Shopping Centers Today International

NOV 2015

Shopping Centers Today is the news magazine of the International Council of Shopping Centers (ICSC)

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Peru and other countries, have access to other sources of capital, such as a solid stock market and competitive financing from the banking and insurance sectors, he says. Carlos A. Lecueder, director of Estudio Luis E. Lecueder, an Uruguay-based mall development and consultant firm, points out still other impediments. "Shopping centers are a very good investment opportunity local investors don't want to lose," said Lecueder. "Therefore, if a REIT wants to invest in one, the mall's shareholders decline to sell, or ask for prices that are too high for a REIT." In Brazil REITs have lost investors' fa- vor following an avalanche of REITs before 2013 with weak-performing properties, says Edoardo Dalla Fina, executive manager of Colliers International Brazil's capital mar- kets and investment services division. On top of that, surging interest rates, which at press time were at 14 percent, have affected dividends, killing the appetite for REIT investment, despite the tax advantages, he says. "In Brazil people have the mentality that real estate behaves like a fixed-income investment and are always comparing their yields to other investments, like govern- ment bonds," said Dalla Fina. "The market capitalization of REITs has gone down very aggressively," he said. "The window for new IPOs closed a couple of years ago." In Peru there are now only four REITs, and those are in- volved mostly in residential or office development. And yet again, the lack of U.S.-style tax benefits create a disadvantage, says Eric Rey de Castro, Colliers International's Peru manager. That could change, however, Rey de Castro notes. The govern- ment is proposing changes that would permit deferment of in- come-tax payments at the time of a property sale, exempt REIT deals from the property transfer tax, and cut the tax rate for in- dividuals investing in publicly traded real estate funds from 30 percent now to 5 percent. Currently, only pension fund admin- istrators are exempt from this tax. The industry wants to attract individual investors, who now account for less than 5 percent of REIT investments, says Rey de Castro. "The Ministry of Econ- omy and Finance is working on the new legislation that, once in effect, will create a major boom just like in Mexico," he said. In a partnership with Colliers Inter- national, Rey de Castro created Peru's biggest REIT eight years ago, called Fibra Vial-Colliers, with $800 million in assets under management. The lion's share of the investment is in office buildings and housing, though the vehicle has some strip centers developed in a partnership with real estate developer Centenario. Peru's retail developers, some of whom are retailers, have relied on private sources of funding, says Juan José Calle, president of Lima-based ABL Partners, which builds and manages malls. The situation is similar in neighboring Ecuador, where a handful of developers dominate the country's shopping cen- ter industry. And though REITs were popular in the 1990s for nonretail proj- ects, current regulations limit the issuing of real-estate-backed securities, according to Miguel Chiriboga, general manager of DK Management Services, an owner and operator of malls in Ecuador. Uruguay boasts one REIT: the three- year-old Independencia Uruguay fund created by Independencia S.A., a Chilean firm that runs Chile's largest REIT, with some $2 billion in assets in Chile and the U.S. The $30 million Independencia Uruguay lists Arocena Shopping Mall, in Montevideo, as its only mall. It took extensive and persistent work from Uruguay's pen- sion funds, the central bank and the investment industry to press the government into creating the ideal regulatory frame- work for REITs, says Santiago Franco, project manager at Independencia Capital Partners, in Montevideo. Some con- straints remain in place, such as one that allows only local pen- sion funds to invest in them, according to Franco. Still, retail REITs are making headway in some countries. In Colombia real estate developer Conconcreto announced this past July a partnership with Grupo Argos to create Co- lombia's biggest REIT. It will kick off with about 437,000 square meters of the combined existing real estate portfolios of both firms, including Conconcreto's 10 shopping centers. The plan is to build an additional 300,000 square meters of various types of real estate over the next four years. In Brazil REITs date back to 1994, but they really took 36 S C T / N o v e m b e r 2 0 1 5 "Shopping centers are a good investment local investors don't want to lose. Therefore, if a REIT wants to invest in one, the shareholders decline." E r i c r E y d E c a s t r o , c o l l i E r s i n t E r n a t i o n a l ' s P E r u m a n a g E r

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