Tower Property Fund getting to grips with residential money

We believe this conversion is the best use of our resources right now. However, we aren't at a stage yet where we would go and create a separate residential business, CEO Marc Edwards said.

Tower Property Fund [JSE: TWR] joins other property companies that are selling or re-purposing older A- and B-grade offices and retail centres as residential developments.

Tower Property Fund, the SA- and Croatia-focused real estate investment trust, has now entered the residential market with the conversion of two retail buildings.

It joins other property companies that are selling or repurposing older A- and B-grade offices and retail centres as residential developments. This is aimed at supporting income growth, which has come under pressure for many real estate counters amid weak economic conditions.

Tower is well under way to converting part of its Cape Quarter in De Waterkant retail development to 70 apartments, which it says will attract the highest prices in Cape Town.

It has completed the first phase, having built 16 apartments on Napier Street, and is now working on the second phase, which will add 54 apartments to the adjacent Cape Quarter Piazza building.

The first 16 apartments sold well, which prompted the group to continue with the second phase of the conversion.

"De Waterkant is attracting the highest residential sales prices right now, higher than Camps Bay and Clifton," CEO Marc Edwards said.

The first phase of the conversion includes 16 apartments priced at an average of R90,000 per square metre, along with two floors of retail space. It also has 140 parking bays for sale at a cost of R570,000 per bay. 

Edwards said the conversion is "opportunistic" and Tower is not yet considering a separate residential portfolio.

"We believe this conversion is the best use of our resources right now. However, we aren't at a stage yet where we would go and create a separate residential business," Edwards said. 

Some critics have questioned Tower's investment strategy in Croatia this year. Evan Robins, listed property manager at Old Mutual Investment group’s MacroSolutions, said recently that Tower is not yet an expert on Croatian real estate and still needs to convince the market that investing there was the best strategy for the company.

Edwards said in July that he hopes TPF International, which houses Tower's five Croatian assets, will be able to grow more aggressively in the second half of 2018.

TPF International is an unlisted company that is 74% owned by Tower and 26% owned by Oryx Properties, a Namibian property fund. Unfortunately, TPF International has experienced slow growth, but Edwards said he is still excited about investment opportunities in the country.

"We are very bullish on Croatia, even if we have faced some challenges since we first invested there in 2015. TPF will look to raise money in the country next month and we have set up meetings with a number of pension funds and other investors," he said.