Fusion Group: A Pioneering Real Estate and Fund Management Firm Based in East Africa

Daniel Kamau discusses real estate projects in Kenya, Uganda and Rwanda and presents Fusion Group, a private equity firm focused on real estate investment and fund management based in East Africa, founded in 2006. All of the firm’s profits have been re-invested in the business, and Fusion has grown into a leading and pioneering real estate and fund management firm in East Africa over the years.

Interview with Daniel Kamau, CEO of Fusion Group

Daniel Kamau, CEO of Fusion Group

Can you explain the nature of Fusion Group and what you do?

Fusion Group is basically a fund manager, a real estate developer, and investment manager. We develop and we will normally have skin in the game. We put our money into this development and we get involved in management of the sale and the entire process from structuring the investment, capital raising, managing the development, and selling or exiting whenever that happens. We also do fund management where we raise capital for high-net-worth individuals, family offices, or institutions, and deploy that money within East Africa. We are invested in Kenya, Uganda, and Rwanda at the moment.

What is your competitive advantage and what makes you stand out?

We are different for many reasons. First is the fact that unlike other private equity funds that are run remotely and use the fly in and out model, we are very local in our structure from our Board to our investment management teams. We understand our markets better than everybody else. We understand how land valuations have behaved over the last few years. Also, we get involved in this development. We roll up our sleeves and get ourselves to the sites to manage those sites. That really differentiates us. Also, the owners of the business co-invest alongside our investors. So, when we say we have skin in the game, this literally means that we have our own money that goes into these projects. That way, you achieve alignment with your investors.

Could you present an overview of the industry and why you specialize in real estate specifically?

Fusion Capital started with SMEs around 2006, and then we did micro equity. In 2010, we started fully focusing on real estate. At the moment, about 90% of our assets under management are deployed in real estate. Real estate has evolved over the last 12 years. Originally, the focus was mainly on the middle class because we had that growing middle class, our cities were expanding, there were various infrastructure projects going on and new corridors being opened up. Then, we had the county system where Kenya was divided into 47 counties. All those were drivers of growth as far as real estate was concerned. In the counties, you needed new development, you needed new offices, you needed new housing. Over that period, we have seen several quality malls come up and international brands moving into this market in East Africa, be it in the supermarket space or in clothing and the different retail spaces, which is a result of growth in real estate. In the last five to seven years, there has been a focus now on affordable housing and land. The focus on land is because of the many things that we have been able to resolve around real estate; however, there are issues that have not been resolved such as mortgages.

Mortgages continue to be very scarce in this market. There are only about 27,000 mortgages per year. That tells you that there is huge need for people to own homes and they cannot manage to because they have no access to mortgages. Two things have come up from this. First is affordable housing, which is being driven mainly by government as well as the private sector. With government, it gets subsidized and as a result, the entry price is good enough for people to come in.

The other space that has significantly grown is gated communities where developers will buy masterplan land and avail it to buyers. Homeownership in this part of the world remains a process where you acquire a piece of land, you pay through a SACCO or your employer or through an unsecured bank loan and over a period of time you pay off and then you access more money unsecured and you are able to put up a home. That has been the process towards homeownership and that is a market that will continue until the mortgage issues have been fully sorted in this part of the world.

Over that same period of time, Fusion has gotten itself involved in retail space, in office, in housing, and in land projects. Some of the developments that we have been involved in include the award-winning Kigali Heights in Rwanda, 4th Avenue in Upper Hill, Flamingo Towers in Upper Hill of Kenya. We have also been involved in various residential projects in Kenya mainly, as well as Uganda. Land has been mainly in Kenya, where we acquired master plan, serviced, and sold land. That has worked well over the period that we have played in this market. Going forward, our focus will continue to be being in the same spaces as and when the market can afford it. For example, at the moment, there is saturation in office space so we have slowed down on office space. There is a bit of space to accommodate retail, but at the county level, so we are looking at a couple of counties. But we only do these things where we have the first mover advantage, where we are the only developer. For example, at the moment, we are doing a mixed-use development in Meru County, and we will be the first ones there to do a proper mall. We will do such kinds of things in cities that allow such development and where you will not be cannibalizing on another developer’s asset.

What projects are you currently working on or are expecting to roll out soon?

We will shortly go into the market looking for someone to buy Kigali Heights. It is a huge investment. It has achieved 95% occupancy and has Grade A and B tenants that are international as well as strong regional brands. It is mixed use, so it has office and retail which works well to de-risk the asset. It is a solid asset. It won the Best Mixed-Use Development in East Africa in 2017. Going into the market, we will be looking at a yield investor for that. But we have other ongoing projects like in Meru. As soon as we have completed and fully occupied it, then it will come onto the market. We are involved in a couple of gated communities where we are exiting on a unit-by-unit basis because these are subdivided masterplan and subdivided pieces of land and they are going very well.

What are some of your success stories?

Of the many private equity companies that were established around the same time as Fusion, Fusion has continued to thrive. It has moved beyond Kenya to include Uganda and Rwanda. It was originally set up to focus on Kenya, but we have gone into East Africa. We have won several awards, including being the most ethical company in Kenya. I have been awarded the same as an ethical CEO and I have been awarded twice the Top 40 Under 40. That is as a result of the progress that Fusion has made in this market. We will continue to be in the market and to be a strong and respected institution.

What is your policy for being environmentally conscious and environmentally friendly in the industry?

We are more focused. During the pandemic, we realized that people are moving more towards working from home, and the environment in which they worked now mattered more than before. We looked at the informal settlements that we know of and we realized that people were living in very non-compliant buildings. So, we came up with a rental model. What we want to achieve with our rental model is to put up developments that are close to where people work. A lot of the affordable housing schemes that have been done well are done in far flung areas that cost people a lot of money get to and to come back from their places of work. So, it is very costly and there is an impact on the household cost of living. We have decided to build decent, affordable, fire, life, and safety compliant developments. This will be funded by a DFI. People deserve dignity. The statistics are alarming. Over 60% of the buildings in some of the informal settlements are not compliant at all. You will not find a second staircase, you will not find firefighting equipment, etc. Everybody has gone into build and sell and the build and rent market has been forgotten. 80% of Nairobians live in rented houses which means it is a huge market. For us, our “go green” is more “go safe”. We are trying to participate by availing homes that are fire, life, and safety compliant that are decent and at an affordable rate. These developments will receive green certification and they will be EDGE certified.

Are you active in CSR activities?

We do a lot of CSR. We have partnered with a company called Optiven Foundation. They have different pillars: a community pillar, a feeding pillar, a housing pillar, and an education pillar. Fusion has picked the education pillar, so we support students through school. People can survive for a day or two and they will somehow find food. But if you give them education, you will change their lives permanently. A number of us have been beneficiaries of someone who stretched out their hands and helped us through school. We have done quite a contribution over the last three years now. We are big on that and we continue to support and to help them raise cash for the program.

What is your vision for the medium term, three years’ time?

In the next three years, we will have rolled out affordable housing rentals and we will have enough of those blocks across Kenya, and then move into Uganda and Rwanda. But also, on our affordable housing on the land side, we want to establish that as a subsidiary and continue growing it. We are looking at least doubling, if not tripling, the size of our business in the next three years.

What is your inspiration? What drives you to do what you do?

My background is in a Bachelor of Commerce, but I have a strong desire to see people live in decent places. That is why I am very passionate about this affordable housing. But also, I want to see people own assets. We are trying in the short term to push people through land ownership, then housing, but also, we are trying to sort out the tenant purchase schemes to make it a bit easier for people to own homes. That is something that I am keen on.


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