Real Estate Sector in Kenya: Ranee Nanji Presents Tilisi’s Upcoming Mixed-Use Development

Interview with Ranee Nanji, Co-CEO of Tilisi Developments Limited

What is your assessment of the sector? What are the latest trends? How competitive is the sector?

We are in the real estate sector which is in a static mode at the moment due to a general over supply (though this is not the case at with the real estate that Tilisi is selling), a liquidity crunch and tough economic conditions. Within the real estate sector, we are in the mixed-use development sector selling serviced land. We have two or three other big mixed-use developers in and around Nairobi. Land prices have stagnated in the last three to four years, especially within the city. We would consider ourselves slightly outside the city so there is the potential that the land will increase in value in the future, especially with the value added infrastructure that we bring to the product.

Do you see anything changing soon with the new regulations?

We are very strict with our development guidelines for this mixed-use development and the standard that we have envisioned will be maintained in years to come. We are also providing infrastructure that will be effective. Everything has been designed taking the user in mind.

We would have expected that the situation would have improved by this year, but we have not really seen that. My concern is that by the time it starts to improve we will be in the next election cycle which then inevitably slows things down again. With programs such as the government’s affordable housing, while they are in the media and out there, in light of the reality of what is actually happening on the ground, we are not really seeing anything. We are however attracting private developments who want to do affordable housing within Tilisi, but these are deals that take time to accomplish. We are hoping these will actually happen and help fill the gap in the market for affordable housing. We do have several potential buyers who see the benefits of being in a mixed use development with site and serviced land parcels and we hope to close these deals.

What is Tilisi and what do you offer?

Tilisi is a 400-acre mixed-use development. A consortium of developers purchased it in 2013 and we have spent quite a few years getting all our approvals and getting the mixed-use correct within the master plan. Tilisi sells serviced plots, which include tarmac roads with streetlights, drainage, power, water, and sewer within the different zones of industrial, commercial, and residential. We want to attract residential developers to come and do their schemes within Tilisi. What we are providing is infrastructure. It is literally a plug and play solution. Developers or industrial buyers come and build their buildings and plug into our infrastructure which is not a common concept in Kenya. There are only a few other mixed-use developments pursuing this strategy.

Why would they choose you over another company?

The biggest advantage we have is that we are already done with infrastructure and approvals and our title is completely clean. Rather than go next door where there is a piece of land that may or may not have a water connection or power connection or where you are not really sure whether you can build an apartment block or just one-storey structures, all that is already done here. You come in and can build your building because we have specified what you can build and how much you can build. All the things that people are concerned about when they come to build in a country like Kenya are taken care of. You can also be assured that when you come to build in Tilisi, you know who your neighbour is. You know that your neighbour cannot suddenly build an apartment block next to where you have built a little house. We are very strict with our development guidelines for this mixed-use development and the standard that we have envisioned will be maintained in years to come. We are also providing infrastructure that will be effective. Everything has been designed taking the user in mind. Unlike other parts of Nairobi, a buyer at Tilisi will not have to worry about turning spaces, traffic, zoning. We are effectively running an industrial park with world class standards.

Another one of our biggest advantages is our location. We are on the western side of Nairobi where we have the highway, A104, currently being upgraded to a six lane highway, on our doorstep leading all the way to Uganda and beyond, and we have the new southern bypass and the northern bypass less than 10 minutes away. We are in a very attractive location, particularly for industrial players. It is also the next trajectory out of Nairobi that is left to grow. Nairobi will eventually engulf Tilisi.

What are your competitive advantages compared to the other developments that exist?

A major advantage for us is our location because we are on the west side and further away from the airport but quicker because we have many different routes to get there. Secondly, we are a much smaller site than the others. For example, the infrastructure for our entire Logistics Park is complete. Since we are working with a smaller site, our development is likely to be completed and fully operational earlier than some of the larger projects. One of the other reasons that some of our builders and buyers like us is that the cost of building at Tilisi will be much cheaper than some of the other sites because the soil quality here is good for building. We have red soil whilst some other projects are sitting on black cotton which proves notoriously challenging and expensive when building.

