By his own admission, founder of Access et al, Ermyas T. Amelga, has collected over 1.3 billion Br from the public, through Access Real Estate SC, a company he helped establish and where he controls a majority share, alongside Access Capital Services SC. Yet, his closest business associates estimate the figure could be as high as 1.7 billion Br, mobilised from homebuyers numbering a little over 2,000.
Today, the real estate firm, praised by many of Ermyas’ supporters as pioneering the industry, finds itself in a typical “bank run” crisis. It is a situation in which a large number of customers demand to withdraw their money simultaneously, due to concerns over a company’s solvency. Such a decision from customers comes when they panic about the prospect of losing their savings.
Nothing explains the mood in Addis Abeba over the past couple of weeks, in relation to Access Real Estate, better than sheer panic. Only last week, prospective homeowners conducted a series of meetings in different sites of the company, plotting a way to recover their money or retain assets believed to be under the company’s deed.
One such meeting took place inside a construction site located adjacent to Nyala Motors, where Access Real Estate entered into the market immediately after it was formed by 65 shareholders. It is a plot leased by the city to Eskinder Kassa, a returnee businessman who wanted to start a real estate business in the early 2000s. Partnered by Access, he formed a company by the name ME’RAF Plc, where Access held a majority share, and leased over 6,000sqm plot from the city administration.
It was to be one of the first projects for a public company that had managed to raise close to 35 million Br in equity from its shareholders.
The contract to build eight blocks of condos was given to Gabby Investments Plc, owned largely by Biniam Mebrhatu, an engineer by training and a founding shareholder of Access Real Estate – although he left the company after selling his over two million Birr’s worth of shares, shortly after the firm’s founding, in 2008.
Almost three years on, homebuyers on this site have yet to receive one flat and the site remains a construction zone. Although 50pc of the work has been completed, consuming a total of close to 129 million Br, it has been over a year since construction activities were halted, owing to the construction company’s claim of an outstanding payment of 25 million Br, Fortune confirmed.
This outstanding payment included an adjacent plot, which Access sold houses on, after acquiring it from another company, owned largely by Laura Plc. Almost completely sold to homebuyers, after the company advertised floor plans, the project has so far consumed 85 million Br of investment.
These investment amounts are part of the 500 million Br Ermyas claims the real estate firm has spent in hiring contractors for 19 sites across the city. Another company with products new to the domestic construction industry has been paid as much to deliver not only homes to buyers, but also impact the overall business model of Access Real Estate.
YBEL Industry Plc, which claims to have an ambition of “building change”, was paid 260 million Br to work on 12 sites, introducing a construction scheme that is different to the conventional method of employing rebar, blocs and concrete. YBEL’s emergence on the local construction industry scene is intertwined to Access, due to Ermyas’s bold business venture in promising to deliver homes within one year, for apartments, and 18 months for villas. It was also daring of Ermyas and his rather passive board of directors to pledge a penalty for failure of 5,000 Br, in monthly rent, or the option of a full refund with 15pc interest mark-ups, to those who demanded their money back.
YBEL Industry was established by three young professional shareholders; Yonas Tadesse, Brehane Woldu and Luchiano Framolin, the latter is now only a board member. The shareholder base later on increased, after Noah and Teklebrehan Ambaye, the construction mogul and brother of Brehane, joined the company.
Priding itself as a pioneer, in introducing “revolutionary construction methods”, YBEL provides turnkey projects of residential, commercial and industrial structures using light gauge steel structure frames, agro-stone panels and magnesium boards. The company has acquired a factory, and owned by a Chinese company on a 150,000sqm plot it leased in the Tateq area, on the outskirts of Addis Abeba.
It is here that raw materials, such as magnesium oxide, mined from a query near Qinticha, Oromia Regional State and fibre, imported from China, get mixed to manufacture the magnesium boards and agro-stones. It is also here that light steel structures, imported from the same country, are framed before being shipped out to construction sites.
And, many of the sites Access acquired from other companies and sold houses for are contracted out to this company, which is thought to build on no less than 65,000sqm of built up area. Faster to be erected, allegedly cheaper in price, and considered to be fire resistant and safe from hazards, shareholders of YBEL are passionate in introducing this technology, which managers claim costs 4,000 to 5,000 Br a square metre, almost half the price of conventional methods.
However, it is not a claim without a challenge by many in the construction industry, who suggest that the price may go as high as 12,000 Br a square metre.
Despite the dispute within the industry, YBEL has succeeded in securing contracts from the state owned Metal & Engineering Corporation (MeTEC) to build 10 blocks of apartments in Mojdo and over 1,000 units of housing in the labour camp at the Great Renaissance Dam.
