July 31 (Bloomberg) -- Sam Zell’s Equity International may open a real estate financing company in Brazil as record-low interest rates in Latin America’s biggest economy boost demand for alternative investments.

Equity International is seeking partners to grow Brazil’s “still nascent” real estate financing market, Chief Strategic Officer and Vice President of Investments Thomas McDonald said in an interview in Sao Paulo. The real estate investment company hasn’t found a partner yet to begin those operations and may open its own company to provide financing to real estate developers, he said.

Brazil is the “number one country in the world for investments,” billionaire investor Zell said in a CNBC interview July 28. A 5 percentage point cut in Brazil’s Selic interest rate this year to 8.75 percent and a 34-billion real ($18 billion) housing stimulus plan announced by the government in March have boosted demand for residential and commercial real estate investments, McDonald said.

“Real estate specialty financing is a sector that is still nascent in Brazil and there are opportunities here that aren’t being met in a scalable way,” McDonald said. “We haven’t yet found the right platform to do that. At some point we’ll find the right one or we’ll create it ourselves.”

He didn’t give a timeline for when they may begin real estate financing operations in Brazil.

Brazilian real estate financing is still “inefficient,” similar to Mexican markets a decade ago, Chicago-based McDonald said. Real estate financing in Brazil is “tenant-based,” depending on the quality of the tenant, rather than the quality of the property, McDonald said.

‘Jumpstart’

“The banks have to get an understanding of real estate and look beyond the tenant,” he said. “We’d love to help jumpstart that.”

The Brazilian market for so-called CRIs, or asset-backed securities that represent claims to cash flows from rental or leasing deals, totaled 4.9 billion reais in 2008, or 4.8 percent of fixed-income investments for the year, according to Brazil’s association of investment banks known as Anbid.

Real estate companies accounted for 4.9 percent of asset- backed debt, known as FIDCs, issued in Brazil last year, up from less than 1 percent in 2007, according to the National Association of Financial Market Institutions, known as Andima. FIDCs accounted for about 13 percent of fixed income securities issued in 2008, according to the latest data from Anbid.

McDonald expects increased demand for securitized assets such as CRIs and new products such as securitized lease contracts.

Petrobras Leases

“You could buy Nestle credit or Petrobras securitized leases as a way for companies to diversify their portfolio,” McDonald said. “Not only could you invest in Brazil but in high-grade corporate paper.”

Petroleo Brasileiro SA is Brazil’s state-controlled oil company.

Equity International has stakes in Gafisa SA, Brazil’s second-biggest real estate developer, as well as its low-income housing unit Construtora Tenda SA. Equity International has 17.6 percent in BR Malls Participacoes SA, Brazil’s biggest owner of shopping malls, after selling a 10 percent stake in April.

The company also owns shares of Bracor Investimentos Imobiliarios, a commercial real estate developer, and AGV Logistica SA, a transportation and warehousing company.

To contact the reporter on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net.

Last Updated: July 31, 2009 16:58 EDT