Thor Urbana Capital began developing properties in Mexico four years ago and anchors its institutional capital investments abroad, mainly in Canadian pension funds. During 2015, Thor Urbana plans to invest over one billion dollars in various projects in Mexico. As of today, Thor Urbana offers a variety of projects that feature premium quality commercial space, hotels, housing and offices, becoming iconic to large cities where they are. KITE Invest met with the CEOs of Thor Urbana Capital, Jaime Fasja and Jimmy Arakanji, to discuss Mexico’s growing real estate market and to see how Thor Urbana has made a name for itself in a short period of time.
KITE Invest: Within the global economic context, and taking into account the current economic and political situation of the country, what is your opinion on Mexico’s growth for next year?
Jaime Fasja: It’s an interesting moment for the country and in general we are experiencing it at global scale. We see a Mexico that is strong fundamentally and has had solid macroeconomics in recent years. We have a young population and a middle class that comes with rising purchasing power that it did not have before. At a global economic level, we are coming out of a major recession. Also, almost 80% of the Mexican economy is based on trade with the US, so the better the US economy the better the Mexican economy.
KITE: And what about Mexico has made it interesting in terms of investment?
JF: We are seeing a lot of other markets, also considered emerging economies that are not having great moments. One example is China that had an accelerated growth in recent years and is currently slowing due to many factors, including the inherent difficulty of doing business with the West. In India, growth numbers are also decreasing, Brazil has its internal problems, and Russia is going through a difficult time politically, and there are also issues in Indonesia and Turkey. Within the trough of emerging markets right now Mexico looks like a very good choice, not only for the country’s strength but also for the weakness of other economies; within a diversified portfolio Mexico is becoming a very interesting place to invest.
For example, the manufacturing sector that could weaken against a market like China, where it was cheaper to have products manufactured and brought to the US, has suddenly seen a sharp rise of wages making it become equal or cheaper to manufacture goods in Mexico. Moreover, we are much closer, have a greater capacity for reaction and a well-trained work force. Among other factors, these are a few reasons why we see that Mexico’s economy is growing.
KITE: Can tell us about the evolution of Thor Urbana during its four-year span?
Jimmy Arakanji: Thor Urbana was created in the wake of an opportunity that we detected in the market when Mexico’s perception was seen negatively around the world. There was a cloud of issues related to insecurity, drug trafficking and that was scaring away foreign investors.
On the other hand during this time we were witnessing a moment of clear financial growth in the middle class, the country had international reserves, and there was talk of the reforms coming. Also the Afores local investment in risk assets opened, when previously it had not been allowed. We began to see significant trends that we believed would completely change the market landscape and at the same time we saw an opportunity in the retail commercial sector due to the drop in tariffs. Many foreign brands were seeking to expand in Latin America and especially to Mexico as a result of this fall in tariffs. In 2011, tariffs decreased from 1000% to 20-30%.
It was very clear to us that it was time to start finding opportunities in urban markets across the country. Markets in which we saw large population densities, economic growth, and where we could bring a level of regeneration through innovative and cutting-edge projects that would address the needs of these new brands that were coming in and looking for new standards in terms of architecture, design, etc.
The shopping centre industry was very out-dated; malls were old and offered no experience. The typical enclosed mall anchored by two department stores, with a pretty old architectural style that did not generate any excitement. We started during a time when the life style malls with an entertainment component and architectural design were just beginning to emerge in the country. Society has changed, has travelled, and has become more sophisticated; it’s much more connected and if has seen what the first world, the United States, Europe and others offer and now demand.
JF: In addition, e-commerce is increasingly beginning to gain more strength; it is much easier to buy things sitting on the couch in your home than to go to the store. What is the motive to go to the mall? We believe people continue to go because they are looking for an experience. Human beings are social by nature, and you don’t go to the mall because you need two pairs of pants and a jacket, but rather because it is the meeting place, a place of entertainment, in which there is increasingly a wide range of bars and restaurants. In turn, these same spaces become showrooms of what you can buy calmly. We have become increasingly educated, more knowledgeable about the product and the prices, as they can see the item and check it out on their phone and then decide where to buy. We try to be in Triple A locations and as Jimmy said, always at the forefront of technology. We have a team of people in our offices looking for trends globally. Our social networks and even marketing are very different from traditional marketing because our goal is to reach people through channels that did not exist before.
At the end of the day though, we are real estate developers with a component of continually searching to improve the quality of life of people in the cities where we develop. This means that we are not only in charge of building and leasing the space, but rather, our commercial centres are living entities that change as technology progresses with the latest things out on the market.
KITE: Mexico is certainly positioned as one of the destinations with the greatest potential to attract real estate investment. Do you think there is a « gap » in knowledge by the international investment community about the potential of the property market in Mexico?
