CAPITAL MARKETS
Latin America – Overview
Tim Gifford - FRICS, CRE
Managing Director
CBRE Capital Advisors Latin America
Global Capital Markets Group
November 2016
Regional Market Levels
LEVEL I – PRIMARY INVESTMENT MARKETS
Significant Cross-border Activity
Highly Liquid Investment Markets
Brazil, Mexico, Chile
LEVEL II – EMERGING INVESTMENT MARKETS
Increasing Cross-border Activity
Strong GDP Growth
Colombia, Peru, Panama/Costa Rica,
Argentina
Restricted/Limited Cross-border activity
Limited Investment Activity
Limited Product Options
Venezuela, Ecuador, Bolivia, Guatemala,
Honduras, El Salvador
Real Estate Investment in Latin America November 2016
LEVEL III – NON-INVESTMENT MARKETS
• Brazil increasing inflation pressures
• Inflation pressures expected to show increase due to recent rapid currency devaluations.
• Pressure on Lending Rates
• End of Commodity Super Cycle
• Softening of Latam Region Macro-economic growth
• Weakening Brazilian Economy
GDP GROWTH AND INFLATION
(6.00)
(4.00)
(2.00)
-
2.00
4.00
6.00
8.00
10.00
12.00
2010 2011 2012 2013 2014 2015 2016 (f)
GDP GROWTH
Mexico Brazil Chile Argentina Peru Colombia
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
2010 2011 2012 2013 2014 2015 2016 (f)
Mexico Brazil Chile Argentina Peru Colombia
INFLATION
Major Macro Trends
Real Estate Investment in Latin America November 2016
Sources: The World Bank, IMF
Sources: The World Bank, IMF
CURRENCY EXCHANGE
• Strengthening of USD
• Reversal of capital flows: South to North
• Risk Off Trade
Mexican Peso
5-Year Low: 11.98 / 5-Year Hi: 21.22
T 12 Low: 16.16 / T 12 Hi: 21.22 (31% change)
Brazilian Real
5-Year Low: 1.57 / 5-Year Hi: 4.16
T 12 Low: 3.12 / T 12 Hi: 4.16 (33% change)
Chilean Peso
5-Year Low: 460 / 5-Year Hi: 732
T 12 Low: 642 / T 12 Hi: 732 (14% change)
Peruvian Nuevo Sol
5-Year Low: 2.57 / 5-Year Hi: 3.53
T 12 Low: 3.24 / T 12 Hi: 3.53 (9% change)
Colombian Peso
5-Year Low: 1,772 / 5-Year Hi: 3,436
T 12 Low: 2,828 / T 12 Hi: 3,436 (21% change)
Argentine Peso
5-Year Low: 4.16 / 5-Year Hi: 15.80
T 12 Low: 9.65 / T 12 Hi: 15.80 (64% change)
Trends
Source: OTC Interbank
Major Macro Trends
Real Estate Investment in Latin America November 2016
MEXICAN PESO
CHILEAN PESO
BRAZILIAN REAL
ARGENTINE PESO
PERUVIAN NUEVO SOL
COLOMBIAN PESO
Investment Volume
volume in billions (USD)
INVESTMENT VOLUME 2012 – YTD 2016
• Mexico remains favored destination for international investors.
• Brazil is out of favor with contrarian and opportunistic funds leading the way.
• Volume off in Brazil
• Increased activity in Peru
Source: CBRE, Real Capital Analytics
Real Estate Investment in Latin America November 2016
Country 2012 2013 2014 2015 YTD 2016
Brazil 5.82 1.82 3.24 1.39 0.86
Chile 0.39 0.44 0.31 0.08 0.74
Mexico 1.29 7.38 4.64 2.24 1.60
Other 0.13 0.38 0.39 0.33 0.05
TOTAL 7.63 10.02 8.57 4.05 3.25
-
2.00
4.00
6.00
8.00
10.00
12.00
2012 2013 2014 2015 YTD 2016
INVESTMENT VOLUME
Brazil Chile Mexico Other
Investment Origin
45.8%
38.3%
6.6%
4.0%
3.1%1.8% 0.2% 0.1%
0.1%UnitedStatesCanada
Israel
Germany
UK
Chile
Brazil
France
• In the past 12 months, the majority ofsources came from the United States(46%) and Canada (38%).
