1St Quarter 2014

QUARTERLY NEWSLETTER Issue 4 111 Quarterly Newsletter 1st Quarter, 2014 Photo: Render of Metropolis Project in downtown Los Angeles, California. IN THIS ISSUE Macroeconomic Figures COUNTRY Trump Hotel Collection expands its chain to South America POPULATION 199.8 116 17.5 47.1 30.9 316.4 35.1 (MM) The Trump Organization will invest about UNEMPLOYMENT US$82 million for the construction of the 6.0% 4.8% 6.5% 10.3% 6.8% 7.4% 7.0% luxurious Trump Hotel Rio de Janeiro, its first BENCHMARK 11.0% 3.5% 4.0% 3.3% 4.0% 0.3% 1.0% hotel in South America. It is expected that INT. RATE the project will be enabled for the 2016 FDI – 2012 (USD Olympics. 65.3 12.7 29.3 16.9 11 174.7 45.3 Billion) Big Boost for investors in BrazilPage 3 Brazil exempted foreign investors from paying a financial GDP - 2013 (USD transaction tax on purchases of real estate investment 2,456.6 1,274.9 285.7 388.4 220.8 16,799.7 1,825.1 Lima: housing prices would see a Billion) trusts traded on the country's stock exchange. Since early lastdouble year the- governmentdigit increase of President in Dilma 2014 Rousseff has GDP – 2013 aimed to develop funding alternatives for local builders, 3.0% 3.4% 4.9% 4.0% 6.3% 1.9% 2.0% (Growth) manyIncreased of which demand are overly and dependent limited on development loans from state of developmentmajor projects bank duringBNDES, 2013the main would source push of long the-te .final GDP – 2014 (Est. 4.0% 3.4% 4.6% 4.5% 6.1% 2.8% 2.3% Growth) price. INFLATION 2013 5.5% 3.6% 3.0% 2.4% 2.2% 1.2% 1.0% Page 7 Canadian Company Cadillac Iguatemi and TIAA-CREF acquire Sura will acquire four floors of the Bricapital invests in hotel Hyatt Fairview invests USD $150 million 50% of mall JK Iguatemi Millenium Building in Santiago Regency in Cartagena, Colombia in Terranum Corporate Properties Iguatemi will control 64% and the US The income-producing real estate fund of the TheThe Group's first Hyatt operations Regency in Colombia in Colombia started will in have March, in the cities of Pereira and Armenia, with the pension fund 36% of the luxury mall in Sao Colombian group, which totaled US$100 million, 261 rooms and will be part of a mixed-use office, opening of the 5 Ara stores and the first Distribution Paulo. Developer WTorre will receive a decided to invest in the building of Las Condes. housing and commercial project in Bocagrande Centre. Page 6 record US$283 million to complete its exit. in Cartagena. Page 5 Page 3 Page 6 INTRODUCING THE CAP RATES IN THE REST OF THE AMERICAS QUARTERLY NEWSLETTER | Issue 4 2 Cap rates in the Region – part II Column by Gonzalo Castro – Founding Partner at Panamerican Real Estate Capital & Services In the second issue of this newsletter I made a general introduction to Santiago is reaching 32.3 million sf of modern industrial space and rents the cap rate concept, how it was something relatively new outside of have been very stable in the last 10 years, at about US$ 0.47 – 0.56 per North America and commented about retail real estate cap rates in the sf, which means cap rates have been compressing given the higher land region. prices and construction costs. Now I will refer to other sectors, office, industrial, hotel and residential. Both Colombia and Peru are building modern warehousing space inventory and no significant transaction have occurred yet. In general, most of the countries are maintaining the cap rates level, with the exception of Brazil, which has had an upward correction Hotel following the increase in local interest rates. The riskier of the real estate sectors, hotels are finally catching up with Office the modernization in Latin America. Most of the world’s leading brands are already present or with short term plans to enter into the region. In the office sector, it is not easy to find a common standard among Capital markets, especially lenders, are not eager to enter to this sector countries. Some refer to class A or Class A+, other refer to Premium yet, except for stabilized assets. The condo-hotels in Brazil or the offices. According to Colliers, Santiago has more Class A buildings than fiducia model in Colombia are a consequence of the scarcity of debt Sao Paulo, which surprises. Having said that, let’s visit the main and equity capital for hotel development. countries and let’s focus in the relevant market that will be modern class A/A+ offices. In one of the few transactions in Chile a fund organized by Larrain Vial paid US$228 million to acquire a three hotel portfolio, comprising the With a total stock close to 21.5 million sf, Santiago has seen a high Ritz-Carlton, Intercontinental and Crowne Plaza, all of them located in transaction