Final Deal Book_Heyer

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Brazil

Porto Maravilha Reinventados Incubation of Arts and Culture through Live-Work Redevelopment

D e a l B o o k | M i c h a e l H e y e r | C o l u m b i a U n i v e r s i t y | S p r i n g 2 0 1 6

S a o P a u l o

R i o d e J a n e i r o

2

Executive Summary …….………………...3

Summary of Terms …………….………….4

Current Market Conditions ………………5

Outlook for Investment in Brazil

Risks & Mitigants

Fulfilling Unmet Demand

Overview Porto Maravilha ………………..8

Vision ……..………………………………..12

Overview – Porto Maravilha

Minha Jarda

Pedra Estúdios

Precedents ………………………...………15

Wynwood, Miami

Vila Madalena, Sao Paulo

Fábrica Bhering, Rio de Janeiro

Site Details ……………………...…………20

Current Site Conditions

Proposed Site Conditions

Building Heights

Financial Summary …………….………..23

Overall Assumptions

Residential Assumptions

Retail Assumptions

Pertinent Assumptions

Tax Structure

C o n t e n t s

3

Location

Porto Maravilha is a neighborhood is transition that is rich with arts & culture with a distinctly

urban feel.

Proximity to Centro, Rio de Janeiro’s CBD, with 80% of office stock.

Adjacent to Pedra do Sal, the birthplace of samba and gathering place for samba lovers.

Property

Minha Jarda – the neighborhood’s “living room” that is created through private-owned private

space that is complimentary to Pedra do Sal and serves as an artistic incubation area.

Pedra Estúdios – Live/Work rental units catered to both artists and millennials seeking a unique

urban lifestyle. Units feature ground floor retail with residences on subsequent floors.

Market

There is currently finite investor competition with limited capital available to take advantage of

current opportunities.

Favorable long-term fundamentals exist in Brazil; near-term distress with long-term growth.

Assets will be inexpensive with considerable upside potential, especially with proximity to transit

E x e c u t i v e S u m m a r y

Type Live/Work Studios

Residential RSM 3,467 sqm

Rental Rate $88 /sqm

Retail RSM 2,910 sqm

Rental Rate $126 /sqm

Gross Area 7,502 sqm

Stories 2 - 3 stories

Property Snapshot

P e d r a d o S a l

4

Rentab le Space 6 ,376 sqm

Purchase Pr ice R$31 ,256,728

Go ing - in Cap Ra te 11%

Loan- to -Va lue 29%

In te res t Rate 12%

Loan Amount R$9 ,064 ,451

Termina l Cap Ra te 9%

Un levered IRR 19 .59%

Un levered Equ i t y Mu l t i p le 3 .98x

Levered IRR 20 .63%

Levered E qu i t y Mu l t ip le 4 .09x

S u m m a r y o f Te r m s

5

As a potential investor, there are many conditions that make Brazil an appealing investment opportunity. With

an understanding of market conditions and a description of the most important risks and subsequent mitigants,

cross-border investment opportunities can be pursued.

Brazil is currently the fifth largest country in the world, in both population and land area. Brazil is a country with

a large workforce age population, with approximately 62% of the country is under the age of 29. This translates

to a large demand for workforce housing in areas that appeal to the millennial demographic.

Despite the large workforce population, population growth has slowed and the population majority will grow older.

By 2025, the population is anticipated to tilt in an older majority with a smaller percent in the workforce. The

salient facts indicate a present opportunity for housing of first-time homeowners through the growth in the rental

sector of the residential market.

There is a large middleclass in Brazil, making up approximately 60% of the population. Despite concerns

regarding Brazil’s shrinking GDP and rising inflation, demographic fundamentals indicate a majority of the

population with expendable income. The middleclass has a stronger access to credit, formal employment, and

education that often translates to a more sophisticated consumer. However, income disparity between classes

in Brazil is extreme. This presents the opportunity to target a lower-middleclass demographic that may find the

prospect of renting interesting. This could be a result of a transient lifestyle or inability to purchase property due

to the high cost of debt in Brazil.

Due to current economic conditions, Brazil is a great market for buyers. Inflation is high and debt is expensive,

limiting the investment competition amongst local Brazilian real estate companies. A favorable currency

exchange rate strengthens the purchasing power of the US Dollar, with the Brazilian Real trading at 0.28 the

US$.

Brazil is host to the 2016 summer Olympic Games, offering the company global exposure. An influx of foreign

capital is likely to mitigate some of the short-term distress and in favor of long-term growth. Current economic

projections indicate a significant economic upturn around 2018.

Overall, the current market in Brazil poses many opportunities for investments. Reduced domestic completion

and a favorable currency exchange rate highlight long-term opportunity with solid fundamentals still omnipresent

in the major urban markets of Sao Paulo and Rio de Janeiro.

