You can also listen to this podcast on iono.fm here.
ADVERTISEMENT
CONTINUE READING BELOW
Download the free LiSTN audio app on Google Play, Apple or here.
Welcome to the latest edition of The Property Pod, South Africa’s premier property investor podcast.
Our guest on this week’s episode is Myles Kritzinger, CEO of the newly established South African Multifamily Residential Rental Association, or Samrra for short.
The multifamily housing or multifamily residential market is a buzzing sub-sector in the property market globally, and Kritzinger tells us more about this, as well as the new association he heads.
Highlights of his interview appear below. You can also listen to the full podcast above or download it from iono, Spotify or Apple Podcasts.
Highlights
What exactly is Samrra? Why was it established and is it part, perhaps, of other umbrella organisations in the property sector?
“Samrra is actually an independent association. It was established towards the latter half of last year where a few large [residential property] landlords came together and said that they wanted better representation across the multifamily residential rental asset class in South Africa. So the purpose of the association is to better or to further institutionalise the multifamily [class] in South Africa.”
“I suppose what that means to some extent is educate both the broader market and specifically the investor market as to what multifamily actually offers, specifically in the South African context.”
“What’s probably important to do is to just unpack exactly what ‘multifamily’ means. It is commonly an internationally used term and I suppose where we’ve adopted it is to try and align [it] with international terminology, specifically to terminology that’s used in the US and Australia – and to a lesser degree in Europe. But what it actually entails is these large-scale housing estates or developments that are single-landlord-owned but that do consist of multiple apartments.
Listen/read:
Election year hiatus or interest rate impetus for SA residential market?
Weak office market a boon for Africrest’s expansion plans
London luxury-apartment slump triggers 20% bulk discounts
“And when you look at it in a global context, those sorts of schemes do attract institutional investment – and significant investment. I suppose that ties up nicely with what our whole aim and objective is as an association. When you look at the asset class specifically, I think what’s also important to outline is what ‘multifamily residential’ actually offers, and what is characterised by that.
“It’s more of a low-risk, cash-back investment that offers a consistent sustainable return, or an inflation-linked return, but at the moment in the South African market only makes up a small fraction of the South African property market.”
“So to kind of answer your question, or to take a step back, yes, we are a property association. Yes, we are specific to residential. We are independent from the other bodies and organisations within the property sector. But as a group we believe that it was important that, because residential still represents such a small fraction of the market, we do stand alone for now and have our own voice but align to those other bodies in terms of what their philosophies and what their mandates are …”
“This [Samrra] is a platform to help formalise it and help better organise it, I suppose. To reference numbers in South Africa, it makes up about 2% to 3% of that investor market, when in broader or global markets it actually makes up anywhere between 20% and 30% of that institutional investor market in terms of the property sector.”
Myles, you’ve been involved in the industry for several years. You are still CEO of Transcend Residential Property Fund, which I think was last year taken over and delisted when Emira Property Fund acquired it. How did you become involved in Samrra or the establishment of the association?
“I don’t know if it’s the short straw or the long straw [chuckling], but there was a straw, nonetheless. I suppose with any of these initiatives, every sort of initiative needs a jockey and needs someone to look to drive it. I think the important point upfront is that I remain as CEO of Transcend, and Transcend is carrying on business as usual – albeit that the entity has delisted and we now operate as a fully or wholly owned subsidiary of Emira …
“Samrra consists of 13 members, which we call founding members and, as I mentioned, those are large residential landlords or operators that represent about R40 billion worth of asset value, or just over 75 000-odd units.”
“I think everyone shared a similar story in the sense that we were all trying to achieve the same things but felt that we were kind of swimming upstream individually and fighting the same fights when it came to capital allocations and operational challenges or issues.”
Listen/read:
Transcend acquisition raises Emira residential portfolio
The Property Pod: Top 5 for 2023
Office-to-residential conversions on the up
“The reason I was earmarked and potentially flagged as a candidate was that I have 10 years’ [experience] in the residential property space. I come from the IHS Group, International Housing Solutions, where I initially started, gosh, already back in 2013/14, so it feels like a very long, long time ago.”
“I transitioned into the listed space when I took over as financial director of Transcend about six years or so ago, and then more recently, three years ago, took over as CEO.”
“So I think when we looked at it as a group, again coming back to the objective of further institutionalising this asset class, the group felt that I was well positioned in terms of talking to the institutional market and understanding the requirements and the needs in terms of, I suppose, growing a multifamily [class] in a South African context.”
“But, having said that, I suppose the big benefit with all of these things is that you’ve got access to great people and experienced people in that group. So, as I’ve mentioned and referenced, it is a fairly decent member base, and people – and I suppose brains – that have been in both the listed and unlisted space in the broader property market and specific to residential, who offer me a lot of support in terms of rolling out this initiative.”
ADVERTISEMENT
CONTINUE READING BELOW
More and more local property professionals are talking about it in South Africa besides yourself … Some analysts are increasingly talking about ‘multifamily’. You did share quite a bit, but can you give us a little more insight about its potential for growth in South Africa, because it’s certainly, as you mentioned, a small percentage currently in terms of an investment class?
“When looking at what multifamily is, and then also what it offers, you’ve got to draw that into relief in the context of the South African property market. When looking at residential, and more specifically the broader affordable housing market, I suppose what is required there is [the consideration] that that housing market has been terribly under-serviced over the history of South Africa … It makes up only about 2% to 3% of the formal property sector in terms of investment.
“But in South Africa the demand for quality residential housing is far, far overweighed when it comes to the supply of that housing.”
“And when looking at what it provides habitants with – it’s obviously providing tenants, homeowners or whoever else is looking to transition into that growing low- to middle-income class with access to amenities; to social needs that they previously haven’t actually had access to. And I suppose as an investment class but also as a social need requirement there’s huge, huge runway within South Africa – and also looking outside South Africa’s borders into Africa as well.”
Listen/read:
Jonny Friedman’s zesty urban renewal endeavours in Cape Town and Durban
Atterbury’s R3bn residential-anchored development rising in Sandton
Mmamoloko Kubayi on better SA human settlements and empowering women
How Alleyroads is cornering the affordable housing market
“So I think as an alternative investment class it is definitely at the forefront of a lot of people’s minds at the moment. I’ve kind of pulled into relief and into comparison what it means from a South African standpoint versus a global market, but I think capital allocators are also wanting to see investment specifically into this asset class because, as I said, it provides investors with a low-risk return and a sustainable, consistent return, but also has a huge impact on social requirements investment philosophy.”
Do you expect to see specialist multifamily Reits [real estate investment trusts] listed locally? One could argue that Transcend is a multifamily Reit – or am I incorrect on that?
“Transcend was definitely a multifamily listed entity and platform. As I mentioned, we’ve gone through the delisting fully, as everyone knows. But when looking at specialisation within the listed space in the Reit market I think there is definitely opportunity for it. There have been some good stories with the likes of not only Transcend, but [also] when looking at Stor-Age and some of the industrial counters where specialisation I think is rewarded.”
“When talking about the listed property sector in South Africa, I think everyone’s fully aware of what’s probably been a difficult patch over the last five to seven years in the listed space – and listed property specifically.
“But, having said that, I do think that specialisation plays an important part. It’s just whether, again, those counters at a point in time might offer the size, the scale and liquidity that I think institutional investors obviously look to when investing in listed counters or listed stocks.”
Read/listen:
SA listed property surprises as 2023’s best-performing asset class
More Cape Town developments in Divercity’s sights
‘We won’t see a residential property boom for a long time yet’
“I think, when looking at this platform specifically, those sorts of opportunities for consolidation do potentially exist. So, to answer your question, definitely. And I think having owner-operators and managers who stick to their knitting – who know exactly what it is that they’re looking after, and the dynamics required in terms of managing those portfolios – is key in terms of performance and success.”
“But at a point in time as to whether it makes sense to list, I think what it will largely come down to is size and scale and liquidity. And then, when looking at the multifamily residential asset class, as I mentioned earlier, I think that there’s huge runway there and huge scope and opportunity to actually grow out a listed counter that offers multifamily specifically …”
What will be your main priorities going forward for Samrra over the next few years?
“I think first and foremost, priority number one for me is to carry on work at Transcend and keep driving good business performance there, especially rolling up Emira to keep delivering good results.
“I think as part of an association like Samrra, where I can obviously support and help the growth of the story of multifamily in the asset class in the South African context, I’m very glad and happy to be a part of that.”
“As an association, the big thing at the moment is to get the message out there, and to get the story around multifamily to the market, where it’s a credible message – and I think a better-understood one in terms of what residential offers from a rental standpoint.”
“I think there has largely been a misconception around the risks of multifamily residential – where the experiences of Covid and, as you mentioned, a few of the players operating in the space have demonstrated that multifamily is actually a low-risk credit-diversified investment opportunity.”
“What we will be looking to do in the months to come is definitely to look to ‘roadshow’ our association and its members – and what the broader asset class has to offer. That roadshow would look to be supplemented with a research document [backed by Absa Bank] that the association has commissioned through MSCI and through the Centre for Affordable Housing Finance. That would then be published to the market so that, I think, institutional investors can understand exactly what it is that multifamily offers and delivers on in terms of performance.
“So very much in the short term it is to get the message out there, educate the market, sit down with the investor market, and effectively talk through exactly what it is that we do as an asset class.
Listen to the full episode here.