A Beamonte Investments Inc. White Paper
470 Atlantic Av. 4 Floor Boston, MA 02210 +1 617.275.8960 http://investmentbanking.beamonteinvestments.com
Mexican Real Estate â€“ Todayâ€™s Opportunities
About: Beamonte Investments is a corporate advisory firm headquartered in Boston, Massachusetts. The firm focuses on middle market transactions, primarily assisting clients with mergers, acquisitions, divestitures, and capital sourcing. Beamonte Investmentsâ€™ team brings a high level of domestic and international expertise to middle market companies. Our successful transaction experience includes seasoned representation in the capital raising process and in the sale or merger of client companies with strategic buyers, financial buyers, private investment groups, and publicly traded companies from around the world. Our services include complex deal structuring, sophisticated negotiations and complete and professional client services, including: comprehensive valuations, extensive confidential client marketing materials and targeted buyer/seller search assignments.
Luis F. Trevino Managing Director +1.617.275.8960 x 103 email@example.com
Ricardo Moraes Analyst +1.617.275.8960 x 206 firstname.lastname@example.org
Proprietary and Confidential
Page 2 of 15
LATAM Real Estate overview
Mexico Real Estate overview
House Reforming in Mexico
Public Traded Companies
Securities / Mortgages
Foreign investment in Real Estate in Mexico 10 Mortgage Financing â€“ U.S. Buyers
Public Traded Vehicles
Projections and Mexicoâ€™s position in Real Estate
Proprietary and Confidential
Page 3 of 15
Mexican Economy The Mexican economy grew 5.5% in 2010, higher than the general consensus predicted. Following a 6.1% decline in 2009, the 2010 growth rate was the strongest showing since 2000. During the fourth quarter of 2010, gross domestic product (GDP) grew at an annualized rate of 4.4%, exceeding the prerecession peak of total output achieved in the second quarter of 2008.
years. This higher growth rate reflects the stronger long-term prospects in Mexico. Following a monthly increase in the Consumer Price Index in Mexico during the second half of 2010, the inflation rate slowed in the beginning of 2011. As of April 2011, the inflation rate was 3.4%, 70 basis points below the 2010 average.
With the United States accounting for 80% of Mexican export sales, growth in the Mexican economy remains closely tied to U.S. performance. Strong GDP growth in the U.S. during the second half of 2010 was largely responsible for Mexico’s surprise performance. U.S. import demand is expected to remain strong for the next several years, therefore this support will likely filter down to the Mexican economy through a boost in exports and manufacturing output.
The Economist Intelligence Unit (EIU) forecasts Mexico’s GDP growth rate to expand at an average annual rate of 3.7% from 2011 through 2015, higher than the 3.1% average achieved during the period 2003 through 2008, and 230 basis points higher than the average over the past 20
Given the Mexican central bank’s (Banco de México) target interest rate of 4.5%, the decline gives some respite to the central bank’s inflation targeting priorities.
The moderate inflation rate is important at a time of rising global commodity prices, and should provide the ability to delay increasing interest rates at an early stage of a recovery period, according to the EIU. The EIU forecasts Mexico will experience a GDP growth rate of 4% and an inflation rate of 3.5% in 2011, and a similar trend of strong growth with moderate inflation through 2015.
Proprietary and Confidential
Page 4 of 15
This combination is attractive to investors, especially when compared with other Latin America countries, such as Brazil, that are contending with higher inflation rates and currency values. According to ING Financial Markets Research, Mexico’s currency remains the cheapest of the 18 global emerging markets tracked in the ING Purchasing Power Parity survey. The value of the Mexican peso remains well below the highs experienced prior to the financial crisis of 2008 and 2009. Investors demand a greater compensation for the uncertainty of inflation or currency values, and Mexico is not currently experiencing either of these trends. Mexico’s access to the U.S. market, integration into U.S. manufacturing supply chains, extensive network of free-trade agreements, and a large internal market make it one of the more attractive investment locations among emerging-market economies. As a result, Mexico is the third largest trading partner in the U.S., behind only China and Canada. After losing significant market share to China during most of the 2000s, Mexico captured a larger portion of the total trade balance of the United States in 2010. This marked the first time since China entered the World Trade Organization in 2001 that Mexico posted a larger gain of the U.S. market share than China. Mexico maintained its U.S. import market share during January and February of 2011.
