Alliance Commercial delivers highest values since November 2007

httpv://www.youtube.com/watch?v=HKo_213rlMM

Auction Alliance defies market jitters and converts 68% of nearly 110 Commercial lots in October.

At marathon commercial auctions held at the end of October, Auction Alliance converted 68% of nearly 110 lots on offer to raise R358 million. Held on October 20, 26 and 27 in four cities (Johannesburg, Durban, Port Elizabeth and Cape Town) the sales comprised a broad mix of properties across South Africa.

It was interesting to note that a far higher proportion of lots over R10million were sold than at previous sales. Twenty seven lots in total were offered for liquidators and financial institutions, reflecting increased financial distress in certain parts of the commercial property sector.

Growing distress in parts of the commercial property market is no surprise, but what is somewhat astonishing is a marked surge in buyer activity. Our investors are looking for value, but this is the first downturn that we have seen in twenty years where buyers are out in full force and have access to cash and funding. It’s probably due to the fact that interest rates are low and investors realise that property with strong and stable tenants is arguably the best place in town to invest cash. This is also boosted by strong balance sheet buyers who are getting cheap funding at the banks. Quite simply, tenanted property has escalating income and decreasing expenditure due to the lower cost of funding.

Many lots at the auctions, particularly those with strong covenants, drew strong competition from local buyers, some of whom attended, although many bid remotely through digital streaming. We have been surprised at how many people have logged on to watch the auctions. In fact we sold two properties through remote buying, including one buyer in Mauritius who could not attend the sale. We see this as a growing trend at South African auctions.

Several lots were offered for listed property funds that are looking to offload what they regard as marginal properties. Five banks were represented offering 13 lots between them.

October has been a very exciting month for Auction Alliance. We were particularly encouraged by the strong attendance at our auctions and the determination of bidders to compete for the higher value properties. There is no doubt the market has cooled down and buyers are looking for value and strong returns in a low interest rate environment. Our sales strategy for 2010 has been to focus on the basics by offering our sellers the widest possible platform and our buyers strong investment returns.

Although interest rate cuts have had a marginal effect on vacant buildings and vacant land, we have already seen a surge in buyers looking for returns above 9%. Declining interest rates and a stubbornly strong Rand are important drivers now for many investors contemplating sales. Our October results show that sellers are now far more realistic in their price expectations, whilst yields have lowered in line with interest rates.

Another interesting phenomenon at our October auctions was the proliferation of distressed leisure properties and vacant land. We have been quite concerned about these two sectors as there has been limited demand all year, but we were extremely excited and somewhat surprised at the demand, and the fact that we closed several of these deals.

Some highlights from the October Auction results:

Yield and Sales Analysis

Assured Long Term Tenancies (over 5 years): 7.83%

Assured Medium Tenancies (3-5 years): 9.19%

Assured Short Term Tenancies (1-3 years): 10.67%

At the time of writing, notable lots of the October sales include:

–          The Sitari Fields Golf Estate, Somerset West, Western Cape: R63,25m

–          The Atlantic City Centre, Atlantis, Western Cape: R34,54m

–          Shoprite Centre, Mafikeng, North West Province: R38,83m

–          Industrial Facility, Robertville, Gauteng: R17,7m

–          Yzerfontein Commercial and Development Vacant Sites: R15,85m

–          Apartment Block, Florida, Gauteng: R11,36m

–          Park Towers, Port Elizabeth, Eastern Cape: R10,8m

–          Retail strip mall, Tzaneen, Limpopo: R9,075m

–          Vacant development site, Krugersdorp: R8,8m

–          Apartment Block, Glenwood, KwaZuluNatal: R8,25m

Several high value residential properties, under our Platinum Brand, were also sold. Two notable sales were concluded, one, a residential unit in Hyde Park, Johannesburg sold for R12,2m and a luxury house in De Wet Road, Bantry Bay sold and confirmed for R39m.

Auction Alliance’s next commercial sales will be held on the following dates:

– Durban: Tuesday 23 November at the Oyster Box Hotel, Umhlanga
– Johannesburg: 24 November at the Southern Sun, Grayston Drive, Sandton
– Port Elizabeth: 25 November at the Protea Hotel, Summerstrand
– Cape Town: 30 November at the Crystal Towers Hotel, Century City

Entries are closed for our November sales, but we are having large auctions in early December. Please email me on rlevitt@auction.co.za should you want to discuss any properties that you would like to buy or sell.

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