• Investors consist of REOCs, pensionfunds, private equity funds, open-ended funds, sovereign wealth funds,and REITs.
• Active Funds in Region:• ADIA, Blackcreek, Blackstone,
Brookfield, CPPIP, DEKA, EquityInternational, GIC, GLL, IvanhoeCambridge, Gazit-Globe, PSP,PGIM, UIR, Parque Arauco, andWP Carey, amongst others
CROSS-BORDER CAPITAL - ORIGIN
Source: CBRE, Real Capital Analytics
Source: Real Capital Analytics
Real Estate Investment in Latin America November 2016
ORIGIN VOLUME (USD MILLION)
United States 1,349.40
Canada 1,128.20
Israel 194.70
Germany 117.00
UK 91.00
Chile 53.90
Brazil 5.20
France 4.20
Portugal 1.70
TOTAL 2,945.30
LEVEL I
Primary Investment Markets
Brazil
Chile
Mexico
Primary
Markets
Sao Paulo
Rio de Janeiro
Principal
Sectors
Office
Retail
Industrial
Characteristics
Highly institutionalized at domestic level
Pension Funds and Real Estate Funds
Difficult entry without local partner
Financing In Brazilian Real (BRL)
14.25% Interest Rate
Cap Rates /
Yield
Office 9.0% - 10%
Retail 8.5% - 9.5%
Industrial 10% - 12%
Advantages
High degree of domestic institutionalization
Strong growing economy.
Large and liquid market.
Disadvantages
Reference Currency BRL
High cost of Hedging/ Currency exchange
Excessive domestic dominance of market
Expensive non-viable financing
Highly competitive market
Increasing interest rates
Recent Trends
Local Pension Funds and investors continue
to pursue new real estate investments.
Best opportunities focused on projects under
development.
Slowing cross-border investment activity.
BRAZIL - Real Estate Investment Market
6%
8%
10%
12%
14%
16%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: CBRE
Cap Rate - Prime Office (in BRL)
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 (f)
GDP Inflation (ave)
Sources: The World Bank, IMF
0%
5%
10%
15%
20%
25%
30%
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Lease Rate USD Vacancy
Real Estate Investment in Latin America November 2016
Source: CBRE Research
BRAZIL – Class A Office
Submarket Stock (m2) Vacancy (m2) Vacancy Rate (%) Asking Rent
(BRL/m2/month)
Paulista 1,118,300 144,261 12.90 80-120
Jardins 1,466,100 214,051 14.60 95-175
Marginal 3,112,400 687,840 22.10 60-125
Others 1,555,000 108,850 7.00 50-80
7,251,800
Submarket Stock (m2) Vacancy (m2) Vacancy Rate (%) Asking Rent
(BRL/m2/month)
Downtown 1,869,000 229,887 12.30 120-160
Porto Maravilha 58,600 35,863 61.20 100-140
Cidade Nova 376,300 121,921 32.40 90-110
Flamengo 167,500 44,890 26.80 120-210
Botafogo 375,100 39,010 10.40 120-250
South Zone 158,600 8,089 5.10 150-280
Barra da Tijuca 508,700 127,684 25.10 90-120
Others 147,100 21,330 14.50 80-100
3,660,900
SAO PAULO
RIO DE JANEIRO
BRAZIL CORE OFFICE INVESTMENT MARKETS
• Core international investors are focused on Sao Paulo (Jardins, Marginal) and to a lesser extent Rio (Downtown)
• Domestic investors are active in all markets
• There is very limited Leverage in the market, as such, real estate assets are slow to re-price
• Public equity markets have been quicker to re-price
BRAZIL CAPITALIZATION RATES
Office• Sao Paulo 9-10%
• Rio 10-11%Retail• 9-10% Industrial• 9-11%
Yield rates have pushed out approximately 200 bps over the past 24 months with reduced trading activity.
Q3 2015
Source: CBRE Research
Q2 2015
Source: CBRE Research
Real Estate Investment in Latin America November 2016
BRAZIL - SWOT
STRENGTHS WEAKNESSES
• Class A Office Market Size: Sao Paulo (7.3mm m2 and
Rio total 3.7mm m2 (approx.)
