For years, he called the shots but also balanced the books as the former executive director of First Bank and later finance director at the Dangote Group. But when Uzoma Nwankwo left and set up AiQ Capital, a fund management outfit, perhaps no one thought his interest would be in the hospitality business. For those wondering if Uzo, as he is fondly called, was not moving down a dark alley to the world of the unknown, he gives a soft, reassuring laughter. But you only have to see the passion, zest and deep understanding with which he talks about his new found love, to understand that he means business. “Hotels in Nigeria are mostly five-star or no star; they are too expensive here and concentrated in Abuja and Lagos.. Can’t I have a Marriott in my state capital even if it is not as classy as the one in Lagos or Abuja?” That is an outlook AiQ Capital hopes to change by setting up a private equity fund to build two to three-star hotels that would not be tied to the pressure of bank loans and which will be finished in record time. He tells SHAKA MOMODU how he intends to do this
He is affable and has a demeanor that is humbling and dignified. A quintessential gentleman whose calm carriage suggests a man who has seen it all and knows what he is talking about when the matters being discussed are financial and real estate issues. You see him at his best and Uzo has another side; not a negative one though, but that of a consummate negotiator when it comes to negotiating finances for diverse mega deals. Well, that is what he has been doing all his life. So it is fair to say he is, in some way, still in a familiar terrain only that this time around he is sector-specific. Raising capital to finance hotels on a fairly large scale, and using experience gained from structuring finance for other people to consummate his new passion. He may have scored big as a financial consultant but he is surely not the happiest man when he looks at what and how long it takes to construct a hotel in the country. And that is why AiQ Capital is looking beyond the current method of sourcing for funds and actual construction of hotels in the country. Hitting the nation’s corporate firmament in 2009, the sole aim of the outfit was to “structuring hotel finance.” Nwankwo used to be the financial director at the Dangote Group and the thinking was that perhaps, the time span of hotel construction could take lesser time than is the case at present.
The Hotel Financing Idea…
Given how expensive hotels are in Nigeria, the financial czar decided to set up a private equity fund to build a chain of mid-priced business hotels in cities across the country and West Africa. The first fund was registered in Mauritius at the end of last year. To him, domiciling the fund in Mauritius offers transparency, good governance and tax efficiency to investors. AiQ Capital is in the process of registering a local fund to allow local investors in Nigeria to invest. But beyond the identified constraints what really drives Nwankwo in the first place. He explains:
“Hotels in Nigeria take such a long time to construct; in some instances seven years or more, because of inadequate funding. And when such funding is available the interest rates make it unattractive. With the AiQ Capital fund, we intend to have all the funds for each site available before we break ground, employ project managers to control costs during construction to efficiently build the hotels within an eighteen to twenty-four month window to allow maximum profitability. Most hotels in Nigeria charge so much because they need to pay back the loans from the bank and after all these cost over-runs, the payback time is longer. The project manager will ensure that there is no waste.”
What Uzo is actually trying to demonstrate, perhaps goes beyond the time frame in constructing hotels and the attendant fall-out of passing the cost to customers in the amount being charged per room. He is aware of the fact that the funds used to construct these hotels are from banks and with the nation’s bank loans regime, it is always a race against time to pay back and still be profitable. But Uzo is also aware of delays caused by the methods adopted in construction. There are other innovative methods, like pre-fabricated materials, which can be employed to cut costs and save construction time.
“We are also looking at innovative construction methods such as prefabricated construction kits which shorten the speed of construction. We are finalizing with a well-known South African property development group with a portfolio of hotels and commercial property all over Africa to be our development partner. They will build the hotels while we stick to our knitting, which is fund management.”
Hotels Can Be Cheaper…
Uzo smiles when asked why he is trying to be different in a market where there seems to be the general belief in the hospitality business that you are either a big hotel or a small one. The choice is either a four or five-star hotel or it is just a 20-room small hotel down the street, with nothing in between. Beyond this is that these hotels are concentrated in Lagos or Abuja. Mr Nwankwo said most international hotel operators always want to manage hotels in either Lagos or Abuja. To him, this simply does not make sense.
