Mexico’s booming real estate market is quickly getting the attention of Wall Street as demand for financing grows and more Mexican real estate developers are using debt rather than cash to finance new properties,which gives investors a chance to cash in on this expanding industry. Most recently,Fhipos Controladora SAPI de CV (FIBHIOS),which is Mexico’s first real estate investment trust (REIT) that is focused mainly on commercial loans,has announced plans to raise at least $546 million in its initial public offering (IPO) Feb. 5.
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“The FIBHIOS IPO will create Mexico’s second publicly traded debt-related trust,” writes Bloomberg. “Almost three months ago,Concentradora Hipotecaria SAPI,Mexico’s first residential mortgage trust,raised 7.5 billion pesos in an IPO.”
The FIBHIOS IPO comes at an ideal time,considering that the number of mortgages and other bank loans to build or acquire commercial property increased by 87 percent between 2010 and 2013,reaching an impressive $12.8 billion. Loans from the new FIBHIOS trust will offer borrowers greater certainty because they come with fixed interest rates and 30-year terms,which are not available from most banks. Instead,many of Mexico’s top banks charge floating interest rates and require balloon payments around the middle of the loan’s life. By contrast,the FIBHIOS REIT will offer a fixed interest rate of about 9.5 percent on a 30-year loan,according to Miguel Osio,who is in charge of investor relations for the trust.
“REIT’s have flourished in Mexico since their debut in 2011 with the IPO of Fibra Uno,” writes Bloomberg. “The BMV Fibra index of the funds has returned 166 percent since Fibra Uno went public.”
Bloomberg also reported that both FIBHIOS and Concentradora Hipotecaria plan to dole out the majority of their profits in the form of dividends to investors. In addition,FIBHIOS will reportedly use proceeds from its upcoming IPO to fund loans on a variety of properties that its prospectus describes as “premium real estate,” including the luxurious Antara Fashion Hall – a chic shopping mall in Mexico City that features high-end boutiques by Burberry,Juicy Couture,Lacoste,Marc Jacobs and Swarovski,among others.
“Mexican real estate investors – and lenders that finance it – are poised to benefit from economic growth in years to come,” CBRE’s Lyman Daniels told Bloomberg. “We fully expect that [the energy reform] will give a very huge bump to our overall GDP in the country,and it will affect the real estate industry just as much as the economy.”
According to Bloomberg,the FIBHIOS prospectus also shows it plans to use debt as a way to increase its returns,and the initial portfolio is expected to generate a dividend yield of at least 8.66 percent if no leverage is used. And that number is reportedly expected to skyrocket to an impressive 11.66 percent dividend yield at the trust’s debt limit,which is set at 50 percent of its total asset value.
Other factors that are making Mexico real estate such an attractive investment opportunity right now include the fact that premium office space here is still lower than other Latin American nations,such as Chile,Columbia and Brazil,while Mexico’s retail sector saw floor space increase by a whopping 42 percent in recent years and Credit Suisse reports that occupancy has increased among properties that are owned by Mexico’s publicly-traded real estate trusts,hitting 97 percent in 2013.
“[Retail is] still a sector with great potential for growth in the medium term,” shared Jorge Lagunas of Group Financiero Interacciones SAB,where he oversees around $200 million in various investments,including Mexican REITs. “Mexican properties,in terms of rent and acquisition prices,still look cheap in comparison to other emerging markets,not to mention developed markets.”