Investment holding company Trematon Capital has ventured beyond its Western Cape roots and invested in the UK real estate market via ASK Partners, a boutique real estate private equity start up, based in London.
Unlike other SA property firms that have invested directly in UK property, Trematon will enter the market indirectly. ASK operates in the private equity and lending space and specialises in sourcing funding solutions for residential and commercial developers in London.
“We think there is a particular window of opportunity in the UK market for disintermediation, in other words for non-bank primary and secondary lending to developers with excellent risk-adjusted returns,” says Trematon CEO Arnold Shapiro.
Trematon has made an initial equity contribution of £4.3 million. This represents a 40% shareholding in the Investment company and an effective 20% shareholding in the management company. Trematon has board and investment committee representation in both companies.
The total investment will be used to underwrite loans provided by ASK to developers at an interest rate that meets the risk criteria of each investment.
To allow for the efficient recycling of capital, the loan transactions will be refinanced via a syndication process managed by ASK, whereby 90% of the loan value will be syndicated to high-net-worth individuals and 10% will be retained by the investment partners. Trematon will assist in syndicating loans to high-net-worth South African individuals, if required.
“We think this deal is a no-brainer. For a micro cap like us to get into UK market for £4 million is impossible. We have a strong cultural affinity with the founders of ASK who have extensive experience in the origination and structuring of real estate debt and equity transactions,” says Shapiro.
ASK was founded by Daniel Austin (CEO), Doug King (COO), and Paul Stevens (chairman). Previously Austin and King were with Capital A Finance plc, a boutique real estate lending business which was founded by Austin. Stevens established Investec Bank plc’s European property finance business. Under his management the division’s assets increased from £40 million to over £2.5 billion. He later became co-head of Investec Specialist Private Bank.
Following syndication, the investment company will have generated a return in pound sterling terms in excess of Trematon’s minimum required IRR of 20% and the original investment will be recycled to finance future secured property loans and developments.
The fundamental decision to invest is based on the returns achievable in pound sterling and no depreciation in the rand is assumed. “This is not a currency bet. If the rand strengthens the returns may be more muted but over time the currency diversification should be positive for the group,” says Shapiro.
Overall Trematon seems set for growth. The schools business, Generation Schools should have 10 schools within its portfolio by 2018. The transfer of R614.1 million worth of commercial property from Redefine Limited is now complete and there have been no unpleasant surprises, says Shapiro. “We bought what we thought we were buying.” In addition the 24 high-end apartments Trematon is developing in Marina Village, on the Langebaan lagoon, have been sold off plan.
Trematon had cash on hand of R220 million following the sale of its Club Mykanos casino assets in the last financial year. Part of that will be used to fund the ASK deal and the rest will be fully deployed within the next 12 months. “We will put it to good use,” he says.