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Analysis

Standard Real Estate Bolstered by Strong Execution

Thu, 11/01/2018 - 17:47

Unlike its northern neighbors, Mexico lacks public recreational spaces and entertainment, says Elías Mizrahi, Director of Investor Relations at Fibra Danhos, adding that it is up to developers to transcend their role of building infrastructure and also build community. “As developers, we try to make the lives of people within the communities in which we invest much easier. We create shopping malls as community centers where we include stores, restaurants, cinemas and services,” he says.
Fibra Danhos is a Mexican developer dedicated to building, renting, operating and managing iconic commercial properties and high-quality office complexes in Mexico City and Puebla. The group focuses on investing in safety, architecture and good design to transform citizen dynamics through its projects. “The first factors are very basic, such as security, safety, architecture and clean design. The second set of factors make shopping malls very particular,” Mizrahi says. For example, population density, consumer spending and the availability of other malls in the area.
Danhos has thrived as a public entity for five years and as a private company for over 40 years. “Real estate is completely cyclical and to be able to withstand all those economic cycles, a developer must be disciplined. When looking at all the Fibras in the market, the average loan-to-value is 35 percent; ours is 10 percent,” says Mizrahi.
To withstand market cycles, it is crucial to invest in healthy macro environments that offer good interest rates, GDP growth and consumer confidence. “Danhos is not doing anything complicated. For us, this is standard vanilla real estate, but our execution is extremely strong,” Mizrahi says. “We buy land at cheap prices and look at superior assets and locations.” Mizrahi gives the example of Iztapalapa as an overlooked municipality in Mexico City with a huge need for living services. “Sometimes people underestimate the consumption capacity of people in this area,” he says. “Despite official figures that suggest Iztapalapa is not one of the city’s most affluent neighborhoods, informal labor in the borough is common, meaning the official figures do not accurately reflect the purchasing power of the people living there.” In fact, Fibra Danho’s Parque Tezontle is credited with the highest spend per person compared to the rest of the group’s portfolio.
But Fibra Danho’s recipe for developing successful projects is based on more than just discipline and a good eye for overstated markets. An asset-by-asset approach is critical to take full advantage of any portfolio, making each project unique. “It is really about viewing each project as a standalone asset and identifying what adds the most value in that particular location,” he says. “We try to incorporate uniqueness into each of our developments. For example, in the case of Parque Tezontle, it is the only location in Iztapalapa that provides a terrace with restaurants. Reforma 222 is one of the only open areas on Paseo de la Reforma, a street with many office buildings.”
There is one final factor, Mizrahi says. “The community-building characteristics we incorporate into our designs at Danhos, with the inclusion of banks, gyms, cinemas and green spaces, gives us the edge in that we do not exclusively provide retail.” Parque Las Antenas, for example, includes an entertainment park that stretches over a 23,000m2 area of the shopping mall’s roof.
While there is no infallible recipe for navigating all market cycles, the strategies deployed by Fibra Danhos help to better shield and keep its commercial real estate portfolio healthy. This is increasingly important when dealing with the changes in retail management as new segments gain share, such as e-commerce. “I think e-commerce has not yet fully arrived to Mexico, although sooner or later this will happen,” Mizrahi says. “Having said that, we are better positioned than the US, where there was over-expansion. Also, in the US, private equity is a common form of financing and there is a lot of debt. Mexico is not a very leveraged market.”
Mizrahi does not think e-commerce poses a risk to the firm’s business model, although he says it will transform retail. “Traditional retail will disappear and it will now be all about experience. The Danhos experience is all about creating an ‘Instagrammable’ mall by investing in experience.”