Walton Street makes Brazilian debut with R$192.5m mall deal

The Chicago-based private equity real estate firm has opened the door to a series of Brazilian investments by participating in an initial R$192.5m investment into a shopping centre in Sao Paulo alongside Brazilian bank BTG Pactual and London-based Squarestone Brasil.

Walton Street Capital has teamed up with Brazilian bank BTG Pactual for an investing joint venture which has brought the Chicago-based private equity real estate firm into Brazil for the first time.

PERE has learned that Walton Street affiliates have joined forces with BTG Pactual for an initial investment in a 50 percent stake in the Golden Square Shopping Mall, a 31,000 square metre shopping centre development in Sao Paulo expected to complete by Q3, 2012. Further investments in Brazil by the joint venture partners are expected to reach ‘hundreds of millions’ in value, sources said.

The position in the Golden Square shopping mall is being acquired alongside Squarestone Brasil, the Anglo-Brazilian real estate development and investment company, headquartered in London and listed on the London Stock Exchange, which owns the other 50 percent of the development.

The investment by Walton Street and BTG Pactual was made via a convertible bond issued by SB Brast Participacoes, a wholly-owned subsidiary of Squarestone, valued at R$192.5 million (€83.37 million); $118 million). The coupon on the bond during the development phase of the shopping centre has a margin of 3.25 percent above the benchmark bank base rate in Brazil, which currently stands at 11.75 percent. The bond can be converted up to seven months after the opening of the centre.

Crucially, the deal for the bond also includes an option agreement for Walton Street and BTG Pactual to acquire a 49 percent stake in the management company of Squarestone itself, called Squarestone Brasil Administracao E Participacoes, subject to the conversion of the bond into equity of SB Brasta and if they acquire 50 percent positions in its other three shopping centres.

Squarestone would not confirm the names of its co-investors when approached following an announcement on the acquisition of the Golden Square stake.

Walton Street Capital, launched in 1994 during the RTC crisis, has been one of the more successful fundraising firms following the global financial crisis. The firm has raised $3.9 billion in the past give years, most recently closing on $1.935 billion for its Walton Street Real Estate Fund VI, with capital commitments from investors including the Los Angeles City Employees’ Retirement System among other US pension funds.

The firm has invested in an array of different real estate ranging from single asset transactions to complex ownership situations, entity recapitalisations and private equity platform investments. This investment in Brazil marks a rare overseas foray for the predominately US-focused firm although it has invested in Mexico and India before as well.