“We deal with international hotel operators all the time and most of them tell us outright that they are only interested in Lagos or Abuja. Nigeria has thirty-six states each with a state capital. We can easily put up to twenty hotels in some of these state capitals. People travel within Nigeria for business or leisure purposes and they should be able to find a good international hotel anywhere in Nigeria.”
The former Dangote top gun said this was the reason you could hardly find any ‘big’ hotel in either Lagos or Abuja charging less than $200 per night. The implication of this is that there is a huge gap that needs to be filled. To him, there are those who just travel out of Lagos and Abuja for business or leisure and could not find branded hotel that charges less than N20,000 per night. To him, this is unacceptable.
“It’s almost impossible to find a good branded hotel that charges less than $200 per night in Nigeria. The AiQ Capital Hospitality and Real Estate Fund was set up to build hotels to fill this gap in the middle market by building a chain of branded hotels in the two to three star range, run by international operators.” What Nwankwo is saying, and which is quite innovative, is that if you travel to your state capital, you should be able to stay in the internationally branded hotels you are used to in large cities, without having to pay through the nose. To him, there is nothing that says that a Marriott branded hotel in Lagos, which naturally will be five-star, must also be five-star in, say, Ado-Ekiti or Umuahia, the Abia State capital.
Saturation in the Hospitality Business? Not Really…
Now, if hotels, and good ones for that matter, are springing up everywhere, there are possibilities that there might be saturation in the hospitality business environment. Perhaps, those who hold this ‘fear’ have a point. And even Nwankwo himself bears witness to this when he admitted that Intercontinental Hotel is about to open for business in Victoria Island and even very close by, by Ozumba Mbadiwe Street, Marriott has started work on its new hotel coming up. But all these don’t faze Nwankwo. He also opines that new hotels will force these crazy charges down. To him, hoteliers in Nigeria are more interested in revenue and not services in the strict sense.
“There are very few hotels in the budget range which are being developed. The reality of it is that some of the so-called four star hotels in Nigeria are really three star in their standards and only four star in their prices- A Protea hotel in Lagos can comfortably charge $500 a night for standard room whereas it would never charge that in South Africa where the hotel chain originates. Once the new hotels come online, hotel rates will start to come down. Ideally we want to build hotels that will charge $150 to $200 a night. Most hoteliers in Nigeria are focused on getting the most money out of their guests.”
His AiQ outfit intends to build hotels that don’t charge beyond the services they offer. And that is why they plan to build hotels which costs range between $12 million and $20 million and this will depend on the number of rooms in those hotels. Hopefully, they hope to complete the construction of their first hotel by the end of 2014. Mr. Nwankwo clearly explained that they won’t be hotel managers but hotel financiers.
“The fund is also going to be opportunistic in that if somebody wants to build a hotel in a certain location, they can approach us and the fund may be able to finance the hotel and take equity in it. However, we will also take a systematic approach by conducting feasibility studies in cities all over Nigeria to find the best locations to build our business hotels. We are already building a land-bank of suitable locations in Nigeria to build hotels. The investment committee is made up of experienced hotel experts, project managers, real estate professionals, quantity surveyors and investment professionals to build hotels that will bring the highest return to investors.”
Our Hotels Are Overrated…
Nwankwo contends that what hotels charge is more than the service they render but he seems to attribute that to the fact that every hotel wants to be a big hotel. He said what AiQ wants to do is to build what he calls “budget hotels’. To him, a standard three-star hotel room is approximately 28 metres square, as opposed to a five star which is anywhere upwards of 34 metres square. And most so-called five-star hotels in Nigeria don’t even meet this specification. A business hotel has all the basics and a desk on which to work. He said travelers want to consistently find a clean, functional room, which an international operator will ensure. Other amenities in the hotel will include a restaurant, and business centre. He however said that AiQ “will not include frills like spas and multiple restaurants. There may also be conference or banqueting facilities, depending on the location.”
