Africa focused Private Equity (PE) has developed impressively over the last two decades, in terms of volume, quality of transactions, and performance. According to a joint research paper by the African Private Equity and Venture Capital Association and Ernst & Young, Africa’s PE strategic and operational improvement measures have returned 0.6x more than the MSCI Emerging Markets Index. Currently, real estate investment funds are still at relative infancy compared to other sectors. Data provided by Preqin in October 2014 showed that there were about 8 unlisted real estate funds targeting $1.25 billion compared to 91 Africa-focused private equity funds. Actis is credited with launching the first sub-Saharan African Private real estate fund (AARE 1) at $154 million, this was followed by the $165 million CAPIC fund by African Capital Alliance, which was established in February 2008.
The rationale for these investors is primarily to meet the appetite coming from African and international institutional investors who demand greater exposure and diversity to real estate on the continent given the gradual slowdown in values, and returns in more mature property markets. The drivers of demand for property development include strong GDP growth, increased democratization, lack of High Grade Office Space, inadequate supply of malls to cater to the needs of the growing middle class as well as the increasing need for warehousing and logistics centers to cater to the retail boom. Below are some of the funds that are currently looking to Nigeria as an investment destination.
RMB Westport Real Estate Development: This fund was established by an affiliate of FirstRand Limited and Westport Property (each holding a 50% interest) to raise capital for RMB Westport with a focus on the development of retail and mixed-use development in major cities in Africa. The company began operations in 2008 and had already met its $250 million target for its first fund by October 2012. Amongst their completions are the Ikeja City Mall, the first world-class mall on the Lagos mainland, and two other projects in Ghana. Their current pipeline includes the Osapa and Royal Gardens Mall in Lekki, and two other malls in the Angolan capital, Luanda.
Resilient Property Income Fund: The Resilient Property Income Fund is a well-established REIT in South Africa, developing and owning Malls throughout South Africa since 2002. Recently, the company decided to leverage on its expertise in developing malls by setting up Resilient Africa, a property development and investment company with the sole purpose of developing quality shopping malls in dominant metro and rapidly urbanising areas in Nigeria. Resilient has a 50.98% interest in the development company, with Standard Bank and Shoprite as minority partners. Below is an overview of its current projects in second tier cities in Nigeria, perhaps in a bid to avoid an oversupply of office and retail in the major cities and cash in on first mover advantage in these smaller cities.
| Name |
Location |
Cost ($) |
GLA |
Anchor Tenant |
Commencement Date |
Expected Completion |
| Asaba Mall |
Delta |
$50m |
13,000sqm |
Shoprite |
April 2014 |
August 2016 |
| Owerri Mall |
Imo |
$44m |
13,000sqm |
Shoprite |
October 2013 |
October 2015 |
| Delta Mall |
Effurun, Warri |
$55m |
13,980sqm |
Shoprite, Mr. Price, Jet |
June 2013 |
March 2015 |
| Benin City Mall |
Edo |
$51m |
13,300sqm |
Shoprite |
June 2014 |
November 2016 |
Source: Resilient Africa
Keeping consistency with its strategy in South Africa, Resilient Africa plans to retain its malls with a view to exit the portfolio through a REIT in the long run.
Momentum Africa Real Estate Fund: This $250 million fund was established as a collaboration between Eris Property Group and Momentum Global Investment Managers (a subsidiary in the MMI Group). Although the fund is yet to close, its focus will be on A-grade retail, office and industrial properties in Nigeria, Ghana, Kenya, Mozambique and Zambia.
Novare Africa Property Fund II: This $250 millon fund based in Mauritius and funded mainly by South African Pension Funds is no newcomer to the Nigerian retail sector having already completed the Grand Towers Abuja Mall in the FCT. This fund follows the successful closing of its predecessor the $81 million Novare Africa Property Fund I, which closed in September 2011. True to its mission of developing retail malls and mixed use developments, it commenced the construction of the $83 million Lekki Mall last November. The mall is situated close to the Lagos Business School, Lakowe Lakes Golf and Country Estate and the Lekki Free Trade Zone mall which will have a Gross Lettable Area of 20,000 Sqm with anchor tenants including Shoprite, Game, Wrangler, Genesis Deluxe Cinemas etc.,
| Name |
Location |
Cost ($) |
GLA |
Anchor Tenant |
Commencement Date |
Expected Completion |
| Lekki Mall |
Lekki Lagos, Nigeria |
$83 Million |
20,000sqm |
Shoprite, Game |
November 2014 |
April 2016 |
Source: Novare
STANLIB Africa Direct Property Development Fund: This fund was launched by STANLIB limited, an asset manager based in Johannesburg through its STANLIB Direct Property Investments Franchise. The fund has a primary focus on retail led developments and the sector is expected to make up between 60% – 80% of its portfolio. Investments will be made in Sub-Saharan African growth markets with a primary focus on Nigeria, Ghana, Kenya and Uganda.
South Africa as the source of PE funds flow
A major observation in the private equity scene in Nigeria, is the fact that large amounts of fund flows originate from South African firms, and the product of choice is shopping centres. Although Nigeria overtook South Africa as the largest economy in Africa, South Africa still has more a robust financial and property market, with market players that are always keen on expansion opportunities across the continent.
The maturity of South African financial and real estate markets, coupled with management teams’ deal structuring experience in the sub-Sahara Africa region are key reasons they are preferred choice for foreign investors.
Their market maturity is easily demonstrated in the JSE being the largest stock Exchange by market cap on the continent, with 4 of the largest banks in Africa domiciled in the country. Additionally, the South African Pension giant PIC, which is the largest in the continent and 15
th largest in the world has approximately $150 billion of assets under management. It is the largest investor in commercial property in a country that also boasts the 8
th largest REIT market in the world.
Nonetheless, GDP growth in SA has slowed compared to other parts of Africa, but the country has a higher Shopping Mall/Office space per capita than other major cities in Africa. 2014 Reports by the Mail and Guardian reveal that there are 1,785 malls with spaces larger than 2000sqm in South Africa, with 44% of them in the Gauteng Province alone. There are valid concerns that the shopping centre space might soon get saturated, and majority of the owners of these malls are leveraging on their financial strength and expertise to expand into other markets on the continent.
With the average holding period of these funds ranging from 7 to 10 years, and the intention of the fund managers to exit their investment through REITs or sales of individual assets, the influx of private equity funds will have a profound effect on the Nigerian real estate market.
About the writer: Kayode Ola is a writer at
estateintel.com
