Canadian real estate investors with deep pockets discovered Brazil in a big way in 2006, spending billions on commercial real estate in a country that only a few years ago was racked by inflation, hobbled by a weak currency, crushing foreign debt and political instability.

Ivanhoe Cambridge of Montreal, a subsidiary of the Caisse de dépôt et placement du Québec — Canada's largest institutional fund manager — in September announced a $100 million (CAN$) joint venture with Ancar Empreendimentos Comerciais of Rio, a privately held shopping center development and management firm. Ivanhoe Cambridge invested in three of Ancar's shopping centers in Brazil, totalling more than 2 million sq. ft., in a strategy to disperse 30% of its assets outside Canada.

A month later, Brookfield Asset Management closed a $700 million (U.S.) fund to acquire shopping centers in Brazil. Brookfield, based in Toronto and New York, also issued an IPO in November for $557 million (U.S.), the largest IPO in Brazil to date, to finance projects by a home-building subsidiary.

Those transactions followed a mega deal that closed in June when Toronto-based Cadillac Fairview Corp. Ltd. (CF), and its owner Ontario Teachers' Pension Plan, purchased a 46% stake in Multiplan Empreendimentos Imobiliários S.A, Rio, Brazil's largest private shopping center owner and manager. No financial details were disclosed.

Andrea Stephen, CF's executive vice president of investments, foresees Multiplan as CF's retail platform in Brazil and the springboard for more investments through Multiplan's residential and office operations. “What attracted CF as equity investors was the amount of debt capital available, a growing economy and workforce, generally smaller families and people living longer, all of which is driving consumption,” says Stephen.

Her upbeat remarks at the Canadian Real Estate Forum conference in Toronto in November were prescient — a week later the Sao Paulo Stock Exchange announced its benchmark Bovespa index had gained a record 29% in 2006.

Chicago-based real estate financier Sam Zell also recognizes Brazil as a budding market. His Equity International Properties Ltd., not included in Blackstone's proposed $36 billion (U.S.) takeover of Zell's Equity Office Properties Trust, bought a 14.4% stake in Brazil's ECISA, which owns seven malls and operates another 13, for $44.5 million in November. Zell's company acquired 32% of home builder Gafisa S.A, Sao Paulo, for $50 million (U.S.) in 2005.

Moise Politi, CEO of Brazilian Finance & Real Estate Participacoes, S.A., Sao Paulo, says that Brazil presents a great real estate opportunity, with cap rates at about 12%. But with so much capital now chasing deals in Brazil, Stephen says cap rates could fall to 10%, or even lower. She recalls that when CF was first looking at properties in Brazil more than a year ago, there wasn't much foreign capital. “That's changed a fair bit over the past six to 12 months,” she says.

During an address at the 2006 Urban Land Institute's Latin America conference in Miami, Zell said that Brazil's emerging permanent finance industry has the best risk/return ratio of any country in Latin America. Canadian investors may have been nodding their heads in agreement.
Albert Warson in Toronto