International Housing Solutions Fund II

International Housing Solutions Fund II will invest in residential and supporting commercial real estate in South Africa and Sub-Saharan African countries. The housing is targeted primarily at lower- and middle-income households, a sizable “missing middle.” Fund investments will primarily be in the form of equity, preferred equity, participating debt, mezzanine debt or bridge financings in (a) the development of new single-family homes and multifamily housing and related commercial real estate; (b) the conversion or substantial rehabilitation of existing real estate to multifamily uses; (c) the acquisition, rental and subsequent sale of single-family homes and multi-family housing; or (d) companies that otherwise provide services that promote the expansion of supply or affordability of housing in the target markets.

The Fund will consist of two sleeves, one of which will invest 100% in the Republic of South Africa, and one of which will invest 100% in the other Target Countries excluding the Republic of South Africa.

The Fund is seeking Limited Partner equity capital commitments of US$400 million, 2% of which will be a capital commitment from the General Partner and its affiliates, including its senior managers.

IHS Fund II follows on the strategy of the South Africa Workforce Housing Fund I (“SAWHF”), a ZAR 1.9 billion fund launched by IHS in 2005 which invests in workforce housing in South Africa, with a small allocation to other African countries.

Financial description

Development Equity:
Invest with local developers to build new housing for the lower to middle end of the market. Projects incorporate mixed income housing opportunities at several price points. The housing may be sold as completed or held for rental and later sale, depending on market timing. Fund capital typically provides ~80% of project’s equity, with the other 20% from the developer. Equity interest may be structured with a progressive waterfall to mitigate some risk and ensure incentives are aligned for max profit.
• Term: 36-48 mo
• Gross project level target IRR: 25% - 35%
• Target Share of Portfolio: 40% - 60%
• Exit strategy: Sale of units as completed, or later sale after rental period
Property Acquisitions:
Enter into turnkey contracts to purchase properties on completion to avoid construction risk and benefit from bulk purchase discounts. Units are rented out and later sold in a portfolio transaction or to single home purchasers. Specialist local firms handle day-to-day property and asset management. While most of the return comes from the sale of the assets, these assets contribute current income to the Fund through rental revenues, and allow flexibility for disposition timing based on market conditions.
• Term: up to 96 mo
• Gross project level target IRR: 20% - 25%
• Target Share of Portfolio: 40% - 60%
• Exit Strategy: Individual sale of units, aggregate sale of a portfolio of units to private investors or through public listing