It’s an old adage: To grow your money, invest in real estate. But with property values so volatile, it pays to do your homework and learn the differences among markets before plunking down your cash, three real estate specialists said during WorldCity’s CEO Club on Oct. 8.
Some contrasts to consider: In Miami, property values are dropping, but waterfront condos at today’s weak rates could be a good investment for the long term. Yet in Sao Paulo, office rates are soaring but could slip mid-term after Brazil hosts the World Cup and Olympics, panelists said.
Technology also influences the market. As computers get smaller and work becomes more mobile, demand for office space per worker is shrinking. Partners at law offices used to require 700 to 800 square feet each and now are trending down to 600 square feet each, said Tom Capocefalo, corporate managing partner for the South Florida office of tenant advisory firm Studley.
Financing trends matter too. In Brazil, developers used to face hurdles to borrow, but “supply now is breaking free,” prompting a building boom and concerns of overbuilding in some areas, said Richard Schuchts, senior vice president in Miami for real estate services giant Jones s Lang LaSalle.
Meanwhile, conservative German groups are looking to buy top office buildings in some Latin American cities, including Santiago in well-managed Chile, said Jorge Hurtado, director for Latin America at boutique Spain-based real estate firm Aguirre Newman.
Yet German investors often want to see leases with multinational tenants in office buildings as a guarantee of future cash-flow before they will buy, added Schuchts.
Questions abounded from CEO Club participants, including many executives who handle office and warehouse decisions for their companies. Some wanted the scoop on office rentals around Miami.
“From a tenant’s perspective, now is a good time to renew your lease and receive concessions (in Miami),” said Studley’s Capocefalo. With 22 percent vacancy on Miami office space, some building owners are agreeing to leases with several months free rent as a way to keep clients, he said.
Multinational companies are still turning to Miami to set up their headquarters for Latin America. But many are keeping their South Florida offices small and expanding more within the Latin region, especially Brazil, Schuchts said. A few companies also are starting to use Miami as a base not only for their Latin American operations but also for all of the Americas, said Schuchts.
European companies are especially likely to choose Miami as a base both for Latin and North American business, said Xavier Muffraggi, president and CEO of Club Med for North America. That’s because they tend to see the United States as a tough market to crack and Latin America as easier.
European firms often perceive an edge in Latin America, given their experience in Europe’s culturally distinct markets. So, they are likely to set up close to Europe in Miami to develop their Latin business and then, expand in the more competitive U.S. market from South Florida, said Muffraggi.
CEO Club participants also noted growing Asian investment in Latin America. Hurtado said he recently handled a real estate deal for a company from India starting a call center in Guatemala.
The Japanese owners of air-conditioning company McQuay are expanding into Brazil, said George Calienes, McQuay’s general manager for Latin America. The Japanese considered moving their Latin American headquarters to Sao Paulo, but opted to keep their Miami hub because of higher costs in Brazil and greater ease of doing business and better air links from Miami, said Calienes.
The CEO Club is one of six event series organized by WorldCity to bring together executives on international business topics. The CEO Club is sponsored by the University of Miami School of Business Administration, Spain’s telecom company Telefonica and Florida-based law firm Becker & Poliakoff.
The next CEO Club meeting is scheduled for Dec. 3.