Q: What opportunities are being created for LaSalle by real estate demand within the automotive segment?

EGS: Mexico is a very important growth market and we are seeing a lot of interest from institutional investors in the automotive market. While this is not our biggest market by any means, it is certainly a market with substantial opportunities. There is a lot of interest in Mexico as a regional platform and the multi-billion dollar investments by OEMs are now trickling down to the supplier parks. To increase our presence in the automotive sector, we are trying to partner with industrial regions, landowners, and developers around the country. We are generally very positive about opportunities in the automotive sector as the industry is centered on long-term investments. We try to focus on areas that are likely to have high demand and low vacancy rates, and strong investments in the automotive sector can generate these dynamics. Right now, we are most heavily exposed around the border area because historically that has been the area that has attracted the most investment. The automotive push towards the central region has been happening more recently.

Q: How quickly are you seeing a rise in activity connected to the automotive segment?

EGS: Automotive investment is impacting development plans to a higher degree now, since big companies like Vesta are undertaking major projects. Investment by major OEMs also create long-term stability. They are not going to disappear overnight, whereas a logistics center can move with relative ease. This means that being close to a production hub can provide more stability. When an OEM invests, rental change takes time, although the demand for space increases steadily.

Q: Does LaSalle tend to opt for build-to-suit or spec buildings for the most part?

MZ: For the most part, we prefer build-to-suit buildings because they remove a lot of the uncertainty. However, in some fast-growing markets such as the Bajio region, waiting too long may result in a lost opportunity. In those markets, it makes more sense for us to have spec buildings because whoever has the right building available at the right time will get the tenant. The decision also depends on the intended use of the space. The cycle of industrial development is not long if the infrastructure is in place on the land as it can take just three months to develop an industrial building. However, for office space the cycle is considerably longer. In those cases it might be best to build to suit and have tenants agreed off plan. The same goes for retail spaces and housing units surrounding industrial hubs.

Q: How do you know when it is the right time to enter a particular area?

MZ: Understanding the market is a dual process for LaSalle. We conduct research, which identifies the larger trends and indicators. At the same time we analyze the real estate sector, including rent trends, supply and demand cycles, and the sustainability of growth. We also have asset managers and acquisition officers on the ground managing our current investments. They have a good perspective in terms of which parts of Mexico are developing because of infrastructural or general investment trends. They have access to the micro-data and ultimately are the ones that will inherit the asset. To gain the most accurate picture, a combination of the macro and micro perspectives is needed. If you look at the industrial markets in Mexico, most of them are already very well developed. When it comes to the newly developing central region of Mexico, our data relating to historic rents and the capital markets allows us to form a fairly accurate picture.

Q: Did the economic crisis shift your investment portfolio focus significantly?

EGS: We have broad exposure in terms of location and markets, which has protected us. Some areas have seen challenges, such as Ciudad Juarez which was hit both by the economic crisis and its security perception. Industrial tenants did not leave because of the security situation, but some did because of the economic crisis in the US. The security perception then made it more challenging for new tenants to come in. It is challenging for companies to justify establishing a presence to their international headquarters in an area that has received a lot of negative press attention. Such factors have really played a bigger role instead of industries just shutting down completely. In fact, during the economic crisis, there was a concern from investors that LaSalle was overexposed to the automotive segment. Two years after the crisis, the sector was booming in Mexico.