CAPITAL MARKETS - FIAP Internacional...With yields compressed and strong competition for assets in...
Transcript of CAPITAL MARKETS - FIAP Internacional...With yields compressed and strong competition for assets in...
CAPITAL MARKETSAlternative Investments – Commercial Real Estate – Trends
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CONTENTS
GLOBAL CAPITAL MARKETS
▪ Cross-border Activity
▪ Investor Types
▪ Yields
▪ Returns Outlook
UNITED STATES CAPITAL MARKETS
▪ Cross-border Activity
▪ Asset Type Activity
▪ Cross-border Country of Origin
▪ Cap Rates
▪ REIT yields
▪ Market Outlook
LATIN AMERICA CAPITAL MARKETS
▪ Regional Markets Levels
▪ Cross-border Summary
▪ Cap Rates
▪ Conclusions
CAPITAL MARKETS - GLOBAL
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GLOBAL CAPITAL MARKETSCROSS-BORDER ACTIVITY
▪ 2018 surpassed 2015 as the best year for real estate capital markets in the current cycle.
▪ Global transaction volume exceeded $1 trillion globally, 6% above 2017’s volume.
• Robust activity in the US and continued growth in Europe offset slowdown in Asia Pacific.
• Asian markets softened as investor sentiment weakened due to tighter financial conditions, slower growth and trade worries.
▪ 2019 cross-border activity expected to remain robust globally with US remaining the favored destination for cross-border
capital.
GLOBAL REAL ESTATE INVESTMENT AND CROSS-BORDER CAPITAL
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GLOBAL CAPITAL MARKETSCROSS-BORDER ACTIVITY
CROSS-REGIONAL CAPITAL FLOWS BY BUYER ORIGINS
▪ As Chinese companies are substantially reducing outbound investment, European and Americas investors will continue to
boost capital flow, driven by increased appetite of property companies.
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GLOBAL CAPITAL MARKETSINVESTOR TYPES
MAJOR CROSS-BORDER INVESTOR TYPES
▪ Private Property Companies and Private Equity Funds were the most active contributors to cross-border property investment
activity in 2018 and are expected to remain very active in 2019. The percent and amount of cross-border capital for property
investments is expected to be lower for Private Property Companies in 2019 as the figures in 2018 were skewed by multiple
large entity level transactions.
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GLOBAL CAPITAL MARKETSYIELDS
▪ After nine years of steady compression, property yields began to flatten in the second half of 2018.
▪ Global average yields for office, industrial and retail are expected to remain stable in 2019 and rise slightly in 2020.
▪ Investors will continue to diversify into secondary markets in search of yield.
▪ Global bond yields are expected to compress in the first half of 2019 due to the rise in economic and geopolitical risk, but
resume their climb as economic growth picks up in the second half of the year.
▪ Over 2019, the spread between real estate and bonds is expected to narrow.
COMPOSITE YIELDS BY ASSET TYPES
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GLOBAL CAPITAL MARKETSRETURNS OUTLOOK
▪ Income growth and fair pricing are expected to drive returns.
▪ Gently rising income is expected to offset slightly higher cap rates in 2020.
▪ Capital flows will remain strong in 2019, shifting to core investments in diversified markets for more opportunistic assets as
investors seek out better pricing and more stable income growth.
GLOBAL INVESTMENT RETURN OUTLOOK
CAPITAL MARKETS - US
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US CAPITAL MARKETS
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US CAPITAL MARKETS
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US CAPITAL MARKETSCROSS-BORDER ACTIVITY
▪ Cross-border activity was up by 62.8% on a year-
over-year basis. The increase was boosted by the
$17 billion entity-level transaction of Brookfield
buying GGP.
▪ Multifamily has the largest Y-O-Y increase in cross-
border investment, up by 100.8% to $6.1 billion.
The office and retail sectors also registered high
year-over-year growth in cross-border investment.
▪ Canada-based Brookfield acquisition of Forest City,
an $11 billion portfolio of office, multifamily and
retail properties, was the driving force behind
Canada’s rank as the top cross-border investor in
the US.
▪ Chinese investment in the US real estate was the
lowest annual level of US investment in many
years, down by 60% from its peak volume of $14.1
billion in 2016.
▪ Singapore outpaced China as APAC’s biggest
cross-border investor on an annual basis.
Singapore’s 2018 volume of $6.5 billion was 16%
higher than China’s total investment.
▪ Inbound Capital from China declined by 57.8%
during the four quarters ending in Q1.
CROSS-BORDER INVESTMENT BY COUNTRY OF ORIGIN
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US CAPITAL MARKETSCAP RATES
▪ Cap rates are currently at or near historic lows across all sectors, except for certain retail segments.
▪ With yields compressed and strong competition for assets in gateway markets (including competition from foreign capital),
many investors began to diversify into secondary markets in 2018.
▪ This trend will likely continue in 2019 as wage growth picks up and investors shift to smaller markets with strong job growth.
▪ Rising interest rates have caused the cap rate spread over the 10-year Treasury yield to narrow. This may cause some
investors to reevaluate the risk-to-return ratio of their portfolios and decide they require higher cap rates.
CAP RATES AND 10-YEAR TREASURY YIELD
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US CAPITAL MARKETSCAP RATES
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US CAPITAL MARKETS
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US CAPITAL MARKETSMARKET OUTLOOK
▪ With cap rates expected to hold steady and real estate a good hedge against rising inflation, an abundance of available capital
should continue flowing into CRE in 2019.
