Posted by: Martin | October 28, 2010

The Upside

An Apartment-hotel in Abidjan

I have written a lot about risks , problems and worries about real estate investments in the Ivory Coast. Thought it might be time to speak about the upside.  Last time in Abidjan I found a great example of a successful real estate-based business that’s within reach for small scale investors such as myself.

Let’s start with a question, who makes more money, a senior manager  at a big multinational corporation based in Western Europe, or the owner of a small apart-hotel on this street in Abidjan:

The apart-hotel is not visible on the photo, but it’s 200 meters ahead on the left hand side.

I had a chat with the owner who is a quite inspiring Ivorian lady in her late 40s. She says she bought the plot of land for 4.5 million CFA Francs 20 years ago, and has plowed in practically all her savings into constructing the apart-hotel, adding little by little. At one point when she lived in France, she took a loan from a French bank to construct a house in France, but instead used the bulk of the funds for the Apart-hotel in Abidjan.

Apartment hotel economics – Revenues

At the moment there are 20 apartments, but there are three more under construction plus an almost ready  luxury suite on the top floor.

The apartments are all unique and rent for 15,000 to 55,000 per day, with an average of around 25,000 making the Apart-hotel very competitively priced. Each apartment has a double bed, a small tv, a refrigerator, kitchen facilities and air conditioning.

On top of that guests pay 5,000 per week for cleaning services, and another 3,000 per day(if I recall correctly) if they want to activate Canal+.

When I was there a couple of apartments where empty, and I am going to assume that on average over the year 15 out of 20 are rented out.

Assuming conservatively that the cleaning services and Canal+ are charged at cost, I will exclude these from the revenue which thus amounts to 25,000*15*365 = 136,875,000  CFA Francs (208,651 EUR) per year or 11,406,250 (17,388 EUR) per month.

Apartment hotel economics – Expenses

On the expense side we have:

A security guard present 24/7 provided by an external security company. Estimated cost: 150,000 F CFA / month

Canal+ and cleaning staff covered directly by the guests through extra charges.

Tax:  The Apart-hotel is covered by the so call impot synthetique which is 1,000,000 F CFA per year.

Administrative staff: Two persons are employed and I don’t think they earn more than 100,000 F CFA / month each.  The owner visits the Apart-hotel nearly every day to supervise things.

Water + electricity + Wifi bills:  Estimated cost:  Not more than 200,000 per month

Interest on loans:  Here I don’t quite know, but I think it’s mostly paid off.

There is no main kitchen, no swimming pool and guests aren’t provided with towels or anything, but there is a certain wear and tear on sheets, tvs, refrigerators, air conditioning etc. Estimated costs for wear and tear / maintenance: 150,000 F CFA / month.

Other: There are always additional expenses. Insurance and the owners cost to drive to the Apart-hotel is what I can think of, but there is most likely more.  Estimated at 100,000 F CFA / month

So the annual expenses to run the Apart-Hotel excluding interest payments are:  10,600,000  F CFA (16,159 EUR). A bargain!

Profit and Poulet braise

So to sum it up, assuming the loans are paid off, the annual net take home income for the owner is 136,875,000 – 10,600,000 = 126,275,000 F CFA (192,492 EUR).

And well, to get take home income of 192,000 EUR, a senior manager in Western Europe would need a gross annual salary of around 300,000 EUR  which is pretty darn high and – I’d say –  unusual even for senior managers.

And that’s only the money. I guess the main reason people start boutique Apartment Hotels in Africa is as a lifestyle choice.  In this case, although the owner is hesitant about going on holidays and leaving the Apart-hotel to the staff, it is far from a full time job – more like a couple of hours a day, giving plenty of time to chill out with family and friends, drink flag, eat poulet braise or start other entrepreneurial projects.  The senior manager on the other hand is probably lucky to have a 50 hour work week in rainy Europe.

As an investment

And a final note regarding the interest expense that’s omitted above. If a plot of land of the same size  in the same area is purchased today, I think it’d cost around 80 million. And to construct a 20 unit apartment hotel costs maybe 200 million. So even if it’s entirely debt-financed, the interest rate can be very high and it’s still an amazing investment.

The trick , and the financial upside, is that real estate revenue in well-off parts of Abidjan are in a range around 1/2 of developed world revenues, whereas costs – building, buying and running – can be  1/10 of developed world costs.

Entrance to the main building of the Apart-hotel


Responses

  1. Whow! nice =)


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