EDITOR’S NOTE

The Latin Real Estate Journal (LREJ) is a Latin Markets weekly newsletter and monthly publication featuring interviews with LPs, GPs, government officials and private equity thought leaders active in Latin America. Latin Markets is the world’s leading provider of Latin America focused investment forums, regional summits, and streamlined market intelligence. Our platform provides a comprehensive and fascinating perspective of the opportunities in this diverse and booming region.

© All LREJ content is copywritten & owned solely by Latin Markets Brazil LLC.

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Latin Markets, 10 W 37th Street 7th flr.New York, NY 10018

Chief Executive OfficerAdam Raleigh

ManagementGiseli AkabociKenneth BaucoKilby BrowneCharles FathersWilliam FrankPaloma LimaZaianna OrtizAmir OukiTim RaleighAhmad Sahar

EditorialSeth Fraser Keoni HarrisonKarishna PerezLarissa GuimaraesMaria RodriguezVirginia SchmithalterJohn ZajasAline Viana

Private Equity GroupAnna GonzalezLiana GriegAna Mello

Real Estate GroupDaniel KimPablo OliveiraAndres OrtizRoy Salsinha

Energy & Infrastructure Projects GroupJavier GrullonCarolina Gomez-LacazetteDaniel Para MataAna Carolina RomeroJavier VergaraJack Schwarten

Hedge Funds GroupBrian RogersMauricio Silva

Institutional Investors GroupCarolina BarretoHugo Della MottaMarcela FonsecaCinthia Silva

Private Wealth GroupHeriberto AcevedoMaria TatisAna LoboGerman Chavez

Where are Investors and Managers looking at Real Estate in LatAm?

I’m pleased to release the second edition of the Latin Real Estate Journal – a monthly magazine designed to distribute the latest industry insight with those of you who can’t always join us at our annual investor meetings.

In the August edition, you’ll find more exclusive interviews with the industry’s leading investors and managers to discuss co-investment mandates, direct investing and how Mexican pension funds are evaluating real estate opportunities. To receive the LREJ weekly newsletter and monthly magazine for free, you can visit our newly launched web site at www.lrej.org.

As always, my thanks to everyone who joined myself and the team for an interview. I’ll look forward to speaking with many of you again soon in Rio for the Real Estate Brazil Forum this September 22-23!

Best Regards,

Amir OukiEditor at The Latin Real Estate Journal

LREJ / AUGUST 20142

OTHER INTERVIEWS INCLUDE:

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Contents

Fred GortnerManaging Director at Paladin Realty Partners

Ram LeePresident at Seven Bridges Advisors

Nelly Campos MonteroGlobal Real Estate Portfolio Manager at Grupo Bimbo

Eduardo ParraCIO at Afore Azteca

LREJ / AUGUST 2014 3

10 Ed Casal, CIO for Real Estate Multi-Manager at Aviva Investors

LREJ INTERVIEWS AVIVA INVESTORS

LARGEST PENSION FUND IN MEXICO TALKS INCREASING REAL ESTATE AND PE INVESTMENTS

12 Christian Orozco, Portfolio Manager - Alternative Investments at Afore Banorte

LREJ INTERVIEWS IVANHOÉ CAMBRDIGE

16 Rita-Rose Gagné, Executive Vice President - Growth Markts at Ivanhoé Cambridge

1. Give us a brief background of the company and your role at the firm.

FG: I’m a co-founder and the Chief Operating Officer of Paladin Realty Partners. We’re nearly a 20-year-old firm and have one of the longest track record of any private equity fund managers in Latin America, now in our 16th year of investing actively throughout the region. Our Latin America funds business is the sole focus of our firm. It takes a deep team to do this business the right way and we have over 30 people dedicated to our Latin America strategy, with four offices located in the region. To date, we’ve invested in $5 billion of real estate and over 150 assets in seven countries across Latin America. We’re currently investing our fourth pan-regional Latam fund.

2. What has been the focus of this last pan-regional fund?

FG: The current Latam IV fund will likely have a similar geographic footprint as our prior Latam III fund. Latam III had its initial closing in 2008 and ultimately raised $554 million, including a $100 million Brazil-only side car and a $454 million pan-regional fund. The pan-regional fund was about 50 percent invested in Brazil and most of the other half was invested in Mexico, Colombia and Peru. We’ve been active in the past in Chile, as well as two smaller countries, Costa Rica (which was the first Latin America country we invested in back in 1998) and in Uruguay (a country we also have a lot of familiarity with – our head of South America ex-Brazil is from there). In Costa Rica and Uruguay, we are one of the largest low/middle income homebuilders in the capital cities.

In terms of product type, about two-thirds of the

Why Middle-Income Housing is Receiving the Lion’s Share from Paladin

LREJ Interviews Fred Gortner, Managing Director at Paladin Realty Partners

LREJ / AUGUST 2014 5

side fundamentals for housing in Brazil are resilient and strong, fueled by demographic tailwinds, rising prosperity and growing access to long-term mortgages. Approximately 1.5 million households are being created per year in Brazil and four million people are entering the middle class each year. These factors are stimulating demand for modern housing beyond the capacity of the availability of capital to finance new development to meet this incremental demand, let alone dip into the pent-up demand that exists. Brazil has a housing deficit of anywhere from 5 to 7 million units, depending on who is doing the calculation. Similar housing deficits exist in Mexico, Peru and Colombia. And year, a little over 30,000 units were built last year in Brazil’s largest market, Sao Paulo, so you’re not coming anywhere close to meeting incremental demand, let alone pent up demand.

5. And that’s mainly residential or commercial?

FG: That’s residential units. In order to attract development capital to the region, higher profit margins are needed relative to comparable investments in other global markets. For example, we underwrite to gross profit margins – total sales revenues less total development costs – of about 15 to 25 percent depending whether it’s low-, middle- or upper-income housing. So, you can target opportunistic returns pursuing this strategy in Latin America with less than half the leverage of a typical opportunity fund. A typical middle-income housing development in Brazil will have leverage in the neighborhood of 35 to 40 percent of the total cost. Higher profit margins combined with low leverage mean that, if something goes awry like a global financial crisis, this strategy can weather the storm relatively well.

