Interview with Daniel Kamau, CEO of Fusion Group
Can you explain the nature of Fusion Group and what you do?
Fusion Group is essentially a fund manager, real estate developer and investment manager. We develop and we will normally have skin in the game. We invest our money in this development and we are involved in the management of the sale and the whole process from the structuring of the investment, the raising of capital, the managing development and selling or exiting whenever it happens. We also do fund management where we raise capital for high net worth individuals, family offices or institutions, and deploy that money in East Africa. We are invested in Kenya, Ugandaand Rwanda right now.
What is your competitive advantage and what sets you apart?
We are different for many reasons. First, unlike other private equity funds which are managed remotely and use the fly in and out model, we are very local in our structure, from our board of directors to our investment management teams. We understand our markets better than anyone. We understand how property assessments have fared over the past few years. We are also involved in this development. We roll up our sleeves and go to sites to manage those sites. It really sets us apart. In addition, the owners of the company co-invest alongside our investors. So when we say we have skin in the game, it literally means we have our own money going into these projects. This way you align with your investors.
Could you provide an overview of the industry and why you specialize in real estate specifically?
Fusion Capital started with SMEs around 2006, then we did micro-investment. In 2010, we began to fully focus on real estate. Currently, approximately 90% of our assets under management are deployed in real estate. Real estate has evolved over the past 12 years. Originally, the focus was mainly on the middle class because we had this growing middle class, our cities were growing, there were various infrastructure projects going on, and new corridors were opening up. Then we had the county system where Kenya was divided into 47 counties. All of these have been drivers of growth when it comes to real estate. In the counties, you needed new developments, you needed new offices, you needed new housing. During this period, we have seen several quality shopping centers and international brands enter this market in East Africa, whether in the supermarket space or in clothing and the various spaces retail, which is the result of the growth in real estate. Over the past five to seven years, the focus has been on affordable housing and land. The focus on land is due to the many things we have been able to solve 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 a year. This tells you that there’s a huge need for people to own homes and they can’t get there because they don’t have access to mortgages. Two things came out of it. The first is affordable housing, which is mainly driven by the government as well as the private sector. With the government it is subsidized and therefore the entrance price is good enough to get people in.
The other space that has grown significantly is in gated communities where developers will buy master plan land and make it available to buyers. Home ownership in this part of the world is still a process where you acquire land, pay through a SACCO or your employer or through an unsecured bank loan and over a period of time pay it back and then you access more unsecured money and you are able to found a home. This has been the process towards home ownership and it is a market that will continue until mortgage issues are fully resolved in this part of the world.
During this same period, Fusion became involved in commercial space, office, housing and land projects. Some of the developments we have been involved in include the award winning Heights of Kigali in Rwanda, 4th Avenue in Upper Hill, Flamingo Towers in Upper Hill in Kenya. We have also been involved in various residential projects mainly in Kenya, as well as in Uganda. The land was mainly in Kenya, where we acquired a master plan, serviced and sold land. It worked well during the period we played in this market. Going forward, we will continue to focus on the same spaces as the market can afford them. For example, at the moment there is a saturation of office space so we have slowed down on office space. There is some space to accommodate retail, but at the county level, so we are looking at a few counties. But we only do those things where we have first mover advantage, where we’re the sole developer. For example, right now we’re doing a mixed-use development in Meru County, and we’ll be the first there to do a real mall. We’ll do this stuff in cities that allow for such development and where you’re not cannibalizing on another developer’s asset.
What projects are you currently working on or planning to deploy soon?
We will be going to the market soon looking for someone to buy Kigali Heights. It’s a huge investment. It has achieved an occupancy rate of 95% and has grade A and B tenants that are international as well as strong regional brands. It is mixed use, so it has offices and retail which works well to reduce the risk of the asset. It’s a solid asset. It won the award for Best Mixed Use Development in East Africa in 2017. Entering the market, we will be looking for a yield investor for it. But we have other projects in progress like in Meru. As soon as we have it completed and fully occupied, it will hit the market. We are involved in a few gated communities where we go out unit by unit because it is a subdivided master plan and subdivided lands and they are doing very well.
What are some of your successes?
Of the many private equity firms that were formed around the same time as Fusion, Fusion has continued to thrive. It has moved beyond Kenya to include Uganda and Rwanda. It was originally created to focus on Kenya, but we went to East Africa. We have won several awards including being Kenya’s Most Ethical Company. I received the same award as an ethical CEO and was recognized twice in the Top 40 Under 40. This is the result of the progress Fusion has made in this market. We will continue to be present in the market and to be a solid and respected institution.
What is your policy for being environmentally conscious and eco-friendly in the industry?
We are more focused. During the pandemic, we realized that people were moving more towards working from home and that the environment they worked in now mattered more than before. We looked at the informal settlements we know of and found that people were living in very non-compliant buildings. We therefore proposed a rental model. What we want to achieve with our rental model is to build developments close to workplaces. A lot of the affordable housing programs that have been done well are done in remote areas that are expensive for people to get to and from where they work. So it’s very expensive and it has an impact on the cost of living for households. We set out to build decent, affordable developments that meet fire, life and safety standards. This will be financed by a DFI. People deserve dignity. The statistics are alarming. More than 60% of buildings in some informal settlements are completely non-compliant. You won’t find a second staircase, you won’t find fire fighting equipment, etc. Everyone got into building and selling and the building and renting market was forgotten. 80% of Nairobians live in rented houses, which means it’s a huge market. For us, our “go green” is more “go safe”. We try to participate by offering homes that meet fire, life and safety standards, are decent and at an affordable price. 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 food pillar, a housing pillar and an education pillar. Fusion chose the education pillar, so we support students throughout the school. People can survive for a day or two and they will somehow find food. But if you give them an education, you will change their lives permanently. A number of us have benefited from having someone reach out and help us in school. We have made quite a contribution over the past three years now. We care about that and we continue to support them and help them raise funds for the program.
What is your medium-term vision, in three years?
Over the next three years we will have rolled out affordable housing rentals and we will have enough of these blocks across Kenya and then we will move into Uganda and Rwanda. But also, on our affordable housing on the land side, we want to make it a subsidiary and continue to develop it. We plan to at least double, if not triple, the size of our business over the next three years.
What is your source of inspiration? What drives you to do what you do?
I have a Bachelor of Commerce, but I have a strong desire to see people live in decent places. That’s why I’m very passionate about this affordable accommodation. But also, I want to see people owning assets. We try in the short term to push people towards land ownership, then housing, but also, we try to regulate the modes of purchase by the tenants to facilitate the accession to the property a little. It’s something close to my heart.
FAIR USE POLICY
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