Taiwo Ogunbodede’s interactive session with School of Estate students

The interactive session held recently as part of the events leading to the graduation ceremony of the School of Estate Business School (last batch 2012), Mr Taiwo Ogunbodede was called up to share his from his wealth of knowledge in the real estate industry and business as well.

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People ask me how I found myself in the real-estate sector.

I believed that if I tried my hands on something else, it would workout. We dragged it for 3 months and eventually, I left. But before I left, they (the bank) told me to get someone that will replace me. I had to do that before leaving. They also told me that if I wanted to return, they would accept me. I travelled to the USA and as soon as I landed in Nigeria, I received a call from UBA that they wanted me. Initially I was tempted, but I said to my self that I have to do business. Then I left, and we started.

For me real estate is tough despite the fact that many people think otherwise.

Part of being wealthy is to have assets. One difference between a rich person and a wealthy person is that a rich person has cash, while a wealthy person might not have cash, and might need to convert his asset(s) to cash.

The main/continuous issue in real estate is how to convert assets to cash, and that’s a life issue. There’s also the issue of risk and probability which is inherent in every venture in life. Within the context of real estate, risk can be considered as buying an asset which one may not be able to re-sell. If one were to consider risk and probability above other factors, nothing will be achieved.

One characteristic of real estate is that, as a business, it doesn’t sell everyday. It might take a whole week for a single sale to be made, and people need to be paid regularly and promptly. Even the owner of the business will have need for a regular stream of income to take care of basic every day needs. As such, I advocate that it is wise for someone who is into real to also have a business by the side that will cater for his everyday needs. Having this side business doesn’t have anything to do with the person’s profession. As for myself, I run a dry-cleaning business by the side.

For me, although location is important, it doesn’t make sense to remain bent on a particular place when the competition there is enormous. One should try to move elsewhere in order to create a niche for him/herself. An example is trying to start a hotel business or a cinema business. The fact is that the hotel/cinema business also sells in other locations apart from Lagos. For example, the hotel business does well in a place like Ondo state (where I come from) and in other locations as well.

Business is an essential part of life which I believe everyone would get into at one point in time or the other. And the success of anyone in business would be a factor of the person’s “mind”. A personal business would also guarantee peace of mind for the owner as opposed to working for another person. Real estate property is a primary index of measuring wealth all over the world. During the time of the stock crises, the property sector, though it was also hit, it wasn’t hit as bad as stocks. Those in real-estate that had the worse hit were those people that were involved in over-priced property. When the market crashed, the worth of their property fell heavily.

One reason for the hike in land prices and property prices in general, then, was the fact that people made a lot of money from the stock market and therefore, there was a lot of money to spend. The money realized from stocks had to go somewhere. One obvious destination was the land/property market.

Why I went into property/ real estate is that it is stable and it sells well due to the population of the country and the market it therefore provides. Also the demand for land/ property is high because people see it as the main/prime asset and also a way to save or store their money. Anybody that begins to earn income will surely start looking to acquire property, because it is a prime asset. And buying a piece of land doesn’t depend on where you are buying, but when you are starting.

For instance, a man that has a piece of land in Ijebu Ode that is worth N100,000 is better than a man that lives in Ikeja G.R.A in a rented duplex and pays N3 million in rent every year, because the N100,000 land in Ijebu Ode can be worth N5 million in the next 15 years, while the man with no land has nothing.

An example: Lekki/Ajah area as at 1996/1997 was somewhat of a rural area with no electricity. Presently, the named area is a no-go area as it is now very expensive. This shows the strength of the Nigerian market. As a matter of fact, Lagos is one of the world’s mega-cities, and it is estimated that by 2015, Lagos will be the 3rd largest mega –city in the world. It is said that where there is a mega-city, the biggest challenge will be that of housing. Therefore it would simply be a joke to say that the real estate market in Nigeria will fizzle out in the near future.