• Liquid Market: Liquidity has constrained considerably in
Brazil with market trading activity off prior levels
• Quality Product: Sao Paulo and Rio have newer
developed office product
• Growing Middle-Class: Increasing demand for real
estate.
• Development Restrictions: Artificial municipal restrictions
to developing new office buildings restricts new product
in areas of Sao Paulo. In Rio natural land restrictions
reduces ability to deliver new product.
Hedging Costs: Exorbitant hedging costs, due to spread between
Brazilian and Euro interest rates.
Lack of Debt Financing: Cost of debt higher than the yield
generated on commercial real estate assets.
Lease Law Structure: 3 year automatic lease review (tenant and/or
Landlord option) makes for a more volatile market
Weak Macro-economic conditions: Brazil has underperformed GDP
growth expectations.
Market Pricing: Brazil is the most expensive market in the region
with rents and sale prices significantly higher than other Latam real
estate markets.
OPPORTUNITIES THREATS
• Portfolio Acquisitions: Brazil has become an institutional
market where investors can acquire large CRE portfolios.
• Reduced Competition: Brazil continues to remain out of
favor with international capital sources reducing
competition for assets.
• Development Pipeline: Brazil offers good opportunities to
develop new CRE product with local experienced
partners.
Presidential Issues: Brazil is currently going through an
impeachment process
Over supply Brazil is experiencing over supply of office product in
Sao Paulo and Rio, and is particularly acute in suburban
submarkets.
Barriers to Entry: Brazil has very high barriers to entry making a
local partner key to any successful market investment strategy.
Increasing Interest Rates: Brazil’s interbank rate increased by 300
bps from 11.25% to 14.25% between 2014 and August 2016.
CONCLUSION
• Brazil does not offer Core investors with direct investment opportunities due to high costs of Hedging and local debt
• Brazil is currently an opportunistic investment market with the majority of the investment opportunities via platform or partnership
Real Estate Investment in Latin America November 2016
4%
6%
8%
10%
12%
2005 2006 2007 2008 2009 2010 2011 2012 2015 Q3 2016
Source: CBRE
Cap Rate - Prime Office
Primary Market Santiago
Principal
Sectors
Office
Industrial (limited existing institutional stock)
Retail (highly consolidated – high barrier to
entry)
Characteristics
Clean modern stock
Very open and transparent market
Considerable condominium stock
Financing In UF
4.5% Interest Rate
Cap Rates /
Yield
Office 6.0% - 7.0% CORE, 7-8%
other
Industrial 8.0 % -9.0%
Retail 6.0 % -8.0%
Advantages
Highly Liquid market
The UF Currency
Transparent market, and efficient legal
system
Very modern Office stock
Disadvantages
Significant amount of new stock being
developed
Office Vacancy rates increasing
Recent Trends
Increase in Regional and Local institutional
investors. (new local funds raised, new
aggressive regional investors entering
market).
UF 0.00
UF 0.25
UF 0.50
UF 0.75
UF 1.00
0%
3%
6%
9%
12%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q32016
Class A Vacancy Class A Lease Rate
-3%
0%
3%
5%
8%
10%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 (f)
GDP Inflation (ave)
CHILE - Real Estate Investment Market
Real Estate Investment in Latin America November 2016
Sources: The World Bank, IMF
Source: CBRE Research
CHILE – Class A Office
SANTIAGO
Q3 2016
Source: CBRE Research
CHILE CORE OFFICE INVESTMENT MARKETS
• Core international investors are focused on Las Condes with best assets and highest demand for El Golf followed by Nuevo Las Condes
• International investors have also been active in other submarkets, but ticket sizes are smaller
• Recent overbuilding and slow down in
leasing activity has reduced investment activity.
• Many Core international investors have reduced acquisitions due to increased Hedging expenses
MEXICO CAPITALIZATION RATES
Office• Santiao Core Office 6-7% • Santiago General Office Market 7-8% Retail• 6-7% (very consolidated market with
historically limited trading activity, market changing with more retail offering trading)
Industrial• 7-8% - smaller ticket sizes - no active Core
international investors
Real Estate Investment in Latin America November 2016
Submarket Stock (m2) Vacancy (m2) Vacancy Rate (%) Asking Rent
(UF/m2/month)
Las Condes 1,520,488 132,282 8.70 0.56
El Golf 932,322 64,330 6.90 0.60
Nueva Las Condes 378,025 15,499 4.10 0.55
Eje Apoquindo 210,141 52,535 25.00 0.52
Providencia 229,495 11,934 5.20 0.50
Santiago Centro 368,461 29,108 7.90 0.40
Vitacura 40,445 2,548 6.30 0.51
2,158,889
STRENGTHS WEAKNESSES
• Large Office Market Size: Santiago is the third largest
office market in Latin America.