▪ Although interest rates are rising, they remain low relative to historical levels, and investors will continue to seek higher yields
than are available through the bond market.
▪ Given the volatility in the stock market and geopolitical uncertainties, both domestic and foreign investors will remain motivated
to allocate capital to US commercial real estate, returns on which have been sizable and stable.
▪ Industrial and Multifamily assets are expected to continue to attract the highest level of investor interest.
CAPITAL MARKETS – LATIN AMERICA
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LATIN AMERICAN CAPITAL MARKETSREGIONAL MARKET LEVELS
LEVEL I – PRIMARY INVESTMENT MARKETS
▪ Significant Cross-border Activity
▪ Highly Liquid Investment Markets
▪ Brazil, Mexico, Chile
LEVEL II – EMERGING INVESTMENT MARKETS
▪ Increasing Cross-border Activity
▪ Small Investment Ticket Sizes
▪ Colombia, Peru, Panama/Costa Rica, Argentina
LEVEL II – NON-INVESTMENT MARKETS
▪ Restricted/Limited Cross-border activity
▪ Limited Investment Activity
▪ Limited Product Options
▪ Venezuela, Ecuador, Bolivia, Guatemala, Honduras, El Salvador
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LATIN AMERICAN CAPITAL MARKETSCROSS-BORDER SUMMARY
MEXICO - remains an attractive destination for International investors
▪ Trends
• Volatile political landscape – AMLO canceling of Mexico City Airport
• Reduction in FIBRA activity and liquidity levels – reduction in transactional activity
• Active Industrial Market – following US trends
• USD currency assets (Office/Industrial) – Favored by international investors
• Emergence of Multifamily asset class
• Mexico City Investment focus for International Capital
BRAZIL – Emerging from most significant market downturn
▪ Trends
• Emerging from biggest recession in last 20+ years
• Investors remain focused on opportunistic investments
• Market rents and pricing have reset following recession
• Cross-border capital focusing on platform or partnership investments, limited direct
asset level acquisitions from cross-border sources
CHILE – most active and liquid market in region
▪ Trends
• Emergence of multifamily product class
• Reduction in Cross-Border inflow activity (increased hedging costs)
• Domestic buyers increasing allocations to US and Andean Region – chasing yield
• Lowest yields and lowest cost of debt in Latam region
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LATIN AMERICAN CAPITAL MARKETSCROSS-BORDER SUMMARY
COLOMBIA - remains a small investment market with limited existing offerings
▪ Trends
• Limited existing investment product – improving - growth via development
• International capital dominated by regional players and North American sources
• International capital focused on platform level investment over asset level
PERU - office, industrial and retail markets are receiving increased international interest
▪ Trends
• USD property market
• Increased international activity (Chilean investors most active followed by
European/US capital sources)
• Limited investment product – Ticket sizes - BUT rapidly improving
ARGENTINA – Political Risks – Pending Presidential Elections
▪ Trends
• Highest level of new office development in region (as percentage of existing stock)
• Opportunistic investment market
• Limited liquidity – Pending elections
PANAMA / COSTA RICA - office and industrial parks investment product
▪ Trends
• USD property market
• Active local REIT market
• Strong tenant credit market – dominated by US tech firms (Nearshoring)
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LATIN AMERICAN CAPITAL MARKETSINVESTMENT ORIGIN
United States, 45.8%
Canada, 38.3%
Israel, 6.6%
Germany, 4.0%
UK, 3.1%
Chile, 1.8%
Brazil, 0.2%
France, 0.1%
Portugal, 0.1%
▪ In 2018, the majority of sources came from
Canada (48%) and the United States (30%).
▪ Chinese investors have yet to make any significant
headway into the Latin American property
markets.
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LATIN AMERICAN CAPITAL MARKETSCAP RATES
ARGENTINA: 8-9%CHILE: 5-6%
BRAZIL: 8-9%
MEXICO: 7-8%
COSTA RICA: 8-9%
PANAMA: 8-9%
LIMA: 8-9%
COLOMBIA: 8-9%
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LATIN AMERICAN CAPITAL MARKETSCONCLUSIONS
MEXICO
▪ Local REITS have seen a significant drop off in
liquidity over past 12 months.
▪ AMLO has impacted market activity, pushing
many local investors looking to allocate more
capital to the US and other markets to diversify
risks
BRAZIL
▪ Brazil does not offer Core investors with direct
investment opportunities due to high costs of
Hedging and local debt.
▪ Brazil is currently an opportunistic investment
market with the majority of the investment
opportunities via platform or partnership .
CHILE
▪ Chile provides an attractive market for CORE
office product.
▪ Multifamily asset
▪ Industrial opportunities remain limited with
smaller ticket sizes.
COLOMBIA
▪ Colombia has limited current CORE investment
stock.
▪ Colombia presents a very attractive growth market,
but is expensive for cross-border capital due to
currency risks.
PERU
▪ The Peru office market appears to be emulating
the Chilean market evolution of the past 10 years.
We expect Peru to become a CRE investment
market comparable in quality, size and conditions
to Chile.
▪ Peru is the second fastest economy in the region.
▪ Limited local debt market which creates a floor for
yield compression.
COSTA RICA / PANAMA
▪ Costa Rica and Panama should be treated as one
market due to size and legal structure similarities.
▪ Increasing investor interest due to ability for
investors to acquire US multinational credit via
USD leases at yields higher than comparable
credit risks in US markets
T + 305 428 6341
Tim Gifford
Senior Managing Director
Capital Advisors Latin America