Snapshot of Investment in Brazil:

1. Assets will be inexpensive with

considerable upside potential,

2. Market dynamics will create forced

asset sales and bankruptcies,

3. There is currently finite investor

competition with limited capital

available to take advantage of

current opportunities,

4. Favorable long-term fundamentals

exist in Brazil; near-term distress

with long-term growth.

C u r r e n t M a r k e t C o n d i t i o n s

O u t l o o k f o r I n v e s t m e n t i n B r a z i l

6


R i s k s M i t i g a n t s

7

The question an investor should ask is whether or not to enter the market to take advantage of the devaluation

of the Brazilian Real versus the US Dollar or Euro. This makes investment in distressed assets an appealing

prospect.

There are considerable uncertainties as to the expectation of any returns during the current financial crisis. With

zero or depreciating returns an all too real possibility during 2016 and extending to 2017, investment decisions

in the market should be conservative. As a result of the current economic condition, investors must be prepared

for long-term considerations, especially with uncertainty surrounding the return to market rates.

It is important to consider the cyclical nature of real estate in relation to perceived asset values. According to

market reports, retail and middle-income housing are still declining; while hospitality, office, and

industrial/logistics have already bottomed out. Buying, holding, and redeploying assets between 2016 and 2018

seems to best align with the current market cycle.

Low-income housing remains a government priority, due in large part to the Minha Casa Minha Vida (MCMV)

“My House My Life” program. However, the actualized velocity of growth will be considerably less than predicted.

As a result, investor discretion should be considered between now and 2017. The relatively modest actualized

growth in housing remains an opportunity, especially offerings tailored to lower income or first-time homeowners.

Land banking as an asset class for long-term investors should be considered. The current economic situation

presents the opportunity to purchase raw or unproductive land well below assessed values. Locations to consider

include: near existing industrial hubs, urban centers, or close to major transportation corridors. Pockets of

valuable land near urban areas with tremendous upside potential can be identified in both Sao Paulo and Rio de

Janeiro. Further concerns with the need to grow infrastructure arise from not only the economic condition, but

the fact that Brazil is one of only a few G20 countries with rising greenhouse gas intensity. This only further

confirms the underlying value in proximity to urban centers with more established infrastructure. Moving forward,

property with proper access to transit will demonstrate a higher upside over the holding period of the asset.

V L T L i g h t R a i l A f f o r d a b l e H o u s i n g


F u l f i l l i n g U n m e t D e m a n d

8

Porto Maravilha is an urban revitalization program in Rio de Janeiro’s port area; including the neighborhoods of

Caju, Gamboa, Saúde, Santo Cristoe, and part of Centro. Due to the lack of industry incentives, the area fell

victim to gradual degradation since the 1960s. The project focuses around sustainability through the restructuring

of streets, squares, and avenues to improve the quality of life for current and future residents. The total

development cost is $5 billion USD over the course of 15 years and 5 million square meters. Although a 2016

completion was anticipated, significant setbacks have the redevelopment behind schedule.

O v e r v i e w – P o r t o M a r a v i l h a

R e d e v e l o p m e n t o f H i s t o r i c P o r t D i s t r i c t

By the Numbers:

I. Total Area: 5MM m2 (1,235 acres)

II. Public Interventions: $5B USD over 15 years

III. Private Development: $25B USD 44MM SF 80,000 new housing units

https://pt.wikipedia.org/wiki/Caju_(bairro_do_Rio_de_Janeiro)

https://pt.wikipedia.org/wiki/Gamboa_(bairro_do_Rio_de_Janeiro)

https://pt.wikipedia.org/wiki/Sa%C3%BAde_(bairro_do_Rio_de_Janeiro)

https://pt.wikipedia.org/wiki/Santo_Cristo_(bairro_do_Rio_de_Janeiro)

https://pt.wikipedia.org/wiki/Centro_(Rio_de_Janeiro)

9

Urban infrastructure

o Roads & utilities

Streetscape upgrades

Below-grade Utilities

New expressway tunnel,

(following removal of elevated highway)

Improvements to public waterfront access

o Mass transit

New VLT (light rail system)

Teleferico (commuter gondola)

Utilization and development of empty land and idle structures

Integration of the port district into the Rio CBD

Emphasize cultural heritage

o Pinacoteca Art Museum

o Museum of Tomorrow

Recover, protect, & promote historical buildings and sites

o Restoration and preservation

o Highlight Pedra do Sal

Facilitate the adaptive reuse of neglected architecture

Promote educational uses

Promote maritime tourism

o Nightlife & live music venues

o Restaurants & cafes

o New cruise ship terminal(s)

Stimulate economic activity & generate jobs

Fair & equitable housing for local residents

o Housing for 80,000 new residents

o Minha Casa Minha Vida Program

o Social interest housing

o House 200,000+ residents in 15 years

Enhanced urban landscape

o Mix of uses & safe public spaces

o Waterfront parks

o Refurbished plazas

o Green corridors

Environmental sustainability

o Focus on water conservation & clean energy

o New sewer & storm drain system

o Clean Canal do Mangue

Transparency in leadership, with community participation

Enhance overall quality of life in Rio de Janeiro


R e d e v e l o p m e n t O b j e c t i v e s

P i n a c o t e c a A r t M u s e u m

M u s e u m o f To m o r r o w

S t r e e t s c a p e U p g r a d e

U r b a n L a n d s c a p e

10

Given the lofty goals of the Porto Maravilha

redevelopment, alignment of interest with

municipal leaders is essential to ensure

project success.