In terms of housing, there is a huge deficit of housing in Nigeria, which runs into about sixteen million, (which I consider a modest figure). This is due to the population of Nigeria (more than 160 million people). It is also worthy to note that Lagos is massively over-populated. The positive aspect to this is that there will be increased spending power, which is an excellent reason to set up a business. It is no wonder there is an influx of foreign companies like Shoprite, which has been a success in terms of sales revenue, driven by no other factor than the sheer buying power of the massive population.

I advice that people go into business to tap into the potential profit inherent in the market provided by a place like this. I am also of the opinion that competition should not hinder one from going into business because of the large market size that Nigeria provides. As such, a market is guaranteed for the business man’s product.

An example is the hotel business that thrives on the island, several hotels have just been set up in recent years. If people considered the popular Federal Palace Hotel and Eko Hotel as the pinnacle of the hotel industry in Nigeria, the several modern ones like Oriental Hotel, Intercontinental Hotel, and 4-Point by Sheraton, etc, would not have been in existence by now. In essence, I am trying to encourage people to be daring; else, success might not be achieved.

When starting a business, money is not the first thing to be considered. The first thing to have is the conviction.

TIME FOR QUESTIONS FROM MEMBERS OF THE AUDIENCE

AUDIENCE:

How did you start and develop your real estate business/company?

OGUNBODEDE:

For me, the greatest impediment to business in Nigeria is human resource. Despite the fact that you hire people, you could end up doing all the work yourself because most people don’t have the self confidence. The educational system has gotten really bad to the extent that many graduates can’t even produce memos and letters that are perfect. Also, most people that come in as staff, only come to study the business, and then after about six months, they go on to replicate the business and start their own without being fully prepared.

Also, there is the issue of trust, especially where male-staff are involved, men that are desperate to “make it”. As a result of this, I have mostly female staff in my employ currently. Also we have to be careful about the kind of people we bring into the business. Some people can come in and things will get better. Some will come in and things will get worse.

I am of the opinion that instead of one person to embark on a real estate project with very limited funds, it is better to combine resources with other people that have money in other to embark on a much larger one. That is, in some cases, it is better to be in a team that to act alone.

For example, if you have N1 million and you want to invest it in real estate, you might not get the best deal because in real-estate, N1 million is quite small. It would be much better if you got other people that each had about N1 million, and form a partnership with them. In aggregate, your team would then have access to a much larger fund to go into a much more profitable business, (if 5 people are involved, you would have up to N5 million).

AUDIENCE:

Looking at when you started, how were you able to combine leveraging and partnering with others with regards to protecting your interest?

OGUNBODEDE:

The key is holding on to your vision. When there are several people on the team with differing interests, one way you can protect your own interest is by focusing on your personal vision and dream. Sometimes, you have to sell your own vision to your partners so that they buy into it, and everybody is on the same boat as regards the execution of that particular project.

AUDIENCE:

What about your relationship with the banks?

OGUNBODEDE:

It’s very difficult actually to move fast as you would like without having banking support, but the cost is actually enormous and I think and I imagine that myself and other real estate practitioners have found more creative means of getting funds. Depending on the banks alone might not be a good choice. Dealing with banks, especially in Nigeria could be quite frustrating, and there is always the fear of default which brings very grave consequences.

AUDIENCE:

Going down memory lane, in your first transaction, how was it conducted and what were the challenges you faced?

OGUNBODEDE:

My first transaction was with my colleagues who knew me from where I worked before, from the bank. My experience in the bank helped me a lot, and the people I knew while I was with the bank also went a long way in making the transactions a success. In essence, it is very important to have flexible products and a good payment condition that is good for the clients. It is also very important to be involved directly in the project, i.e., being present on the site to see things for yourself and be fully aware of everything that is going on. This will go a long way in aiding any potential transaction.

AUDIENCE:

What is your take on offshore loans (for real estate projects)?

