Sunday, September 19, 2010
Real Estate Mogul Sam Zell in Brazil
By Sarah de Sainte Croix, Contributing Reporter
RIO DE JANEIRO – International property guru and U.S. billionaire investor Sam Zell announced in June last year that Brazil is “the number one country for investments” worldwide. At the time he was looking for partners to develop the activities of his Equity International real estate investment company in Brazil’s blossoming market. Since then he has put his money where his mouth is and invested widely in all areas of Brazil’s property market and added a fifth Brazilian property interest to his portfolio.
Sam Zell speaking at the Knowledge at Wharton Real Estate Forum, image recreation.
Equity International is a major stakeholder in both Gafisa, Brazil’s leading home-building company, and Construtora Tenda S.A., which focuses exclusively on the affordable and entry level sector.
Within the commercial sector Zell has shares in BRACOR (who lease corporate properties to high-end national and multinational companies,) and BR Malls which own shopping malls throughout Brazil’s major cities. In December last year he added Brazilian Finance and Real Estate (BFRE) to his portfolio, whose products range from personal mortgages to securitization and asset management.
According to Equity International, “The housing industry is one of Brazil’s most compelling sectors, underpinned by an unmet demand of eight to ten million homes, centered in the affordable and middle-income markets.”
In addition to this, Brazil’s booming economy is creating more and more jobs and raising the income levels and financial expectations of Brazil’s growing middle class. “This shortfall has upward pressure generated by a youthful population and a household formation rate exceeding the production of homes by a fragmented industry.”
In addition to this, the government’s ‘Minha Casa, Minha Vida’ program, which last month announced an extension to the program to make mortgage financing available for the affordable sector over the coming years, is propelling growth at the lower end of the market.
According to Equity International’s website, the increasing availability of finance from both Brazilian and international banks, the Federal government through Caixa Economica Federal (CEF), and now BFRE’s ‘Brazilian Mortgages’ initiative (Brazil’s first independent mortgage company), “(The) extraordinary consumer demand and a fragmented and poorly managed builder community have created an outstanding opportunity for Gafisa.”
But it will be some time before Brazilians adopt a system of securitization on anywhere near the scale of the U.S. In an interview with Bloomberg News, Garry Garrabrant, CEO of Equity International and chairman of Gafisa, estimated that it will take at least twenty years, “There’s not really a borrowing culture in Brazil that will change. Many of our homes sold at Gafisa are sold on an unlevered (ED. i.e. cash) basis and so people are, I’d say, slow to accept.”
While the U.S. and the rest of the developed world still reel from the after-effects of an over-zealous borrowing culture, Brazil forges ahead and prospers. But borrowing and economic growth seem to go hand in hand, and in the near future Brazil’s masses could well find themselves locked into a leveraged home owning system, with all the profits and pitfalls which that entails.