To him, the urge for returns on investment is what usually pushes hotel developers to want to build big hotels which they will charge very high rates on customers so as to recoup investment. And gradually, that segment is even becoming saturated. Around Ikeja alone, there might be up to ten four to five-star hotels there not including those under construction.
“A two to three star hotel is quick to market and quick to reach profitability. Investors ultimately want their money back with a healthy return. The risk on a small hotel is lower and by having a chain of hotels in different cities, you lower the location risk that you have by building one five-star hotel. The top end of the hotel market in Nigeria is becoming very competitive because of new entrants into the market whereas the middle market is less crowded.”
Speaking further, he said they would look at what each hotel group is bringing to the table before commitment.
“We are evaluating the merits of each brand for our hotels and we want to see what each group will bring to the table. Most budget hotels in Nigeria are mom and pop guest houses. We want travelers in Nigeria who are on a budget to know they find consistent high standards within out hotels. They will get the same quality of service that they will get in a business hotel anywhere in the world.”
Beyond the quality of hotels is the vexing issue of service delivery and the quality of personnel these hotels use. While there are few of them that have trained personnel, there are quite a number that use casual staff. Nwankwo admits this.
“I agree with you that service quality is an issue that needs to be addressed in Nigeria. We cannot invest so much money in building hotels without training the staff. When we travel outside Nigeria we often marvel at the excellent service abroad and we want to bring that culture to Nigeria so hospitality staff will go above and beyond the call of duty for their guests.”
When asked if the operations of AiQ will be limited to Nigeria, Nwankwo, ever his ebullient self said this will not be the case. To him, there are markets in the West African sub-region that they understand very well.
“We have structured hotel deals in Ghana and Senegal so these are markets we know well and we can enter easily. Certainly the whole of West Africa is short of hotel rooms so a well-executed hotel project can be profitable in almost any West African city.”
Challenges Securing Funding…
It has not been a smooth sail in terms of negotiating funding for the AiQ as a hospitality financing outfit. And this is one area where Nwankwo and his team have been facing some challenges. It has not been a smooth sail though they are very optimistic. The reasons for these challenges are both technical and financial. His explanation:
“International development finance institutions which have previously funded hotels in Africa have had mixed results. This is because hotels in Africa are often built by wealthy businessmen who have made their money elsewhere and decide to build hotels as the crown jewel in their empires. Very often, they spare no expense, construction takes place over many years and the international lenders who finance the hotels based on the promoters’ business acumen elsewhere, ends up with a disappointingly long breakeven time. International financiers are very cautious about taking equity in hotel deals now. The other challenge is the global economic recession. International investors are struggling with their own financial woes so they are very slow in coming forward right now however, emerging markets like Nigeria are the only regions which are showing decent returns on investments so we have several international investors carrying out their due diligence on the fund right now, with an eye to investing. There is also the perception a high risk investment environment by foreign investors.”
To build the confidence of both hotel brand owners and international financial institutions and fund providers, Mr. Nwankwo reiterated the fact that AiQ won’t be hotel managers but their role will be simply fund management.
“AiQ Capital’s role in the running of the hotels is simply that of an investor and the brand operator will run the hotels. We are looking at the hotel chain from a return on investment so all we care about is the business case, to maximize a return on investment for our investors. We are choosing the niche in the hotel industry to build business hotels because that is where the biggest opportunity is, in Nigeria. We don’t want to build fancy hotels with bells and whistles which end up costing a lot and taking too long to complete. The hotels are not some monument to our egos so we can brag that we have the best hotels in Nigeria. We want to brag that we have the biggest return to our investors. We are targeting return above 20 percent and which you cannot get if you keep your money in fixed income in Nigeria.”
Good one from a guy who is determined to change the nation’s hospitality business environment. The nation cannot wait to see him do this.