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Dubai investor expects ‘fast growth’ in Africa’s mid-market hotels

A Dubai-based investor is betting on Africa’s growing inter-regional trade and movement to build a new brand of mid-market hotels. Jameel Verjee, founder of CityBlue Hotels, is optimistic that the less than US$150 a night room is the low hanging fruit in Africa’s hospitality industry.

A corporate lawyer turned entrepreneur, Verjee is the founder of Diar Capital, an investment company focused on the creation of growth businesses. Diar Capital launched three hotels in Kigali, Rwanda earlier this year and is keen on expanding across the region.

“We are in a number of sectors but we believe that this is one of the fast growth sectors to focus on: mid-market hotels. Africa’s economies are growing with a lot of inter-regional trade [and] inter-regional movement,” said Verjee. “The average business person can only afford a certain price point and we feel that this is the right market to scale.”

Diar Capital has made investments in various sectors including retail, fast-moving consumer goods and real estate in sub-Saharan Africa and Dubai.

Verjee told How we made it in Africa that the investment firm intends to open CityBlue in Kampala, Uganda in the first quarter of 2014. New hotels in Burundi and Nairobi, Kenya are also in the pipeline.

“Our goal is to have 500 bedrooms by the end of 2015,” said Verjee. “If you look at any of the more mature markets, the European markets or the US markets, that’s always been the case. They start with the bigger brands and then the smaller brands come into the market.”

Verjee said most countries in the region lack high quality hotels in the mid-market sector thus creating an opportunity to scale the CityBlue Hotels brand.

“We are selling our rooms for anything between $90 and $150 depending on the size of the room [and] the quality of the room. We believe that [price point] is where the market is going to scale,” said Verjee. “Not everybody can afford $300 a night and most of the people who stay in those hotels are either corporate or NGOs or diplomats. There is always going to be the next tier of hospitality.”

Business model

Diar Capital expects to expand CityBlue Hotels at a fast pace in the region because of its leasing model.

“The reason we can move so quickly is because our business model involves taking long leases [20 year] primarily over the existing assets or newly built hotels. We don’t tend to acquire assets… this allows us to move quite fast and create a brand in the market place,” Verjee said.

According to Verjee, some of the challenges CityBlue and Diar Capital face in Africa include “human resources, understating the local laws, putting good systems [in place], best practices and maintaining a brand across various properties”.

Verjee, who grew up in London, noted that while Africa presents immense opportunities today, investors should approach things carefully.

“The future is Africa but it’s obviously got to be understood carefully. We are not investors who come in without taking our time, carefully doing feasibility work, doing detailed financial models and making decisions as best as we can. Obviously, it’s not easy.”

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