Two primary factors are contributing to Mexico’s attractiveness: high energy costs and costlier Chinese labor. High energy costs make Mexico’s close proximity to the United States more advantageous than shipping goods across the Pacific Ocean. Mexican labor is estimated to cost 14% more than Chinese labor, a drastic change from the 240% difference recorded in 2002, according to Reuters. If these trends continue, both present Mexico with the opportunity to further increase its share of the U.S. import market. Increased violence in Mexico, particularly during 2010, has eroded some of the gains the country made in terms of perceived investment risk and political stability. Consequently, tourism and investment in particular areas of the country will continue to be negatively affected, while recent police reforms will require time to take effect. LATAM Real Estate overview Latin America has a higher urbanization level (76 percent) and a higher level of home ownership (73 percent) than most other regions of the world. The housing sector in LAC has been driven by four powerful global trends of the past two decades: urbanization, democratization, decentralization and globalization. These trends have led to greater depth of financial systems, a wider range of housing financial instruments, and a transformation in the role of governments from a housing provider to an enabler. The availability of housing finance has increased dramatically in the region over the past decade, facilitated in particular by macroeconomic stability and the growth of mortgage securitization. Despite these positive trends, there remains a huge housing deficit within the region.
Proprietary and Confidential
Page 5 of 15
According to the United Nations, 26 million housing units are currently inadequate and an additional 28 million units are urgently required to relieve crowding and substandard conditions. The price of serviced land in Latin America is amongst the highest in the world, relative to income.
The housing sector in Mexico has been the stage for the country’s “overlooked revolution.” A combination of macroeconomic stability, after many years of turmoil, and good policy has led to a boom in middle and high income housing demand among Mexico’s young and urbanizing population.
Informal tenure is common, accounting for about one third of home ownership. The failure of formal housing markets to accommodate swelling urban populations has led to 128 million people living in slums in Latin America. Most housing in the major cities is self-made, a percentage that has risen steadily.
In 2000 the incoming Fox administration made housing one of its top priorities. This led to the 2001 National Housing and Urban Development Policies and a number of subsequent reform measures.
Mexico Real Estate overview In Mexico City an estimated 60 percent of the population lived in self-constructed homes in 1990 compared to 14 percent in 1952. Less than a quarter of all housing in Latin America is financed through formal mechanisms, and mortgages still accounts for a small fraction of total credit. Sustained growth rates over the next couple years should help real estate markets recover to pre-recessionary levels. In the long term, the large, young and growing population in Mexico and its strategic location relative to the United States create a strong investment rationale with attractive risk-adjusted returns. The Mexican real estate market is considered an attractive for investment because of the country's relatively low cost of living, growth potential as a major retirement destination, and increasingly liberalized, trillion-dollar economy. House Reforming in Mexico
In 2000, bankruptcy reform improved contract enforcement and creditor rights by clarifying and streamlining the process and strengthening lenders’ ability to repossess assets. (The collateral provisions were further strengthened in 2003.) In January 2002, Mexico introduced a revised legal framework for credit bureau operations. 1 In addition the World Bank has supported Mexico’s comprehensive property registry modernization program and the development of comprehensive risk atlases for Mexican cities. Current work in progress includes technical assistance on housing subsidy reform, as well as a comprehensive assessment of urban land market microstructure and dynamics that will culminate in selected pilot programs for increasing the supply of land for low-income housing. IFC, in turn, has helped develop mortgage markets through local currency debt facilities to major originators in the sector, including Su Casita, Hipotecaria Nacional, and Hipotecaria Credito y Casa and is focusing on providing warehouse credit lines to support mortgage securitizations, and other capital market securities, and is also supporting the development of a viable secondary mortgage market. 1
Proprietary and Confidential
Page 6 of 15
Due to the high correlation of Real Estate and homebuilders, an investor interested in investing in RE can buy and own stocks of Mexican Homebuilders companies. Below we summarized Mexicanâ€™s biggest homebuilders companies that are publicly traded in the stock market: Public Traded Companies2 Consorcio ARA SAB de C.V. Consorcio ARA SAB de CV (ARA) is a Mexico-based company engaged in the homebuilding sector. Its activities include the design, construction, promotion and sale of residential properties mainly oriented towards low- and middle-income families. The Company is also involved in the development, management and leasing of shopping centers located in the State of Mexico, Baja California and Veracruz. The Company owns such subsidiaries as Consorcio de Ingenieria Inegral SA de CV, Proyectos Urbanos Ecologicos SA de CV, Constructora y Urbanizadora ARA SA de CV, Inmobiliaria ACRE SA de CV, Asesoria Tecnica y Administrativa GAVI SA de CV, Comercializacion y Ventas SA, Promotora y Desarrolladora de Centros Comerciales SA de CV, Desarrollos Inmobiliarios Turisticos ARA SA de CV and Cosorcio ARA LLC. As of December 31, 2009, the Company had presence in 19 Mexican states, as well as it had representation offices established in New York and Chicago, the United States.
