Mutual to form property funds

Posted On Wednesday, 28 March 2007 02:00 Published by
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Life assurance giant Old Mutual is to launch a “core” unlisted property fund containing its existing fixed property assets, which are worth R10bn.

Life assurance giant Old Mutual is to launch a “core” unlisted property fund containing its existing fixed property assets, which are worth R10bn.

Old Mutual, which has always been a large South African property owner, plans to make itself one of the major forces in the property industry.

The new fund, called Triangle Real Estate Fund, which will be brought to market shortly by Old Mutual Property Investments, targets the institutional pension and retirement fund market. The rationale behind the formation of the real estate fund is to grow Old Mutual’s real estate assets.

Colin Young, head of asset management at Old Mutual Property Investments, says that when institutions and other pension funds invest in the fund, the proceeds will be invested again in more property.

The fund will be made up of three components: direct property holdings, listed property holdings and cash. The exposure to direct property will be 85%. The aim in the medium term is to increase the size of the fund to R25bn.

The real estate fund will include Old Mutual’s flagship retail properties such as The Zone@Rosebank in Johannesburg, Cavendish Square in Cape Town, Menlyn Park in Pretoria and the Gateway Theatre of Shopping in KwaZulu-Natal.

This “core” fund will offer its investors a “reliable, predictable, growing income stream”.

Old Mutual will also launch other real estate funds under the Triangle brand. One of these is Triangle Real Estate Development Fund.

This fund will hold the development land holdings of Old Mutual, which include the second phase of the Zone@Rosebank, which will see the development of a R623m mixed-use complex including retail space, a 160-room hotel, a four-level parking garage and studio offices.

Young says that completed properties from the development fund will move into the “core” fund upon completion. The development fund is aimed at investors who are interested in capital appreciation. The fund will be higher risk but will also have a higher potential return than the “core” fund.

Old Mutual Property Investments is also establishing a social responsibility real estate fund called Triangle Real Estate SRI Fund to focus predominantly on direct real estate investments in “under-resourced areas”.

Young says this fund aims to make a “contribution to transformation, empowerment and socioeconomic development”, while providing a commercially acceptable return.  In addition, Old Mutual Property Investments is setting up an India real estate fund to take advantage of opportunities on the Indian subcontinent.

Young says Old Mutual already provides property management and development services to a number of property owners and developers in India through its joint venture with Pioneer Property Zone.

The India fund will be a development fund that will invest in real estate assets across India, with an initial focus on retail developments. “Typical unlisted real estate investments include retail shopping centres in townships, affordable housing in the inner city and townships, and offices accommodating small businesses.”

Angelique de Rauville, MD of Investec Listed Property Investments, says: “The idea is innovative and we think that new products are only favourable for the continued rerating and outperformance of commercial property in SA.

“Our understanding is that this fund will now make property assets that were previously unavailable to a broader market more accessible.  “In the event of this strategy succeeding, it would be very good for listed property stocks as there will be an increase in demand for listed property as part of the strategy of the Triangle Funds is to invest into SA-listed property.”

Property economist Francois Viruly, says the introduction of the new property funds shows the “strong appetite that institutional investors once again have for property and the important place that property plays in diversified property portfolios”.

Publisher: Nick Wilson
Source: Business Day

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