Johannesburg - Patrice Motsepe’s new property joint venture will combine the resources of one of the country’s best-known billionaires with that of probably its most publicity-shy and reclusive ones, Jonathan Beare.
The new venture, African Rainbow Capital (ARC) Real Estate, was launched this week and could snap up several billion rands’ worth of assets in a year if enough good deals present themselves.
KwaZulu-Natal-based Beare is seldom seen or heard from, but his property-focused company Buffet Investments is thought to be one the largest private investment groups in the country.
ARC Real Estate is 52% owned by ARC, with the balance owned by a long-standing property partnership between Buffet and KLT Holdings (Buffet-KLT).
The new company’s model is premised on large companies being willing to trade their properties for cash at a discount – helped along by the need for black economic empowerment credits.
“Let’s say a company owns its own building. If they sell that building to a black-empowered company, they can get shareholder points for that – for the sale itself,” said Johan van der Merwe, co-CEO of ARC, which Motsepe chairs.
“Then they get the procurement points for leasing from the black-empowered company, too.”
ARC and the Buffet-KLT partnership have both committed R500 million to the new property venture to begin with.
“So, it is R1 billion in equity. That billion you can leverage quite heavily to anything between R3 billion and R4 billion. If there are opportunities in the market, we will commit more than R500 million and so will they [Buffet-KLT],” said Van der Merwe.
“We just did a deal of R1.2 billion and we put no capital in. We are still waiting for them to call on the capital we earmarked.”
This first deal was the acquisition of the Setso Property Fund, and its 13 retail and commercial properties, from Pivotal Property Fund and Redefine Properties in December.
“We can build a substantial property company,” said Van der Merwe.
“We haven’t put a time frame on it. If we only get R700 million in decent deals, then we will spend R700 million. If we get R6 billion of excellent deals, we will spend that in a year.”
The ‘black Remgro’?
“Maybe it sounds a little arrogant, but what [we] want to achieve is basically a black Remgro,” said Van der Merwe.
“A big diversified investment trust that is black empowered where we give the investee companies the BEE scorecard.”
ARC is a product of Sanlam’s 2004 BEE deal with Ubuntu-Botho Investments, of which Motsepe owns 55%.
The 10-year-deal expired in 2014 and left Ubuntu with 14.5% of Sanlam, now worth about R20 billion.
ARC is the investment company created to invest that capital and is wholly owned by Ubuntu.
ARC has two CEOs: Johan van Zyl, previously CEO of Sanlam, and Johan van der Merwe, previously CEO of Sanlam’s investment businesses.
“We borrow against those shares to do all these transactions, we have not sold a single share. We don’t intend to sell,” said Van der Merwe.
ARC has spent or committed roughly R4 billion since its launch a year ago.
This includes the R500 million for the new property company, R435 million spent on shares in construction supplies company Afrimat last year, about R700 million for Alexander Forbes shares and R300 million for shares in listed services company EOH.
“Some transactions are already deep in the money,” said Van der Merwe.
“We bought Afrimat at between R16 and R17 per share, it is trading at R30 today so that’s over R300 million profit on that one.”
Van der Merwe is conscious of how it looks when a major black-owned company is run by two white men called Johan.
“We want to make money for the shareholders and the shareholders are black,” he said.
Even though Motsepe is the dominant shareholder, Van der Merwe points out that Motsepe is part of the so-called Giving Pledge started by Bill Gates.
This means he will donate half of his income every year to charities for the rest of his life.
ARC’s other shareholders include a development trust and a variety of broad-based black groups.
ARC’s partner in the new property company, Buffet-KLT, was represented at this week’s launch by KLT CEO Bradley Kark.
“My gut feeling is that there will be a lot of transactions with large corporations looking for cash and BEE credentials, but I think a lot of our ventures will be of traditional transactions, whether BEE credit enters into it or not,” he told City Press.
“BEE is part of it, but what we have is money, BEE and expertise,” said Kark.
Asked how large the Buffet-KLT portfolio is, he would only say that “it runs into billions”.
“We are among the largest private owners of real estate in South Africa,” Kark said.Read Fin24's top stories trending on Twitter: