Tower opens new chapter by branching out overseas

Tower Property Fund CEO, Marc Edwards said the fund selected Croatia as the first jurisdiction in its strategy based on the significant opportunities identified for potential value creation.

SA property funds may have been posting double-digit growth, but they are on the prowl for assets outside their home turf to diversify from the competitive home market.

From Australia to Europe, South African property companies are eyeing expansion into Eastern Europe, targeting high-growth countries with strong demographics.

Last week, Western Cape-based Tower Property Fund announced its first foray into Croatia through a partnership with a Croatian shopping centre developer, that has seen it gain a portion of the VMD KVART office building in capital city Zagreb for R321m.

Tower CEO Marc Edwards, says the company's strategy is to seek out new markets that provide strong diversification opportunities through premium, high quality properties.

“Europe further offers a hedge against Rand weakness and includes numerous smaller markets where we can position ourself as the leading participant in the territory,” he said.

The group has been investigating offshore opportunities since last year June and through its existing in-country relationships, and following extensive research into the region, it selected Croatia as the first jurisdiction in its strategy.

“While Croatia is currently recovering from the lows experienced following the global financial crisis of 2008, property prices and rentals have reduced considerably and are believed to have “bottomed out” from their previous highs pre-crisis. This shift presents a significant buying opportunity as rentals are anticipated to rise into the future as the economy grows and recent data has shown the country to be moving out of its recession into positive growth. Furthermore, Croatia has not yet seen notable economic benefit following its July 2013 inclusion in the Eurozone. This growth is expected to materialise as the country navigates towards joining the Euro currency union, possibly as early as 2020.”

“Compelling property opportunities have been identified in both the office and retail sectors in an investment climate that is pro foreign investment with a strong legal system and regard for property rights,” says Edwards.

The acquisition has been concluded through Tower’s 100% held subsidiary, Tower Europe, a newly-created company registered in Croatia. As part of the offshore venture, the fund has partnered with Croatian specialist developer VMD Grupa, who has also acquired a 20% stake in Tower Europe.

The property purchased in Croatia is a newly built office tower in Zagreb – which is well situated adjacent to major bus and rail stations, and is one block away from a major highway linking Croatia to other Balkan countries.

Edwards emphasizes that South Africa is still the core focus for the fund and that the Croatian investment is complimentary to the portfolio. In South Africa over the last year the Fund made several office, industrial and retail acquisitions that total close to R1 billion.

The fund, which initially listed a portfolio worth R1.6 billion of retail and office properties, has grown its assets by 150% to R4 billion in the two years since listing.

Tower is the latest South African property fund to enter Eastern Europe, after New Europe Property Investments (Nepi), which owns malls in Romania, and Rockcastle Global Real Estate, which is investing in malls in Poland.

Unlike Nepi, which has no assets in SA, and Rockcastle, whose main focus is Poland and secondary focus African countries excluding SA, Tower has a large portion of its investments in SA.

Texton Property Fund and Rebosis Property Fund have added UK malls to their South African-focused portfolios.