Equity International returns to Mexican real estate

After a five-year absence, the Sam Zell-led private equity firm is re-entering the Latin American country with an entity-level investment in a local industrial developer.

Equity International (EI) has closed on the acquisition of a minority stake in Advance Real Estate, an industrial property developer in central Mexico – the Chicago-based private equity firm’s first investment in the country in a half decade. EI declined to disclose the terms of the transaction, but the firm historically has acquired interests in its portfolio companies ranging from as low as 20 percent to up to 49 percent.

“EI was an early investor in Mexico’s industrial real estate sector, and we are delighted to return based on compelling new growth trends,” said Tom Heneghan, EI’s chief executive officer, in a statement. Brian Finerty, the firm’s co-lead of investments, along with associate Cliff Payne will occupy seats on Advance’s board of directors.

EI previously made a number of investments in portfolio companies such as Corporate Properties of America and Mexico Retail Properties during the late 1990s to early 2000s, but the firm had exited those transactions by 2008 as development yields compressed significantly and competition in the market intensified. In an interview with PERE in October, Finerty said an enhanced risk-return profile in the country, partly resulting from a widening spread between the acquisition cap rates on stabilized properties and development yields, helped to support EI’s re-entry into the market.

The investment in Advance signals EI’s renewed interest not only in Mexico but Latin America as well, where the firm has been relatively quiet since making a $75 million investment in Colombia’s Terranum Development in August 2011 and an equity interest in Grupo Thá, a Curitiba, Brazil-based homebuilder, in March 2012. EI also is said to be eyeing additional investments in Colombia, particularly in the hospitality sector, as well as pursuing its first deal in Peru.

Based in Querétaro, Advance develops and manages Class A industrial real estate, primarily in the  country’s Bajío region, which has been experiencing significant investment from sectors such as aerospace, electronics and automotive.  The region also has benefitted from highly skilled, less costly labor; a more attractive security profile; low vacancy rates; and higher demand for institutional-quality real estate. 

Founded in 2007, Advance has invested more than $100 million in various projects throughout the region, including build-to-suit projects for multinational and domestic companies and business parks for small and medium-sized firms. It has developed more than 479,000 square meters (approximately 5.1 million square feet) of industrial space in central Mexico and currently manages Parque Tecnológico Innovación Querétaro, an approximately 173-acre industrial park, as well as two business park. The company’s pipeline includes additional land parcels in Celaya and León in central Mexico, along with potential investments in Mexico City, Guadalajara and Monterrey.