I’ve realised my dream to set up a 3-star hotel

Wahome Muotia was torn between setting up a hotel or building residential houses on his plot in Nairobi’s Upper Hill area in 2007. However, after market research, he says he saw great potential in the hospitality industry and therefore decided to build a hotel on the plot valued at Sh170 million.

He realised that a hotel targeting business travellers to Nairobi due to the city’s rising profile as a financial, transport, communication, and technology hub within the Eastern and Central Africa region would be profitable.

Mr Muotia also noticed that only one or two native Kenyans own hotels of at least three-star status within a five kilometre radius of the Nairobi central business district.

This challenged him to invest in the hospitality industry, which is dominated by international brands. However, his business plan faced many setbacks, key among them being securing funds for construction.

“One of the most difficult things I faced was convincing financiers to buy into my idea. Some think you are out of your mind when you tell them that you want to invest in a hotel but you don’t have the experience. This makes it even more difficult to negotiate better interest rates,” Mr Muotia, who has worked in the energy sector for 25 years, told Money at his Nairobi Upper Hill Hotel.

Even with land as collateral and a good business plan, banks were reluctant to finance the construction of the hotel that has cost Sh350 million. To compound his challenges, Mr Muotia needed to raise at least 20 per cent of the project’s total cost before any bank could consider his proposal.

“The financiers I approached doubted whether I had the capacity to go ahead with the project simply because there are few Kenyans in this business. As a local investor, it was also difficult to convince them that I was using foreign consultants in an area that I had no experience. A certain bank told me that they would only finance a chain of established hotels,” Mr Muotia says.
As the investor would later come to appreciate, getting experienced local professionals to design the hotel, let alone construct it, proved just as difficult: “I wanted to use local architects and designers, but I realised that there were very few experienced native Kenyans who could do that. Hotels of the three-star category and above that I know of have not been designed by native Kenyans.”

At last, after the ground-breaking ceremony in 2009, Mr Muotia got 60 per cent financing for the hotel, whose construction started the following year.

Mr Muotia used two different architects with specific instructions for the internal and external design. The kitchen was designed by two chefs. The bar was designed and build by experienced bar-men, although it has been demolished about five times in the search for the most appropriate design.

The restaurant is to be managed by a Frenchman experienced in French cuisine.

According to the hotel’s managing director, Mr David Njiiri, business travellers lack alternatives in terms of a smaller and cheaper hotels that offer five-star quality services that target tourists.

“We are targeting regional and international travellers. This is a unique niche which has not been fully addressed. There is high potential, given the developments in the country’s economy, for instance, the growth of Upper Hill as a financial hub of the city, the growth of the airline industry using Kenya as a hub, and also foreign companies setting up offices in Nairobi,” Mr Njiiri, who has 27 years of experience in hotel management and consultancy, said.

Growing interest in Kenya from China, India, and the United Arab Emirates (UAE) resulted in 15.4 per cent jump in tourism numbers to 1.26 million last year.

The industry earnings also rose by 32.8 per cent to Sh98 billion in 2011 compared to the previous year. Mr Njiiri says the country has attracted about 14 global hotels in the past two years, adding about 3,000 rooms to the market. However, the growth of the industry does not match the demand. 

Thirty new hotels

“Between 10,000 and 15,000 hotel rooms will be required in the next five to 10 years. Right now, the accommodation rate stands at about 70 per cent,” Mr Njiiri said.

Kempiski, established in 1897 as a luxury hotel group, recently opened a hotel on Chiromo Road in Nairobi.

In the coming months, Emaar, Radisson Blu, Marriot, Park Inn Hilton, Lonrho, and Rezidor hotel groups plan to set up base in Kenya as the country positions itself as the regional financial, travel, and business hub in the East and Central African region.

Accor, another global hotel company, plans to open 30 new hotels with nearly 5,000 new rooms in Kenya, South Africa, Angola, Nigeria, Ghana, Morocco, and Algeria, bringing its total room network on the continent to 22,000 rooms by 2016.

These are some of the brands that Nairobi Upper Hill Hotel will be competing with. When Money visited the hotel, the workers on site were putting the final touches to the 75-bed, three-star hotel that is scheduled to open for business this month.

Mr Muotia expects the hotel to break-even in five to seven years, but says he expects to expand within Nairobi and also open other hotels in Nanyuki, Naivasha, and the national parks.

Some of the other challenges he faces are high taxes, including 16 per cent value added tax on everything that is sold, 10 per cent service charge, 2 per cent training levy paid to Utalii College, and corporate tax.

Booking agents also demand 25 per cent of the room net payment, making hotel accommodation in the country expensive.