US investors are caught between a rock and a hard place.
After years of stop-start recovery in the wake of the 2008 global financial crisis, high net worth individuals in the US are faced with an unfamiliar economic reality – described by wealth manager Ron Carson as a financial twilight zone, a new world that no one really understands.
And in the absence of a safe bet, or even a risky bet, many investors are choosing to keep their money under their proverbial mattresses. “Investors look around and are not sure what to do. They hate sitting on cash yielding zero but don’t want to take too much risk right now. It’s a lot of heavy lifting to get returns,” says Carson.
Tom Wynne is the Director of Research at Spectrem Group, which conducted the April 2016 CNBC Millionaire Survey. He echoes Carson’s assertion, saying “People are in wait-and-see mode and won’t do a lot of investing”.
While this is not stellar news for many of the world’s markets, it may bode well for one surprising exception: Latin American real estate. As an asset class, real estate continues to attract capital from US investors, and Latin America is emerging as a region of turbulent but sharp appeal.
And so, for US investors who are hesitant about investing domestically and yet unwilling to let their money sit idle, Latin American real estate is emerging as an attractive third option.
According to CBRE, 65 percent of North American investors intend to become net property buyers in 2016. 30 percent of investors listed their main motivation as needing to diversify their assets, hedge against inflation, or seek attractive yields: all of which are readily possible through investments into Latin American real estate.
The region’s economic woes are well known, ranging from the uneven growth story of Peru to the three-year, full blown recession of Brazil. However, recovery may be on the horizon, with the IMF predicting that Latin America will rebound to 1.5 percent economic growth in 2017.
In anticipation of this recovery, investors are regaining their confidence in the region. Although inbound investment in Latin America dropped 50 percent between 2014 and 2015, it bounced back quickly – rising to 8.3 billion USD in Q1 2016, an astonishing 70 percent increase over Q1 2015. US investors are a major part of this trend. In 2015, US entities invested 18.4 billion USD into Latin America.
The factors driving US investment into Latin American real estate are fairly simple: proximity, familiarity, and a history of other US investors pursuing successful ventures in the region.
Latin America is given to volatility, but long-term investors fail to be alarmed by the cyclical nature of the market. US based Tierra Funds has been involved in the Latin American real estate industry for over 25 years. In a recent interview with Forbes, Tierra Fund’s Managing Principal, James Anderson, points out that in that time, “We’ve been through multiple cycles, including the 1994 Tequila Crisis, the 1998 Asia Crisis and the 2003 Brazil Crisis”, all of which had repercussions on the regional property market.
It is therefore unsurprising that the most recent bout of volatility has not dampened the enthusiasm of US investors for pursuing assets in Latin America in search of diversification and high returns.
High activity levels in the Mexican real estate market highlight the penchant of US investors for shopping close to home. Real estate firm Sun-Star Group recently entered into an agreement to develop and operate a Radisson Blue Hotel at Lake Chapala, near Guadalajara. According to Thomas Wahl, a director at Sun-Star Group, “We have examined the Mexican hotel market very carefully and it is no secret that the industry is at a point where many opportunities are emerging to serve both domestic and international markets for leisure and business travellers.”
YoungWoo, a developer based in New York, has established a 2,000 acre real estate project in Mendoza, Argentina. Speaking in mid-2015, the firm’s Director of Acquisitions and Global Project Management Bryan Woo said “I enjoy Buenos Aires and think there are a lot of opportunities there… When Argentina figures itself out and there is more investor confidence… you will see real estate go through a prolonged series of appreciation.”
The Employees Retirement System of Texas, a pension fund with an existing private real estate portfolio worth 2.84 billion USD, is considering expanding its investments in Latin America. The fund will commit up to 250 million USD to real estate in 2017.
Ties between the US and Latin America are concentrated in one city: Miami, Florida. Known as the “Capital of Latin America”, Miami’s population is nearly 70 percent Hispanic and Spanish is spoken throughout the state. Miami International Airport serves 28 cities in South America, 10 cities in Central America, and five in Mexico.
Ties between the city of Miami and the countries of Latin America are so strong that political turmoil in the latter resonates in the former. Most recently, the impeachment of President Dilma Roussef on accusations of financial mismanagement has caused the usual flood of Brazilian visitors to Miami to slow significantly. According to Bloomberg, Miami’s revenue per available room has fallen four months in a row, and Marriot now considers the city one of its weakest US markets. This has been accompanied by a slowdown in investments by Brazilians into Miami real estate.
According to Alan Lips, an accountant at Gerson Person who advises Brazilians on international investments, “If they know what they’re doing, it might be time for them to liquidate their US assets and buy something in Brazil.”
Naseba is a deal facilitator that specialises in introducing pre-screened investors to pre-qualified business cases at private investor meetings held around the world. Our investor analysts speak to investors on a daily basis, building relationships with them and understanding their mandates. Their research has established that there is a strong appetite among US investors for Latin American real estate opportunities. We are therefore sourcing Latin American real estate assets and development projects on behalf of our investors in the US for the Latin American Real Estate Investors Meeting.
The meeting will be taking place in Miami, Florida, on July 21 2016..
For more information, visit our real estate investor meetings page.