Thor Urbana recently applied for a Capital Investment Certificate at the Mexican stock exchange. How successful has this been? In what other ways is Thor looking to raise funds?
We applied for a Capital Development Certificate (CKD) on the Mexican Stock Exchange in February 2017, targeting $400 million to $420 million. We are also raising a side vehicle of around $200 million with foreign pension funds. We expect to close both the CKD and side vehicle in the third quarter of this year. The product we are offering is attracting great interest, with mixed-used projects within urban markets offering lifestyle and retail experiences.
It’s typical of the Thor global platform, which has had great success with Mexican investors. In Mexico, pension funds have exposure to power centres and other types of retail, but not lifestyle centres with big entertainment components, so they are looking for a product like ours.
The Mexican market had a lot of uncertainty at the beginning of the year, but that’s starting to disappear and now people are looking to invest again. Our currency is getting back to levels we saw before the US elections, and Mexican pension funds are increasingly looking to invest capital in real estate and other alternative assets, so we are a great potential investor for them.
Thor currently has $1.4 billion invested across 14 projects. What is the strategy and is it paying off?
We have over 10 million square feet under construction, with another five or six million on which we will start development at some point this year.
We have a big year ahead with five major projects opening across the country. In Q1 of next year we will be opening the Montage Hotel in Los Cabos for the US market, aiming to be the top hotel in the country, in one of the most successful markets. Later next year we are opening the Ritz Carlton in Mexico City, which will be an iconic building in an iconic location.
Our focus for the rest of this year will be finalising the CKD fundraising process and continuing development projects within the Mexican market. We tend to see the opportunity in developments rather than more mature markets such as the US, which is a lot more transaction-led. However, we have done a couple of acquisitions and there is certainly a lot of room for this to grow in Mexico.
What are the main trends you are seeing in Mexico?
The biggest trend is the influx of populations returning to cities. In the 1990s and early 2000s a lot of people relocated to the suburbs, creating a necessity for new infrastructure that was so horizontal it turned out to be unsustainable.
In the past seven or eight years the government has realised that it needs infrastructure to be created in the cities as the density increased in the urban market. Therefore, there has been a growing need to create mixed-use projects, allowing people to avoid spending so much of their day in traffic or commuting.
We are about to open a mixed-use project in Guadalajara which will have office and residential use. Work and play in the same place is a concept that we have seen growing in other places but traditionally hasn’t been that important in Mexico, however, as urbanisation continues it is becoming necessary.
Land prices are also on the increase. Our strategy is to look for the best buy in the best intersection of the city, allowing us to create mixed-use projects which can again save people commuting time.
In which areas are you expecting the most growth? With retail in decline, do you think you can get people back into the shops?
The Mexican market is the largest economy in Latin America, with a population of 120 million. We have a growing middle class and many cities are under served when it comes to retail.
The global challenge to retail is ecommerce. Chains continue to close and 2017 could turn out being worse than the recession of 2007. The way we are overcoming this is through the type of product we’re offering, which is a retail experience.
A few years ago, 10 to 12 percent of gross leasable area (GLA) was dedicated to entertainment experiences, but in our centres we are aiming to have more than 30 percent of GLA focused on entertainment, food and beverage space.
We want to satisfy the human nature to be around other people and to socialise, which can’t be replicated online.
US President Donald Trump has somewhat soured US-Mexico relations. Has this translated into less inward investment from US real estate investors?
The biggest challenge we are facing is the uncertainty surrounding our relationship with the US.
We have a potential redraft of the North American Free Trade Agreement (NAFTA) coming up in the near future, and although it won’t be as drastic as originally planned, it will create uncertainty. President Donald Trump himself said it could be larger than previously advised, which could move the currency by 10 cents.
Our biggest challenge will be to cope with that. However, we have such strong ties with the US—they account for 75 percent of our trade—so it will be difficult for this uncertainty to have a very large impact.
The way we are developing means we could remain very stable in the medium and long term. Our real estate investments are in brick and mortar so, in contrast to other types, it’s money that stays in the country.
We feel strongly that as long as the macroeconomics and the demographics we have in the country remain strong, so too will our investments.
Our association with our US counterpart Thor Equities, and its global platforms, allows us to have a relationship with decision makers in the US and Europe.
Thor Urbana has been managing investment capital in the US from day one, investing $1.4 billion over the past five years, with most of the equity coming from institutional investors and foreign pension funds, mostly Canadian.
Our relationship with Thor Equities and its track record with institutional investors has helped to gain credibility in Mexico, and now we are the leading developers in the country.