Jaime Roberts – President Mexican Association of Industrial Parks (AMPIP)

How large is the current membership of AMPIP?

Currently the AMPIP is made up of 55 members all together representing about 250 industrial parks located in different areas around Mexico, with more than 2,000 tenants from different industries.

The AMPIP has grown considerably since 2005. Before we used to represent only private industrial developers, but now our membership includes state governments with industrial trusts, as well as investment funds with industrial assets in Mexico, such as PREI, GE-Intramerica, LaSalle Investment Management, DCT Industrial- Mexico, GMF Cypress and Hines, among others.

What is the condition of Mexico's industrial-distribution real estate market in 2011 in terms of expected growth?

The effect of the global crisis that started in 2008 in the real estate industry in Mexico was evident basically in the low occupancy rates the market registered in 2009. Generally speaking this was about 80-84%, in addition to the shortage of financing flows. During 2010, even though the occupancy rates increased about four points, the market did not achieve the level it had registered in years previous to the crisis, which was about 92-93%.

The most affected sector was Auto Parts. This industry is the one that has the greatest presence in the AMPIP industrial parks. As we all know, the automotive market in the U.S. suffered a severe contraction due to the crisis. According to the National Institute of Auto Parts (INA), the production of auto parts in Mexico decreased 29% from 2008 to 2009.

It was clear that as the automotive market improved in the U.S., the recovery in Mexico started to take place in the form of new manufacturing initiatives or actions reactivating projects that had been halted due to the crisis. During the first semester of 2010, auto parts production in Mexico gained an important 55% growth in comparison to the same period in 2009.

In the industrial real estate market this kind of industry growth was reflected in more prospects visiting the country and certainly in a slow but consistent arrival of new tenants.

One of the active regions in Mexico during 2010 was the Bajio, especially with distribution centers and new manufacturing facilities, such as the new VW engine plant with a US$500 MM operation in Silao. And there is the new Learjet US$250 MM project that was developed by Vesta in Queretaro, and there are others.

What is the outlook for the market in 2011-2013 and what main problems/conditions need to be resolved?

It is well known that there is a strong convergence between the Mexican and the U.S. economy. This is mainly thought to be as a result of NAFTA. According to Mexico's Central Bank, a slowdown in U.S. economic growth is expected for 2011. This will be due; it has been concluded, to a reduction in consumer confidence.

Besides that, more than 50% of Mexico's foreign direct investment inflows in the manufacturing sector come from U.S. multinationals.

For these reasons we are expecting that 2011 will be slow in terms of new industrial real estate projects. However, we are still seeing good indications in terms of fresh capital for new infrastructure projects coming from the Mexican pension funds.

For instance, recently the firms of AMB Property Mexico and Promecap, a newly created fund from PREI-Prudential, placed about 5.8 billion pesos (US$460 MM) in equity-linked structured notes known as CKD's on the Mexican Stock Exchange. These are for the development of new industrial and logistics real estate projects in the country. This new financing scheme will definitely help make Mexico more appealing to potential investors.

No doubt that the Mexican government has made a good effort toward achieving strong macroeconomic stability. This year the economy will grow about 5%. Mexico is in the top ten most attractive countries for investors, according to the Deloitte, A.T. Kearney and the UNCTAD's world investments prospects survey.

Yet, our authorities need to work more to mitigate the violence we are suffering. The problem is a result of drug cartel in-fighting, especially along the U.S.-Mexico border. This is an issue that is not going away. It will be one of the main challenges facing the Mexican government and need to be solved, if we ever want to increase the number of investment projects coming into the country.

What are we lacking in Mexico in terms of federal legislation as it relates to the industrial real estate market?

There are some structural reforms still pending in the Congress. We need to be more efficient in energy supply, for instance, but this will not be possible if we do not open energy to the private sector.

Besides that, our Labor Law is obsolete. The lack of flexibility to hire people makes the operations more costly in Mexico. Our tax system needs to be more certain and inclusive. Investors can certainly be afraid of a system that is constantly changing the rules in every transaction. You cannot plan this way for the long term.

Are Mexican developers embracing some of the innovative, state-of-the-art real estate development practices?

At the AMPIP we are concerned about caring for the environment. That is why we have been working with the Federal Attorney for Environmental Protection (Profepa) in the Clean Parks Program. This effort basically identifies, evaluates and controls industrial processes that could be operating under certain risk conditions and/or provoking environmental contamination.

Another certificate that is very important for AMPIP is the "Mexican Standard for Industrial Parks NMX-046-2005" issued by the Ministry of the Economy. It contains general criteria for the quality of infrastructure in order to provide certainty for potential investors. For 2011 this standard will be updated from the 2010 version, which will then include environmental standards for industrial parks.

Regarding energy efficiency we have several members that have already started to construct buildings with LEED certificates, such as the EcoLogistics 1 building from Hines in San Luis Potosí. There is also the LEED-Silver Certification manufacturing building for Bombardier in Queretaro that was developed by Vesta. And, there is the LEED-Gold Certification for the new L'Oreal Distribution Center managed by Corporate Property of the Americas in San Martin Obispo. It is located in the north of Mexico City.

How are Mexican industrial real estate developers contributing to improve Mexico's overall competitiveness to attract foreign investment?

Our main contribution is to provide the country with the right industrial infrastructure, and do this according to investors' demands.

Industrial parks must be seen by the Mexican authorities as one of the important elements of the country's competitive factors.

All these companies that President Calderon would like to attract will need to land somewhere with all the services necessary to operate efficiently. Industrial parks in Mexico have precisely that function, to facilitate the landing of new projects in what we call "plug & play" facilities.

What are the key plans/programs for AMPIP in 2011?

As the new President of the AMPIP, my agenda for the next two years will be based on six strategic goals: representation; education; promotion; financing; environment and security.

Regarding "representation", we will be working hard to update our data base on how our sector contributes to job generation and grows the economy. Regarding "education" we will enhance our quarterly meetings by providing our members with high quality informative educational sessions. Specifically, in 2011 we are planning to have a study tour to Panama. This will be done in order to learn more about what is happening in the Panama Canal and how it will impact regional logistics.

In regard to "promotion", since 2010 the AMPIP implemented a brand new marketing strategy to strengthen the promotion of the industrial real estate facilities from our members among potential tenants. An example of this is the new AMPIP's web page. It includes a real estate data base called "AMPIP-AB (available buildings). This is separate from the alliances we have with ProMexico and the Mexican Association for Economic Development Secretaries (AMSDE) to facilitate working together on promotion activities.

In relation to "financing" we will continue working with the Mexican Bank for Foreign Trade (Bancomext), which in 2010 and as a result of the alliance with the AMPIP, was able to put in place about US$300 MM for the construction of new industrial buildings. In addition to this there was evaluation of new financing alternatives with commercial banks.

Finally, related to the "environment" we will continue to work in environmental care programs. We want to do this together with new activities related to social responsibility actions.

At the AMPIP we believe that companies are obligated to help communities to improve their quality of life, as well as implement projects where real estate developers can share their expertise and resources.