Real estate titan Sam Zell has just upped his ante with increased investments in Brazil. He paid $53 million for 8.5% of Brazilian Finance & Real Estate. His total investments in Brazil now surpass $500 million. His company, Equity International invests in emerging markets across the world, but approximately one third of those investments have gone into Brazil. His group has invested in companies Gafisa and Tenda, both focused on residential contruction as well as BR Malls, one of the biggest builders of shopping centers in the country. He seems to have a sixth sense about when to buy and sell. His timing was impeccable when he sold Equity Office Properties to Blackstone for $39 billion. What year was that you ask? 2007! Yes, right before the collapse of real estate prices in the United States. Some acknowledge that there are good opportunities to invest in the United States, but that is not where his focus is. On the company’s website they state, “Equity International is a privately held investment company focused exclusively on real estate-related businesses operating outside of the United States.”

How did Zell get started? Most business tycoons on Forbes’ list of billionaires have to start somewhere. Zell started out renting homes to students and friends at the University of Michigan while attending law school. He bought and sold distressed property during the crises in the 80s. He eventually owned over 225,000 properties throughout the United States. He was born to Jewish immigrants from Poland that moved to the United States right before the Nazi invasion in 1939.

According to different sources there is a housing deficit of somewhere in the neighborhood of 7-9 million homes in Brazil. This year the Brazilian Government lauched a program called Minha Casa, Mihna Vida (My House, My Life). It has plans to subsidize and finance the construstion of 1 million homes for poor and lower middle class families. Brazil historically has high interest rates, but in recent years rates has come down significantly to around 9%.

Real estate companies in Brazil are taking advantage of this growing market. Giants like Lopes and Brasil Brokers, two of the largest real estate brokerages in the country have seen accelerated growth in recent years. In 2007, Brasil Brokers raised money on the Brazilian stock exchange and has been growing through acquisitions. Headquartered in Rio de Janeiro, they currently operate in 15 states throughout Brazil. The real estate franchise model is not as prevelant in Brazil as the United States or Europe, but Century 21 recently set up shop in Sao Paulo and has goals of growing to 1000 offices in the next decade. Lopes, one of the oldest real estate companies in all of Brazil has been growing its profits at a fast pace. Lopes posted Pro-forma Net Income of R$17.5 million (~$10 million USD) in 3Q09, increasing by 61% over 2Q09 and by 66% in relation to 3Q08. The company recently signed an agreement with online real estate marketplace VivaReal, to begin commercializing new construction projects as well as properties listed by its franchise arm Pronto Imoveis. VivaReal is founded by Brian Requarth, Web entrepreneur from California. The company is focused on building the largest marketplace for buying and selling real estate in the country. Having launched in May 2009, they are off to a good start with a few hundred thousand home buyers using its site to find properties throughout Brazil on a monthly basis. VivaReal is going after the +$1 billion that is spent on real estate advertising in traditional media in Brazil each year. With increased investments in real estate and more internet users than Germany, the company has a lot of room to grow.

With the recent announcement that Brazil will host the Olympic games in 2016 coupled with the World Cup in 2014, all eyes are on this emerging country with incredible potential. Some have compared Brazil’s current status right now to the United States in the 1950s. With a AAA rating from several major credit rating institutions and outstanding press from publications like The Economist, investors like Zell are counting on big returns in Brazil.

“In order to talk about property value appreciation [in Brazil] you must first consider what effect the global economy has had on the country as a whole,” claims Sueli Pacheco, Owner/Director of Pacheco Imóveis in Sao Paulo.

Sueli Pacheco is one of several highly respected real estate professionals from Sao Paulo whom believe that the worldwide economic crisis has indeed exerted great downward pressure on the Brazilian real estate market but nonetheless claim that the Brazilian real estate sector is strong enough to continue to grow; “simply at a slower more sustainable rate,” believes Mrs. Pacheco who says that:

“We expect this second semester to perform quite well. Key indicators show real estate appreciation will continue its upward path; just not as accelerated as before…”

The Worldwide Economic Crisis Is Having Very Little Effect On Both Brazil’s Residential as well as Commercial Real Estate Markets

Other very reputable professionals such as Celso Kocinas, Owner/Director of Zylber Assessoria Imobiliária — whose focus is primarily on the commercial real estate sector — tell us that Brazil is in very good shape right now. Even more astonishing is the belief that it is expected to continue to be that way.

“Demand for commercial real estate (stores, shops, offices, etc.) is extremely high right now. Property value and appreciation has been significant and rental rates are high. The real estate sector in Perdizes for example [a neighborhood in Sao Paulo] is very strong regardless of the economic crisis or the falling US dollar.” claims Mr. Kocinas who further says that:

“Everyone is looking to rent commercial property. If I had a handful of shops to rent out right now I could rent them out very quickly.”

So Where is all This Upward Pressure Coming From?

