Edwin Dande, the managing partner and the CEO of Cytonn Investments, exudes a calm demeanour. In his office at The Chancery on Nairobi’s Valley Road, one can easily mistake him for a salesperson as he walks around in the company’s branded T-shirts.
Dande developed his business acumen at the University of Pennsylvania’s Wharton School of Business, the same college where US President and real estate mogul Donald Trump graduated in 1968.
“The school taught me finance and investments, exactly what I do at Cytonn, both for a living and as a calling,” he says.
Putting himself through the undergraduate course was a challenge – working at night and going to school during the day. “I did all manner of jobs – I laid turf, I was a security guard, a waiter, a driver, a painter – name them,” he says.
His main challenge then was entering the corporate world in the First World country. “You are the only guy with a weird accent. You go to a client meeting and the client thinks the white boy, who is actually your junior, is the Edwin leading the assignment. It felt like being a second-class citizen,” he says.
However, his real mettle is being tested here in Kenya with Cytonn Investments, the company he and others founded six years ago with a capital base of Sh25 million.
The upward trajectory of the company’s real estate arm in a short time has people questioning the foundation on which it stands.
In its portfolio, Cytonn has 10 projects worth Sh82 billion that have either been launched, at the design stage or at project deal origination. Six of these – Amara Ridge, Alma, NewTown, Taraji Heights, The Ridge and Situ Village (all worth Sh47.8 billion) – are at different stages of development. Project Westlands, a serviced apartment development and RiverRun Estates in Ruiru worth Sh15.8 billion, are at the design stage while Cytonn Towers and Project Karen are still in the initial project concept stage. The last two are worth Sh18.5 billion. In a country where many developers have burnt their fingers, Cytonn’s promise of a 55 per cent capital appreciation in some of these projects has raised eyebrows. Do they know something about the local scene that other firms don’t?
Dande thinks making money in Kenya’s real estate sector is not rocket science “as long as one is willing to make calculated risks”.
“I have always asked developers who are unable to sell their properties to show me the amount of research they do prior to their developments as well as their financing models. Most have no research while their financing model is based on the same old system of expensive debt from local lenders,” he says.
“We had naysayers who thought we were clueless on what large-scale investment was all about. This forced us to go into research and tell the world that there was a case for a different model of investment in Kenya. No one has proved us wrong,” he adds.
He acknowledges that the firm has capital-intensive projects, but says there is demand where these particular projects are located. “Karen has the highest concentration of private schools where most of our prospective investors want to settle. Does it not make sense for us to invest here? An acre in Karen is relatively cheap for the kind of homes we are building compared to some parts of the city where land prices are too high,” he says.
Dande says most of those complaining over lack of sales might have rushed to put up apartments in Nairobi’s Kilimani, Lavington and Kileleshwa suburbs without prior knowledge of whom they were targeting.
Bad lending model
He adds: “The local funding model where short-term deposits are used to fund long-term developments is not working. Although a bank may have a 13 per cent interest rate on loans as per the Central Bank of Kenya’s base lending rate, associated costs of financing push the rates to more than 20 per cent.”
Cytonn leverages on equity from foreign and local institutional investors and high-net-worth-individuals. One of the biggest investors in Cytonn is the Finnish equity funds and financial services firm Taaleri that manages a Sh658.5 billion kitty and provides funding to Africa’s real estate.
The firm has so far injected Sh5 billion in Cytonn’s projects and has successfully exited from Amara Ridge and Alma projects.
Cytonn has applied to raise Sh2 billion through a Development Real Estate Investment Trust, a move that will diversify the company’s funding portfolio.
One of their projects has courted controversy. Cytonn’s intention to develop a mixed-use development on Arwing’s Kodhek Road in Kilimani, Nairobi, was met by opposition from nearby residents who said the 35-floor triple towers would disrupt their lifestyle.