Its largest contract, both in volume and value, came from Access Real Estate, which signed out deals worth over three billion Birr initially – subsequently brought down to a little over two billion Br. It was to construct apartments and villas on at least 12 sites, successfully marketed and sold by Access for 750,000 Br each, for three bed-room flats, and 686,800 Br each, for two bedrooms. The company had pledged to deliver these homes within a year and close to two years.
The first attempt was rolled out on a plot leased by Meri Real Estate Plc in front of the CMC residential complex, on a little over 8,000sqm, originally leased by Star Business Group. Access bought 75pc of shares in Meri, in the same manner it did with ME’RAF Plc, to build four-storey apartments, dubbed “Diplomatic”, in two blocs, and designed by Living Steel Plc, a company that has subsequently merged with YBEL Industry.
Ermyas was little prepared for the abrupt decision of local authorities, to suspend 15 projects in Yeka District, following claims by the Addis Abeba Chamber of Commerce over the plots to build an international trade fair facility on a 110,126sqm plot. Delayed significantly, the resumption of construction was forced to change from four to seven storeys, thus almost doubling the number of homebuyers. This also led to the change in plan to use steel structure, whose imports Access Real Estate advanced 2.6 million dollars to cover letters of credit opened at Zemen Bank.
Although a bomb-shelter like concrete foundation, comprising of an underground parking lot, was laid by an Italian subcontractor, MISAC, today, the steel bars, spread out and left in view, serve as grim reminders of a project abandoned for sometime; they were erected to hold the structural steel that has been left to rust inside ports in Djibouti.
Managers at YBEL would give curious visitors a tour of their plant, in Tateq, to show the light gauge steel brought in to use at the Meri site, before the plan was changed to use structural steel. But, they still hope to use them for internal partitions, alongside the magnesium boards, which they claim to have the manufacturing capacity to produce 3,000 units in one shift.
It remains a mystery for many that a real estate firm, entrusted with billions of Birr advanced by homebuyers, can struggle to settle what it owes its bank, in order to complete the import of steel structures. It is largely due to Ermyas’ ill fated decision to not invest the money collected from homebuyers to complete the sites already sold. Rather, he channelled this fund to Access Capital Services, an investment offshoot of Ermyas’, established a year before the formation of Access Real Estate.
Promoted mainly by Ermyas and his one-time business confident, Haileleul Tamiru, Access Capital Services has had as many as 280 shareholders, who raised the registered capital of close to 80 million Br. It is this company that had investments worth close to 95 million Br, in shares, in 10 subsidiary companies, including Access Real Estate.
It was a daunting indictment on Ermyas’ management style when independent auditors, Kokeb Moges & Co, revealed last year that 75pc of investments made by Access Capital Services were financed by funds mobilised from the public through Access, Pacific and Meri real estates. All of which are companies where the majority of homebuyers put their life savings, placing their faith on a man they viewed as a brilliant investment banker, with solid experience in Wall Street.
A father of five, Ermyas came back to Ethiopia in the early 1990s and acquired the state-owned edible oil plant, Edget, which he changed to a mineral water bottling company. Jointly owned with two American citizens, Apex Bottling was his flagship company that surprised the market once dominated by Ambo, with its Royal Crown Water brand. Facing negative publicity shortly after its launch, his resurgence came with the nation’s first table water, Highland Water, bottled inside the same plant, which not only won him public admiration, but too, was a pioneering venture copied by over 20 bottlers since then.
Despite another slump in business, due to tax related problems, his resilience to promote and open a financial firm, Zemen Bank, is viewed by many as an inspiration and a symbol of native entrepreneurship. Ermyas had enormous public goodwill to cash in on when he offered apartments and villas promising short delivery, cheaper prices and style.
He has succeeded in delivering none of these. If there is any chance, a scheduled delivery of villas appears to be just two months away on Access Real Estate’s site in the Lebu area. Beneath Furi Mountain, Access acquired the 60,000sqm plot, its largest site, from an individual, and has over 71 villas with a total built up area of 7,100sqm under construction.
On Friday afternoon, few in number, but busy construction workers were putting up the installations of fittings to complete at least 10 villas, which are almost through with major construction works. Given the collection of site works, these are villas where only finishing jobs remain and soon they will be ready to house their prospective residents. An additional 29 villas are scheduled to be completed within another two months, if YBEL gets the finishing materials supplied by Access contractors, according to managers of YBEL.
