OPPORTUNITIES IN THE CONSTRUCTION AND SECTOR - PART II PRESENTED BY : CAPITAL STRATEGIES LIMITED SESSION OUTLINE

 What are the emerging trends?  Demand and Supply Trends for Real Estate in Kenya  Changing Product Demands  Case Study Review  Marketing under the “New Normal”  Financing & Investment Structuring of Real Estate Projects  Questions and Answers (Q&A) 1. WHAT ARE THE EMERGING TRENDS?

 Work from home  Reduced uptake of ; relatively stable property values  Lower rents, prices and transaction volumes  Disrupted supply chains  Reduced funding due to risk aversion  Shop closures and increased focus on e-commerce  Closure of hotels and Meetings, Incentives, Conferences and Exhibitions (MICE) centers 2) DEMAND AND SUPPLY TRENDS FOR REAL ESTATE IN KENYA

Factors affecting Demand Factors affecting Supply

Improved Mortgage Harsh Economic Government Incentives Harsh Economic Increase Increase Market Environment Government Environment Increased urbanization Reduced global Partnerships Limited access to credit (Devolution) movement Government Affordable Oversupply for high to Increased time at home Increased online Housing agenda middle income (upgrades) shopping (reduced need Rise in tourism and Mixed-use for retail outlets) hospitality developments Decrease Increased Decrease industrialization 3. CHANGING PRODUCT DEMANDS A) LONG-TERM CHANGES TO REAL ESTATE

 Professionalisation of the sector;  tools;  Co-working and co-living spaces;  Homes with larger spaces as ‘work-from-home’ entrenches itself  Alternative construction materials (pre-fabricated, recycled plastic and metal);  Green Building Movement and Practices; B) INNOVATIVE PROJECT MANAGEMENT

Cost Time Quality 3) CASE STUDY

Innercore Developers is a medium sized company with a history of development of low to middle income residential housing in Kenya. Over the past ten years, the company has put up and sold over 400 housing units within Metropolitan area.

In January 2020, the company announced the commencement of their new development project – Jewel Villas – a new residential complex located a few kilometres away from Town, targeting upper middle income customers. This complex consists of 150, three and four bedroom semi-detached maisonettes set in a modern living environment. The complex will be equipped with lifestyle, building and security amenities such as a Gym, Fiber Optic link, CCTV installations, Solar water heating, play areas and gardens with an initial pricing of Kshs 14.5 Million. The expected project completion date is December 2021.

In February 2020, the company did the ground breaking for the new project and in February and part of March bookings for the Jewell Villas were on the rise and had reached 45. However, since April 2020, the company has been experiencing low bookings for the units and as at August 31, 2020 only 48 units were currently booked. The management of Innercore Developers in considering a number of options to rescue this project.

1) What options can the company explore to increase uptake of the units? 2) What other options are available for the company to salvage this investment? 4) MARKETING UNDER THE ‘NEW NORMAL’ A. REMOTE SELLING AND VIRTUAL TOURS

 Build a website – include listings, blog and vlog posts and something unique such as a mortgage calculator  Ensure photos used for listings are professional and capture the surrounding area  Virtual Staging – use a software or virtual designer to turn photos of the into an imagined home  Consider home-grown, authentic videos that allow sellers to talk about their experience in the property  Run paid social media promotions  Leverage referrals B. ADJUSTING TACTICS

Staying on Market vs Pulling Listings vs Selling

 Reconsider deal closure times and be flexible with  If there is no urgency to sell, temporarily rent the timing properties  For high–end property, consider pulling listings to  Consider off-market campaigns for selling avoid the impression of property being stale  Soft prices are expected for both renting and selling  If there is no urgency to sell, consider pulling and record-breaking prices for either are not listings expected

All factors considered, demand hinges on the reopening of schools and offices as commuting is a factor 5) FINANCING & INVESTMENT STRUCTURING OF REAL ESTATE PROJECTS A. TYPES OF OWNERSHIP STRUCTURES

Corporations Co-ownership Partnerships Trusts

Considerations when structuring real estate: • Who are your partners? • Is the project short or long-term? • How will it be financed? • Are your financial objectives long-term or short-term cash upfront? • What is your risk tolerance versus the known risks? • Are there legal risks you are concerned about? • What business are you in? B. LONG-TERM AND ALTERNATIVE INVESTMENT STRUCTURES

 Venture Capital – startups  Real Estate Investment Trusts (REITs)  Real Estate Structured Notes  Mezzanine Funding  Pre-sales financing  Rent-to-own projects  Properties - modifying loan terms, working out loans, and recapitalizing the properties