volume in the last years, driven by international investors Santiago. seeking to divest by taking advantage of a hot local market with low vacancies. Cap rates are in the low 7%. Cap rates tend to around 8.5% in Santiago and 10% elsewhere in the country. Sao Paulo and Rio de Janeiro are said to be oversupplied with Class A/A+ buildings, and after reaching rents of US$8/ft2 are starting a The announcement of Atton Hotels to go public will be a good test to healthy downward correction. The iconic Patio Malzoni building in Faria see how the market prices hotel cash-flows in Chile. Lima Avenue is said to have one of its towers completely empty waiting for rents to rise again. Though we haven’t seen a relevant hotel transaction in Peru, there was an interesting exercise, the securitization of the Lima JW Marriott, that Bogota and Lima have a small transaction activity and cap rates are in raised US$40 MM with a 7.3% rate on a 10 year term. the 8.5% level. In Mexico, the specialized real estate fund Fibra Hotel has been very Industrial active buying urban hotels nationwide at 10% cap rate, reaching a portfolio consisting of 52 hotels and over 7.000 rooms. Cap rates in With a total stock of 86 million sf of industrial and logistics space, Brazil Mexico City are close to 8.5%. is the most dynamic market, which is not a surprise. Historically Brazil has been protective to the industrial sector which has driven the Residential opening of many plants. The market is dominated by international and local players as Prologis, Hines, LOG and Prosperitas. Rents in Greater This is the most lagging sector in developed markets. There are many Sao Paulo tend to be much higher than in the rest of the country. reasons. Culturally, owning has a higher reputation than renting. Financially, the banking system has no problem to finance for-sale In a recent landmark deal, BR Properties sold 34 industrial properties to developments, but there is no appetite to finance for-rent Singapur-based Global Logistics Provider at US$1.36 billion, a 9.4% cap developments. Third, government subsidies are offered only to acquire rate. homes, though there are some countries that have announced subsidies to rent. Mexico and Chile are starting to see some Mexico continues to see many FIBRA-led transactions of industrial transactions of residential buildings driven by local and US institutional portfolios, note-worthy are the Terrafina US$604MM acquisition to investors but the volume is still negligible. Kimco and the US$371MM Fibra Uno acquisition to Finsa, both at an 8% cap rate. Local capital is replacing foreign capital that helped to develop the industrial sector in the last decade. QUARTERLY NEWSLETTER | Issue 4 3 BRAZIL Brazilian general contractor LSH Barra is raising the building in a project worth US$ 90 million of Trump Organization Trump to open hotel in Rio as part of the expansion of his chain Source: EXAME Trump Organization, headed by real estate investor Donald Trump , will have its first hotel in South America, the luxurious Trump Hotel Rio de Janeiro, with 171 rooms, as part of an expansion of its hotel business. Iguatemi and U.S. fund acquired WTorre The Brazilian construction company LSH Barra is building the interest in Shopping JK Iguatemi complex, a project of US$ 90 million, with the help of investment partners, said CEO Paul Figueiredo Filho, in the Americas Lodging Source: Valor Investment Summit in Los Angeles. Iguatemi, one of the leading shopping center operators in Brazil, run Trump Organization, headquartered in New York, is licensing its by Carlos Jereissati Jr., confirmed the acquisition of 14% of JK The tax exemption will likely increase US dollar name and the operation of the property, said Donald Trump Jr., Iguatemi Mall in Sao Paulo. With the acquisition, Iguatemi now will viceinflows president and and thus executive help keep of development the local currency and acquisitions strong. of controlPatio a total Malzoni: 64% stake in the Biggest business, said inOffice a statement. the However,Trump Hotel a Collection,senior government during the conference. official said the OnComplex February 14th, the in company Brazil signed an agreement to acquire 50% measure was designed mainly to boost investments in The project is part of the company's goal of expanding its Trump of JK Iguatemi from WTorre, Walter Torre. As part of this agreement, Hotelthe Collection country's properties buoyant to real 30 by estate 2020, market.compared to the current IgHereuatemi is agreed a likely to contenderacquire 14% forof the the company official andsymbol TIAA of-CREF, the U.S.

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