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Colombia 2014 | FINANCE | VIP INTERVIEW

TBY talks to José Ignacio Robledo, President of Grupo Terranum, on its REIT, hotels division, and the investment available to the sector.

How was Terranum established?

Terranum was born when I returned to Colombia in 2004. We devised the idea of creating an integrated real estate platform based on what we had seen abroad in the US and Europe. We opted for the real estate investment trust (REIT) model. I had been working on REIT models in the US, and saw an opportunity to bridge the gap between the capital markets and the real estate sector. Pension funds were starting to grow and we had begun to look at alternatives to fixed-income instruments. Corporates had, until then, owned major real estate holdings and were starting to compete on a more global basis, which naturally required capital. The legal framework took us a couple of years to put in place, but since then we have seen that an integrated platform for the development of corporate real estate services encompassing the investment dimension has allowed us to offer clients a one-stop shop.

What is the current state of your portfolio in Patrimonio Estrategias Inmobiliarias (PEI), the first REIT in Colombia, managed by your business unit Terranum Investment?

We have Ps1.5 billion under management, and are currently present in Bogotá, Medellín, Cali, Barranquilla, and Manizales. Roughly 63% of the portfolio is located in Bogotá, and the remainder between Medellín, Cali, Barranquilla, and Manizales. Its business activity is roughly spread equally between office, industrial, and retail real estate, and has a diverse range of tenants. One of our business criteria is exposure to diverse sectors of the economy to ensure that the fund can withstand volatility. We are active in the financial, retail, and manufacturing sectors with 27 assets.

“Terranum Hotels develops, acquires, and operates hotels in strategic markets throughout Latin America."

You have successfully completed your inaugural fundraising effort, through Terranum Capital, resulting in commitments of $235 million. Could you explain the investment philosophy of the real estate fund Terranum Capital, and the projects you are developing?

Terranum Capital is our low-income housing initiative. The fund was closed in June of 2013 with $235 million through a wide pool of investors. These include institutional investors from Colombia, the region, and the US, as well as family offices from around the world. The target has been the housing deficit that we have in the region, which amounts to 20 million homes. The problem is that the deficit continues to grow each year. In that sense, we see approximately 10-15-years of opportunity for a fund like this to bring capital to a sector that needs it. It needs to grow more quickly to supply the deficit, and today we are active in Peru, Colombia, and Mexico. We have seven projects in Peru, five in Colombia, and two in Mexico. It's proven to be a very interesting and successful strategy, and hopefully there will be many more funds to come following exactly the same path.

The Terranum Hotels division already operates two Aloft hotels, one in Colombia and another one in Costa Rica, with an additional one under development. What hotel projects do you plan realize in Colombia and Central America?

Terranum Hotels develops, acquires, and operates hotels in strategic markets throughout Latin America. Thus, it has assembled a portfolio of internationally branded hotels, primarily in Colombia, Costa Rica, and El Salvador. Our partners include Starwood Hotels & Resorts and Marriott. In mid-May 2014, Grupo Terranum acquired Decameron Hotels & Resorts. This acquisition included 27 owned, leased, and managed hotels in seven countries including Colombia (13), Mexico (3), Jamaica (2), Peru (3), El Salvador (1), Ecuador (2), and Panama (3). In September we will open W Bogotá, the first W hotel in Colombia, which is of course our flagship development in Bogotá.

Your corporate property division focuses on creating bespoke office spaces designed according to the needs and image of your corporate clients. How is the CONNECTA project progressing?

CONNECTA is a large office park with 250,000 sqm of gross leasable area (GLA). We recently completed the second phase, which features roughly 60,000 sqm of offices. These clients generally require schemes of a large area, and in fact most of our clients in CONNECTA have 5,000-sqm to 10,000-sqm spaces. We want to create a whole ecosystem there, catering to the full spectrum of client needs with a focus on sustainable development. In fact, all the buildings are LEED certified.

We recently read that the Cadillac Fairview Corporation has announced a joint partnership with Terranum Corporate Properties. What is the importance of this partnership?

It is very important in terms of confirming the appetite that Colombia is generating among world-class investors. Cadillac is one of the biggest real estate investors in the world, a part of the largest institutional investors in the world, the Ontario Teachers' Pension Plan, and has committed $150 million to Terranum Corporate Properties to fuel our growth.

President Santos has talked about the investment fund sector as being key to fostering trust in Colombia as a foreign investment destination. What role can companies like yours play in this?

On the development front, we have been particularly active with foreign investors such as Equity International and Cadillac. Our REIT (PEI), from day, has enjoyed the participation of much of the local institutional community. The challenge is that PEI has performed so well that it hasn't made provisions to welcome international investors. This confirms a considerable volume of liquidity in the market. The real estate market is, after all, capital-intensive and, therefore, welcoming of foreign investment.

What potential do you see in new regulations for Colombia for the fiduciary sector to grow?

There is a lot of opportunity. Having clear rules is the key to giving confidence to investors. You should see a big boom in the asset management business here. There is liquidity, appetite, and opportunities. On the other hand, there is probably a lack of professional managers.

In Colombia, the trust industry is an essential contributor to the economic growth of the country. Could you compare the Colombian fund industry with those in other countries of the Pacific Alliance?

The Pacific Alliance will be a great success. We are working on several developments to take advantage of it, and there is going to be a lot of activity not only from Grupo Terranum but also other competitors. Other countries, in terms of the trust industry, have been transforming the landscape. In that regard, Colombia is still lagging behind, but it is not going to remain that way. More players will come and evolve, and we are able to become an asset class. Colombia needs more new products, stronger managers, and reliable regulations.

What are your hopes for the real estate markets of the countries in which you plan to invest?

The biggest opportunities are in Colombia and Peru. There is still much to be done; the inventory is obsolete, there is a lack of capital, but there is a lot of demand and growth. We are very active in both markets. Markets in Central America are a little tougher because they don't have the scale, but things are moving ahead. And I'm extremely optimistic about Mexico as it is a market that will outperform the rest for years to come. With regard to more established economies I believe it's a very different play. There are always opportunities but Terranum doesn't have an edge in these countries yet.

© The Business Year - June 2014