Colombia, Peru and Mexico are poised for 4 to 5 percent growth going forward, and those same demand-supply dynamics are in play in those markets – demographic tailwinds, millions of people entering the middle class, and growing access to long-term mortgages. When we started investing in Latin America over 15 years ago, long-term mortgages for homebuyers didn’t exist. Less than half of our buyers 15 years ago were getting a mortgage because the average tenor was in the 10 to 15 year

in the U.S. at the time. So, we spent time studying the markets and opportunities in the region, through a combination of top-down research on the major markets and product types, and a lot of time spent on the ground in the markets, touring projects, meeting with potential partners, and so forth.

We use five metrics as a guide towards evaluating whether a new market is attractive for institutional capital. First and foremost is rule of law. We only want to invest in an environment where contracts are respected, where you can get clean title to property, and where you can exercise control provisions in joint venture documents if needed, which has always been a central component of our strategy. The second metric in evaluating these markets was stable money, namely having inflation under control. For the past two decades, this has been the case in all of Paladin’s target markets and has been an important factor in all of these countries achieving an investment grade status. The third metric is sound fiscal spending and a stable sovereign balance sheet. Again, all of Paladin’s primary target markets – Brazil, Mexico and the Andean region – have scored relatively well on this front for the past 15-20 years. Fourth is an embrace of free trade, which all of our target markets score well on, with the exception of Brazil, which could stand a lot of improvement. Intra-regional trade agreements such as the Pacific Alliance are boosting economic growth in Colombia, Peru, Mexico and Chile, and should serve a signal to Brazil of the potential benefits of opening up its borders. Lastly, we look at the level of regulation in these countries. Namely, how easy it is to do business, how easy is it to hire and fire people, to establish businesses, to create joint ventures and so forth.

On all of five of these metrics, Paladin’s main target markets of Brazil, Mexico and the Andean region have scored very well.

4. As far as lower GDP growth in Brazil right now, how much are you taking that into account for your current investments?

FG: The housing strategy we pursue in Brazil performs well even in a 2 percent growth environment. The demand-

investments we’ve made to date have been focused on low- and middle-income for-sale housing, primarily executed through programmatic joint ventures with experienced local operating partners. We’ve also done a handful of entity-level investments and have invested about 20 percent of our portfolio in the commercial sector. Our approach to commercial has been selective and opportunistic, different than some of the other Brazil managers in recent years. We never were really enamored with high-rise office development in recent years and that’s a market in Brazil that’s going to struggle over the next few years. Over 7 million square feet is coming online in an already 15 percent vacant market in Sao Paulo. Instead of high-rise development, we’ve focused on office condominiums and retrofits of existing buildings. Attractive retrofit opportunities are very difficult to find in these markets due to the substandard condition of many existing buildings and stratified title, but when you find them, you can redevelop, stabilize and exit the investment relatively quickly, and oftentimes position the asset as an attractive, competitively-priced alternative to high-rise developments. This provides some downside protection if the market softens.

3. How did you begin your first investment in the region?

FG: Our first investment in Latin America 16 years ago was actually a reaction to an investment opportunity that was brought to us, a large master planned resort development in Costa Rica. It was not an easy investment to get approved. At the time, former U.S. Treasury Secretary William E. Simon owned half our firm and was on our investment committee. He had some cautious views about Latin America left over from his Treasury Secretary days in the 1970’s, when hyperinflation and economic instability characterized much of the region. Nonetheless, we were able to convince him on the merits of this investment and it really opened our eyes up to opportunities in the region. In short, the combination of resilient demand drivers, high profit margins, and a lack of private equity capital chasing opportunities meant less competition for deals and, as a result, more attractive risk-adjusted returns than we were finding on comparable investments

LREJ AUGUST 2014: Paladin Realty Partners

range, and interest rates were in the high 20s. Now, interest rates have dropped down to the 10 percent range and 30-year mortgages are more readily available. That has lowered the monthly mortgage payment considerably and, thus, expanded the universe of potential homeownership to millions of people who otherwise couldn’t have afforded a home.

Commercial investments are generally more vulnerable to capital flows. For whatever reason, institutional capital tends to gravitate towards Class A office buildings and that’s a sector where a lot of capital flowed into Brazil in recent years. As a result there is about 7 million square feet of new Class A office space coming on line right now in Sao Paulo. You’re already seeing rental rates come down and vacancy rates go up. I doubt it will result in the “bloodbath” that a few have predicted, because there hasn’t been as much leverage in this sector. However, I would expect that many of these investments will struggle to hit the returns projected in their original underwriting.

6. You mentioned some of the sectors that you’re looking at as far as high-rises and condominiums. Where do you think are the best opportunities?

FG: We continue to see attractive investment opportunities throughout Brazil, Mexico and the Andean region. Developing middle-income housing, where steady tailwinds of demand exist, remains one of the best risk-adjusted ways to play the growth story in Latin America. Housing ventures will probably continue to account for two-thirds to three-quarters of our investment activity going forward. In the commercial sector, you need to be selective. We prefer for-sale office condominiums, which somewhat mirror the attractive project-level economics of a housing development. We also like retrofits of existing buildings where you can position the asset as at a cost advantage relative to new developments, and where you can develop, stabilize and exit an investment more quickly than with a ground-up high-rise office building development, which can be a five or six year proposition. We’re also looking selectively at other opportunities, such as business-oriented hotels, retail, and industrial.

7. What are you hearing from international investors as far as their appetite for investing in Latin America?

FG: Global investors seeking high returns face a myriad of challenges today, particularly in the U.S., Europe and other developed markets. Distress opportunities are harder to find. Assets are priced richly in most regions as an over-abundance of capital chases an increasingly limited number of attractive deals. Underwriting assumptions often assume strong market recoveries, stable interest rates and that exogenous shocks are behind us. High leverage is often required to “make the numbers work.”

