GlobeSt.com: What was the primary motivating factor behind your alliance with Cyrela?
Reilly: This is our official entry into the market, which is the largest in Latin America. Brazil has over 190 million people. It has a huge economy, bigger than Mexico's. For four or five years our customer base has been asking us to give them access to Brazil. They've been very frustrated. The large multinational logistics companies haven't been able to go in there because of the lack of modern distribution centers. We're enthusiastic about the potential.
GlobeSt.com: What makes Brazil attractive?
Reilly: Brazil has a good balance of trade. Its sovereign debt was made investment grade earlier this year. That's very significant and a sign of a stable and growing economy. Previously Brazil had a lot of economic dislocation, but recently they've demonstrated they're managing the economy much, much better. They're also energy independent, which is very important today. And then the same reasons that brought us into Mexico brought us here: the big population centers. São Paulo and Rio have 20 million and 15 million people, respectively. And in both those markets, there's very constrained land and very low existing stock. Brazil is actually more underserved than Mexico, and we see tremendous opportunity in delivering Class A space to these markets.
GlobeSt.com: Why did you opt for a Brazilian partner rather than going in on your own?
Reilly: Brazil is very complex. All real estate is a local, but in Brazil you can put a capital L to the word local. We believed that working with a quality local partner is going to get us started on a much stronger footing.
GlobeSt.com: Why Cyrela?
Reilly: It's a very good corporate fit. Cyrela is the largest residential developer in Brazil. It's very strong financially and also shares the same environmental awareness that AMB does. But CCP has been focused on office and retail, not distribution. They own a few distribution centers, but it's not their area of expertise. So there's good synergy. CCP brings a solid local presence and expertise on construction. We bring knowledge of the distribution market. We think we've found a great partner, and we're going to run fast.
GlobeSt.com: How fast is fast?
Reilly: Time will tell how fast we can move. The good news in terms of supply and demand is that there's a lot of demand but little land. That makes our job tough, but we'd much rather work in that type of market because if it's difficult for us, it's difficult for our competitors, so values are likely to stay strong. But we want to move as fast as we can. We think rates of return will decline, so we want to move quickly.
GlobeSt.com: Will you be focusing most on the consumer or export market?
Reilly: Brazil is a net exporter, mostly of commodities, but we'll focus on the consumer market. Though there will probably be a manufacturing play at some point, initially 100% of our focus will be on distribution space to serve the growing consumer market.
GlobeSt.com: Is this a step toward entering other South American markets?
Reilly: We've certainly considered other countries, but in South America, Brazil is by far the biggest opportunity. Santiago and Buenos Aires will probably be the next beachheads, but I don't think you'll see a press release anytime soon. At this point, we're in all the major international markets we want to be in.
Next week check out GlobeSt.com's industrial page for part two of this interview.
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
