Javier Barrios
Founder and Director General
MIRA Companies
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Insight

Using International Might to Conquer Market

Wed, 11/01/2017 - 12:36

Mixed-use projects are the new trend in real estate but companies attempting to break into the segment are running into financing hurdles. These kinds of developments normally require considerable investment and only large developers with critical mass can afford to enter this potentially lucrative market.

Backed by two world-class real estate companies, Mexican real estate developer Mira has attracted the funding to issue the first CerPI since these financial vehicles were created in 2015. Black Creek Group, an American-based real estate investment group, and Ivanhoé Cambridge, the real estate subsidiary of Caisse de Dépôt et Placement du Québec (CDPQ), are partners in Mira’s mixed-use projects. “Having Ivanhoé Cambridge backing us gives us a lot of credibility,” says Javier Barrios, Founder and Director General of Mira. “With the CerPI, we were able to bring in two Afores and one insurance company to co-invest with Ivanhoé Cambridge’s.”

One of the advantages of CerPIs for both the investment manager and co-investors is the responsibility managers are given to make investment decisions in their areas of expertise, while removing that responsibility from Afore managers on multiple industries in which they are not experts. “The CerPI gives us discretion over the investment because Afores no longer need to approve these decisions beforehand,” Barrios says. “This takes away the responsibility of Afores to invest in sectors where they are not experts and passes the responsibility to managers.” Although Mira is not required to submit investment proposals before technical committees for approval, it must report simultaneously to both Mexican Afores and the foreign institutional investor Ivanhoé Cambridge. Another particularity of CerPIs is that fund managers must contribute at least 25 percent of the total funds raised through this vehicle, and this is where Mira’s critical mass and access to funding is key. “It will be hard to replicate this vehicle because of the high co-investment the manager must contribute,” says Barrios. “The main reason we were able to issue a CerPI is because Ivanhoé Cambridge is also owner of our management company.”

Mira is about to call for the first tranche of capital since the CerPI was issued in September 2016. “We have chosen to work at a relatively slow pace because there is a lot of money in the market right now,” says Barrios. “We believe some assets are overpriced and we are being patient so we can find investments priced at the right risk-reward ratio for the CerPI.” These new investments will add to the company’s portfolio of projects in Mexico City, Monterrey, Cancun and Baja California Sur. Mira sees the development of mixed-use projects as a way of providing communities a better quality of life and a place where people can spend more quality time with their loved ones. “We are building open spaces and true mixed-use communities that are close to public transportation and employment centers,” says Barrios.

There are, however, several challenges to developing such large mixed-use projects in terms of working with local communities and municipalities. “Mira is interested in making sure projects integrate communities and have a positive impact on society,” says Barrios. “But developers are always the bad guys. Nobody wants any obstruction to their property and much less a shopping center.” To tackle this situation, Mira strives to foster proper communication with neighbors and communities. For Barrios, the more sensitive a developer is to the issues that stress the community, the better the project design and results will be. This enables developers to embrace these issues and resolve them.

Mira currently has six of these mixed-use communities under development. Tres Santos in Baja California Sur is giving the town of Todos Santos the first public pedestrian access connecting the town to the water at Punta Lobos. This project plans to bring in four more hotels and eventually some housing. Before Mira can start selling residential housing it needs to position the area as a renowned destination. According to Barrios, Tres Santos requires more hotel brands to create traffic and to boost the project’s attractiveness. “Homebuyers need to see more established brands to gain a sense of investment security,” says Barrios. Mira is focused on attracting more hotels and wants to close negotiations with them by the end of 2017. To do so, the company wants the town of Todos Santos to be seen as an extension of Los Cabos.