Professional Documents
Culture Documents
com
FOR THE WORLDS PRIVATE REAL ESTATE MARKETS
Sponsors:
Equity International
LaSalle Investment Management
Supporter:
UBS Global Real Estate
NEWS ANALYSIS
Most read on
in 2014
THE 2014 GUIDE TO PRIVATE REAL ESTATE INVESTING IN LATIN AMERICA | PERE
A sizable pipeline
Lately, Latin America has become front and center again for
EI. The firms current portfolio includes new investments in
Mexico, Brazil and Colombia, with an eye to extending across
the Andean region, according to Brian Finerty, senior vice
president and co-lead of investments. While it also continues to look at emerging markets in Asia and Eastern Europe,
Latin America accounts for the bulk of its investment activity.
For example, EIs five portfolio companies in Brazil, Mexico
and Colombia currently represent approximately 70 percent
of the firms assets under management, while its two other
companies in Asia make up the remainder.
Now, we see a different story playing out in Latin America,
Finerty says. In the past, the entire region felt like one big
growth engine. Today, each country in Latin America has
more disparate economic prospects. The various countries
within the region are striving to stay competitive globally and
maintain growth projections in different ways, such as signing new free trade agreements and implementing labor and
economic reforms.
The changing economic landscape in Latin America, in
turn, is spurring new opportunities. With respect to our
pipeline, we feel good where its at, says Finerty. Actually, its
probably bigger than it has been in years.
Finerty, who joined EI in 2009, said the firm currently is
evaluating an investment pipeline of more than $1 billion in
the region. The opportunities span Colombia, Mexico, Peru
and Brazil and across property types, including industrial
and retail real estate.
PERU
MEXICO
BRAZIL
PERE | THE 2014 GUIDE TO PRIVATE REAL ESTATE INVESTING IN LATIN AMERICA
Over the last three years, domestic real estate capital markets
have deepened considerably. It was just three years ago that
the first Mexican REIT or Fibra for its acronym in Spanish
was formed. Since then, the local REIT market has increased
its market capitalization by more than $6 billion per year.
Today, there are eight Fibras plus two developer operators on
the Mexican Stock Exchange.
Source: Bloomberg
PERE | THE 2014 GUIDE TO PRIVATE REAL ESTATE INVESTING IN LATIN AMERICA
THE 2014 GUIDE TO PRIVATE REAL ESTATE INVESTING IN LATIN AMERICA | PERE
11
PARTNER FOCUS
Pan-regional challenge
PERE | THE 2014 GUIDE TO PRIVATE REAL ESTATE INVESTING IN LATIN AMERICA
Paladin looks for four things in a joint venture partner: integrity and good character; competency in a particular strategy;
the ability to have skin in the game, or a meaningful coinvestment; and an attractive pipeline of prospective projects. A
long-established presence in the market also is critical.
Wed much rather partner with a local development firm
thats been active in a particular market or country for a decade
or more than compete directly with them, Gortner says.
Paladin has been forming joint ventures in seven countries in
the region for more than 15 years. The firm has teamed up with
more than two dozen local operating partners over that period
of time, most of which are still on the roster for current joint
ventures. Ricardo Raoul, a former local operating partner, even
joined the firm last year as its Brazil country head.
Gortner expects that 75 percent to 80 percent of Paladins
fourth fund, Paladin Realty Latin America Investors IV, will be
comprised of new joint ventures with longstandVertical integration
ing local operating partners. The more you repeat
Finding good partners in Latin America can be so
successful local partner relationships like that, the
difficult that some long-established players have
more substantially you reduce the partner risk and
since shifted to vertically integrated platforms.
you enhance the execution of a joint venture busiFor example, Compass for-rent housing platform
ness plan, he says.
does all development and management in-house,
While well-established players are desirable, they
and the firm has its own sources of information,
also are harder to come by. Andragnes notes that
technology and procedures rather than relying on
every market has a handful of well-known players,
third-party systems.
but other potential partners are more difficult for
Meanwhile, Black Creek initially conducted joint
US investors to access and often operate with difventures for its Mexican industrial platform when
it first entered the country more than 15 years ago,
Mulvihill: utilizing his ferent performance standards.
firms own local team
Even some of the largest Fibras in Mexico do
but it has seen greater success in using its own local
not have institutional property management systeams and operating systems rather than allocating
the capital. I hear people insinuate that, without a local partner tems, notes Mulvihill. When evaluating potential partners,
in Mexico, youre not going to be able to get things done because you really have to look at the inherent systems that the company
the corruption is so prevalent, comments Mulvihill. I couldnt has developed and how robust those systems really are.
disagree more.
While investors in Black Creek and Compass investments Avoiding bad experiences
have voiced a preference for this vertical integration, Posthuma The most serious consequences of not conducting thorough
has seen the fees associated with integrated platforms present due diligence is poor investment performance, or the total disissues for investors in the past. He notes that some LPs prefer to integration of the partnership itself. Ive had situations where
keep service providers at an arms length.
clients have gotten involved with people who were really disRightly or wrongly, theres definitely a suspicion on the part honest. They were defrauded by their local partner in situations
of a lot of investors that somehow vertically integrated platforms where they didnt do good due diligence and maybe took the
are charging more fees than they would have with a third-party word of someone a bit too seriously when they shouldnt have,
developer or property manager, he says.
comments Posthuma. From a documentation perspective,
Meanwhile, Paladin approaches the situation from both when youre negotiating your development agreement or JV,
angles. The firm primarily uses joint venture partners, but it also you need to have something that adequately protects you.
has in-house development expertise to do select direct deals.
Adds Mulvihill: Whats unfortunate is that many large instiHaving direct development capability in-house is important tutions have had bad experiences as a result of people allocating
for a couple of reasons: it improves your underwriting and the capital to the wrong partners. Still, that doesnt mean that the
ability to manage and adds immeasurable value to a joint ven- opportunities arent there. In fact, the opportunities are better
ture investment, says Gortner. Youre much more responsive now than ever.
if youve actually been a developer, understand the questions
A good partner takes time to find and cultivate. Once found,
and issues facing a real estate project and can react in a more however, such diamonds in the rough are worth the wait.
THE 2014 GUIDE TO PRIVATE REAL ESTATE INVESTING IN LATIN AMERICA | PERE
13
The fourth option is debt. Although Mexican banks currently are very risk averse in terms of residential lending,
mezzanine or debt financing measures can plug that financing gap, Munk says.
Limited to homebuilders
17