Developers fill niche for listed firms by supplying commercial property

Posted On Friday, 09 June 2006 02:00 Published by eProp Commercial Property News
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Private developers are playing an increasingly important role in growing the listed property sector as good quality commercial properties become scarcer.

Construction IndustryPrivate developers are playing an increasingly important role in growing the listed property sector as good quality commercial properties become scarcer.

Certain listed property companies have already started developing formalised relationships with developers to ensure continued property deal flow. These formalised relationships also give developers a secure exit strategy from their properties.

The South African-listed property sector, which has evolved from an insignificant sector on the JSE with a market capitalisation of only R5bn in early 2000 to an attractive investment sector with a market capitalisation of about R70bn, is trying to attract the attention of global fund managers and other investors.

Although there has been a tremendous increase in size over the past few years, the listed property sector is still small compared with other international listed property markets.

In order to grow its asset base and attract foreign investors, the listed property sector has to get its hands on more and more quality commercial properties, but there is a shortage of such stock.

The stock that is available is often expensive, making acquisitions difficult because they can be dilutionary for shareholders of listed property companies and funds.

A recent property deal concluded by CBS Property Portfolio, which listed on the JSE in November last year, illustrates the way some companies are approaching this stock shortage problem.

In terms of the transaction, CBS is acquiring A-grade office properties worth R616m from three unlisted companies, Zenprop, JGM House and Deventon.

A large portion of the acquisition comes from Zenprop's portfolio, with CBS acquiring property worth nearly R400m from the unlisted property fund and developer.

The remainder of the properties were acquired from JGM House and Deventon.

CBS executive director Gary Fisher says the company has also entered into a development agreement with Zenprop in which CBS is entitled to first refusal on certain properties in Zenprop's portfolio that Zenprop decides to sell.

Fisher says the deal is a "win-win alliance" for both parties.

Fellow CBS executive director Derek Greenberg says CBS is already engaged with Zenprop in the redevelopment of certain centres in the Cape.

Martin Ettin, another executive director at CBS, says Zenprop will participate in a "percentage of the upside" in the redevelopment of properties in the CBS portfolio.

Ettin says listed property companies will benefit by aligning themselves with as many "manufacturers of properties" as possible to secure deal flow "in a market where there is still a feeding frenzy for good quality properties".

"It is probably more prudent to aspire to properties coming out of these kinds of relationships than overpaying for a property out in the market place which everybody is fighting over."

He says developers are looking for redevelopment opportunities and that these are held by listed property companies.

Estienne de Klerk, executive director of listed property loan stock company Metboard Properties, believes partnerships between listed property companies and developers are definitely on the cards.

"In the future we'll see listed property companies teaming up with private developers.

"The (listed) companies need to grow and the only place they can get stock is from private investors or private developers.

"Developers are an attractive option. It gives the listed property company a continuous deal flow and from the developer's point of view it is a secure exit strategy from their properties."

De Klerk says Investec Property Group's property projects division, for instance, supplies Metboard sister company Growthpoint with development stock and that some other listed property companies have formalised relationships with developers.

A note of caution comes from Des De Beer, MD of listed property loan stock company Resilient Property Income Fund and non-executive director of listed property funds Capital Property Fund and Acucap Properties, who says he is wary of properties that developers sell.

"You don't want to buy what developers are discarding. They tend to keep the best stuff and sell the inferior stuff. What is generally offered in the market is the bottom layer of their portfolio."

However, De Beer says partnership deals with developers are attractive.

He says Acucap and Capital have gone into partnership with Improvon on a large piece of land on the Ben Schoeman Highway in Centurion, for instance.

De Beer says Improvon is developing an industrial park and both Acucap and Capital are partnering with them on the development of the park.

The two listed property funds will get a share in the park.

De Beer says Resilient has strong relationships with developers for new developments on the retail property front.

 

Last modified on Thursday, 17 October 2013 19:03

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