Although the real estate fund index (Ifix) has not yet recovered all the fall caused by the covid-19 pandemic, the inflationary spike that is now being seen offers good prospects for this class. According to experts who participated in a panel on the sector at Expert XP 2021, the discounts observed in quotas do not yet reflect the resumption of activity in the main subsectors.
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Despite the depreciation of assets in the secondary market, the segment showed a lot of resilience during the health crisis and confirms its status as a safe haven, according to the partner and XP Asset manager, Pedro Carraz. “Amidst the unknown movement of the pandemic, many people sell in desperation and the quota falls, but behind them there are bricks, paper, real estate, there is no reason to lose 10%, 20% in a few days”, he said. “On the contrary, with inflation rising month by month, nothing better than the property, which has a natural hedge, tenants pay rent every month and contracts are adjusted annually for inflation.”
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Brazil, unlike other economies, was already coming from one of its worst crisis, between 2014 and 2017, and was rehearsing a reaction from a low base, when the pandemic further flattened prices, said the Blue Macaw CEO Marcelo Fedak. He mentioned that the offer in the local real estate market is still very small when compared to other countries.
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As soon as rental demand normalizes, the trend, he commented, is for the sector to perform better. When compared with the return of the National Treasury Notes series B (NTN-B), maturing in 2026 or 2035, with rates of 4.5%, 4.8% above the IPCA, the additional expected for the Ifix, in around 8%, it remains attractive. “Even taking into account the pre-ten-year rate, at 10%, if Ifix gives another 8%, it is a relevant positive spread,” said Fedak.
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He recalled that after periods of recession, it is natural to see inflationary spikes and that real estate investments act as a natural protection. “Where prices are today in Brazil, it’s an attractive entry point.”
Although the IPCA in 12 months is above 8% and the annualized IGP-M has surpassed 35%, the expectation is that the index used for the inflation targeting system, pursued by the Central Bank (BC), will return to stay below 4% in 2022, according to market projections in the Focus bulletin.
For Alexander Alfer, Captain’s Manager, during the crisis there was a lot of questioning about the flow in shopping centers and the use of corporate slabs. But what you start to see in the listed funds is that office vacancy is not so great anymore, and in the main regions there is not much bargaining on rent prices. “The shopping mall segment is another one that is already recovering, with a sales level similar to the pre-pandemic one, it already has a mall with record sales.”
Although e-commerce has advanced – and benefited the segment of logistics warehouses -, the perception is that shopping center assets will preserve their value, according to Carraz. The Brazilian culture of using the space not only for shopping, but for entertainment, food and services should also bring new ventures into the area. “We are increasingly going to see the integration of online and offline consumption,” he said.
E-commerce, accelerated by the pandemic, should continue to gain participation in global retail sales and this is a secular movement that will help the sector to perform well, stressed Fedak. “For every R$ 100 million in e-commerce sales, which grows at 10%, 15% a year, there are 200,000 to 300,000 square meters of warehouse demanded every year.”
For the manager, the return of physical retail will not change the dynamics of online shopping, which should occupy a greater space in Brazilian consumption. “There is a huge avenue, it is an interesting sector to be positioned.” He mentioned that among the tenants he has in Blue Macaw’s logistics fund, Dafiti increased the number of customers by 50%, while Mercado Livre tripled the number of items sold. The lease value, in turn, is still significantly depreciated, at US$ 20 per square meter in a quality warehouse, below that of other countries in Latin America.
Real estate debt funds still represent the largest amount listed on the stock exchange and also in market value. In the pandemic, they showed a lot of resilience, even with the change of indexer from the IGPM to the IPCA in some agreements during the pandemic, said Alfer, from the Captaincy. The rising IPCA and IGPM ended up improving the portfolios’ monthly yields.
But in order not to affect the health of projects that took credit based on the IGPM, some managers got ahead and sat down to talk with borrowers, while lessors and lessees went to the negotiating table to change the index, anticipating the bill that provides that the adjustment by the IPCA becomes permanent.
Even with the opportunities in the Brazilian market, Eduardo Mufarej – one of the names that became partners at JLP Asset Management, beside Pedro Faria and JHSF International, by Zeco Auriemo – said that the investor should consider from the international diversification.
“From the point of view of portfolio allocation, it is important to have a head in the world, to have a slightly expanded vision, because it is practically impossible to have exposure in subsectors such as ‘health care’, ‘data center’ or cell towers on the stock exchange in Brazil “, he said. “The global presence, in a way, allows us to be in those ‘pockets’ that are even more discounted in Europe, where there is a clear opportunity, or in Asia.”
JLP focuses on Real Estate Investment Trusts (REITs) listed on the international market, the equivalent of Brazilian real estate funds, and also on Real Estate Operating Companies (REOCs), companies seeking capital gains. The manager raises more than US$ 500 million.