Real estate fund managers looking to invest in Brazil are eyeing mid-market development partners for deals where they can exert a greater level of control over the decision-making.
In the wake of the financial crisis, international real estate funds are increasingly turning to smaller, more direct investments with local operators, compared to taking public larger development companies, according to Helio Abreu, vice president of the non-profit Brazilian Association for Real Estate and Tourism Development (ADIT).
Speaking ahead of the group’s conference in New York on Wednesday, Abreu said in the two years prior to the crisis there were roughly 21 initial public offerings of property development firms.
Helio Abreu, vice president of the non-profit Brazilian Association for Real Estate and Tourism Development
However, he said international investment funds were now looking for different ways to deploy their capital – with control a priority. “What we are seeing is a second wave of capital entering the market now, with [fund managers] looking much more closely at mid-market companies,” Abreu said. 
What we are seeing is a second wave of capital entering the market now, with [fund managers] looking much more closely at mid-market companies.
Luiz Henrique Lessa, chief investment officer of ADIT, which represents real estate developers and law firms and is promoting foreign investment in the country, added: “Even if a fund has a seat on the [public company] board, they have less management and decision control. What we are seeing is more investment funds looking for something where they have control and can manage their investment.”
With Brazil’s GDP set to grow by between 4 percent and 8 percent annually over the next two to three years, second only to China, and home ownership rates set to grow dramatically Brazil is being targeted by numerous private equity real estate funds for investment.
Starwood Capital Group set up an office in Sao Paulo this summer, while Equity International is raising its fifth opportunity vehicle, the $500 million Equity International Fund V, which will invest as much as two-thirds of the capital in Brazilian companies tied to residential and commercial property.
The hosting of the World Cup and Olympics, in 2014 and 2016, respectively, was adding greater impetus for investment – not just from real estate fund managers, but also from the government.
“We have clear deadlines for investment in infrastructure, airports, logistics, highways now. The government has made a commitment with the world, not just Brazil, on these matters,” Lessa said.
The boost to infrastructure spending would filter through to real estate, Lessa and Abreu said, with all real estate sectors benefitting. Coupled with a growing middle class – dubbed the “C” or consumer class – and Brazil was set to see rapid growth in demand for affordable residential housing, retail and hospitality among other sectors.
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