Investment Opportunities in Kenya: A 6-Part Series. Part 5: Commercial Real Estate
Rachael Mboya
Advocate of the High Court of Kenya with a Master of Laws in International Trade and Investments Law. Corporate & Commercial Law | IP Law | Real Estate | Banking and Securities | Finance and Taxation | Space Law
I know many readers have wondered (and rightfully so if I may add), why I was yet to cover Real Estate as an investment opportunity in Kenya. I would like to assure you, I was saving the best for last, or at least second last in this case, because I am yet to tackle the final edition of this Investment series.
It would be right to say that at least 95% or more of investors worldwide value having Real Estate as part of their Investment Portfolios. Investing in Real Estate will never go out of style because as it is always known, the value of Real Estate investments only appreciate with time. However, of course, there is a caveat that in very rare situations probably dictated by market volatility or protracted litigation, the value of Real Estate can dwindle. This is why the key advice I would like to start this article off with, is that before you invest in any real estate property, make sure these 3 boxes are checked: Available market depending on your choice of investment model, Prime location depending on your specific needs and Clean Title (this is the most important)!
Introduction
From my interaction with some investors in Kenya, I have come to learn that often times than not, most people assume that investing in the Real Estate sector only involves the buying & selling of land, building and renting of apartment units or the sale of residential homes. On the other hand, I have also come across investors who have taken the real estate investment game to a whole other level that literally and honestly, blew my mind! With this, I want to try and share as much as possible.
The models within which one can profit from Real Estate investment vary widely, and I can assure you that these models are so vast that I will not be able to cover all of them in this article.
In this edition, I am going to particularly focus on Commercial Real Estate and some of the investment models under which an investor can greatly maximize their profits in commercial real estate. I want to try to keep the article as short as possible, with as much information as possible. In this regard, my goal is to pick a case study, and focus or rather unravel how a successful commercial real estate portfolio can be established as evidenced by the case study.
Case Study: Two Rivers Mall
There are many other great Commercial Real Estate models I could discuss in this article to articulately bring out the point I am trying to make. These include examples such as the Samsung Digital City in Suwon, South Korea that spans over 390 acres, or Disneyland in Paris, France which spans over 4,800 acres of both developed and undeveloped land, or so much more. These would be better case studies in my view, however, I am aware that sometimes using 1st World examples to relate success in Real Estate to the 3rd World may not be viable.
This is the exact reason why I chose Two Rivers. Two Rivers is referred to as the largest shopping mall in Sub-Saharan Africa outside of South Africa, however, it is way more and bigger than just a shopping mall!
As my article is intended to speak to Kenyan investors, I have opted to select a successful commercial real estate model that despite not being fully Kenyan-owned, is still situate in Kenya and can give a closer to home relation/understanding. I say the Two Rivers Mall is not necessarily Kenyan-owned because a quick look at the CR12 (Company Search on Directors and Shareholding) of the Centum Investment Company which owns the Two Rivers Mall through one of its subsidiary companies, will show you that the development has some aspect of foreign ownership. It is also important to note that AVIC International, a Chinese state-owned company, holds a significant minority stake in the Mall, having been an equity shareholder through their financial investment in the development of the Mall.
Ownership structure aside, and please note that I have nothing against foreign ownership of developments in Kenya. The Companies Act of 2015 does not prohibit Foreigners from being Directors or Shareholders in Kenyan companies. What I want to focus on, is the manner in which the Two Rivers Mall has been structured to become an example of a very successful commercial real estate business venture.
When most people visit Two Rivers, they tend to assume it is just a shopping mall with leased commercial spaces. I would beg to differ. In my view, I would call Two Rivers one of the country’s largest mixed-use developments that serves as a prime example of how diverse real estate strategies can come together to create a successful commercial venture.
With a total area of over 100 acres, the Two Rivers development features retail spaces, residential units, office towers, and entertainment facilities. These include the Two Rivers Theme Park, an amphitheater, the Holiday Inn hotel, and the Two Rivers Office Towers among others. This combination of diverse facilities makes Two Rivers a one-stop destination for shopping, entertainment, work, and living, contributing significantly to its success.
Two Rivers Mall demonstrates how different commercial real estate models can be applied to create a thriving, self-sustaining development. By utilizing strategies such as leasing, sub-leasing, subdivision of land, and the sale of sectional properties, the mall has attracted both local and international investors and tenants.
Below, I will discuss briefly the different models that have been incorporated into Two Rivers to make it a largely successful mixed-use development:
At the core of Two Rivers Mall’s financial strategy is the leasing model. Leasing definitely forms the backbone of Two Rivers Mall’s revenue generation strategy. The mall leases space to a range of high-profile tenants, including international brands, as well as local businesses. These leases generate a stable and consistent income stream. Longer-term leases also foster tenant loyalty, ensuring the mall maintains a high occupancy rate, which in turn helps secure financing and investor confidence.
Leasing extends beyond retail, as the Two Rivers Office Towers also house tenants from various sectors, including corporate offices and international organizations. Leasing prime office space in this mixed-use setting adds further to the diversified income streams of the development.
2. Sub-Leasing: Expanding Tenant Opportunities
Sub-leasing has allowed larger anchor tenants to sub-divide their leased spaces and offer portions to smaller businesses. This model benefits both the anchor tenants and the mall. For instance, Carrefour has sub-leased part of its space to specialty retailers, making its location a hub of activity. Sub-leasing offers flexibility to smaller businesses that may not have the capacity to lease space directly from the mall.
