Real estate veteran Gerald Leissner, who came out of retirement to run Arrowhead, has over the past 18 months doubled the fund’s property value — from R1,5bn to R3bn.Arrowhead’s portfolio comprises mostly older, higher-yielding office and retail buildings in secondary areas.
Last week, the company announced plans to acquire a R500m portfolio of residential rental apartments, a significant move as JSE investors currently have limited exposure to SA’s housing market.
Sister funds Premium Properties and Octodec Investments are the only listed players that own residential property.
The SA listed sector, unlike its US and European counterparts, has historically shied away from residential property, as the general view is that retail, office and industrial buildings offer lower risks and better returns.
But Leissner, who three years ago unsuccessfully tried to bring the first specialist residential fund to the JSE, disagrees. At the time, the ex CEO of former ApexHi Properties battled to assemble a big enough portfolio that would offer the size and liquidity to pique the interest of institutional investors.
However, Leissner believes perceived risks in terms of residential rental arrears and defaults are often overstated.
In fact, he says, the housing market now offers better rental growth prospects than office and industrial property given the extent to which demand for affordable rental accommodation in SA outstrips supply.
“We see the residential market as an important new avenue for growth. And it offers great diversification from commercial property. ”
The R500m residential portfolio under negotiation is owned by a single, private property owner. The portfolio, which comprises nearly 70 buildings, is spread across various lower-income areas like the Johannesburg CBD.
Leissner is keen to further increase Arrowhead’s exposure to the residential market, rental apartments that typically fetch R2000R5000/month.
“We will look at all deals, provided they fit the fund’s low-risk/high-yield investment criteria. Arrowhead only invests in buildings with a forward net yield of at least 10%.”
Source: FM
