George Kalusanga
Member
- Nov 28, 2010
- 21
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THE MECHANICS OF REAL ESTATE INVESTMENT: INVESTMENT STYLES USED BY REAL ESTATE INVESTORS IN DAR ES SALAAM (Guide to investing in Real Estate, Commercial, Residential and Commercial Cum Residential Properties every Investor should know!)
Real Estate Investors might have fallen in one or two of these styles or strategies of investing in Real Estate in commercial, residential or commercial cum residential properties in Dar es Salaam (Tanzania).
Who is a Real Estate Investor?
Real Estate Investor is someone who is actively or passively invests in Real Estate.
When I talk about these commercial, residential and commercial cum residential properties, I mean real properties bought or developed to earn income through renting, leasing or price appreciation.
Real Estate Investing
Is an activity which involves the purchase, ownership, management, and rental or sell Real Estate for Profit.
It should be obvious that many of these strategies overlap and may include combinations of one or more strategies. Below are some of the styles or strategies used by Real Estate Investors in different places, Dar es Salaam.
I. Development Style/Strategy
This strategy usually involves the acquisition of Land, design of the building and a leasing program to reach stable occupancy. For instance Commercial Office Buildings (both clusters and high rise buildings), Apartments, vacation houses et cetra. These properties are located in different real estate submarkets of Posta, Kariakoo, Upanga, Masaki, Mikocheni and so forth. They are situated in both Central Business District and the Dar es Salaam City’s outskirt.
II. Investing in “Trophy” or “Blue Chip” Properties Style/ Strategy
This strategy is based on a “Blue Chip” approach to investing; that is, only very visible, well located properties (Trophy properties) should be the targets for acquisition. For instance the properties which are located in prime areas such as Upanga, Masaki, Mikocheni, Mwenge, Ilala, Oysterbay, Sinza and all other areas around the CBD etc. Investors in Trophy Assets believe that properties with some unique historical, architectural or locational attributes will also prove to be excellent investments for the long term.
III. Opportunistic Investing Style/Strategy
This strategy involves acquiring properties from investors in financial difficulty or properties needing renovation, upgrading or repositioning. For instance Residential Properties located in Kijitonyama, Mwenge, Sinza, Manzese, Mburahati et cetra. These properties most of them were developed in 1970’s, 1980’s & 1990’s. When you look at their architectural patterns resembles a certain style of similarity according to blocks etc.
Investors can purchase these properties in these Real Estate Submarkets and then renovate, upgrade or reposition in order to command high values and then resale. The difference between the purchase price (acquisition cost plus maintenance cost) and the strike price or selling price is the “Spread” or profit for an investor.
The success of this plan mainly depends on, the ability to purchase properties at a discount, likewise the modification, upgrade and change of use for instance from residential use to office use for the case of Properties located at Mwenge, Sinza, Kijitonyama, Mikocheni etc. these properties have been converted from their previous uses to new uses. But also the success of this strategy may depend on an exit strategy such as Market acceptance of the repositioned assets and the ability of buyers to obtain financing to purchase such assets through mortgage loan arrangements.
IV. Market Timing Investment Style/Strategy
Is based on the belief that with an understanding of the stage of each property type in the Real Estate Cycle and future economic conditions, some investors have the ability to predict when to buy or sell properties. For instance; if investor believe that occupancy and rents will definitely improve and that the apartment market has definitely passed the bottom of its cycle and is in a recovery phase, then apartments would become a target investment for a “market timer” similarly, if further decline is expected in the retail property sector in a given market, because of excess supply a market timer may attempt to “time or wait” to enter this market. When it appears the excess supply of space is about to be eliminated, and then acquire properties in the hope of realizing a profit as market prices cycle upward.
V. Growth Investing Style/ Strategy
Is based on “Discovering” through research those properties in markets that are likely to experience significant or above average appreciation in value. Investors in these properties believe that economic conditions favor demand for specific property types in specific growth markets. For example growth in E-commerce and technology may be expected to favor warehouse properties in specific strategic geographic locations therefore a Growth Investor would search those strategic locations to invest in warehouse properties for instance Places like Mbagala, Temeke etc are experienced to have many warehouses, go downs and industries.
