PLANNED URBANIZATION

Mexico 2018 | CONSTRUCTION & REAL ESTATE | INTERVIEW

TBY talks to Javier Barrios, CEO of MIRA, on financial vehicles, benefits of mixed-use developments, and the long-term prospects of Mexico's real estate market.

Javier Barrios
BIOGRAPHY
Javier Barrios co-founded MIRA after having worked as a general manager at BCBA Impulse, a real estate firm specialized in housing and office space. Barrios served as the president of the Real Estate Developer Association (ADI) from 2004-2006. He holds a degree in industrial engineering from Universidad Panamericana and an MBA from Harvard Business School.

What is the attractiveness of the Mexican real estate market for foreign investors at the moment?

From a long-term perspective, Mexico is an attractive market given its young population, strong household formation, and increasing GDP per capita. In the coming years, there will be a strong demand for housing and continued growth in job generation which will result in greater demand for offices. If current consumption levels continue on an upward trend, we will also see more demand for retail. Industrial will also continue to grow as trade and FDI increase. However, there are certain challenges that we need to overcome. Market prices are overheated, and I expect to see an adjustment in prices sometime in the midterm. We have been in a growing market since 2009, which is possibly the longest uptrend I have ever seen, and prices for assets are extremely high. Overall, I see a positive long term and a cautious short term in the real estate market in Mexico.

What opportunities or challenges does this price adjustment present for MIRA?

Fortunately, MIRA is capitalized; we placed an investment project certificate (CerPI) for the first time, and thus far it is the only CerPI in the market in 2017. We will have a long time to invest that money. An adjustment would, therefore, be positive from that perspective. In terms of our ongoing projects, we have a large portfolio that is in operation, and those assets would be impacted negatively in the short term; however, given our long-term perspective we would be able to keep up the business without any problems.

What are the advantages and disadvantages of issuing a CerPI against other possible financial vehicles for the real estate market?

There are multiple options in the public market, including submitting an IPO, which we did not consider because in our business it is not common to see companies going public. This left us with certificates of development capital (CKD) or CerPIs. Most of our assets are designed for sale, and FIBRAs are designed for income-producing assets, which are only a portion of our portfolio. To raise capital for our business, we could go private with individuals, though that is so capital-intensive that the amount of money that is needed is significantly greater than individuals are able to fund. We needed to go to institutions, which are CerPI or the CKD. CerPIs required that we co-invest at least 30% of the fund with financial institutions, and in exchange, there is greater discretion over the type of investments that one can make. Furthermore, at that time there were 25 CKDs ahead of us

Why did you focus on mixed-use developments, and do you foresee this becoming the norm in the market?

In fact, we call them communities because our projects are huge; for example, one had 1,300 residential units and 100,000sqm of office and retail space. Often, there are mixed-use projects that are just one building with many uses. In our case, we develop a real community with multiple buildings and multiple uses. For the scale of projects that we do, we always mix, and it always makes sense to mix uses to build a more attractive environment. For example, in the project Neuchatel in Polanco, there will be a 300m-long pedestrian mall with stores, restaurants, and buildings around it providing shade and a secure environment. Given that our company works to develop large communities, we foresee them continuing to be mixed-uses

How do you make sure the entire project is integrated with the rest of the city and is accessible through different means of transport?

A great deal of what we focus on is the city dynamics. We want to be where there is infrastructure, job generation, and schools, and that is what we look for: old factories or large tracks of land. We do not want to develop outside the urban ring. During the site selection process, we look for areas that have excellent transportation, infrastructure, schools, and jobs.