New South African real estate strategy seeks funds

As Chrysalis Capital starts to invest the money raised in its two other active investment strategies it is now searching for backers for its debut commercial real estate vehicle.

South Africa-based Chrysalis Capital is seeking investors for its debut commercial real estate vehicle, the Chrysalis Property Credit Fund, founder Carl Combrinck told PDI.

The fund has been launched with an initial 500 million rand ($40 million; €36.7 million) commitment from an existing investor, he added. 

Chrysalis is targeting local institutional investors for the vehicle, which will directly source financing opportunities with existing commercial real estate investors. 

The South Africa-focused fund has not yet set a loan-to-value cap. This will be discussed with investors, but Combrinck said he anticipates a weighted average loan to value of 75 percent across the fund. 

Investments will be senior secured risk with three- to five-year maturities for assets in prime locations such as Johannesburg, Cape Town and Pretoria. The vehicle may also include a small allocation to development risk exposure as there are a number of interesting opportunities in that area, Combrinck added. 

The vehicle is targeting returns of three-month Jibar (the Johannesburg interbank agreed rate) plus 2 to 2.25 percent. Three-month Jibar is currently 6.1 percent. Chrysalis will also provide an inflation overlay for investors to link returns to consumer price inflation locally. 

Though South Africa is home to a number of strong banking groups, the market also offers opportunities for alternative credit providers. The country was one of the first to implement the Basel III banking regulations. 

“Basel III forced the South African banks to decide where they wanted to focus,” said Combrinck. “The banks are still relatively competitive, but there are more institutional players starting to emerge in South Africa.”

The firm has a team of three: Combrinck, who was formerly head of leveraged finance at Nedbank’s private bank, BoE Private Clients; real estate specialist Mark Pienaar; and Trish Swanepoel, who also worked at BoE Private Clients among other banks. 

The firm launched with a hedge fund-style short-term credit arbitrage strategy which is still investing. This was followed by the firm’s special opportunities strategy which generates returns of Jibar plus 7 to 7.5 percent, said Combrinck. 

Chrysalis also has a dormant sub-Saharan Africa vehicle, the assets of which have matured. The vehicle was wound down as the firm found there was a lot of money chasing the best opportunities which in most cases were better equity opportunities than debt investments, Combrinck explained. 

Established in 2008, Chrysalis has around $100 million in assets under management.