OGUNBODEDE:

They are always available and the rates are quite cheap, considerably less than the domestic banks (about 2-3 per cent), the domestic banks also borrow from them and lend to others at the commercial rate. They come in huge amounts and the procedure is often very strenuous. They come in massive amounts; say about N500million, $100 million, etc, which they only give with the condition that you provide some guarantees. Some might want to have a stake in your company (which is okay). For me, I’m not thinking of going that route because the conditions are quite strenuous for me. If things go well, it might not be necessary to get offshore loans.

AUDIENCE:

Hedging against the offshore loan brings about more complexities?

OGUNBODEDE:

Sometimes the exchange rate changes might not make such a big difference especially for big players like the companies in the oil and gas sector which make use of very huge loans. This is so because the volume of the transactions they carry out is usually very massive. If you are big then you’ll be able to afford the exchange rate issues. The only attraction, though, to offshore loans is the cheapness of funds.

AUDIENCE:

If two or three people or real-estate firms come together to source for the loan the time lag (of processing the loan) would affect them in Nigeria. How would you be able to manage that in order to execute your project so that you can get your money back and pay?

OGUNBODEDE:

First of all, that kind of loan is not for people that are just starting out. They would ask for your track record or your performance/profile over the years because the amount involved is huge. In fact their procedure and requirement is worse than what Nigerian banks ask for. It is not for “freshers” at all.

AUDIENCE:

When someone is looking for a loan to construct a building you have to have the support of the kind of mortgage facilities that is available in the developed world that will make it affordable for people that want to buy the house

OGUNBODEDE:

For me, I won’t say that the mortgage market in Nigeria doesn’t exist. The market exists, but it is like a mirage. At some point, it will become very evident/real.

AUDIENCE:

The Nigerian banks don’t even have the income…

OGUNBODEDE:

You, think so… I don’t believe that!

The thing is that Nigerian banks are looking for short-term immediate profit, meanwhile in other countries, you can start a business and post losses in the first and second year and only do so much as to break even in the third year of operation before going on to make profits for the rest of the duration of the business. In Nigeria, room is not given for such, because the share-holders and the owners of the banks also want to make immediate profit. Development might not come to this country unless people have access to long term funds to embark on long-term projects.

If you go abroad, you will see massive infrastructure, buildings, bridges, etc. those things were funded with long term funds. Some of them (the loan facility) last for as long as 10 years, 20 years, 30 years etc. In fact, for some of them, one generation might not pay off all the debt. The loan repayment may last for several generations. That is how you can attain a single-digit rate, but in Nigeria, everything is short-term. Real estate businesses need long-term funding to survive.

An example is railway. People must have thought that by now, the Nigerian rail system should have matched what is obtainable overseas. But the railway project is a long term project that takes a long time to execute, about 10 years or more. Nigerian banks would rather provide funds for a business like Shoprite, cinemas and other such businesses that have nothing to do with the real sector. Look at the airline business. It is dying.

For such businesses, you need long-term facilities, probably 20 years. Even when the Bank of Industry intervened and gave them (the banks) money, they moved it to other sectors. That is another problem. So, it is a very complex issue.

AUDIENCE:

Right now it is becoming scary…

TAIWO:

Nigeria will be Nigeria. Everything listed and done shouldn’t stop you from doing business in Nigeria. Leave everything going on in the country. Even if there are only two airlines that are operating, I will have to queue. Even if it takes me 10 days to get to where I am going to, I will still get there. That is business. Every country has been in recession at some point, just like Greece and Spain at this current time. People still do business in those places.

Even in the middle of the recession in the USA and the UK, people were still doing business. Don’t look at the external factors. People still pay toll fees and recharge their phones, isn’t it? Though we have issues and problems all around us, we should still look at it as our business and not give up on it, instead, we are to find creative ways to move on with our business.

For instance, our company, we’ve been around for 5 years and what we’ve done basically is site and servicing, but now, we are going into terracing, building. That the market is this or that will not stop me, because like I said earlier, we have about 22 million people in Lagos, and there are some people who are compulsive buyers, that would own several property all around. So, it is not all about people who are looking for mortgages, some people deal in cash.