By contrast, you have a compelling macro story in Latin America compared to other regions in the world with attractive demographics fueling steady economic growth and a growing middle-class, as well as regional stability from a geo-political perspective. Secondly, you have attractive demand-driven real estate investment opportunities in Latin America, particularly in for-sale housing, with highly visible and resilient demand drivers: youthful demographics, rising prosperity and a growing mortgage market. Finally, strong real estate demand fundamentals and a dearth of capital relative to demand translate into attractive project-level economics and superior risk-adjusted returns in Latin America, with profit margins well above what you would find in most developed markets. As I mentioned earlier, profit margins on the typical housing project in Latin America are in the 15 to 25 percent range, compared to single digits in the U.S. and most developed markets. For commercial projects, we typically underwrite to at least 500 basis points of development profit, compared to 100 to 150 basis points in the United States, where significant cap rate risk also exists. As a result, you can target opportunistic returns in Latin America with less than have the leverage of a typical opportunity fund.

Despite the strong investment thesis for Latin America, there is still a general lack of awareness about the region and some confusion exists in making sense of recent newspaper headlines. We spend a lot of time explaining the overall investment thesis for Latin America and putting newspaper headlines in perspective. The reality is that all of Paladin’s target markets – Brazil, Mexico, and the Andean region – were well-positioned entering the 2008-09 global financial crisis, and each of these markets emerged strongly from the financial crisis.

8. What advantages do you find attending Latin Markets’ events?

FG: Latin Markets events have turned into one of the premier platforms for institutional investors focused on Latin America to meet one another and share information. We’ve been pleased to be a part of Latin Markets’ growth over the years and participate in all of their conferences. We think it’s one of the best forums bringing together limited partners and general partners looking for opportunities in the region.

Mr. Gortner spoke on the “Brazilian Real Estate

Roundtable” at the Institutional Real Estate Latin

America Forum on June 2-3, 2014.

LREJ / AUGUST 20146

LREJ AUGUST 2014: Paladin Realty Partners

1. Give us a brief background on your firm and your role.

EP: Afore Azteca is a Mexican Pension Fund regulated by the Mexican government. The resources of our funds come from the money of Mexican workers. We have assets under management of $2 billion. We invest in fixed income and equity markets in Mexico or in countries approved by regulators. We also invest in real estate through Mexican REITs called FIBRAS but we expect in a few years to invest directly in real estate assets.

We are also in negotiations with the authorities in order to start investing in private equity funds called CKDs which are the instruments available for institutional investors like pension funds to invest in this kind of assets.

2. Where have you made some of your real estate investments more recently?

EP: We’re currently investing only in Mexican REITS. We invest in REITs whose assets are related to industrial and commercial activities but we also invest in REITs related to office leasing and hotels. We expect all of these sectors to benefit in the coming years driven by the US economy recovery and the structural Mexican reforms. In the near future we would like to invest in health care and residential REITs. I think both of these types of REITs will perform well.

LREJ AUGUST 2014: Afore Azteca

LREJ / AUGUST 20148

Eduardo ParraCIO at Afore Azteca

Afore Azteca CIO Talks Increasing Allocations to Real Estate and Private Equity

LREJ AUGUST 2014: Afore Azteca

our assets in order to invest in these kinds of assets. I also think the demand of real estate assets and private equity will increase because of the economic growth of the energy reform and the improvement in the US economy. The only problem could be the rates. Mexican rates are currently at low levels and if we expect the economy to grow, rates will rise and could affect the performance of these types of investments.

7. What advantages do you find attending Latin Markets’ events?

EP: This is my first time at this kind of forum and I think it is very important. Here, we have live interaction and learn from the experience and comments of the participants. It also gives us feedback on how other investors think and helps us to learn about different types of investment.

Mr. Parra spoke on the panel “Mexican Real Estate

Opportunities” at the Institutional Real Estate

Latin America Forum on June 2-3, 2014.

5. What is your view on the labor arbitrage idea where international investors will benefit off of labor becoming less costly in Mexico than in China?

EP: In the past years, labor costs in China were very cheap but nowadays labor costs have been rising considerably forcing international companies to look for new opportunities. In the past years, companies have preferred to produce in China and import the goods to their countries — even paying high transportation costs. But now, with labor costs rising rapidly in China international companies are looking to Mexico in cities near the border and Mexican workers are increasingly in demand. American companies who use competitive Mexican labor costs also save in transportation costs, so I think Mexico does have this arbitrage opportunity because of its geographic position.

6. Where do you see the most opportunities in the next two to three years? Will you be increasing your real estate and private equity investments?

EP: Yes, the opportunity for the next five years in real estate and private equity has a high potential, first of all, because of the regulatory limit for pension funds on this asset class is 20 percent and we are only invested at about 3 percent right now. So we are under-invested and have to reallocate

3. In which cities are you finding opportunities in real estate in Mexico?

EP: Obviously the populated cities like Mexico City, Monterrey and Guadalajara are really attractive because of the large demand on services. Also the cities close to the border with the US, like Laredo and Ciudad Juarez are attractive because of their high exposure to the industrial sector. There are smaller cities which are growing very fast and will benefit as Mexican economy grows like Puebla, Aguascalientes, Veracruz, Queretaro, Morelia — and finally the tourist cities in Mexico like Cancun, Acapulco, Veracruz, Los Cabos, etc.

4. How can Mexico avoid the same scenario as Brazil, where international investment flooded in and prices went up? How is the scenario different?

EP: There is a new regulation for Mexican REITS in which the loan to value ratio should not be above of 50 percent. It should also have a debt coverage ratio of at least 1x. With these measures, Mexican REITs will have more transparent management and this will prevent investors to experiment and create a bubble. It is totally normal when prices go up driven by an increase in demand, but what we should prevent is a real estate bubble as Brazil did. In order to prevent this, regulators should start thinking of new legal measures for international investment.

“The demand of real estate assets and private equity will increase because of the economic growth of the energy reform and the improvement in the US economy.”

