UBS Asset Management is not the first name one would think of as making a major bet on the Brazilian property market. After all, the asset management arm of Swiss financial services firm UBS Group, is one of the world’s largest core real estate investors: of its $78 billion of real estate assets under management, only $8 billion, or approximately 10 percent, is non-core.
Nonetheless, UBS is aiming to raise a total of $2.3 billion across three Brazil-focused fund strategies: $300 million for real estate debt, to help address the shortage of real estate financing in the market; $1 billion for investments in income-generating real estate, primarily in office and logistics; and $1 billion for opportunistic residential, focusing on the acquisition of constructed units from distressed sellers. To help achieve its targets, the company has formed an exclusive partnership with Real Estate Capital, a Brazilian consulting firm, which will strike deals only for and with UBS for an undisclosed period of time.
Thomas Wels, head of global real estate at UBS Asset Management, said, despite the firm’s reputation as a core investor, it is no stranger to non-core real estate investing globally, including in China, where it has been active for eight years. It has also had exposure to Brazilian real estate through its global multi-manager platform since 2010.
Although the firm has been tracking the Brazilian real estate market since then, it was not until UBS identified REC as its local partner that the firm was ready for its global real estate business – its direct investing arm – to enter the country. “In most markets, it’s about people,” Wells said, in an interview with PERE. “My belief is we need boots on ground to really understand what the best approach is to get access to the best assets and strike the best deals.”
The seven-strong REC team will work with three UBS professionals at the latter company’s offices in São Paulo.
One industry observer said that UBS’s $2.3 billion target in Brazilian real estate was “bigger and bolder” than what he would have expected. Still, Ken Wainer, co-founder of VBI Real Estate, a São Paulo-based private real estate firm, said such a goal was not unrealistic: “I think they can raise the money. There’s a lot of larger sovereign wealth fund investors and some pensions and insurance companies in Europe that are really interested in Brazilian returns in the context of a very low yield European environment.”
Meanwhile, deploying $2.3 billion would be feasible, provided return targets are 5-7 percent above local long-term treasuries – achieving above that would be difficult at the present time, he said.
Some market sources, however, questioned the alignment between the combined REC/UBS team – whose members primarily come from an outside third party – and the firm’s investors. Other concerns raised included UBS’s lack of a track record in direct Brazilian real estate investing, and REC’s primary expertise being in only one of the company’s three strategies – real estate debt – for the country.
Wels asserted that the relationship between UBS and its investors would be “fully aligned with long-term incentives which are industry standards.” He also noted that REC has an 18-year track record and that REC chief executive Moise Politi has had significant experience in both debt and equity in creating and running the largest Brazilian real estate investment trust, FII BTG Pactual Corporate Office Fund.
REC will play an important role in helping UBS to get a foothold in Brazil quickly, Wels said. “For me, it’s important to be fast,” he said. “Speed is of the essence.”
Wels said that the firm would initially pursue short-term opportunities, primarily in its debt and distressed assets strategies, over the next two to three years. Ultimately, however, UBS intends to be in Brazil for the long haul.
“We enter opportunistically, but at the end of the day, we are big believers that we can raise money over time when from domestic clients,” he told PERE. But that's a long voyage.”