Brazilians Using Economic Recovery To Funnel Millions Into Miami Real Estate
On the evening of June 7 in Porto Alegre, Brazil, about 150 people showed up to a cultural center called Instituto Ling to hear a pitch from Alan Araujo. There, the director of international sales at One Sotheby's in Miami was pitching these mostly high-net-worth investors and their families on condominium units at two high-end projects in Miami: One Thousand Museum by Zaha Hadid Architects and the Louver House.
And on this Wednesday evening, Araujo said at least part of his audience was looking to buy condos — which ranged from about $3M at Louver House to more than $20M at One Thousand Museum — because they wanted to get their capital out of Brazil.
“If you see the amount of money in Brazil, it's insane,” Araujo said. “But people want to protect their money, so they want to get their money out.”
As Brazil's tumultuous economy appears headed for gradual recovery, some Miami condo real estate players say they are seeing a resurgence of interest from residents in the Latin American country.
Real growth domestic product — a measure of economic output adjusted for inflationary and deflationary pressures — took a dive by declining 3.8% in 2015 and 3.3% last year. But gross domestic product in Brazil is projected to make a trudging comeback; it is up half a percent this year, then expected to accelerate to 1.8% in 2018 and 2.12% in 2019, according to The World Bank Group June 2017 report titled Global Economic Prospects: A Fragile Recovery.
“In Brazil, rising unemployment, tightening financial conditions, and continued political tensions extended deep declines in private consumption and investment. The regional recovery is expected to gather pace in 2018 and 2019 as growth picks up,” World Bank Group officials stated in the report. “In Argentina and Brazil, reforms implemented over the past two years to stabilize government finances are expected to begin to yield dividends, as will efforts in Argentina to improve the business climate.”
Between August 2015 and July 2016, nearly 11,000 properties worth $6.2B were purchased by foreign buyers in the Miami area, according to a Miami Association of Realtors and National Association of Realtors 2016 international homebuyers report. Of those properties, buyers from Venezuela, Argentina, Brazil, Colombia and Canada made up nearly half that dollar volume.
Brazilian Wealthy Coming Back
Just a couple of years ago, Louis Birdman did not see a single Brazilian prospect — even though they make up more than half of all Latin American millionaires. Today, the co-developer of the ultra-luxury One Thousand Museum expects to court 250 Brazilians at the end of the month at an event that will market units at the 62-story condo tower on Biscayne Boulevard, overlooking Museum Park.
Like much of Latin America, investment funds from that part of the world dried up for a spell when the dollar strengthened.
“There was a period of time, for over a year, we didn't even actively market in Brazil,” Birdman said.
But when it comes to Brazil, Birdman said that as the value of the Brazilian real drops against the dollar, it prompts investors to shelter into dollar-denominated assets like real estate in South Florida. As the U.S. emerged from the Great Recession, the exchange between the real and the dollar was two reais for every greenback.
Then Brazil's economy tanked, and with it went inflation. At its worst in 2016, just one U.S. dollar cost Brazilians about four reais. The exchange rate has backed off — now 3.31 reais for every dollar.
Birdman said 40% of One Thousand Museum buyers have been from Latin America, dominated by Brazilians and Mexicans. Another 25% of the buyers are domestic. And the number of domestic buyers may rise slightly once the tower delivers; Americans typically like to see a finished product before buying, Birdman said. But as economies in Latin America improve, Miami will be investors' natural target to buy condominiums.
“I think we're seeing the beginnings of a trend again where we're going to see an increase again with a flow of buyers from Latin American countries into the United States,” he said.
Flight To Safety
Perhaps the biggest difference between the resurgence of rich Brazilians to South Florida today and from previous years is the motive: They are basically fleeing their home country, FB Capital CEO Fernando Bergallo said.
“The problem today is you have both things, political and economics linked,” Bergallo said. "It's too difficult to believe that the country will grow again. This makes people decide to move abroad.
Uiane Lim, a realtor with Galleria International Realty, is seeing more interest from Brazilians buying real estate purely for personal use versus an investment. And in doing so, they are purchasing less expensive condo projects in Miami.
“It's a different kind of Brazilian this time,” Lim said.
She even said she sees them buying businesses like gas stations less for the investment and more for a bigger motivation: In the hopes to obtain visas to stay in America while Brazil's political dramas continue to unfold.
“They are trying to open business here because they want to get out of Brazil,” Lim said. “That's why they're after commercial properties. The gas station, for example, is an easy business.”
While exact numbers are hard to come by, Miami, which has a familiar, Latin culture, has been an especially popular destination for Brazilians. Aside from economic and political turmoil, safety is a big reason many Brazilians are leaving the country. Brazil ranks among the most murderous countries in the world, according to Quartz.
In 2015, there were more than 56,000 homicides in Brazil, 72% of which were committed with firearms. At a population of 204.4 million, that is 27.5 homicides per 100,000 residents in 2015, according to data compiled by the Igrapé Institute.
FB Capital transfers and exchanges reais from clients into other denominations, especially dollars. Bergallo said his firm has 3,000 Brazilian clients who have purchased properties in Florida.
In 2015, then-President Dilma Rousseff was removed by vote of the Brazilian Senate for breaking that country's budgetary laws. Since then, political stability has been elusive. Most recently, President Michel Temer became embroiled in a scandal. While a Brazilian court recently acquitted Temer of allegations of soliciting illegal campaign contributions in 2014, he still faces political turmoil and struggles to hold a coalition government together while battling back from one of the deepest recessions in Brazil's history.
These controversies could hurt an economic recovery in that country, prompting economists to trim economic growth forecasts slightly in 2017 and 2018.
Lim said she has seen a spike in Brazilians attempting to rent their condos in Miami — ones held for personal use only. It is a way for those owners to pay for property taxes and other expenses, especially when those bills are translated into the real. Lim said it is not really a money-making scheme for Brazilians.
“At least they don't want to have the expense. They're not making money on it,” she said. "They just want to break even."
This time around, for many Latin American investors, it is not just condos that are attracting attention. Some are even delving into commercial real estate investments, said Brian Stringer, an attorney with Barbosa Legal.
Some of the more savvy investors are seeing investment returns are healthier than renting out condo units. After all, a lease in place produces income. Stringer said he is seeing foreign buyers invest in retail properties, gas stations and warehouses. Stringer said some foreign condo owners may start to have problems reselling condos, especially as a flood of new supply hits the Miami market. But he concedes, for many Latin American buyers, condos are a simpler investment to understand.
“You buy a condo for $10M. And what are you going to do with it? You may enjoy it as a vacation home, but in the long run that thing is going to cost you more. But you do have a lot of people who don't really care. They just want their money out of there,” he said. “They would rather have their money in a condo here in Miami than a bank in Venezuela.”