Latin Finance - October 2008 - 24

reits investment fund based in São Paulo. Lima estimates a 400 basis point differential between the returns on a US project and a comparable Brazil project. An average commercial development in the US can yield around 7% while in Brazil it can provide annual returns of up to 11%, he notes. Lima, an investor and developer himself competing in a market being flooded with new entrants, says he is building up internal development capabilities. Absolute spreads aside, new investors unaccustomed to the Brazilian legal and tax system will be met with a host of new problems that could not only affect their timetables, but also threaten returns. This is true even for experienced local investors who constantly run into changing regulation and additional environmental and municipal government oversight. Lima notes global credit conditions have had a real impact on local banks’ “Some investors may find it difficult to meet their returns expectations down here,” says Max Lima, head of Brazil’s Prosperitas willingness to lend for projects. And partnering with local firms can prove to be somewhat of a gamble, as the current model usually involves the investor assuming near full risk for the project but paying developer fees up front. Homebuilders Consolidate fierce wave of consolidation has swept through Brazil’s homebuilding sector. The process was somewhat expected when it became clear last year that public markets could not support the 26 homebuilding and construction companies that came to the market in the 18 months between mid 2006 and the end of 2007. With ambitious forecasts to meet and dwindling supplies of cash both in the bank and public equity markets, a number of the smaller franchises have conceded defeat and partnered up with larger competitors or sold out entirely. So far this year, five major deals have been clinched, the most recent being Brascan Residential Properties’ September 10 acquisition of Company. Brascan Residential, publicly traded but majority owned by Brookfield Asset Management which has $40 billion in global real estate holdings, is spending 220 million reais plus 77 million of its own shares to acquire all of Company at an undisclosed value. While Company’s shares were last quoted at 10.07 reais prior to the announcement, executives at Brascan say they valued them at a much higher multiple, arguing that limited liquidity has depressed the stock significantly, while the business and its assets are healthy and lucrative. Nicholas Reade, CEO of Brascan Residential tells LatinFinance the deal will help boost his company into the top five listed developers by market cap and within the top three in terms of assets and revenues. In April, Brascan Residential acquired MB Engenharia for an open-ended price tag that could range from 160-500 million reais or more, depending on future earnings. Citi advised Brascan and UBS advised Company. Elsewhere, Gafisa agreed to puchase in September a 60% stake in Tenda, the low-income homebuilder. Tenda will continue to be a listed entity but be merged with Gafisa’s much younger low-income model FIT. Rothschild advised Gafisa while Banco Modal advised Tenda on the deal, expected to be worth some 405 million reais. In June, Cyrela paid 1.54 billion reais for fellow developer Agra, while in August, Brasil Brokers took a 51% stake in Abyara’s brokerage business for 250 million reais. Among the more vulnerable Brazilian developers in early September were Inpar, down 82% from its IPO, EZ Tec, down 73%, CR2, down 59% and Helbor, down 46% from its IPO price. — Dan Shirai A Despite this, there are still alliances being forged with local developers to mitigate the risks inherent in Brazil. In August, AMB Property Corporation, a San Francisco-based REIT with over $10 billion worth of commercial and industrial properties in 15 countries, signed an agreement with Brazil’s Cyrela Commercial Properties (CCP) to jointly invest in commercial and industrial properties in São Paulo and Rio de Janeiro – the company’s first nonMexican investment in the region. AMB is among the largest US developers, with a $4.6 billion market cap. “AMB has a big global presence in the sector and we know the local market and have land acquisition capability,” Bruno Laskowsky, CEO of CCP, tells LatinFinance. AMB’s existing relationship with large multinational corporations, known as tenants in the industrial real estate market, adds impetus to the new venture, he adds. US REIT Kimco Realty, which has a $9.4 billion market capitalization, teamed up with local shop Real Estate Partners (REP) in the Fall of 2007 to develop a number of small, outdoor shopping malls in urban areas outside major cities, much in the same way it has done in the US for some 50 years and in Mexico for the past four, where it has developed some 60 shopping centers. Mike Melson, Kimco managing director for LatAm, says he is already involved in developing one such facility in Valinhos, in the interior of the state of São Paulo, and has five more coming. “We are targeting returns in the midteens after fees,” says Melson. In the typical joint venture model, the local developer, in this case REP, collects a fee for developing the project on the ground, counting on capital and expertise from a foreign partner. Kimco sees enough opportunity to justify a special vehicle for Brazil and surrounding countries. Earlier this year it began to raise a $500 million South America fund, in which it will be a lead investor. Other private investors such as pension funds, endowments and high net worth individuals will join as limited partners. The fund will direct cash into Brazil, Chile and Peru. Simon Properties, General Growth 24 LATINFINANCE October 2008

Latin Finance - October 2008

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

Latin Finance - October 2008
Contents
Ports Financing
Brazil
Ecuador
Mexican Infrastructure
Brazilian Real Estate
Mexican Mining
Endesa Interview
Infrastructure Awards
Brazilian Agriculture Investment
Brazilian Telecoms Financing
Inside Source
Parting Shot
Latin Finance - October 2008 - Latin Finance - October 2008
Latin Finance - October 2008 - Cover2
Latin Finance - October 2008 - Contents
Latin Finance - October 2008 - 2
Latin Finance - October 2008 - 3
Latin Finance - October 2008 - 4
Latin Finance - October 2008 - 5
Latin Finance - October 2008 - 6
Latin Finance - October 2008 - 7
Latin Finance - October 2008 - 8
Latin Finance - October 2008 - 9
Latin Finance - October 2008 - 10
Latin Finance - October 2008 - 11
Latin Finance - October 2008 - 12
Latin Finance - October 2008 - Ports Financing
Latin Finance - October 2008 - 14
Latin Finance - October 2008 - Brazil
Latin Finance - October 2008 - 16
Latin Finance - October 2008 - 17
Latin Finance - October 2008 - Ecuador
Latin Finance - October 2008 - 19
Latin Finance - October 2008 - Mexican Infrastructure
Latin Finance - October 2008 - 21
Latin Finance - October 2008 - 22
Latin Finance - October 2008 - Brazilian Real Estate
Latin Finance - October 2008 - 24
Latin Finance - October 2008 - 25
Latin Finance - October 2008 - Mexican Mining
Latin Finance - October 2008 - 27
Latin Finance - October 2008 - 28
Latin Finance - October 2008 - Endesa Interview
Latin Finance - October 2008 - 30
Latin Finance - October 2008 - 31
Latin Finance - October 2008 - 32
Latin Finance - October 2008 - Infrastructure Awards
Latin Finance - October 2008 - 34
Latin Finance - October 2008 - 35
Latin Finance - October 2008 - 36
Latin Finance - October 2008 - 37
Latin Finance - October 2008 - Brazilian Agriculture Investment
Latin Finance - October 2008 - 39
Latin Finance - October 2008 - Brazilian Telecoms Financing
Latin Finance - October 2008 - 41
Latin Finance - October 2008 - 42
Latin Finance - October 2008 - 43
Latin Finance - October 2008 - 44
Latin Finance - October 2008 - 45
Latin Finance - October 2008 - 46
Latin Finance - October 2008 - Inside Source
Latin Finance - October 2008 - Parting Shot
Latin Finance - October 2008 - Cover3
Latin Finance - October 2008 - Cover4
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