Melrose Arch UP FOR SALE-Financial Mail 

By Ian Fife
When Johannesburg plays, it loves to play at Melrose Arch, the R1,3bn, 100 000 m² mixed-use precinct with posh venues like Kilimanjaro and Moyo.  But it has been less fun for the miners who get their pensions from its rents.  The owner, Mines Pension Fund, may be about to offload it. It has short-listed Sycom, the R2bn listed property unit trust (PUT), and private developer Cavalleros to buy Melrose Arch.  Other potential bidders, including Investec and PUTs Grayprop and Hyprop, have withdrawn from the bidding.  Mines Pension Fund GM Eric Visser says he is bound by a confidentiality agreement and can't discuss the matter, except to confirm that he is in negotiations.  But why is he even considering selling now? The fund is unlikely to recover much more than its cost so far of about R1,3bn, and that excludes any loss of interest during site assembly and construction.  "We are a defined benefit pension fund, so we need liquidity," replies Visser. "And any further development requires more funding. But we must still decide whether to sell now or hold out for a better price later."  It has not been a great investment for the pension fund. Initial projections of R120/m² rent for the offices were unrealistic and were soon cut to less than half of that by Investec Property Group when it took over the management of the property.  At a guess, net income is about R55m/year, giving pensioned miners a paltry 5% on their investment. This makes it a difficult buy for Sycom or Cavalleros as well.  They would probably pay R700m for the 100 000 m² developed portion, giving them an initial yield of 8%, which would rise substantially when the current leases ended and were negotiated at much higher rates.  But they would have to pay up to R700m for the 200 000 m² of land with further development rights - and then spend another R150m on infrastructure. It's a big ask.