Corporacion Geo Corporacion Geo SAB de CV (Geo) is a Mexicobased company primarily engaged in the homebuilding sector. The Company specializes in the design, development, construction and marketing of residential housing projects mainly aimed at low-income individuals in Mexico and Latin America. The Company promotes and sells its products under the Casas Geo brand. Through its subsidiaries, the Company has operations established in 57 cities of 18 Mexican states. As of December 31, 2010, the Company owned such subsidiaries as Consolidado de Nuevos Negocios SA de CV, Construcciones BIPE SA de CV, Geo Baja California SA de CV, Geo DF SA de CV, Geo Edificaciones SA de CV, Geo Urbanizadora Valle de las Palmas SA de CV, Geo Guerrero SA de CV and Geo Hogares Ideales SA de CV, among others. In addition, the Company is active in the financial sector and it offers credit intermediation services.
Desarrolladora HOMEX Homex Development Corp. is a home development company engaged in the development, construction and sale of affordable entry-level, middle-income and tourism housing in Mexico. During the year ended December 31, 2009, the Company sold 57,979 homes. As of December 31, 2009, it had 140 developments under construction in 34 cities located in 21 Mexican states. It had total land reserves under title of approximately 77.2 million square meters as of December 31, 2009, which include primarily land reserves in Mexico and approximately 750,441 square meters of land reserves for its operations in Brazil. Its land reserves include both titled land and land in the process of being titled. During 2009, 25% of its
Proprietary and Confidential
Page 7 of 15
revenues were derived from the state of Jalisco and 21% from the Mexico City Metropolitan Area.
Housing is one of the most important sectors of the economy–in developing countries as in richer ones–with large positive externalities in terms of economic growth, public health and societal stability. Strong fundamentals for the Mexican homebuilding market will support solid operating performance in 2011, according to Fitch Ratings.
Urbi Desarrollos Urbanos S.A. de C.V. Urbi Desarrollos Urbanos SA de CV is a Mexico-based company primarily engaged in the homebuilding sector. The Company’s activities include the acquisition and development of land, as well as the design, construction and promotion of residential properties aimed at upper-, medium- and lowincome families, which are marketed under the UrbiVilla, UrbiQuinta, UrbiHacienda and UrbiClub brand names. The Company owns such subsidiaries as Ingenieria y Obras SA de CV, Obras y Desarrollos Urbi SA de CV, Cyd Desarrollos Urbanos SA de CV, Tec Diseno e Ingenieria SA de CV, Promocion y Desarrollos Urbi SA de CV and Propulsora Mexicana de Parques Industriales SA de CV, among others. In addition, the Company’s projects are supported by two information technology (IT) platforms that maintain the scalability of operations: UrbiNet and UrbiNova. As of December 31, 2009, the Company had operations established in 29 cities within 15 Mexican states.
Fitch expects stability in ratings for the main homebuilding issuers. Less robust companies that were negatively affected by the global crisis, with higher leverage and weaker operating results and liquidity, should continue to face operating and financial challenges to recover their credit metrics to levels observed before the crisis. The Stable Outlook incorporates the sector's adequate liquidity, growing working capital requirements, and a high dependence upon government-related mortgage funding. Fitch’s Director Fernanda Rezende stated that Homebuilders have improved their cash positions and debt maturity schedules, as they took advantage of access to the capital markets during 2009 and 2010. 'Liquidity positions will be a differentiating factor as the main players seek opportunities for acquisitions or joint ventures with smaller companies,' added Fitch’s Director Jose Vertiz. Overall credit metrics should improve moderately in 2011 for issuers in the Mexican markets, although some ratings will likely remain constrained by the negative free cash flow and continued high levels of cash burn. In Mexico, the business environment for the sector improved during 2010, and it is expected to continue in the same path during 2011 as the Mexican economy should reach GDP growth rates of 4.4% and 3.5% during 2010 and 2011, after contracting 6.5% during 2009.
