Carlos Rousseau
Senior Partner and Co-Founder
Orange Investments
View from the Top

Disruptors Could Cause Property Bubbles, Developer Warns

Wed, 11/01/2017 - 12:58

Q: How would you evaluate the residential market in Monterrey and what hurdles do you anticipate?

A: Monterrey is a large city with various submarkets. Right now, we are working in San Pedro Garza Garcia, which is the neighborhood with the highest income per capita in Monterrey, so this is where most high-end projects are focused. That market is a little saturated and Monterrey has other submarkets that are gaining traction. The more rural areas of Monterrey are beginning to see further commercial developments, mixed-use projects and shopping malls being built. I think in the future, we will start to see a big movement toward Monterrey’s downtown. The traffic in San Pedro Garza Garcia is becoming unmanageable and the millennial generation wants to live close to their places of work and entertainment. At Orange, we are working on a huge project downtown that will have 12,000 units. This is more of a middle-income development because that is where we feel our residential portfolio is lacking. All the projects carried out in San Pedro are carried out with a lot of equity as there are many wealthy people who develop or buy these units as an investment. The traffic situation in San Pedro is becoming untenable and, with the desire to live close to the centers, I predict future developments will move away from traditional areas in Monterrey.

Q: What is your opinion about the various financing vehicles that are available on the market?

A: There is a lot of money to invest in the infrastructure industry. This can be a cause for concern because there are many people willing to spend a lot of money who are not necessarily equipped with the market intelligence to carry the projects out successfully. Many markets have seen these disruptive projects and this can also lead to bubbles due to the sheer amount of funding available, especially from Afores.

Q: What needs to be done to curb this behavior and stabilize the market?

A: First, it is necessary to invest responsibly. There are seasoned investors who have a great deal of money but do not spend unless they find the right project. But the system is designed to provide incentives based on speed, which is the real problem. CKD guidelines say the money must be spent within three years or it will be removed. This is not conducive to an environment of responsible investment. Having said that, I believe the country has many opportunities. We are underdeveloped in many markets and we need to understand that Mexico is not only Mexico City, Monterrey and Guadalajara. People are beginning to understand this, with developments springing up in alternative locations, such as the Bajio region, Puebla and Merida. But there are other markets, such as Tijuana, Cancun and Aguascalientes, that are largely overlooked but have a great deal of potential. And in certain mature markets like Mexico City there is a need to provide alternative infrastructure like multifamily rather than providing more of the same.

Q: What strategy is Orange Investments implementing to overcome challenges and continue expanding?

A: We have always tried to differentiate ourselves from others by investing a great deal in intelligence. We diversify our operations across the country and outside Mexico so that we are not overly vulnerable to the cycles of one market. We have in-depth data and comparisons of different markets, products and services all over Mexico, and this gives us a good indication of where the main opportunities are. There are certain trends that Mexico is just starting to see, like multifamily and for rent. Our strengths lie in this intelligence and in our creative culture, and when combined, we can create great products.

We want to expand quickly. We are in the process of raising a large fund and that will give us more traction and help make us more dynamic in Mexico. We see this as a race because there are many players and often, the one that is first to market comes out on top. We work with many international and local funds. Right now, we are raising our own fund.