Artha Capital has raised 1.56 billion Mexican pesos (€89.3 million; $120 million) for its second real estate fund, which closed on its first tranche of capital on the Mexican Stock Exchange late last week. The Mexico City-based firm also anticipates a second closing to follow within two months and the final close to occur by the first quarter of 2014.
The fund is one of the first listed private equity funds in Mexico, known locally as certificados de capital de desarrollo (CKDs), to have both prefunded and capital call structures. First listed on the Mexican Stock Exchange in 2009, CKDs originally had required investors to pay commitment amounts in full at the time of the close. However, regulatory changes in 2011 subsequently permitted investors to also invest through a capital call structure, with 20 percent of that capital drawn down at the time of the close.
Of the 1.56 billion pesos raised in the new Artha fund, the prefunded amount accounted for 552.9 million pesos. Meanwhile, more than 1 billion pesos were gathered through the capital call structure, with 200 million pesos immediately drawn down.
The vehicle will be focused on income-producing, build-to-core development, primarily through retail and mixed-use projects located in the 10 largest Mexican cities by population. With the exception of a couple of corridors that the company considers to be fully priced and highly competitive, “we think the rest of the country presents good opportunities for us,” said Carlos Gutierrez, managing partner and co-founder at Artha.
“People are looking for more efficient urban development, where you can walk to your movies and your restaurants,” Gutierrez said. “We also feel that size matters, and this is quickly becoming a business of scale.” The Mexican retail market still is overwhelmingly “informal,” with institutional capital accounting for just 4 percent of the property sector, he noted.
Gutierrez, formerly the Latin American chairman for Merrill Lynch, views build-to-core development in Mexico as a relatively short-term opportunity. “After three years, we think the largest part of inefficiencies in most markets we’re focused on will close,” he said. “At that point, we’ll probably be looking at a Brazilian type of competitive situation.”
CKDs typically raise all of their capital in one close. However, Artha’s fund, which is listed on the Mexican Stock Exchange under the ticker symbol ARTCK 13, has been structured to have two local tranches with primarily Mexican investors and a third and final closing primarily from international investors through a Canada-based vehicle. “It has become much more difficult to get everyone lined up and dressed up in the same way on the same day,” Gutierrez explained.
After forming in 2008, Artha launched its first fund in 2010, raising $200 million through a CKD and an additional $50 million through a parallel Canada-based vehicle. Limited partners in the CKD included Mexican pension plans and US insurance company New York Life, while the Canadian fund primarily was backed by the International Finance Corporation. Unlike the current fund, Artha’s previous platform focused on land development for industrial real estate, where Artha built the basic infrastructure and prepared land lots to be sold to individual developers.
Separately, Artha also manages more $55 million in managed accounts for three pension plans in the US, Germany and Belgium. Those accounts, however, invest in one-off projects primarily in the office sector in Mexico. To date, the firm has raised a total of $420 million of equity and currently manages more than $1 billion in assets under management.