Brilla targets $200m for Mexican property fund

The Miami-based private equity firm, through a joint venture with local developer Grupo IGS, plans to raise its first Mexico-focused vehicle from the country’s pension plans, with an anticipated placement on the Mexican Stock Exchange in early 2014.

Brilla Capital, after completing its debut Colombia-focused fundraising last year, currently is setting its sights on Mexico. The firm, in partnership with local developer Grupo IGS, has filed a listing request with the Mexican Stock Exchange, or Bolsa Mexicana de Valores, to raise a private equity fund for property investments in the Latin American nation.

The two firms will issue the fund as a certificado de capital desarrollo, or CKD, through which Mexican pension plans, known as Afores, can purchase non-trading structured notes. CKD issuances allow capital to be raised from Afores via the public market, since the pension plans currently are not permitted to invest in traditional private equity funds. Unlike a traditional private equity fund, however, a CKD has only one closing at the time of its listing on the Mexican Stock Exchange. 

The Bricapital-IGS Fund, which will have the ticker symbol BRIGSCK, is intended to invest in hotel assets throughout Mexico. Between 20 percent and 30 percent of the fund would be focused on investments in cash-flowing, operating hotel assets, either individual properties or portfolios that potentially could be rebranded, while 50 percent to 70 percent of the fund would be designated for the repositioning or restructuring of either existing properties or projects in the final phase of development. Additionally, between 15 percent and 30 percent of the fund’s capital could be invested in new construction.

A maximum of 20 percent of the vehicle would be deployed in coastal cities such as Cancún, Acapulco and Los Cabos, while the remainder would go to secondary cities such as Aguascalientes, Querétaro, Puebla and Monterrey. The fund also would focus on hotel assets in the medium, high-end and semi-luxury categories because “these properties present excellent opportunities for value creation through repositioning, restructuring and operating improvements and also are assets aimed at the broad domestic market, for business as well as leisure travellers,” the firms said in their filing with the Bolsa Mexicana de Valores.

Brilla and IGS are seeking to generate an internal rate of return of approximately 18 percent for the fund, with leverage of no more than 50 percent. The CKD, which will have investment and divestment periods of five years each, is anticipated to be listed during the first quarter of 2014.

Brilla Capital, formerly known as Brilla Group, was established in 2007 and currently manages a portfolio of approximately $98.2 million in assets, with the objective of investing in hotel properties in South Florida, the Caribbean and Latin America. The firm struck its initial transactions through club deals or special-purpose vehicles, raising about $130 million through that strategy.

In February 2012, Brilla completed its first round of fundraising for the Colombian Beachfront Hospitality Private Equity Fund to invest in luxury hotels and resorts in the South American nation. The vehicle, which was the firm’s first institutional real estate fund, raised $30 million in equity from Bancoldex, Colombia’s Foreign Trade Bank and three of the country’s six major pension plans. At the time, the firm had sought to raise a total of $100 million for the fund, but ultimately it did not attract additional capital. The Colombia-focused fund has not yet called any capital to date.

Brilla’s investment drive in Mexico has been in the works for some time. In November, the firm recruited Luis Antonio Márquez-Heine, the former managing director of the Mexican Association of Private Equity, as its country manager for Mexico. The hire, which coincided with the opening of the firm’s office in Mexico City, further expanded the firm’s operations in the country, which already included an office in Cancún and existing investments in Zihuatanejo and the Yucatán Peninsula.

IGS, meanwhile, manages more than $160 million in industrial, residential and commercial real estate assets through various property funds. In 2002, the firm raised $63.5 million for its first fund, Mexico Real Estate Investments, and subsequently formed investment partnerships with AIG, Prudential Real Estate Investors, Morgan Rio Capital Management and Terranum Capital. IGS previously had issued two CKDs in 2011, raising a total of $87 million to invest in industrial assets, residential land and commercial properties.