Sam Zell continues shopping spree in Brazil

Following investments in the country’s office and residential sectors, Zell’s private equity real estate vehicle has acquired a large stake in a Brazilian retailer.

In its second major acquisition in Brazil, Equity International, the private equity real estate firm affiliated with Sam Zell, has invested $44.5 million (€35 million) in ECISA Group, a Rio de Janeiro-based owner and operator of Brazilian shopping centers.

Under the terms of the deal, Equity International will control approximately 14.4 percent of the retailer’s shares with an option to acquire an additional 13.1 percent. GP Investments, a Brazilian private equity firm that Equity International has worked with in the past, will acquire an equal stake in ECISA.

Brazil is an exciting market with profound political, economic and societal developments propelling it onto the world stage.

Gary Garrabrant, CEO, Equity International

The Brazilian retail market is currently attracting a number of foreign investors as the country’s emerging middle class and burgeoning economy generate increasing amounts of consumer confidence and disposable income. Over the past several months, Cadillac Fairview, the real estate investment arm of the Ontario Teachers’ Pension Plan, and Ivanhoe Cambridge, the real estate investment arm of Caisse de depot in Quebec, have both made significant investments in the Brazilian retail industry. In addition, Brookfield Asset Management recently closed a $700 million fund focused on acquiring malls in the country, the fifth most populous in the world.

“Brazil is an exciting market with profound political, economic and societal developments propelling it onto the world stage,” Gary Garrabrant, chief executive officer of Equity International, said in a statement.

The retail sector in Brazil remains highly fragmented as limited financing options have limited the growth of regional owners and operators. ECISA, for example, currently owns 13 shopping centers, yet it is still one of the largest retail companies in the country. ECISA plans to expand, both organically and through acquisitions, utilizing the recent equity investment.

ECISA’s malls are located primarily in Brazil’s northeast and southern regions and in its major cities like Sao Paolo and Rio de Jinero, said Thomas McDonald, executive vice president of Equity International. They are well-attended by the country’s “emerging middle class,” McDonald said, who added that “over the past three to five years, with inflation declining, there is more spending power.”

“There is a cultural component to the shopping center in Brazil,” McDonald explained. “It is in some ways a town center because it is safe, air conditioned, enclosed, has a combination of retail, food, bowling alleys, movie theaters, and in some cases medical centers. The average visit I’m sure is [longer] than in the US.”

McDonald also attributed the popularity to the inclusion of numerous international lifestyle, fashion and food chains. He declined to name specific chains but noted that they include non-US companies, particularly European ones.

The acquisition of a minority stake in ECISA represents Equity International’s second major acquisition in Brazil. Last year, the firm invested $50 million in Gafisa, a Sao Paolo-based homebuilder, which had been a portfolio company of GP Investments for a number of years. Earlier this year, Gafisa went public on the Brazilian stock exchange; Equity International’s stake is currently valued at five times its initial investment.

Equity International has also been active in the commercial office sector. Earlier this year, the firm formed a new platform, Bracor, to acquire real estate owned by high-quality corporate tenants. Outside of Brazil, the firm recently invested $50 million in Santiago, Chile-based retail operator Parque Arauco, which develops and manages malls in Chile, Argentina and Peru.

The firm closed its second private equity real estate fund on $300 million earlier this year.