The current building stock is typically very

poor and will likely need significant

expenditures for renovations.

Long term investment may deter

investment, making procurement of funding

from equity partners difficult.

The vast size of the redevelopment area

makes properly siting the development

difficult.

There is a possibility that CEPACs are they

more trouble than they are worth, having

become too expensive. This can result in

land acquisition costs that are too high to

meet investor hurdles.


D e v e l o p m e n t C h a l l e n g e s

C u r r e n t B u i l d i n g S t o c k

C u r r e n t S t r e e t C o n d i t i o n

11

CEPACs

Certificates for Potential Additional Construction, CEPACs, are

air rights that are purchased through auction. The securities

are listed on the Sao Paulo Stock Exchange (BOVESPA)

that can be traded on secondary markets and are

completely transferrable. CEPACs allow for private sector

financing for large urban interventions with upfront revenue,

reducing dependence on municipal debt. They offer relative

liquidity that improves efficiency of urban markets, which

allows cities to regulate and incentivize density around key urban

nodes. With all figures reported and posted, CEPACs offers greater

transparency for all parties involved with development.

Fund Structure

All CEPACs were transferred to Caixa, as a single buyer, in a single transaction

in 2011 that is listed as Caixa FII Porto Maravilha. It is listed as an open-ended

fund (much like a REIT) and is the largest real estate investment fund in Brazil.

The structure allows for city-owned land and CEPACS to be ‘swapped’ for an

equity stake in finished buildings, where Caixa co-invests in private

development. This allows Caixa to capture ‘upside,’ rather than the city of Rio

de Janeiro, for assuming the full risk of infrastructure funding obligations.

Investments include office, hotel, retail, and residential developments with a

partial equity stake.


C E P A C s & F u n d S t r u c t u r e

6.4MM CEPACs in total

R$3.5B in original valuation

R$500MM in gov’t owned land

R$8B cost of urban intervention

12

The project opportunity springs from the need to create a “critical mass” in order to stimulate redevelopment in

the Porto Maravilha district. The proposal is predicated on the need to generate continuous activity in the

neighborhood that attracts a diverse demographic. Current redevelopment has targeted either office or

institutional programming that results in a lively, but seemingly sterile nine-to-five daytime condition. Further,

cultural centers, such as museums, are often perceived as passé by the local population and rely heavily on

tourism for profitability. This results in a transient streetscape dominated by tourists, which loses much of the

authenticity of the neighborhood. An infusion of local vibrancy can make Porto Maravilha a desirable live-work-

play center of Rio de Janeiro for locals and visitors alike. This can be achieved by a true Arts & Culture district

that is informed by the vibrancy of the city and its rich history. The project serves as an incubation space for the

arts that works synergistically with the existing cultural amenities of Porto Maravilha.

V i s i o n

O p p o r t u n i t y i n P o r t o M a r a v i l h a

Proposed Development Site

S i t e w i t h i n P o r t o M a r a v i l h a

13

Given the cultural component, the development opportunity comes from the acquisition of many of the

small parcels adjacent to Pedra do Sal as an assemblage on the southeast side of Porto Maravilha. A

portion of the assemblage will be razed to create negative space midblock. This space will be

transformed into a neighborhood “living room” as privately-owned public space. This plaza will serve

as a destination and meeting place for the community. Quality public space will be created through a

street art aesthetic that features local artists in an outdoor exhibition space. This project will require

minimal capital for demolition and minor aesthetic improvements. There is no need for the purchase of

CEPACs from the city since the project will result in a reduction in the existing FAR. The target block

was selected both for its proximity to Pedra do Sal and its low 1.4 FAR designated in the redevelopment

plan. The project aligns with municipal objectives through the improvement of public space and increase

in the current 4% open space of Porto Maravilha. Lastly, the project helps promote ethical practices

from the developer amongst the community to foster trust and confidence. Forging the relationship

between the developer and the neighborhood is essential for continued work in Porto Maravilha.

