GTIS Partners in New York City closed its newly created GTIS Brazil Real Estate Fund II on February 24. Many of the investors are the same ones that bought into their first fund, the GTIS Brazil Real Estate Fund I, which managed to raise $510 million in the crisis years of 2008-2009. All told, GTIS has raised around $2.3 billion in private equity capital since its inception in 2005.As a result, the New Yorkers now run the largest real estate dedicated private equity fund in Brazil.
Josh Pristaw, Senior Managing Director of GTIS said, “Real estate investment opportunities that we are focused on in Brazil are also being driven by many macro drivers in Brazil including the upcoming 2014 World Cup and 2016 Summer Olympics.”
So far, the fund has spent about 30% of those commitments on a warehouse and residential project in São Paulo and one brand new commercial property in Rio de Janeiro (pictured). It’s got about $250 million more worth of projects on the drawing board, and still under negotiations.
“It’s mostly all new construction,” said Tom Shapiro, president and founder of GTIS. “Investors are sold on the cap rate. Plus margins on selling the properties are still very good. You will get more than what you put into Brazilian real estate,” he said. The cap rate, or capitalization rate, is used to estimate an investor’s potential return by dividing the income the property will generate after fixed costs and variable costs by the total value of the property. Shapiro put the cap rate above 16%.
Leases in Brazil are linked to the core inflation index every three years. There is also low vacancy rates in Brazil as the country continues to grow up from its humble days as a poor country. World class cities like São Paulo still don’t have a lot of class A commercial buildings like the U.S., Europe or even Asia. Smaller sections in São Paulo have steel and glass structures, but most of Brazilian buildings are built brick by brick. Companies moving to Brazil, or upgrading, are going to want newer architecture.
GTIS recently acquired a couple of sites located side by side near Rio’s port and will build around 400,000 square feet of new class A office space starting next year. The building is expected to cost around $150 million.
Shapiro’s fund is closed to investors.
Retail investors interested in Brazilian real estate don’t have a lot of products to chose from. Brazilian residential builder Gafisa (GFA) is liquid, and highly volatile. Other residential names like PDG Realty or commercial properties like BR Malls are only listed on the BM&F Bovespa exchange. International real estate mutual funds like Alpine International Real Estate (EGLRX) are heavily weighted towards Brazilian developers and real estate investment trusts but not a pure play Brazil fund.
Article from http://www.forbes.com/sites/kenrapoza/2012/03/21/u-s-investors-commit-nearly-1-billion-to-brazilian-real-estate-in-new-fund/
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