Although YBEL’s managers have declined to disclose how much remains outstanding from what they were paid in advance by Access Real Estate, after stock and completed works are accounted for, they say that they will continue to work on the Lebu and Pacific sites to the extent that the outstanding amount allows them to go. At the Pacific site, Access hopes to deliver 52 villas and 13 apartments, in a total built up area of 22,000sqm.
Nonetheless, YBEL may owe Access Real Estate almost half of what it was paid in undelivered works, according to sources.
“Close to 110 million Br worth of construction payment has not been properly carried out, thus the company is taking corrective measures,” Access told its disgruntled homebuyers two weeks ago.
Although shy from pointing fingers at any of its three contractors, it is clear who is being blamed here. YBEL managers are, however, willing to be audited by a fact-finding team that the Access’ board of directors may form, they told Fortune. Yet, the involvement of the board of directors in overseeing the governance of the company’s affairs has been questionable.
Access board consists of shareholders, such as; Tsehay Legesse, Tamrat Shita, Amsale Bayu (the company’s lawyer), Tigist Negede, Tesfaye Legess, and Ermyas himself – ETG Designers Plc and Haileleul resigned from the board close to two years ago. None of these directors have stopped Ermyas when making investments worth over a billion Birr, acquiring questionable properties in over 34 sites, and other assets Access Capital Services own – a company where Ermyas has commanding shares of 40pc.
They are questionable because that was what the auditors found out a year ago.
“Even if the company has sold real estate homes and shops to many customers, the majority of the properties for future constructions lack approved building plans, as title transfers are pending,” reads the audit report on the books of Access Real Estate, disclosed last year.
Even after such a revelation by external auditors, the shareholders, who met at the Hilton last year, gave Ermyas a standing ovation and elected him to serve on the board, whilst the board of directors voted him to remain as their chairperson. A series of irregularities and misconducts, contrary to general accepted accounting standards, such as the unconsolidated accounts of the various companies, experts feared showed a misleading financial position of Access. Nonetheless, shareholders had endorsed the qualified audit report with no move to right the wrongs.
So do prospective homebuyers continue to pour their hard earned money in, despite public disclosure of this murky state of affairs of both Access and its many tentacles. So long as cash is being poured into the companies’ accounts held at Zemen Bank, the business model was meant to oil the huge business machinery Access has designed to operate.
This, too, changed abruptly a few weeks ago when a retired military officer who was issued a cheque for a refund by Access, reported an alleged cheque bounce crime to the police. Ermyas was put under police custody for a night, as the case was explained by the Bank, not as the result of insufficient funds, but rather, due to a suspended account on order from a court of law. The person was paid right away, an amount which is part of the 65 million Br Access has so far paid to those who have demanded their money back, with the 15pc the firm had promised it would pay in cases of defaults in delivery.
The retired officer was one of many with cheques that were unable to be cashed immediately. Subsequent to the news that Ermyas had been detained, there was panic among cheque holders who began to rush to the banks for cash, or threaten to report to the police. Ermays chose to stay away from the country, thus beginning a futile attempt to settle cases from afar. He is still in the United States running the show by proxy.
The widespread panic that these turn of events instigated not only compelled many homebuyers to get organised, in to exploring methods of recovering their prospective losses, but too, it gravely damaged the firm’s business model, which requires constant cash flow.
In the absence of bank loans, which the central bank instructed Zemen Bank not to advance to Access’ companies, and with no capital base to oil the machinery, the story of Access Real Estate appears to have reached a point of no return. Despite Ermyas’s continued pledges that he will be back and salvage the companies, the bank run state of affairs is too large to be handled by anything less than a government bailout, suggested a person who worked for Ermyas for many years.
The kind of salvage Ermyas has in mind is to sell off some of the assets he has acquired, but at a significantly lower amount than if he did not have to sell quickly. For instance, brokers in town are busy searching for buyers for an asset Access has on Africa Avenue (Bole Road) for a calling price of 22 million Br, Fortune has learnt. It is a textbook solution for a firm that goes insolvent due to a bank run. Buyers are not easy to come by, however.
“The market is depressed,” said a contractor who also runs a real estate firm. “Due to the regulatory shock last year from the newly revised lease law, many are cautious of putting their money into this.”
Indeed, a rewritten law governing the lease market last year, that has put a much higher regulatory burden on the transactions of leased plots, was one of the biggest blows to Ermyas. No lease right can be transferred to a third party before at least half of the construction has been completed on leased plots. Access has no plot where construction is finalised to that stage.
“He has just turned out to be unlucky on many fronts,” said another real estate owner, who partnered with him briefly.