Projected

Assemblage Site

for Minha Jarda &

Pedra Estúdios

T a r g e t e d B l o c k s & L o t s

V i s i o n

M i n h a J a r d a

14

Although Minha Jarda is essential to the redevelopment of the neighborhood as an Arts and Culture

destination, it does little to satiate investors’ anticipated returns. As a result, the majority of the

assemblage will be primed for redevelopment as live-work units. These units will feature first floor

galleries, restaurants, and retail to help promote an active ground plane and increased pedestrian

activity. The subsequent floors will be dwelling units targeted for artist rentals or first time homebuyers

looking for experiential living. The redevelopment will take advantage of the existing building stock and

much of the expenditures will be cosmetic renovations. Using the existing building stock mitigates the

need to purchase CEPACs from the city and eliminates encroachment onto Minha Jarda. Capital for

future projects in Porto Maravilha is generated through the sale of residential units and cash flow from

retail rents.

V i s i o n

P e d r a E s t ú d i o s

15

“The Wynwood Walls was conceived by the renowned community revitalizer and placemaker, the late

Tony Goldman in 2009. He was looking for something big to transform the warehouse district of

Wynwood, and he arrived at a simple idea: ‘Wynwood's large stock of warehouse buildings, all with no

windows, would be my giant canvases to bring to them the greatest street art ever seen in one place.’

Starting with the 25th–26th Street complex of six separate buildings, his goal was to create a center

where people could gravitate to and explore, and to develop the area's pedestrian potential.

Since its inception, the Wynwood Walls program has seen over 50 artists representing 16 countries

and have covered over 80,000 square feet of walls. They have become must see international

destination, with media coverage that has included the New York Times, BBC News, Vanity Fair and

Forbes, who mentioned them along with Wynwood on their list of America’s hippest neighborhoods.

The Walls were also a focus of the docu-series Here Comes the Neighborhood, which chronicled the

creation and evolution of the Wynwood neighborhood.” 1

1 http://thewynwoodwalls.com/

P r e c e d e n t s

W y n w o o d , M i a m i

F u t u r e D e v e l o p m e n t

16

“Vila Madalena is a popular neighborhood in São Paulo, full of restaurants, bars, shops, galleries and

colorful street art. In the 1970s, São Paulo students flocked to the area in search of cheap

accommodation, giving it a bohemian character. While Vila Madalena is now considered a bairro

nobre (upper middle class neighborhood), it still retains a lot of its creative charm and is a wonderful

place to spend a day and evening exploring, appreciating art or satisfying hunger or thirst at one of the

many trendy bars and restaurants in the area. The neighborhood is a favorite of tourists and was

especially popular while Brazil was hosting the World Cup.” 2

2 https://journeyingjeff.com/2014/07/17/vila-madalena

P r e c e d e n t s

V i l a M a d a l e n a , S a o P a u l o

17

The Bhering building is located in Santo Cristo, on the west end of the Porto Maravilha redevelopment area. A

former factory that produces candies and chocolates, the building has been reimagined as a series of workshops

and artists’ studios. The site previously sat abandoned and board for years before being given new life. The

building was converted in October 2012 by Associação Criativa Orestes 28 into tenant spaces for artists. It

consists of 52 studios and 21 companies with a shared vision of strengthening the artistic and cultural corridor

that is forming in Porto Maravilha. This includes the recovery of buildings and the promotion of cultural activities,

arts, and fostering the creative economy.

P r e c e d e n t s

F á b r i c a B h e r i n g , R i o d e J a n e i r o

18

P r e c e d e n t s

F á b r i c a B h e r i n g , R i o d e J a n e i r o

19

“Art Basel Cities will use its expertise, network, and communication channels to support cities in

developing their unique cultural landscape. In addition to hosting unique art events in the partner cities,

the program will bring projects from partner cities back to the Art Basel shows, providing them with

additional platforms to engage with Art Basel's international audience.

Art Basel aims to work with cities that have either an emerging or an already established cultural scene

and a strong commitment to establishing themselves internationally as a cultural destination. A newly

formed advisory board, consisting of prominent art world figures with expertise across various

disciplines, will work alongside Art Basel's Director of Business Initiatives, Patrick Foret, to develop this

new strategic initiative.” 3

A potential joint venture with Art Basel would serve a tremendous value as a branding mechanism for

the proposed redevelopment project. Exposure from Art Basel’s worldwide network could bring in global

investment and purchases that can serve as an equity component for subsequent development.

Further, Art Basel events in Porto Maravilha would put the neighborhood on the map as one of the

premier art destinations in the world; with the likes of Basel, Hong Kong, and Miami Beach. Based upon

the criteria for the initiative, Porto Maravilha is well suited for collaboration with the recent completion

of the Museu do Amanhá and Museu de Arte do Rio in close proximity to the site. Sales of live-work

units could be supplemented by patrons, such as Moishe Mana or Jessica Goldman Srebnick, who

look to sponsor emerging artists or need additional space for their extensive art collections.

