South African Investors Take On England As Pair Prepare To Meet In Rugby World Cup Final

On Saturday, England take on South Africa in the final of the 2019 Rugby World Cup, having defeated the mighty New Zealand All Blacks in the semifinal. In South Africa England will face a team with the physical power to disturb the brilliant rugby they have played so far.

It will be a titanic clash on the pitch in Yokohama on Saturday. But in the world of property, the UK and South Africa are forging a growing partnership.

For the first time in a long time, South African property companies are making a significant foray into UK real estate. England are hoping to come back from Japan with the trophy, while South African investors are coming to the UK to buy schemes across various sectors, some of which are most definitely not trophy assets.

From 2014 to 2018, South African property companies made a massive play in Eastern European shopping centres, investing more than £5B on retail properties in major markets like Poland, but also decidedly less liquid markets like Romania. During this period they largely avoided the UK, where prices were higher.

But in 2018, something changed and investment in the UK almost tripled, rising from £235M in 2017 to £690M in 2018, according to data from Real Capital Analytics. The biggest chunk of that was Zeno Capital’s £390M purchase of Riverbank House in January 2018.  

And in 2019, while direct investment has dropped to £107M year to date, South African firms are doing some of the most interesting corporate and development deals in the market, in sectors where others are fearing to tread.

Earlier this month, South Africa’s largest REIT, Growthpoint Properties, paid £78M for a 51% stake in Capital & Regional, the listed UK shopping centre owner whose shares were trading at a significant discount to its net asset value. Growthpoint said it would help Cap & Reg deleverage and transition its malls from fashion to community-led schemes.

Elsewhere in the retail world, one South African investor has stepped in to help ease the distress of one of its peers. South African firm New Frontier Properties was one of the few investors that invested in the UK earlier this cycle, buying a trio of UK shopping centres in 2014 for £284M. By the end of May the centres were valued at £123M with £160M of debt outstanding, a net liability of £37M.

As revealed by Bisnow, in July a company controlled by Johannesburg-based businessman Franz Gmeiner took a 29% stake in New Frontier, which is listed in Mauritius and South Africa.

Like Growthpoint with Cap & Reg, Gmeiner’s plan is to lease up vacant space with uses more in keeping with the needs of local communities in midsized regional cities. And he gave Bisnow an insight into why investors from South Africa are not put off by the decline in UK retail values or the political uncertainty created by Brexit.

"Retail space around the world is under pressure because of oversupply in certain areas and because of the negative pressure on retailers,” he said. “In South Africa we have our own travails, starting with politics and then everything else in between. We've learnt how to deal with that.”

South African investors are also buying into UK assets where the outlook is less fraught. In August South African specialist industrial REIT Equites Property Fund paid £31M for a 261K SF distribution centre in Yorkshire leased to sportswear company Puma. It had bought £26M of industrial assets in 2018.

They have also been among the most active participants in some of the fast-growing alternative sectors of UK property.

Investor Zenprop is backing Auriens in the development of a luxury retirement home scheme in Chelsea in West London. The 55-unit scheme received a £185M loan from Goldman Sachs to fund its construction in May, and is scheduled for completion by the end of 2020. Rents at the scheme will start at £130K a year.

And South African bank Investec has been one of the biggest lenders to alternative sectors in the UK including build to rent, student housing and retirement living. Earlier this month it teamed up with Bank of Ireland to provide its largest ever build-to-rent loan, an £80M facility to fund the construction of Henderson Park and Greystar’s 57-unit BTR scheme in Walthamstow.

Whatever happens Saturday, the relationship between England and South Africa is only strengthening.