The downward pressure on Brazil’s real estate sector is definitely a consequence of worldwide economic turmoil, but where is the upward pressure coming from? Why do real estate professionals such as Mrs. Pacheco and Mr. Kocinas think so highly of this market?

* The Brazilian government is making major investments in infrastructure.
* Brazil’s Central Bank is continuing to lower interest rates.
* Brazil is continuing to see strong growth throughout the construction sector.
* The Brazilian government has raised the lending cap for Brazilian workers which are buying homes through government backed programs.
* In the past couple of years we have seen more and more real estate trust funds (REITs) enter the Brazilian market.
* Tourism in Brazil is flourishing.
* The government has made great strides in reducing the red tape associated with foreign investment in Brazil’s real estate sector.
* Big name real estate internet portals have begun paying attention to Brazil thus giving the market even more foreign as well as domestic exposure.

Conclusion

Key economic indicators as well as the testimony of respected real estate professionals such as Celso Kocinas and Sueli Pacheco make Brazil’s real estate market seem highly shielded against the current global recession. The accelerated way in which the Brazilian real estate market over performed for the past couple of years may indeed slow down, but it is highly unlikely that it will come to a halt.

Brazil skyline photo kindly provided by flickr

LatinWorld: Why should foreign real estate investors and companies visit or exhibit at São Paulo’s Real Estate Expo (Salão Imobiliário São Paulo)?

Ricardo Matrone, Show Manager of SISP

Ricardo Matrone: The economic crisis in August of last year affected the strongest markets in the United States, Europe and numerous Asian markets. Brazil was also affected, but the scope of the crisis was not as broad as other markets. The crisis was primarily among banks that provide loans to builders resulting in a more superficial economic downturn. Despite the tougher environment, Brazil is still a growing market with a housing deficit providing great opportunity for businesses, entrepreneurs and investors. These types of opportunities are difficult to find in today’s current economic climate. Investors interested in the Brazilian market have the opportunity to come here and forge partnerships with companies that know the local market, but need financial support. There are many companies throughout Brazil, especially in the interior of São Paulo and the Northeast who have knowledge of the market, they know and understand what can be done to execute a successful venture, however, they need investors and partners.

Before the economic crisis investors had a lot of different options for places to put their money, but with the current situation investors look to emerging opportunities and Brazil has been identified as one of those countries, whether it be partnering up with an existing company or launching your own venture. This is the vision that we have in our planning, media and promotion of the Salão Imobiliário (Real Estate Expo) also known as “Property Week”. We want the event to resonate with important investors coming from outside of Brazil so they don’t lose out on the business opportunities presented during this action packed event. So far there is great interest, mainly coming from the U.S. through broker associations in Florida and other states that have closely worked with large Brazilian companies through partnerships in the past making them more connected to the opportunity. We just want to make sure that others are aware of this event so they can participate as an exhibitor or an investor.

LatinWorld: Are you also interested in attracting attendees and exhibitors from the rest of Latin America?

Ricardo Matrone: The São Paulo Real Estate Expo has positioned itself as the largest event of its kind in Latin America and it continues to grow in popularity. Not only are investors interested in Brasil, but they are also looking at other countries in Latin America. For example, companies in Uruguay, Argentina, Chile and Costa Rica were present last year as exhibitors showing their products to investors from the U.S., Europe and even Asia. So this event is not only about Brasil, but other parts of the region as well. On the other side of the coin there is a growing interest and a strong representation of projects in the state of Catarina in southern Brazil. You’ll see comercial and residential projects and in many cases there are Argentines that look to buy a secon home or investment do to the proximity to country.

Find out more about SISP clicking HERE

Brazil is no longer that volatile speculative market where currency and interest rates were unpredictable. The country’s economic situation has recently become much more stable and both foreign and domestic investors are starting to see that. Amir Makansi says that investing in property in Sao Paulo right now is not only safe but it would also have these additional benefits:

“There are some well-known and consistently well performing neighborhoods, such as Morumbi, Perdizes, Moema and Vila Nova Conceição. These are already high valued neighborhoods, offering no risks for the real estate buyer.

In every business, including real estate, the profitability is directly proportional to the risk you are willing to take. If you buy a property at Perdizes, for example, the probability of having problems is zero. This is because Perdizes is a consistently well performing and valued neighborhood. On the other hand, you will pay a relatively high price, with less appreciation potential.

Another option is to bet on neighborhoods that tend to gain more value over time, such as the western part of Marginal Pinheiros, Casa Verde, or other neighborhoods that are growing.

If you choose places that are not totally established, there is a huge possibility that you will have greater home value appreciation over time; much higher than in the currently well performing neighboorhoods. Of course you will run a higher risk; the neighborhood may not fully develop and you may have problems with liquidity. All things which probably won’t happen in high value areas.”

Photo provided by: Fernando Stankuns taken from http://www.flickr.com/photos/stankuns/2646182539/

To search for Brazil real estate you can visit VivaReal.