Scot Murray Presents Denya Developers, A Leading Real Estate Development Company in Ghana

Interview with Scot Murray, Managing Director of Denya Developers

What is the history of the company?

The founding partners of the Pragnya Group are Subba Dukkipati and Gopal Menon. They set up their business back in the early 2000s mainly taking advantage of some of the unique opportunities that non-resident Indians have to be able to invest in real estate back in India. They started their company with a deal with HSBC where they built three regional head offices for them, two in India and one in Sri Lanka. Through that, they became aware of some of the different commercial corridors that the Indian government was setting up in order to incentivize companies to move into the market. They bought the land next door to these commercial corridors, particularly the IT corridors, where they knew that there were going to be a lot of jobs created. In 2008, their entire strategy switched to residential. Their largest development is on 92 acres in Chennai where they are doing over 5,000 apartments. Interestingly enough, they thought in the beginning that they were going to be both an investor and a developer so they also raised a fund. As part of the diversification for the fund, they were investing in other developers in other locations within India. As they became more involved in the market, they realized that they could perhaps outperform some of these companies that they were investing alongside and they ended up acquiring or purchasing larger stakes of the SPVs and then became more of a full-fledged developer in their own right. Subba and Gopal became attracted to the notion that if they looked at the way India looked in the early 1990s, they saw some surprising parallels to Africa and the way Africa was evolving. Gopal grew up in New York and he lives in Tribeca. The idea that an American developer or a European developer could go down to Ghana and understand that market is much harder for them. It is almost a two-step deviation than India which is a one-step deviation. The concept was to bring the same cost, discipline, value engineering, all that thought process that they had developed in the India group over to Ghana.

What are the challenges to boosting your business?

There is a sweet spot in terms of revenue: there is good revenue and then there is bad revenue. If you are building one of these multi-story high rise developments, the challenge is that as soon as you sell one apartment and you commit to finish the whole building within two years, whether that building is a 10 story building or a 20 story building or a 50 story building, you have to finish the whole thing. One of the things that we really focus on is to estimate the level of sales that we can predictably get over a two year construction cycle. Then, we try to match demand with supply. As a company, we do not borrow and we do not take out any loans. In a sense, our business model is not the vanity projects that might scrape the clouds; rather, things that make practical sense where we expect over a two year construction period that by completion we would have sold about 80%. In terms of revenue and growth opportunities, I have spent a fair amount of time traveling to Ivory Coast to look at that market. I have thought a little bit about expanding into some of the other cities in Ghana. There are some small but interesting opportunities in Takoradi. I have looked in depth at some of the prime locations within Kumasi to understand what the needs are there. There is an interesting evolution in the tourism market. Longer term, there is going to be some space for developers to play more of a role in making Ghana more fun and accessible to tourists.

What is your assessment of the real estate sector?

Tribute House is a nine story development with 42 apartments and two penthouses located in Airport Residential. It has a wonderful rooftop swimming pool with a sun deck and cafe. We have a phenomenal gym on the fourth floor.

One of the interesting ways that we are different from some of the other companies that are here is that back in India, our parent company plays at a variety of different price points and that enabled us to look at each of the various segments of the market here and figure out where it made the most sense to plug in and compete. One of the real challenges that we have in the market is that it is quite hard with the cost structure of construction in Ghana to really do anything of a quality that you would want to put your brand on at the more affordable end of the market. Unfortunately, what that has led to is that the majority of the top real estate companies tend to be focusing on anywhere from the super high end luxury to the affordable luxury. We are somewhere in the middle of that where we are trying to just do a luxury that has a lot of value or apartments that you would be proud to own anywhere that just happened to be in Accra. With the cost structure of construction in Ghana, we were looking at it very much from the perspective that we are used to doing this in other markets and how it compares and contrasts to these other markets. When you have a small country like this, it cannot necessarily support the manufacturing that would be required to produce the materials needed to build what we want to build. In a sense, you get into almost island economics. We have done some developments as a group in Sri Lanka and similarly there, you have to import the vast majority of the items that you need. Anytime you are in a position where you have to import, from a shipping and logistics cost and even from a wastage and breakages that just occur from getting things from where they are produced to then where you are using them, it is going to drive the cost structure up. In terms of trends in the industry, longer term, the trend that I would really like to see is in some way, shape, or form, barriers dropping and a pan African approach to trying to create more of a manufacturing base to drive down the cost of these materials so that more developers can produce at the lower price points. But unfortunately, the way the market remains today, the safer segment of the market to participate in continues to be at those higher price points.

