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Why Sam Zell’s Argentina Investment Could Signal The Next Latin American Real Estate Gold Rush


The international business community was not a fan of Argentina for much of the early 2000s due to tight capital flow and currency regulations, but the election of a new president, Mauricio Macri, in 2015 has ushered in an era of economic reform. 

Buenos Aires

It gave Sam Zell’s Equity International the confidence to return to Latin America’s fourth-largest country for the first time since 1999.

Equity International, Goldman Sachs and Centaurus Capital announced in early April a $300M Argentinian real estate deal. The venture includes the roughly 1M SF portfolio acquisition of a Class-A office park, a mall and adjoining land for future development in Buenos Aires. ARG Realty Group is a newly formed entity created at the time of the investment. The real estate management team of South American investment firm Grupo Pegasus was internalized by ARG including Rukan, the developer of the above-mentioned properties. A remaining $75M from the deal will be set aside for future growth.

“I think we saw progress was being made with Macri’s election in 2015 and change was on the horizon,” Equity International Chief Investment Officer Brian Finerty said. “We think there is more credibility and durability to Macri’s policy.”

Retail accounts for about 475K SF of the investment, and about 550K SF is dedicated to office space, Finerty said. Near-term growth includes an expansion of the existing mall. Land adjacent to the mall came with the overall purchase, and the group is still deciding how to develop that space moving forward. The JV has explored a variety of growth strategies; taking ARG Realty Group public is one option on the table.

Equity Group Investments Chairman Sam Zell

“If we do an IPO, that is likely dependent on a lot more research. We probably anticipate a dual listing on both the New York Stock Exchange and a Buenos Aires Stock Exchange listing,” Finerty said. “To do that, size is important. We’d want a large group of local investors who need to see a liquid stock. We’re going to work hard for the next year or two to bolster the capital we invested.”

While Argentina was once one of the wealthiest countries in the world, the last century has been an economic roller coaster. The economy was stagnant following the death of former President Juan Perón, and while the 1990s offered a glimmer of hope, it languished again during back-to-back presidencies of husband-wife duo Nestor Kirchner and Christine Fernandez de Kirchner.

Investors fled during the Kirchners’ presidencies, with $80B in capital leaving the country between 2008 and 2015, according to Invesco. Though President Mauricio Macri has delivered at-times hard economic pills to swallow since his 2015 election, the country appears to recognize its need for the medicine.

“It was the end of a very long and sad period of about 10 to 11 years for all of Argentina, not only in terms of the economy but also social issues and politics,” SAHIC Latin America Hotel Investment Conferences President and founder Arturo Garcia Rosa said. “Mainly the last eight years of Mrs. Kirchner was one disaster after another. The election of Macri was a true signal and call for change.” 

Former U.S. President Barack Obama with Argentina President Mauricio Macri

Macri rode into office intent on pushing economic reform, and he has followed through on many of his campaign promises. The new government also re-established ties with the International Monetary Fund, which had withdrawn its financial support of Argentina in early 2002. In his drive to create more of a free market economy, Macri quickly unified the exchange rate, which previously operated with official and unofficial rates because of the previous government’s currency control, and started removing subsidies on sectors like energy.

The move is part of a broader push by the administration to increase competition and boost business creation and trade, notes the U.S. State Department. So far his policies have paid off. Macri’s coalition won a sweeping victory in Argentine midterm elections in October.

“All combined, they are giving a lot of hard medicine to most of the population, and his approval rating is still strong,” Finerty said. “His party did extraordinarily well; Kirchner did poorly. Despite this hard medicine given to a lot of the population, people overall understood they needed the change. Kirchner was not a durable strategy.”

The Plaza de la República in Buenos Aires

Though Macri has maintained fighting inflation as a top priority to attract more private and international investment to his country, economists in early March revised their 2018 outlook for the nation’s economy. They cautioned inflation rates would hover around 19.9% and forecast median growth for the year would be 2.7%, lower than the Macri government’s target of 3.5%. It would still be the first time Argentina’s economy has expanded for two consecutive years since 2010 and 2011.

“We realized it’s challenging for large global institutions to get their heads wrapped around Argentina today. We think they’re starting to have the conversation, which a year and half ago, nobody was having those,” Finerty said. “There are groups having those conversations today, and I think those will lead to investments in the country. But it’s up to the politicians there to create the credibility needed to get capital to flow.”

Even if the Macri government does not hit all of its economic goals, the Equity International venture feels comfortable in its Argentine foray. ARG Realty’s retail and office assets performed well during challenging parts of the global economic downturn from 2007 to 2009. The mall still managed to sustain 97% occupancy and occupancy levels at its office remained between 90% and 95% during the downturn, Finerty said.

“There are downside protections in these assets. We think we’re buying into them very well,” he said. “We know in a place like Argentina you need to be nimble and react to what you’re seeing in the government.”