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Nigerian Born Real Estate Developer

Michael Chu’di Ejekam Comments on the Compelling Appeal of Longer-Life Private Equity

Michael Chu’di Ejekam Comments on the Compelling Appeal of Longer-Life Private Equity

 

Michael Chu’di Ejekam, commercial real estate expert shares his insights on the recent Wall Street Journal article on the Atlas Partners Longer-Life Private Equity Fund which raised one billion dollars.

 

Michael Chu’di Ejekam, an expert private equity investor, provides insight on the emergence of longer-life private equity funds such as Altas.

In a recent article printed in the Wall Street Journal by Chris Cummings, it was reported that the emergence of longer-life private equity funds such as Altas recently hit a new benchmark by raising one billion dollars. Altas as well as other powerful groups, such as Blackstone and Carlyle, are working on similar longer-life funds. Longer-life PE funds allow managers to hold each investment for far longer than the typical 5-year hold period per investment and typical 10-year total fund life. In the Altas case, each investment can be held up to a whopping 17 years.

 

The typical “medium life” PE model has proven to be highly successful with attractive risk-adjusted returns, however, Michael Chu’di Ejekam believes the model can be optimized, particularly in emerging market like Africa. “Following my several years of PE investing in sub-Saharan Africa, I am convinced that longer term life funds would be an improvement on the PE model for emerging markets such as Nigeria” Michael Chu’di Ejekam explains.

“When a PE fund is compelled to exit after a 5-year hold period, though the returns may achieve certainly attractive 25+% gross IRR or 2.5 to 3 times multiple on equity invested, I believe tremendous additional value may be left on the table.” The expert demonstrated his point by saying, “Originating, executing and investment managing attractive investments is a challenging process – why be forced to sell/exit a highly attractive investment after only 5 years, only to be saddled with pressure to find another outstanding deal to originate to start the process over again?”

 

Of course, some other models have emerged to address the standard PE model challenges. For example, in the case when an arm of a PE fund family invests in greenfield deals seeking “opportunistic” higher returns, and the completed projects are transferred to “core” vehicles of the same fund family which are seeking lower, more stable, longer term returns. “It could be more powerful and efficient to have one fund vehicle simply hold the investment for the longer term”, said Michael Chu’di Ejekam. This is especially important in emerging markets, where the deal process is more challenging and deals could take years to originate and close in the first place.

 

There is also increasing investor interest and PE capital raised for Africa for example, therefore deals have become more competitive and could take years to originate and close. “After so much heavy lifting, why sell after only 5 years?” he asked. “I have been involved in a few highly successful full-cycle investments and exits – though the returns were highly rewarding and the possible carried interest/profit distributions exiting, the reality is that excessive additional upside was surrendered to the new owners.”

 

Charlie Munger, one of Warren Buffet’s longest serving colleagues is quoted as saying: “The ‘know-nothing’ investor should practice diversification, but it is crazy if you are an expert. The goal of investment is to find situations where it is safe not to diversify. If you only put 20% into the opportunity of a lifetime, you are not being rational.”

“Why sell after only 5 years if you are already enmeshed within a great investment?” Michael Chu’di Ejekam continued. “Part of the answer lies in the reality that PE funds need to demonstrate exits/returns to potential Limited Partners (LPs) in order to raise fresh investment funds, and LPs are accustomed to the well-defined and tested cookie-cutter PE “medium life” model.” Of course, there is a desire to exit to realize profits so that carried interest distributions can be made – the perfectly reasonable lifeblood of private equity, from which Ejekam has benefited. Thankfully, there are other acceptable avenues to achieve this objective. According to the finance whiz, longer-life PE funds would be an improvement for for emerging markets such as Africa. He thinks it would be helpful if more potential LPs bought into the concept and support the investment strategies of managers with longer-term views.

 

Mr. Ejekam offered a few closing remarks. “The most successful entrepreneurs and investors in emerging markets such as Africa, hold longer term views. They do not think in 5-year chunks. They think in terms of decades. This is how to generate outsized returns.”

 

About Michael Chu’di Ejekam

Michael Chu’di Ejekam is an honors graduate of the Wharton School at the University of Pennsylvania, where he earned a BSc in Economics, with a concentration in Finance. His early days were spent on Wall Street, as an investment banker for Merrill Lynch, after which he moved into private real estate investments in New York, and then onto work with Nigeria’s Actis. During his seven-year tenure as their Director Real Estate for West Africa, he became known as a leader in the “retail revolution,” helping to bring multiple million-dollar malls into underserved areas throughout sub-Saharan Africa.

