UK financier commits R500m to Divercity property fund

CDC Group, the UK’s development finance institution and one of the largest impact investors in Africa, has committed $36 million (R500 million) to Johannesburg-based Divercity Urban Property Fund for the development of 2 500 new affordable residential units over the next five years.

The new residential units will be built predominantly in Johannesburg, with the project expected to create between 2 000 and 4 000 construction and permanent operational jobs.

Carel Kleynhans, CEO of Divercity, an affordable housing platform focused on the regeneration of South African cities, on Monday expressed confidence that CDC will add significant value to the funds’ goal of changing the face of affordable rental housing in South Africa and establish it as an investment grade asset class.

“They are a serious financial backer for us. They bring a huge amount of expertise to the table and their financial commitment to the business is valuable for our growth strategy,” Kleynhans told Moneyweb.

“The business is now adequately capitalised to deliver another 2 500 units, which we intend to commit to and announce this year still. That money will largely be spent by the end of this year.”

Additional investments

Kleynhans confirmed that a further R180 million has been committed by Divercity’s existing shareholders, which include Atterbury Property Fund, Ithemba Group Investment, RMH Property and Nedbank Property Partners.

He said the CDC investment coincided with Ithemba Group Investments selling its residential and property manager Ithemba Property to Divercity through an ‘internalisation’ process, resulting in Ithemba increasing its shareholding in Divercity.

Futuregrowth Asset Management, which is focused on social development and empowerment investments, has also taken a direct stake in Divercity through an asset-for-share transaction “as part of this funding round” and is now also a shareholder in Divercity.

Kleynhans said CDC now has a shareholding of more than 26% in Divercity while Futuregrowth has a stake in excess of 10%.

Samir Abhyankar, MD and head of direct private equity at CDC Group, said that with the development financier’s re-entry as an equity investor in South Africa, CDC is proud to have partnered with Atterbury and Ithemba to set up Divercity as a leading affordable and sustainable housing platform in South Africa.

Read: Atterbury’s R6bn mega property project breaks ground in Pretoria

“The investment will help promote inclusive growth and enhance social and economic integration in the country … CDC’s patient capital and development expertise can help accelerate growth, improve living conditions and support the livelihoods of low-income and vulnerable households,” he added.

Closing the gap

Ilaria Benucci, head of construction and real estate at CDC Group, said urban population growth and a challenging macroeconomic environment necessitates patient and long-term investments that will help close the gap between demand and supply in South Africa’s housing market.

“We are delighted that our investment in Divercity will support the developer to deliver rental housing that will meet the housing needs of groups within the low and middle income bracket.”

Benucci is confident that CDC’s investment will have an effect on commercial investors and usher in greater investment into the housing sector.

Kleynhans said Divercity is seriously considering two greenfield projects in Johannesburg but is not at liberty to disclose further details about them at this stage.

He said Divercity wants to raise further money, adding that demand for Divercity’s product “is insatiable in the South African context”.

“The only limitation to our growth at this stage is capital availability. We can spend the money as fast as we can raise it,” he said.

South Africa has a housing shortage of an estimated 2.3 million units.

Kleynhans said Divercity definitely sees demand for its product nationwide in all the major metropolitan areas of South Africa and “ultimately expect our portfolio to reflect that”.

“It’s a priority for us to double the size of the fund in the next two years or so. We own about 7 000 apartments now but want to add that again in the next couple of years.

“A few will be Johannesburg but in the next three years we definitely want to commit to projects outside Johannesburg as well,” he added.

Divercity’s existing R3 billion portfolio comprises 6 500 units and 90 000m² of commercial and retail gross lettable area.

Its major assets include:

•  Jewel City, a mixed-use housing, education and retail precinct in one of the only pedestrianised nodes of the Johannesburg CBD.

• Towers Main, a 30-storey tower comprising 518 apartments and 9 000m² of Absa offices.

Kleynhans said Divercity is currently funded adequately to commit to around another R1.5 billion of its development pipeline.

But he noted that Divercity has more pipeline secured than funds available at the moment to develop it. Thus, the group is bringing in partners to develop some of these projects.

“We have a development pipeline of R3.5 billion, of which some of that will be funded by partners at the deal level alongside us. This will be developed over the next three years,” he said.

Listen to Suren Naidoo’s interview with Atterbury co-founder Louis van der Watt on his 25 years in property (or read the transcript here):