VI. Value Investing Style/Strategy
Is based more on a “True and Tried” performance approach where research is directed toward finding those properties that have been “overlooked” by investors. By using careful research efforts, value investors try to identify properties with the ability to produce greater than expected income and appreciation. For example investors may prefer to invest in office properties that are located in Central Business Districts such places like Posta, Kariakoo, Oysterbay, Masaki, Mikocheni, Upanga etc. and leased on a long term basis to many large corporate tenants.
VII. Strategy as to size of property
This strategy is based on a preference for a subsector within a property type. For example an investor or owner may choose to invest only in neighborhood or community size retail shopping centers and not invest in larger regional malls or an investor may prefer to invest in small, low rise suburban office buildings rather than high rise buildings located in central cities for instance investment in Major cities like Mwanza (Rock City Mall), Mbeya, Arusha (AIM MALL), Tanga, Dar es Salaam (Mkuki House Shopping Mall, Mlimani City Mall) etc.
VIII. Turn around or special situation Investing style/strategy
This strategy is based on the belief that successful investments can be made by investors who sees opportunities by changing or modifying the use of existing properties. For instance investors may acquire underperforming or undermanaged properties after a period of more intensive leasing, renovation and property management, these properties can be sold one at a time, such that the total amount received when all properties are sold exceeds the initial total cost for instance many flats in Upanga Dar es Salaam have been converted to condominiums or condos or Units followed by enactment of unit Titles Act of 2008 (Tanzania).
IX. Arbitrage Investing Style/Strategy
Is based on the ability of investors to recognize differences in prices that buyers are willing to pay for the same Real Estate Investments in different Markets. For instance, this strategy has been used by investors who buy properties directly in private market example Sinza, Mwenge, Kinondoni, Kijitonyama, Mwananyamala, Manzese, Ubungo, Kimara, Mbezi, Tegeta et cetra.
Regards,
George.
georgepeter@terranova.co.tz
Real Estate Investors might have fallen in one or two of these styles or strategies of investing in Real Estate in commercial, residential or commercial cum residential properties in Dar es Salaam (Tanzania).
Who is a Real Estate Investor?
Real Estate Investor is someone who is actively or passively invests in Real Estate.
When I talk about these commercial, residential and commercial cum residential properties, I mean real properties bought or developed to earn income through renting, leasing or price appreciation.
Real Estate Investing
Is an activity which involves the purchase, ownership, management, and rental or sell Real Estate for Profit.
It should be obvious that many of these strategies overlap and may include combinations of one or more strategies. Below are some of the styles or strategies used by Real Estate Investors in different places, Dar es Salaam.
I. Development Style/Strategy
This strategy usually involves the acquisition of Land, design of the building and a leasing program to reach stable occupancy. For instance Commercial Office Buildings (both clusters and high rise buildings), Apartments, vacation houses et cetra. These properties are located in different real estate submarkets of Posta, Kariakoo, Upanga, Masaki, Mikocheni and so forth. They are situated in both Central Business District and the Dar es Salaam City’s outskirt.
II. Investing in “Trophy” or “Blue Chip” Properties Style/ Strategy
This strategy is based on a “Blue Chip” approach to investing; that is, only very visible, well located properties (Trophy properties) should be the targets for acquisition. For instance the properties which are located in prime areas such as Upanga, Masaki, Mikocheni, Mwenge, Ilala, Oysterbay, Sinza and all other areas around the CBD etc. Investors in Trophy Assets believe that properties with some unique historical, architectural or locational attributes will also prove to be excellent investments for the long term.