Are you looking to attract investors to this project? Are you looking at the commercial side, the residential side or the logistical side?

At the moment, our logistics part is already up and running so we would want more logistics players to come to Tilisi. We are also very keen to get educational institutions – schools. I can say from personal experience the hours spent in doing a school run as most schools are in traffic congested areas. There is a great need for institutions to set up outside of Nairobi to help parents beat the traffic. Of course, residential and commercial are also important, but residential is our next focus because we are doing a small residential project ourselves. We want the residential developers to come in to then attract the retail which will then drive the city to get more residential developers in. It is a circular cause and effect scenario.

Who are some of the companies that are already working with you?

We have two big residential buyers. The first is Chigwell Holdings who bought 47 acres and will be doing villas. We completed the deal with them last year so we look to start at the back end of next year on construction. The other big player we have is Maisha Homes. They are actually one of the shareholders within our group and they have done other high-end developments within Nairobi such as Solitaire on General Mathenge and other commercial projects such as West End Towers and Delta Towers and a hospitality project in Nairobi – The Radisson Arboretum. They are going to be doing affordable housing around the Kshs 4 to Kshs 8 million mark through two different developments planned within Tilisi. We ourselves as Tilisi are also doing our own housing development which is called Tilisi Views. It is made up of 187 homes on ⅛, ¼ or ½ acre. We have awarded the contract and begun work on that project. Our first phase was industrial which we have completed. Our big anchor buyer in 2015 was ALP, Africa Logistics Properties. They are a big fund. They will be developing and then leasing warehouses. They have taken 49 acres at Tilisi.

Are you open to investors?

In terms of debt financing, we would be open to it but we have found that generally, it is quite difficult to get funding for infrastructure projects where we are phasing our infrastructure. Perhaps we have not looked enough because we have actually been quite lucky so far in terms of our presales and our cash flows. But, in general, debt for infrastructure construction is not as easy to get, unless you are looking at debt for housing or debt for warehousing. In terms of external investors coming in to Tilisi as equity, we have not really gone out to the market. It is not something we would not do. We would be open to it, but generally, we are more of a closed group of investors who came into this project. If there is anyone who would be interested, we would pursue that.

What are the major challenges that the sector itself faces here in Kenya?

The major challenge is the interest rate on debt in Kenya. It makes it quite unfeasible to do certain developments if you are borrowing 40% or 50% of your build cost. The world that we had seven years ago was completely different. A few years ago, people would buy land or buildings to speculate on escalating prices. Developers would be able to get substantial sales even before they broke ground. Things are very different now, and we are effectively in a buyer’s market. Buyers are a lot more savvy, and want to see work on the ground before they buy, whether it is a house you or selling or a plot you are selling. The upfront capital cost is much higher and that brings challenges with the interest rate that we have. For Tilisi, one of our biggest challenges is to be able to explain to a buyer that we are putting infrastructure at a huge cost. Not many in the private sector really understands what that cost means because generally, infrastructure across all markets is done by governments. So, our land price within Tilisi will be significantly higher than down the road and that differential is very hard to explain to the buyer unless they are international players who have been in other markets already. Otherwise, it is quite a hard sell. It has become easier as they see the infrastructure coming up and they understand the quality and the level that we are trying to achieve.

Project yourself into the medium term and long term. What do you want to achieve for the company as a whole?

For us as a company, we need to continue our sales and continue the vision that we have which is to make this a sustainable city. We want to have this mixed-use development with operational homes, operational industries, offices, schools, and really make this a small city. I would want to go a step further and really understand that we are giving the right infrastructure, giving power that is sustainable, using natural resources as much as we can within Tilisi, recycling water and solid waste. We can do a little bit more than you can do in your own home because we are a 400-acre site. We cannot do this for the whole of Kenya but we can do it for our little bit at Tilisi. The vision for the company going forward once we have sold all our plots is that Tilisi will remain as a company to run the city.

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