LREJ / AUGUST 2014 9

1. Give us a brief background on the firm and your role.

ED: I work for Aviva Investors, the investment management subsidiary of Aviva PLC, a UK-based insurance company. Aviva Investors manages about $400 billion in assets globally, 10 percent of which is in real estate. About a quarter of that is managed within my group, real estate multi-manager, which invests with real estate operators in funds, club deals and joint ventures around the world. We invest primarily on behalf of European pension plans, but also on behalf of clients from the Middle East, United States and Asia. We also manage internal Aviva capital.

In my group we have an investment staff of 21 people across five locations – London, Utrecht, Paris, New York and Singapore. I am the global group head and CIO.

2. When did you begin investing in Latin America?

ED: We began investing in Latin America in 2007, into a fund in Brazil. We followed that with two more investments in Brazil over the following three years. Last year we did a co-investment into a land development business in Brazil. We have not invested elsewhere in Latin America as of yet.

3. What is your take on the real estate opportunity right now in Brazil?

ED: As I mentioned during the panel, in 2007 Brazil was a growth story. It seemed ripe to undergo a step-function change from a non-institutional, non-investment grade country to a country that would begin to attract global institutional capital. At that point in time we were interested in in almost every property type – that’s unusual for us as we typically have a fairly strong view regarding a preferred property type in a particular geography.

Nearly every sector seemed under-built for the existing demand. Hotels, infrastructure, warehouses, housing, office — everything

The Shift from Macro to Micro Investing in Latin America

ed casalCIO for Real Estate Multi-Manager at Aviva Investors

5. Is co-investing a trend that will increase for your firm?

ED: Definitely. We have a number of co-investment mandates. As I said, we’ve done one in Brazil, but we’ve also done a number globally. We like the ability to rifle shoot opportunities that potentially provide deep value.

6. What is your take on the opportunity in Colombia?

ED: The thing that we like about Colombia is that it is also going though a step-function change, from a relatively violent recent past to a more peaceful state. It has a relatively high quality education system, and a relatively sophisticated investment community. It’s an international community. The managers tend to be smaller, tend to be localized, but that doesn’t mean that they’re not professional or they’re not potentially institutional quality.

Also, if you examine Colombia or Brazil GDP, there’s a lot of internal demand. It’s not the China situation where exports are everything and they’re trying to create internal demand to perpetuate economic growth. One factor to consider though is that due to the mountainous geography of Colombia, the major cities are really quite separate. It’s not easy to build highways and train lines — it’s a fractured nation — and so the managers tend to be fractured by geography in the various cities. From our standpoint this is fine – we like to pick our spots.

7. What is your take on the opportunity in Colombia?

ED: The thing that we like about Colombia is that it is also going though a step-function change, from a relatively violent recent past to a more peaceful state. It has a relatively high quality education system, and a relatively sophisticated investment community. It’s an international community. The managers tend to be smaller, tend to be localized, but that doesn’t mean that they’re not professional or they’re not potentially institutional quality. Also, if you examine Colombia or Brazil GDP, there’s a lot of internal demand. It’s not the China situation where exports are everything and they’re trying to create internal demand to perpetuate economic growth. One factor to consider though is that due to the mountainous geography of

seemed relatively attractive. While you had to tolerate development risk, the returns were sufficiently attractive for the effort. I think by and large that played out at the property level. Where we ran into some difficulties along the way was the currency volatility, but we kept investing as the Real declined and so our overall return remained strong. Since we initially invested, Brazil has come a long way. It did achieve an investment grade rating, although it’s since been downgraded a notch. Institutional processes have continued to improve. The consumer has become more of an economic force. Credit formation has expanded pretty dramatically from 2007 largely on the credit card side, not so much on the mortgage side.

The concern we have is that we see the country encountering three important headwinds. First, consumer credit is starting to reach natural limits. Second, national infrastructure (roads and railroads in particular) is insufficient to handle economic expansion. Third, the low-hanging fruit on structural reform has been achieved with still much more that needs to be done. In particular, pension reform remains an outstanding issue. These various pieces put pressure on inflation, which has resulted in tighter monetary policy – a further headwind to the economy. So while the step-function was achieved, it’s harder from here going forward. Now, it’s not to say it can’t be achieved – it has to be achieved. But it’s going to be hard work. And so from our standpoint, we’re not really so much macro investors in Brazil like we were in the past. Today we’re micro investors in Brazil where we see value in specific assets or property type. We remain willing to look at just about any property type in Brazil. There’s still a need for hotels in certain places. The office sector looks like it’s going through a bubble right now, but hopefully some of the planned buildings may not be built. We think the housing sector remains very interesting. We recently invested in a co-investment opportunity in land for housing that we expect to do well. But we’ve learned through the years that we need to be patient and not over react to micro cycles, such as currency swings for example.

4. Are you doing due diligence outside of Brazil?

ED: Yes. Colombia and Mexico both look interesting. We haven’t yet done any work on Peru or Chile as of yet.

Colombia, the major cities are really quite separate. It’s not easy to build highways and train lines — it’s a fractured nation — and so the managers tend to be fractured by geography in the various cities. From our standpoint this is fine – we like to pick our spots.

8. Are you looking to increase your real estate and private equity allocations to Latin America in the coming years?

ED: Yes. We’re still a believer in the Brazil story and I think we’re coming to become a believer in Colombia. I look forward to exploring Peru. While Chile is attractive from a stability standpoint, it’s generally expensive due to an abundance of local capital. It’s hard to see how we might be as competitive there. I was active in Mexico in the early and mid-90s. Mexico is this perpetual opportunity that seems to have trouble getting to an institutional quality plateau. You’ve had US retailers and shopping center owners coming in and out of the market – it hasn’t been easy. Homebuilders have grown and ultimately gone out of business. Also, in Mexico, the good news and bad news is that it’s next door to the US. While the proximity of a big market is good, the economies have a relatively high correlation. We think about what we are getting in Mexico that we can’t source in the US without the currency risk. It’s an issue we debate about Canada as well.

