ASIA NEWS: The final frontier

Sub-Saharan Africa’s real estate markets have attracted $500 million of investment capital from international institutions, thanks to the efforts of two firms. PERE Magazine September 2012 issue.

Until now, there had been little institutional equity raised for African real estate outside of South Africa. Come the end of the month, however, that will have changed.

That is because two private equity real estate platforms, which have been offering regional investment funds to the world’s institutions since May 2011, will have met their capital-raising targets. As a result, $500 million will be ready to be deployed in what one of the firms described as the “last truly frontier investment market.”

RMB Westport, a joint venture between Johannesburg-based Rand Merchant Bank (RMB) and Westport Property Group, last month concluded fundraising for its debut fund, RMB Westport Real Estate Development Fund, hitting its $250 million target. Meanwhile, as of press time, London-based private equity firm Actis was wrapping up a $250 million fundraising for its second fund, Actis Real Estate Fund II. A final closing for that fund is expected by the end of this month.

Tim Diack, an executive in the third-party funds division of RMB, believes investors are finally accepting the major economies in sub-Saharan Africa are not driven solely by natural resources. That is making real estate outlays in cities such as Lagos and Accra an increasingly attractive proposition.

“There is growing optimism and confidence in Africa’s prospects, which is backed by solid GDP growth in individual countries (Nigeria: 7.1 percent; Ghana: 8.8 percent, according to International Monetary Fund statistics) and collectively across the continent,” Diack said. “Resources are no longer seen as the only driver behind the Africa boom, with a significant increase in, amongst others, consumer spending.”

Diack’s sentiments are evidently shared by some of the world’s largest investors. Including a large investor from Abu Dhabi and one of the largest Canadian institutions, RMB’s eight-year fund racked up 10 commitments, the biggest of which was $75 million.

Diack admits that investors were made comfortable by RMB Westport’s $50 million seed equity commitment and investments comprising a stake in a development in Lagos and two in Accra. “Given we are a first time fund and did not have a track record as such, RMB’s seed investment allowed us to attract the right development partners and commit to projects, which demonstrated our ability to originate and deliver on those projects.”

For its part, Actis already had built a track record via its first fund, which it closed in 2006 and is understood to already have returned the $150 million raised to its investors. The firm declined to comment, as it had not held a final closing for its follow-up effort. However, for that first vehicle, Actis is understood to be on course to hit its target return of more than 20 percent IRR and 2x equity, thanks to a series of successful exits.

Africa’s frontier property markets finally can demonstrate a track record, and $500 million of investment by international institutions this year evidences that they have seen enough to take the plunge.