US Investment bank Lehman Brothers, which has branches around the world, has made its first fixed-property investment in SA.

It is partnering with listed property asset manager Madison Property Fund Managers and listed property loan stock company Redefine Income Fund on a planned R4 billion mixed-use property development in Western Cape.

Lehman Brothers’ entry into the South African market bodes well for further foreign investment in this sector, as the move by such a prominent institution shows confidence in the country’s prospects.

The development site, called the Annandale land site, consists of 70ha in Richmond, about 3km from the mixed-use precinct of Century City in Cape Town.

Mike Flax, an executive director of Madison, says the land site deal was concluded in June and the land is being rezoned for development.

Flax says the site has developable bulk of about 150000m² of retail and commercial space, and potential for 3000 residential units.

Redefine will own 25% and  Lehman  Brothers will own 75% of the company that has been set up to own and develop the site.

Madison has been appointed development manager.

The development project will be rolled out over five years with the infrastructure on the site expected to be in place in June next year.

The development cost for Redefine will be about R1,2 billion.

Flax says  Lehman  Brothers has a $5 billion property fund that invests in emerging markets.

“They have identified Africa as a place where they can get above- average returns.”

He says  Lehman  Brothers is partnering Madison in SA and is also looking for opportunities in other African countries with Madison.

“They back jockeys and they run with them,” he says. They have a variety of partnerships around the world.”

Flax says  Lehman  Brothers also “bring a whole new standard of reporting” to learn. for ourselves. They have strict financial reporting requirements,” he says, “and it’s a good discipline for us to work with them and learn their management techniques.”

As far as the potential for other foreign institutions to invest in South African commercial property is concerned, Flax says a variety of large foreign institutions have shown interest. But a limiting factor is the unavailability of viable development projects.

“Foreign players also want to see their local partners investing direct capital into those projects as well,” Flax says.

Business Day