Later this month, the senior executives of RMB Westport, the joint venture private equity real estate business of Johannesburg-based investment bank Rand Merchant Bank and property company Westport Property Group, will be flying to Cannes in the south of France for the annual MAPIC retail property conference.
At the two-day event, they will encourage European retailers to lease space at one of a number of shopping centers across sub-Saharan Africa to be included in their first development fund. That task, however, just became infinitely more difficult following a bloodbath at the Westgate shopping center in Nairobi at the hands of Islamist group al-Shabaab.
On September 21, gunmen understood to be representing the Somali militant group stormed the 350,000-square-foot mall. The attack lasted five days and resulted in 72 deaths and more than 200 wounded. While coming to terms with the tragic loss of human life, the executives of RMB Westport are preparing to answer hard questions about security, insurance and even the fundamental thesis of their investment strategies.
Contemplating meeting prospective international retailers at MAPIC, Michael O’Malley, one of RMB Westport’s founders, says: “They’ll ask us what we are doing about security and if anything has changed.” He’ll respond with briefings about the “fairly extreme measures” adopted by his firm, including car X-rays, metal detectors, undercover police and bomb-sniffing dogs.
However, O’Malley also will take an unwavering forward-looking stance. “Life must go on and developments must take place,” he tells PERE, as if rehearsing for the trip. “As developers, we must be firm but careful to strike a balance between shopper convenience and the correct security.”
For O’Malley, Africa’s property markets ought to be considered on a country-by-country basis, but he recognizes that the groups RMB Westport wants to impress might see the attack as a broader Africa issue. Although RMB Westport is focused on West Africa– Ghana, Nigeria and Angola, in particular – he expects to tackle the same questions as if the firm’s properties were located in the continent’s more turbulent east.
Other firms are less defiant. At Actis, one of Africa’s comparatively seasoned private equity real estate investors, the Westgate attack has provoked the firm into first examining its existing security measures before making firm statements. David Morley, head of real estate at the London-based firm, said: “We are updating our policies, adopting further recommendations and the most expert advice, in light of Westgate.”
Describing the event as “a terrible shock to many of us,” Morley feels it is too soon to determine what it means for retail real estate in Kenya. However, he does have faith that, when the dust has settled, the sector will recover. “Despite the Westgate terrorist event, the retail story for Kenya over the medium term can only be positive: the demographics, changing consumer behavior and the ambition of global players to push into the market all continue to fill us with confidence with regard to the investment opportunity,” he says.
Demonstrable appetite
A brutal event such as the attack on Westgate can never come at a good time, but it does come just as international institutional investors start to engage with private real estate investment strategies in Africa. Last October, Actis exceeded its $250 million capital-raising target for its second real estate fund, Actis Africa Real Estate II, pulling in $278 million from investors impressed with retail developments – such as the Accra Mall in Ghana, which it sold last year – included in the firm’s debut fund.
Months before, RMB Westport’s RMB Westport Real Estate Development Fund closed on $250 million from investors, including a Middle Eastern sovereign wealth fund and one of Canada’s largest public pension plans. For RMB Westport, an investment by the firm in the Ikeja City Mall in Lagos was among the examples enticing investors.
Just weeks before the Nairobi attack, STANLIB, an investment unit of Johannesburg-based wealth management firm Liberty Group, launched its first fund. It also carries a retail focus and includes Kenya among its investment targets. Roberto Ferreira, manager of the fund, for which STANLIB hopes to raise $150 million, concedes that Kenyan investments might now need extra scrutiny. “If we feel sensitivity from investors to retail exposure from a risk perspective in a jurisdiction like Kenya, then we’ll look at only doing offices there,” he says.
At the moment, Ferreira notes that Kenyan retail has not been scrapped from his firm’s investment thesis. However, if it does pursue retail developments in the country, STANLIB might consider switching the focus from the discretionary spend of shoppers, which he thinks might be synonymous with Western culture and, by inference, targeted by terrorists. Instead, he says the firm could favor food or white goods retailers, which are less attractive targets.