• Institutional Market: Chile has a highly developed and
active capital market with numerous local institutional
property investors, enabling easy market exit.
• Quality Product: Las Condes Santiago Chile offers some
of the higher quality office product equivalent to the best
assets in Brazil and Mexico.
• Financing: Chile offers attractive financing terms (interest
only non-amortizing loan structures) Chile offers a very
attractive spread between cost of debt and property
yields (200+bps).
Increased Hedging Costs: Hedging costs have increased over the
past 24 months as Chile raised interest rates to slow inflationary
pressures. This tightening trend appears to be over with looser
monetary policy expected over the coming years.
Political Party: the current President entered power with a more
populist focus, impacting business perception.
High Barrier to Entry: Retail is a very consolidated asset class with
limited opportunity to acquire Core product.
Limited Supply: Industrial has a very limited existing stock of
institutional quality assets.
OPPORTUNITIES THREATS
• Strategic Acquisitions: Chile offers an opportunity to
realize strategic or opportunistic acquisitions.
• Reduced Competition: Investment activity has slowed in
Chile over the past 12 months as Global capital sources
have focused their investment efforts on Mexico.
• Core Assets: The soften investment activity provides an
opportunity to build a significant Core office portfolio.
Over supply: the Santiago office market is experiencing a large
increase in Class A office stock and as such is experiencing an
increase in Vacancy Rates.
Commodities: Chile’s economy has a strong coloration to the price
of Cooper. If global Cooper prices soften this places downward
pressures on macro-economic growth.
CONCLUSION
• Chile provides an attractive market for CORE office product
• Opportunities in Retail are increasing and can offer investor scale
• Industrial opportunities remain limited with smaller ticket sizes
CHILE - SWOT
Real Estate Investment in Latin America November 2016
4%
6%
8%
10%
12%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q3
2016
Source: CBRE
Cap Rate - Prime Office
Primary Markets Mexico City, Guadalajara, Monterrey
Principal Sectors
Office (Mexico City prime market)
Retail (Mexican Peso only)
Industrial (Mexico City, El Baijo, Guadalajara,
Northern Border area)
Characteristics
Very large market
Liquidity is increasing very fast
Legal practices very similar to US
Market in evolution from Family office to
institutions
Financing Available in US$ and Pesos
5%-6% fixed rate
Cap Rates / Yield
Office - 6.5%-7.5% Core
Office - 7-8% Mexico City non Core submarkets
Office - 7.5-8.5% Monterrey/Guadalajara
Retail - 8.0%-9.0%
Industrial- 7.0%-8.0%
Advantages
USD is the reference currency
First market to begin trend of international
institutionalization
Legal and commercial practices very similar to US
Increasing transactional volume
Disadvantages
Market perception related to incidence of violent
crimes in region (perception improving)
Significant new stock being developed
Informal market participants.
