Crédito: GRI Club/Flavio Guarnieri
Ivanhoé Cambridge targets residential for rent in Brazil
Operating in Brazil since 2006, with strong local partnerships with Ancar, in shopping malls, and with Prologis, in the industrial and logistics segment, Ivanhoé Cambridge has an eye on a new branch of real estate in Brazil: Residential for rent. The year 2020 is expected to be decisive in this regard, for an in-depth study of opportunities or even for making investments.
Sylvain Fortier, the company’s Chief Investment and Innovation officer, was in São Paulo in November to attend Brazil GRI 2019 and spoke exclusively with GRI Hub. In this interview, he talks about these plans, shares his view about the near future for the Brazilian real estate industry, reveals greater comfort in investing here compared to other emerging economies, and does not shy away from a controversial issue: The WeWork case, which recently gave up on going public in an episode surrounded by twists. Ivanhoé Cambridge had just established a partnership with the group and is now opting for a cautious stance until the path the coworking giant will follow becomes clearer.
Ivanhoé Cambridge is a subsidiary of Caisse de Dépôt et Placement du Québec (CDPQ), which focuses on real estate investments and has global assets in the industrial and logistics, office, residential, and retail segments. At the end of 2018 (most recent official data available), its portfolio added up to about 65 billion Canadian dollars (more than R$ 200 billion).
Check out the interview with Sylvain Fortier:
What is your vision for Brazil in 2020, considering the macroeconomic reforms that are taking place? And what do you expect for real estate in particular?
From a real estate standpoint, from an interest rate standpoint, from a cap rate standpoint, and from a foreign investor’s point of view, there seems to be a lot of focus already looking at Brazil, so it seems to be pretty positive. To us, currency is always one of the main risks. We hope that whatever the reforms, and however they are executed, there will be a little more stability in the currency. That would be great. But we are very positive. The overall growth of the country is still not as high as we would want it to be; however, in spite of that everything else seems to be moving in a very good and right direction.
Ivanhoé Cambridge has been investing in Brazil since 2006. How do you compare the environment and the investment strategy in the country then and now?
We started with the idea of opening another arm in the retail business. We were very much an owner operator and wanted to replicate what we had done in Canada. Today, we have become more a global real estate investor, partnering up – like we did with Ancar in Brazil –, and we're reproducing it elsewhere and in other asset classes. That is the biggest difference, and it reflects what we are doing now with Prologis in logistics [through a joint venture created in January 2019, with an estimated value of $880 million] and what we might want to do, whether in residential for rent or mixed use products. At this stage of the cycle, it is probably better to be a little more cautious, to not put all eggs in a single basket, and say ‘I just want to do this’ in a country the size of Brazil. Therefore, I think the path forward is diversification through different partnerships, asset classes, and risk profiles.
Compared to other countries, especially emerging economies, how do you position Brazil today?
Brazil is one of the first countries we went to and stayed in. There are other countries we tried and then got out. Russia, for example, did not work very well at the time. In the Brics countries, India and China were also very difficult for us. Brazil was the only one we stayed in for the long term, I don't know if it is because it is in the Americas, and we do feel closer to it. Culture and, maybe, politics in countries such as India and China, to name two of those we were very involved with, are sometimes further from what we are used to. There are also very much currency and tax structure issues that we need to focus on. In addition, I believe that having been in Brazil longer makes us more comfortable with the country to begin with – particularly because we have no choice but to follow what is happening in a country we are currently invested versus others where stayed out or where we have been, had bad experiences in, and decided to leave. There is probably an added level of comfort for us when it comes to Brazil.
Looking at 2020, if you had to choose the most attractive real estate segment for investments in Brazil, which one would it be?
Logistics would not count because we are already in it, so I would say residential for rent, something that I can see us starting to do. This, in a way, could be tied to issues such as new neighborhoods and mixed use projects. People, globally, need a place to live. This is one thing that is the same everywhere, even though the notion of being able to rent an apartment versus owning it – in the face of uncertainty and knowing that [property] value sometimes goes up or down – is maybe not accepted in the same way in all geographies. Sometimes, it may be perceived as one only rents when one cannot afford to buy, but in many developed countries, in large cities, people rent by choice. Therefore, in a city the size of São Paulo, there is definitely a demand for renting nice apartments without the risk of value fluctuation. This is something we would like to do soon. It is not yet possible to say whether it will actually happen in 2020; however, I am sure that we will look into this very soon and that it is a matter of time before we do a transaction.
Will this strategy involve a partner?
Yes. We feel it is good to partner up with someone from an operation standpoint. This is the model we typically do everywhere. We have global and local partnerships – and Ancar is a good example of a local partnership. We also invest a little bit through funds, which does not require the same involvement, but sometimes is the way to start investing in something slowly. So, we will see. I believe that an event like this, Brazil GRI, gives us the opportunity to meet people, to pass the message of what we want to do and, maybe, some things may arise from these two days of interaction.
In May, you announced a strategic partnership with The We Company, owner of WeWork, to acquire and develop properties globally. How has this evolved? Have the difficulties that this group has been facing, after the frustration of the IPO plan, affected those plans?
What we wanted to do was invest in real estate with them. Therefore, they created a separate arm, and the idea is to buy office buildings and bring WeWork as a tenant into the vacant space, creating value in this way. What happened recently is very much tied to the IPO [initial public offering] initiative and to the fact that the value set by investment bankers, $20 billion to $25 billion in early September, would have been equivalent to about half of what SoftBank [the group’s main investor] thought it was [nearly $50 billion] – a value established considering WeWork a tech company with different multiples, different ways of calculating future cash flow. I believe that, basically, it was a disagreement between two shareholders, deciding not to do the IPO and cutting some business lines for future growth. What this means to us is that right now we continue having discussions about the pipeline and talking about different buildings, but we want to wait for the new WeWork, its new management, its new board, and the new strategy that will come, as this will impact how we negotiate with a seller or a lender – and they have the same opinion, to wait and see. I believe that, in the end, nothing will change on the major markets; however, maybe in the newer ones, where they were not yet, they will probably stop that very aggressive growth.
Blackstone recently took a step back in its strategy for Brazil because of the difficulty of finding deals in the country with a ticket compatible with its increasingly giant global funds. Is this issue of investments with a value high enough to be attractive also a turning point for you and other international investors?
To us it is not. I think Blackstone has a lot of capacity, so they like to focus on very large transactions. In our case, we do not have a minimum and maximum value, but of course we do not want to go too small because it's time consuming.
By Giovanna Carnio, editor-in-chief