Jerónimo Gerard Rivero: Interview

How do real estate investment trusts help facilitate access to the sector?

JERONIMO GERARD RIVERO: These funds have undoubtedly democratised capital and opportunities in the sector. Before these new mechanisms, access to landmark projects was limited to those with sufficient capital and connections. This has changed, and now any developer or contractor can partner with investment funds to partake in such a development. Real estate investment trusts (fideicomisos de infraestructura y bienes raíces, FIBRAs) are now well established in the Mexican marketplace, and regulations have caught up as needed.

The other issue with the Mexican market is its liquidity. For many investors, the quality of FIBRAs are not the highest priority, as we have seen with FIBRA Uno; liquidity is instead the most attractive aspect to investors. The Mexican debt market is efficient, sophisticated and has been well established for over 100 years. Precisely because of the lack of liquidity, the equity market is not as well developed as it should be for the size of the economy. Predictably, liquidity is highly attractive to international investors; we are looking for mechanisms to generate additional liquidity and involve more stakeholders given the high market concentration at the moment. Fortunately, FIBRAs generate significant liquidity in the market, and therefore act as an ideal entry channel for new investors and retirement fund administrators in particular.

What new legislation is needed to strengthen confidence and improve transparency?

GERARD: Above all, fiscal security is the most important factor in strengthening investor confidence. There have been several changes to government fiscal policy in recent years, which is unhelpful for investors, particularly given the existing complexity of the rules. It is also helpful for the authorities to be aware of other countries’ rules in the region and adjust policy accordingly. If Mexico is competing for investment with other big players, such as Brazil or Argentina, it should maintain the same playing field as its competitors, at least in terms of clarity. In conjunction with these issues, a major challenge for Mexico is rule of law. Crime is sometimes brought up as an issue, but institutional strength and rule of law form a solid foundation for the entire planning process and are fundamental in strengthening investor confidence. Without this, advances in policy become less relevant.

These are the most important advances required to ensure that the entire sector’s potential is leveraged. Transparency is improving in Mexico, as it is globally, and the country in general is on a good path despite the existing challenges. The economy also has more risk-adjusted returns, meaning that there are significant returns given the level of risk. To summarise, clarity and certainty are key. We must ensure all aspects of the fiscal policy are made clear and consistent, and that the rule of law is improved.

How can foreign direct investment (FDI) influence the commercial real estate market?

GERARD: For the first time in Mexican history, there are a series of foreign investment pension funds investing directly into the country. Radical change will take a few years to come to fruition, but there has been a noticeable shift in the dynamic of the market. Furthermore, countries in Asia and the Middle East that had never invested before are now doing so. In the past, Mexico was somewhat irrelevant for investors from these regions, but now the country has become a truly global destination for private equity funds. Although these foreign investors have traditionally been focused on commercial real estate, there is more interest in mixed-use developments. Mexico continues to engender strong investor confidence, and together with the US and Canada, it forms a solid economic bloc that is a key destination for FDI and will continue to be a global leader for at least the next 15 years.