BTG Funds Seize Pandemic Opportunity to Buy Brazil Real Estate

(Bloomberg) -- Funds managed by Banco BTG Pactual SA have become the biggest buyers of commercial real estate in Brazil, taking advantage of unique opportunities and attractive prices caused by the Covid-19 pandemic.

BTG funds spent 3.59 billion reais ($658 million) on logistics centers, office buildings and mortgage-backed securities this year, after raising more than 4 billion reais from investors, the most in the industry, according to Michel Wurman, the partner responsible for real estate investments at the Sao Paulo-based bank.

“We are at top speed, taking advantage of the crisis,” Wurman said in an interview. “This is the chance for us to buy properties that are irreplaceable.”

Real estate funds have plenty to work with these days in Brazil. With interest rates at record lows, investors are pouring money into opportunities that promise higher yields. Publicly traded real estate funds raised 18 billion reais on the primary market this year in Brazil, according to B3 SA - Brasil, Bolsa, Balcao.

Flush with cash and with no need for leverage, the funds have become the main buyers of commercial properties in Brazil. Those funds are responsible for about 90% of the 8.5 billion reais in top-rated office buildings expected to be sold in Sao Paulo city and Alphaville this year, according to estimates from CBRE Group Inc., a commercial real estate firm. Last year, the funds were responsible for 40% of the 9.1 billion reais sold, CBRE said.

“In the past, the commercial real estate market in Brazil was a market for four or five gringos and very few local players, and now that has changed completely,” Wurman said.

Brazil’s currency volatility has persuaded foreigners to stay away from the nation’s real estate markets, according to Antonio Wever, a partner at Patria Investimentos SA, one of the biggest alternative-investment firms focused on Latin America. The real fell about 26% this year against the dollar, the biggest drop among major currencies.

Wurman said March was “hell” for real estate as the pandemic intensified, but BTG opened up the market in April with an offer to buy Diamond Tower, an office building in Sao Paulo that’s part of the Morumbi shopping complex.

“The chance to buy an asset of this quality, with such top-tier tenants, appears only in a crisis,” Wurman said.

FII BTG Pactual Corporate Office Fund paid 840 million reais for the tower and negotiated two years of guaranteed minimum income for the fund, he said, adding that those agreements are common in times of crisis.

A minimum-income agreement was also negotiated for the 1.2 billion-real acquisition from Brookfield Properties Group of EZ Tower B, a top-rated office building in Chacara Santo Antonio in Sao Paulo. Separate acquisitions this year include three logistics warehouses developed by GLP in Jundiai, a city close to Sao Paulo, for 500 million reais. Other deals totaling 400 million reais gave BTG’s funds several other distribution facilities from companies including Natura Cosmeticos SA and BRF SA.

Another big investment was by the BTG Pactual Logistica FII fund in a development project at the former site of an iconic Ford auto factory in Sao Bernardo do Campo, along with Aurea Asset Management, Construtora e Incorporadora Sao Jose and wealthy clients from Credit Suisse Group AG’s wealth-management business in Brazil. The 1.1 billion-real project to be developed there will include 12 logistics facilities totaling 460,000 square meters (4.95 million square feet), located 10 kilometers (6 miles) from Sao Paulo’s city center. BTG funds’ portion of the investment is 250 million reais.

BTG funds have also purchased about 400 million reais in mortgage-backed securities this year.

The bank manages 11 billion reais in real estate funds in Brazil and 17 billion reais including Chile and Colombia.

Wurman said prices for the highest-quality office buildings in the most sought-after areas in Sao Paulo slumped as much as 20%, and have rebounded to levels 5% to 10% below where they were before the pandemic.

Hotels and shopping malls were “slaughtered” during the lockdowns, he said. “But that doesn’t mean there are no opportunities to buy in those sectors, because prices are so depressed and there are some people with huge cash needs.”

Shopping centers performed “pretty good” after reopening, and expectations for next year are for a full recovery, Wurman said.

The bank expects to start an agricultural real estate fund, and plans additional share sales for its current funds, with a focus on distribution centers.

“The big winner from Covid was the logistics sector,” Wurman said.

©2020 Bloomberg L.P.