The US$41.5m Pan African Housing Fund (PAHF) is in the advanced stages of completing a series of deals in East Africa through which it hopes to spur the development of affordable housing.
The fund, managed by sub-Saharan Africa-focused private equity firm Phatisa, plans to provide risk capital to developers building middle and lower-middle income residential housing in major urban areas in Kenya, Zambia, Tanzania, Uganda, Mozambique and Rwanda.
According to fund partner at Phatisa, Eton Price, PAHF is close to finalising a deal in which the fund will invest in a project about 20km northwest of Kenya’s capital Nairobi. The project will entail 66 two-bedroomed apartments selling for about KSh. 7.5m ($86,500) per unit.
“It’s a deal that ticks all our boxes in terms of backing a local partner developing land that has been in his family for years, and it is also quite close to the new Southern Bypass. It’s a really well located piece of real estate,” say Price. “This is not our biggest deal. It’s our first deal in Nairobi so we tend to trade cautiously. We have got some very big projects in the pipeline where we can invest to $6m of equity.”
Price says Kenya was “a logical place to start” signing deals because it is a “dominant player” in East Africa.
“The biggest drive for us is focusing on Kenya [because] it is a leading economy in East Africa. We are looking at projects in Nairobi and Mombasa, as well as leading towns like Nakuru. We anticipate that the growth we see in Kenya will be replicated in other countries in the region quite quickly.”
The PAHF will partner with reputable local developers and provide risk capital on a joint venture basis to implement residential projects and commercial properties which are combined with residential units. The investment initiative hopes to catalyse finance for the construction of new homes to address housing shortages in the region.
Price says the fund hopes to build “north of 15,000” houses.
“We want to invest as quickly and as prudently as possible so that we can build houses and get supply of houses into this middle-income market.”
PAHF also hopes to influence how construction is done in the region.
“I was at a site yesterday where the guys were five storeys up plastering with no helmets, no boots… that is a massive issue for us. We have got a big drive on environmental, social and governance issues in our fund, so finding a developer that would accommodate us in that respect is quite important. We hope to influence developers to become better.”
Ticking all the boxes
PAHF invests in projects situated in good and easily accessible locations and where land ownership is not complicated. The construction project should also match market demand and the design should be flexible.
“We have got a very robust due diligence process, but even before we get to due diligence on projects we can [test] a project to see whether it meets the PAHF’s investment criteria. I have been stuck in black cotton trying to visit sites before and if I am getting stuck what does that mean for that poor housewife who is taking her kids home? She is going to get stuck as well. If it is not close to big infrastructure and does not have access to water and electricity then that will be a problem. Infrastructure for us is a huge challenge.”
Price explains that getting the right developer is the most important issue.
“You could find a good project but not a good developer and vice versa. My experience would suggest that doing deals with unprofessional developers is really just going to lead to huge delays and additional costs. We back developers with experience, credibility, track record, relationships with the banks and people we think we can work well with.
“It’s not just about finding a piece of land, coming back with a scheme from an architect and then financing it. It’s more around negotiation on the purchase price of the land, assembly of a professional team… all of that you add into the pot and either the brew is good or it is not.”
Price notes that there are several “hoops you need to jump through to get a project off the ground”. However, partnering with reputable, experienced developers who have relationships with local stakeholders will greatly assist in mitigating risks.
“There is a myriad of issues when it comes to putting money into affordable housing projects and you need to be flexible, you need to be entrepreneurial and able to adjust and deal with changing situations.”