Impact investment fund to help overcome student accommodation shortfall in SA
Impact investing is a trendy term globally at present, and for good reason. Investopedia defines impact investing as aiming "to generate specific beneficial social or environmental effects in addition to financial gains. Impact investments may take the form of numerous asset classes and may result in many specific outcomes. The point of impact investing is to use money and investment capital for positive social results."
Essentially, then, impact investment is a double win. According to the Africa Impact Report 2019, created by the Public Investment Corporation (PIC) and Impact Investing SA, impact investment is an attractive investment vehicle for the African continent. It can help to overcome significant challenges, including addressing poverty, climate change, inclusivity, poor levels of education and health, financial inclusion, hunger and sustainable agriculture, among others. A report titled The Landscape for Impact Investing in Southern Africa by the Global Impact Investing Network (GIIN) points out that South Africa is the largest market for impact investing within the southern African region.
The time is ripe for impact investment across several sectors, and Eris Property Group is hoping to attract investors to the Momentum Student Accommodation Impact Fund to help deliver quality student housing in South Africa to fulfil the need for this form of social infrastructure.
"The Department of Higher Education and Training estimates there is a student accommodation shortfall of approximately 250 000 beds," says Vuyani Bekwa, Head of Investments and Fund Management at Eris Property Group. "That figure does not include the additional students in the Technical and Vocational Training (TVET) systems. Government also intends to increase tertiary enrolments to 1.5 million students by 2030, and student housing will need to scale to achieve that target. The Momentum Student Accommodation Impact Fund is a way for investors to realise a financial return while contributing to social solutions that will benefit South Africa's youth as they seek to attain an education."
Bekwa says the fund is targeting R2 billion in raised equity capital and has secured several commitments to date. The minimum investment amount is R50 million, and the fund is hoping to attract the attention of fund managers and pension funds, or those investors with long-term investment horizons.
"Eris Property Group looked into expanding our business into the student accommodation market, given the significant gaps there, but we've realised that the development pipeline is substantial, and to serve it, we needed to raise more capital. That's where the idea for the fund started," he says. "We didn't want to buy existing beds and developments, but to add more beds to boost supply. That's why this is a development fund."
Eris Property Group is the development partner. The company's extensive development experience enables it to underwrite the capital outlay for the fund, as well as the delivery times, which are critical in student housing. "If you miss your delivery date on a student development, you miss the intake, and thus the income for that semester or even year," explains Bekwa. "The fact that we take on the development risk means that investors don't have to, but they still enjoy not only a financial return on the investment they make, but also the delivery of the development, which is an asset in its own right."
Another upside for investors is that the fund is structured so that fees are only applicable to drawn capital, rather than all capital committed (which is how traditional private equity funds work). "We are also up to date with the standards and requirements of the Department of Education and all our developments will comply with these, ensuring investors are guaranteed peace of mind in terms of quality assurance," says Bekwa. "We are targeting a 14% internal rate of return after tax (CPI plus 8%), so we believe our investment proposition is very attractive over the long term and will list it on a stock exchange at the appropriate time."
The first Eris student accommodation development, Units on Park, aimed at University of Pretoria students, will launch on 5 December 2019. The development offers 52 bachelor units, 26 two-bedroom units (single bed in each room), and 221 two-bedroom units (two single beds in each room).
For more information on Eris Property Group's student accommodation portfolio or the Momentum Student Accommodation Impact Fund, contact Vuyani Bekwa on vbekwa@eris.co.za.
