Local knowledge in emerging markets is crucial – as is knowing the right people. Emily Wright meets three of the most well-connected players in the Kenyan real estate market
ROHAN PATEL
Director of corporate development at Grenadier
One of the biggest developers in Kenya, Grenadier was the group behind the development of the Sankara Nairobi hotel and has a £60m pipeline in the city –the first of three planned phases of development.. Patel lived in the UK for seven years before returning to east Africa in 1998 to work with KPMG. He took on his role heading Grenadier’s property development arm in 2006
“It’s true that working in the African property market is completely different to operating in the UK. One of the key issues here is project execution and it can make people who are not used to the market quite nervous. But we are increasingly looking to form joint ventures with institutions on our upcoming schemes and we would consider working with UK groups. And while I am not saying that Nairobi is comparable to, say, South Africa, it is probably one of the most mature markets in sub-Saharan Africa. It won’t be for everyone, but I think some of the nervousness is starting to lift a bit.
Our focus over the next five to 10 years is to develop mixed-use schemes in Nairobi using anchor hotels to attract business and high-end guests. This is to replicate what is happening in commercial real estate here, as over the past decade the city has become the main business hub for east Africa. The problem has been that the urban business hotel scene was very limited before we opened The Sankara four years ago. We finished this year at 78% occupancy which, in a 12-month period where we had a major terrorist attack within a kilometre of the hotel, was a good result.
The planned mixed-use schemes we are working on now will focus on office and retail – with a hotel as anchor. We will be looking to attract major international tenants such as Google, so are looking at prelets for the first time. Up until now this is something that just hasn’t been done in Nairobi. But times are changing so quickly.
And these are big projects – the biggest we have done to date. The Grove, which we will start developing in August, is a 4m sq ft scheme in the north of the city with a value of $55m (£33m). We are expecting a 24-month period until completion and are looking for rents of $15 per sq ft. Then in 2015 we are planning to start on an office-led project on a 7.5-acre site which, given the scale, we will probably have to deliver in phases and co-develop with a partner – probably an institution.
At the moment it tends to be the South African funds such as RMB Westp ort or Atterbury we look to work with. But that’s mainly down to the fact that they have an appetite. It doesn’t have to be one of those firms and, as I said before, there is no question that we would partner with a UK group. I don’t see a problem with doing that – even with companies who don’t have a track record of operating in the market here, because we are already on the ground.
Our third project is a bit further down the line and very ambitious, but it could deliver 1m sq ft of office space. Considering office take-up in Nairobi is now around 1.2m sq ft a year, that should give an indication of the potential growth in the city.”
KOOME GIKUNDA
Investment principal, Actis
Actis is a British emerging markets private equity fund managing roughly $6bn (£3.5bn). Gikunda joined in 2007 from JP Morgan in New York to execute and manage Actis’s private equity real estate investments in east Africa
“As a British fund we are evidence that Kenya is open to foreign investment. People are pretty pragmatic about that here. If you deliver on time, quality and budget, then it’s not an issue. And there is already a lot of British expertise in Nairobi – especially in architecture and among the consultants. We saw a huge move of professionals and investors from the UK and the Gulf post-Lehman when people lost their jobs and relocated.
But being on the ground in this market is crucial. And it’s the same in Nigeria for west Africa. If you go it alone like us, without a local development partner, then you need fit-for-purpose teams full of local people who know the market. In west Africa, for example, we have brought in a guy from Hines who has moved to Accra to manage our real estate portfolio from there. It means we, as the investors, can take a bit of a step back, though we are still very involved in the real estate and the “heavy lifting” – certainly much more than we would be in the UK.
Actis is the biggest private equity real estate fund on the continent if you exclude South Africa, though property is the smallest of the three asset classes we cover, in addition to corporate private equity and infrastructure. We have 120 investors from all over the world including high net worths, endowments, family offices, pension funds and insurance companies. We set up our first fund focusing on African real estate in 2006 and we are now in exit mode. Before we came along, things were done on a pretty ad hoc basis.
Ours was one of the first professional investments into these sorts of assets and from that initial fund we have developed a portfolio across Nigeria, Ghana, Mauritius, Dar es Salaam and, of course, Nairobi.
There is a huge appetite for real estate development across Africa at the moment. Take The Palms Mall in Lagos, Nigeria. This was the first proper shopping centre in a city with a population of 16m. It became a tourist attraction. People would come from all over the country just to see it. To see a mall. We did the same with a mall in Accra. We have also invested in office developments in Nairobi and Tanzania that are the first of their kind in terms of design and parking ratios – both crucial for attracting multinational tenants.
Our second fund launched formally in 2012 and is just under $300m. We are looking to do more and in Nairobi we will be following the infrastructure to build a pipeline that anticipates where the city is likely to grow over the next five to 10 years. At the moment there is a lot of expansion east because the two-lane road leaving the city in that direction is being turned into a 12-lane highway.
Now is an exciting time for Nairobi.”
ANTHONY HAVELOCK
Head of agency, Knight Frank Kenya
Knight Frank has been operating in Kenya since 1998. Havelock, who was born in Nairobi, joined from the group’s London office to head the agency in January 2013
“I made a conscious decision to come back to Kenya. If you look at what’s happening out here, how quickly the market is changing, it’s quite staggering. I am amazed every day by the speed at which things are developing.
There is dramatic growth but a lack of supporting infrastructure right across the country. It’s a common problem in emerging markets. Infrastructure tends to sit behind, so now we are pedalling like fury to catch up. But it is happening and will, I think, change all of our lives.
The main thing people want to know is what it is like working out here. Obviously this is a former British colony so a degree of British culture is here already. And, for the most part, there’s no animosity between the Brits and the Kenyans. It makes life easier when doing business that the legal system and the land registry are all based on what the British left behind.
I think we are moving towards a perfect storm here in Nairobi and Kenya. Big international and national companies have dipped their toe in and now we are seeing new projects coming in on a completely different scale. We are seeing international money fuelling 1m sq ft developments and opportunities for new entrants to work with Kenyan developers on a ready-made, ready-to-go scheme. And in turn, this is pushing up the quality of the stock. Developers have got away with average quality for a while out here when there was so much demand. Now, as more supply comes onside, people will start to get choosier – especially international occupiers. Everything is changing.”
In terms of living here there are a couple of key points. First is that the Kenyan education system is very good indeed. There has been a vast investment in schooling. And a huge number of ex-pat children – I’d say most of them, in fact – will go to school here until they are 13. Then they might go to the UK or South Africa.
It helps that Kenya boasts the largest UN delegation in the world outside of New York.
The amount of support and aid agency workers as well as diplomats that comes with that means that there is a lot of focus on ex-pats settling here. This is the hub for them, not just for working in Kenya but also for heading on into South Sudan or Somalia – countries with bigger challenges to face than us.
The other point is on the business culture and attire. It’s very formal. Kenyans are proud and you can see that in the way they conduct themselves when doing business. There is a degree of w hat we call “Kenyan chaos” to contend with around the traffic and the hectic nature of the city, but despite all of that people still try to arrive on time for meetings and they are always well turned out.”
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