COLOMBIA - Real Estate & Construction
General Manager, CREA Management
With over 16 years of international corporate real estate experience, 13 of which were in Europe, Claudia Robledo began her career as a Project Manager in 1999 when she joined EC Harris. In 2006 she joined CB Richard Ellis as Director of the International Asset Management Department. In 2011 she returned to Bogotá to join Bancolombia as the Investment Director of the Bancolombia Real Estate Fund. In 2014, she decided to start her own company, and CREA Management was born. She is also on the Board of Directors of MTS.
I think there are three key factors: first, the internal and external perception that there’s room for economic growth; second, the growth of companies that creates employment, allowing people to start spending on basic goods and services—middle-class growth has doubled over the past 10 years and, culturally speaking, Colombians prioritize investment in their own homes; and finally, there’s an imminent need to modernize our real estate infrastructure, such as offices, shopping centers, logistics facilities, and the like.
The residential segment is always the most interesting in any growing economy. Government incentives for VIS and VIP housing have been determining factors for first-home access for Colombian families. Another issue motivating growth is the government commitment to subsidize 100% of a home’s value. In any case, I think we haven’t seen the full potential of this plan; we still continue to reinvent it, having many social gaps to fill before we can say implementation is completely successful. In Colombia, we have more than 12 cities with approximately 500,000 inhabitants and a housing deficit of more 2 million and an annual production of 150,000 houses. There is huge growth potential in this segment. Additionally, housing purchases begin with the 20- to 40-year-old demographic, the largest and most fully productive segment of Colombia’s population pyramid. Other sectors are consumer goods and the need for commercial spaces in mid-sized cities; and we must not forget the government’s connectivity and infrastructure development projects and how these will drive distribution and logistics platforms in underdeveloped places in the country.
Bubbles are driven by oversupply and excessive debt, but I do not really see a bubble. Instead, I see a scarcity of land due to the absence of urban renewal legislation, mainly in Bogotá. It is very difficult to find areas larger than 2,500 sqm to build interesting developments that make urban sense, and which could include complementary, mixed-use spaces. My perception is that we are making updates very rapidly, that land prices aren’t in keeping up with construction capacity according to the norm (residual value), and that the city needs to grow denser, vertically, rather than expanding horizontally. Therefore, when we refer to the financial part, borrowing is controlled at the real estate level. I believe that the financial crisis of the late 1990s left us well regulated in this aspect. Prices are sustained by demand in the northern area of Bogotá, and at the limits of Stratum 6, as a housing area; it’s for this reason that the city desperately needs urban renewal areas, and this includes the development of infrastructure and public transportation.
We needed to update hotel infrastructure to be aligned with the economic growth of the last 10 years. The government of Alvaro Uribe understood this clearly and implemented tax exemptions to motivate the sector to grow. The fiscal incentive implemented at that time also encouraged independent developments; however, the major brands are the ones that will have a great market advantage. There are many regions in Colombia ripe for the tourism industry, including local tourism, and this is a great opportunity. On the other hand, REITs are a topic of investment regulation. Institutional funds already introduce the possibility for individuals to invest as well as the trust investments. Popular investment in the real estate market is a great advancement, a step toward the sophistication of our capital markets, and this most definitively has begun with the hotel sector.
The opportunity definitely lies in the ownership consolidation of the properties. We come from a culture of small property deed-based investments and sales, this meaning that the available offers do not meet the actual demand mainly in the traditional office areas in Bogotá. The new market paradigm we face demands property development that technically meets international standards. There is a lot of room to professionalize our models of investment and our management of real estate development. Corporate buildings were merely the most secure investment option for individuals in a market offering no alternatives. Now, occupants of every type, including businesses, merchants, logistics managers, and hotel managers, all look for added value, and this is the unknown territory for the traditional investors and developers and is one of the main reasons for the existence of CREA.
CREA’s objective is to structure successful commercial projects, thus filling a gap in the market. We have very good builders and large funds with great provision of capital, but none is ready to develop an asset and take the commercial risk. Now, we’re not talking about construction, sales, and exit—now builders have a major responsibility in the long term. Investors consider long-term viability and rent potential based on what they pay per square meter. In my experience, from an investor’s perspective in Colombia, it’s not easy to find someone to advise on these types of transactions. And CREA’s mission is to be the best advisor in technical, commercial, and financial aspects. We need to transform the information of the market into opportunities, look for development niches, and transform it into attractive real estate products that have distinguished services and real estate structures that can get converted into destinations, transform the city, and get companies to see non-traditional office locations as an option. This is what makes real estate assets become liquid and hence transactionable.
© The Business Year – July 2014
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