BEE has worked in the listed property sector

Posted On Tuesday, 03 September 2013 07:21 Published by Commercial Property News
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A strong argument can be made that unlike the resources sector, which has captured most of the headlines around black economic empowerment (BEE), in the listed property sector empowerment policies have worked.

Izak PetersonIn 2010 the Department of Public Works declared that it would only sign long-term (nine year, 11 month) leases with property companies with BEE credentials. This initially caused outrage as the incumbent landlords deemed it unfair and voted with their cheques by refusing to give tenant installation allowances to government departments as part of a lease renewal process.

It was not long before the headlines again pointed to the failings of the policy as the light was only shone on leases that were signed under controversial circumstances, such as the highly publicised lease between Roux Shabangu and public works.

Mr Shabangu entered into a 10-year lease agreement with the department on the police’s behalf, in May 2010. The lease was later cancelled after Public Protector Thuli Madonsela declared it unlawful.

The point was missed as, more often than not, the department’s policies had created opportunities for black entrepreneurs to acquire buildings from incumbent landlords and start building their own property empires.

One of the pioneers who took advantage was Sisa Ngebulana, who successfully listed Rebosis with a market capitalisation of R4bn. Rebosis has regional shopping centres comprising around 47% of the total asset base, so describing it as a BEE fund is neither fair nor entirely accurate.

However, the policies gave the fund a slight advantage in the competitive listed property sector. For a short time it was "the only kid on the block" that could acquire and provide government office space in a significant way.

Soon after the Rebosis listing we saw Izak Peterson and Saul Gumede list retail and office fund Dipula; seasoned deal maker Shaun Rai followed suit and listed government office fund Ascension Properties; and most recently Sandile Nomvete listed Delta Property Fund with ambitions to reach R7bn worth of assets within the next 36 months.

The department’s policy has not been utterly disruptive to the status quo, but it has been an overnight catalyst to encourage white landlords with government assets to sell them to black landlords, and this in turn resulted in new "operating businesses" being created with a combined market capitalisation of around R16bn.

More fundamentally, it has lent credence to the notion that black entrepreneurs can build sizeable and sustainable property empires, a phenomenon South Africa had not yet seen. 

Although the relationship between blacks and whites on matters around BEE seems antagonistic at its core, it would be remiss of the sector to fail to recognise those white landlords who started fostering enterprise development long before the department’s leasing policy.

Dipula (previously Mergence and Dijalo) emerged from assets owned by Marc Wainer’s Redefine, a relationship that started in the mid-2000s when Redefine provided the assets, expertise and capital to foster its ultimate listing last year.

Izak Peterson is known as a shrewd and smart deal maker. Indirectly, through tacit support, Des de Beer and Barry Stuhler have also played a part in recent property transactions by Ascension and Delta.

Capital Property Fund has sold property assets to these funds but held shares in the assets to reduce the burden of capital raising — a tacit form of underwriting. Resilient has also done development on a joint-venture basis with black entrepreneurs so that they can own stakes in some of the most successful shopping centres in the country.

Vukile has also recently done a deal with Sedise Moseneke’s Encha Properties to foster its expansion ambitions in a mutually beneficial deal. Mr Moseneke will no doubt be part of the next generation of those who rank as property empire builders.

At about R240bn, or 4% of the JSE’s total market capitalistion, the listed property sector often goes unnoticed. However, similar to its historic superior performance, it has punched above its weight in embracing and fostering BEE policies.

Over the longer term, BEE policies will have to evolve and adapt to the economic and political dynamics of the country. In a few years there will be little room for those who simply get a loan to buy a stake in a company and serve as a nonexecutive board member with little effect.

The sector has shown that those who use the policy to build an operating business will be celebrated by society for building businesses and inspiring the next generation. Yes, BEE has worked in the sector.

Last modified on Tuesday, 03 September 2013 07:58

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