Letter from Bogotá

Colombia may be following in the footsteps of Brazil in becoming the next South American nation to draw in private equity real estate firms.

It appears as though Brazil isn't the only Latin American nation to be catching the eye of the savvy private equity real estate investor these days. Indeed, an avant-garde is targeting Colombia as a source of lucrative real estate investment opportunities.

For instance, New York-based real estate investment firm Avenida Capital this week launched its first institutional opportunistic fund targeting retail, commercial, residential and industrial properties located in the major cities of Colombia. The $125 million vehicle, Avenida Colombia Real Estate Fund I, expects to hold a first close in the fourth quarter and a final close by summer 2012.

That follows hot on the heels of Chicago-based Equity International making its first investment in the country last month: a $75 million investment in Bogota-based commercial real estate developer and manager Terranum Development.

One reason Colombia is attracting interest is across-the-board growth, not only in terms of increasingly healthy GDP, which the World Bank projects to average more than 5 percent annually until 2014, but also increased stability in terms of both political and economic factors.

“The perception of Colombia and the reality are two very different things,” said Avenida managing director Alex Chalmers. Indeed, Chalmers pointed out that the global perception of Colombia being a haven for deadly drug kingpins couldn't be further from the truth, as the current government has made safety and security a major priority.

Michael Teich, also a managing director at Avenida, concurs with his colleague. “Things are improving both politically and economically, and that's having a positive effect on real estate,” he said. In fact, the World Bank ranks Colombia as sixth in the world in terms of protecting investors.

All of this leads to the question: could Colombia eclipse Brazil in terms of South American investment activity?

The cynic might argue that firms are having to look outside of Brazil because the market has become too hot. Yet, for the time being, private equity firms are still quite eager to do business in Brazil. In mid-September, PERE was told that New York-based private equity giant Tishman Speyer closed on $350 million for its third Brazil fund and a related feeder vehicle. Not only that, but Pennsylvania-based investment manager Hamilton Lane announced its plans to open an office in Brazil after adding a real estate practice this year.

Those are just two recent examples of Brazilian investment activity still going strong. That said, do expect Colombia to play an increasing part in the Latin American real estate picture.

“You feel a general enthusiasm for the market there,” Teich said. “Across the board, things are looking up.”