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Michael Chu’di Ejekam – Jabi Lake Mall Nigeria.

Michael Chu’di Ejekam – Jabi Lake Mall Nigeria. Abuja, Nigeria’s capital, is a city on the rise. While bustling Lagos may be the best-known metropolis in the country, Abuja is catching up fast. With one of the most rapidly growing urban populations in

Nigeria it contains a mix of government professionals, business people, diplomats and expats – people with money to spend and increasingly sophisticated shopping tastes to match.

The shores of Jabi Lake – a scenic spot west of Abuja’s business district make a good spot for a new real estate project – Jabi Lake Mall, in progress since 2006. In 2011, Actis and its partner, Duval

Properties stepped in to invest US$120m to move this 25,000 square metres project forward to completion. Built to the highest standards and at least 25% more energy efficient than other buildings in the area, Jabi Lake Mall is expected to become Nigeria’s premier destination for shopping and leisure when it opens in September 2015.

  1. Date of investment – 2011
  2. Location – Nigeria
  3. Sector – Real Estate
  4. Deal type – Expansion
  5. Investment amount – US$33m

Continuing the approach that has made its other malls in Lagos and Accra so successful, Actis has brought together its West African and international advisers to create a top destination with a distinctly

local feel.

With a five-screen cinema, a children’s play area, waterfront dining and water sports on the lake, Jabi Lake Mall will provide a leisure experience for couples, families and friends to relax and have fun.

Actis expects Jabi Lake Mall to create over 2,000 jobs whilst attracting more than 300,000 shoppers every month. It will significantly boost businesses in the local supply chain and offer more affordable goods

currently unavailable in Nigeria. Jabi Lake Mall also promises be a good place for international retailers

to launch their products to the African market. Recognising this opportunity, Shoprite, the South African supermarket chain, and popular appliances store Game, secured their positions as anchor tenants before construction began in November 2013.

Whereas stylish Abujians might once have travelled to Lagos for their weekend shopping and relaxation, they will soon be able to find urban buzz and glamour closer to home. Thanks to Jabi Lake Mall the planes flying from Abuja to Lagos on a Friday night may soon be a little emptier.

Michael Ejekam : Defining moment for the property market 2013.

2013 : Defining moment for the property market

Michael Ejekam : Defining moment for the property market 2013. Globally, the outgoing year was, indeed, a defining moment for the property market with many regions of the world, notably Africa, Asia, Europe, United Arab Emirate (UAE), etc, recording significant recovery and growth across various segments of the market.

In Africa, particularly in sub-Saharan Africa including Nigeria, Ghana, Sierra Leone, Cote d’Ivoire, among others, 2013 saw continued growth driven by demographics, rising spending power and the softening in the economy of the developed world.

In South Africa, the story was, however, different with price index for medium-sized apartments falling by 2.01 percent year-on-year to third quarter (Q3) 2013 and, according to Global Property Guide’s Q3 2013 housing prices survey, prices declined by 15.5 percent in the country during the global financial crisis.

Dubai, Nigeria, UK and the US markets which were badly affected by the global economic crisis had struggled through that period to the last quarter of 2012 when, in a dramatic way, prices started climbing with investor-appetite growing to appreciable level.

Global Property Guide, a research house and website dedicated to residential property, reports that of the 24 European housing markets included in their survey, 19 performed better in Q3 2013 than the previous year, disclosing that prices rose 1.8 percent in the UK.

Dubai, the survey adds, remains the best performer, explaining that house prices soared by 21.37 percent during the year to Q3 2013, such that luxury residential towers in Dubai now sell like pancakes. It cited Skai Properties, a new luxury apartment complex located on the Palm Jumeirah that sold 98 percent of its 702 units in September 2013.

The survey says United States saw prices rise by 6.1 percent, adding that overall house prices rose in 32 of the 51 advanced and emerging market economies in the IMF’s Global House Price Index.

In Nigeria, it was not just a story of visible recovery, but also of growth, especially in the commercial segment of the market where analysts estimate that investor-confidence and interest soared, seen in the quantum of investment in the development of retail centres and office buildings.

