Banking on commercial property in SA

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23 Jul 2013

Nedbank Commercial Property Finance (CPF) remains committed to funding sound property deals and developments in South Africa and the bank says Gauteng has the biggest book, undoubtedly because of the size of the region.

Nedbank Commercial Property Finance (CPF) remains committed to funding sound property deals and developments in South Africa and the bank says Gauteng has the biggest book, undoubtedly because of the size of the region.

The bank holds a 37 percent market share in South Africa.

According to Ken Reynolds, regional executive of Nedbank CPF in Gauteng, the bank is the market leader and knows the market well, and proof of this was recently demonstrated in the bank being voted the best Property Finance bank in the 2013 PricewaterhouseCoopers South African Banking Survey, a title the bank held in 2009 while in 2007 and 2011, Investec was voted the best property finance bank.

Read the article here.

In June, Nedbank CPF launched The Forum, a networking event in Cape Town, Durban, Cape Town and Johannesburg.

According to Frank Berkeley, managing executive at Nedbank CPF, they believe that relationships are the lifeblood of the property industry, and The Forum is designed to provide a platform where decision makers meet to engage, discuss, share expertise and hopefully close deals while at it.

The Forum will be held again in October this year. Click here to access the digital album, which captures some of the industry players that attended the regional events.

“We are proud to bring you this powerful platform, and trust that it provides engagement opportunities with leaders in the property industry.”

Retail and industrial sector

Asked which sectors they prefer currently, he says shopping centres – in the townships, rural and regional - really where there is a need for retail.

Nedbank CPF has financed high-end retail developments in Soweto, Tembisa, Katlehong in Gauteng and Giyani for example.

He also shares his fear that we may soon have too much retail than available demand.

Regarding financing shopping centre developments, he explains that when assessing loan applications, the bank looks at the sustainability of future income and points out that lack of experience in retail development by many applicants makes it difficult to grant funding.

Basically, when applying for finance for this type of development, the bank expects you to have capital and expertise of what you want to develop.

Asked what percentage of loan-to-value (LTV) they grant applicants, Reynolds says each applicant is very different as are their circumstances, so they apply a ‘deal for deal’ strategy, however, the bank grants 60 percent LTV.

Asked on interest rates, he says there is an option to fix the rates or take the variable option and points out that in the business of lending, rates is a sensitive issue.

Nedbank CPF has provided R52 million finance to Imojoe International CC (Imojoe) for a 10 percent undivided share in a major regional shopping centre currently under construction, the Sasol Secunda Mall in Secunda, Mpumalanga which measures 52 393 square metres.

Although these are trying times for the property market generally, the retail sector in South Africa is holding its own and there are some large developments taking place in areas that are not traditionally associated with shopping centres of such magnitude, says Reynolds.

It is located immediately south of the main CBD retail precinct, bounded by PDP Kruger, Helen Suzman Drive, Oliver Tambo and Walter Sisulu Roads and with exposure to at least two arterial routes.

Industrial activity is dominated by Sasol with their main plant and refinery visible from the site.

The development is expected to service a wide geographical catchment area that includes outlying towns such as Kinross, Leandra, Trichardt, Delmas, Evander, Bethal, Standerton and Ermelo

Reynolds says they are committed to supporting the development of the retail property sector, especially in outlying areas.

Sasol Pension Fund owns 40 percent of the development, as does the Resilient Group, while Bunker Hills Investments and Imojoe International each own 10 percent.

According tom the bank, Imraan Salajee is the 100 percent shareholder of Imojoe and is also a respected business man and property investor in the Secunda and Evander area.

He owns five business concerns and holds a strong property portfolio that includes the 9 306 square metre Park Centre and

“Letting is well subscribed with 83 percent of national and franchise tenants secured and the mall is scheduled for opening on 23 September 2013,” says Salajee.

“Although these are trying times for the property market generally, the retail sector in South Africa is holding its own and there are some large developments taking place in areas that are not traditionally associated with shopping centres of such magnitude,” says Reynolds

According to Reynolds, they also like well-located industrial properties with locations such as the N3 corridor, Gorsfoth, close to OR Tambo International Airport and the R21 corridor in Gauteng.

Office property market

Reynolds the office property market is full and they aren’t seeing much demand as the sector in some locations is battling to keep vacancy rates low, as such, location remains key for many tenants and users looking for

However, he says they notice that P grade office space in Sandton is flourishing and they are seeing activity where government is a tenant although this is slowing down.

