Fahari buyout leaves real estate to the rich

ICEA Lion Asset Management Chief Executive Officer Einstein Kihanda. FILE PHOTO | NMG

Hopes of making real estate investing accessible to the wider public have taken a back seat in the wake of plans to restrict property fund ILAM Fahari I-Reit to wealthy individuals and institutions.

Until now, Nairobi Securities Exchange-listed Fahari has been the only real estate investment trust to offer retail investors a chance to participate with a capital outlay as low as Sh600.

Fahari’s manager, ICEA Lion Asset Management, now plans to delist the property fund after buying out non-professional investors, described as those whose holding is valued at less than Sh5 million.

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ICEA says the fund’s performance has been subpar and efforts to turn it around frustrated by its low share price and the presence of retail investors unwilling to provide additional capital needed to scale up the business.

The proposed buyout, if successful, will see Fahari join Laptrust’s Imara I-Reit, Acorn Student Accommodation D-Reit and Acorn Student Accommodation I-Reit among the property ventures owned almost exclusively by deep-pocketed investors.

Imara I-Reit is listed on the NSE while the Acorn funds trade on the over-the-counter (OTC) market.

D-Reits are investment vehicles that focus on developing properties for sale with the aim of making capital gains from such transactions.

I-Reits meanwhile purchase and hold properties for rental income as a primary focus though they may occasionally sell assets.

Acorn’s D-Reit only admits those who can buy units (shares) valued at a minimum of Sh5 million per transaction.

Acorn’s I-Reit also has similar strictures, though it earlier reported a limited retail investor participation where one could become an owner by investing at least Sh50,000.

Laprust’s I-Reit is similarly preserved for high-net-worth investors until March 2026 when the pension fund may start to sell part of its current 99.92 percent stake in the fund.

The events at Fahari show the difficulty of small investors participating effectively in the capital-intensive property sector which typically requires investments of a few millions to billions of shillings.

Reits are designed to pool capital from many investors who are offered slices of the total portfolio –effectively shares that can be traded on exchanges.

The most successful Reits targeting retail investors in the developed world are usually profitable and operate on a large scale, allowing them to meet expenses and regular cash distributions that small investors expect from the listings that resemble regular equities.

They may also use debt to expand their portfolio. Fahari meanwhile faced difficulties in scaling up its portfolio through raising new capital from existing shareholders.

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Owners of properties also declined offers to swap their assets into Fahari in exchange for a stake in the fund, fearing they would suffer paper losses by drawing inferences from the Reit’s historical share price performance.

Fahari went public at Sh20 per share but the stock collapsed to lows of Sh6 before ICEA Lion announced its buyout offer of Sh11 per share.

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