Recent Trends
Launch of REIT (FIBRA) structures
Increase in allocation by pension funds to CRE
0%
5%
10%
15%
20%
25%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q32016
Source: CBRE
Class A Vacancy
Class A Lease Rate
-8%
-5%
-3%
0%
3%
5%
8%
10%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 (f)
Sources: World Bank, IMF
GDP
Inflation (ave)
MEXICO - Real Estate Investment Market
Real Estate Investment in Latin America November 2016
MEXICO – Class A Office
MEXICO CITY
MONTEREY
Q3 2016
Source: CBRE Research
MEXICO CORE OFFICE INVESTMENT MARKETS
• Core international investors are focused on Lomas Palmas, Reforma &
Polanco/Nuevo Polanco
• International investors have also been active in Santa Fe, Insurgentes and Bosques -
• Domestic investors are active in all markets (some submarkets have higher amounts of domestic and government tenants and higher exposure to Peso tenant rents – Periferico Sur)
MEXICO CAPITALIZATION RATES
Office• Mexico City Core Office 6-7% • Mexico City Office (other submarkets) 7-
8% • Monterrey/Guadalajara 7.5-8.5%Retail• 8-9% (local REITS underwrite to 8%)Industrial• 7-8% for Core – international investors
focused on el Bajio
Real Estate Investment in Latin America November 2016
Submarket Stock (m2) Vacancy (m2) Vacancy Rate (%) Asking Rent
(USD/m2/month)
Azcapotzalco 105,335 - - 19.50
Bosques 306,913 17,589 5.7 28.24
Insurgentes 680,748 61,975 9.1 25.50
Interlomas 75,397 5,005 6.6 22.17
Lomas Altas 86,464 14,627 16.9 24.14
Lomas Palmas 629,593 85,085 13.5 33.75
Periférico Sur 442,605 46,357 10.5 23.12
Perinorte 377,555 253,988 67.3 19.42
Polanco 935,605 97,964 10.5 30.17
Reforma Centro 700,692 132,193 18.9 31.53
Santa Fe 1,126,599 71,253 6.3 22.58
Other (Atizapan) 11,123 11,123 100.0 17.77
5,478,629
Submarket Stock (m2) Vacancy (m2) Vacancy Rate (%) Asking Rent
(USD/m2/month)
Contry 44,067 2,469 5.6 22.00
Margain-Gomez Morin 189,512 53,094 28.0 30.65
Monterrey Centro 159,790 27,550 17.2 21.75
San Jeronimo - Construccion 74,489 16,686 22.4 19.85
Santa Maria 116,276 27,458 23.6 21.26
Valle 46,643 13,972 30.0 23.52
Valle Oriente 404,062 66,716 16.5 22.62
1,034,839
STRENGTHS WEAKNESSES
• Large Office Market Size: Mexico City offers the largest
office market in the region.
• Institutional Market: Mexico is quickly transitioning into an
institutional investment market. Local REITS (FIBRAS)
are changing the investment landscape creating a highly
liquid market.
• Quality Product: Mexico City has excellent quality office
product.
• Highly Liquid: with the launch of FIBRAS Mexico has
surpassed Brazil as the market with the highest volume
of CRE investment transactions.
• Economic Reforms: Mexico is currently undertaking
extensive economic reforms including: education, fiscal,
oil & gas, and telecommunications.
• USD: Office and Industrial product leases are typically
paid in USD, reducing currency exchange risks/hedging
costs.
Highly Competitive: Mexico is currently the most active investment
market in the region. CRE investors have significant competition
with the launch of Mexican REITS (FIBRAS) who have been
successful in raising capital in the public markets.
Increasing Costs: Increased competition for assets in Mexico is
driving pricing upwards and has caused yields on Core office assets
to compress by over 100bps in the past 24 months. (Core office
assets are located in Mexico City (Lomas Palmas, Polanco,
Reforma)
OPPORTUNITIES THREATS
• Core Product: Mexico City offers investors opportunity to
acquire Core office product in USD with similar risks to
North American gateway cities at a return premium.
• Scale: Mexico offers investors the ability to obtain scale.
Renewed Violence: An increase in drug related violence or an
increase in violence in Mexico City may impact international
investor market appetite.
Change in FIBRA regulations: Possible changes in Mexico’s new
REIT structures could negatively impact a major CRE market
participant.
CONCLUSION
• Mexico continues to remain as the region’s primary investment market of focus. A trend which is expected to continue for the
foreseeable future.
• Local REITS have significantly increased market liquidity over the past few years.
MEXICO - SWOT
Real Estate Investment in Latin America November 2016
LEVEL II
Emerging Investment Markets
Peru
Colombia
Argentina
Costa Rica - Panama
PERU - Real Estate Investment Market
Primary Market Lima
Principal
Sectors
Office (USD rents)
Retail (Limited existing non-condo product)
Industrial (USD rents)
Characteristics Large city, strong economic fundamentals
and much development going on.
Financing Limited
Tailor made solutions
Cap Rates /
Yield
8 - 10% office
9-10% industrial
Advantages
USD is the reference currency.
Legal and commercial practices are very
reasonable.
