JOHANNESBURG-based property specialists Hyprop Investments will have its work cut out to garner suitable returns from the Canal Walk Shopping Centre in Century City.

Hyprop, whose current shopping mall portfolio includes the much smaller Rosebank Mall, Hyde Park Corner and The Glen Shopping Centre, effectively doubles the size with the R1bn purchase of 80% of Canal Walk.

The remaining 20% of Canal Walk will be acquired by well known businessmen,the Ellerine Brothers - who are also known as the Bank of Benoni.

Why Nedcor- who inherited the Century City complex from BoE - choose this point to sell Canal Walk is not clear. The impression given by Nedcor was that the ongoing bidding process for Canal Walk had produced a viable offer worth considering. With indications that Canal Walk's trading densities had improved markedly, speculation abounded that Nedcor would hold onto the shopping centre for the foreseeable future.

The banking group's internal property expertise - including the property financing teams from Cape of Good Hope Bank and BoE - could have lent a hand in shaping the shopping centre's destiny.

But the R1,16bn price tag agreed by Hyprop/Ellerine Brothers must be satisfactory for Nedcor - even though the cost of developing Canal Walk was around R1,2bn. It's difficult to gauge any potential profits for Nedcor because Monex (Canal Walk's holding company) was part and parcel of the bank's BoE takeover deal. Generally, property experts believe Nedcor's exit from Canal Walk was "better than expected under the circumstances."

An earlier offer to acquire Canal Walk in 2001 saw Richway Retail offering BoE R418m for their 58% stake in the property.

That would suggest Canal Walk's value has increased considerably in just a few years. Will this trend continue? For R1,16bn the Hyprop/Ellerine consortium acquire 121 000 square metres of retail and 10 000 square metres of offices. It also wins major retail tenants like Edgars, Woolworths, Pick 'n Pay, Checkers, Stuttafords and Game.

At the same time there have been disgruntled rumblings from independent (mainly small) retailers, fearing Hyprop will hike rentals in a bid to
squeeze out improved returns.

Independent traders seem an unlikely lot to derail, or even affect, a massive property deal. But the small retailer's leader, fashion boutique
owner Marcel Joubert, is a feisty customer.  

Some property industry sources point out that Canal Walk is Hyprop's first investment in Cape Town. The underlying concern is that perhaps a super regional shopping centre like Canal Walk is too much to digest.

Fundamentally the shopping centre appears not to contain any obvious problems with 90% occupancy rates and steadily increasing foot traffic
(especially in peak season), statistics that have helped erase the 'white elephant' tag initially placed on the greater Century City development.
Maybe the pertinent question is why Nedcor is relinquishing Canal Walk in its entirety - which could still be interpreted as the bank showing undue haste to put miles between itself and the shopping centre. The rule of thumb for shopping centre developments is that these trading precincts often take up to five years to generate acceptable returns.

Canal Walk still has some way to go before it can claim an established trading record, which might have convinced Nedcor to cash in now rather than sit out the trading risk during the early days.

Some may argue that Nedcor could have afforded to wait for the conclusion of this year's Christmas trading period before making a decision to sell. Last year's holiday trading clearly illustrated that Canal Walk was a worthy rival to the Victoria & Alfred Waterfront.

Another notion is that if Nedcor believed there was considerable upside to be garnered from Canal Walk the bank may have opted for an indirect stake in Canal Walk. This could be achieved by accepting all, or part, of the settlement of the R1,16bn in Hyprop shares.

Already it seems Hyprop will have to issue new shares/linked units to raise new cash to fund the Canal Walk purchase. Basically the question is whether Nedcor, which admittedly has bigger fish to fry than shopping centres, is merely selling off Canal Walk as part of its corporate re-focus after acquiring BoE? Or whether Nedcor were simply not convinced - at least at this stage of proceedings - that Canal Walk has
significant upside potential?

Early indications are that Hyprop's shareholders - which include financial institutions CorpCapital and Coronation - are supportive of the Canal Walk deal. 

But there must be considerable risk in superimposing this enormous investment into Hyprop's current property portfolio, especially in terms of
maintaining a diverse stream of earnings from a variety of properties. Over the longer term there are enough encouraging signs for Hyprop.
Residential development in and around Canal Walk is booming, while increased tourism numbers are likely to boost foot traffic considerably during the Cape summer.

But make no mistake, Hyprop have a huge task on their hands.