Opportunities in Mexico's Northern StatesThu, 11/01/2018 - 09:56
Q: What segments is LOMA Desarrollos focusing on and what trends has it seen in the market?
A: In these regional markets, the segments we are targeting are C and D, which are slightly lower in income than what most developers strive to achieve. Instead of large department store anchors, we are implementing a strategy of using supermarkets, such as Soriana, as anchors. Due to insecurity in these markets, commercial centers are becoming the meeting point for communities and that is why we want to make sure that our commercial centers create a positive experience for shoppers. In Tijuana, we are developing a mixed-use project that will bring a different vibe to the city and create common areas where people can come together. We are also developing a project in Tizimin, which is located in Yucatan, between Merida and Cancun. This project will become the town’s theater and the focal point for its citizens. Affordable prices also allow smaller businesses to formalize and move into a more sophisticated shopping space. Our projects contain national brands that target lower-income segments, such as Waldos, and we complement this with regional brands. That is why it is important to adapt prices to the area. Developing in regional areas has the advantage of having cheaper land and we have the benefit of having existing business relationships with anchor stores such as Soriana.
Q: What is LOMA Desarrollos’ financial strategy to develop throughout various states in the country?
A: Sixty percent of the capital we use comes from investors, including 20 percent from LOMA Desarrollos, with the rest from national and regional investors. The remaining 40 percent is financed through banks. We are open to new investors with a minimum buy-in of MX$5 million. Our successful projects have created trust among investors and that is how we have grown so much in the past years.
We have two schemes for shopping centers. With one, we create an investor pool, and we rent and sell the spaces in the commercial center to obtain high yield rates between 20-40 percent annually, which is above the market average. The second scheme is to create an investor pool, purchase the land and then lease the spaces monthly. The investor can either choose to enter and exit a high-yield project in two to three years or participate in the monthly lease scheme and receive yields between 9 and 12 percent.
Q: What characteristics do regional markets demand from commercial real estate developments?
A: Mexico is filled with opportunities. The city that will grow the most from now until 2050 in Mexico is Tijuana. In Tijuana, we are developing our large mixed-use project along with two residential projects. Culiacan is another city that is growing rapidly and we already have four projects there. In medium-sized cities, these power centers and smaller projects are perfect, but we are also beginning to develop mixed-use projects in cities that are growing exponentially. Tijuana and Culiacan are a perfect match for us because land prices are more expensive in these areas and one must densify to make it viable. Mixed-use projects create experiences that are not necessarily based on the anchor store but on gastronomy and community. There must be a harmony between prices, store selection and how the spaces are used.
Q: What unique challenges might developers encounter when constructing in Mexico’s northern states?
A: Permits and licensing in the regional markets are extremely difficult processes. In these markets, municipal presidents give the green light for permits and projects. It differs greatly from city to city. For instance, in Tijuana it has been extremely difficult to obtain the permits. In some areas this is due to education and lack of knowledge about the topic and in some it is outright bureaucracy. Insecurity is definitely a challenge in these cities as well. We have already faced various situations in some of our projects in Culiacan and Tijuana. A challenge that is not seen as much in large cities is the use of cash. In Culiacan, for instance, almost everybody uses cash and no cards, which is a good challenge to have in a way.