Salvador Magaña
CEO
PARQMEX Industrial Development
/
View from the Top

Industrial Opportunity for Property Management

Fri, 09/01/2017 - 10:49

Q: How does the automotive sector fit in PARQMEX’s development strategy?

A: We cannot talk about the automotive industry without talking about the Bajio region, especially Guanajuato and San Luis Potosi. Before 2009, the country focused on industrial developments in the north of the country to satisfy the needs of the US market. After the 2009 financial crisis, there was a shift in manufacturing activities all around the world and companies started to look toward the Bajio region. In the last three years, three new OEMs have established in Guanajuato within a 30-minute driving radius. Honda and Mazda are already manufacturing their vehicles and Toyota is expected to start operations in 2019, so there is an enormous opportunity to target these companies’ suppliers. In San Luis Potosi, BMW announced large investments in two new plants to be built by 2019. Suppliers finalize their contracts approximately three years before they begin operations so many industrial-space clients are looking for a potential location for their future investment right now.

The automotive industry is based on productivity and efficiency so any disruption to the process might result in gaps in just-in-time and just-in-sequence operations. The government and private rail companies have announced investments in rail infrastructure that will increase capacity by 30-40 percent, while port capacity will also be doubled in Mexico. The automotive sector is one of the main users of these services so its growth will contribute to the continuous development of manufacturing and export operations. We must provide strong foundations for the sector with proper industrial infrastructure.

Q: What opportunities did ALIGNMEX detect in the real estate sector in Mexico to create PARQMEX?

A: ALIGNMEX’s professionals have years of experience in the real estate sector, both in industrial development and private equity investment management. We decided to vertically integrate ALIGNMEX as our investment fund management holding company and PARQMEX as a development subsidiary. This allows us to participate in the entire infrastructure development process, aligning interests with capital investors and optimizing cost and time variables to reflect higher profit margins.

As PARQMEX, we are now focused on industrial projects with a localized strategy and a presence in central Mexico, the Bajio region and the metropolitan area. This region offered clear advantages in terms of logistics, market demand, human capital and infrastructure. There are several universities that focus on the main manufacturing sectors, and the entire area is interconnected by roads and two main railway systems. These are managed by Ferromex and Kansas City Southern running from north to south and from east to west. The Bajio region is well-protected against most natural disasters, which is relevant to time-sensitive and complex manufacturing processes.

These benefits have attracted investors looking for highquality industrial spaces. Approximately 7 million m2 of class-A industrial space exists in Mexico City. Chicago, the secondmost important industrial market in the US, has 100 million m2 and a population of 10 million people in the metropolitan area. Meanwhile, Mexico’s 7 million m2 are distributed among approximately 22 million people. There is an enormous disparity. With this analysis in mind, we developed a business model to address the most pressing needs in important industries like automotive, aerospace and e-commerce. Our system is based on modular developments of between four and 10 industrial buildings, gated with control access, focused on providing service and quality at an affordable price. The model gives us enough control of our operations and costs, while offering the best service to our tenants.

Q: As the Bajio area continues its industrial expansion, what challenges are likely to arise in offering competitive infrastructure?

A: Understanding our clients and the main areas of opportunity led us to detect, particularly in the automotive and aerospace industries, that one of the most important factors is human capital. For that reason, our entire portfolio is located in regions with a strong labor base. We also emphasize land that is close to main highways and accessible to transportation services like railways or airports. Proper infrastructure must include accessibility to services like water, electricity and natural gas. The country keeps developing so we must protect our clients from a lack of infrastructure or services. Our expertise in regulations and permits needed for infrastructure developments provides an added advantage for our clients. As long as they keep producing in a profitable way, we can consider our objective fulfilled.

Q: How does PARQMEX compete with other developers that look for the same advantages in their portfolio?

A: They work with a local company with a global reach. Our biggest strength is our focused strategy regarding our location and our business model. Some developers buy and resell land, while others acquire old buildings and remodel them. Meanwhile, we have a clear strategy oriented to modular developments and building new Class-A industrial space. PARQMEX builds to lease finalized parks, keeping quality and good service in mind. Our regional focus keeps us close to our clients to provide a timely response in case of any problem our tenants might face. Security is one of our main concerns and wherever the client is located in one of our parks, they will get the best service and infrastructure we can offer. Since our offering is limited and completely standardized, we can keep offering quality at competitive prices. Our developments are between 20ha and 40ha for each industrial cluster, which means we know exactly how much PARQMEX is going to invest during the construction phase, where the entrances are going to be located and how much the clients will pay for their space and property-management services.

Q: How successful has PARQMEX’s model been and what are the company’s occupancy expectations for the near future?

A: With our limited space per project, we can define a specific timeframe for the entire process from construction to 100-percent occupancy in approximately five years. Our first project is Celaya on a land parcel of 20ha and approximately 102,000m2 of leasable space. Although we have more projects at different stages of development, this is our most advanced venture and we already handed over the first building of over 30,000m2 in 1Q17.

Q: As the real estate sector is so dependent on domestic and foreign investment, how have your projections been affected by decisions in the US?

A: There might be some uncertainty regarding the change in the US’ administration but Mexico’s supply chain is so integrated into the global market that it will remain a strong manufacturing platform. The peso’s depreciation will result in more savings for international players. Added to commercial partnerships with more than 40 countries, this only boosts the opportunities for manufacturing and logistics companies.

When we made the decision to focus on the Bajio region, we detected an enormous investment coming not only from the US but Europe and Asia. These companies have a long-term commitment to Mexico thanks to our commitment in turn to free-trade agreements with many countries, so they will not go anywhere. The markets are volatile and the main lesson we have learnt from previous challenges is that we can always bounce back after stumbling. The automotive industry is now one of the main engines of the Mexican economy despite taking a hit in 2009. Similarly, the aerospace industry is now taking off and the country is gradually transforming to address new requirements. Real estate is a long-term investment and we do not see the country changing its manufacturer status any time soon. Mexico is stable economically and politically, allowing for a free exchange in monetary resources. The country understands the need for competitiveness and investment will come based on economic decisions.