Our pick of headlines this week impacting commercial real estate in the emerging markets.
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Headlines:
Global
In this exclusive interview with Dr. David Lynn, a highly regarded author and real estate investment expert, Emerging Real Estate Digest explores the evolving landscape of emerging market real estate investing. Among other texts and articles, Dr. Lynn is the author of "Emerging Market Real Estate Investment," considered by many the authoritative text on the topic for institutional investors and entrepreneurs. This informative interview offers valuable guidance for investors considering opportunities in commercial real estate in the emerging markets.
"And so if you are a foreign investor looking at China, not only do you have all of the domestic things that we've just talked about, you have it against a backdrop of a kind of geopolitical environment where investing in China is a tricky thing to do. Remember, Jake Sullivan, the national security adviser, talked about a small yard with a high fence. That would be the way that the U.S. would approach what it wants to protect from from China. Will the yard maybe be getting bigger and the fence may be getting higher? So what are the what are the new kind of strictures? What are the new controls coming? So I think it's only a slight exaggeration to say that China has sort of become uninvestable for outsiders in, certainly, in many sectors."
Private equity firms are seeing a significant drop in returns as distributions to limited partners only accounted for 11.2% of funds' net asset value, the lowest it has been since 2009. This is well below the median figure of 25% over the last 25 years, according to recent research by an investment bank. The impact on fundraising is already evident, with the median time to raise a new fund now at 21 months, compared to 18 months just a few years ago. Additionally, the number of new funds raised in 2020 dropped 29%. The number of real estate deals involving a private fund or investor reaching financial close slumped 30.8 percent last year to 3,778.
Latin America
A Brazilian court has ruled in favor of SiiLA, a real estate data firm, in a lawsuit filed by CBRE Brazil. The lawsuit aimed to remove an article published by SiiLA that criticized CBRE's business practices in the country. The article alleges that CBRE uses its dominant market position to pressure property owners into signing exclusive contracts, potentially limiting competition and harming property owners. The court's decision upholds freedom of expression and protects SiiLA's right to publish its findings. This case has sparked discussions about potential anti-competitive practices in the Brazilian real estate market and the importance of a free press.
The proposed merger would create a combined entity with 11.6 million square meters (i.e., 124.9 million square feet) of industrial properties with occupancy rates of 98.3%. The industrial mix would be 60% logistics and 40% light manufacturing. The combined Fibra (i.e., REIT) would have a net operating income of about $817 million.
French pen maker, BIC, recently inaugurated its second expansion in Coahuila, Mexico, following a $40 million investment. The expanded capacity will boost the plant’s production to 1.5 billion units of markers, pens, and razors mainly for the North American market. For all of Mexico, the capacity will soon surpass 3.5 billion units annually. Mexico is BIC’s largest foreign manufacturing footprint.
Africa
Amos Houchstein, senior advisor to Joe Biden, has called for an accelerated path to deliver the capital for the Zambia-Lobito Railline extension. Optimistic expectations are that construction on the expanded rail line will commence in 2026.
The U.S. on Monday imposed sanctions on Zimbabwean President Emmerson Mnangagwa, the First Lady Auxillia Mnangagwa, the Vice President Constantino Chiwenga and 8 other senior officials. The United States' Department of the Treasury’s Office of Foreign Assets Control accuses the 11 individuals and 3 entities of being involved in corruption or serious human rights abuse. Mnangagwa is accused of protecting gold and diamond smugglers who operate in Zimbabwe, directing government officials to facilitate the sale of gold and diamonds in illicit markets and taking bribes in exchange for his services, among other offenses. The designations are part of a new sanctions policy towards Zimbabwe the United States is implementing following President Biden’s approval of a new Executive Order terminating the Zimbabwe sanctions program that had been in effect since 2003.
A primary culprit of the malaise in 2024 will be high finance costs due to high interest rates. Listed property shares have recovered from the lockdowns, but property companies face the double whammy of office oversupply and significantly higher costs of financing. High corruption, inexplicable energy blackouts, and a heated election later this year pose further challenges. The good news is there are signs the property market has bottomed out.
Southeast Asia
Global private real estate fundraising in 2023 suffered its sharpest drop in 14 years, tumbling 33.1 percent to $151.3 billion, according to data provider Realfin. The number of private vehicles reaching a final closing recorded the deepest decline of all time, plunging 43.5 percent to 473, London-based Realfin said in its State of the Market report released last week. The result continued a slide commenced in 2022, when the number of unlisted real estate funds reaching a final closing fell 34 percent to 509 as the amount of capital raised dipped 26 percent to $182.3 billion. Asia is capturing a smaller percentage of a smaller pie of real estate investment capital available globally.
Australian Prime Minister Anthony Albanese said the country was elevating ties with Vietnam to a comprehensive strategic partnership, opening an annual dialogue on critical minerals. Australia is a major producer of critical minerals, used in everything from smartphones to automobiles, while Vietnam has some of the largest untapped deposits in the world. The partnership will support expanded cooperation on a range of issues, including climate, environment, energy, defense and security, and economic engagement and education, a joint statement by the two countries said.
U.S. company Kraig Labs, a company producing spider silk, is expanding its operations in Vietnam. They plan to submit a second investment application this month to establish a new subsidiary called Prodigy Silk. This subsidiary is expected to be operational for spring production trials and leverages its proprietary silk technology and expertise.
