Blackstone Buys Stake in Brazil’s Alphaville From Gafisa

Blackstone Group LP and its Brazilian partner agreed to buy a stake in the country’s largest residential land developer, betting that the appeal of its gated communities will withstand a slowing in home prices.

Blackstone and Patria Investimentos Ltda. jointly will buy 70 percent of Gafisa SA’s Alphaville Urbanismo residential-development business for 1.4 billion reais ($651 million). The transaction values Alphaville at 2 billion reais, Sao Paulo-based Gafisa said today in a statement.

The transaction is the first real estate deal to come out of Blackstone’s 2010 investment in Patria. The New York-based private-equity firm is banking on growing demand for housing and Alphaville’s brand luring buyers as Brazil’s torrid home-price growth eases. Prices in 16 Brazilian cities rose almost 14 percent in 2012, after a 26 percent jump in 2011, data from FipeZap show. In the 12 months through May, prices rose 12 percent, down from 20 percent a year earlier.

Alphaville is “a well-managed, high-potential Brazilian company, primed to capitalize on the country’s increasing growth and development,” Jonathan Gray, Blackstone’s global head of real estate, said in the statement.

The Alphaville purchase, expected to be completed in the second half, is Blackstone’s first investment in the Brazilian residential real estate market, aside from assets it inherited when it took over a Bank of America Corp./Merrill Lynch & Co. portfolio during the credit crisis. The company has spent about $4.5 billion in the U.S. to purchase 26,000 single-family homes to rent.

Reducing Debt

Gafisa also will buy the 20 percent stake in Alphaville it doesn’t already own for 367 million reais, allowing it to keep a 30 percent stake in the company, according to the statement.

Gafisa will use the proceeds to reduce its ratio of net debt to assets to 53 percent, from 94 percent at the end of the third quarter, and to buy land to build new projects, both for Gafisa and its low-income unit, Tenda, said Andre Bergstein, Gafisa’s chief financial officer.

“The deal allows us to balance the need to raise cash without having to let go of an asset with very high returns,” Bergstein said in a telephone interview.

Shares Fall

Gafisa fell as much as 11 percent amid a slump in Brazilian stocks after initially rallying 5 percent. The shares fell 9 percent at 3.69 reais at 4:47 p.m. Sao Paulo time.

“The market was already mostly pricing in this transaction and the price paid for Alphaville is in line with market expectations,” Eduardo Silveira and Frederico Mendes, Sao Paulo-based analysts at Espirito Santo Investment Bank Research, said in a report today.

Alphaville, founded in 1973, develops gated communities outside city centers. The company acquires rights to develop residential lots from landowners, typically farmers, in exchange for a share of the proceeds from the eventual sale of properties, then readies the land for building by supplying utilities and common areas such as clubhouses before selling to homeowners, who are then responsible for hiring builders.

Alphaville has a pipeline of about 13 billion reais of land in the process of being prepared for development, according to today’s statement. Blackstone and Patria said they will keep Alphaville’s management team, led by Marcelo Willer.

Gafisa, seeking to reduce debt, began exploring ways to raise cash from Alphaville in September.

“The transaction will allow our shareholders, through the 30 percent stake in Alphaville, to participate in the long-term value creation we believe will be produced by partnering with two leading investment firms with global and local experience in the real estate sector,” Duilio Calciolari, Gafisa’s chief executive officer, said in the statement.

Renato de Albuquerque and Nuno Luis de Carvalho Lopes Alves will step down from Alphaville’s board when Gafisa completes its acquisition of the 20 percent stake.

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