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Michael Chu'di Ejekam Presentation Broll Retail Round Table 2016


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Michael Chu'di Ejekam delivered a presentation on the Broll event titled “Retail Industry: 10 Years from Now”. Michael's presentation focuses on Nigeria's retail development and is aptly named "The next generation of malls in Nigeria - the same? or Adapt?”. Check this slideshare for more information.

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Michael Chu'di Ejekam Presentation Broll Retail Round Table 2016

  1. 1. 1 Michael Chu’di Ejekam Table of Contents 1 1)  History of evolution of Malls – USA case study 2)  Design advancements 3)  Five Key Considerations
  2. 2. 2 Michael Chu’di Ejekam Evolution of Malls in the USA In 60 years, 12 types of malls60 h i d h d 12 fIn 60 years, the industry has created 12 types of centers 1. Strip 2. Neighbourhood 3. Community 4 Regional4. Regional 5. Super Regional 6. Power Center 7. Urban Entertainment Center 8. Factory Outlets Center 9. Lifestyle Center 10. The Mills 11 S C i C t11. Super Convenience Center 12. New Urbanism 2 Net Rents: $USD per SF per annum (2010) 2
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  8. 8. 8 Michael Chu’di Ejekam Transform from mall into “Urban Space” – a place of excitement, family, laughter
  9. 9. 9 Michael Chu’di Ejekam Design Enhancements: “De-Malled” Lifestyle Entrance Before
  10. 10. 10 Michael Chu’di Ejekam Infusing Lifestyle Elements Before
  11. 11. 11 Michael Chu’di Ejekam More attractive – Food Court Before
  12. 12. 12 Michael Chu’di Ejekam Emphasize Entertainment – e.g. Children’s Play Area CAROUSEL REMOVED FROM CENTER COURT
  13. 13. 13 Michael Chu’di Ejekam Five Key Considerations (1) Investors and Returns 13 It’s about Returns, Returns, Returns •  Return requirements depend on the type of investor. •  Type of Investor Drives Mall type and business plan •  Typical PE returns proven achieveable - 25+% IRR, 2.5x - Ikeja City Mall, Palms, Accra Mall •  Non PE funds can handle lower initial yelds, longer hold periods •  Will more "Longer Life" Investors emerge? •  Will local investors play greater role? •  Retailer developers (dual strategy) combine retail sales plus real estate returns Equity and debt are not widely available. •  20K+ m2 mall costs $80-$180m each, requiring minimum $40- $90m equity per mall. Dollar debt at 9+% rate, local currency debt at 17+% rate •  Is Naira debt feasible. Negative Leverage! •  Will leases be quoted in Naira or Dollar
  14. 14. 14 Michael Chu’di Ejekam Five Key Considerations (2) Size & Type 14 Maybe Size Doesn’t Matter? •  For PE firms, there is flexibility on size, subject to minimum of c. 12-14K m2 GBA •  Anchor constraint: Below certain size not feasible, unless anchors agree to occupy space less than 2,800-3,200m2 minimums. Scarce Land •  Destination malls require 5+ hectares of land •  Smaller malls could work with far less Configuration •  Value/Strip Malls cheaper •  Structured Parking raises costs constricting options •  Partially open air malls? Superior returns - assuming same rentals. Untested! Development Expertise/Risks •  Large projects more complex •  Mixed use more complex than standalone •  Higher delivery risk if build smaller malls with 2nd tier teams
  15. 15. 15 Michael Chu’di Ejekam Five Key Considerations (3) Demographics & Consumer Traits 15 Nuanced Feasibility Analysis •  Closer attention to trade area overlap, inflow •  No longer the only game in town! Geography •  Destination malls more likely to struggle in secondary markets •  Tradeoff of lower land costs vs lower buying power and lower rentals •  Riskier demographics in secondary locations Cater to Consumer behaviour •  Typical Nigerian consumer purchase only 40-50 SKUs •  Malls would need to cater to smaller basket sizes, narrow SKUs and frequent shopping trips. •  Convenience/Value is critical to access mass consumer Decide Target Market •  Upscale, Value or both?? •  In USA, need to decide •  Ecommerce eating away value shopping
  16. 16. 16 Michael Chu’di Ejekam Five Key Considerations (4) Retailers 16 High Developments Cost, High Rents •  Grocery anchors perform very well. Are rents sustainable for line stores? Paucity of Viable Tenants •  Certain tenants would not look at strip malls for example •  Could Super Regional Work (Over 75,000 m2)
  17. 17. 17 Michael Chu’di Ejekam Five Key Considerations (5) Exit 17 Investors go in with eyes on Exit Door •  Returns Important Again •  Type of mall driven by attractiveness to mall buyers •  Major mall buyers have minimum mall size requirements •  Small malls often below investment grade •  Exit Yields unproven in secondary markets •  More investors for bite-sized transaction sizes vs large •  Typical PE 5 yr hold period realistic? •  Will local pension funds become major buyers
  18. 18. 18 Michael Chu’di Ejekam Conclusion 18 1)  Perhaps Nigeria malls would evolve like the USA 2)  Introduce Design advancements 3)  Five Key Considerations i)  Investors ii)  Size/Type iii)  Demographics & Consumer Traits iv)  Retailers v)  Exit Returns, Returns, Returns
  19. 19. 19 Michael Chu’di Ejekam 19 Thank You