Proprietary and Confidential
Page 8 of 15
Housing in different classes Housing is the primary form of asset accumulation for the poor–often representing more than 50 percent of the assets of households. However, housing systems in developing countries are dominated by badly designed, poorly targeted, and inefficient government subsidies, market failures in land markets, overwhelming informality, a predominance of powerful vested interests and a growing slum population.
timeliness of credit bureau data on the creditworthiness of potential borrowers, increased lenders’ use of credit bureau information and strengthened privacy protections. Mexico’s first mortgage-backed securities were issued in December 2003, following years of improvements to the associated information systems. Other structural changes supporting securitization include the application of uniform underwriting standards, consistent loan valuation standards and transparent foreclosure rules.
Indeed Bertrand Renaud (formerly of the World Bank) has stated that “very few major sectors of the economy have been so much plagued by unjustifiable amateurism in public policy as housing in developing countries.”
As a result of these efforts, Mexico’s mortgagebacked securities market now compares favorably in terms of volume and number of transactions with those of comparable countries like Malaysia and South Africa. Sociedad Hipotecaria Federal (SHF) was created in 2001 to spur development of the secondary mortgage market by guaranteeing credits and creating a central database on borrowers, loans and mortgage-backed securitizations.3
The World Bank adopted an “enabling plus” approach to housing policy, which moves beyond simple housing provision to an approach that combines a healthy respect for markets with intelligent subsidy design. It attempts to establish functioning land markets and uses a holistic and integrated approach to home improvement that incorporates tenure security, hazard mitigation and access to finance. In parallel, the focus of the World Bank’s strategy for housing in Latin America has evolved from sites and services (in the 1970s and 80s) to enabling housing markets (in the 1990s) to the current enabling plus model. This note focuses on the strategy to provide formal housing for low-income families in LAC. The Bank also has rich experience in urban upgrading and regularization of informal settlements in Brazil, Venezuela, Ecuador and Peru that would need to be dealt with in a separate note. Securities / Mortgages The housing reform law, coupled with supporting bank regulation, improved the
Through partial guarantees, SHF has assumed a significant amount of the credit risk in securitized mortgage pools, lowering issuers’ transaction costs and reducing the credit enhancement needed to meet a particular rating standard. The Mexican government, in turn, has explicitly guaranteed SHF’s obligations through 2009. In addition to originating mortgages, SHF has been a major funding source for Mexico’s mortgage finance companies (SOFOLs).Overall, 35 percent of SOFOL direct funding comes from government sources. As a result, Mexico has the highest volume of mortgage-backed securitization transactions in Latin America, while the government is on track to meet its target of providing 750,000 housing solutions this year. The World Bank has been an important catalyst and partner in Mexico’s housing reform. Through the now-closed FOVI loan the Bank (along with the IADB) financed the creation of Sociedad Hipotecaria Federal 3
Proprietary and Confidential
Page 9 of 15
(SHF) in 2001, to spur development of the secondary mortgage market. Through the three-loan DPL and HUTAL series the Bank has worked with the Government of Mexico in formulating its national housing and urban policies. In Mexico, the borrower can choose to restructure mortgage loans under the initial phase of the government relief program called “The Accord for the Assistance of the Banking System” (Acuerdo de Apoyo a los Deudores de la Banca [ADE]). The ADE program was the first in a series of government and individual bank relief programs aimed to stem payment delinquency and default. Substantial controversy surrounded the ADE program. The program was voluntary, but it offered borrowers an interest rate subsidy if they signed new loan contracts and switched from peso denominated loans to loans denominated in an inflation-adjusted accounting unit called “Units of Investment” (Unidades de Inversion) or UDIs. UDIs were created as an alternative currency for accounting purposes to allow financial products such as mortgage to maintain a constant purchasing power (real value) in the face of inflation. The value of the UDI is published daily and grows in tandem with inflation. Housing finance systems in the region are still overwhelmingly dominated by inefficient government subsidies and public institutions. In Mexico the main actors are INFONAVIT and FOVISSSTE, which are pension funds that also provide below-market interest rate subsidies and originate mortgage loans. The latter in particular has a very high level of default on its loans.
