Eduardo Flores-Presentation

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Eduardo Flores-Presentation

  1. 1. Current Trends in Real Estate Finance: Puerto Rico and Central America November 28, 2005 Eduardo Flores, VP Commercial Real Estate Finance / Business Head Corporate & Investment Banking Group Caribbean and Central America Region
  2. 2. Overview <ul><li>Citibank has a significant presence in the Caribbean and Central America Region </li></ul><ul><li>Corporate & Investment Banking products are offered, including Commercial Real Estate Finance </li></ul><ul><li>Countries with emerging real estate investment opportunities: </li></ul><ul><ul><ul><li>Puerto Rico (US territory) </li></ul></ul></ul><ul><ul><ul><li>Costa Rica </li></ul></ul></ul><ul><ul><ul><li>El Salvador </li></ul></ul></ul><ul><ul><ul><li>Guatemala </li></ul></ul></ul><ul><ul><ul><li>Honduras </li></ul></ul></ul><ul><ul><ul><li>Panama </li></ul></ul></ul><ul><li>In major cities, few dominant premier properties (retail, office, industrial parks and hotels); owned by major local families and economic groups </li></ul>
  3. 3. Risk Factors <ul><li>Central America: </li></ul><ul><ul><li>Cross-border factor (not all countries are equal) </li></ul></ul><ul><ul><li>Legal Framework </li></ul></ul><ul><ul><li>Property Title </li></ul></ul><ul><ul><li>Market Depth (small number of players) </li></ul></ul><ul><ul><li>Limited Market Information (no comparables available) </li></ul></ul><ul><ul><li>Lack of developed secondary markets </li></ul></ul><ul><ul><li>Upside uncertainty due to limited resale activity and potential buyers </li></ul></ul><ul><li>Puerto Rico: </li></ul><ul><ul><li>Similar to USA, but perceived to have a slightly higher risk profile </li></ul></ul><ul><ul><ul><li>Not part of mainland geography </li></ul></ul></ul>
  4. 4. Trends & Opportunities <ul><li>Increasing economic and political stability (e.g. CAFTA) </li></ul><ul><li>Increasing retail, commercial, trade and industrial activity </li></ul><ul><li>Increasing demand for higher quality real estate </li></ul><ul><li>Entrance of US retailers in Central America (e.g. Wal-Mart) </li></ul><ul><li>Increased tourism activity </li></ul><ul><li>Increased interest by USA investors for premier properties </li></ul><ul><li>Major local families & economic groups interest in joint ventures </li></ul><ul><li>Regional market presence preferred to single-country investment </li></ul><ul><li>In Central America, acquisition opportunities at caps in the 10% - 12% (premier properties) </li></ul><ul><li>In Puerto Rico, recent acquisitions at caps similar to US market </li></ul><ul><ul><li>Major acquisitions by US REITS (DDR, Simons) and investment funds (Whitehall, Fremont) in 2004 - 2005 </li></ul></ul>
  5. 5. Financing: <ul><li>Central America </li></ul><ul><li>Equity Capital: </li></ul><ul><ul><li>No capital markets to raise equity for real estate projects </li></ul></ul><ul><ul><li>Projects funded with owner’s equity and joint ventures </li></ul></ul><ul><ul><li>To raise and/or payback developer’s capital: </li></ul></ul><ul><ul><ul><li>Commercial properties partially sold in condominium </li></ul></ul></ul><ul><ul><ul><li>Developer generally retains over 60% for leasing </li></ul></ul></ul><ul><ul><ul><li>Anchors own stores; some in-line space is also sold </li></ul></ul></ul>
  6. 6. Financing <ul><li>Central America </li></ul><ul><li>Bank Financing: </li></ul><ul><ul><li>Medium term bank financing </li></ul></ul><ul><ul><ul><li>US dollar loans </li></ul></ul></ul><ul><ul><ul><li>LIBOR Based + Spread </li></ul></ul></ul><ul><ul><ul><li>5 to 10 year tenors; up to 15-year amortization schedules (straight-line) </li></ul></ul></ul><ul><ul><ul><li>First mortgage & assignment of rents </li></ul></ul></ul><ul><ul><ul><li>Title Insurance (generally required by international lenders) </li></ul></ul></ul><ul><ul><li>Limited number of local and international banks, but very active lenders </li></ul></ul><ul><ul><ul><li>Liquidity and pricing differentiations (country risk + obligor risk) </li></ul></ul></ul><ul><ul><ul><li>Stronger liquidity for medium size deals (commercial properties) </li></ul></ul></ul><ul><ul><ul><li>Residential construction provided by some local banks </li></ul></ul></ul><ul><ul><li>Generally, more conservative LTVs compared to US </li></ul></ul>
  7. 7. Financing <ul><li>Puerto Rico </li></ul><ul><li>Bank Financing </li></ul><ul><ul><li>Same bank financing options to those in US </li></ul></ul><ul><ul><ul><li>Multiple providers and alternatives </li></ul></ul></ul><ul><ul><ul><li>No withholding taxes on interest paid to non-resident lenders </li></ul></ul></ul><ul><ul><ul><li>Major US banks have financed deal for REITS, investment funds and other US based investors </li></ul></ul></ul><ul><ul><ul><li>Local banks most active in residential construction lending </li></ul></ul></ul><ul><ul><ul><li>Secondary markets for mortgages as in US </li></ul></ul></ul><ul><ul><ul><li>Historically, strong banking liquidity for real estate financing </li></ul></ul></ul><ul><ul><ul><li>Comparable LTVs to those offered in US </li></ul></ul></ul><ul><ul><ul><li>Highly competitive pricing for best quality deals </li></ul></ul></ul>

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