Expert Advice on Risks and the Best Way to Deal with Real Estate in Brazil

A Cyrela project for a Rio shopping mall Brazzil Magazine spoke to one of the largest commercial real estate developers in Brazil – Cyrela Commercial Properties (CCP).  Dani Ajbeszyc, director of finance and investor relations kindly spoke to us on a range of topics including the company’s commercial real estate operation in Brazil.

He also talked about the associated risks of an inflationary property market; bubble speculation; CCP’s definition of real estate value in the Brazilian marketplace; areas of interest in the country and some brief advice.

For readers who are unaware, can you outline Cyrela’s experience in the Brazilian commercial property market place? 

Cyrela Commercial Properties (CCP) is a leading company in the investment and leasing of corporate related real estate in Brazil – focused on the acquisition and development of high standard office buildings, distribution centers and shopping malls.

With over 14 years experience in the business of commercial buildings, we now possess one of the best portfolios in São Paulo – with more than half classified as standard Triple A, the highest level of construction quality – as well as assets in Rio de Janeiro and Brasília.

In 2007, CCP began investment in distribution centers in partnership with the American multinational AMB Property Co.: one of the largest developers of logistical centers in the world – we have invested over US$ 400 million in this specific commercial asset class in Brazil. 

In the segment of shopping centers, the company also has an extensive and successful experience: we currently own and manage two major malls and will strengthen our presence in this market with the development of four new projects to be inaugurated in the next two years, in addition to our expansion plans.

CCP has 191,700 square meters (2.1 million square feet) of rentable area and approximately 226,000 square meters (2.4 million square feet)  in projects under development to be delivered in the coming years. According to consulting firm CB Richard Ellis, the company’s portfolio is valued at US$ 2.54 billion.

The current portfolio of office space has a total area of 91,056 square meters (980,118 square feet) distributed in 13 buildings. Working for sustainable development through social and environmental responsibility of its projects, the company became a founding member of the Green Building Council of Brazil.  

CCP has also joined the UN Global Compact of Corporate Citizenship, in which the participating companies undertake to align their business practices in fundamental values in the areas of human rights, labor relations, environment and anti-corruption.

What is the major commercial project being undertaken by CCP at the present time in Brazil? 

We have several of what you could call major but the Matarazzo is the largest of our current projects: this will be a complex that combines an AAA office tower with a shopping center, located in one of the last available plots of land on the Avenida Paulista, in one of the most important cities and economic hubs of the country – São Paulo.  Readers will probably be aware that it is the prime central business district of the city with a huge flow people and one of the most well served by transport infrastructure.

Little needs to be mentioned with regards to the rising market Brazil is currently experiencing.  What associated risks has this brought? 

Whenever a market grows rapidly it brings together various risks related to price as well as supply and demand imbalances. However, we believe that we are not at a moment in which these risks can generate concern.

Do you think the prices of real estate (both commercial and residential) are too high? 

The prices of real estate assets in Brazil were repressed for a long period prior to recent years. It was after the improvement of economic fundamentals and credit (which remain comparatively low) that they began to move quickly.  Whilst we still think there is room for appreciation and we are being more selective in choosing our projects.

We believe that the possibility of a bubble is remote at this time but there is a chance of price corrections in line with the market – which we, and most professional real estate companies in Brazil, are very well prepared for.

How is the concept of value determined by Cyrela? 

We view value as the concept of acquiring secure and safe assets in prime areas of Brazil’s metropolitan regions which will yield solidly regardless of market movements.  As mentioned, we have become increasingly sophisticated in our ability to acquire the very best opportunities in Brazil which has come from our experience and detailed understanding of the peculiarities of the markets we operate within. 

At the same time, we appreciate that we need to constantly monitor our investment and management strategies – particularly in the inflationary climate that Brazil is experiencing.

What are the new cities in Brazil that are presenting the most interest?

For the commercial sector, São Paulo and Rio are the main markets where the commercial property sectors remain strong and we have a firm establishment within.  We are expanding our operations in Brasília but there are also several metropolitan regions that present solid opportunities including Salvador (Brazil’s third largest metropolitan region); Recife (fast developing as a center of information technology); Porto Alegre (often referred to as Brazil’s Mercosur capital) to name a few.

What would be your advice to potential investors in terms of doing research on Brazilian commercial property? 

Our advise for commercial property investors in Brazil is to take a long term focus; be selective and understand the concepts of quality design and strategic location.

Ruban Selvanayagam is a Brazil real estate and land specialist. For free e-books, state guides, up-to-date statistics, strategies, interviews, articles, weekly broadcasts and more head to the Brazil Real Estate and Land Investment Guide via the following link: http://www.brazilinvestmentguide.com/brazil-property-real-estate-land/

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