What are your competitive advantages?

First and foremost, it is the fact that we have a lot of experience in this space – over two decades at this point. We have brought a level of commitment to materials and quality from abroad that is an immediate differentiation. We have also brought some techniques over to Ghana that we have introduced that make a big impact. The initial way that we presented that to the market was that we dramatically increased the length of warranties that we were giving our purchasers. Now, we offer by far the longest warranty in Ghana – a 10 year 100% warranty on the structure, and a 5 year 100% warranty on waterproofing and leakages. We come from an engineering background, so the fixation for us was that we all have a sense for where Ghana can grow and get to long term. If any country is growing at a 7% GDP, it only takes about 10 years for that compounding to double. So, we are looking over the next 20 years at the Ghana market being four times the size of what it is today. If you are an individual who is looking to make a real estate investment, conceivably, you are not looking for an investment for 5 years or 10 years; rather, this is a foundational asset in your portfolio. You need to make sure that whatever you are purchasing is going to last long enough to be valuable as the market grows and asset prices go up. That was a key focus for us from the very beginning. When we did our first development, which was right near Osu, walking distance from the restaurants and the nightlife and the excitement, we did that development using a conventional construction technique and we quickly pivoted to doing more poured concrete construction. For our second and third developments, we were using high grade, self-compacting concrete that would allow for a structure that was almost a Fort Knox in that it was phenomenal in terms of a strong skeleton that then all of these wonderful finishings go on top of. We are just as proud when people come and see us when we are in the midst of putting up the structure as we are during completion.

How is your warranty structure different than what is offered standard in Ghana?

The standard warranty is a one year defect liability period, where after a year, you are on your own. The way that we have approached it is that for any supplier that we use we make sure that we are getting secondary warranties from them that we are able to pass on to our purchasers. So, at the time that we actually hand over a finished, new apartment, we have a pack of all the various warranties that you are getting for the items that are in your apartment. Since we are most responsible for putting together the entire structure from our end, we then issue that 100% 10 year structural warranty and that protects buyers against any type of cracks or foundational issues, which are frankly, the types of events that can have negative impacts greater than any other on your asset value.

What are some of your current projects?

We have two developments that were in the midst of constructing at the current moment. The first is called Tribute House, and it is located in Airport Residential. That is a nine story development with 42 apartments and two penthouses. It has a wonderful rooftop swimming pool with a sun deck and cafe. We have a phenomenal gym on the fourth floor. What really attracted us to this particular location, which is just opposite the now popular Kozo restaurant on Osu Crescent, is the fact that there is a fair amount of commercial activity in terms of office space that is coming up right in the same neighborhood. There was a development called 335 Capital Place and then there are also the head offices for Nestle and Tullow. Our thought was that this was an emerging trend that along the motorway we were going to see more and more of this commercial construction and there was going to be a need for folks to have good residential options that were quite nearby. We broke ground on this development back in May of 2019. We are just in the finishing stages of construction on it. Meanwhile, we have also broken ground on a very exciting development for us in Cantonments which is one of the neighborhoods where, from a height perspective, you often cannot get a particular piece of property where you can go vertical. Luckily for us, we were able to acquire this property that is just on the edge of an Accra switchback. By just being on the edge, what is wonderful is that we are able to actually develop seven stories. As you get to the upper floors, you have these wonderfully expansive views of the treetops of Cantonments that you really could not get from other locations. That was the starting point for us where we thought from a design perspective, we really want to encourage this idea of indoor and outdoor living. We came up with this concept of a pavilion or a summer pavilion, where if we can give outdoor space in the form of very large balconies and terraces that would be conducive to really enjoying these spectacular views. So, for every single apartment, whether it is a one bedroom or even a two bedroom or three bedroom, the minimum balcony size that we have is about 14 square meters. For our three beds, we are even having balconies that are about 30 square meters. This was very integral to the concept that we were coming up with. We also have our largest and most exciting set of amenities yet. We have a pool deck and sun deck that is over 400 square meters. We also introduced the idea of having both a lap pool and a lounge pool so that those who wish to exercise and those who wish to not exercise and relax and unwind would have their separate space to do both. We also have an in house cafe and a wonderful in house gym. We have just completed the foundation. In general, where we like to be in terms of our pace of construction is we like to have one development that we are doing the finishing on and one development that we are working on the structure simultaneously at all times. The Pavilion is the new one which will finish in 2022 and then Tribute House is finishing this year in 2021.