III. Opportunistic Investing Style/Strategy
This strategy involves acquiring properties from investors in financial difficulty or properties needing renovation, upgrading or repositioning. For instance Residential Properties located in Kijitonyama, Mwenge, Sinza, Manzese, Mburahati et cetra. These properties most of them were developed in 1970’s, 1980’s & 1990’s. When you look at their architectural patterns resembles a certain style of similarity according to blocks etc.
Investors can purchase these properties in these Real Estate Submarkets and then renovate, upgrade or reposition in order to command high values and then resale. The difference between the purchase price (acquisition cost plus maintenance cost) and the strike price or selling price is the “Spread” or profit for an investor.
The success of this plan mainly depends on, the ability to purchase properties at a discount, likewise the modification, upgrade and change of use for instance from residential use to office use for the case of Properties located at Mwenge, Sinza, Kijitonyama, Mikocheni etc. these properties have been converted from their previous uses to new uses. But also the success of this strategy may depend on an exit strategy such as Market acceptance of the repositioned assets and the ability of buyers to obtain financing to purchase such assets through mortgage loan arrangements.
IV. Market Timing Investment Style/Strategy
Is based on the belief that with an understanding of the stage of each property type in the Real Estate Cycle and future economic conditions, some investors have the ability to predict when to buy or sell properties. For instance; if investor believe that occupancy and rents will definitely improve and that the apartment market has definitely passed the bottom of its cycle and is in a recovery phase, then apartments would become a target investment for a “market timer” similarly, if further decline is expected in the retail property sector in a given market, because of excess supply a market timer may attempt to “time or wait” to enter this market. When it appears the excess supply of space is about to be eliminated, and then acquire properties in the hope of realizing a profit as market prices cycle upward.
V. Growth Investing Style/ Strategy
Is based on “Discovering” through research those properties in markets that are likely to experience significant or above average appreciation in value. Investors in these properties believe that economic conditions favor demand for specific property types in specific growth markets. For example growth in E-commerce and technology may be expected to favor warehouse properties in specific strategic geographic locations therefore a Growth Investor would search those strategic locations to invest in warehouse properties for instance Places like Mbagala, Temeke etc are experienced to have many warehouses, go downs and industries.
VI. Value Investing Style/Strategy
Is based more on a “True and Tried” performance approach where research is directed toward finding those properties that have been “overlooked” by investors. By using careful research efforts, value investors try to identify properties with the ability to produce greater than expected income and appreciation. For example investors may prefer to invest in office properties that are located in Central Business Districts such places like Posta, Kariakoo, Oysterbay, Masaki, Mikocheni, Upanga etc. and leased on a long term basis to many large corporate tenants.
VII. Strategy as to size of property
This strategy is based on a preference for a subsector within a property type. For example an investor or owner may choose to invest only in neighborhood or community size retail shopping centers and not invest in larger regional malls or an investor may prefer to invest in small, low rise suburban office buildings rather than high rise buildings located in central cities for instance investment in Major cities like Mwanza (Rock City Mall), Mbeya, Arusha (AIM MALL), Tanga, Dar es Salaam (Mkuki House Shopping Mall, Mlimani City Mall) etc.
VIII. Turn around or special situation Investing style/strategy
This strategy is based on the belief that successful investments can be made by investors who sees opportunities by changing or modifying the use of existing properties. For instance investors may acquire underperforming or undermanaged properties after a period of more intensive leasing, renovation and property management, these properties can be sold one at a time, such that the total amount received when all properties are sold exceeds the initial total cost for instance many flats in Upanga Dar es Salaam have been converted to condominiums or condos or Units followed by enactment of unit Titles Act of 2008 (Tanzania).
IX. Arbitrage Investing Style/Strategy
Is based on the ability of investors to recognize differences in prices that buyers are willing to pay for the same Real Estate Investments in different Markets. For instance, this strategy has been used by investors who buy properties directly in private market example Sinza, Mwenge, Kinondoni, Kijitonyama, Mwananyamala, Manzese, Ubungo, Kimara, Mbezi, Tegeta et cetra.
Regards,
George.
georgepeter@terranova.co.tz
