Mexico is Back in the Game

SAN DIEGO-After years of economic and social crises, Mexico has regained lost ground and has found stability, creating a space for investment and development opportunities from across the border, said panelists at the “Breaking Through: Innovation, Opportunity and Transformation in Mexico” session during the ULI Spring Meeting here last week. The country has undergone a series of structural reforms and established investment vehicles that have raised the quality of its commercial real estate and given developers new territory to consider.

Blanca Rodriguez, managing partner of Real Capital Investment Management, moderated a panel consisting of Eduardo Guemez, president and managing director of LaSalle Investment Management Mexico Fund, and Pedro Aspe Armella, co-chairman of Protego Asesores. Armella said that Mexico's economy can now be characterized as having low inflation and low debt. The country is undergoing four major structural reforms—some of which are complete—including education, telecommunications, physical and energy. Employment is back to pre-crisis levels and relatively stable, the country's market share has grown since 1990 and is projected to be 16% by 2018—soon to be overtaking China in the labor market.

Guemez pointed out that Mexico has survived the post-Y2K crisis years of drug violence, swine flu and the need for liquidity. “All the turmoil obscured the fact that Mexico had recovered.” Structural reforms allowed local pension funds to invest in real estate, creating liquidity and improving the quality of hotels and retail in the country.

A major reform has been the creation of CKDs and FIBRAs, similar to REITs in the US, said Rodriguez. Nearly 40% of CKD investments are in the real estate sector, focused on industrial, residential, retail and multi-sector portfolios. “These are exciting moments for Mexican investors because of the new liquidity that CKDs offer.”

The FIBRA market has evolved at a fast past, creating opportunity for development, Guemez said. “As income levels grow, so does the demand for higher-quality real estate development. We hadn't had this before.” He added that while the durable goods market had collapsed during the crisis, it is now rising. People are spending money and access to credit is rising. In an increasing number of families, both parents are now working and can get credit cards and a mortgage, particularly in the Bajio region where residents are more educated and industrial development—aeronautical and automobile—is growing.

Medical tourism is also increasing for voluntary procedures such as plastic surgery, Guemez added, and more hospitals are being certified as affiliated with US health systems. Hopefully, retirement communities will come next.

Another major reform that has opened up trade opportunities between the US and Mexico is that non-Mexicans are now able to buy property along the coast of Mexico, thanks to a new article in the Mexican Constitution.