What projects do you have planned in the near future?

We have another real estate development that we are going to be breaking ground on towards the end of this year in the Ridge Ringway Estates neighborhood. We really like that idea of having residences that are within walking distance of the conveniences of the city. Myself, being a New Yorker, the idea that you can just walk to get a stick of butter or a cup of ice cream or get a salad as opposed to having to hop in your car and drive is quite attractive. We have another development that we are going to be launching right in this catchment area. One of the other benefits of being in Ridge is that until you go up to the eighth floor or ninth floor of a property, you forget the fact that you are actually sitting on a ridge. You get these fantastic views looking out over Osu and the ocean and you remember what a paradise you are living in. The development is going to be called Skyloft. We have another development that we are having a lot of fun designing and planning. It is going to be a beachfront development that is located about an hour and a half outside of Accra. It will comprise two beachfront residential communities with a beach club in the center on 22 acres of land. It will be a really sensational development aimed right at the heart of those who are in the diaspora and who really get excited about coming to Ghana for vacation. We really want to encourage more activity along the phenomenal coastline in Ghana. We are going to be launching sales at the end of this year and we are going to be breaking ground on construction of that in Q2 2022. There is phenomenal infrastructure there because that was an area in Ghana, where they were doing a lot of salt winnowing. Not only do you have great roads going all the way to the beachfront, but you also have all the substations and the power requirements that you would need for pulling off this sort of development. The idea that we would be able to acquire such a phenomenal piece of property that then has those kind of basic infrastructure necessities already there to support it was quite exciting.

Are your clients more investors or people in the diaspora? Or are you targeting the tourism industry?

We attract a range of clients. We have a thriving group of purchasers who are local and who do consider the apartments that we develop home. Then, we also have a very large contingent of passionate Ghanaians in the diaspora who look forward to using the apartments that they purchase from us as vacation properties for when they are in town, but also thinking about the fact that when they are not in town that they would have the ability to rent it out and derive a phenomenal yield. Ghana, and Accra in particular, continues to be a location where real estate investors can get phenomenal yields. I try to encourage people to recognize and understand that when the central government is borrowing money at 9%, that is actually a phenomenal opportunity for local investors to purchase an asset that will certainly appreciate in value as Ghana’s GDP evolves and grows. In the meantime, it is a phenomenal yield generating asset that you should be able to rent out and get at or above a 10% return annually.

What is your perspective on people from outside of Ghana returning to or moving to the country, or coming as tourists?

The tourism market is founded upon the incredible enthusiasm that Ghanaians have for Ghana. Ghanaians in the diaspora are telling their friends just how fantastic it is to come and spend time in Ghana and visit Ghana and the fun that you can have while you are here. That has created this something of a spectacle every end of year when we get near Christmas where we have hordes of Americans flying in and Brits flying in. More generally, people who identify as having West African heritage are now trying to quietly claim they are Ghanaian and it is contagious. The Year of Return, which was two Christmases ago, was a phenomenal opportunity for Ghana to demonstrate what it has to offer. From a safety perspective, from a hospitality perspective, how warm and welcoming the people are, and how tremendously beautiful the topography is, particularly along the coastline, Ghana really is a place that you can come and unwind. That is the key driver. Ghana does not have the elephants and the giraffes and the things that might draw you to Botswana or to Kenya, but what it does have is that it is really a phenomenal place where you can take a break. We very much want to be a part of contributing to that. That is why we are so excited about this beachfront development that we are working on.

What is your policy towards the environmental aspect of developing?