Foreign investment in Real Estate in Mexico Foreign ownership of real estate in Mexico is permitted, provided that the property is not located within the Restricted Zone. The Restricted Zone is defined as an area within 100 kilometers of the frontier, or 50 kilometers from the coast. In order for a foreign entity or individual to own property in the restricted zone, the purchase must be set up through a real estate trust opened by a Mexican bank, on behalf of the foreign purchaser. Such a Mexican real estate investment trust is known as a fideicomiso4. Alternatively, if the property to be purchased is non-residential or commercial, a Mexican corporation, which need not be completely owned by Mexicans, can directly purchase property within the restricted zone. While some of the documents and procedures for property transfer may appear similar to those used in the United States, a wary buyer should first seek competent legal help, gain a basic understanding of the differences between Mexican and U.S. real estate laws, and make no assumptions. Real estate buyers should retain a professional and work with them to finalize the purchase of property, whether in or out of the restricted zone. Buyers should be aware that, unlike in the U.S., real estate agents or brokers are not legally licensed nor are real estate transactions regulated by the Mexican government. Anyone legally permitted to work in Mexico can claim to be a realtor, as such, buyers should proceed 4
Proprietary and Confidential
Page 10 of 15
cautiously, and exercise due diligence when retaining a real estate agent. The U.S. Embassy in Mexico provides a list of reputable real estate professionals, and provides some general guidelines for purchase or lease of Mexican property. However, it’s important to know that they assume no liability for the integrity of those individuals or companies listed. Mortgage Financing – U.S. Buyers Owning a home has long been an American ideal we all strive to accomplish. Since World War II, home ownership has become a fundamental goal in our quest to achieve the “American dream.” Today, owning a second home has become a part of our “dream” for many Americans, and it has escalated to purchases in foreign jurisdictions. More than a million Americans have bought residences in Mexico over the past decade. Unlike the United States, for every 10 U.S. residences nine have mortgages, in Mexico, residential acquisitions by foreigners have principally been cash purchases. The reason is simple, a lack of available financing. However, this unfortunate fact has changed dramatically over the past 3 years in Mexico. In order for mortgage markets to first emerge and then to grow, there are many primary requirements that must be in place. The U.S. mortgage system has become the benchmark model for other loan origination programs in the world. In the United States, the mortgage market can be explained as a “360°” process. First, financial institutions that originate loans must qualify prospective borrowers relative to their assets, debts and the requested loan amount. Subject to this assessment is the loan to value ratio and the required down payment. In essence, lenders arrive at a profile of the
borrower’s overall credit worthiness and determine the acceptable parameters for a given mortgage. Once the mortgage has been originated, the loan will be pooled with other mortgages, and the loan portfolio will be rated according to the specific lender, borrower, financing terms, the asset itself, and the “age” of the mortgage. The rating that is placed on the loan pool will determine the “discount rate” for selling the portfolio. Selling the loan portfolio in the secondary mortgage market and offering mortgage backed securities to investors on Wall Street completes the cycle of liquidity in order to recapitalize primary mortgage lenders across the country. Though this explanation is extremely simplistic, it’s the basis for how the U.S. mortgage system thrives. In order for the system to thrive and moreover to survive, certain assurances and guarantees must be in place. Investors in mortgage backed securities don’t know local market conditions where the mortgages originate but they do know they will receive a certain yield on their investment, and the investment is guaranteed and secure. These assurances would include private mortgage insurance, title insurance, FHA, and VA guarantees, as well as a non-judicial foreclosure process, deeds of trust, and other standardized mortgage instruments. Unlike the United States, the depth of the Mexican mortgage market is shallow, and Mexico does not have a secondary market for the creation of mortgage backed securities. The peso devaluation in 1994 further compounded the matter leading to a banking crisis of major proportion that reduced the liquidity of Mexican banks. Resources for new lines of credit largely disappeared until foreign banks entered and partnered with most of the Mexican banking institutions.