The market is scattered. You can go to the companies that earn good money that can drop a substantial amount of money for you as initial deposit, and the job can kick off from there. So, in the midst of NHS, Federal Mortgage, Offshore Funding, interest rate, etc, we must still look for creative ways to go on with the business, because we can’t just shut down. One thing that hasn’t worked in Nigeria yet, which I think we should look at is partnerships and synergies.

In Nigeria, it doesn’t work. When we look at businesses abroad, there are a lot of partnerships and joint ventures in operation. That way, the risk can be shared, and funds can pooled together easily. We don’t have to wait till we have our own money before we can start our own business, we can consider doing things together with people and see how it works. In real estate, you don’t have to be a developer, you can also be a broker and do well and earn good money without carrying the risks inherent in real estate.

AUDIENCE:

You said that life is all about taking risks, I’d like to know the biggest risk you’ve ever taken.

OGUNBODEDE:

(Laughs)

In 2008, we bought a parcel of land at Ibeju Lekki from a family. We spent about N100 million in buying it. We sponsored it actually. We were supposed to get back about 75 acres. Eventually, when we about to take possession of the land and start work, we couldn’t work because issues came up. The issue that came up was that, most of the money we paid was to the wrong person. And he had sold that place to other people, about 10 clients, and they wanted to take possession also. Then the real owners of the property came up. The people who didn’t own the property put us in possession of the land.

For 3 years, we were going to the site, and throughout that period, nobody stopped us. We got to know that the proportion of money that went to the real people was just a meager sum of money, while some other people had shared the bulk of the money. We then realized that the money had gone. The question that came up for us was how to sort out our clients. Eventually, we got back 25 acres after a lot of rigor, pain and paying more money.

Even now, we can’t still work there, because over time, the access has been messed up by serious gully erosion. It is now a future asset. With the money gone, the question we had to ask ourselves was how to sort out our clients. To God be the glory, at that time, we had other projects and we had to start re-writing plans. When we went to the necessary government agencies like SFU, the question they kept asking was how we risked the money. One thing I know is that when you are into real-estate, it would take a vital and big mistake for you to be wise. If you don’t make that mistake, you’ll probably not move to the next level.

It may not be you directly making the mistake, you might learn from other people’s mistakes. In real estate, we keep learning everyday. In essence, real-estate is big business and big risk. Even if everything is well planned, some unforeseen contingencies might come up to cause inconveniences, and probably losses. Effort should also be made to mitigate unforeseen losses.

AUDIENCE

First major success in real-estate?

OGUNBODEDE:

The first project we did, when we sold out, we had to invest the money else where. That wasn’t a breakthrough for us because we needed to invest the money in some other project.

AUDIENCE

The first success you experienced, how did you feel? How was it like for you?

OGUNBODEDE:

Yeah… it was real. I was still in the bank when we started selling. I hadn’t left fully. By the time we were doing the first one and it was tending towards success, I tendered my resignation letter, and I left. It now became possible to actually realize that we bought a large expanse, and people bought it. It gave us the confidence to do more projects. To me, it was a dream come true, a breakthrough. Sometimes, a breakthrough is not when you make a large amount of money on a deal. The completion/success of that deal, for me, was a breakthrough.

AUDIENCE:

As a real estate developer trying to get property for the people in the low-income group, how do you go about it, knowing that it is difficult to get mortgage facilities for them?

OGUNBODEDE

Well… the first thing to do is to package the different properties for different segments of clients. Before you package any product or property, you should ask yourself some questions like: what is the target market? What is the size of their pocket? What can they afford? For example, a driver that earns N30,000 a month. You can tell him to pay N2,000 every week. At the end of about 3 years, he would have completed the payment for the plot of land you sold to him. So, you can sell land to anybody. The bottom line is that you have to know the person’s cash flow and determine how he/she can pay. The kind of property you give him also matters.

