GlobeSt.com EXCLUSIVE: Opportunistic Investors Eye Latin America

Cross-border investors can expect to realize gains in the mid-teens to low 20% range in key Latin American markets, particularly Mexico, as economies gain strength alongside America amid a relaxation of regulation that has baited US retail giants like Wal-Mart and Home Depot and even France's Carrefour to open doors to a public with a growing purchasing power due in large part to repatriated capital, Chuck Bedsole, practice leader in Dallas for Ernst & Young's Latin America Real Estate Advisory, tells GlobeSt.com.

Bedsole says the investors' thirst extends to every product type, but hospitality properties offer the greatest opportunity as a result of growth in travel, limited market penetration by global hotel brands and fragmented ownerships, particularly in Mexico where the labor pool is plentiful, operating costs are lower and the population's vast majority is still on the road to maturity in terms of spending power. And, he says, the hot properties got hotter when several governments eliminated many restrictions on foreign investment in hotel assets.

Bedsole hasn't calculated how much of the investment power is directed toward real estate, but cited Financial News research that US and Canadian companies accounted for 73.3% of $13.6 billion of Latin America's foreign direct investment in 2002. "It's been 10 years since there's been the volume of activity that there is now," Bedsole says. "The growth bubble is ahead...and I think they're underserved in all their markets, particularly retail."

Bedsole says added opportunity lies in buying defaulted loans and REO assets, again with Mexico in a more favorable position since it's created an entity to dispose of government-owned properties. He predicts asset sales will rise in the next 24 months while President Vincent Fox's housing goal for up 750,000 new dwellings annually and banks getting "aggressive" to lend will bring investment opportunities in securitization of mortgage loans.

"Today's global investors are usually more prepared than their late 20th century predecessors to learn the market, invest for the long term and address the economic, political and real estate risks," Bedsole said in a release addressing the shift, which often includes Latin American partners to develop office, industrial, hospitality, retail, multifamily and single-family housing. The contrarian dance card contains names like JPMorgan, GMAC, Goldman Sachs, Citigroup, CS First Boson, Hines Interest, Koll, Tishman Speyer, Cargill, George Soros, Sam Zell, Kimco, Prudential, AIG and GE Capital.

Helping to fuel the interest in the "New Economy" in countries south of the Rio Grande is the flow of capital back to families from nationals working in the US as President George W. Bush and his Mexico equal try to come to terms on issues of import such as immigration reform for an emerging nation that went the distance to impose a series of "new disciplines" to make the investment climate more favorable and provide new incentives to revitalize the ailing maquiladora investment and production, still reeling from its hardest hit in four decades.

Mexico's GDP is predicted to grow about 3% this year or double the 2003 estimate, according to Bedsole. "Brazil's economy appears to be on the mend as well," he said, adding indicators show Argentina is emerging from its worst economic backslide in its history. "Without question though, investing in Latin America real estate can be a complicated and challenging undertaking," he said. The risk adjustment is running 400 to 500 basis points higher on the other side of the Rio Grande.