Finnish firm invests in Sh3.7b Meru mall as it backs Kenyan real estate

A Finland-based private equity firm remains optimistic about the potential of Kenya’s Real Estate Investment Trust (Reit) market.

Taaleri Plc, which is listed in Helsinki, invested in Kenya’s first Development Reit (D-Reit) issued by Fusion Capital.

The issue was aimed at raising financing for a Sh3.7 billion Greenwood City project in Meru.

Fusion Capital had hoped to raise Sh2.3 billion for the mixed-use residential, office and retail project, but achieved 38 per cent subscription, raising Sh873 million – below the 50 per cent threshold (Sh1.4 Billion) it had set in its offer memorandum to list at the Nairobi bourse.

Private investors

Taaleri, however, said it would not hesitate to participate in another D-Reit in the Kenyan market as it looks to deepen its investment in East Africa.

A D-Reit is a type of security that enables investment in the development and construction of real estate projects. It differs from an Income Real Estate Investment Trust (I-Reit), such as the listed Stanlib Fahari I-Reit, which invests in already existing property.

“When I mentioned that we have picked up something in Meru, it was exactly that issue [the D-Reit]. So we are backing the Fusion issue. They have the required development delivery capacity and have delivered several projects before within East Africa, which gives our investors a lot of comfort,” Antti-Jussi Ahveninen, the head of Africa at Taaleri, told Business Beat.

He added that the D-Reit issue may have failed as a result of the timing of the capital market and property market being out of sync, and low understanding.

Mr Ahveninen made the case for Reits, saying they are efficient tools to distribute wealth in the economy, given a majority of people cannot afford to buy a shopping mall.

Ahveninen also applauded the regulation of the country’s Reit under the Capital Markets Authority, adding he was impressed by the split of the I-Reit and D-Reit.

“The regulation is very cleverly structured by the regulator.”

But for a successful D-Reit, the Finnish firm said, there is need to educate the public on the product so they can invest in it.

“Kenya is definitely on the right track. If you take the UK, for example, it actually launched Reits in the 1990s, but nobody listed because the regulations were not good enough,” Ahveninen said.

He added that it was not until the segment was re-introduced in late 2000 that it took off, as the market was more aware of Reits.

“How we see it is that even when our money leaves the property market and we exit, the property will remain, as will the jobs created.”

Pump cash

Besides Greenwood Park, Taaleri has also pumped cash in another of Fusion Capital’s real estate projects – Kigali Heights in Rwanda, which was launched by President Paul Kagame last week. Fusion has operated in Kigali since 2010, investing in SMEs, private equity and real estate.

Kigali Heights, which cost more than Sh4 billion, is one of Fusion’s largest projects in East Africa. It is already 100 per cent let on the retail side and 58 per cent let on the office side. Fusion intends to exit by sale of the development to a yield investor in the coming years.

Taaleri did not reveal how much it put into the Meru project, but said it had put in the most capital outlay and more than a third of the equity.

“The project remains a great project, and Fusion and Taaleri are working together to complete the funding and bring it back into the market some time soon,” Ahveninen said.

The PE firm has invested in other Kenyan projects, including three Cytonn Investments real estate projects in Kiambu and Karen.

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