Fibras Ready to Innovate and Continue GrowingThu, 11/01/2018 - 17:32
Q: How do fluctuating interest rates impact the performance of Fibras in the Mexican market?
A: What gives the sector relief is that the intention and measures to lower the interest rates are being implemented by Banxico. The presidential elections generated volatility within the market. Some measures and precautions were implemented by the authorities and financial institutions to ensure that the peso would not be affected. The cost of money has become more expensive for the real estate market and developers are advancing cautiously in terms of financial leverage. Previously, financing cost 3.3-3.5 percent and now it is close to 8 percent.
In other years of high volatility, such as in 1994 or 2007, 2008 and 2009, many developers were overleveraged. As a result, they had to auction off their assets to recover funds. This is not happening in the Mexican market because both developers and banks learned from those experiences. As a Fibra, we have been preparing ourselves for this situation by creating additional credit lines to ensure we have the liquidity to seize the opportunities that may arise. In 2018 and 2019 everybody will be cautious. FUNO will continue to focus on delivering long-term sustainable value in the real estate sector.
Q: How does FUNO view the presidential election results?
A: When Andrés Manuel López Obrador was Mayor of Mexico City, he boosted the real estate sector. The skyline that we see today in Reforma is thanks to the policies he implemented. He provided the first incentives to build the first skyscraper, Torre Mayor, on Reforma. He provided incentives for construction, such as making property tax deductible for the first 10 years. I believe that he will continue to boost the sector in the years to come. He seems to support the development of organized real estate growth. This implies changes in the use of land, licensing and population density to make more organized processes but they will not become a constraint.
Q: How will the Mexican Fibras perform in the next year compared with the US REIT market?
A: It is very difficult to compare Fibras with REITs. Real estate in Mexico is in an earlier stage and the US market is bigger than that in Mexico. The first REITs were created in the 1960s in the US and the first Fibra in Mexico in 2011. The US market is 50 years more mature than our market and it is difficult to compare the two. The REIT boom took place in the 1990s. As of June 2017, there are 13 Fibras operating in the Mexican market. If there are no large jumps in the Mexican economy in the next year, we will see the entrance of a couple more Fibras. Before the presidential elections, two new Fibras joined the market, Fibra Educa and Fibra Upsite. They decided to launch operations regardless of the volatility present in the market, which means that the sector is being viewed positively by investors.
Q: What are the main factors that have helped FUNO to be successful in Mexico’s real estate sector?
A: FUNO has the best commercial real estate portfolio in Mexico and Latin America. Our business model supports all our operations and assures that we deliver the optimal locations for our tenants. Throughout the years, FUNO has been the trailblazer within the Fibra sector. Our goal is clear: to generate the maximum amount of value over time.
FUNO will continue to grow as much as the markets allow us to. FUNO has been able to add to its portfolio over 8 million m2 in such a short period of time by seizing the opportunities offered by the economy and the real estate market We know it is important to consider both factors because it is not enough to have for instance a lot of liquidity within the market, but not enough opportunities in real estate projects. The main characteristic FUNO has demonstrated to be successful is to find the right time to merge both markets. The size and footprint of FUNO’s assets are accompanied by an even larger focus on sustainable practices. We have created a world-class sustainability strategy to have a positive impact on people, cities and surrounding communities.