One of the difficult aspects right from the very beginning is that while wood can be created in a somewhat sustainable way, concrete is not a very environmentally friendly way to construct. But when you are in an environment that is high humidity, high salinity, it ends up being the desired form of construction just because it is so durable. You would want to be able to be sure that it is going to last. What we try to do is understand that concrete is a core ingredient of our developments. We then try to do what we can to lessen our impact on whatever we are touching. For example, with our beachfront development, we are doing a system of construction where we actually will not embed the foundation on the ground. We will instead elevate it so that any of the wildlife can actually pass under our buildings. From an energy savings perspective, we are covering the tops of all of our buildings with solar so that we can help reduce the impact that we have on the local electricity grid. The advent of all LED lighting, cross ventilation that would limit the amount of time that people would need to use air conditioners, all those factors become really critical in the design phase so that you can lessen the impact that your developments have. For water reclamation, we are thinking a lot about having reservoirs where we are able to harvest the rainwater and not contribute to run off into the ocean where then you have to use tanker water just to be able to water your plants. We are the first ones in Ghana to put a reverse osmosis treatment plant on the rooftops of our buildings to be able to give bottled water quality water from the taps. In terms of environmental impact, one of the things that is quite horrifying to think about is that everyone here drinks water out of plastic. Countless studies have shown that you get small particles of plastic in your water. But then, after you are finished, you have this unbelievable amount of plastic refuse. We have taken the step of incorporating the same technology that bottled water companies use when they are purifying their water. That is our way to hopefully lessen the individual footprint of all of our residents who are in our buildings, but also to make it a better experience for them. They do not need to lug home giant boxes full of water just to be able to have a cold drink. We are the first developer to introduce sewage treatment plants at our developments. Instead of having a truck have to come in and haul our waste away and then dispose of it, we could actually have a plant that treats the sewage and creates it into a byproduct that then we can give to farmers as fertilizer for their activities.

What are some current trends you are dealing with?

One of the things that is really fun about working in this industry is that you always have one foot in the present and one foot in the future. I often think of my week in terms of what do we need to deal with today on site? What decisions do we need to make? What can we do in order to be able to make our developments the most special and the best options for people who are currently in the market? But then at the same time, what are we learning from what we are doing today that we can incorporate into our future developments? From seeing a piece of land to breaking ground on it, many times it takes three years. What people do not realize is that we are already thinking about what development we are going to be finishing in 2025 and 2026. We are taking the lessons that we have learned, seeing not just how certain materials have been installed or how they have been incorporated, but now how over time they look as the building as we hit the two year mark and the four year mark. It is a constant journey through understanding the past decisions that you have made, how they have turned out, and then where you can take lessons learned and incorporate that into the future.

What is your personal inspiration? What drives you to do what you are doing now?

I was always the kid that had blocks and I had Legos and I was putting up towers and it always for me had something to do with construction. I really enjoy the idea of creating something from where there was nothing. If you are a chef and you have ingredients and you are cooking a dish, you would like nothing more than the people who eat it to really love it and enjoy it. I also really take a lot away from the fact that in something as complex as a high rise residence, it requires so many different skill sets, trades, and talents. I really enjoy being the connector of all those different talents, bringing people together who through their collaboration can create something that is of much more value than what all of their individual talents may be. The sum of the whole is greater than the individual parts. That is really enjoyable for me to get to be a part of and witness.

Are you open to investors?

We are always open and eager to hear from people who feel that they can contribute either from a human capital perspective or from a financial capital perspective. The same kind of focus that we put into our structures, we also dedicate a lot of time and thought into our windows and the kind of glass that we use, making sure that we were using toughened laminated glass so that if kids happened to kick a football through it, it does not shatter. There are so many little decisions that that are quite important and we really pride ourselves on the amount of time that we spend fixated on these things. Our appliances are German. We went to the Ghana Standard Board just to be able to get them to approve it because we felt so strongly about bringing these particular products into the country because of how long lasting they are. It is a dedication to seeing that our customers get the absolute best. Wherever we were able to save money on one aspect, it just means that we can reinvest that back into another element of our project to make it even more attractive and exciting for those that trust us with their hard earned money.

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