9. What do you find valuable about attending Latin Markets’ events?

ED: I attended the one in Bogota, and then here in New York. It’s a great opportunity for us to efficiently see property managers that we might have an interest in investing with. Also, we get an opportunity to hear and meet some of the LPs that are looking at the region and learn better what they’re thinking. We play both roles as an investor and also a capital raiser. It’s even an opportunity to meet with some of our competitors and chat about the markets. In many cases we are co-investing in situations around the world – it’s a collegial group of people and this helps you catch up.

Mr. Casal spoke on the “Global Multi-Manager

Executive Roundtable” at the Institutional Real

Estate Latin America Forum on June 2-3, 2014.

LREJ AUGUST 2014: Aviva Investors

LREJ / AUGUST 2014 11

6. What percent of your portfolio do you expect to allocate to co-investments?

CO: For private equity, we are asking for up to two percent of the whole project or co-investment and for other sectors like real estate or infrastructure, we are asking for five percent. That’s a risk policy, so we can align interests.

7. Do you see co-investments increasing?

CO: No, I see it decreasing. We need to become more confident with our fund managers.

8. What is your view on the quality of managers in Mexico?

CO: Well, we have a broad variety of managers. I would say that most of them are talented and most of them have given good results to us, but they’re having some places of not so great results, but those are very new. The oldest is about four years. So, they are still in their investment periods. They are not thinking about exits right now. They have another six years for develop the portfolios. We haven’t see the results yet, but the partial results we are seeing right now are good.

9. What are the advantages of attending Latin Markets’ events?

CO: We see this as an opportunity to bring our firm to these forums, so the people get to know us. We see it as an opportunity to meet fund and portfolio managers.

Mr. Orozco spoke on the panel “Mexican Real

Estate Opportunities” at the Institutional Real

Estate Latin America Forum on June 2-3, 2014.

3. More specifically, what cities are you looking to invest in Mexico?

CO: We’re seeing a lot of activity in Mexico City mainly in office and retail. We are seeing a lot of activity in other cities as well like the Bajío Region which comprehends the Jalisco, Aguascalientes, Guanajuato and Queretara Estates. We’re seeing a lot of industrial activity like logistics and warehouses. We’re seeing a lot of activity, too, in the north of our country in Monterrey and Chihuahua. So, we’re seeing a lot of activity in the north mainly in industrial sectors. In the south we don’t see a lot of activity -- Quintana Roo, Cancun, Chiapas, Oaxaca. We are not seeing a lot of development in those areas right now.

4. What’s your outlook for Mexico’s economy as a whole right now?

CO: Our country has managed to gain some steady feet over the last decade. Mexico wasn’t hit as hard as other countries, and other emerging countries four years ago. So, we are very confident that we are in a very good place to invest and we are expecting that bigger funds and private equity funds to come to Mexico and help us develop things and to invest with us.

5. How do you see the telecommunications and energy reforms improving the economy?

CO: We’re expecting a lot of activity and growth. We are expecting not this year or next year, but once those reforms are implemented, we’re expecting something in the one or two points of extra GDP growth. That’s going to be good because in the last decade we were growing at an average of three, the high twos. So, we’re expecting better from that.

1. Give us a brief background on your firm and your role.

CO: My name is Christian and I work for Afore XXI Banorte, which is the biggest pension fund in Mexico. Currently we have assets under management for about $42 billion as of March of this year. We are a highly regulated entity. Today, I’m working in risk management and managing the portfolio on the side of the risk management team. We basically analyze and do the due diligence for all the deals that come to our pension fund. We currently can invest in private equity funds. This is new to us because we weren’t allowed to invest in those sectors until three or four years ago. We’re now more confident but we are still learning. We are still learning from those assets because in the past, we were a firm that managed government bonds, corporate bonds, corporate, some derivatives, currencies, but that was it. Our current allocation on real estate and private equity is around 2 percent. For real estate and private equity as a whole the investment team has the intention to grow this number in the next years. We cannot invest abroad, but we think that’s about to change. We are expecting that in maybe a couple years or a year from now, we are going to be able to invest abroad.

2. Where do you think this number will begin?

CO: Five or maybe 10 percent. So currently, we are investing mostly on retail, offices and infrastructure. We have internal policies, which tell us that we prefer real estate as a whole because we see that as the less risky asset. Then we prefer infrastructure and at the last level, we prefer private equity. In the side or in the part of real estate we’re investing, as I said, in offices, retail and we are not currently doing a lot of residential.

Christian OrozcoPortfolio Manager - Alternative Investments at Afore Banorte

Largest Pension Fund in Mexico Talks Increasing Real Estate and PE Investments

LREJ AUGUST 2014: Afore Banorte

LREJ / AUGUST 201412

REAL ESTATEMEXICO FORUM2014DECEMBER 1-2ST. REGIS HOTELMEXICO CITY

FOR MORE INFO, VISIT WWW.LATINMARKETS.ORG

LREJ / AUGUST 201414

LREJ AUGUST 2014: Grupo Bimbo

1. Give us a brief background on Grupo Bimbo and your role.

NCM: Grupo Bimbo is the largest Mexican-owned baking company, with operations in the Americas, Asia and Europe. In 2013 it generated $13.786 billion in sales. Since 1980, Grupo Bimbo shares have traded on the Mexican Stock Exchange. Grupo Bimbo produces over 10,000 products under more than 100 household brands.

It has over 128,000 associates and operates 169 plants (39 in Mexico and 130 abroad), three trading agencies and eight joint ventures. The products of Grupo Bimbo are in more than 2.2 million points of sales across 22 countries, including Argentina, Brazil, Canada, Chile, China, Colombia, Costa Rica, Ecuador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Portugal, El Salvador, Spain, United Kingdom, United States, Uruguay and Venezuela (on three continents: America, Asia and Europe). Our headquarters are in Santa Fe, Mexico City.

We have an extensive distribution network in Mexico and the American continent, with over 52,000 routes. We are also a leader in logistics.