3 https://www.artbasel.com/about/projects/detail/1751

P r e c e d e n t s

C o l l a b o r a t o r – A r t B a s e l C i t i e s I n i t i a t i v e

20

S i t e D e t a i l s

C u r r e n t S i t e C o n d i t i o n s

Before After Before After Before Added Lost After Residential Retail

7 6 - - 31,360 3,840 5,120 30,080 16,960 13,120

A1 1 1 2 2 3,840 0 0 3,840 1,920 1,920

A2 1 1 2 2 4,480 0 0 4,480 2,240 2,240

A3 2 2 2 3 7,680 3,840 0 11,520 7,680 3,840

A4 1 1 2 2 5,120 0 0 5,120 2,560 2,560

A5 1 1 2 2 5,120 0 0 5,120 2,560 2,560

A6 1 0 2 0 5,120 0 5,120 0 0 0

Block A

# of Buildings # of Floors Building Size SF SF by Usage

Block Lot SF

Before After Before After

A 16,000 31,360 30,080 1.96 1.88

B 16,884 35,760 34,536 2.12 2.05

C 9,257 16,131 16,131 1.74 1.74

Total/Avg. 42,141 83,251 80,747 1.98 1.92

Built SF FAR

21

F i n a n c i a l S u m m a r y S i t e D e t a i l s

P r o p o s e d S i t e d C o n d i t i o n s


14 13 - - 35,760 0 1,224 34,536 18,876 15,660

B1 1 0 1 0 1,224 0 1,224 0 0 0

B2 1 1 3 3 4,896 0 0 4,896 3,264 1,632

B3 1 1 3 3 4,752 0 0 4,752 3,168 1,584

B4 1 1 2 2 896 0 0 896 448 448

B5 1 1 2 2 1,792 0 0 1,792 896 896

B6 1 1 2 2 2,600 0 0 2,600 1,300 1,300

B7 1 1 2 2 2,600 0 0 2,600 1,300 1,300

B8 1 1 2 2 2,600 0 0 2,600 1,300 1,300

B9 1 1 2 2 2,400 0 0 2,400 1,200 1,200

B10 1 1 2 2 2,400 0 0 2,400 1,200 1,200

B11 1 1 2 2 2,400 0 0 2,400 1,200 1,200

B12 1 1 2 2 2,400 0 0 2,400 1,200 1,200

B13 1 1 2 2 2,400 0 0 2,400 1,200 1,200

B14 1 1 2 2 2,400 0 0 2,400 1,200 1,200

Block B


22

S i t e D e t a i l s

B u i l d i n g H e i g h t s


10 10 - - 16,131 0 0 16,131 8,066 8,066

C1 1 1 2 2 2,423 0 0 2,423 1,211 1,211

C2 1 1 2 2 1,872 0 0 1,872 936 936

C3 1 1 2 2 2,245 0 0 2,245 1,123 1,123

C4 1 1 2 2 834 0 0 834 417 417

C5 1 1 2 2 1,251 0 0 1,251 625 625

C6 1 1 2 2 1,043 0 0 1,043 522 522

C7 1 1 2 2 2,385 0 0 2,385 1,193 1,193

C8 1 1 2 2 1,564 0 0 1,564 782 782

C9 1 1 2 2 1,451 0 0 1,451 725 725

C10 1 1 2 2 1,064 0 0 1,064 532 532

Block C


23

F i n a n c i a l S u m m a r y

O v e r a l l A s s u m p t i o n s

Assumption Debt Rent Roll Residual Value

Property Name Porto Maravilha Loan Amount $9,064,451 Type RSM Mo. Rent Terminal Cap Rate 9.0%

Rentable Space (sqm) 6,376 Interest Rate 12.0% Phase A 2,375 $107 Selling Costs 6.0%

Purchase Price $31,256,727.67 Amortization 360 months Phase B 2,727 $107

Going-in Cap Rate 11.0% Monthly Payment $93,238 Phase C 1,274 $107

Total 6,376 $682,272

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11

Income Inflation 0.0% 10.0% 8.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%

Rent $8,187,262 $9,005,988 $9,726,468 $10,310,056 $10,928,659 $11,584,378 $12,279,441 $13,016,208 $13,797,180 $14,625,011 $15,502,512

Other Income $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Recoveries $83,740.80 $92,115 $99,484 $105,453 $111,780 $118,487 $125,596 $133,132 $141,120 $149,587 $158,562

Potential Gross Income $8,271,003 $9,098,103 $9,825,952 $10,415,509 $11,040,439 $13,809,381 $14,637,944 $15,516,221 $16,447,194 $17,434,026 $18,480,067

Vacancy 50.0% 100.0% 85.0% 50.0% 10.0% 10.0% 5.0% 5.0% 5.0% 5.0% 5.0%

Vacancy $4,135,502 $9,098,103 $8,352,059 $5,207,754 $1,104,044 $1,380,938 $731,897 $775,811 $822,360 $871,701 $924,003

Effective Gross Income $4,135,502 $0 $1,473,893 $5,207,754 $9,936,395 $12,428,443 $13,906,047 $14,740,410 $15,624,834 $16,562,325 $17,556,064

Expenses Inflation 0.0% 10.0% 8.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%

