Avenida closes debut fund

Avenida Capital has held a final close for its first institutional fund, Avenida Colombia Real Estate Fund I. The firm, which has offices in Bogota and New York, raised a total of $140 million from pension plans, foundations and other institutions in the US, Canada, Europe and Latin America, above its original $125 million target.

Avenida announced the launch of the fund in September 2011 and held a first close in December 2012. On behalf of the vehicle, the fund manager primarily will target investments in retail, residential and mixed-use development projects across the country.

To date, Avenida has committed more than half of the fund’s capital in 10 projects, including four in Colombia’s major cities of Bogota, Medellin, Cali and Barranquilla, and the remainder in secondary cities such as Bucaramanga, Villavicencio, Barrancabermeja and Yopal. Projects include Unicentro Yopal, a 400,000-square-foot shopping center that opened last year in the city of Yopal, and Ceiba del Norte, a lower-income residential project in Medellin.

“Colombia is a pretty big market in terms of geography and number of cities, with five cities of more than one million people and over 25 cities with a population of more than 250,000,” said Alexander Chalmers, managing director at Avenida. In addition to its overall stability, the country also has been more business-friendly in terms of its shorter timeframe for building projects or obtaining permits as compared with other Latin American countries.

However, “the most important thing is you’ve got consumer demand,” said Chalmers. “You’ve got a young population in Colombia, and it’s very under retailed.” The country has approximately 1.2 square feet of retail space per capita, compared with 46.6 square feet per capita in the US and 1.5 square feet per capita in Mexico, according to Avenida. Meanwhile, retail sales in Colombia are projected to grow 40 percent, from $120 billion in 2011 to $169 billion in 2015, the firm noted.

The country, however, hasn’t always been an easy sell to investors, Chalmers acknowledged. “Colombia was just not a market that everybody knew about or visited very often,” he said. “There was some education required, like any emerging market. The perception of Colombia was very different from the reality.”

Another challenge is the current lack of scale in Colombia’s real estate market, which has made it difficult for larger institutions to put capital to work there. But Chalmers anticipates that changing over the next three to five years, as opportunities begin to shift from for-sale to for-lease investments. For-sale projects typically require less capital than for-lease projects and have averaged around $10 million per investment for Avenida.

While Avenida’s current fund primarily has made for-sale investments, along with some for-lease deals, Chalmers anticipates “a different mix” in its next fund. “Fund managers will be able to put in a lot more capital and fund sizes will get bigger,” he said. “There’s large infrastructure projects and there will be larger real estate developments that will require bigger chunks of capital.”

Real estate developers typically have exited investments in Colombia via strata title, where each individual unit in a property is sold to the end user. However, as domestic retailers seek to expand their footprint amid rising consumer demand, they may find it more feasible to lease rather than purchase additional units. Also, international retailers that are planning to ramp up their presence in Colombia already are accustomed to leasing store locations rather than purchasing them.

Meanwhile, a real estate investment trust market has been developing in Colombia, partly to support local pension plans’ interests in acquiring more income-producing assets for their portfolios. Because of the current lack of single-owner leased properties in the country, such a market would create a ready buyer pool – and therefore exit strategy – for for-lease assets going forward, Chalmers said.