I am currently responsible for the strategic planning, asset management and administration of all the company properties in 22 countries - 2.5K properties – 53.8 million square feet.

LREJ INTERVIEW WITH:

Nelly Campos MonteroGlobal Real Estate Portfolio Manager at Grupo Bimbo

participating and being part of the Real Estate Mexico Forum as I will be able to make personal contacts with leading real estate decision-makers and advisors, exchange information, and stay updated on the latest investment, leasing, development and financing trends and opportunities.

Ms. Campos will be speaking on the panel “Real

Estate for Multinational Companies” at the Real

Estate Mexico Forum on December 1-2, 2014.

industrial real estate that will appear in the market. Adding to this good news, the Federal Energy Reform will accelerate the creation of new businesses and platforms at non-conventional submarkets for industrial real estate.

4. What have you heard from international investor appetite for investing in Mexico?

NCM: In general, Mexico offers an attractive business climate, legal certainty, one of the largest free trade agreement networks in the world, and highly-developed industry groups that offer very competitive costs. Besides the sheer volume of its products, Mexico has stood out in Latin America as a producer and exporter of sophisticated manufactured products. Mexico is also the 14th largest economy in the world and 2nd in Latin America. The average growth of the Mexican economy for the 2013-2019 period is 4 period with a controlled inflation rate of 3.8 percent. Based on this, multinational companies like Bombardier, Ericsson, Ford and Mazda have said that investing in Mexico has been the right decision.

5. Tell us about some of your environmental sustainability initiatives at Grupo Bimbo and why they are important to the company’s goals.

NCM: We have demonstrated our interest and constant participation in caring for the environment through actions that range from reducing the water consumed in our production processes, to researching and implementing technologies in order to reduce our environmental footprint.

In 2002, we implemented our Comprehensive Environmental Management System. In compliance with our commitment to sustainability, we noticeably reduced our environmental impact in three areas: our carbon and water footprint, and in integrated waste management.

6. What are you looking forward to at the Real Estate Mexico Forum 2014?

NCM: I am really looking forward to

2. What is your rationale behind the success of the company in Latin America and abroad?

NCM: In accordance with what our CEO states: “For over 65 years, Grupo Bimbo has aspired to the highest performance standards. Our principles and values, person-centered, have been the integral complement to the success of a responsible, committed, productive and profitable company.”Based on making a commitment to the present and future generations, we integrate corporate social responsibility into the daily operations of production and distribution in the 22 countries where we have a presence, allowing us to align the economic, social and environmental objectives efficiently and responsibly.

3. What is your take on the opportunity set for real estate in Mexico right now?

NCM: While the real estate market in Mexico avoided the severe crash seen in the US and other countries from the global economic crisis of 2008-2009, it did suffer a slowdown. Since then, there’s been a turnaround — with a slowly expanding Mexican economy that has provided internal stability and growing opportunities.

At the end of 2013, Mexico’s industrial market closed with good news. The central region keeps being propelled by third party logistics companies that grow their business and footprint in Mexico City’s surroundings. The Bajio Region has consolidated with new industrial parks related not only to the new car manufacturing plants, but also for new investments related to aerospace, food and personal consumer new plants and expansion of the existing ones. Lastly, in the north region, Tijuana has been occupying vacant space; Monterrey’s submarkets reported positive absorption and Ciudad Juarez is on its way to recovering from low rents and high vacancy.

For the future, the northern region markets will keep gaining traction. Mexican REITs (FIBRAS) and Mexican Pension Funds, CKD’s (Certificados de Capital de Desarrollo), will compete for the stabilized

LREJ / AUGUST 2014 15

LREJ AUGUST 2014: Grupo Bimbo

Rita-Rose GagnéExecutive Vice President – Growth Marketsat Ivanhoé Cambridge

1. Give us a brief background on Ivanhoé and your role at the firm.

RR: At Ivanhoé Cambridge, I lead the Growth Markets team. Before taking on that role, I was responsible for the company’s strategy, portfolio management and strategic partnerships for two years. Essentially, Ivanhoé Cambridge is the real estate subsidiary of La Caisse, which is Quebec’s principal pension fund that has over $200 billion in net assets. La Caisse invests in different types of assets, like real estate, infrastructure, private equity, fixed income, public markets and more. La Caisse manages institutional funds primarily from public, private pensions and insurance funds in Québec. Ivanhoé Cambridge is a subsidiary that is majority-owned by La Caisse as well as four additional minority investors and pension funds.

Ivanhoé Cambridge has more than C$40 billion in total assets distributed across several asset classes, mostly in retail, office, logistics and multi-res/multifamily. We have a large portion of our portfolio in Canada in the retail sector where we are also an operator and developer. In Canada,

countries.

We also maintain a smaller but significant portion of our portfolio in funds. We have great strategic partners that enable us to access some markets where we don’t necessarily want to build a critical mass, or for which we have no expertise ourselves. In those cases, we will go and meet these types of managers and access some markets or asset types that, again, we are not necessarily equipped to execute directly. We build strategic partnerships and we develop co-investments opportunities with those partners. Therefore, we also benefit from getting exposure to markets and transactions.

3. What is your evaluation process for making direct investments and why have they predominately been focused on retail in Latin America?

RR: As I mentioned, we are mainly active direct investors. Because of our active profile, we seek to develop close relationships with the developers and operating companies themselves. Through these partners, we gain local knowledge

and they benefit from our expertise and institutional experience to build up the portfolio. We’re not shy about the development and operational risk because we have this expertise in-house. We look for partners with a proven track record and strong local presence.

We entered into retail in Brazil at the time because it seemed like the best opportunity. Retail was and is still underserved but we entered mostly because we met a suitable partner and we were comfortable with that asset class, being developers ourselves, as well as owners and managers of retail assets for decades.

“We seek to develop close relationships with the

developers and operating companies themselves.”

we are vertically integrated: investment, operations, leasing, asset management and development.

