Equity in real estate is a combination of financial resources sharing similar risks or returns consisting of ownership interests and debt investments in property. Investment instruments can be stocks, bonds, mutual funds and cash. Equity financing in real estate is provided by a number of traditional and non-traditional investors. These funds are provided by the investors to get shares and at the same time the investors are also provided with a share in the profits earned when a property is sold. Equity finance is considered as one of the easiest methods of financing real estate projects. Real estate projects in Nigeria have been financed through cash, debt, bonds, shares individuals, government, financial institutions and international investors.
Everyone loves to invest in real estate in Nigeria but many are unfamiliar with real estate equity investments. There is little transparency and exposure on how the Real Estate Investment Trusts (REITs). For starters, a real estate investment trust is type of security invested in real estate through property or mortgages. This investment is made liquid by being converted to stock and traded on the stock exchange. REIT can be pooled just like mutual funds and mutual fund managers already have asset classes that include real estate investment. This means that investors can own stakes in commercial properties and earn high returns as property values increase. An example of an REIT stock listed on the Nigerian Stock Exchange (NSE) is the UPDCREIT owned by the UACN Property Development Company (UPDC). REIC provides information on investment tactics for new investors who have interest in real estate equity investments and also updates you on latest equity investments, stocks, bonds and other securities you can take advantage of.
Private sector involvement has been evident in the rising number of private equity funds targeting real estate investments in Nigeria. According to a joint research paper by African Private Equity, Venture Capital Association and Ernst & Young, Africa’s operational improvement measures have returned 0.6 times more than the MSCI, Emerging Markets Index. Recently, South African Real Estate Investment Trust acquired the Ikeja City Mall, a 22,000m2 retail asset from initial investors, RMB WestPort and Paragon Holdings.Many commercial real estate projects in Lagos have been financed with private equity investment funds from institutional investors. Demand for upscale office buildings, state of the art shopping malls with modern facilities and better shopping experiences has contributed to institutional investor appetite. The rise of shopping malls like SPAR and ShopRite across major cities in Nigeria is a testament to increased demand for greater exposure to and diversity to real estate.
Finance structuring is the backbone of every investment sector development. It becomes pertinent to understand capital requirements and practical matters such as robustness and adequacy of security package, cash flow modelling, including detailed sensitivity analysis and an exit strategy. The awareness of transaction structuring aids the understanding of the needs and risk profiles of both local and international investors. At REIC, we also see equity contributions or pooling of funds from high and ultra-high net worth individuals as way of tackling housing deficit. Models from other countries can be adopted where private firms and individuals develop mini-estates and charge affordable rates.