Fund aims to double black ownership

Johannesburg - An enormous transaction to jump-start transformation in the commercial property sector was announced in Johannesburg on Thursday.

A new empowerment fund, the Supreme Commercial Property Fund, is obtaining commercial property portfolios from the private sector worth about R4bn, and envisages listing on the JSE in the near future.

The aim is to expand the value of the portfolio to R10bn within the next three to five years, and to R20bn within 10 years.

The fund has been established by Hermans & Roman Property Solutions, the country's only national property services company in black hands with property assets under management worth more than R20bn.

Hermans & Roman CEO Kevin Roman said these portfolios will predominantly involve buildings being leased by government departments around the country.

Various listed companies are considering disposing of their buildings with government tenants.

According to the department of public works, these companies are not fully empowered and for that reason struggle to get government to enter into rental agreements of longer than two years.

The fund will allow these companies to sell the properties to a strong empowerment group that can kick-start transformation in the industry.

Roman says direct property ownership in the country is dominated by institutional investors and listed property entities, with limited numbers of black players owning and managing the entities. Empowerment consortiums involved in partnerships are largely passive investors without opportunities to become actively involved in the property and assets management of large property portfolios.

He said government has 3 500 lease agreements for buildings owned by the private sector, involving annual rentals of about R2bn.

Only 8% to 10% of the buildings are owned by blacks, and only 22% of the 144 directors in the listed property sector  are black.

Hermans & Robins chief operating officer Leslie Hermans said the aim of the fund is to double black ownership in the property sector by the end of 2010.

One reason for the low percentage of black ownership in the sector is that black individuals and consortiums battle to gain access to capital for acquisitions.

The procurement of the buildings will be financed by senior debt at some of the country's big banks, as well as capital from various investors who give preference to black economic empowerment equity partners.

An initial upfront return of 9% a year is expected for the fund's portfolio, in accordance with the sector average of 9.2%.

Roman says the big challenge will be how to keep the fund empowered without losing its focus if it lists.

Public Works Minister Geoff Doidge says his department is highly focused on empowerment in the property sector, especially meaningful participation by women and the youth.

Government is the biggest property owner in the country, with real estate worth about R400bn. Hermans and Roman reckon it should therefore be an important catalyst for reform in the industry.

- Sake24.com

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