March 1, 2018 Real Estate Investment Summit
On March 1st, 2018, more than 150 real estate executives congregated in the offices of Shearman & Sterling to learn about the latest trends and business opportunities in the real estate industry in Mexico.
The conference main objectives were to provide attendees with a comprehensive analysis regarding the current economic, financial and political situation in Mexico and an outlook of Mexico’s real estate market and its relationship with the United States, from the perspective of recognized specialists from both countries in the areas of commercial, industrial, tourism and residential real estate. It also explained the latest trends and innovation on investing and financing real estate transactions in Mexico. The event kicked-off with introductory remarks from Alejandro Ramos, Executive Director of the United States – Mexico Chamber of Commerce- Northeast Chapter, Malcolm Montgomery, Real Estate Partner at Shearman & Sterling and Diego Gomez-Pickering, Consul General of Mexico in New York.
Consul Gomez-Pickering emphasized the great investment opportunities that exist in Mexico for the real estate sector. Among the advantages, the consul mentioned the approximate 37 million international tourists which visited Mexico during the last twelve months, the stabilization of the Mexican peso vs. the dollar and the fact that the recent currency fluctuations have made foreign investment very attractive in the country. In addition, the consul emphasized the political and economic stability of Mexico in the face of the upcoming Presidential and Congressional elections, as well as Mexico’s commitment to successfully conclude negotiations regarding the North America Free Trade Agreement (NAFTA.)
The conference was divided in five different panels.
Panel I was: “A Review on the fast pace evolving economic and political landscape and its implications on the real estate sector.” The panelists were Jorge Mariscal, Chief Investment Officer Emerging Markets, UBS; Iain Donald, Senior Partner, Global Risk Analysis Americas, Control Risks, and was moderated by Gabriel Fernandez, Managing Director, Real Estate Investment Management.
The panelists made clear that, for the international markets, Mexico ‘was open for business’ now and irrespective of the results of the Presidential elections and NAFTA negotiations. They discussed the resilience of the Mexican economy, the competitiveness of the peso versus the dollar by being undervalued in the 15% range, the vigorous size of the Mexican consumer market as well as the continued growth and development of the Mexican democracy. In terms of challenges for the sector, and Mexico in general, the panelists discussed the tightening of market liquidity, as well as the higher volatility in the markets and the raising of interest rates, as well as the results of the upcoming federal elections and the successful conclusion of NAFTA negotiations. The panelists concluded by saying that they see strong economic fundamentals in the country and are sure that irrespective of who wins the presidential election, the economy will continue to grow and strengthen.
Panel II covered the “Evolution of the real estate asset class in the global portfolio. And how does Mexican real estate may play a role on it?” The panelists included Raul Gallegos, Managing Director, Asset Management, Credit Suisse; Elizabeth Bell, Principal, Investments, Jaguar Growth Partners; Enrique Lavin, Managing Director Mexico, PGIM; and Francisco Andragnes, CEO, Metro Buildings. The panel was moderated by Claudia Rodríguez, Associate, Santamarina + Steta.
The panel discussed all the major changes that had happen in the real estate market since the 2000’s and how sophisticated the segment had become in the last 15-20 years. Changes discussed included the amount of the market participants, the growth and maturity of specialized financing in the sector, the expansion of portfolios from merely residential to covering now industrial, corporate, entertainment, tourism, etc. and the big increase in terms of amounts of investment pouring into the sector and the size and complexity of each transaction. The panel also discussed the growth of the multifamily segment and the changes that have happened around it, including how difficult it was to finance early projects as opposed to the present appetite for such types of ever more sophisticated types of multifamily investments.
The following segment dealt with the evolution of financing structures and financing vehicles in the real estate sector. How it has evolved from bank lending to pension funds investing, to capital markets to the multiple investment vehicles that have been created in the last 20 years, including the creation of Infrastructure and Real Estate Trusts (known by its Spanish acronym “FIBRA.” - Fideicomiso de Infraestructura y Bienes Raíces.)
