Drips of institutional investment into Sub-Saharan African real estate strategies have become a trickle.
Review PERE’s news coverage of such strategies and you’ll note that over the last decade they have now attracted more than $1.5 billion of equity, while the number of firms offering them has grown to at least 10. Able today to demonstrate exits as well as benefiting from positive investor sentiment towards Africa’s macroeconomic indicators, some of these firms, including London-headquartered Actis and Johannesburg-headquartered International Housing Solutions (IHS), have now raised capital for successor funds too.
Joining the multiple-fund brigade this week was RMB Westport, also Johannesburg-headquartered. The joint venture platform between Rand Merchant Bank, a division of South Africa’s FirstRand Bank, and property company Westport Property Group, has set its sights on raising Sub-Saharan Africa’s biggest property fund with a fundraising target of up to $500 million.
Tracking IRRs of between 25 percent and 35 percent from a 10 asset-strong investment program for its first fund, 2012’s RMB Westport Real Estate Development Fund, RMB Westport has the wind in its sails. As well it might after receiving $256 million in backing for the vehicle from 10 limited partners including state investors Abu Dhabi Investment Council and Public Sector Pension Investment Board. PERE understands a third state investor is expected to join RMB’s roster in a matter of weeks as a seed investor for the incoming vehicle.
Back in 2012, Actis and RMB both exceeded their initial capital raising targets for their respective Sub-Saharan offerings, which were each originally $250 million. Actis Africa Real Estate II hauled $278 million and is now out marketing a third vehicle with a $400 million target. RMB, meanwhile, brought in $256 million for its fund, but approximately $400 million in total when including co-investment sidecars. Having notched decent numbers thus far, both in terms of fundraising and current performance, like Actis’ bigger target, RMB’s ambition is understandable.
Are these firms overreaching? We think not. Equity capital formation in the region appears to be moving in the direction they desire.
The $1.5 billion raised by our 10 Sub-Sahara focused managers over the past 10 years was against an aggregate target of $2.4 billion, which currently represents a 62 percent conversion rate. However, one should note that two of the ten firms only launched their vehicles this year, while three firms – Momentum, IHS and Novare – started last year and have already managed first closings. As such, the current 62 percent actual vs target ratio could well increase further.
Driving the trend of course is Institutional investors increasingly liking the big picture: large, young and urbanizing populations with growing wealth, retail appetites and professional ambitions; GDPs that have grown from the mid-3 percents before the turn of the millennium to 4.5 percent today (the pan-region average, according to the World Bank), and crucially; a severe institutional-grade commercial and retail property demand and supply mismatch. According to a paper written by RMB and published by PERE last year, there is less than 26 million square feet of Grade A commercial and retail space available across the whole region, excluding South Africa.
Speak to managers and they’ll admit selling the growth story is the easy bit. What’s been hard is the chicken and egg game of corralling capital to demonstrate the thesis works that has been hard.
But again, progress is being made and as long as the current trajectory continues, it will not be long before we are describing the trickle of institutional investment into Sub-Saharan African real estate strategies as a stream.