Latin Finance - April 2008 - 10

brazilian real estate Brazil Land Grab Heats Up by Dan Shirai Grasping long term potential, global investors have plucked the low hanging Brazilian real estate fruit. A growing cluster of focused private equity shops wrestles for the next opportunity. “ blew up a building the other day,” says Massimo Lima, 32-year-old cofounder of Prosperitas, the largest standalone Brazilian real estate private equity (PE) firm, with $1.1 billion in equity under management. A few days earlier, local papers had reported on the implosion of an office tower along Avenida Berrini, home to a number of new office buildings. Reverberations from the demolition scarred Nestle’s São Paulo headquarters. “The damage wasn’t that bad,” says Lima coolly, in a February interview. “And I own the Nestle building too,” adds the investor, one of many eyeing a plethora of opportunities in Brazil, which for the first time displays real long-term potential. Prosperitas will use the space to erect what it claims will be one of the five biggest office buildings in Brazil. In the next three years, Lima hopes to have $3 billion under management to buy, build and sell real estate. Risk hungry hedge funds and the mutual funds that followed them into a frothy IPO market are making way for a new class of investor. In spite of a meltdown in global markets – or perhaps because of it – insurance companies, sovereign wealth and pension funds, as well as endowments, are lining up in droves to hand Brazil-based managers their cash. Real estate PE funds are the first stop on the gravy train as steady growth and institutional resilience convince a conservative foreign buyside to buy in. I “We’re now experiencing significant demand for equity exposure in Brazil. There are people that approach us constantly that want to get involved,” says Gary Garrabrant, CEO and co-founder of Equity International. The Chicago-based PE firm started by billionaire real estate entrepreneur Sam Zell has $1.4 billion under management for emerging markets, amassed from large developed world institutional accounts. Juicy Returns with Patience The shift into Brazilian real estate is part of a more general interest in PE throughout LatAm. Large institutional investors like Ashmore, Teachers Private Capital and Brookfield – which target long-dated assets like infrastructure – as well as traditional buyout shops – like Advent, GP Investments, Southern Cross and Eton Park – have been ramping up activities over the past four years. They are focusing on Mexico, Brazil, Argentina and Chile. The growth has been gradual, but deal and fund raising activity has picked up noticeably in the past two years as markets mature and the region’s fundamentals solidify. Real estate executives believe similar, if not greater levels of long term PE capital will continue to flow into Brazil over the next five years. The flow of cash to Brazil real estate PE vehicles from August 2007 to March 2008 dwarfs what went into Mexico, the next biggest LatAm market, since the start of 2006. Upwards of $5.5 billion in privately raised capital has been committed or is being targeted for real estate in Brazil since August. This, in addition to the $5.2 billion raised through real estate IPOs in the past two years. By contrast, in Mexico – the region’s most mature real estate market – PE managers have targeted just $3.5 billion in new funds since the beginning of 2006, according to the Emerging Markets Private Equity Association. Real estate PE managers in Brazil generally seek a minimum annual return of 20%, while most believe they can lock in higher annual IRR rates of 25% and 10 LATINFINANCE April 2008
Latin Finance - April 2008

Table of Contents for the Digital Edition of Latin Finance - April 2008
