Start-up property fund eyes student accommodation gap

Following a thwarted bid to list a new R1.4 billion student accommodation fund on the JSE a year ago, Inkunzi Wealth boss Owen Nkomo has opted to launch a student accommodation development business that he hopes to finance through private backers.

Speaking on Monday in Alexandra, Johannesburg, Nkomo said the venture – dubbed Ithubalethu – aims to raise R250 million in the first tranche by targeting private investors. He says that even “the man on the street” can invest in the business, with as little as R5 000, as Ithubalethu wants to play a role in increasing the number of black South African property investors.

Nkomo acknowledges that 2018 turned out to be “a terrible year” for the listed property sector. “However, we still see huge opportunity in student accommodation and have opted to launch Ithubalethu as a privately run developer in the sub-sector,” he told Moneyweb.

“We planned on listing our Inkunzi Student Accommodation Fund (ISAF) with a R1.4 billion portfolio a year ago. But then the listed property sector fell into a state of turmoil at the beginning of 2018, brought on by the sell-off in the Resilient stable of companies. When the Resilient situation hit there was a large sell-off and contagion affected the listed property sector, which made it impossible to raise the money we needed to buy student accommodation assets.”

Leases

Nkomo says that with Ithubalethu, the idea is to become a developer in the student accommodation sector, and to prove itself in the market until a listing becomes possible. Ithubalethu will be a black-empowered player in the sector, and hopes to leverage off this to secure leases from universities and support from government.

“There is a huge shortage of student accommodation in SA and the rest of Africa, reported to be well over 500 000 beds,” he says. “SA accounts for at least half of this, with the department of higher education saying that some 250 000 beds are required for student housing for universities alone.

“The first tranche of investment secured by Ithubalethu – a target of R250 million by mid-April – will be used to begin construction on one or two of our initial student housing developments. We have identified several sites around SA, including Durban, Cape Town and near the University of the Witwatersrand in Johannesburg, but are also looking at secondary cities like Polokwane and Mafikeng,” he explains.

Ithubalethu has several highly experienced professionals in the student accommodation sector as part of its leadership and advisory team, including Vanessa van Vliet (Ithubalethu’s chief financial and investment officer), with Siyabonga Mbanjwa, David de Villiers and Thabo Motloung as members of the company’s new independent investment committee.

Five-year lock-in

“While Ithubalethu is a private company, it still has a board and an independent investment committee,” says Nkomo, adding that operating as a listed property company will make for an easier transition when the company eventually lists. “It may be five years down the line, as we have a lock-in period of five years for initial investors. However, we could still also list ISAF as a separate business operating as a pure student accommodation real estate investment trust (Reit) when the time is right.”

He says Ithubalethu could then serve as a supplier of developed student accommodation assets to ISAF.

He points out that while Ithubalethu may seem small with its initial capital raise of R250 million, when JSE-listed Redefine Properties first announced its intention to buy a majority 51% stake in student accommodation provider Respublica in 2014, the stake was valued at just over R200 million.

At the time, Respublica had a capacity of around 2 700 beds; today it is more than double that figure. Redefine is reportedly aiming to grow Respublica to a capacity of 10 000 beds by the end of this year, valued at about R6 billion, and is considering listing Respublica separately in the future.

JSE-listed Indluplace Properties, a residential-focused Reit, is also active in the student accommodation space. Other major unlisted and privately run players include upmarket CampusKey, as well as the Feenstra Group. There are also dozens of other smaller regional players.

ISAF had aimed to become the first student accommodation Reit on the JSE, while CampusKey also looked into a listing.

Nkomo says Ithubalethu will differentiate itself in the market as a more affordable student accommodation provider, with monthly rentals around the R3 000 mark.

Timing

Commenting on student accommodation as a new niche sub-sector of the property industry, Lawrence Koikoi, a listed property analyst at Stanlib, says student housing is looking more lucrative due to underperformance of the traditional office, retail and industrial property markets.

“Alternative sub-sectors in the property market – such as student accommodation, storage, logistics and even healthcare – seem to be performing better,” he says. “One just needs to look at the better performance of Reits like Stor-Age, Fairvest and Equities Property Fund. It is a matter of time for a pure student accommodation player to list on the JSE.”

Koikoi adds: “Last year was very tough for the listed property sector, so any new listing would have found it challenging. ISAF’s plans to list would have been impacted by this, as it was difficult to raise equity amid the volatility in listed property. It was more a case of poor timing and not linked to the potential of student accommodation as a new property asset class.”

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