Proprietary and Confidential
Page 11 of 15
There is still an estimated pent up demand for 6 million dwelling units in the country today due to the country’s inability to finance housing. However, U.S. buyers of Mexican residential real estate don’t face this same situation.
based on a “full loan doc” underwriting criteria common with U.S. lending practices. It should also be noted that all of these lenders look to Mexican real estate as only collateral to the debt created and not to additional security or pledges in the United States.
There is an ever-growing awareness among U.S. purchasers that financing is available on Mexican properties. Several lenders such as Collateral International in Birmingham, M&I Bank in Phoenix, Silvergate Bank in San Diego, and ConfiCasa International in Houston, have expanded their Mexico lending programs for U.S. and Canadian buyers. In the last two years, GE Money, a subsidiary of GE Capital based in Mexico City, has emerged as well. With a cadre of more than 50 loan brokers all underwritten by WMC Mortgage in California according to GE Mexico lending parameters, companies like CS Financial, GS Mortgage, Finance North America, Platinum Capital, Mortgages in Mexico, Snell Real Estate, and many others can originate the loan application process for the benefit of their loan customers.
There is a distinct and protective benefit that purchasers receive in financed operations. In order to finance Mexican residential properties, first and foremost, there must be a transfer and conveyance to a Mexican bank acting as trustee protocolized by the notario publico that establishes a recorded and renewable beneficiary interest for 50 years for the non-Mexican foreign buyer. The lender will be the first beneficiary of the bank trust with the borrower being the second beneficiary until the debt is extinguished. All residential transactions in Mexico (regardless of who the purchaser is) require payment of a transfer tax on the declared value of the operation, (which should be the purchase price and not what the seller or developer declares to minimize the capital gains tax) notary fees and recording costs.
Several other lenders will dot the financing landscape during 2006 with new mortgage products being offered from companies like GMAC/RFC, Textron Financial, Laredo National Bank, and the IMI Group of Phoenix. The various loan products have improved over time as well. Origination is generally 2-3 points with LTV’s from 50-90 percent financed on 20-30 year amortization schedules. Interest rates vary from a 4 year fixed loan rate at 7.99 percent for GE Money loans to fixed rate loans of 20-30 years ranging from 7.25-9.0 percent interest depending on an individuals FICO score. There are even adjustable rate mortgages (ARM’s) that some lenders offer. Make no mistake, in all cases, these loan products are
These expenditures are the norm in any Mexican property transfers, and they are not inexpensive by U.S. standards. Foreign buyers must also pay for the permit from the Ministry of Foreign Affairs, a bank trust appraisal fee, the first year trust fee to administer the fideicomiso, along with a trust registration fee, and a trust recordation fee. These expenditures are also customary and required. At the end of the day, the comparative expense of a cash transaction should run between 5-7 percent of the purchase price whereas financed acquisitions will average about 8-10 percent, the difference being the cost of the mortgage origination as previously mentioned. Real estate deals in Mexico are just more expensive than what Americans are accustomed to in the U.S. and American financial institutions, like those mentioned above, require a more detailed process to originate loans in Mexico.