“A number of listed property funds are doing well letting offices to government departments.”

Reynolds points out that the bank has financed office developments in Bryanston, yet another sought-after node in Johannesburg.

Being a green bank, Nedbank CPF has invested R3 million into the Green Building Council of South Africa (GBCSA), for the development of the Existing Buildings Performance tool, a mechanism in which existing buildings with improvements can qualify for a 4,5 and 6 star green rating.

In this location, he says sectional title office units measuring up to 250 square metres are seemingly doing well.

Recently, Nedbank CPF granted R42 million to J Post Investments, 100 percent owned by Capstone Property Group, for the purchase of Media Mill office park, located in Braamfontein in Gauteng.

Reynolds notes that this landmark office complex for the creative industry is well-positioned along Quince Street in Braamfontein and is within walking distance of the SABC Headquarters, as well as the University of the Witwatersrand and University of Johannesburg-Bunting Road campuses.

The area has good macro access due to its close proximity to Empire Road, with on/off ramps to/from the M1 Highway, Barry Hertzog Avenue, Jan Smuts Avenue and Oxford Road which provide easy access in and around the area.

Its immediate surroundings comprise of offices and retail developments, high density student accommodation and a strong presence of blue chip tenants and popular franchises occupying the commercial buildings.

He says the property is popular with and is currently occupied by various local media industry tenants who tend to use each other’s services, which may attract similar tenants to the premises.

Emerging trends

With a growing need for places where people can live, work and play, Reynolds says mixed-use developments are likely to continue to come onto the market driven by easy access to transport.

Locations such as Sandton, Melrose Arch and Rivonia to some extent are seeing spats of mixed-use property developments because of accessibility and offerings.

However, he points out that these developments are often challenging especially mixing offices with residential units.

Homes are about the views and offices the address so balancing the two often poses challenges.

Mixed-use precincts in future could be the trend to watch out for, for example, developments such as the Maboneng Precinct in Johannesburg, a development that offers residential, work and play areas.

Residential property

Reynolds says their focus is not residential, as such, they are not aggressively financing this sector - the home loans department does this.

Recently, Nedbank CPF granted R42 million to J Post Investments, 100 percent owned by Capstone Property Group, for the purchase of Media Mill office park, located in Braamfontein in Gauteng.

But of course, where the deal ticks all the boxes, CPF will provide funding and looks at the ‘sweet spot’ – development of homes priced between R600 000 to R1.2 million as often below R1 million, buyers find it easier to access home loan finance and raise deposits as well.

On average, CPF would prefer to fund a development of between 30 and 40n residential units and no more.

He points out that the student accommodation market is seeing demand, but with residential property financing, pre-sales of units is a requirement and with banks having tightened on lending, many people still battle to obtain home loans, but the demand is there.

Asked about repossessed properties from those clients who cannot pay, he says there are very few repossessed commercial properties on their book and their arrears book is not looking bad either, arrears are at extreme levels.

He attributes this to active communication between the bank and the client to find the best possible way of repaying the loan without having to repossess properties.

Reynolds says they do not finance golf properties and second homes as they see these as high risks investments and to many buyers, these are luxury items.

According to Frank Berkeley, managing executive at Nedbank CPF, they believe that relationships are the lifeblood of the property industry, and The Forum is designed to provide a platform where decision makers meet to engage, discuss, share expertise and hopefully close deals while at it.

When bad times hit, many people who own second homes are likely to default on payments but they will do everything possible to keep their primary residence, he says.

Africa and green buildings

Reynolds says their Africa strategy is to follow their clients expanding or developing in other African countries.

He points out that investing in other African countries is capital intensive for property and also requires investors to do their homework as Africa is not a one size fits all but consists of different countries with different laws and regulations.  

They see Nigeria and Ghana as two of the countries to watch out for, for investors looking to tap into the African rising story.

Being a  green bank, Nedbank CPF  has invested R3 million into the Green Building Council of South Africa (GBCSA), for the development of the Existing Buildings Performance tool, a mechanism in which existing buildings with improvements can qualify for a 4,5 and 6 star green rating.

GBCSA expects to launch a pilot tool in the last quarter of 2013. –Denise Mhlanga

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