Several private equity real estate firms already have joined the party in Brazil, attracted by charms such as a rising economy, strong demographics and growing real estate demand. Now another real estate firm can be added to the list.
The latest newcomer to Brazil is Related Companies, a New York-based developer-cum-fund manager best-known for building the famed Time Warner Center in New York. Last month, the firm and its Miami-based affiliate Related Group, formed a new São Paulo-based venture to be called Related Brasil. It is led by former Tishman Speyer executive Daniel Citron.
With an initial investment of $120 million and a total of $1 billion over a three-year period, the new venture primarily will focus on high-rise residential development projects, as well as the development and acquisition of some hotel, mixed-use, office and retail properties. In terms of location, Related will seek to look beyond Brazil’s two major markets of Rio de Janeiro and São Paulo to such cities as Fortaleza and Recife in the northeast of the country.
“Our goal is first to do two to four quality development projects, work them from beginning through completion and then grow the business from there,” said Jeff Blau, president of Related Companies, which expects to announce its first Brazilian project within the next six months. Related initially plans to finance the projects with its own capital or by bringing in equity partners on a deal-by-deal basis, although it may raise a dedicated fund in the future.
“We see tremendous macroeconomic trends” in Brazil, said Blau. “You have a strong growing economy, you have a democratic government supportive of entrepreneurs and foreign capital investment and you have a very large and growing middle class.”
Related’s entry into Brazil, however, raises the question of whether the firm is coming late to the festa. After all, US developer-cum-fund managers Tishman Speyer and Hines have been investing in the country since the mid- to late 1990s.
“Brazil is a complicated market, and it’s harder to enter than people think,” said one Brazil-focused GP. “It takes a big dedicated team, and deals are very large [from an equity standpoint] because there’s no debt financing.”
In addition, residential property has become a less favourable investment opportunity in Brazil. “If [Related was] coming to the market three years ago, they would have had a huge impact,” the GP said. However, “the days when you can make easy money in residential are over.”
Suggestions that Brazil’s growth might be running out of steam also crop up. While the nation surpassed the UK as the world’s sixth largest economy last month and its gross domestic product rose 7.5 percent in 2010 – its highest rate in 25 years – it only expanded 2.7 percent in 2011. Growth projections are for three percent in 2012 and four percent in 2013, according to the International Monetary Fund’s World Economic Outlook in January.
Related, however, is taking the long view. Over the next decade, “you’re going to have much greater growth in Brazil” than in the US, said Blau. “There’s always competition in the market, but the question is whether you can build a better mousetrap. I think we have the capabilities to do that.”