Last week, Purple, a Nigerian real estate company, announced its initial public offer (IPO). The company plans to sell two billion ordinary shares to the market to raise ₦10 billion ($13.3 million) at a pre-money valuation of about ₦20 billion ($26.6 million) and post-money valuation of ₦30 billion ($40 million).
This announcement coincided with the release of the company’s unaudited financial statement for the nine months that ended on September 30, 2022. Purple recorded gross earnings of ₦5.9 billion ($7.9 million), up 207.8% year-on-year. Its profit after tax rose by 552.7% year-on-year from ₦198.1 million to ₦1.3 billion ($1.73 million).
The company’s CEO, Laide Agboola, told TechCabal that the fund raised from its IPO will help the company complete existing projects and embark on new projects, most especially democratising ownership of real estate in Nigeria through the creation of a digital real estate marketplace.
“Homeownership in Lagos alone is less than 5%. This means virtually everybody is paying rent to a landlord somewhere; and out of that 5%, less than 1% have access to mortgage,” Agboola told TechCabal. “We want to build a Nigeria where everybody can own homes and commercial assets.”
Founded in 2013, Purple has grown over the years to become one of the country’s leading real estate companies, with its landmark project being the Maryland Mall in Lagos, which boasts of having the largest LED screen in sub-Saharan Africa.
The company is currently developing Purple Lekki, a mixed-use centre with entertainment facilities, working spaces and 157 residential units; and two short-term student accommodations in Kwara state and Ibadan, Oyo state.
Beyond the company’s building projects, it’s expanding its product line to include: Fractions, a fractional real estate investment platform powered by blockchain technology; Purpleshop, an online store bringing together established mall and standalone retailers; Purple TV, an online TV channel to showcase and invest in Nigerian arts and creatives; and Retail Banking, its microfinance bank looking to expand on its retail banking play, starting with an investment in a mortgage bank.
Fractions: A digital real estate marketplace
Purple, which has over ₦30 billion in assets, plans to create over ₦80 billion worth of assets over the next 12 months with the fund raised to trade on its digital marketplace. The company also intends to add ₦50 billion worth of third-party real estate assets to its marketplace.
The creation of a digital real estate marketplace for purple’s existing assets, and that of other real estate players in the space, signifies the company’s foray into the proptech scene, albeit through an unusual route, considering that many proptech startups primarily focus on access and management of real estate properties.
Here’s how the digital real estate marketplace will work. Similar to shares, individuals will now be able to own real estate assets at a fractional level by buying tokens that represent a part of these real estate assets. The company disclosed that people can buy tokens for as low as ₦1,000 ($1.3).
In order to comply with regulatory requirements, Purple is registered as a real estate investment company (REICO) with the Securities and Exchange Commission (SEC), which allows it to sell securities. REICOs are collective investment schemes that pool funds from the public for the purpose of investing in and managing assets and portfolios of real estate and are regulated by the Nigerian Securities and Exchange Commission.
Holders of the tokens will receive a share of the income generated from the properties their tokens represent.
“This means that for every rent that comes from Purple Maryland or Purple Lekki, you can derive benefits by simply holding the tokens attached to these properties,” Damola Akindolire, a Real Estate Advisor at TK Tech Africa, a web3 startup partnering with Purple on the digital marketplace project, told TechCabal. Purple disclosed that it owns a 15% stake in TK Tech Africa.
Akindolire further explained that this digital marketplace will be powered by blockchain technology. In preparation for the launch of this marketplace, which would take place by Q1 2023, TK Tech Africa has signed partnerships with other trading houses or exchanges in Nigeria and the African market.
“Nigeria is the largest market in Africa, and the second most developed African country, there is no reason we should be behind on digital assets,” Agboola said.
Purple’s central selling point for its digital real estate marketplace is that, unlike conventional financial instruments such as bonds and equities that are exposed to macroeconomic factors such as inflation and other factors that devalue them, these macro factors enhance the value of real estate assets.
“We have a mixture of assets, yielding assets form 75% of the portfolio, while the remaining 25% are development assets. Development assets typically will generate a yield of up to 40% in return, while yielding assets give a yield of anywhere between 10 to 15% return. A blended position of those two portfolios will then help us achieve a yield above inflation targets, which is about 18% on average over a 10-year period,” Agboola told TechCabal.
Agboola shared that part of what sets Purple apart from other players in the proptech space is that the company is adding technology on the back of the real estate assets that it possesses.
Raising funds from local investors
Out of the $4.3 billion raised by African startups in 2021, only $14.7 million flowed to Proptech startups on the continent. In Nigeria, Fintech startups accounted for almost $900 million of the $1.37 billion raised by startups in Nigeria, while proptech startups in the country raised just over $2 million.
These figures highlight a huge discrepancy in the funding that flows to the nascent proptech startup industry. The entry of an established player such as Purple and its digital marketplace could lead to increased funding in the space, especially from local investors.