Marketing $28,415 $31,257 $33,757 $35,783 $37,930 $40,205 $42,618 $45,175 $47,885 $50,758 $53,804

Payroll $56,830 $62,513 $67,515 $71,565 $75,859 $80,411 $85,236 $90,350 $95,771 $101,517 $107,608

Repairs and Maintenance $56,830 $62,513 $67,515 $71,565 $75,859 $80,411 $85,236 $90,350 $95,771 $101,517 $107,608

Management $56,830 $62,513 $67,515 $71,565 $75,859 $80,411 $85,236 $90,350 $95,771 $101,517 $107,608

Insurance $56,830 $62,513 $67,515 $71,565 $75,859 $80,411 $85,236 $90,350 $95,771 $101,517 $107,608

Prop. Taxes (Escalation Every 3rd Year) $625,135 $625,135 $625,135 $662,643 $662,643 $662,643 $702,401 $702,401 $702,401 $744,545 $744,545

Operating Expenses $880,871 $906,445 $928,950 $984,687 $1,004,010 $1,024,492 $1,085,961 $1,108,975 $1,133,369 $1,201,371 $1,228,781

Net Operating Income $3,254,630 ($906,445) $544,943 $4,223,067 $8,932,386 $11,403,952 $12,820,086 $13,631,435 $14,491,465 $15,360,953 $16,327,283

CapEx $0 $13,448,532 $15,160,033 $6,949,951 $0 $0 $0 $0 $0 $0

Cash Flow from Operations $3,254,630 ($14,354,977) ($14,615,091) ($2,726,884) $8,932,386 $11,403,952 $12,820,086 $13,631,435 $14,491,465 $15,360,953

Debt Service $1,118,857 $1,118,857 $1,118,857 $1,118,857 $1,118,857 $1,118,857 $1,118,857 $1,118,857 $1,118,857 $1,118,857

Before Tax Cash Flow $2,135,773 ($15,473,834) ($15,733,948) ($3,845,741) $7,813,529 $10,285,095 $11,701,229 $12,512,578 $13,372,608 $14,242,096

Risk Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Loan Balance ($9,031,558) ($8,994,493) ($8,952,728) ($8,905,666) ($8,852,635) ($8,792,878) ($8,725,543) ($8,649,668) ($8,564,170) ($8,467,828)

DSCR 2.91X -0.81X 0.49X 3.77X 7.98X 10.19X 11.46X 12.18X 12.95X 13.73X

Debt Yield 36.04% -10.08% 6.09% 47.42% 100.90% 129.70% 146.93% 157.59% 169.21% 181.40%

Returns Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Purchase ($31,256,728)


Sale $181,414,257

Selling Costs ($10,884,855)

Total Unlevered CF ($31,256,728) $3,254,630 ($14,354,977) ($14,615,091) ($2,726,884) $8,932,386 $11,403,952 $12,820,086 $13,631,435 $14,491,465 $185,890,355

Free & Clear Return 15.42% 10.41% -45.93% -46.76% -8.72% 28.58% 36.48% 41.02% 43.61% 46.36% 49.14%

Unlevered IRR 19.59%

Unlevered EM 3.98X

Purchase ($31,256,728)

Loan Funding $9,064,451


Sale $181,414,257

Loan Payoff ($8,467,828)


Total Levered CF ($22,192,277) $2,135,773 ($15,473,834) ($15,733,948) ($3,845,741) $7,813,529 $10,285,095 $11,701,229 $12,512,578 $13,372,608 $176,303,669

Cash-on-Cash Return 16.68% 9.62% -69.73% -70.90% -17.33% 35.21% 46.35% 52.73% 56.38% 60.26% 64.18%

Levered IRR 20.63%

Levered EM 4.09X

Summary of Risk and Returns

Unlevered IRR 19.59% Avg. Free and Clear 15.42%

Unlevered EMx 3.98X Avg. Cash-on-Cash 16.68%

Levered IRR 20.63% Min DSCR -0.81X

Levered EMx 4.09X Min DY -10.08%

24


R e s i d e n t i a l A s s u m p t i o n s


Property Name Pedra Estúdios Loan Amount $4,928,268 Type RSM Mo. Rent Terminal Cap Rate 9.0%


Purchase Price $16,994,027 Amortization 360 months Phase B 1,491 $88

Going-in Cap Rate 11.0% Monthly Payment $50,693 Phase C 637 $88

Total 3,467 $305,077



Rent $3,660,921 $4,027,013 $4,349,175 $4,610,125 $4,886,732 $5,179,936 $5,490,733 $5,820,177 $6,169,387 $6,539,550 $6,931,923

Other Income $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Recoveries $16,157 $17,772 $19,194 $20,346 $21,567 $22,861 $24,232 $25,686 $27,227 $28,861 $30,593


