Friday, 02 May 2003 02:00

Developers ponder funding.

Property promoters and developers are carefully watching the integration of some of their favourite specialist lenders into Nedcor's newly formed mega property operation. They are wondering: will Cape of Good Hope Bank, BoE and Nedcor Investment Bank (NIB) - their main suppliers of finance - disappear, along with their names, into a morass of bureaucracy?

Mike-BrownIt's a critical question because the real-estate sector plans to grow listed property from R18bn to more than R40bn in the next few years. In addition, many billions of rand in direct investment will flow into new developments over the coming decade.

Nedcor now dominates property banking with about R42bn in commercial property assets. The next two are Absa with about R14bn and Standard Bank Properties with R10bn.

Mike Brown, head of Nedbank's corporate's property and asset finance division, says he is not about to give up the competitive advantage his debt and equity specialists have built up with their clients in the old companies.

"For instance, we have decentralised credit panels and teams," he says. "Also, the old Cape of Good Hope specialists still operate in the Western Cape ."

Demand for property credit is strong in the sector and competition between the banks, though there, is hardly cutthroat. But Absa and Standard are hoping to gain from the uncertainty.

It is Standard, rather than BoE, NIB or Cape of Good Hope Bank, that could be closest to evolving the ideal model for a property merchant bank . Unlike the other banks, Standard has incorporated working property skills into a single division that handles every aspect of property, except home loans, says MD Stewart Shaw-Taylor.

Standard's property experts don't only lend. They also develop, manage, maintain and lease the properties .

Shaw-Taylor built the division from 1994 out of the bank's participation-bond business, a largely defunct form of high-interest retail investment . He took over the bank's internal property management operation and then its commercial lending.

Standard takes equity in many of the schemes to which it lends, as do Cape of Good Hope Bank, BoE and NIB. But Standard also takes independent positions for its own account. If a developer applies for project finance, Shaw-Taylor's team approaches the task in exactly the same manner as the developers themselves.

"When a retail developer comes to us, we also understand plans, costings and densities," says Shaw-Taylor.

He aims to take stakes of between 25% and 30% in projects. And he will sometimes go up to 50%. "But we avoid control," he says.

An extreme example was Standard's involvement in Corpcapital's takeover of listed property unit trust Prima last month (Companies April 25). Standard provided R75m in finance by buying Prima's units and signing a put-and-call agreement for them with Redefine. But Standard also bought 15m shares in Prima for its own account. This approach has made it the leading lender in the listed sector with a R4bn book - and a big investor.

"We run this division on business lines," says Shaw-Taylor, "and it is paying off." Of the R433m divisional revenue in the year to December 2002, R238m (about 60%) was non-interest income. "This trend is expected to continue with lending margins under pressure," says Shaw-Taylor.

But he is not chasing growth. Instead, he claims he will be happy with 20% of the market, quality investments and lending, and a fair return. And he predicts the listed sector will not reach R40bn. "The banks will lose their appetite before then."

Brown says the institutions could lift the sector to R40bn without borrowing by listing their portfolios over the next few years.

Standard will soon reintroduce part bonds. Shaw-Taylor also wants to securitise some of his commercial lending book, which is similar to what SA Home Loans has done with mortgage finance.

 

Friday, 18 January 2002 02:00

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