Entrepreneurship Zone: 17 March 2023 :: Nigeria: Businessman taps into demand for student accommodation

Fri Mar 17 09:22:09 CAT 2023

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Entrepreneurship Zone: 17 March 2023 ::   Nigeria: Businessman taps into
demand for student accommodation

*          

UK-born Abayomi Onasanya believes students are like seeds that can grow
into trees, given the right environment. This provided him with a fertile
business idea: to build affordable student accommodation and each
development would be named after trees.

An earlier business venture ignited the idea. Many of the students he
employed in his Lagos call centre were “half-baked” and struggled with basic
computer skills. “I realised the students travel miles to get to university
and the accommodation is often overcrowded and lacking in basic amenities;
sometimes it’s just a shack. The students had so many challenges that
distracted them from their studies and achieving their full potential.”
Good, clean, affordable housing could improve this, benefitting businesses
and the country in turn.

How it started

After moving to Nigeria 15 years ago, Onasanya got involved in real estate
development, building 200 residential units in Lekki in Lagos and selling
them to young professionals. In 2013, the recession hit and the market
crashed. He decided to step back and re-evaluate his options.

During his time out, the idea for Student Accommod8 was born. The company
develops and operates purpose-built student housing. It buys land, obtains
design and planning permissions, runs a tender process for contractors, and
builds and furnishes the apartments before renting to students.

The first development, Pine House, was slightly different. Onasanya took a
derelict building near the University of Lagos and turned it into a 43-bed
high-end student residence. All rooms are en suite, which is unusual for
student housing, with communal kitchens, lounges, a cafeteria and a
mini-mart, as well as laundry rooms and a manager’s office.

Pine House was branded – like a Marriot or Hilton hotel – and processes and
procedures were devised that would be uniform across each development. “This
was important because, as we began to scale the business, standard operating
manuals and rules and regulations would make it easier for everybody
including management,” Onasanya says. It took 18 months from
conceptualisation to opening the first residence in October 2016. By the end
of the year, it reached 100% occupancy.

Student Accommod8’s Sycamore House development.

Growing the business

Once there was a successful model to scale, Onasanya went on to build
Sycamore House in Ago-Iwoye, Ogun State; and Cedar House in Ibeju-Lekki,
Lagos State. These are bigger residences with 384 and 140 beds respectively,
on land acquired in conjunction with the university. With these Onasanya
also experimented with higher-end, mid-level and basic, more affordable
accommodation. “The first few years were all about testing what would work
and we realised the basic product was where the demand was. There is no-one
who does student housing the way we do it in Nigeria; there was no data or
track record to tell us where the market is. By building at three different
levels, we were trying to understand the market,” he explains. “Today, we
have about 600 beds with a development pipeline of about 3,000 beds in
different stages of construction.” All this will be at the basic end of the
market.

Taking on the competition

A basic bed costs $600 per annum and includes water, lights and security
(wi-fi is an optional extra) in decent locations. “We are consistently at a
100% occupancy at every one of our buildings,” Onasanya says.

Before starting a development, he commissions a feasibility study and once
work is in progress, he launches a marketing campaign three months before
opening. “Student Accommod8 is positioned as a brand. Once the students see
the accommodation, they are fairly sure what is on offer.” The accommodation
is paid for in advance. Sponsoring student events is part of building the
brand and, by the time a new development opens, the waiting list outstrips
the number of beds available.

Student Accommod8’s big advantage is scale. About 90% of the market is made
up of mom-and-pop establishments. “A landlord with 12 beds will have to pay
for a security guard and spread this cost over these rentals. We have
hundreds of beds to carry the cost.” As the business scales up, the beds
become more affordable.

Universities also provide competition with residences often housing 2,000
to 3,000 students. However, these buildings are often badly maintained with
no water or sewerage. “They are able to compete because they charge very
little, but they are not an ideal place to live,” Onsanya says. His
establishments are managed in a structured way with strict rules, visiting
hours, spot checks and CCTV cameras.

