Institutions are not missing out on the increased activity.
Some investors are making commitments to funds that will at least include Brazil in their real estate investment itineraries. In May, the $2.7 billion San Antonio Fire & Police Pension Fund committed $10 million to Paladin Realty Latin America Investors V. Last year, the Michigan Department of Treasury, Bureau of Investments, committed $50 million to Paladin's Latin America Investors IV-CI on behalf of the $60 billion State of Michigan Retirement Systems, Lansing. Both investmeMichigan Retirement Systems, Lansing. Both investment funds invest in Brazil.
In the past eight months, the $20 billion San Francisco City & County Employees' Retirement System committed $50 million and the $2 billion Phoenix City Employees' Retirement System committed up to $25 million to HSI Real Estate V managed by Hemisferio Sul Investimentos, a real estate firm based in Sao Paulo that invests in Brazil.
San Francisco pension fund executives declined to discuss their reasoning for investing in Brazilian real estate because the board made its investment decision in closed session, said Norm Nickens, retirement board secretary, in an e-mail.
The city of Phoenix retirement system's board made the investment to diversify its real estate portfolio, which accounts for 13% of total assets and has a 15% target allocation, noted Mark Bartmann, a consultant at RVK, the fund's general investment consultant, according to minutes of the board's Oct. 15 meeting when it made the commitment.
Approximately 25% of Phoenix's real estate investments are outside the U.S., with three investments in the Asia-Pacific region and three in Europe. The HSI commitment was the city retirement system's first in Latin America.
Some of the world's largest asset owners are investing directly in Brazilian real estate.
Foreign investors including European pension funds, sovereign wealth funds and U.S. corporate pension funds that didn't have a presence in Brazil 10 years ago now have offices, said Ken Wainer, founding partner of VBI Real Estate, Sao Paulo. He declined to identify the funds. Among the asset owners that have set up shop in Brazil to invest in real estate there are the Canada Pension Plan Investment Board, which manages the assets of the C$278.9 billion ($213.8 billion) Canada Pension Plan, Ottawa, and GIC Real Estate, the real estate investment arm of Singapore's sovereign wealth fund with more than $300 billion in assets.
“They are here to stay and are often the high bidder,” Mr. Wainer said.
The real estate investment picture has changed dramatically in Brazil because investment capital is scarce and prices are low, he said.
Investors that flocked to Brazil with high expectations after the financial crisis have left disappointed, Mr. Wainer said.
“There's been a lot of bad news generated from too much in the way of expectations,” Mr. Wainer said. “People forgot that Brazil is an emerging market ... There was a lot of capital coming in looking at Brazil's growth rate.”
With many of those investors gone, Mr. Wainer added, “I have not felt this good about investing in Brazilian assets since 2005.”
VBI has around 1 billion reals ($304 million) of equity deployed across the residential, retail, industrial and office sectors in Brazil and $954 million in total commitments since 2006.
Josh Pristaw, senior managing director, co-head of Brazil and head of capital markets in the New York headquarters of real estate investment firm GTIS Partners, agreed. “It's an interesting time to invest at cyclically low prices in local currency and in dollars,” Mr. Pristaw said.
“You can buy an asset at 40% less than what you paid three to four years ago in local currency. In (U.S.) dollars, it is even cheaper,” he said.
GTIS has about $1.1 billion invested in Brazil.
For those brave enough to invest in Brazil, there is very little competition to provide equity and debt, Mr. Pristaw said.
“It's a unique moment,” he said. “There's not a lot of capital in the market ... and there are few players that have the competence and the capital to invest in Brazil.”
What's more, Brazilian public companies, including office owners and builders, have balance sheet issues because of the lack of credit in the country and therefore, are no longer the stiff competition they once had been, said Tom Shapiro, New York-based founder, president and chief investment officer of GTIS.
They are selling properties to raise capital, he said.
This is a big difference from 2010 and 2011, when Brazil was hailed as one of the fastest-growing economies in the world. Investors rushed in to take advantage of the country's expected continued growth.
“One of the things that happened in Brazil is people (managers) sold Brazil to investors and asked questions later,” Mr. Shapiro said.