Varsity staff pension scheme make historic deal in property market

PHOTO | FILE Retirement Benefits Authority chief executive Edward Odundo.  NATION MEDIA GROUP

BY Moses Michira  Nairobi, Kenya: 

University of Nairobi’s Staff Pension scheme and consultancy firm PriceWaterHouseCoopers (PwC) has acquired Delta Corner building at Westlands, marking one of the largest individual deals in the property market.

The buyers are estimated to have jointly spent Sh4 billion to acquire the building whose completion has significantly altered the skyline of the Westlands business district in the past year.

 

Professionals who have been involved in the transaction have revealed that the two institutions invested in the prime property to gain from the attractive rental returns in the fast-growing business district, which has become the focal point of the construction sector.

Sought after

“Quality commercial space in Westlands is still much sought after,” said one source who spoke in confidence, adding “The pension scheme bought purely for the rental income, while PwC would occupy more than half of the space in wing B and lease the rest.”

Office space in Westlands attracts a monthly rent of between Sh100 and Sh120 per square foot, exclusive of service charges – which is the highest in Nairobi.

Commercial property has emerged as a top choice as an asset class for pension schemes, owing to the long-term stability in revenue earnings that office space is able to generate. Minimum tenancy for office space in Kenya is limited to six years, which eliminates erratic occupancy rates, and providing the much needed cushion for commercial property investors.

Joins others

PwC now joins global banks Barclays and Standard Chartered that have shifted their head offices to the Westlands business district. The two banks previously had their head offices within the city centre.

The 20-storey building, which adds over 251,000 square feet of office space to Nairobi commercial real estate segment, was developed by Delta Corporation East Africa Limited (DCEAL), a firm associated with Indian billionaire Mukesh Ambani.

Other deal

 Mr Ambani’s firm also closed another major deal when it sold the Delta Centre in Upper Hill to the World Bank late in 2010 for an estimated Sh2.2 billion. DCEAL has also sold about 85 per cent of Delta Riverside, a boutique office park along Riverside Drive consisting of four blocks of commercial space.

Reliance Corporation, owned by Mr Ambani, owns a 60 per cent stake in DCEAL, while Delta Corporation controls the minority stake.

Jimmy Shah, the managing director of DCEAL, says that his firm was looking at investing in ‘several’ other office blocks, especially in the Upper Hill business district indicating that the Indian-owned firm still has appetite for commercial property in Nairobi. 

Biggest deals

“I think the sale of the Delta Corner could be among the biggest deals in this property market, but we are looking for several other new projects especially in Upper Hill,” says Mr Shah.

“Our bias in future will be in commercial property, but we are satisfied with the performance of our residential project considering the (tough) current situation ” he added.

DCEAL developed a residential estate in Athi River called Delta Plains, which is about 50 per cent sold. The finished projects that have been sold are estimated to have earned the firm over Sh6 billion in net profits, showing the Indian firm to have gained big from the decade-long boom in Kenya’s property market.

Jaydev Mody, the chairman of Delta Corporation — the parent company — alluded to increased investment in Kenya’s real estate market in an address to shareholders.

“The company will receive a substantial amount of dividends from its Kenyan business in the near future,” Mr Mody said.

“The Company’s real estate business in Kenya continues to perform well, driven by strong and favourable economic growth, particularly in Nairobi.”