Pienssa, a Bogota-based investment firm, is raising its first real estate fund in partnership with local developer Prodesa. The joint venture, known as Quadras, will pursue acquisitions of land for low-income housing development on behalf of the vehicle.
With most real estate funds in Colombia focusing on core properties, “we started to look at how we can think differently,” said Dorothea Bickenbach, a partner at Pienssa. “We came up with the idea of building up a land bank.”
Bickenbach sees an investment opportunity in the housing shortage and scarcity of urban land in Colombia. Urban land currently allows for the construction of just 525,000 homes in the country’s five biggest cities. Meanwhile, Colombian President Juan Manuel Santos has called for the construction of one million homes – 70 percent of which will be designated for low-income housing – over the next four years. The supply and demand gap, along with population growth, is expected to put upward pressure on land prices.
Quadras’ partners launched the fund, called Futuro Inmobiliario, in March 2012 and to date has raised COP60 billion (€25.26 million; $33 million) of its COP100 billion ($55.5 million) target mostly from local pension plans – including Colombia’s largest pension, Porvenir – and Skandia. In Colombia, commingled funds are unlikely to secure backing from foreign investors without first securing commitments from local pension plans. To raise the remainder of the fund’s capital, Quadras’ partners now are planning to reach out to US investors, particularly family offices that would be interested in investing in Colombian real estate.
Among the partners, Pienssa has committed COP700 million to the fund, while Prodesa has kicked in COP5 billion. The developer, which has built more than 15,000 housing units in Colombia and 1,300 units in the US, is the second-largest seller of low-income housing in the Latin American country and also has been a real estate fund manager for 18 years.
Given a 9x value gap between raw and developed land in Bogota’s vicinity, Pienssa will acquire unentitled land and create value from land entitlement and zoning improvement, redevelopment or construction. The firm plans to partner primarily with Prodesa, which will co-invest an additional 5 percent in each asset that it develops. However, Pienssa also will consider other developers, which will be able to co-invest between 5 percent and 40 percent of a project’s capital needs in exchange for the option to develop the site.
On behalf of the fund, which is targeting returns of at least 18 percent, Pienssa and its partners will invest up to COP15 billion in a single asset, with 60 percent of investments expected to be concentrated on in the Bogota region.
Futuro Inmobiliario is one of the latest Colombia-focused opportunistic real estate funds to hit the market. In 2011, New York-based Avenida Capital launched its first institutional opportunistic vehicle, the $125 million Avenida Colombia Real Estate Fund I, targeting retail, residential and mixed-use properties located in the major and secondary cities of Colombia.
Meanwhile, Miami’s Brilla Group is raising the Colombian Beachfront Hospitality Private Equity Fund, which will invest in luxury hotels and resorts in the South American nation. The vehicle, which is the firm’s first institutional real estate fund, raised $30 million in equity from Bancoldex, Colombia’s Foreign Trade Bank, and three of the country’s six major pension funds during its first round of fundraising last year.