“Competition is good. The accommodation shortage is so dire, we are only
just beginning to scratch the surface. From our research, there is a gap of
about 1.8 million student beds in Nigeria alone.”

Connecting rooms and people

Onasanya has a background in technology and his company has a digital
platform called Connect Central, where rooms can be booked and maintenance
issues reported. It is similar to an intranet or an enterprise resource
planning (ERP) and is constantly being developed. “We envisage it to be a
platform that we can give to other third-party owners to use to manage their
accommodation, so it’s something that we want to develop over the next few
years.”

A room inside the Cedar House property.

Paying for it

Onsanya initially raised finance in the form of soft loans from family and
friends. In 2018, the company secured its first institutional capital of
$1.3 million from a Nigerian fund, Consonance Kuramo Special Opportunities
Fund 1, that invests in high-growth early-stage companies in east and west
Africa. This was instrumental for business growth.

The following year, the company raised $3 million from the Nigeria
Infrastructure Debt Fund, a listed fund that focuses on providing debt
capital to key infrastructure companies. Student Accommod8 is currently
raising an additional $10 million to help build up the business to 5,000
beds. “One of the challenges in a business that is asset-heavy, such as
ours, is the ability to deploy the capital,” he discloses.

Power and other challenges

The biggest obstacle in Nigeria is electricity, so each of the sites
operates on solar energy and generators.

Title registrations and dealing with government are further hurdles.
“Permits and approvals typically take a bit longer than we would like.” The
cost of licences is on the high side, too. “There’s a lot of advocacy on our
part to get the state governments to understand we are here to help.”

It’s also necessary to be more than just money-minded. Boisterous students
away from home for the first time are challenging but, fortunately, there
have been no major incidents so far. “There are situations where we have to
take off our business and commercial hats and put on a guardian’s,” he
notes.

Living through a pandemic

Lockdowns due to the Covid-19 and a shift towards online learning was a bit
of a disaster but their off-campus developments helped mitigate risks.
“Residences have been closed since March this year. Our worst-case scenario
sees students returning next March but we have enough of a cushion to
operate until then. We have reduced our overheads and head office staff,” he
explains.

In Nigeria, online learning hasn’t yet taken hold because of connectivity
and power issues. “Culturally, African parents want their children to leave
home to go to university and get the campus experience,” Onsanya says and he
doesn’t anticipate this changing anytime soon.

Expansion plans

Onasanya spotted gaps in the market in Ghana and Zambia and a 208-bed
development in Lusaka will open in January. In Accra, the construction of a
143-bed development will start in May. He chose these two countries because
of Ghana’s centrality in West Africa, while Zambia provided him with a
market in the south of the continent without venturing into the saturated
South African market.

“Diversification is necessary because the market in Nigeria can be quite
unpredictable.”

In the next five years, Onasanya hopes to reach about 15,000 beds across
the three countries for which he’s still raising capital. “The issue with
student housing is that it is a never-ending pit of expenses,” he says. “You
constantly have to invest in it.”

Learning from mistakes

If he had to start over again, Onasanya reveals he would focus on the basic
end of the market straight away, instead of doing more high-end and
mid-level developments, but overall he is pretty happy with the way things
have gone so far. He may also have picked a more efficient design as it
affects everything from pricing to bills, management and time to build and,
with hindsight, a perfect design from the get-go would have been ideal.

Affordable is better

The biggest trend in Nigeria’s property industry is the demand for
affordable housing. There was a boom in luxury, high-end properties but that
market has become saturated and the focus is now on affordable pricing for
the general market.

“What we are seeing is a lot of capital finance going into construction and
real estate purchases,” Onasanya says. The buyers are professionals in
telecoms, banking and insurance sectors. “Housing that is low-end, basic and
out in the sticks is still doing okay but it’s not booming as much as the
middle-class stock.”

Abayomi Onasanya

- Howwemadeitinafrica

Invest Wisely!

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