Developers, investors in risk-sharing strategies as loan facilities shrink

As loan facilities from lending institutions shrink and demand drops following the economic downturn in Nigeria, real estate developers and investors have been compelled to embrace risk-sharing strategies to enable them remain in business, BusinessDay checks reveal.

Consequently, joint ventures and partnership initiatives are on the increase as a way out of the shrinking loan facilities from banks and other lending institutions.

With rising cases of non-performing loans (NPL) in banks books, most of them have become extremely cautious in giving out loan facilities to developers, and where facilities are available, the banks make near-impossible demands from these developers.

“Banks, in some cases, have demanded developers to provide off-takers as a pre-condition for accessing credit facilities, which some developers find pretty difficult, compelling them to embrace joint venture initiatives,” Gbenga Olaniyan, a developer/CEO, Estate Links Limited, confirmed in an interview.

Continuing, Olaniyan said, “a lot more people are now doing joint ventures. People have started realising that, since credit facilities from banks are now drying up, you don’t need to find all the cash to develop your property; and this is a way of sharing risks among investors.”

Estate Links is the developer of a moderate 28-unit estate called The Lofts in Lekki, Lagos, and the estate, which sits on one acre of land in the Sangotedo area of Lekki, is a joint venture project between Estate Links and Capital Corp, investment managers, who brought some of the funding.

These joint ventures and partnerships generally favour commercial development, and Olaniyan said the reason was because apart from Nigeria being a trading economy, the hardship in the economy had eroded people’s buying power for residential properties.

Adebayo Adeleke, a developer/CEO of Lancelot Ventures Limited, who also spoke in an interview, agreed, saying, “investors see commercial real estate as the area where the economy is actually going to boom when we are out of the present predicament.”

The two big ticket developments that the real estate sector have seen in the past couple of months, Sogenal Towers, a 14-storey office building on Kingsway Road in Ikoyi, and a 4-star Four Points by Sheraton being developed in Benin City, the Edo State capital, are joint ventures.
Sogenal Group, which is building the Sogenal Towers in partnership with Eris Property Group, is a conglomerate with interest in oil and gas, financial services, telecoms and real estate, has been involved in the acquisitions of Transcorp Hilton Abuja, NITEL, and Sapele Generating Plant.

The project represents another landmark investment by the group and, according to Funso Lawal, chairman of the Group, “from the beginning, Sogenal’s leadership sought to come up with a development that would be representative of our corporate ethos of doing the right thing.”

Eris, on the other hand, is a property development and services group that provides a range of commercial property skills in the South African and sub-Saharan African markets.

The Benin City $29 million (about N10bn) hotel is a joint venture project between Eagle Hospitality and Leisure Limited and Starwood Hotels and Resorts Worldwide Incorporated, which will operate using the Four Points by Sheraton Brand.

Dominic Isunuoya, a director at Eagle Hospitality, said their management agreement with Starwood was historic, explaining that they were quite pleased that they had reached that milestone. “It is an indication of so many other things that need to be done; this is just the first step,” he said.