Eduardo Güemez
Mexico Retail Properties (MRP)
View from the Top

Integration for Stronger Income Flow

Wed, 11/01/2017 - 11:55

Q: What is MRP’s strategy to develop various projects throughout the country simultaneously?

A: The most important thing is to have the right suppliers. We prefer to have local suppliers in the majority of our projects to achieve a faster response. Another important element is having a strong coordination team that can monitor the various locations. For our developments to be successful, we must have control of each development and budget through well-designed systems and processes. Everything must be planned rather than left to chance.

Q: Which types of commercial developments are receiving the best response from the market?

A: All types of developments have their virtues and their challenges. From a financial point of view, a standalone Walmart or Bodega Aurrera is low-risk, easy to construct, has a long-term contract and is low maintenance because there is only one tenant. Big mixed-use projects have many more complexities due to the large number of tenants and space to maintain, drastically raising the risk profile. MRP prefers to have a balanced portfolio but we always look for the quality of income. From an institutional perspective, we seek income generation since investors want recurring income.

Doing the project right leads to high quality income. The best thing a developer can do is establish a good relationship with its surroundings as a whole, including neighbors and the environment. If a development is done right the first time, it will create a win-win situation for all the players involved.

Q: What are the most challenging aspects of developing commercial real estate in Mexico?

A: Permits are the most difficult aspect of creating a new commercial real estate development. In Mexico City for instance, given its size and density, the permits required by the government must play a big role. But unfortunately, developers are often faced with pressure and obligations that are not legally well-defined. Having to make agreements with different municipalities or government agencies can increase uncertainty in the project.

One of the most difficult tasks in a project is the construction of an underground parking lot. When digging 215 underground, it is difficult to know what you might find. Processes are not will defined or structured and often differ with each project. These processes cannot be found or carried out online, but there are smaller things such as land use revision that can be.

Q: How will changes in the Mexico City Constitution and Human Settlements Law impact developers such as MRP?

A: Developers take on the risk of not knowing how these changes will impact the sector. These are changes that will create lagoons in the legal framework for the construction of real estate. The problems that arise with neighborhoods is that everybody wants to have a supermarket nearby but nobody wants it next to their house. It is important to consult with neighbors and have as many people on board as possible but these types of things could also open doors to excessive demands from the community.

Municipalities have the responsibility of creating their own urban planning schematics and should make sure that the use of land is respected. If a developer has the right permits and is respecting the use of the land stated by the government, developments should be respected. There are instances involving a valuable piece of land where a residential tower could be built but authorities change the land use, automatically diminishing the value of the property. Both the public and private sector have committed mistakes but to prevent these types of situations, the legal framework must be clear and executed accordingly.