Cape Town - Property Partners, a Cape-based equity finance and development company, has acquired the mixed-use Melrose Arch development in Johannesburg for R1.27 billion from Sentinel Mining Industry Retirement Fund.
The deal, probably the single largest property purchase in South Africa, follows the collapse of the previous sale to the Atlantic Corporate Finance property consortium for the same amount.
Although no definite reason for the failed deal with Atlantic was given, speculation is that the consortium could not come up with funding guarantees for the acquisition.
Stuart Chait, the chief executive of Property Partners, said the deal would be financed on Property Partners' balance sheet, which included finance from Standard Bank Properties.
"Payment guarantees have been delivered to Sentinel and the process of transferring ownership has already started.
"Property Partners has a sufficient capital and asset base to finance the deal, due to the solid backing of its shareholders.
"My investment trust and UK-based Highneal Limited are the majority shareholders, while Javelin Capital, which is headed up by Phil Biden, a previous chief executive of BoE, has a minority stake. The transaction is conservatively geared."
Chait said Highneal had a big presence in the UK, especially in the Liverpool area, and was involved in developments in eastern Europe, China and Cyprus.
According to Chait, other bidders for Melrose Arch included listed funds Sycom and Hyprop, as well as Investec and the Cavaleros Group.
"Our bid was successful as it was pitched higher than the others. Also, Sentinel wanted someone that was committed to carrying the development plans of the unbuilt areas through to finality."
Chait said other than the solid income stream emanating from the buildings, he also saw huge value in the undeveloped portion.
The further development of Melrose Arch had a value of about R5 billion, and Property Partners would complete the residential and retail construction before starting on the next office phase.
"In order for a mixed-use development like Melrose Arch to reach its full potential, it is essential that the retail and residential function be completed first as it creates more value in the office component."
However, Property Partners would first focus on reducing costs and improving income from the completed buildings.
Chait said the properties were fully occupied with a blue chip tenant base, including Stanlib, Harmony, the SA Bond Exchange and Bidvest.
Property Partners would provide mezzanine finance for the continuation of the development.
Eric Visser, who is the chief executive of Sentinel, said the sale finalised Sentinel's decision, taken in 2001, to rebalance its investments, achieve the right mix of diversification, downsize direct property portfolios and focus instead on more liquid investments, which did not require capital commitments, for members' contributions.
Property analysts said there was a good chance that Property Partners could split up Melrose Arch and sell off the different properties, as the sum of the parts could derive more value than the entity as a whole.
Although Chait was not prepared to comment on the possibility of splitting up Melrose Arch, he did say that some of the other bidders had shown interest in buying some of the individual properties.
As it stands, Melrose Arch has 88 000m2 of developed office and retail space. Property Partners will commence the design phase of a further 150 000m2 from late 2005 onwards.
Chait said there was still about 250 000m2 in bulk available for development.
Chait has 17 years of experience in the property development arena and is a co-founder of Tokyo Sexwale's Mvelaphanda Property Development Holdings, which has been behind key developments in the Western Cape, including the Big Bay development in Blaauwberg.