Consular housing – an emerging sub-asset class to watch

Consular housing is a highly defensive, growing sub-asset class emerging in African Real Estate. Whilst many traditional property developers and large landlords still predominantly focusing on the mainstay asset classes of the sector, being commercial offices, retail and warehousing, the impacts of Covid-19 have resulted in several new sub-asset classes evolving.

Innovative and dynamic property owners are fast realizing the value of early-stage involvement in the development and ownership of what is termed “infrastructure assets” because of the catalytic role they play in nodal development.

Consular housing, datacentres, healthcare facilities and educational facilities have all come into their own as providing investors with predictable, long-term rental income at competitive yields. Depending on how the lease contract is structured, many of these assets have a bond-like quality, as a result of the long-term (typically 10 year) triple-net leases entered into, which means the tenant is responsible for the maintenance, insurance and rates and taxes on the property.

In the case of consular housing, foreign governments are often willing to pay  extra to secure a premium location that are close to the embassy or high commission. These areas are typically safer, with lower levels of traffic congestion. Considering the demand and location, as well as the higher specification and quality standards, these assets usually attract a higher development and rental cost.

Given the very high standards for health and safety, quality, and security, consular housing stock is not readily available across Africa, and these assets are typically developed from scratch. In 2021, for instance, Africa real estate developer, Gateway Real Estate Africa (GREA) and US-based Verdant Ventures handed over Elevation Diplomatic Residences, a 10-storey, 112-apartment diplomatic specification residential tower in the heart of Ethiopia’s capital city, Addis Ababa.

Notwithstanding the fact that Ethiopia houses the third largest diplomatic community in the world behind Washington DC and Brussels, with over 130 diplomatic missions, Elevation Diplomatic Residences is the only security, seismic and international standard compliant housing development for consular staff in Ethiopia.

Barriers to entry for consular accommodation development are relatively high, especially in Africa, as many of the consulates prefer working with companies with a demonstrable track record, knowledge and experience to complete the project on time, to specification and within budget. Developers have to be able to fund the project and are subjected to certain security checks on the company and its individuals, in terms of compliance and regulation. In this instance, GREA has a distinct advantage as its parent company, Grit Real Estate Income Group (“Grit”) is one of a handful Africa property plays listed on the premium market of the London Stock Exchange. The added transparency and scrutiny as a result of the listing provides a further layer of assurance to counterparties wishing to contract with GREA on their consular accommodation developments. The close co-operation required between developer and tenant further fits Grit and GREA’s “family-of-partnerships” operating model well.

GREA’s track record in having successfully developed both Elevation Diplomatic Residences in Ethiopia and more recently, Rosslyn Grove, a 90-apartment consular housing development on behalf of the United States Bureau for Overseas Building Operations in Nairobi, Kenya positions it well for further similar developments. The extensive list of specifications and requirements, combined with the tenant’s focus on local community development and job creation as well as the requirement to work within a bureaucracy result in only a few African real estate developers being dynamically structured to fulfil these requirements.

The upside is however, that in addition to providing investors with exposure to AAA-rated, hard currency rental income, these developers are often able to secure preferential funding rates for consular accommodation developments as a result of the sovereign underpin.

Community impact is a large deliverable for consular housing developers, not only at grassroots level, but also in the employment of professional services teams. In this regard, GREA has a policy to contract to both local and international professional services teams such as architects to ensure international best practice as well as a development that optimizes adaption to local conditions. Many of these collaborations result in a lower carbon footprint for the overall development as innovative active and passive design features are incorporated to allow for a more stable ambient temperature and lower carbon emissions and water usage during construction.

To expand their impact in the community and ensure sustainability in the build environment, GREA has partnered with Build-her Kenya, a non-profit operation founded in 2018 to equip disadvantaged women in Kenya with accredited construction skills. Build-her is the only female focused organization registered to sit for the prestigious National Industrial Training Authority exams.

Through GREA’s involvement, a cohort of 30 women from disadvantaged backgrounds attended a 12-month training programme learning trade skills before being placed at pre-approved employees for two to eight months of training in a live working environment (depending on the training area).

Research has shown that after four months of training, cohorts report an increase in income of 520% on average. Employers report a 67% increase in productivity and 60% have changed their policies to incorporate gender, sexual harassment, and dignified pay.

Considering that it is a women-led team at GREA that delivered on both Elevation Diplomatic Residences in Ethiopia and Rosslyn Grove consular apartments in Kenya despite the impact of a world-wide pandemic, it only makes sense to invest further in the advancement of women in construction, especially when it comes to the specialised development of consular accommodation!

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