“We’ll weigh up the possibility of being attacked for whatever investment we make in Kenya,” Ferreira says. “If it’s a ‘necessity only’ center for blue-collar consumers, that might not be attractive to terrorists. Maybe it’s a strategy we’ll adopt.” Either way, he says security measures must be increased.
Measures of assurance
Robust tenant selection is crucial as well, since the Westgate attackers are reported to have stockpiled weapons and provisions within a retail unit they had leased before launching a Trojan horse-style offensive. Indeed, O’Malley says his firm intends to attend tenant selection meetings now. “While that is the role of center management and leasing agents, we’ll be spending a lot more time ensuring the entities are much more carefully screened,” he adds.
Most of RMB Westport’s tenants are well-known retailers, but his firm does receive plenty of applications from domestic “mom and pop” retailers, which are now likely to be vetted more thoroughly. “Most are known to us,” O’Malley says. “We hardly get random tenants applying for space but, if there is one, they’ll be checked out a lot more carefully.”
Despite such resolve, O’Malley admits that tenant checks have their limits. “If someone is hell-bent on damage, they can put a very presentable face on a made-up story,” he says. “It is difficult to predict a terrorist attack.” Nonetheless, he states that shopping center owners in Africa are now more alive to the method of assault adopted by Westgate’s assailants.
STANLIB’s Ferreira also underscores the importance of adequate insurance cover for convincing investors to stay comfortable with investing in Africa in light of September’s attack. The firm says it has applied to a recognized international insurer for portfolio cover that would include terrorism.
RMB Westport has single-asset insurance for the Ikeja City Mall, but it currently is negotiating portfolio-wide coverage in anticipation of five new projects for its fund. “It will probably be more expensive now but, in the greater scheme of things, that is not an issue,” O’Malley admits. “It just needs to happen.”
When asked whether the cost of increased security measures – RMB Westport’s car X-rays could cost up to $250,000 each, and six might be needed for a single shopping center – and heavier insurance would eat into investment returns, O’Malley replies: “It won’t make a huge difference. It’s something you accept, like double-glazing on a high-rise office.”
O’Malley believes the implementation of enhanced security ultimately will be a net-positive for footfall. “Security will become an attraction for potential customers,” he says, “If there’s a slight inconvenience because your car is being scanned or there’s a bomb-sniffing dog doing its rounds, you actually might appreciate the extra care being taken and feel more comfortable doing your shopping.”
Not just Kenya
On September29, just days after the Nairobi attack, Islamist gunmen fired on students as they slept at a college in northeast Nigeria. The attack, reportedly by Boko Haram, another militant organization, left 40 people dead.
STANLIB’s Ferreira notes that his firm previously had considered a Nigerian student accommodation investment. “We had a compelling proposition from a developer, but we turned it down,” he claims. Still, the firm is actively trying to buy in Nigeria and currently is one of two parties shortlisted for an office development site in Lagos. “Touch wood, it is not a visible target for Boko Haram,” he says. “These kinds of people want more visible targets. For this, we’d be looking at Nigerian corporate [tenants] only.”
Meanwhile, STANLIB’s only retail investment is in Ghana, a country with a more moderate political spectrum. “Ghana represents a more homogenous society, where there are fewer radical movements,” Ferreira says. “It’s a different risk profile than Lagos or Nairobi.”
Understandably, O’Malley, Ferreira and Morley are keen to see Africa recover from these recent tragic events. Recalling a survey conducted shortly after the 9/11 attacks on the World Trade Center in New York, O’Malley says: “It was stated then that the residents did not want to see an all-out security change and that they wanted life to go on. It needed to be convenient and it needed to be normalized.”
Ferreira notes there is evidence that, even after the atrocity that took place in Nairobi, its citizens are returning to shopping malls. “A colleague visited a rival mall to Westgate, and she was expecting it to be completely vacant,” he recounts. “Yes, the numbers were reduced, but there still were numbers.”
Nothing will reverse the loss of human life that started on September 21 but, based on interviews with three real estate investment managers in Africa in the days afterwards, there is faith that African shoppers will not be so easily deterred from engaging with an improved retail environment. Proof of that will see international retailers convinced of the merits of bringing their brands to the region and, subsequently, institutional investors increasing their appetite for its real estate further.
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