THE BUZZ IS LOUD these days about South Americans buying Miami and New York condos at a furious pace, helping to stoke high-end residential boomlets in those cities. But back home, their own real estate markets have started to lure investment from big-name American real estate companies.
Developers like the Related Group of Florida, in a joint venture with the Related Companies based in New York, and Donald J. Trump, as well as real estate investors like the billionaire Sam Zell, are working to build residential housing and commercial spaces in Brazil, Uruguay and Colombia.
For decades, those countries were not seen as very safe bets by many foreign real estate developers. Now Brazil, especially, has become the object of a lot of attention. Take a gander at the numbers and you quickly understand why.
The average price of a four-bedroom apartment in Ipanema, one of the posh beach neighborhoods in Rio de Janeiro, rose nearly sixfold from 2008 to 2012, exceeding $2.5 million. The rise was helped by hype over large offshore oil finds and the announcement that Rio had won the 2016 Olympics. Even in Rio’s grittier downtown, one-bedroom apartments saw a threefold increase in sales price in those years. In São Paulo, Brazil’s largest city, average residential prices doubled during that period, to $335 per square foot. Construction of residential buildings, especially in São Paulo, where I lived in 2011 in the latter part of my time as a correspondent in Brazil, seemed to be nonstop only a few years ago. In the upscale neighborhood of Itaim Bibi I was literally surrounded by the construction of high-end condo buildings, with workers toiling away on Saturdays and sometimes Sundays.
In the past Brazilians with money may have been thinking solely about how to park it outside their country. Today rising incomes and one of the longest sustained periods of economic stability in the country’s history have given many Brazilians the confidence to invest at home as well.
“Someone from the interior of Brazil, who in the past would have bought a home in Paris or New York, will now buy it in Rio,” said José Conde Caldas, president of the Association of Directors of Real Estate Companies in Rio de Janeiro, who predicts strong growth at least through the 2016 Rio Olympics. In his 41 years in real estate, he added, “this is the best time of all the times.”
The hot Rio property market “has much more to do with demographics than any one-time events like the Olympics,” said Pedro Seixas de Corrêa, a professor at the Getúlio Vargas Foundation in Rio who lectures on real estate management. “This is because of the country’s rising incomes.”
Fortunes were made in the recent economic boom. São Paulo and Rio are now the 9th- and 10th-ranked cities in the world for high-net-worth individuals with at least $30 million in wealth, according to Knight Frank, a real estate company in London.
But are those times ending? Lately, sales of new residential properties have tapered off. In both Rio and São Paulo the number of new residential development units peaked in 2010. Residential sales in São Paulo fell by nearly 5 percent last year.
Construction costs are rising, in large part from a shortage of skilled labor that is causing construction delays. In Rio, costs rose by 39 percent per square foot over the past five years.
“This is a serious problem,” Mr. Caldas said, adding that developers were recruiting laborers from other Brazilian states. The end next month of a major project to upgrade Maracanã soccer stadium for the 2014 World Cup should free up some 6,000 laborers.
The political will to cut down on red tape and keep the construction boom going seems to be there, at least in Rio, Roberto Kauffmann, president of Rio’s Civil Engineering Industry Syndicate, said in a recent interview in Rome, where he spoke to Italian investors about opportunities in Rio. “We have created conditions to be able to overcome bureaucracy,” he said.
In any event the challenges haven’t dissuaded developers like Jorge Pérez, chairman of Related Group, based in Miami, who is making a sizable bet on Brazil’s need for new upscale housing over the next decade. Related established a Brazilian subsidiary a year ago and is developing its first mixed-use projects in São Paulo, with an eye to the Rio market as well.
“São Paulo had a period of overbuilding and has quieted down the past few years,” Mr. Pérez said. But “we feel that Brazil over the next decade will have a much greater growth rate than the United States, and definitely than Europe. There will be bumps on the road, like all development markets.”
Related Brasil is investing $100 million in a multitower mixed-use complex in the upscale neighborhood of Morumbi. It will have condominiums, offices, retail space and a hotel. The first phase, expected to begin construction next year, will have five towers with 672 units. The second will be even larger, he said. Mr. Pérez described the apartments as “upper-middle-class condos” in buildings with swimming pools, gardens, tennis courts and “acres of green space.”
Related’s Brazilian development partner, Bueno Netto Construction, is also investing $100 million, Mr. Pérez said. The project awaits approval by Brazilian officials, but Mr. Pérez hopes to start advance marketing on it within the next 90 days.
Related is also working on two other luxury projects in São Paulo, and is scouring Rio for opportunities in the Port Zone, which the city is revitalizing.
Among those involved with Related Brasil is Clifford Sobel, a former American ambassador, who wrote in a 2007 diplomatic cable, released by Wikileaks and reported by a Brazilian watchdog publication, that “the honeymoon is just beginning” for American investors in Brazil’s real estate market. Mr. Sobel called former President Luiz Inácio Lula da Silva “the best president for the real estate sector that Brazil has ever had.” Mr. Sobel wrote the enthusiastic message after a meeting with the president of Cyrela, one of the largest residential developers in the country.
In Rio, the Trump Organization is licensing the Trump name for a multi-billion-dollar office complex in the Port Zone area, which is intended to be a posh new urban center with tens of thousands of residents. The project, which Trump is working on with the Bulgarian developer MRP International, will encompass five towers with a total of 4.5 million square feet of commercial space, said Donald Trump, Jr., who is overseeing the project. “It may be the largest urban office development in all of the BRIC countries,” he said, using the acronym for Brazil, Russia, India and China.
Although the developers are still waiting on some government approvals, Mr. Trump expects at least one of the towers to be completed by the Olympics in three years.
Next door to Brazil, in Uruguay, Trump is lending its name to a luxury condo building in the resort playground of Punta del Este. The $100 million development, which will have 129 apartments on 25 floors, will overlook the beach. Sales started in January. So far potential buyers include Americans, Uruguayans, Argentines, Brazilians and Europeans, said Eric Trump, who is overseeing it.
Prices for standard units will range from $650,000 to $2.5 million. The penthouses, which will have 6,500 to 8,600 square feet of space and private pools and spas, have yet to be priced. A Trump spokeswoman would not say how many apartments were already under contract.
Other Americans making real estate investments in Latin America include Mr. Zell. Through Equity International, which he founded with Gary Garrabrant in 1999, Mr. Zell is investing in real estate—related companies around the world, in countries including Brazil and Colombia.
Equity International has an investment in a residential builder based in the southern Brazilian city of Curitiba. And in Colombia, a country beset over past decades by rebel attacks that left many foreign investors skittish, Equity International has a $75 million investment in Bogotá-based Terranum Corporate Properties, which is developing a two-million-square-foot mixed-use complex near Bogotá’s El Dorado International Airport.
Tom Heneghan, the chief executive of Equity International, said interest in Colombia was growing among global real estate investors. “The marketplace will begin to get more crowded, as we’ve seen in Brazil,” he predicted.