By Gareth Jones – Commercial and Industrial Investment Broker – Sokolic Property Group, Cape Town South Africa

In todays current worldwide economic climate where in the world are you likely to stumble across investment banks prepared to extend credit facilities to the tune of 100% of a purchase price for a commercial property?

The only answer to this question that I have found thus far is right here in South Africa. Of course there are some suspensive conditions inherent in such a loan arrangement; however these suspensive conditions are both valid and for the most part achievable.

Speaking from personal experience, the only investors who are able to procure such credit facilities are those who have full BEE (Black Economic Empowerment) status, from there said investment banks need to see strong covenant strength and leases for the most part that are longer than the average. I.E 10 years plus.

We have recently dealt with several parties who have had this facility afforded /extended to them. Both parties went through different investment banks. Thus reinforcing my belief that this genuinely is a facility that the majority of investment banks look at, I imagine on a case to case basis.

In spite of this backing from well known investment banks the majority of vendors are so sceptical that they can get this type of loan arrangement that they simply refuse these offers regardless of the documents sent their way from said banks.

The other thing of significance is that the aforementioned investors are in a unique position in another sense. Recently the government of RSA has decreed that only BEE investors will be able to get governmental leases renewed. This for some is ideal, for in today’s worldwide economic climate is there a stronger covenant than that of a governmental tenant?

So this leads me to my point. Where to from here? If these highly leveraged investors are not able to transact with total financial backing from the country’s most highly regarded financial intuitions then what is there for them to do?

The answer is not straight forward. To be honest, I am not sure that there is an answer to this question. I would however dearly like to hear from anyone who has an idea of how to remedy this situation.

For more information or advice on buying, selling or letting commercial property in South Africa Contact SOKOLIC PROPERTY GROUP on 021 554 4847 (national call centre) or visit our Contact Page here to view individual brokers’ contact details.