Panel III covered the possible scenario of a”NAFTA-less North America? And its Potential effects on the industrial, energy and infrastructure real estate sectors.” The panelists were Jose Maria Garza, President, Grupo Garza Ponce; Rafael McAdden, Industrial Director, Colliers International, U.S., Emilio Cadena, President, Prodensa Mexico, and Hector Ibarzabal, Managing Director and Head of Operations, Prologis Mexico. The panel was moderated by Alexandro Padres, Partner, Shearman & Sterling.
The conversation evolved around the possibilities of NAFTA coming to an end and what implications that would bring to the region. The panelists all agreed that this was not a negotiation based on numbers or commercial advantages, but mostly about political discourse. Panel gave their opinions as to whether or not “NAFTA 2.0” as it has been dubbed, would happen before or after the Mexican presidential elections this coming July 2018. In terms of real estate, the panel mentioned that the impact would be less felt, at least immediately, as this is a sector where investments are made for the long term, so the impact would not be immediate.
In terms of Mexico, the panel mentioned that the biggest impact would probably be in the agricultural sector. It also discussed the development of different regions in Mexico for different sectors of the economy, like, for example, the consolidation of the region of “el Bajio’ in central Mexico as the industrial and car manufacturing hub, Northern Mexico for Maquilas, and the Mexico City area specializing more in the logistics segment. Panel also mentioned the importance for Mexico to develop stronger and bigger commercial agreements with other countries and regions, including European Union, Asia Pacific and South and Central America.Panel IV discussed the “New challenges and opportunities on the structuring of Mexican real estate financing.” And was formed by Rodrigo García de León, Director, Loan Syndications Americas, HSBC; José Vertiz, Director, Latin America Corporates, Fitch Ratings; Eric J. Torres, Head of Commercial Real Estate, Citi Mexico Institutional Clients Group, and Jean Paul Farah, Partner, Ritch Mueller, and moderated by Alberto Alvarez, Partner, Chevez, Ruiz, Zamarripa.
The panel discussed how the financing of real estate transactions had evolved in the last 20 years. How it developed from debt structuring using secured debt to starting to use unsecured debt and how banks started to become much more active in the growth of the real estate sector. In terms of companies, it was discussed how the companies had started using their balance sheets to grow and expand their business liquidity instead of just relying on capital markets or bank loans. In addition, it was discussed how a few, but very important changes in the tax code, triggered massive changes in financing mechanisms, including the formation of financing vehicles like FIBRAS, CKDs, (new asset class known as Certificados de Capital de Desarrollo ("Structured Equity Securities"), CERPIs, etc.
The final Panel V discussed the “Consolidation of wellness and sustainability factors in current and future real estate projects.” The panel included Luis Sada, President, One Development Monterrey; Adriana Vargas, Commercial Director, Privee Miami; Nicolai Wilmes, President, Los Amigos de Tulum; Carlos Martínez, Principal, Firmwide Design Director & Studio Director, Gensler and Ari Krivopisk, Director of Real Estate for Latin America, WeWork. The panel was moderated by Nicolette Mueller, from USGBC.
The panel discussed the trends of the market in terms of wellness and sustainability. They discussed if clients and investors have their interests aligned in terms of integrating into their projects specific amenities, sustainability and eco-friendly elements, etc. and it was agreed upon that more and more, the investors are willing and conscious of integrating such elements to increase the ‘quality of life’ of the project, because they know that buyers are demanding that their investments include more of those elements.
It was discussed as well how companies are now trying to create office spaces where the people are ‘forced’ to interact more with other in the building as that interaction can foster a business, friendship, interaction, etc. and also moving away from the ‘i’generation to the ‘we’generation by integrating technology into nature and environment surrounding the specific projects.
In terms of future trends and demands in real estate projects, comments included healthcare-in-demand facilities inside the project, technology integrated into the natural component surrounding the development, including more amenities and social/communal/cultural common areas, where the client doesn’t feel like every single possible square for sale was developed, but that there are certain areas left for common use or natural areas. This concluded the event, with Erico Garcia, CEO of Inmobiliare Latam thanking everyone for their assistance and participation, while also mentioning the increase demand for conferences like this, which Inmobiliare Latam is covering by creating similar conferences in other cities in the US and Latinamerica.