JF: In Mexico we used to not have a Real Estate Capital Market. The market started in 2011 with Fibra Uno, which was the first Fibra to enter the market, and was when foreign investors had the first opportunity to get exposure to Real Estate market in Mexico through a public vehicle. There have been several Fibras since, which were launched over the last 3-4 years, so international investors been able to stay up to date with what is happening here in Mexico. The top performers in the stock Mexico have been real estate companies, which have shown an insatiable appetite.
On the other hand, there are many investment funds worldwide that do not know Mexico and still think we walk with straw hats on. I say this because we have been talking personally with funds from the Middle East and Asia, and they are impressed to suddenly come to Mexico and see shopping centres, office, residential and the entire industrial niche being offered. By far, Mexico is the most developed real estate industry in Latam.
JA: Yes, Mexico is still a developing country and opportunities are still being developed. If you study the retail sector per capita, the supply of malls in the country compared with the developed world is enormous. We’re talking about 3 to 4 feet per capita of retail real estate being offer.
In the US there are 22 and 23 feet per capita, in Western Europe 16, so there is still an important opportunity to continue transforming and migrating people from the informal to the formal market. I think there are many cities in the country that still have a chance to build new spaces and innovative projects.
On the other hand, the residential sector, the sector of multi-family homes, is a new sector in Mexico. Until recently, the possibility of a building with apartments for rent was hardly thought of. It is certainly a sector that is rising in Mexico, compared with the US and Europe, in which it has been a big sector for many years.
It is the same with office real estate. Office supply remains low compared to the demand that we have been getting during the years of the reforms, especially in energy related sectors. As Brazil continues to lose its steam, Mexico is becoming the child star of the region due to our size, because there are not many countries that will provide the scale and depth of the market that institutional investors are often looking for.
KITE: What do you think differentiates Thor Urbana’s real estate projects in Mexico City and across the various states?
JA: The first is the type of locations that we seek. It takes a lot of discipline to select the destinations in which we invest; it involves studying cities, studying the region, deciding which place we want to be located, and our projects are usually the type of urban locations that require the assemblage of several sites. That is the most important differentiator
Also, an important differentiating factor of Thor Urban Capital is that we select the most renowned national and international architects at all stages of our projects. Generally speaking, in Mexico architectural firms are commissioned to design each facet and component of the building project, such as the interior design, the landscaping, and the lighting, which means that all these areas of expertise lay with a single architect. We are innovative in this process as we hire the most renowned architectural firms worldwide in each of these areas of expertise. This creates the desired atmosphere and identity of the project since meeting with the leading specialists in lighting, landscaping, interior design, etc. forms a unique and harmonious space, which translates into a distinct and special experience for residents and visitors.
JF: There are three very clear factors that differentiate Thor Urbana. Our locations, our architecture and our theme mix.
What I mean by the latter? We are very cautious with the kind of tenants accepted, depending on location, depending on the city, we want to give them a certain experience and what they really need. Many times even they do not know what they need and you as a developer have to come and say, « Hey you need this even if you did not know it existed. » Once they’ve experienced it, they realize how obvious it is. We see it with different industries. We are very rigid about who, how and why people enter into our projects.
Few groups nationwide have that vision of these three factors, because if you are a Fibra you have to give results in a short period each quarter. Funds have a finite set investment period, and we on the other hand make partnerships with our investors. That really gives us the power to choose only what we believe will complement our portfolio.
JA: The retail sector is much more art than science. In the office sector such income will come to you with a good check. As long as they have a good track record, you do not mind if the company sells bread, diapers, or financial security.
In retail you are required to display and define a strategy of how to generate value to a project and how to generate an incoming flow. Where will I attract people, what kind of brands are in the surrounding area that will generate people to come to me, which brands work well alongside each other, which brands do not work well. There is certainly much more thought in retail space than in all other property sectors.
KITE: In recent decades Britain has contributed with between 1% and 3% of the total foreign direct investment entering Mexico. Because of the advantages gained by reforms in the energy sector, fiscal, educational and telecommunications sectors, they will position Mexico as one of the most attractive destinations for foreign investment, to which a significant increase is expected. What is your assessment of the role the UK will play in the future attraction of capital into Mexico in the coming years?
JF: Mexico has free trade agreements with 44 countries, currently making it very attractive as an investment destination. Its geographical location is strategic in terms of interaction with the US, and with Western Europe, UK remains one of the most important countries in the region.
We see the British brands that are coming here and we are beginning to work with some in our projects. On the commercial side we do see an appetite for the country that we have not seen before.
Likewise, amongst emerging countries Mexico is considered to have a greater ease of doing business, unlike Asian and other Latin American countries. We see that our increasingly strong relationships abroad are providing more opportunities and this will