This strategy maximizes the use of floor space and creates a vibrant ecosystem of retailers, which attracts diverse shoppers and keeps foot traffic high, a critical measure of success for any retail-based real estate venture.
3. Subdivision of Land: Unlocking Value through Parceling
One of the key factors contributing to Two Rivers’ long-term success is its use of land subdivision. Instead of holding on to a large undeveloped piece of land, the developers have subdivided portions of the expansive Two Rivers area to allow for different uses and ownership models.
Subdivision has played a critical role in raising capital for the development and attracting diverse investment. Different sections of the land have been developed for offices, residential blocks, retail spaces, and even the Holiday Inn hotel, each contributing a unique revenue stream. This segmented approach has ensured that each parcel of land is developed according to its highest and best use, maximizing its value and utility. Additionally, the subdivision enables the developers to partner with different investors for each specific area of the development, allowing for specialized expertise and shared risk.
4. Sectional Properties: Residential Investment Through the Sale of Apartments
A sectional unit is defined as a space that is situated within a building and described by reference to floors, walls and ceilings within buildings and the concept of sectional properties entails a sectional unit together with a distinct share of the common area.
Sectional Properties are properties that have shared amenities such as apartments, maisonettes, townhouses or offices as long as the intention is to confer ownership on different persons sharing the common areas. In this respect, Sectional Properties at Two Rivers in this case, refer to the Apartment units that offered for sale.
In Two Rivers, the development of high-end apartments within the complex has attracted both homebuyers and property investors. The allure of living in a secure, master-planned development with access to world-class shopping, entertainment, and office spaces makes these apartments highly desirable. By selling sectional properties, the developers raise significant upfront capital while also ensuring a long-term community of residents who contribute to the development’s sustainability.
5. Joint Ventures and Strategic Partnerships
A joint venture (JV) is a commercial enterprise in which two or more organizations combine their resources to gain a tactical and strategic edge in the market. It is generally characterized by shared ownership, shared returns and risks, and shared governance.
While discussing the Two Rivers ownership model hereinbefore, I did mention that the Subsidiary of the Centum Investment Company which owns the Two Rivers Mall, is partially owned by AVIC International, as an equity shareholder.
In the context of real estate development, equity shareholders play a crucial role in providing the capital needed for the development and operation of large projects. They share in both the risks and rewards of the development, as their returns are tied to the financial performance of the project. Most importantly, they own shares in the company, in exchange for their capital investment.
In the development of the Two Rivers Mall, AVIC International played a critical role as an equity shareholder and strategic partner. While precise figures may vary slightly, it is widely reported that AVIC International invested approximately USD 64 million into the development of Two Rivers. This investment gave AVIC International a 38.9% equity stake in the project. Their capital injection was instrumental in accelerating the construction and development of Two Rivers Mall, ensuring that it could be completed on time and to the specifications required for such a large-scale, mixed-use development.
The partnership between AVIC International and Centum Investment Company Plc, the majority shareholder in Two Rivers Mall, represents a classic joint venture in commercial real estate development. JV models are particularly beneficial for large-scale developments like Two Rivers, where the financial and technical demands are significant.
In this joint venture, Centum Investment contributed primarily through land ownership, project management, and local market expertise, while AVIC International contributed significant financial resources, construction expertise, and access to global markets and suppliers. By forming this joint venture, Centum and AVIC were able to pool their strengths, ensuring that the project had the necessary capital, technical know-how, and market reach to succeed.
Conclusion
Two Rivers Mall stands as a testament to the power of strategic thinking and diverse real estate models in commercial real estate investment. It exemplifies how strategic vision, diversified real estate models, and collaborative partnerships can transform a development into a landmark commercial venture. Its success lies not just in its size or array of offerings but in the intelligent application of investment models such as leasing, sub-leasing, land subdivision, the sale of sectional properties, joint ventures and more, with each generating its own revenue stream and contributing to the overall vitality of the development.
By merging retail, office, residential, and entertainment spaces within one integrated environment, Two Rivers has created a thriving hub that appeals to both investors and consumers alike. The inclusion of high-demand attractions like the Two Rivers Theme Park, Holiday Inn hotel, and upscale apartments enhances its appeal, making it more than just a commercial space - it's a lifestyle destination!
Two Rivers demonstrates that a well-executed real estate strategy involves more than just property transactions. It’s about creating sustainable ecosystems, leveraging diverse income-generating models, and partnering with the right players to turn a bold vision into a reality. For investors, the takeaway is clear: with the right mix of innovation, partnerships, and strategy, Commercial Real Estate can not only offer returns, but also a lasting legacy!
This case study illustrates that successful Commercial Real Estate Investment is not just about owning land and buildings; it’s about vision, collaboration, and the smart application of various investment models that can drive value for years to come.
This article has been written by Rachael Mboya for informational purposes. If you wish to seek further advice, contact me via email: [email protected]. I am an Advocate of the High Court of Kenya with a Master of Laws (LLM) Degree in International Trade and Investments Law. I am also the Founder and Lead Consultant at Rachael Mboya Law Advocates. My offices are located at Kofisi Centre, Riverside Square along Riverside Drive in Westlands, Nairobi. Please contact me to book an appointment if you wish to consult.
My 6-Part Investment Opportunities in Kenya Series Catalog:
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