Liquid domestic players
Recent investment grade will increase
liquidity
Large population base (Greater Lima similar
in population to greater London)
Disadvantages
Market Size
Limited completed product
Extensive condominium ownership
Recent Trends
Institutional investors from Europe and the US
are increasingly focusing on this market. It will
probably be the next market to emerge as a
target for the institutional investors.
0%
3%
6%
9%
12%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 (f)
GDP Inflation (ave)
250.7
334.1
414.9 448.5
506.3 571.0
641.4
838.7
960.6
0
200
400
600
800
1,000
1,200
-
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
2008 2009 2010 2011 2012 2013 2014 2015 Q2 2016
New Supply (000's m2) Net Absorption (000's m2) Inventory (000's m2)
0%
2%
4%
6%
8%
10%
12%
14%
0
5
10
15
20
25
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q32016
Class A Lease Rate USD Class A Vacancy
Sources: The World Bank, IMF
Source: CBRE Research
STRENGTHS WEAKNESSES
• Strong Economic Growth: Peru is the fastest growing
economy in South America.
• USD Leases: Office and Industrial property have leases
executed in USD, eliminating the need to hedge currency
exposure.
• Constrained Office Markets: Lima’s Core office markets
of San Isidro Financial and Corporativo have limited
ability to deliver significant amounts of new office product
creating a constraint on new supply in these submarkets.
Market Size: Peru has a relative small stock of Core Class A office
property and thus a limited amount of investable assets. (this is
rapidly changing).
Financing: While financing is available the local financing market is
limited and larger deals are often financed via club type structures.
OPPORTUNITIES THREATS
• First Mover Advantage: Core investors are beginning to
enter market. GLL is the first active international Core
investor. Peru offers investors the ability to invest ahead
of the “curve” of broader international investment market
• Office and Industrial: Ability to acquire Core office and
Industrial properties.
Over supply: As Peru’s office market stock is limited new office
developments can increase the market size in large percentages
and may cause short-term impacts to market vacancy rates.
Commodities: Peru’s economy has benefited from mining and
demand from China, a softening in demand for minerals and
commodities could negatively impact Peru’s GDP growth.
CONCLUSION
• The Peru office market appears to be emulating the Chilean market evolution of the past 10 years. We expect Peru to become a
CRE investment market comparable in quality, size and conditions to Chile.
• Recent political changes provide an attractive opportunity
• Peru is the second fastest economy in the region
PERU - SWOT
Real Estate Investment in Latin America November 2016
COLOMBIA - Real Estate Investment Market
Primary
Markets
Bogota
Cartagena, Medellin, Cali
Principal
Sectors
Office
Retail
Industrial
Characteristics
Emerging investment market, although the
local real estate funds have been active for
some time.
Financing Case by case approach. Non-recourse
financing may be hard to find.
Cap Rates /
Yield 9 -10% office
Advantages
Colombia recently received Investment
Grade status
Large major cities
Disadvantages
Most commercial properties structured as
condominiums
Limited existing investment stock
High Cost of Debt / Limited availability
High Hedging Costs
Recent Trends
An increasing number of international
investors is beginning to look at this market for
potential development opportunities.
Significant amount of new funds flowing into
market.
0%
3%
5%
8%
10%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 (f)
GDP Inflation (ave)
Real Estate Investment in Latin America November 2016
Sources: The World Bank, IMF
COLOMBIA - SWOT
STRENGTHS WEAKNESSES
• Growing Middle-Class: Increasing demand for real
estate.
• Global Interest: Colombia is attracting capital investment
from numerous global investors: Blackstone, CPPIP,
PSP, Equity International, amongst others. (Funds
investing indirectly via local operators/developers).
• New Product: Ability to develop and acquire new CRE
product.
• Lack of Supply: Due to years of civil unrest a
demand/supply imbalance exists in Colombia creating
development opportunities.
Hedging Costs: High costs associated with hedging currency
exposure reduce market viability for Core investors needed to
hedge their currency exposure.
High Price: Due to the current high level of capital searching for
limited CRE opportunities assets are fully priced in Colombia.
Limited Existing Stock: Colombia has a limited amount of Core
institutional product available to acquire.
Highly stratified market: majority of office and retail has been
developed via stratified condominium ownership structures.
Highly Competitive Landscape: Colombia has a highly competitive
market with numerous local capital sources competing for
assets/development sites.
Financing: Cost of debt is equivalent to yields on CRE.
