Trust Issues Create Setbacks for New DevelopersWed, 11/01/2017 - 13:59
One of the toughest challenges any new company faces when launching its first project is finding capital. But with new sources of financing ranging from institutional investors to crowdfunding, money is out there; the real question for developers is how to get their hands on it. “The first project is always difficult and creating trust is decisive when searching for capital. Having a well-planned project is no longer enough,” says Daniel Tovar, Director General LATAM of Grupo Acerta.
With economic and political uncertainty in the air, 2017 is projected to be a difficult year for Mexico’s housing sector as interest rates are expected to continue to rise. But developers and financing institutions remain optimistic. BBVA is planning to invest more than MX$67 billion in mortgages, 15 percent more than in 2016, and developers are looking for more capital in the Mexican Stock Exchange (BMV) in the form of Fibras and CKDs.
The market appears to be growing and developers are eager to build, but although the money is there, the Mexican construction industry seems to continue to struggle to access it. “Developers often start projects with their own capital, but if they do not have enough financial resources committed to it, problems arise,” says Tovar. He explains that to obtain this capital, developers must prove their capabilities, especially in the Mexican market. For this, he says, hard numbers are needed. “Investors want developers with experience in Mexico, which presented a challenge for Grupo Acerta even though we have infrastructure projects in various countries,” he says. “It is a matter of tenacity, perseverance and time. A developer must be willing to risk money too. This way investors can measure commitment to the project.”
Grupo Acerta is a company known for its project management expertise, but it has decided to branch out and has begun developing its first project, Altos, in Juriquilla, Queretaro. The project is a housing development with lots allocated to green areas and commercial spaces. The 366,000m2 development aims to build a community and better quality of life for its residents, with recreational areas, walking paths and entertainment spaces for children. Tovar expects Acerta to succeed as a first-time field developer on the Altos project thanks to its ability to delegate, plan, commercialize and finance, and its knowledge of the law and due diligence.
Infrastructure development is complex and requires many years of experience and vast knowledge to meet the demand of Mexico’s market. National and international players of all sizes are entering the country’s residential market, drastically increasing competition and boosting quality. “There are many projects that are unsuccessful in Mexico but each country has its areas of opportunities in infrastructure development,” says Tovar. “The Mexican infrastructure industry is often targeted by players from other sectors, where due to their lack of experience, they are unable to negotiate its nuances.”
Although a newcomer to project development, Tovar believes the company’s extensive experience in project management will stand it in good stead. He says developers need to improve their project management and planning processes to ensure the success of projects and to attract the attention of investors. But large companies that have easy access to capital are eyeing the housing industry. “The most important resource for infrastructure development is capital and when companies get their hands on it, they sometimes create projects carelessly,” he says. “They enter the housing industry, learning through trial-and-error and not fully understanding the rules of the game.” He argues that, because infrastructure is a long-term investment that requires substantial investment, it is important to prevent as many mistakes as possible. “Unlike other sectors, real estate largely overlooks market research before creating a product,” says Tovar. “Companies must first carry out the proper, in-depth studies before investing in a project. When mistakes are made in this sector, they are expensive to correct.”
But Tovar suggests that in the next few months, it is important to be cautious not only about costs, but in the speed and flexibility in which developers respond to the market. “As developers, its crucial to make the least investment possible and secure the highest number of sales,” he says.