Vacancy 50.0% 100.0% 85.0% 50.0% 10.0% 10.0% 5.0% 5.0% 5.0% 5.0% 5.0%

Vacancy $1,838,539 $4,044,786 $3,713,113 $2,315,235 $490,830 $613,930 $325,383 $344,906 $365,600 $387,536 $410,788

Effective Gross Income $1,838,539 $0 $655,255 $2,315,235 $4,417,469 $5,525,371 $6,182,276 $6,553,212 $6,946,405 $7,363,189 $7,804,981


Marketing $15,449 $16,994 $18,354 $19,455 $20,622 $21,859 $23,171 $24,561 $26,035 $27,597 $29,253

Payroll $30,898 $33,988 $36,707 $38,910 $41,244 $43,719 $46,342 $49,122 $52,070 $55,194 $58,506


Management $30,898 $33,988 $36,707 $38,910 $41,244 $43,719 $46,342 $49,122 $52,070 $55,194 $58,506

Insurance $30,898 $33,988 $36,707 $38,910 $41,244 $43,719 $46,342 $49,122 $52,070 $55,194 $58,506


Operating Expenses $478,923 $492,827 $505,062 $535,366 $545,872 $557,008 $590,428 $602,940 $616,204 $653,176 $668,078


CapEx $0 $7,582,683 $8,285,870 $3,474,976 $0 $0 $0 $0 $0 $0


Debt Service $608,313 $608,313 $608,313 $608,313 $608,313 $608,313 $608,313 $608,313 $608,313 $608,313

Before Tax Cash Flow $751,303 ($8,683,823) ($8,743,990) ($2,303,420) $3,263,284 $4,360,049 $4,983,534 $5,341,958 $5,721,888 $6,101,700


Loan Balance ($4,910,384) ($4,890,232) ($4,867,525) ($4,841,938) ($4,813,105) ($4,780,616) ($4,744,006) ($4,702,754) ($4,656,269) ($4,603,889)

DSCR 2.24X -0.81X 0.25X 2.93X 6.36X 8.17X 9.19X 9.78X 10.41X 11.03X

Debt Yield 27.69% -10.08% 3.09% 36.76% 80.44% 103.93% 117.87% 126.53% 135.95% 145.75%


Purchase ($16,994,027)


Sale $79,298,917





Unlevered EM 3.13X

Purchase ($16,994,027)


Before Tax Cash Flow $751,303 ($8,683,823) ($8,743,990) ($2,303,420) $3,263,284 $4,360,049 $4,983,534 $5,341,958 $5,721,888 $6,101,700

Sale $79,298,917



Total Levered CF ($12,065,759) $751,303 ($8,683,823) ($8,743,990) ($2,303,420) $3,263,284 $4,360,049 $4,983,534 $5,341,958 $5,721,888 $76,038,793


Levered IRR 16.44%

Levered EM 3.16X






25


R e t a i l A s s u m p t i o n s


Property Name Minha Jarda Loan Amount $4,136,183 Type RSM Mo. Rent Terminal Cap Rate 9.0%


Purchase Price $14,262,700.51 Amortization 360 months Phase B 1,237 $126

Going-in Cap Rate 11.0% Monthly Payment $42,545 Phase C 637 $126

Total 2,910 $366,608



Rent $4,399,301 $4,839,232 $5,226,370 $5,539,952 $5,872,349 $6,224,690 $6,598,172 $6,994,062 $7,413,706 $7,858,528 $8,330,040

Other Income $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Recoveries $67,584 $74,342 $80,290 $85,107 $90,214 $95,626 $101,364 $107,446 $113,893 $120,726 $127,970


Vacancy 50.0% 100.0% 85.0% 50.0% 10.0% 10.0% 5.0% 5.0% 5.0% 5.0% 5.0%

Vacancy $2,233,443 $4,913,574 $4,510,661 $2,812,530 $596,256 $758,438 $401,972 $426,090 $451,656 $478,755 $507,481

Effective Gross Income $2,233,443 $0 $795,999 $2,812,530 $5,366,307 $6,825,942 $7,637,471 $8,095,719 $8,581,462 $9,096,350 $9,642,131


Marketing $12,966 $14,263 $15,404 $16,328 $17,308 $18,346 $19,447 $20,614 $21,850 $23,161 $24,551

Payroll $25,932 $28,525 $30,807 $32,656 $34,615 $36,692 $38,894 $41,227 $43,701 $46,323 $49,102


Management $25,932 $28,525 $30,807 $32,656 $34,615 $36,692 $38,894 $41,227 $43,701 $46,323 $49,102

Insurance $25,932 $28,525 $30,807 $32,656 $34,615 $36,692 $38,894 $41,227 $43,701 $46,323 $49,102


Operating Expenses $401,949 $413,618 $423,887 $449,321 $458,138 $467,484 $495,533 $506,034 $517,166 $548,196 $560,703


CapEx $0 $5,865,849 $6,874,164 $3,474,976 $0 $0 $0 $0 $0 $0


Debt Service $510,544 $510,544 $510,544 $510,544 $510,544 $510,544 $510,544 $510,544 $510,544 $510,544