“Across the country and also West Africa, there has been continued growth in retail. It is happening most in countries like Nigeria, Ghana, Cote d’Ivoire, etc. New retail facilities are being built and new retailers are coming in. That is one major thing that has happened in 2013,” said Obi Nwogugu, head, real estate unit, Africa Capital Alliance, an institutional equity investment firm.

Nwogugu, who spoke in an interview with BusinessDay, added that the office space market has also seen continued growth, estimating that “in Lagos, between Ikoyi and Victoria Island where you have business hub, there are close to 250,000 square metres of office space coming into the market”.

Across various segments, there was some level of movement, even though Erejuwa Gbadebo, former CEO, Broll Property Services Nigeria, sees “a bandwagon thing” in the movement in some of the segments. She, however, agrees there was a difference from what obtained in the market in 2012.

In the residential segment of the market, UAC Property Development Company (UPDC) plc and Lekki Gardens were quite bullish, addressing the narrow upper-end market with their mega million naira products.

Estate Links Limited, a local and international real estate services provider, also made a little impact with its 18-unit ‘The Lofts’ which targeted the middle-income earners, selling at N25 million per unit.

Growth in low-income housing was quite remarkable as a few developers found meaning and sense in addressing this largely un-served market with blocks of flats, apartments and bungalows. Analysts observe that this new interest was driven by rising vacancy rate in the high-end market.

A good number of low-cost housing came into the market from Common Sense Company with its 100-unit Signature Estate comprising one-bedroom bungalows available in detached, semi-detached and terraces at N3 million as minimum entry level.

Avenue to Wealth (A2W), a cooperative partnership scheme, also offered studio apartments selling for N3.4 million on outright payment, while Multi-Purpose Infrastructure Development Construction (MIDC) also came into the market with 1,000 low-cost housing units at its Teju Royal Garden in Lagos.

In what Chudi Michael Ejekam described as a revolution, the commercial properties were a toast of investors in the outgone year with retail malls and office buildings delivered and new ones initiated.

Heritage and Cocoa Malls in Ibadan, Oyo State, opened for business; Omais Homes’ Trinity Mall in Lagos also opened for business, while UPDC started construction on its N5 billion Festival Mall in Festac Town, Lagos. Actis, an international private equity investment firm, is building the Ado Bayero Mall in Kano and the Jabi Lake Mall in Abuja with Duval Properties.

While The Mansard Place and The Brook were completed within the year by Mansard Insurance and BusinessDay Media Limited, respectively, Actis started work on its 14-floor Heritage Place in Ikoyi, and RMB Westport also took off with its 15-floor The Wings.

Another significant development in this market was the mortgage sector reform which saw the primary mortgage banks (PMBs) migrate from the statutory N100 million to N2.5 billion and N5 billion for state and national operations, respectively.

Of more significance was the setting up of the Nigerian Mortgage Refinance Company (NMRC), a private sector-led secondary mortgage refinance company being promoted by the Federal Government with $300 million seed capital provided by the World Bank. It is expected that when the company becomes operational from the first quarter of this year, it would change the face of mortgage banking and housing finance in the country, giving hope of improved homeownership level in the days ahead.

