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Weekly Roundup | 04.02.2024

Our pick of headlines this week impacting commercial real estate in the emerging markets.

 
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Headlines:















 

Global



A surge in demand for electricity to feed data centers and to power an artificial intelligence revolution will usher in a golden era for natural gas. AI’s soaring energy needs will rise well beyond what renewable energy and batteries can deliver making oil, gas, and coal crucial even as governments vow to slash their use. Solar and wind will not power the world some are aggressively attempting to manifest.


Data centers' voracious power needs are set to rocket, as cloud storage facilities, crypto mining and AI all add strain to grids. Microsoft alone is opening a new data center globally every three days.



China’s middle class invests more in real estate than its peers. The real estate collapse will therefore have a disproportionate impact on the spending power of consumers and have knock-on effects. The 2008 housing crisis in America was relatively short-lived. China’s property woes will not abate as quickly, as it built too many residential units to inflate its GDP and signal to investors to continue to pour money into the country. Even the entirety of China’s 1.4 billion population can’t fill all its vacant homes.


chart showing % of chinese citizens who own property compared to peers


Skeptics say Blackstone has raised billions to buy real estate and is now stuck holding plenty of properties it paid too much for. Blackstone pitching its book or presenting sincere beliefs from the mega investor?


  • “Now is the time to invest in property, as real estate prices have already bottomed out and will soon start to recover.”

  • “Perception is so negative, the headlines are negative, yet the value decline has occurred."

  • “I'm not saying there is some V-shaped recovery, but when you get into this bottoming period, that's when you want to move.”

  • "As investors, you miss it by being overly cautious and I think now is probably a good time before rates come down, to move.”

  • “Real estate has obviously been hit by two big forces here, one work from home, which has really hit the office sector and the second is rising interest rates, which has caused cost of capital to go up and multiples in real estate to come down.”

  • “We're seeing cost of capital start to come down, spreads are starting to tighten, and new construction's coming down dramatically, so in sectors that we like - logistics benefiting from e-commerce, digital infrastructure, student housing, hotels - we think there are opportunities.”





Bank of America Corp.’s Chief Executive Officer Brian Moynihan said it’ll take time for the banking industry to work through issues with commercial real estate loans, after a New York regional lender alarmed investors with its exposure in the troubled sector.

“Commercial real estate is a slow burn — it’s a classic burn,” Moynihan said in a Bloomberg Television interview Tuesday from the bank’s trading floor. “The trading attitude, which is these assets have to move at a price tomorrow morning, isn’t the way the banking system works.”



 

Latin America



A BBC reporter urged President Irfann of Guyana to slow down oil extraction because the practice would produce two billion of tons of carbon emissions. His response?

“Let me stop you right there… do you know that Guyana has a forest that is the size of England and Scotland combined? The forest restores 19.5 gigatons of carbon… the forests that we have kept alive." He continued, “[d]oes that give you the right to lecture us on climate change? I’m going to lecture you [finger pointing] on climate change because we have kept this forest alive that restores 19.5 gigatons of carbon that you don’t value, you don’t pay us for, that the people of Guyana have kept alive. Guess what? We have the lowest deforestation rate in the world… and will still be net zero even with all the oil extraction planned.”




The United States will partner with Mexico to explore semiconductor supply chain opportunities, the State Department said on Thursday, as the Biden administration pushes to reduce reliance on China and Taiwan for the technology. The collaboration will take place as part of the U.S. CHIPS Act, a 2022 law that created a $500 million fund for developing the semiconductor supply chain through initiatives with allies and partners. The partnership will begin with an assessment of Mexico's existing semiconductor industry, regulatory framework and workforce needs, the department added.



Mallplaza is a shopping mall ownership company controlled by Falabella, a major Chilean-based retailer operating throughout Latin America. Mallplaza operates 26 malls in 17 cities in Chile, Peru and Colombia. The new mall in Cali has a GLA exceeding 60,000 square meters (i.e., 650k square feet) and opened with 91% of its GLA leased. The mall is anchored by IKEA, which is the first in Cali, as well as other top brands such as Zara, H&M, Bershka, Stradivarius, Decathlon, Homecenter, and others. 


Packed mallplaza mall opening in Cali Colombia with IKEA in March 2024
 

Africa



Real Estate Investments Zambia (REIZ) Plc, the sole real estate company listed on the Lusaka Securities Exchange (LuSE), has announced the acquisition of three shopping malls for $65 million. The deal is part of a corporate restructuring that aims to create Zambia's first real estate investment trust (REIT). Acacia Park, Jacaranda Mall, and Lewanika Mall join REIZ Plc from LM&C Properties Limited, a real estate development company owned by businessman Diego Casilli. Casilli owns nearly 60% of REIZ Plc via LM&C Properties Limited.



The Moroccan government gave the green light on Friday for Chinese electric battery maker, BTR New Material Group, to build a factory near Tangier to produce key component cathodes. The plant, to be built at a cost of 3 billion dirhams (i.e., $300 million), will have a production capacity of 50,000 tonnes, Morocco’s investment ministry said. The first output of 25,000 tonnes is expected in September 2026, the ministry said in a statement following the signing of the investment deal with BTR.



Derrick Roper is the CIO of the Novare Group, and MD of Novare Equity Partners, a leading real estate private equity firm that invests in sub-Saharan Africa (x-South Africa) real estate. Derrick discusses the history of South Africa’s pension industry investing in real estate in Africa, as well as current interest in investing in commercial real estate from Africa’s pension funds.


 

Southeast Asia



Xi Jinping has hardened his stance against the Philippines’ attempts to assert sovereignty over its portion of the South China Sea. Last year tensions escalated when on November 10, 2023, China employed a water cannon against a Philippine vessel. Shortly thereafter on December 10, 2023, the communist nation rammed a Philippine vessel in waters widely believed to be justly owned by the Philippines. The CCP is ignoring international law and the aggression is due to President Marcos’ proactive defense of Philippine sovereignty, which is in contrast to former President Duterte who acquiesced to China and ignored CCP incursions in favor of avoiding conflict.



In 2023, German investments in Vietnam soared culminating in 463 projects with registered capital invested sitting at $2.7 billion. This made Germany the 17th largest investor in Vietnam for the year. Of the 500 active German enterprises in Vietnam, over 100 have been active in manufacturing in the communist nation since 1993.



New apartment supply is limited in the economic hub in the south of Vietnam. Only two multifamily projects were approved in 2022-23, and only one thus far this year. Approval of real estate projects often face legal challenges and corruption concerns are top of mind for developers. These extra costs, as well as heavy-handed regulations, are likely the cause of low interest in building new supply. Multifamily projects face more scrutiny due to additional layers of oversight on housing Hanoi imposes on developers.

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