OPPORTUNITIES THREATS
• Forward Purchase/Development: Colombia offers good
JV platform and forward purchase development
opportunities.
Change in Zoning Laws: Possible changes in zoning laws could
impact ability to deliver new CRE product in Bogota.
Political Unrest: A resurgence in guerilla anti-government groups
could destabilize the economy.
CONCLUSION
• Colombia has limited current CORE investment stock
• Colombia presents a very attractive growth market, but requires investors to assume some type of development or forward risks
Real Estate Investment in Latin America November 2016
COSTA RICA -- PANAMA
Primary
Markets San Jose / Central Valley
Principal
Sectors
Office
Retail
Industrial
Hotel/Tourism
Characteristics
Emerging investment market, although the
the local real estate funds have been active
active for some time.
Financing Yes
Cap Rates /
Yield
Office: 8-10%
Industrial: 9 - 10%
Advantages
Liquid investment market
High credit multinational tenants
Market operates in USD
Educated workforce (office demand)
Disadvantages Small market in relative size
Recent Trends
New market entrants, influenced by the
signing of CAFTA (Free Trade Agreement)
Entrance of international institutional capital
capital
Deregulation of Telecomm and Insurance
industries
Primary Market Panama City
Principal
Sectors
Office
Retail
Industrial
Hotel/Tourism
Characteristics
Active economy. The office an industrial
stock does not reflect today the future
potential of the economy.
Financing Yes
Cap Rates /
Yield
Office: 8-9%
Industrial: 9-10%
Advantages
USD is the reference currency
Efficient and secure legal and commercial
commercial system.
Significant government infrastructure
spending.
Disadvantages Lack of product (small volume)
Tainted by the residential oversupply
Recent Trends
Recent influx of international investors and
developers with strong focus on residential
development.
Significant infrastructure government
spending.
Real Estate Investment in Latin America November 2016
COSTA RICA/PANAMA - SWOT
STRENGTHS WEAKNESSES
• High Credit Tenants: Office Costa Rica
• Institutional CRE Market: Costa Rica has local small
institutional property investment funds.
• Educated Work Force: Costa Rica has a highly educated
educated work force allowing for significant Near-shoring
shoring by US Multinationals. Office Demand Driver.
• Strong GDP Growth: Panama is the fastest growing
economy in the Western Hemisphere.
• USD Leases: Both Costa Rica and Panama use USD
leases, eliminating currency hedging expenses.
Stratified Ownership: Costa Rica Retail, Panama Office
Limited Stock: Both markets have a small existing stock of Core
Core product. (exception: Costa Rica has significant stock of
Institutional Office Business Parks).
Financing: Local financing markets are not extremely deep. Larger
Larger loans are often completed via club structures in Panama.
Panama. Costa Rica has 4 major active commercial bank lenders.
lenders. Longer term financing or interest only bullet loans are
exceptions as opposed to market norm.
OPPORTUNITIES THREATS
• High Credit Leases: Costa Rica office could enable an
an investor to acquire strong corporate credit quality
quality leases for corporate campus style building (HP,
(HP, Intel, BoA, Merrill Lynch). Ticket sizes surpassing
$100mm available in the market. (mainly Office
buildings).
• Industrial Panama: demand for logistics centers in
Panama is increasing with the expansion of the Canal.
Canal.
• High Yield Markets: Costa Rica offers investors a delta
delta with high yields and low credit risks. Long term
corporate multinational credit guaranteed leases on
on property assets with yields 9% +.
Market Depth: An investor could easily become the largest
institutional owner in the market with the acquisition of a few major
major assets. The lack of market depth could complicate a potential
potential market exit.
CONCLUSION
• Costa Rica and Panama should be treated as one market due to size and legal structure similarities.
• Small market size with small transaction sizes. An investor would have complications allocated over $500 million to both markets.
markets.
Real Estate Investment in Latin America November 2016
THANK YOU
Real Estate Investment in Latin America November 2016
CBRE, Inc.
Licensed Real Estate
Broker© Copyright 2016 CBRE Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee,
warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the
material are reserved and cannot be reproduced without prior written permission of the CBRE Global Chief Economist.
TIM GIFFORD
Managing Director
CBRE | Capital Advisors Latin America
+1 305 428 6341