ADVERTISEMENT

Uruguay Malls Too Hot to Sell as Returns Beat Latam Peers

Uruguay Malls Too Hot to Sell as Returns Beat Latam Peers

(Bloomberg) -- Uruguay’s mall owners are refusing overtures from foreign investors, preferring to hold on to the centers, which are proving to be one of the safest bets in the country, according to its largest mall developer.

Some shopping centers in the capital Montevideo pay annual returns of around 5%, even amid meager growth in the rest of the economy. That’s high enough to have drawn the attention of would-be buyers from countries such as Argentina and Chile, said Carlos Lecueder, senior partner in real estate management and developer Estudio Luis E. Lecueder. The most recent approach came last month from a North American institutional investor, said Lecueder, who declined to name the firm.

Uruguay Malls Too Hot to Sell as Returns Beat Latam Peers

Local investors “prefer to keep what they have,” said Lecueder, whose firm manages eight malls in which he is also a minority shareholder. “It’s not easy to obtain safe assets that pay good income in today’s world.”

The interest comes at a time when U.S. and European investors are cashing out of real estate funds, highlighting the pressure that retail properties have come under as consumers embrace the convenience of online shopping. South American malls have proved resilient to e-commerce because families and office workers view them as convenient destinations for entertainment, shopping and dining, according to Marcelo Motta, a Latin America retail analyst at JPMorgan Chase & Co.

With high free cash flow, average returns of about 2% that should rise as companies expand their leasable area, and a stable business model, they could prove attractive to foreign investors, he added.

“The fact that interest rates will continue to be low all over the world will force different types of investors to look at malls as an opportunity,” Motta said.

Lecueder, whose father opened Uruguay’s first mall in 1985, manages a real estate portfolio that includes a World Trade Center-branded free-trade zone and a Hilton Garden Inn hotel. His stable of shopping centers will soon expand to 10 with a $30 million mall set to open in Montevideo in the second half of 2020, and construction of a $12 million mall-bus terminal complex in Lavalleja Province.

Uruguay Malls Too Hot to Sell as Returns Beat Latam Peers

Uruguay’s malls aren’t completely insulated from the broader economy, which grew about 0.5% last year, according to the central bank. President Luis Lacalle Pou, who started his five-year term March 1, faces the challenge of cutting the government’s deficit without hurting a fragile economic recovery. Shopping centers might also be vulnerable to a possible slowdown if coronavirus arrives in Uruguay.

Sales at shopping center stores, excluding new retail establishments, fell as much as 5% last year, a number that Lecueder expects to bottom this year before improving in 2021 as the economy expands at a faster pace. He’s watching for retail sales data to evolve over the next year before committing to new malls or expansion projects.

“Our fortunes are tied to the government’s success with the economy -- we need the general public to have disposable income,” he said. And when Uruguayans have it, “we’ll take care of selling them stuff.”

To contact the reporter on this story: Ken Parks in Montevideo at kparks8@bloomberg.net

To contact the editors responsible for this story: Carolina Millan at cmillanronch@bloomberg.net, Christine Maurus

©2020 Bloomberg L.P.