23 July 2009

Zell’s Fund Chases Brazil Assets as Economy Recovers

By James Attwood and Nathan Gill
July 23 (Bloomberg) -- Sam Zell’s Equity International is seeking new real estate-related investments in Brazil as record low interest rates accelerate growth in Latin America’s biggest economy.
Equity International is looking to tap Brazil’s “relatively immature” commercial real estate finance business after selling assets in Mexico and Chile, Chief Strategic Officer Thomas McDonald said.

“Right now some of the most interesting investments in the world are in Brazil,” McDonald said today in a telephone interview from Chicago. “We see ourselves making investments in a couple more companies.”

Falling interest rates, political stability and a “solid” currency make Brazil stand out among large emerging markets, McDonald said. His firm’s five investments in the country were worth $718 million as of July 6, or about 56 percent of its global portfolio.

“I am very bullish on real estate,” said Alexander Kazan, vice president for Latin America equities at Auerbach Grayson & Co., a New York-based brokerage. “With long-term rates trending lower and a housing deficit, there is tremendous potential for real estate in Brazil. I would look into the commercial real estate market.”

The central bank lowered the key interest rate by half a percentage point yesterday to a record 8.75 percent, the fifth reduction this year, aiming to boost consumer spending as the economy recovers from its first recession in five years.

Consumer Recovery

Brazil is experiencing a consumer-led economic recovery and investors should add to holdings of domestic cyclical stocks and reduce allocations of “defensive” companies, Banco Santander SA said today. The Spanish bank said Brazil’s economy may grow 3.5 percent next year after no growth in 2009.

Billionaire Zell founded Equity International, which invests in real estate businesses outside the U.S., in 1999 with Chief Executive Officer Gary Garrabrant.
McDonald, 44, plans to travel to Brazil next week for board meetings with some of the fund’s investments, which include builders Gafisa SA, Construtora Tenda SA and BR Malls Participacoes.

“We are looking at specialty finance in Brazil,” McDonald said. “The macro attraction is that it’s a relatively immature real estate finance business.”

Real estate companies are leading a 45 percent rally in Brazil’s Bovespa stock index this year. Gafisa, the country’s second-biggest homebuilder, has doubled in value in 2009 after tumbling 68 percent last year.