Investors push Ikoyi profile to new high with multi-level office space projects

Investors push Ikoyi profile to new high with multi-level office space projects

Michael Chudi Ejekam : Investors push Ikoyi profile to new high – The high profile status of Ikoyi as the most sought-after residential address in Lagos has been taken to a new level by up- market real estate investors who, in the last 12-18 months, have been in what seems to be a scramble for the skyline of this coveted area with multi-level office space and mixed use projects. By the last count, about six new projects, mainly commercial office space, rising 13 to 15 floors with gross buildable areas (GBA) ranging from a minimum of 7,500 square metres to 19,500 square metres have gone off the ground along the Kingsway Road alone. Before now, any discussion on or around Ikoyi in terms of real estate centred on its Victorian architecture on residential developments, but changing business dynamics and rising demand for Grade A commercial office space in secure, serene and decent environment by international businesses have changed all that, creating a new commercial real estate destination not seen before in Lagos. “There is nothing strange or particularly wonderful about what is happening in Ikoyi; what that simply tells you is that Kingsway is to- day the most desirable, most sought after office space address in Lagos”, says Obi Nwogugu, head, African Capital Alliance Property Investment Company. “We have seen some interesting developments on Ozumba Mbadiwe Street on Victoria Island but King- Sway is today the preferred destination”, he adds, pointing out that the last has not been seen on this axis. Victoria Island, arguably, the Central Business District (CBD) in Lagos is getting saturated by the day and piling pressure on its few residential properties, leading to a residential vacancy rate that a recent report by Financial Derivative Company estimated at 32 percent. The island, however, has a number of pipeline projects such as the Civic Centre Towers rising about 16 floors, Waves which is about 15 floors, The Wings which holds promise for 14 floors for office space, among others. Eko Atlantic City is coming to cap it all with its numerous business districts. “Grade A office spaces are in high demand by inter- national businesses”, Funke Okubadejo, a director in Real Estate at Actis, explains, add- ing that these businesses need the offices in decent places. At various stages of construction are Kingsway Towers by Glover Road, a commercial office space development with 15 floors on 15,000 square metres, and just close to it is the BAT Rising Sun opposite Ikoyi Club. This is a mixed use development that sits on 19 square metres, holding promise for 13 floors out of which four will be used for office space. By Lugard and Kingsway Avenue junction is the Heritage Place, another commercial development that will rise 14 floors on 15,600 square metres. Eight of the 14 floors will be for office space and the rest for parking. The Sogenal Towers located beside the Mercedes Place is a mixed use development occupying 7,500 square metres and will rise 15 floors that will be leased or rented out as commercial office spaces. Michael Chudi Ejekam, also a director, real estate at Actis, which is the promoter of the Heritage Place, added that there is also high demand for office spaces that are not only Grade A, but also energy-efficient.

Michael Ejekam , Sustained growth, returns position Nigeria as next frontier for institutional investments.

Michael Ejekam , Sustained growth returns position Nigeria as next frontier for institutional investments.

Notwithstanding Nigeria’s very low ranking for ease of doing business, sustained growth and high return on investment have positioned the country as the next frontier for institutional investments.

Nigeria’s institutional investment market, among the core asset classes like equities and fixed income, has been impressive in the last decade, with large domestic and international institutional investors making investments in different sectors of its economy.

Notably, Actis, an international equity investment firm focused on emerging markets, and African Capital Alliance (ACA), also an international institutional equity investment firm, already have strong footholds in Nigeria, especially in the real estate space.

“Strong demographic profile, an emerging middle class, high consumer spending power, are some of the market fundamentals that we as investors find compelling, explained Michael Chu’di Ejekam, Director, Real Estate at Actis, in an interview with BusinessDay in Lagos.

Actis has made considerable investment in Nigeria, especially in retail and office space, such as the The Palms Shopping Mall in Lekki, Lagos which it has exited, the Ikeja City Mall, Abuja Jabi Lake Mall, still under construction, and The Heritage Place also under construction in Ikoyi, Lagos.

ACA has similarly invested in different sectors of the economy and, in real estate, it has footprints in retail, office space and hospitality. “We’ve seen opportunities in this market and we often deploy capital to leverage those opportunities for investment returns”, an official of the company told this reporter.

In its Q1 report on the real estate market in Africa, Broll Property Services, noted that in recent periods, Nigeria has emerged as an appealing destination for institutional investors worldwide, explaining that this rising interest has been centred on the country’s strong demographic profile, impressive GDP growth rates and inherent opportunities, due to infrastructure deficits.

Though Africa, especially Nigeria’s, infrastructure currently lags well behind that of the rest of the world, with some 30 percent in a dilapidated condition, it has vast business opportunities as a growing infrastructure consumer market.

Bolaji Edun, Broll Nigeria CEO, recalls that institutional investment into the real estate sector was initially sluggish, mainly because of the shortage of investment grade assets, meaning that investors needed to develop to make an entry into the market.

According to Edun, it was not until 2004 when The Palms was developed at the cost of $40 million, that investor confidence and investment awareness gradually grew. He observed that the developer’s exiting of the investment in 2007 demonstrated inherent opportunities and strong returns, thereby encouraging other investors to enter the market through their own developments.

“From the initial investments in retail, the sector now boasts investments in hospitality and office properties from private equity, domestic institutional investors and Africa-focused property funds”, he said, adding, “as a result, the success of the primary market and a strong development pipeline has led to an influx of new global investors and has opened up the way for the secondary investment market, leading to what could be a potentially vibrant market for quality asset acquisitions”.

Side by side with the inherent opportunities, are challenges which the Broll Report says lack of market data remains a major issue, as investors would need information about the market in general to guide their investment decision making.

By Business Day