AUDIENCE:

What are the lands that you have currently that are not too expensive for us to afford?

OGUNBODEDE:

We’ll talk about it later. Well, we have land at Ofada For N800,000, at Igbesa for N850,000, at Ikota for N12.5 million, at Ibeju Lekki for N4million, Ikorodu, N1.6M, Akure for N750,000. You can go online to check.

 AUDIENCE:

How do you compensate your staff and motivate them to perform better as against being generous in terms of your pay?

OGUNBODEDE:

Initially, coming from a banking background, I believed that one had to make one’s staff able to be on the same standard with his colleagues. But that is not a sustainable system. The rewards have to match against the effort put in by the worker. You have to pay based on the service being rendered. For marketers, our company pays 100% commission. If you sell a piece of land and your commission is N1million, the company pays it. If it isN10, 000, the company pays it as well.

We have cars, we have drivers, and we have fuel. Everything you need to execute the business is provided. Just sell the land and then get the commission. I often ask my staff if they want a hybrid of salary and commission combined and they insisted that they are okay with the commission. That is for the marketers. But the operations staffs are on salary. I believe that you have to contribute to the growth of the company to justify what you earn.

AUDIENCE:

How do you then balance your office so that the admin staff doesn’t feel left behind, or under appreciated?

OGUNBODEDE:

I have often said that the running of any enterprise is based on sales. Any company that doesn’t make sales is going no where. So, even if you are in operations or in admin, we give you the chance to sell, if you want to sell. Also, if you are in admin or operations, and you are doing well, we will find a means to reward you. But it is quite difficult to compensate a marketer in the same way as an admin person. When an admin or operations person sells, he also gets his commission. At the end of the year, we do awards for them. Some of them get cars; some of them get fridges, and other different things and incentives.

AUDIENCE:

Have you ever had an issue where due to the amount of the commission you offer your staff, a staff of yours has had to divert business deals to a rival of yours, who offers a higher commission?

OGUNBODEDE:

We usually do industry measurement in terms of commission. For example, if I pay 5%, it means that the other rivals are also paying 5%. If that is the case, I don’t see any reason why my staff should do that, except there is a big difference in the commission that the two of us offer. For instance, if I pay a 5.5% commission, and a rival pays 6% commission, that is not a big enough reason for a marketer of mine to work for my rival. Really you can’t do anything about it. Just make sure that your marketers produce results and you compensate them well enough.

AUDIENCE:

How has the real-estate industry fared in 2012 and what projections can you give for 2013?

OGUNBODEDE:

Before 2012, that is, 2008, 2009, 2010, 2011, we had to go through the recession. People lost their jobs, and those that didn’t loose theirs weren’t sure of what they had. So, generally, the purchasing power of the majority of people was low. In 2012, we have seen a bit of a recovery in terms of buying; about 50% back. 2012 has been a bit fair because some people have had their jobs back, and buying power has generally increased. A lot of real-estate firms have come up that weren’t around 2 years back. If this trend continues, 2013 is bound to be more result-oriented.

AUDIENCE:

How do you deal with the issue of fake documents?

OGUNBODEDE:

First of all, you have to do a search or investigation on any property that you want to invest in. You have to have formal education as well as native education. So you need formal intelligence, as well as native intelligence. You have to do a local search and ask people around about the ownership of the property in question. When you want to screen the documents, the first thing is the source, where it comes from.

Any document that is unregistered, that you can’t verify from a formal source, it’s difficult to place it. You have to get a surveyor to come to the site with his GPS to chart it to determine whether it falls within admission, committed, uncommitted, excised, or what ever. You also have to ask the person you are dealing with if the property is free from any encumbrance. You have to involve your partners, the surveyors, and the relevant government offices etc. I think that should take you somewhere.

(L-R) Mr Debo Adejana and Mr Taiwo Ogunbodede at the School of Estate interactive session