Paraprop confident of growth in office market

Posted On Monday, 14 October 2002 10:01 Published by eProp Commercial Property News
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Paramount Property Fund (Paraprop) has announced the acquisition of 13 commercial properties to the value of R161 million.

Property-Housing-ResidentialThe bulk of the acquisitions consist of new, upmarket office developments in and around Sandton, Rivonia and Kyalami and a recently developed shopping centre near Roodepoort.
Commenting on Paraprop's thrust into the Gauteng office market, managing director Rodney Squire-Howe said the market was in a trough but that the fund was taking a long-term view and that management believed in the cycle's strong upward potential.
'Our base has traditionally been in Cape Town, but the Gauteng region is the economic powerhouse of South Africa. As this is where many of the new developments are happening, we decided to increase our exposure in this region,' he said.
'We are purchasing attractive buildings in niche areas which are in demand. We have negotiated rental guarantees to protect the income streams over the next few years and are confident that our rigorous selection process will ensure that the properties hold their market value.'
Squire-Howe said diversification remained key to Paraprop's investment strategy which is achieved through a mix of property types, a staggered lease profile and a geographical spread.
One of the new investments is Pinewood Office Park, an office development which is highly visible from the N1 in Woodmead, Sandton. It was bought for R41m, faces the Johannesburg Country Club, and is fully let.
The Ruimsig Shopping Centre in Amorosa to the West of Roodepoort serves one of the fastest-growing upmarket residential suburbs in the country. It was bought for R35m.
Paraprop is confident about its acquisitions, despite the oversupply of office space in Sandton and surrounding areas. 'We are already experiencing some growth in our industrial portfolio and are positive that within the next two years this will spill over to the office market. Once the over-supply in the office market is mopped up we anticipate that rentals will increase dramatically.'
Paramount's funding structure enabled the fund to invest in high quality properties despite the difficult market. 'High quality properties have a greater ability to sustain earnings and greater potential for capital growth, but are generally sold on lower yields. The difficulty arises in that the lower average yield of about 13% on these properties is well below the forward yield of about 17% on the listed property sector.
'Paraprop makes use of a B-debenture structure to enable the fund to acquire the lower-yielding, high-quality properties it seeks, without diluting the yield for existing investors.' 
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