Developers change tack as cash call tap dries up

Real estate developers have been compelled to rethink their strategy as raising funds from the capital market increasingly becomes difficult.

Fusion Capital tried and failed to raise Sh2.3 billion to put up a property known as Greenwood City in Meru through a Development Real Estate Investment Trust D-REIT. It only achieved a 38 per cent subscription, managing to collect Sh873 million with just four investors out of the requirement of seven.

Although Kenya’s first Real Estate Investment Trust (Fahari-Ireit), which was issued by Stanlib Kenya Investment managed to raise funds and list on the bourse, the cash call was largely undersubscribed.

The firm raised just Sh3.6 billion through the IPO offering, just one-third of the targeted Sh12.5 billion. The firm posted a 6.5 per cent return on investments although its share price has shed significant value since it was listed.

While capital intensive developments have been out of the reach of many Kenyans, developers are keen to form partnership to finance the projects from a wide pool of funds.

Fractional property ownership, long-associated with the United States and Europe, is slowly taking root in Kenya, especially on the back of failed attempts for estate trust funds.

Under this arrangement, prospective buyers are able to own a share of a luxury or holiday home worth millions of shillings at just a fraction of its actual cost.

Nest Manor residence and suites located two kilometres from Nyeri Town in the leafy King’ongo area is offering deluxe, premium and executive suites to be co-owned by five people.

Under the deal, one will pay Sh1.94 million per share with a deposit of Sh500,000 and payment of Sh120,000 per month for 12 months for a deluxe suite room.

Return on investments

Nest Manor Managing Director Annette Muthoni told Smart Company that the return on investments for a deluxe room will be Sh315,000 per year, Sh395,000 for the executive room and Sh595,000 for the premium suite per individual.

To own the executive room you will need to part with Sh2.4 million per share with a deposit of Sh600,000 and payment of Sh150,000 per month for a year while the premium suite will require an investment of Sh3.6 million per share with a deposit of Sh900,000 and payment of Sh225,000.

“On completion of the payments of the fractional ownership by an individual, one is entitled to a free holiday for six days in a year including up to 30 per cent discounted rates on foods and drinks in any of the restaurants in the hotel,” Mrs Muthoni said.

Soho furnished apartments also let you own a unit, which will strictly be operated as a let-out earning the investor interest from the revenue your room makes when booked.

Investors have been invited to own a studio, one to three bedroom unit and surrender it to an operator who will run it on their behalf.
Apartments will go for an average of Sh9.5 million for a studio to Sh35 million for a three bedroom duplex.

Such projects also leverage expertise for investors who are not familiar with the business model to lock in funds and let professionals handle the day to day operations.

Soho says their product will use an international operator to give it a brand premium especially since the 14 high-end serviced apartments in the Kilimani area where they are located have not been internationally-branded, thereby creating a gap for newcomers to seek a niche locally by affiliating themselves to globally known brands.

Mrs Muthoni said the hotel will be run by an experienced management company that will ensure that the property is well maintained and will keep on attracting first time clients while maintaining repeat patrons.