IHS plans $360m second South Africa fund

The South Africa affordable housing focused firm has invested more than half of the committed capital to its debut private equity real estate fund, South African Workforce Housing Fund, and is now plotting a successor vehicle.

International Housing Solutions (IHS) the private equity real estate firm focused on South Africa’s affordable housing sector, has set in motion plans for its second real estate fund.

PERE can reveal the Johannesburg-based firm is planning to come to the market with a follow-up to its 2007 debut fund, the South African Workforce Housing Fund, with a view to holding a first closing in the second quarter of next year.

The firm aims to raise approximately 50 percent more equity than it did for its first effort which closed at R1.9 billion (€175.7 million; $242 million), which would set its target around the $360 million mark. Rob Wesselo, managing partner at HIS, said: “We did well raising the capital for the first fund at a time when we had no infrastructure. We have now built up a very good team with a lot of experience in this market.”

Wesselo said the firm has received interest from the seven institutional investors in the South African Workforce Housing Fund in making repeat investments although, at this stage, all planning has been done on an informal basis. Investors in the first fund include the Development Bank of South Africa, Citibank, the Public Investment Corporation on behalf of the Government Employees Pension Fund and the Overseas Private Investment Corporation.

IHS announced this week that it had invested R1 billion from its initial fund into the affordable housing market in South Africa. The fund has to date provided funding for 25 projects and about 25,000 housing units across the country’s “major urban centres”.

Wesselo said the firm had been investing its capital partly into distressed real estate situations where developers had been reluctant to kick-start their projects in what he described as a tough market and, as a result, has enabled ISH to acquire their projects at a 15 percent to 20 percent discount to market price. “We’ve done a lot of those deals,” he said. “In the affordable space, where people are struggling to get finance (to buy properties), we’ve seen double-digit rental growth. We really don’t struggle to fill those buildings.”

The fund is structured as 10-year closed-ended fund which is expected to produce opportunistic returns. Wesselo declined to specify the fund’s current return projection but indicated they were within the 15 percent to 20 percent range.