Latin Finance - April 2008 - 11

brazilian real estate environment. Laws that speed up foreclosures and give preference to creditors by allowing rapid out of court procedures to recover collateral give investors greater certainty when moving into real estate, says Guilherme Forbes, partner at São Paulo law firm Souza Cescon Avedissian Barrieu e Flesch. Inflation and choppy macro conditions prevented earlier real estate efforts from getting off the ground. Today, however, Brazil’s economy is not just growing, but inflation is under control and capital markets are evolving at a steady clip. All this brings overseas investors to real estate, which stands to benefit the most from Brazil’s newfound stability. “Most investors that are looking at Brazil have already been invested in Asia,” says Eduardo Machado, the São Paulobased managing director of The Carlyle Group, who has been touring the globe to raise interest in the shop’s Brazil business. Among the main draws are scale and size of the population, he says. Big Guns Descend Carlyle is one of many channeling foreign funds to Brazil real estate. Machado declined to specify whether the PE manager, with $670 billion in global equity under management, is actually raising a new fund. But it is common knowledge among local real estate executives that Carlyle is considering a vehicle of up to $500 million for LatAm, 80% to be deployed in Brazil. Carlyle co-founder David Rubenstein was also reportedly in São Paulo earlier this year putting out feelers for interest in a Brazil buyouts fund of up to $700 million. Unlike Carlyle, Tishman Speyer, a global real estate PE heavyweight with close to $80 billion under management, has been active in Brazil for 12 years. But it only raised a first dedicated Brazil fund in August, highlighting just how recently faith in long-term stability arrived. Tishman’s $600 million Brazil fund is already 70% drawn, and the firm is considering a followup vehicle for this year, says Daniel Citron, senior managing director for LatAm. Tishman’s minimum annual return target is 20%, net of taxes and fees, but many of its investments have garnered in excess of 30%, he says. Hines, a large US-based real estate developer holding an exclusive 30%. Typical time horizons for the funds are eight to 10 years with investment periods of three years. The Ibovespa returned an average of 36% per year in 2006 and 2007, while LatAm equity funds returned 44% in the same period, according to Lipper. EM debt, meanwhile, rose 9%. But those two years are some of the best the region has ever seen, and today both LatAm equities and EM debt are showing discouraging signs of weakness going forward. Real estate investments also compensate for relative illiquidity with reliable principal-protected returns. Legal Adjustments Entice Meanwhile, consumer credit is booming in Brazil and the lower and middle classes are enjoying unprecedented access to financing, whether for everyday purchases or big ticket items like cars and houses. For most of the country’s 185 million inhabitants – the largest part of whom are under 20 years old – this process is only just beginning. Brazil’s mortgage to GDP ratio stands at roughly 2%, compared to 65% in the US and 73% in the UK. Even Mexico and Chile boast higher levels of 9% and 13%, respectively. Another material driver behind the real estate rush is an improved legal April 2008 LATINFINANCE 11

Latin Finance - April 2008

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