2. And where have you invested internationally?

RR: An important portion of our investments are in the US, mostly in the office sector, representing about 22 percent of the global portfolio. There, we own and manage a growing office portfolio with our strategic partner Callahan Capital Properties. In Europe we have an office in Paris with about 30 professionals. Our European investments -- about one-fifth of our global portfolio -- are located mostly in Germany, France and in the UK. Our European portfolio is currently being repositioned in Paris and London and we have some retail assets in Germany, Spain and some office in Germany.

We also made our first investment in a logistics platform, PointPark Properties, based in Eastern Europe, which has assets in six or seven countries in Europe where we will be capitalizing on the rise of e-commerce trends. And finally, Ivanhoé

Cambridge is invested in growth markets such as China and Brazil. We’ve been active in China since about 2006 in a few vehicles, including a shopping center, interest in a residential partnership and funds.

In Latin America, we are mainly invested in Brazil with the Carvalho family through a platform called Ancar Ivanhoe, which is a retail portfolio. The platform owns and manages over 16 properties and manages another five properties for third parties. So it’s one of the largest platforms in the Brazilian world, and we are actively looking to expand or diversify our presence in Brazil, Mexico and other Latin American

4. What was the rationale behind entering Brazil specifically with your first investments?RR: We liked that market, the timing was good and we met the right partner in a promising asset class. The country was going through significant economic growth and tens of millions of people were joining the middle class and consumption was on the rise. Our philosophy was really to access that country and build a long-term relationship and knowledge of that market.

Our real estate investments are all in shopping malls for the time being but Brazil is a country where we want to develop a stronger presence and we are considering investing in other asset classes.

5. What has been your experience investing in the Andean region?

RR: We think that it can be an interesting market and we’ll be looking at expanding our footprint in other areas in that region and more generally in Latin American countries if appropriate opportunities present themselves.

6. What advantages did you find attending the Institutional Real Estate Latin America Forum?

RR: It was a great networking opportunity with major players from the Latin American markets. It was a great way to meet all the relevant managers, investors, and developers to deepen our market knowledge and network in a short period of time.

Ms. Gagne spoke on the panel “Canadian

Investors” at the Institutional Real Estate Latin

America Forum on June 2-3, 2014.

LREJ AUGUST 2014: Ivanhoé Cambridge

LREJ / AUGUST 2014 17

Silicon Valley people, but I think there’s an opportunity to grow internationally in emerging markets. I do think there’s an opportunity in lots of emerging markets both in Asia and Latin America and Eastern Europe, but particularly in Latin America and Asia for a firm like ours that runs a portfolio that’s diversified. People will say, why not diversify their investments from their home EM country and have someone like Seven Bridges run a more developed market oriented, alpha oriented portfolio?

3. Where did you invest previously and where are you currently investing in emerging markets and Latin America?

RL: When Landis and I joined Howard Hughes, private equity was about 20 percent of the whole fund, which is actually a lot. Their previous CIO made a great bet in ‘02 and put a lot of money into EM, though this was mostly in the public markets. So we were always trying to make that trade-off between really three assets – public equities, real estate and private equity. We didn’t have much of a focus on real estate within the US at the time either. We didn’t have a focus in EM real estate, but because it’s an asset, and it’s a relatively simple asset, there were times we felt like it was one of the easiest ways to just play on the basic growth of the country. It’s not as complicated as a company. So we didn’t have a big focus on real estate in the US. We would do it opportunistically. The main thing we did is we logistics in India. So we were generally looking for things where we thought there was a real market dislocation or where the market really needed something that wasn’t there. We looked at retail a lot because retail is the natural way to play to the consumer. The hard part about retail is that real estate is so location specific – more so than industrial or an office. On the logistics side it was easier because it was really more about who knew the

Seven Bridges, Larry Cohen. Larry had been the Managing Partner at EhrenKranz Partners, one of the largest and oldest multifamily offices in New York.. Larry has also been the chair of the Brown University Investment Committee. He wanted to create a different model based on the outsourced CIO model.

I met him through an endowment colleague and it was a good opportunity to take what I had done at a much larger endowment and apply it to smaller endowments. I joined with the team that he largely already built with people from Harvard Management Company, Carnegie, Man Group and Goldman Sachs. I joined Seven Bridges in August of 2013. We have three partners. Larry is the CEO, I’m the President, and Rich Gardner is the CIO who runs the investment team and focuses more on managers. I focus more on asset allocation and what’s interesting in the world. I’m very much more focused on what should we be doing next and what should we be focused on. Where should the marginal dollar go.

For example, should we be looking at distressed in Europe? I’ve looked at that for a long time. Or things in Latin America. I’m the only one on the team that has experience across all assets and I have the most EM experience too. We have money in EM mainly on the public side. A lot of it is long-short, but we have a comingled private equity fund that we call our opportunity fund. The thing with EM private equity is if I can’t access it through the public market somehow, I’ll consider accessing through privates. But I don’t want to lock up just to lock up. So I’m always assessing emerging markets across all asset areas and liquidity parameters.

2. What is the geographic make up of your investors?

RL: It’s mostly US. Actually, a lot of it is from Silicon Valley. Our biggest clients are all

1. Give us a brief background on your career experience in private equity and the creation of Seven Bridges Advisors.

RL: I spent the past 14 years mostly in the endowment world. The first four years I was at the UPenn endowment and then the next nine years I worked at the Howard Hughes Medical Institute, which is around a $17 billion fund. It was actually the largest in the country for a long time before Gates created his. At Howard Hughes I did a little bit of everything. In American football terms, I was sort of the free safety. I was the generalist managing director for the CIO, having worked with the same CIO at Penn and Howard Hughes. When I got to Penn there were no alternatives, so I was part of the team that built that up. Part of that team is Narv Narvekar who now runs Columbia University’s endowment, the head of hedge funds for the Moore Foundation. There were several other people who are now CIOs who were part of that team: a sort of a Penn diaspora. I went with Landis in 2004 and did a little bit of everything. Specifically in private equity, I was less focused on the more programmatic portion.

