- They seek income in dollars from Sunshine State properties
- Rental portfolios, commercial leases and hotels are options
Brazilian investors, seeking an alternative to their country’s risky real estate market, are returning to Florida to invest in property and establish a source of income in dollars.
A second home in Miami has been a popular option for decades for Brazil’s wealthy, but new options are also becoming available to help investors hedge currency risk and take advantage of better conditions than they encounter at home. Back in Brazil, the economic crisis and rising unemployment have sent rents down 5.2 percent in the past year, and it’s difficult and time-consuming to remove tenants who can’t cover their leases. Rents in Miami were stable in the first half of the year, according to Integra Realty Resources.
In the U.S., “if one of these families stop paying, you have legal support to enforce the contracts,’’ said Fernando Fiuza, managing director of TRX Residential, which is looking for wealthy Brazilian individual investors to help TRX almost double its $140 million portfolio in the U.S. “In Brazil it is the end of the world to evict someone.’’
The decline in rent, coupled with inflation of about 9 percent in Brazil in the past year, resulted in a 4.4 percent rate of return, an all-time low, according to data compiled by researcher FIPE and real estate website Zap Imoveis.
“Everybody is renegotiating rental contracts down and not up” in Brazil, said Alessandra Ourique, a partner specializing in real estate at Hesketh Advogados law firm in Sao Paulo. “Not to mention defaults.”
In contrast, the U.S. market has shown resilience. Demand for apartments has been boosted over the past decade by former homeowners who lost their properties when the housing bubble burst and by millennials more inclined to rent than buy, said Ryan Severino, chief economist at Reis Inc.
Brazilians were third among foreigners searching for South Florida real estate in June, according to the Miami Association of Realtors, after Colombians and Venezuelans. Brazil had dropped as low as fifth place this year in the group’s monthly rankings after routinely leading the list from late 2014 through the end of last year.
South Florida has long held allure for Brazilian investors. In Brazil’s economic heyday, the country’s elite -- flush with savings from a booming currency -- flocked to luxury condominiums in and around Miami. But that market has since softened, with inventory mounting at new towers. The difference now is that instead of buying condos as second homes, some wealthy Brazilians are investing in property management.
The average vacancy rate across the U.S. is at 4.5 percent now, while Miami is at 4.9 percent, Severino said.
TRX has already bought two multifamily properties with a total of 510 apartments, one in Palm Beach and another one in Broward County, and is aiming to expand its assets to about 1,500 units. The first units were bought with its own resources, and now TRX is looking for co-investors -- wealthy Brazilians willing to put up at least $1 million. The idea is to raise $30 million, or 25 percent of the total investment, and finance the rest locally through loans.
“That has become really popular, especially in Miami,’’ Reis’s Severino said. “If you are a wealthy individual, instead of buying one condo for that amount of money, you contribute with some other wealthy people into a fund. And then all of a sudden, instead of you just owning a condominium that sits empty for most of the year, you have a share of a rental stream from larger multifamily properties that start paying income right away.’’
TRX is focusing on South Florida suburbs, as well as Orlando, Tampa and Jacksonville. It is looking into buildings built from the 1970s to the 1990s with the goal of refurbishing the units and increasing the rental prices as much as 25 percent, Fiuza said. Between the rental income and the upside from selling the assets after renovations, in three to five years, properties should generate annual yield of 8 percent to 10 percent for investors, he said. The U.S. residential unit is part of TRX Group, which has a portfolio of 5.6 billion reais ($1.74 billion) mainly in logistics and infrastructure facilities in Brazil.
Severino said the projected yield numbers are fair and that he likes TRX’s strategy, as there is a lot of demand for cheaper rentals in suburbs and older buildings.
“Not everybody wants to rent a brand new apartment,’’ he said. “There are a lot of people who are consistently renters who can’t afford these brand new sexy, shiny new apartment buildings and they also need a place to live.’’
Commercial real estate and hotels in the U.S. have also became attractive options for Brazilian investors because the assets offer a steady stream of revenue, said Daniel Ickowicz, a partner at Elite International Realty.
South American clients are especially fond of triple-net leases, in which the tenant -- normally a big retail or fast-food chain -- is responsible for taxes, insurance and maintenance in long-term contracts, reducing management needs to virtually zero, Ickowicz said.
Elite, which has been in the Miami residential market for 25 years, opened a unit specializing in commercial real estate five years ago and has racked up $100 million in sales to wealthy South American investors since then. Eighty percent of its clients are Brazilian, Ickowicz said.
Driftwood Acquisitions & Development LP, the real estate asset management unit of the hotel chain operator, is also turning to Latin American investors. Regional manager Ariel Yaari will do three presentations in Brazil in September to show the benefits of investing in hotels owned and operated by his company. He said returns can reach as much as 15 percent per year.
“We’re looking for Latin American investors because we think this is a favorable moment for those looking for diversification, safety and an interesting profitability in dollars,” Yaari said in a phone interview from Miami. “It is an investment that carries a risk, of course. But it is a low risk, because we are talking about a mature market.”