Building Wealth Through Real EstateThu, 01/11/2018 - 11:33
Q: Considering real estate cycles, how should developers determine the right timing for their projects?
A: When speaking about the right timing for a real estate project we must consider demographic and economic cycles. The first refers to a local phenomenon and is about meeting people’s needs at a certain time, while the second is macroeconomic in scope. For example, 10 years ago there were only a few investment funds able to buy specialized portfolios. But regulatory changes gave birth to Fibras, which were enhanced due to an international appetite for emerging markets, such as Mexico. This created a real estate boom but it also led to artificial demand as some developers were no longer only selling to end-users but to Fibras. Project planning was aimed at pleasing the most successful Fibras and their value was no longer intrinsic only to themselves but to the appetite Fibras had for them. To prevent oversupply, we carefully follow demand cycles in the real estate market but also strive to understand what is going on with who purchases, finances and owns real estate portfolios.
Q: How does your methodology prevent developing to meet artificial demand?
A: We developed our own in-house methodology and data algorithms, starting from a deep understanding of socio-economic income levels. It allows us to foresee how many meters in each real estate market niche are missing or if there is a surplus, at which prices and who will be occupying these spaces. We have a tool to identify the needs of an individual based on a certain income. But as Mexico lacks a formal institutional standard regarding the definition of socio-economic levels, it was impossible to define a standardized metric to measure it. We built our own database and datasets to do so. We translate this data into valuable information for developers through a simple subtraction algorithm. The first number comes from an assessment of the number of people with a given need and how much money they can pay to satisfy it. Then we subtract the number related to available supply to specifically meet that given demand. The result equals how much is needed in that particular market. These algorithms have proven to be precise and applicable all over Mexico.
We do not believe in whole markets, but in niches. For example, is there an office surplus in Monterrey’s East Valley? Or in Mexico City’s Santa Fe neighborhood? Some may say yes but an analysis of market dynamics is needed to accurately define which price segment or what kind of buildings have a surplus or shortage. A successful property involves a measurable market, a quantifiable sales speed and a product aligned with the market niche’s demand. It is not the same thing to design an apartment to be occupied by a family as an apartment designed for roommates. When developers understand their target market, they can better define what it needs. This must be done by contemplating time, price and location.
Q: What project is most successful in portraying Prosperia’s methodology?
A: We strive for all our projects to deliver a solution, regardless of its value. For example, we are working with ITESM to transform its Monterrey campus into an open space, creating a TEC District. This was a response to the city’s rapid growth, which greatly intensified the demand for housing. Land is scarce and home builders had to develop new suburbs far from shopping centers and office buildings, causing great fragmentation for the city. We took an image of the city from a height of 30,000 feet and we found that the university’s real estate was in a valuable and strategic area of the city that was being underexploited. But the current campus is not located in an aesthetically-pleasing part of the city, so ITESM understands the need to improve its surroundings.
Our role in this project is to analyze the city’s needs so the 200ha of TEC District can become a positive change factor while making the project a profitable investment. We delivered a 25-year plan with a clear and cost-efficient view of how the district’s infrastructure and mobility should look. Our blueprint included housing, offices and research centers.