We had managers we had known for a long time, doing middle market US private equity -- really basic stuff in my view. I focused more on where there was an opportunity to do something different or maybe there was a market dislocation, or inefficiency. HHMI did a lot of in energy private equity which seemed to be an inefficient market. I spent a lot of time in the emerging markets in general across public and private equities. About every 18 months I would go to India, Brazil, Hong Kong, China, or a Russia and see what was going on in the world and look across all assets – private equity, real estate and public equities. So I after nine years at Howard Hughes, I connected with the founder of

The FORMATION ofSEVEN BRIDGES

LREJ Interviews Ram Lee, President at Seven Bridges Advisors

LREJ AUGUST 2014: Seven Bridges Advisors

LREJ / AUGUST 201418

7. And where are you right now with your PE investments?

RL: We have one PE fund that invests with managers. The last PE fund was focused just on US energy because that’s really where we saw the opportunity. That’s been doing phenomenally well. There’s a real inefficiency in the energy boom in the US. We think that there could be some international opportunities both potentially in EM and particularly in European distressed. That’s more of a private, illiquid play. So, that’s a more broad investment coming out of the opportunity fund. That goes for real estate too.

8. Are you actively looking for managers now for new investments?

RL: We are although it’s less manager driven and more markets driven. We’re trying figure out what assets are selling at, where it seems like there’s the greatest opportunity to add value particularly to buy things cheaply or if we think there’s less money chasing it.

9. As far as a timeline, is there a point where you can see yourself making a pan regional allocation to Latin America or country specific?

RL: In private equity or real estate, we’re more likely to do Brazil. That’s just the reality. In real estate actually, I’m willing to go to what might be considered riskier markets. I consider the asset to be less risky. Real estate is very tied to the economy and if you can get in at very good cap rates, it can be an attractive way to play it. There are a fair number of players compared to other markets, but it’s still pretty underpenetrated.

10. What advantages have you found attending Latin Markets’ events?

RL: I definitely meet managers that may not have been on my radar. It also focuses me for that moment on what is happening in LatAm and opportunities there outside of public markets. Just taking the time to focus on the combination of macro and micro opportunities is helpful, with good speakers and presentations is helpful.

Mr. Lee spoke on the panel “Non-Profit and

Government Organizations” at the Institutional

Real Estate Latin America Forum on June 2-3,

2014.

advantage. That being said, that’s a little bit more on the public side. I think on the private side it’s very hard to be pan-regional. It’s hard to have good networks in Mexico, Colombia, Peru and Brazil. It’s possible, but you actually have to have someone on the ground in a couple of those countries. It’s hard to compete with cash in Brazil for equities. The question is, are things really still cheap in privates? Fortunately it appears in Latin America they still are.

5. How is forming relationships with managers and companies in Latin America different than other regions?

RL: I think they’re a little bit more… I don’t want to say more commercial, but Latin America and particularly Brazil is very oriented toward a strong majority shareholder who’s driving things. They really feel like that everything has to have an owner and someone who’s responsible and they look to that person like you’re responsible for this company. Other places don’t really want that. They don’t want it to be all one family, not so personal. If I like you one year, but next year I don’t like your business, I’m out. It’s not personal. But in Brazil it seems like the people… it’s a little more personal.

6. What is your take on investing in the public versus the private markets in emerging markets and Latin America right now?

RL: PE is such a longer term orientation that six months of flows doesn’t matter. Valuations all get pegged off of public markets in all markets and the private market is related. So it does affect short-term valuations, but the flows aren’t the same. People commit. They’re committed. Private equity for us is really an opportunistic play. Many investors have sort of a private equity benchmark that they have to pay attention to and if emerging markets is in the benchmark they have to think about filling that box. We don’t have to fill the box. We don’t have any private equity benchmarks. So, we’re only going to do it if we think there’s a special opportunity to make money there. The truth is that if I thought I could get the same return and risk vs. reward with more liquidity I wouldn’t invest in private equity. I would never lock up if I thought I could get it somewhere else. I’m happy to have zero and there’s a max amount I’d be willing to have which in general for most portfolios is in the 10 to 15 percent range.

multinational companies and had those relationships and could give them what they wanted. That was a little easier for us to ascertain and figure out who was connected that way. It’s a little hard on the ground to figure out who really knows which side of the street you should be on. We also had little bit of office and a couple other things, but the main place that we put money was in Indian logistics. We didn’t do much Indian private equity. It’s the most over-penetrated private equity market, I think, in the world. You can see by the private equity amount raised and when you look at Latin America and you compare it to the amount of private equity in Asia, even adjusting for the different sizes of the country or GDP, Latin America is very under-penetrated with private equity. India is the poster child for having more private equity than they can ever know what to do with, which is why all those firms wind up buying public equities. Not all of them, but a lot of them wind up buying public equities.

At Seven Bridges, we currently have investments across EM. We have more of our money right now in Asia than any other part of EM. The two areas I look at most seriously are Brazil and actually South Africa. It’s an inefficient long-short market. It’s not a long opportunity there, but it appears to be a pretty inefficient market and it’s a market no one else looks at. Brazil is more likely to be long. It’s just more of a long theme, though Brazil has a higher probability of social unrest. Not necessarily political problems, but there’s social unrest.

Each country has its own risks. Brazil has mostly social risk. There are politics and corruption, but there’s corruption everywhere. Brazil has a real functioning capital market, which is not true in China. Although there’s obviously a lot of activity, it’s controlled and India is a fairly closed market, too. There’s a lot of activity, but the government makes it hard for foreigners. We don’t have much money in Latin America right now. Mexico may be interesting for the first time since I’ve been an investor. I think Mexico has actually gotten itself together. The fact is they seem to be reforming the oil & gas sector. This is very important for the country to do in terms of actually allowing some foreigners to be involved because they just don’t have the expertise. That is a huge tailwind.

4. What has been your experience with the talent of managers in Latin America?

RL: I think that pan Latin managers have an

LREJ AUGUST 2014: Seven Bridges Advisors

LREJ / AUGUST 2014 19