Private Equity in East Africa’s Real Estate Market

In the lead up to the East Africa Real Estate Investment Forum to be held in London in June, AB2020 caught up with Phil Goodwin (below), founder of Fusion Investments Limited, a real estate developer and private equity firm designed around the needs of local businesses in the emerging economies of East and Central Africa.

Has Fusion always focused on Real Estate and Private Equity?

When we first started Fusion Capital, we were providing debt financing and Micro Equity for SMEs throughout the East Africa region. Our plan was always to learn the local market by doing many small investments, before making larger Private Equity allocations. We did over 270 deals at this level.

Over time the company matured into doing pure private equity investments and currently has a portfolio of ten medium sized investments. These include Gal Baking (a bakery with distribution shops popularly known as Krumble), Thika Farmers (which deals in animal feeds manufacturing), San Valencia (runs restaurants and outside catering), and REMU Microfinance (micro finance company).

About six years ago, we decided to diversify into Real Estate development. This is where we have seen real success and thanks to the backing of a-few key investors, we now have a portfolio of eleven ongoing development projects worth around US$220m.

Now that more capital is finding its way to East Africa (in particular Real Estate in Kenya), what is Fusion doing to stay ahead of its competitors?

About three years ago we initiated a ‘go county’ strategy within our Kenya real estate department. As highlighted recently by the World Bank, Kenya’s decentralisation is among the most rapid and ambitious devolution processes going on in the world and is resulting in rapid growth in the major county towns. A good example of this would be Meru town. We have recently invested in a Mixed use (Retail shopping mall, Office block and residential apartments) development within the town center. Meru is ranked the seventh fastest growing town in Kenya. It has an annual population growth of 15 per cent (buoyed by an urbanisation rate of 11 per cent), a large growing middle class, 22 local and international banks, and (until we invested) no shopping mall or Grade A office space.

What is your target deal size/type and why?

Fusion is very much focuses on medium-sized projects – USD10 million to 50 million. Not only is this where we believe the best returns are, but we sit in the middle market between the smaller investments targeted by DFI’s and large projects being targeted by international Real Estate investment funds. For this reason, we find that we rarely compete for deals.

When it comes to the type and location of the deals we invest in, we remain totally flexible. Fusion has positions in office, retail and residential developments and has invested or is investing in: Kenya (Nairobi, Mombasa, Nakuru, Machakos, Kiambu); Rwanda (Kigali); and Uganda (Kampala). If a project has a good team, strong demand, and decent returns, we will consider it.

Where does Fusion get its capital from?

We raise capital on a deal by deal basis mostly from European Family offices and Institutional investors. Recently we have seen more interest from East and South African institutional and private investors and we expect a big portion of our capital to come from these groups going forward. Our current plan is to raise a dedicated real estate fund sometime in the next couple of years. Watch this space.

The East Africa Real Estate Investor Forum 2017 will take place in London on Thursday 8th June 2017. Find out more here