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.