Macquarie Mexico IPO Offers REIT Where Murder Reigned
The biggest real-estate investment trust to go public in Mexico is staking its success on the city most ravaged by the nation’s drug war.
The 14.7 billion peso ($1.2 billion) initial public offering from Macquarie Group Ltd. (MQG) is the first Mexican REIT to focus on northern Mexico, with the biggest share of its holdings in Juarez, where the homicide rate peaked at 230 per 100,000 residents in 2010, according to a prospectus. Macquarie Mexico Real Estate Management SA, which priced its IPO yesterday, will allocate 16 percent of its portfolio to Juarez, while 76 percent of the properties overall are in the northern border area used as a corridor for cocaine and marijuana shipments to the U.S.
REITs are drawing investors because they can provide cheaper, more abundant funding than the mortgage market, where rates still hover above 10 percent. The Macquarie IPO will bring financing to a region still recovering from a surge in drug-gang fueled crime. While the bloodshed deterred new tenants, most established companies held their ground during the most violent years, setting the stage for growth as the pace of killings slows in Juarez, said Eduardo Guemez, who manages about $400 million in Mexican properties for LaSalle Investment Management.
“New tenants were reluctant to even consider Juarez” because of the crime, said Guemez, whose holdings include industrial properties in the border city, in a telephone interview from Mexico City. With crime declining, companies are likely to reconsider their aversion to Juarez, because it’s “an extremely important and strategic city” for manufacturers.
Paula Chirhart, a New York-based spokeswoman with Macquarie, declined to comment on the trust’s investments in northern Mexico.
Macquarie Mexico Real Estate Management rose 0.2 percent to 25.04 pesos on its opening day in Mexico City trading. The shares were sold at 25 pesos each in an offering that raised 12.8 billion pesos, and the total may climb to as much as 14.7 billion pesos including the so-called greenshoe option for underwriters to buy additional shares, according to a stock exchange filing. The share price was at the bottom of the proposed range of 25 pesos to 29 pesos.
The trust’s initial portfolio was appraised at $1.41 billion to $1.51 billion by Colliers International, the prospectus said. After Juarez, the second-biggest holding by city was Reynosa, which like Juarez sits across the border from Texas and accounts for about 10 percent of the portfolio.
Rents on industrial properties in Mexican border states are down as much as 20 percent since their peak in 2007, according to Prudential Real Estate Investors. That compares with a decline of 15 percent for U.S. industrial rental space from that year, CBRE Group Inc. data show.
Murders in Juarez dropped 63 percent in the first 11 months of the year, according to data compiled by the state prosecutor’s office. There were 27 homicides last month in the city of 1.3 million people, the fewest since at least 2008, according to the data, which doesn’t account for missing people and other unsolved crimes.
The Sinaloa cartel’s move to seize the city from the Juarez gang helped fuel an uptick in murders that peaked in 2010, when it registered massacres of more than a dozen people at a time and killers sometimes beheaded their victims before leaving their bodies to fester, according to the Mexican government’s public security ministry.
In January of that year, gunmen stormed a party and killed 15 people, many of them children. That May, a groom was kidnapped and slain on his wedding day. In July, the drug war escalated as a car bomb was detonated.
The index of violent crime has fallen since the July 2011 capture of Jose Antonio Acosta Hernandez, one of the Juarez cartel’s leaders, an arrest that then-President Felipe Calderon called the government’s biggest victory yet in the city. Acosta Hernandez, or “El Diego,” was sentenced this year to life in a U.S. prison in connection with the killing of a U.S. consulate worker in Juarez, also in 2010. He confessed to ordering more than 1,500 executions.
“It seems like the very dangerous levels” of crime are retreating, Mario Copca, an equity analyst at Mexico City-based Metanalisis SA, said in a telephone interview. “The Macquarie IPO could be a good opportunity, above all because it’s in a region with factories that are essential for Mexico.”
The Macquarie offering adds to a Mexican REIT market that has more than tripled in size this year, according to market capitalization data compiled by Bloomberg.
Fibra Uno Administracion SA, whose properties include shopping malls and office buildings, sold shares in an 8.9 billion peso follow-on sale in March, and hotel owner Concentradora Fibra Hotelera Mexicana SA carried out a 3.6 billion peso initial public offering last month. That helped push the total market capitalization of the industry to 34 billion pesos.
Trustee Asesor de Activos Prisma SAPI has also filed to carry out an IPO in Mexico.
Buyers interested in investment properties have been drawn to the nation’s REITS as some mortgage rates dipped below 10 percent this year. While rates are down from near 13 percent in 2009, Copca said the cost of financing remains prohibitive.
The 10.1 percent expansion in the Mexican mortgage market in September was outpaced by overall bank lending in the country, which expanded 12.5 percent in the 12 months through September, according to the nation’s securities and banking regulator. Credit card debt grew at 16.3 percent, according to the regulator known as CNBV.
Geoffrey Pazzanese, who helps manage $750 million at Federated Investors Inc. including Mexican stocks, says he’s avoiding investments with high exposure to the U.S.-Mexico border, and recent data isn’t enough to allay his concerns about security in the region.
“The perception is that the violence will continue to be an issue for some time,” Pazzanese said in a telephone interview from New York. “It’s going to take some years for market perceptions to change around that front. In terms of our thinking about it, we’re trying to avoid companies with a lot of assets in the border area.”
The most recent Mexican government date available, which was last released in 2011, shows at least 47,500 had been killed in drug violence since ex-President Calderon took office vowing to crack down on the drug trade. Other sources say the figure is much higher, with Mexico City-based newspaper Milenio estimating 11,412 people have died this year alone from the drug violence, pushing the total to 58,398 since December 2006, according to a Dec. 1 report.
President Enrique Pena Nieto took office on Dec. 1 pledging in part to reduce Mexico’s violence, without saying how he’d change Calderon’s military-based approach.
The peak in drug-gang violence hit northern Mexico as the region was still smarting from the U.S. recession, which helped cause a 6.2 percent contraction in Mexico in 2009. Latin America’s second-biggest economy will expand 3.5 percent next year, its fourth straight year of growth, according to the median estimate of 24 economists in a Bloomberg survey.
Rodrigo Meza, a portfolio manager at Prudential Real Estate Investors, which oversees about $2.6 billion in Mexican properties, says Juarez and other northern markets are starting to beat the stigma that held back the market’s recovery after the U.S.-fueled recession.
“We have seen an industrial recovery in northern Mexico,” Meza said by phone from Mexico City. “The appetite and the understanding of the Juarez market is getting better and better.”
To contact the reporter on this story: Jonathan J. Levin in Mexico City at firstname.lastname@example.org