Mexican real estate investment trusts (FIBRAs) gain recognition
By Michael Hissam
Real estate investment trusts offer investment opportunities in Mexico. As with any sovereign nation, Mexico has established, really continues to establish or modify rules when it comes to investment trusts dedicated to the acquisition and development of real estate in Mexico held for leasing.
For investors stable income becomes critical.
If recent activity is an indicator, real estate investment trusts known as REITs in the U.S. and FIBRAs in Mexico have been quite dynamic.
Jaime Lara CEO of Macquarie Mexico keeps tabs on FIBRAs and what is happening for real estate investment trust opportunities for industrial, commercial and office properties.
FIBRA for many of us watching business in Mexico seems to be a newer term, what do we need to understand about this?
You are correct FIBRA is an acronym in Spanish; it means Fidecomiso de Inversions en Bienes Raices. It means exactly what it means for the U.S. acronym which reads Real Estate Investment Trust.
What do we need to know about your portfolio of properties in the FIBRA at this point?
It is important to know that FIBRA Macquarie pursues a diversified investment strategy in Mexico. That means that we are able to invest in industrial real estate, retail centers and office properties. We have a large presence in the industrial sector and we are currently present in 21 markets in Mexico, we have a high concentration especially in northern markets like Tijuana, Monterrey and Ciudad Juarez. We have 259 industrial properties and we have over 350 industrial tenants.
So “FIBRA” is not just one classification but there are multiple types of FIBRAs. To what extent is that true?
That is quite true. At this point there are eight FIBRAs in the Mexican market and these FIBRA’s are pursuing a diversity of investment strategies. In our case we are pursuing a diversified strategy – some of the FIBRAs are for industrial buildings, some others are just dedicated to the hospitality or the hotel business.
When should Mexican and foreign investors consider FIBRA? Under what conditions should they take a closer look?
At this point, many investors are already actively investing in FIBRAs in Mexico. Most of this is based on the good expectations that we have for the future of the real estate markets in Mexico.
Mexico has become more attractive for companies doing manufacturing in the country. On top of that Mexico is able to gain in productivity over the next years and if some of the reforms that have been announced recently are implemented correctly, then we could expect to see a better competitive advantage for Mexico as a country. That should continue to attract companies looking at doing manufacturing and warehousing and distribution in the country.
What is the difference between buying and leasing and when do you do which?
Let’s look at this from the perspective of a real estate user. These companies that come to Mexico, sometimes they do not have one manufacturing or assembly plant sometimes they have one, two, three or more all over the country. Over time their strategy may change in terms of distribution, warehousing and of course manufacturing. Leasing as opposed to owning provides these companies with that flexibility.
If they know that they need to stay at one specific location for a number of years, let us say for five years, 10 years but they really do not have a very clear as to what happens next after five or 10 years, then leasing from companies like FIBRAs who own a lot of real estate throughout the country is a very good option.
We offer our clients, our customers, our tenants that flexibility since we have a large industrial portfolio. We are able to manage our properties with a portfolio view, meaning that if a specific tenant in a specific location needs a shorter period of time or needs to sign a very long-term lease agreement, we can do that because we are able to balance the risk in our portfolio in many ways.
Looking at returns short term and, long term, what should investors keep in mind about the payback?
They should keep in mind that FIBRAs as related to the U.S. are designed to provide two types of returns to the investors. In the short-term FIBRAs are able to pay a quarterly dividend or a quarterly distribution. Then over the mid- and long-term, since we believe that real estate will continue to appreciate in many parts of the country, then the underlying assets of FIBRAs should also continue to appreciate in value over time.
We tend to think it that only the big-name players would look at something such as FIBRAs. In what ways is FIBRA something for the general public to consider as disposable income rises?
This is definitely an instrument that many investors actually are considering. Some of them are already investing. That means not only insurance companies and public pension funds in the country but international investors of different kinds. There are retail, individual investors that are also actively investing in FIBRA’s at this point.
You are smiling all the way through this interview. It seems as though you know something good is about to happen with the potential of FIBRA’s in Mexico. How do you see it?
We see this as a very favorable development. If we look at what happened in the real estate market in Mexico, starting in 2011 we had FIBRAs in the country. Previously it was difficult for real estate investors for private equity funds to invest in real estate. Prior to that time it was difficult for some investors to put their money at risk in large or mid-size development projects without having a clear financial exit.
Now that FIBRAs are actively in the market acquiring stabilized properties, many of these real estate developers, many of these real estate focused private equity funds are able to generate their own exits and return capital to their investors with more certainty.
FIBRAs provide liquidity in the marketplace both for developers as well as to financial investors.
You are positive about this!
I am, I am. In the future the Mexican real estate market is going to continue to grow and expand and in some cases we are going to see some redevelopment but in general there is a trend in having more modern real estate inventory that the country needs.