The Wall Street Journal: “Big Investors Call: Buy Mexico”
U.S. Investors Go South, Seek Safe Place for Cash in Real Estate
By Joel Millman
War Anxieties abroad, sluggish returns at home and Mexico’s recent
recognition as investment-grade by all three major U.S. credit-rating
agencies are behind the surge of U.S. institutional cash seeking a haven
in Mexican real estate. According to industry analysts in both
countries, more than $1 billion has washed into Mexico from U.S.
institutional investors over the past eight months, and a lot more is on
The Torre Mayor, a $250 million office tower built by Canada’s
Reichman clan, is about to open just west of the Polanco-Palmas
district. Latin America’s tallest office building at 55 stories, about a
fourth of its 850,000 square feet has already been leased to Deloitte &
Touche LLC. Other top players include the leasing arm of GE Capital and
top real-estate investment trust like San Francisco’s AMB Property Corp.
and Denver’s Prologis, have quietly built portfolios totaling billions
in loads and equity holdings. GE Mexico, with $1.3 billion in the
market, is now the biggest player in local real estate. "We’re still in
the early innings in Mexico," says Gary Garrabrant of Chicago-based
Equity International Properties, part of the Sam Zell family of
real-estate operators. The privately held Equity International
Properties unit various Mexican ventures since 2001, investing $75
million with Spain’s NH Hoteles in a chain of business-oriented hotels,
acquiring a $30 million stake in Desarrolladora Homex, a builder of
low-cost housing, and putting another $100 million into a joint venture
called Corporate Properties of the Americas with Denver-based Black
Creek Capital to develop industrial parks.
1. This week, Corporate Properties of the Americans closed a sale of
a $300 million equity position to the Washington State Investment Board,
the first U.S. public employees fund to invest directly in Mexican real
With concern that a U.S. real-estate bubble may be moving toward its
bursting point, investing south of the border may seem unnecessarily
risky to some. Yet developers like Black Creek Capital’s Jim Mulvihill
See Mexico as a hedge against U.S. volatility. The commercial and
industrial real-estate markets are so underdeveloped in Mexico, Mr.
Mulvihill says, "you can still buy quality. In the U.S., all the quality
deals are gone."
The kinds of deals his company is structuring are tailor made for
U.S. institutional investors, the developer explains, because they’re
dollar-denominated and, in the case of industrial parks, guaranteed by
the prime tenant. Even during the recent slowdown, with many electronics
manufacturers-decamping to lower-cost sites in Asia, rents are paid in
full. "Companies take a write-down," Mr. Mulvhill says, but his revenue
stream remains uninterrupted.
Something for Title Insurers
Another attraction: U.S. title insurers can now operate in Mexico,
and tenants feel confident that leases and construction contracts signed
south of the border are enforceable under Mexican civil law. Compared
with China, where private land ownership is still a controversial
concept in some circles, investing even in a cooling Mexican
manufacturing sector offers a return adequately balanced with risk. U.S.
institutions are earning premiums of as much as 5% over similar
real-estate investments at home, developers say.
In addition to its industrial real-estate partnership with the Zell
group, Black Creek Capital has a second Mexico operation, Mexico Retail
Partners that develops sites for American "big box" retailers like
Wal-Mart Stores Inc., Costco Wholesale Corp. and Home Depot Inc. Black
Creek expects to open as many as 10 Home Depot stores a year in Mexico,
as the Atlanta based retailer increases its presence south of the
With each new project representing a $50 million transaction, Black
Creek will complete upward of $500 million in contracts in each of the
next three years, the company’s chairman says, and will seek additional
capital from U.S. institutions this year.
Hines, and international real-estate firm, is also raising capital to
increase its activity in Mexico. Two real-estate funds launched by the
Houston firm in the mid-1990s dedicated to emerging markets now have
about 30% of their assets in Mexico, or about $200 million, raised
mainly from insurance companies and private investment pools. A third
fund, with assets of around $400 million, is being contemplated for
later this year.
Last week Hines chased out on investments the company mad in 1997,
selling the Torredel Angel office tower on Mexico City’s Paseo de la
Reforma and two industrial parks in Queretaro and Guadalajara. The
package, a total of $110 million, represented the largest commercial
real-estate transaction ever completed in Mexico. The proceeds will
likely be rolled into Hines’s new fund. Luis Gutierrez, G. Accionâ’s
chief executive officer, says the decision last year by Standard &
Poor’s to grant an investment grade rating on Mexico’s sovereign debt,
two years after both Fitch and Moody’s Investors Service issued similar
upgrades, freed a lot of institutions to increase their exposure to
Mexico. "of course, the situation in the U.S., with its soft markets and
excess liquidity, helps us, too," says Mr. Gutierrez.
The best indicator of real estate’s may be the behavior of high-worth
Mexicans, who usually park their money offshore. Local capital is moving
back into the market, says Sandor Valner of merchant bank Valor
Consultores. His group launched two funds, totaling $100 million, last
year to invest in new hotel construction and hotel sale-leasebacks,
tapping Mexico City’s country-club set for investors.