There is an old African saying: “No one tests the depth of the river with both feet.” Few would argue against that applying to most of Africa when considering an investment in the continent’s real estate, particularly in markets outside of South Africa.
Last month, PERE reported on two private equity real estate platforms hoping to provide investors the opportunity to put at least one foot in. RMB Westport, a joint venture between South Africa’s Rand Merchant Bank and developer Westport Property Group, and Actis, the London-based emerging markets private equity firm, each began offering investment vehicles focused on Western Africa, particularly Nigeria and Ghana.
Indeed, RMB Westport announced that it aims to raise $250 million for its RMB Westport Real Estate Development Fund, an opportunity fund seeded with $50 million of investments. Actis also announced that it had backed a start-up development firm, Accra-based Laurus Development Partners, with capital from its Actis Africa Real Estate Fund.
|  There’s no getting away from it that, from an international perspective, Africa (including South Africa) is widely considered as ‘emerging market’ as it gets
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Despite those efforts, there’s no getting away from it that, from an international perspective, Africa (including South Africa) is widely considered as ‘emerging market’ as it gets. Fundraising figures from Probitas Partners reveal that, of the $35.14 billion raised for real estate funds in 2010, just $523 million or 1 percent was for emerging markets outside of Europe, Asia and Latin America. Kelly DePonte, partner at the placement agent, described the Africa component of that $523 million as a “small blip.”
There are certainly positive macro- economic indicators that RMB Westport and Actis can reference to underpin their capital-raising attempts and investment strategies. The International Monetary Fund’s World Economic Outlook for April, for one, pegged real GDP growth this year for Nigeria, the larger of the two economies, at 6.9 percent and for Ghana at a bigger 13.7 percent. Predictably, both firms are pointing to this as they highlight growing middles classes, strong growth potential from resources and supply/demand imbalances.
Importantly, the two firms also point to reform-friendly governments, particularly their fledgling pension sectors. Market intelligence for African markets is thin, but according to a report by BGL Group, the Nigerian financial group, Nigerian pension assets under management grew to Naira 1.3 trillion (€5.8 billion; $8.26 billion) in September 2009, up from just Naira 47 billion in 2004.
Thanks to reform, Nigerian and Ghanaian pensions recently have been given the green light to diversify their investments into alternative sectors, including real estate. Amanda Jean-Baptiste, the ex-Lehman Brothers Real Estate principal hired by Actis last June to lead its Africa efforts, forecasts these pensions to be among the first serious wave of buyers of institutional-grade assets in their respective countries. She predicts an average allocation to the asset class of between five percent and 10 percent.
BGL, meanwhile, reckons Nigerian pension funds will grow to $47.32 billion by 2015. If that happens, we’re talking about a buyer capable of swallowing between $2.37 billion and $4.73 billion of real estate. Ghana’s capability will be relatively smaller, but it definitely will be significant enough to provide an exit. At the moment, however, there is nowhere near that kind of real estate in existence.
Of course, there’s the anecdotal evidence to consider too. Part of the catalyst behind RMB Westport’s plans are the experiences of international corporate businesses so keen for office space that they forward-funded bespoke developments by paying all eight years of a lease upfront.
| Such stringency obviously is a must if international investors are to be attracted, but a leap of faith still is required by investors and both firms admit as much |
Most emerging market funds can point to encouraging economic fundamentals and anecdotes to justify their sizeable return targets. Still, it is good to see these managers also acknowledge the systemic risk and market corruption that occurs in their target countries.
Rightly, each is bent on upholding core principles to nullify exposure to corruption. Much of that centres around ideas of control. RMB Westport, for example, insists it will have the final say in all major decisions surrounding planning, sub-contractors and payments.
Actis, meanwhile, promotes its ESG Principles (Environmental, Social and Government), a stringent set of “benchmarks and touch points” regarding staff conduct. Such stringency obviously is a must if international investors are to be attracted, but a leap of faith still is required by investors and both firms admit as much.
Another old African saying comes to mind: “Only once you have crossed the river can you say the crocodile has a lump on its snout.” To date, few firms have crossed Africa’s real estate river, so it is still hard to say how bountiful the region could be. Once the likes of RMB and Actis close, invest and exit their funds, we’ll get a clearer idea of that.
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