Loan Balance ($4,121,174) ($4,104,261) ($4,085,203) ($4,063,728) ($4,039,530) ($4,012,262) ($3,981,537) ($3,946,914) ($3,907,901) ($3,863,939)

DSCR 3.59X -0.81X 0.73X 4.63X 9.61X 12.45X 13.99X 14.87X 15.80X 16.74X

Debt Yield 44.44% -10.08% 9.11% 58.15% 121.50% 158.48% 179.38% 192.29% 206.36% 221.23%


Purchase ($14,262,701)


Sale $100,904,759





Unlevered EM 4.95X

Purchase ($14,262,701)



Sale $100,904,759



Total Levered CF ($10,126,517) $1,320,950 ($6,790,011) ($7,012,596) ($1,622,310) $4,397,625 $5,847,915 $6,631,394 $7,079,141 $7,553,753 $99,024,145


Levered IRR 24.56%

Levered EM 5.16X






26

Benefits

Flexible structure, regulated through Brazilian Securities Exchange Commission (CVM).

Foreign investors acquire quotas of FIP through portfolio investment (over-the-counter).

Capital gains are not subject to taxation in Brazil.

Common structure for investment in larger real estate deals.

Rules

FIP only permitted to invest through special purpose company, either listed or non-listed.

FIP must be created with no less than three investors.

Each investor can hold no more than (a) 40% of all FIP units or (b) 40% of total income.


Ta x S t r u c t u r e

Delaware

Brazil

< 40% < 40% < 40%

Investor B Investor B Investor A

Local Debt

SPC

FIP

RE Asset(s)

29%

Step-by-step Instruction:

(i) Incorporation of FIP;

(ii) incorporation of SPC;

(iii) investment made by

investors in the FIP by means of

portfolio investments (Res.

2689/00);

(iv) FIP acquires shares of SPC;

(v) real estate due diligence; &

(vi) SPC invests in relevant real

estate asset(s).

27

Tishman Speyer

6% Broker Commission

$11-12k /sqm Replacement Cost

BR Properties

29% Loan-to-Value

11% Cost of Debt

11-12% Cap Rate

$10-11k /sqm Replacement Cost

^ 40-50% Land Value

GIC Brazil

10% Vacancy (high-end retail)

10-11% Cost of Debt

1.5-2% TR Base

GTIS Partners

2.7x Equity Multiple

Vinci Partners

96.000 sqm Moinho Development

$1B Development Cost

Cushman & Wakefield

$110 /sqm Residential Rental (Leblon)

$180 /sqm Retail Rental (Visconde de Pirajá)

^ Mid – Upper Class (Leeloo, Mango, Salinas)


P e r t i n e n t A s s u m p t i o n s & S o u r c e s

28

Meetings

Coelho, Rodrigo. Vinci Partners.

Goldberg, Guilherme. Vinci Partners.

Jaco, Martin Andrés. BR Properties. CEO.

Nigri, Ilan. Vinci Partners.

Okada, Fernando. Tishman Speyer. Managing Director, Acquisitions & Development.

Pinho. Rafael. Vinci Partners.

Poli, Denise. Tishman Speyer. Managing Director, Development & Property.

Pristaw, Josh. GTIS Partners. Senior Managing Director, Head of Capital Markets.

Souza, Erica Moreira de Souza. Vinci Partners.

Teixeira, João R. GTIS Partners. Senior Managing Director.

Vaca, Greg. Tishman Speyer. Managing Director, Acquisitions.

Valente, Gastão de Souza Mello. GIC. Senior Vice President.

Market Reports

Amsler, Shawn. Porto Maravilha. The Redevelopment of Rio de Janeiro’s Historic Port District

Assessoria Juridica Empresarial, Real Estate Investments in Brazil.

João da Rocha LIMA Jr. and Claudio Tavares de Alencar. International Journal of Strategic Property

Management (2008) 12, 109–123. Foreign Investment and the Brazilian Real Estate Market J.P. Morgan. Brazil Real Estate 101 – 2016. Latin America Equity Search

Vinci Partners. Porto Maravilha. Moinho

João da Rocha LIMA Jr. and Claudio Tavares de Alencar. International Journal of Strategic Property

Management (2008) 12, 109–123. Foreign Investment and the Brazilian Real Estate Market Websites

http://www.portomaravilha.com.br/

http://thewynwoodwalls.com/

https://journeyingjeff.com/2014/07/17/vila-madalena-a-wander-through-one-of-sao-paulos-most-

creative-and-colorful-neighborhoods/

https://www.artbasel.com/about/projects/detail/1751

http://cushwakeretail.com/wynwood-retail-update-q1-2015/

http://www.goldmanproperties.com/Real-Estate/Wynwood.asp

http://therealdeal.com/miami/2015/10/27/181238/

S o u r c e s

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