.

Beyond driving empowerment in the commercial property sector, the two companies have different objectives. Lulama Property Fund Managers, headed by Musa Ngcobo, will target properties leased to government departments. Urban Growth Management, headed by Vusi Nondo, will focus on properties with socially responsible investment (SRI) overtones.

Lulama has a big potential market. “On a national level, government spent R2,6bn leasing from the private sector last year,” says Ngcobo. “That represents a property market of around R20bn.”

And it’s a market in which the department of public works (DPW) wants to see more black ownership. One way it is encouraging this is through lease terms. For example, at a 15% black ownership level the department will only enter into a two-year lease while at 100% black ownership it will enter into a 10-year lease. In its 2009/2010 annual report the DPW noted that only a quarter of its leases were BEE leases.

Ngcobo expects Lulama to buy properties from owners not meeting DPW requirements and BEE players seeking an exit from underutilised government stock. Properties will be housed in an unlisted property fund focused on institutional investors with 100% BEE profiles. “There is plenty of money out there. It’s just a matter of attracting it,” says Ngcobo, who adds that returns will be “market related”.

Nondo is more specific on the return objectives of Urban Growth, which will also manage assets through a 100% BEE property fund structure. “We aim to achieve CPI plus 6,5%,” he says.

A good return for any property fund, more so given that Urban Growth’s focus will be on social upliftment. Factors such as location of properties in townships and functions such as health care and education will be taken into account.

Urban Growth will also pay attention to urban regeneration in areas such as Johannesburg’s CBD. This could include redevelopment of buildings to provide cheaper accommodation to businesses than is available in areas such as Sandton, says Nondo.

What can be achieved by a property fund with a strong SRI bias has been vividly illustrated by the pioneer in the field, the Community Property Fund run by Old Mutual unit Futuregrowth. The fund, the first to go into rural areas and townships, has assets of R3,8bn and is pumping out net rentals of R32m/month, says its manager, James Howard.

The fund also proved resilient through the recession. “We did not even see a dip,” says Howard, who attributes this in part to social grants supporting spending. He adds that two properties leased by the fund to Shoprite in the Tembisa and Diepsloot townships have the highest sales per square metre of any of the retail group’s stores.

In rural areas, Howard says, consumer demand is underpinned by money sent home by workers in cities. He adds that in rural areas shopping centres serve a vital role by enabling consumers to access grants through post offices and to buy essential items.

Summing up socially responsible property investment, Howard says: “It’s a great story with great returns.”

Source: Financial Mail