Proprietary and Confidential
Page 12 of 15
Possession of the property is not tantamount to ownership. Lenders must be assured, through a competent title search of the property and issuance of a Commitment for Title Insurance, that there is a complete chain of title for the respective residence. They want to know how the title is vested and that it is valid. Lenders are going to rely on the title company investigating the property that a subdivision has been approved and published or that a condominium development has a condominium regime filed of record. GE Money loans would be the exception to this rule, however. As of yet, GE does not require title insurance for their loans. Borrowers with GE should seek the protection of title services who can guarantee their beneficiary trust rights as established with title protection in the United States. Escrow considerations and escrow agreements are common with U.S. lenders on Mexican transactions as well. As has been said before, Mexico is not the “Wild West” as many perceive. Lenders want a higher standard of assurance that the loans they originate are secure and the public deeds vesting the bank’s lien interest are valid and enforceable. This ultimately works to the benefit of the borrower. Anyone acquiring residential real estate can at least have the opportunity to check with U.S. based mortgage lenders on the availability of a Mexican home mortgage. Loan transactions for Mexico are originated and processed every month. With the emergence of the International Mortgage Lenders Association, who had their charter meeting with 65 business entities in Phoenix th
become an even more common concept with U.S. purchasers. Public Traded Vehicles In March 2011, Mexico launched its first real estate investment trust (REIT), or FIBRAS as they are known in Mexico, to be listed on the Mexican stock exchange. According to The Wall Street Journal, the initial public offering raised US$300 million (MX peso $3.62 billion) by selling 185.4 million certificates at US$1.61 each. “Fibra Uno” will use proceeds from the global offering to acquire three properties and consolidate an existing portfolio. The existing portfolio includes 13 properties, composed of industrial, retail, office, and mixed-use assets. The other three properties will be acquired postclosing. 5 The initial idea for FIBRAS listings in Mexico was proposed in the early 2000s. However, tax and regulatory issues needed to be established prior to launching the first one. REITs provide enhanced liquidity to the real estate market and should serve this function in Mexico, if and when the structure is more widely utilized. While REITs may add greater liquidity to the sales market, we expect further strengthening of real estate fundamentals to also enhance investor appetite. The limited construction and positive absorption should further lower vacancy rates and stabilize or slightly grow rents, especially in the second half of 2011 as the economic recovery takes hold. Projections and Mexico’s position in Real Estate Top-line growth has come down considerably, from 24% on average in 06-08 to 3% in the last
last March 24 , mortgage originations will 5
ING Clarion Partners - NY
Proprietary and Confidential
Page 13 of 15
two years. While this year we expect growth at 12% on average, going forward we believe it should be 5-7%.
their optimism with hard data whenever they gather to discuss the market realities. For the Mexico real estate industry, we believe that there are many investors (domestic and foreign) interested in increasing their real estate investments in Mexico. With improved financial management by Mexican developers, more investment dollars will flow to real estate projects in Mexico.
Americans, Canadians, and other foreigners are still buying homes in Mexico’s popular beach destinations – they’re just not buying as many as they did two or three years ago. And they’re not buying nearly as many as Mexicans, who as a group are buying about half of all new properties currently sold in popular regions such as the one anchored by Puerto Vallarta.
Healthy private investment in real estate seems to be matched by government investment in infrastructure, according to FONATUR, the institution responsible for the planning and development of tourism projects of national impact. Infrastructure investment from 2007 to 2011 was $574.9 million U.S. dollars. More than one million Americans are currently living in Mexico, many of them retirees seeking warm weather and a lower cost of living. The housing crisis and recession in the U.S. have greatly impacted sales of vacation homes in Mexico, yet experts say that it´s this very economic crisis and inflation that has many retired Americans looking to make Mexico their primary or only home. Mexico’s growing and stable economy and its excellent private healthcare system are also giving retirees increased confidence in making the country their home.
The real estate market in Mexico was hit hard by the housing burst in the U.S., though home sales in Mexico have been supported somewhat by a strong Canadian economy and by many Mexican buyers acquiring second or third homes. Though Mexico’s real estate market is currently in a historic slump, the people who are optimistic about its rebound have much evidence to support a forecast of increased sales and home values in the next few years. Realtors and other people who work in real estate need to be optimistic about the real estate market, but they usually temper Proprietary and Confidential
Page 14 of 15
modestly to date, higher disposable incomes and private consumption are expected to support the retail sector in the medium and longer term.
Tourism is one of Mexico's most important industries, especially in many of the most popular real estate markets for foreigners. According to the Mexican Chamber of Commerce for Tourism and Services, tourism grew by 7.30% in 2007, outpacing the countryâ€™s total economic growth of 6.30%. As the real estate market fights to emerge from the global recession, Mexico seems well-positioned to compete in the global marketplace of real estate and tourism. The countryâ€™s natural advantages of climate and proximity to the U.S. and Canada continue to fuel tourism and a growing foreign population. Demographic trends and cost of living pressures in the U.S. are also set to fuel a healthy rebound that for current property owners, and real estate people, cannot come too soon. The improving economic fundamentals during 2011 have spilled over to the real estate industry. The industrial real estate fundamentals are improving, driven by strong manufacturing growth associated with U.S. demand. Additionally, while retail spending struggled through the downturn and has recovered only Proprietary and Confidential
Page 15 of 15
Mexico Real Estate Industry - White Paper