What is it about Brazilian real estate that is attracting international investors?
UBS Asset Management’s global real estate (UBS-AM GRE) business is responding to this window of opportunity in Brazil as a result of several drivers, citing positive mid- to long-term fundamentals, favourable USD/BRL foreign exchange rates and supportive prospective demographic development versus developed markets, to name a few.
The country boasts a mature property market, with an unprecedented new supply of high-quality, contemporary investable real estate stock, the largest in Latin America. There is a significant opportunity for institutionalisation, given the overwhelming majority of stock is held either by developers or is owner-occupied. As Brazil looks to move beyond this recent period of economic contraction, conditions are prime for acquisition. The recovery should favour mid- to long-term investment, a preference which is characteristic of most real estate investors. Opportunities can be found from distressed property owners, in the lack of mortgage availability to home buyers, a dearth of affordable credit for developers, and also from Brazil’s high real interest rates.
In Brazil, why has UBS-AM GRE decided to focus on three particular fund strategies?
Following extensive research into the local property market, UBS decided on three distinct strategies that accommodate the appetite of a wide investor base, all while providing attractive risk-adjusted return expectations in today’s environment. The strategies are straightforward and familiar to most institutional investors, whereby the investor can opt primarily for income (debt), capital gain (the distressed residential portfolio) or a balance of the two (income generating equity—office and logistics sectors). Sector focus has been targeted to those which GRE’s research team concludes are likely to recover earlier, and with a view to minimising the risk inherent in development projects. In addition to accommodating a range of risk appetites, the fund offering enables investors to opt for exposure to real estate either through securities, or instead through direct property holdings.
What will your partnership with Real Estate Capital bring to the table? How important are relationships with local experts?
Our exclusive consultant partners possess a strong track record across the spectrum of real estate investment in Brazil. In my former capacity as CEO and co-founder of Brazilian Finance & Real Estate, my team and I executed on all aspects relevant to GRE’s investment theses.
Our worldwide business strategy rests on having strong on-the-ground teams with a deep understanding of local market dynamics, which are backed by our global network, and this is the tried and tested model we have used to develop our new Brazilian platform.
In this environment, it is not sufficient to bet on the index, so to speak. Our investment rationale stresses the importance of specific asset, portfolio and counterparty selection, implying careful considerations for geography, including first-hand knowledge of submarkets within Brazil’s largest metropolitan areas. The relationship with REC poises GRE with the capability of delivering locally on all three strategies within the critical window of opportunity.
How do you anticipate the Brazilian market to evolve over the next few years? Will it become a developed market?
We are already seeing notable positive reactions to the implementation of more conservative fiscal policies. Brazil is a market historically characterised by volatility, but the market looks to already reflect the principal impacts of the recession and from the period of governmental changes.
This upcoming period offers Brazil a palpable opportunity to build out a developed real estate investment fund market for retail investors, coinciding with an appreciation in market prices for residential units and for material decreases in capitalisation rates for commercial real estate.
GRE aims to support this tendency for the benefit of foreign investment today, as well as for the domestic market in the coming years.