When it comes to cross-border investment between the US and Latin America, most in the private equity real estate industry think of capital flows principally going from the US to Latin America. Those industry players might be surprised by the reality.
In fact, more real estate capital actually has been coming out of Latin America into the US than the reverse. According to data provider Real Capital Analytics (RCA), Latin American property investment activity into the US has reached $3 billion in 2014 to date. This is nearly triple the amount of US capital – $1.06 billion – going into Latin American real estate during the same period.
Moreover, Latin American capital flows into the US have outpaced US-to-Latin America deployment for at least the past three years, according to the RCA data. Property investment from Latin America to the US was
$2.11 billion in 2013 and $1.04 million in 2012, compared with $1.03 billion in 2013 and $686 million in 2012 from the US to Latin America.
Historically, Latin American investors in US real estate primarily have been wealthy family and individuals seeking a safe haven for their capital, and typically have purchased trophy properties in primary markets, said Ben Thypin, director of market analysis at RCA. However, this activity has been shifting. “While this dynamic is certainly still in place, over the past several years we’ve started to see Latin American investors invest more adventurously.”
Andres Gonzalez, chief executive officer and co-founder of Finesa Real Estate Group, has seen an uptick in interest in US real estate from Latin American investors over the past decade. “As real estate markets in Latin America developed and people have understood the asset class in greater depth and they’ve gotten to appreciate US real estate, their allocations have developed and grown,” he said.
Latin American pension funds, particularly in Mexico, Colombia and Brazil, have been allowed by regulators to take incremental risks in investments over the past 10 years, including investing in real estate and private equity abroad, said Gonzalez. As the pension plans’ asset bases have grown, the allocation to real estate likewise has increased exponentially. “The checks you see being allocated are growing very, very fast,” he said.
Indeed, Finesa’s own fundraisings have shown strong Latin American appetite for US real estate. In 2012, its first fund, Diversified International Partners, amassed $200 million from Colombian pension funds and large family offices. Because the fund – which targets office, industrial, retail and multifamily transactions primarily in Colorado, Texas, the Midwest and Washington, DC – now is approximately 60 percent invested, the firm expects to soon come out with a larger follow-on offering. “Capital flows coming from Latin America into the US are going to continue to grow,” said Gonzalez.