Paladin Realty has been continuously investing throughout Latin America since 1998 through a series of comingled institutional funds and locally domiciled investment vehicles. The firm follows an opportunistic approach in selecting the appropriate product mix and geographic diversification for each investment fund. Weightings have varied from fund to fund, depending upon market conditions and other factors, however, the overriding objective is to achieve attractive risk-adjusted returns by developing diversified portfolios within the region. Paladin Realty has regional offices located in Brazil, Mexico, Costa Rica and Colombia.
To date, Paladin Realty has invested in 200+ properties in the countries of Brazil, Colombia, Mexico, Peru, Costa Rica, Chile and Uruguay, totaling more than $5 billion of total cost. Product types have included for-sale residential, rental apartments, student housing, office, lodging and land developments.
The firm’s key investment themes in Latin America are currently:
For-Sale Residential Investments
Paladin Realty has been one of the largest developers of for-sale workforce (low and middle-income) housing, rental apartments, and student housing across Latin America, developing over 38,000 housing units to date across the region’s major markets. Today the firm is focused on housing in Brazil, Mexico, and the Andean Region. Paladin believes that residential investments provide excellent risk-adjusted returns as they:
- Benefit from the region’s strong demand for housing, fueled by steady demographic tailwinds, huge regional housing deficits and household formation that greatly exceeds new supply
- Benefit from strong pre-sales, such that much of a project’s commercial risk may be mitigated prior to beginning construction; it is not uncommon for a project to by fully sold out prior to breaking ground
- Are executed with low leverage (from 0-60% of total cost, depending on market and product), which enhances cycle resiliency and downside protection
- Leverage buyer downpayments to use towards project costs, reducing equity requirements to approximately 20% of total sales, which is substantially lower than commercial projects; equity commitments thus averaging in the range of $5 million per project, which allows for substantial diversification within a fund, or programmatic structure
- Can be executed more quickly (3-5 years) than larger commercial projects which take longer to permit, build, stabilize and exit
- Enjoy inflation protection beyond those shared by real estate in general; Brazil, for example, sales contracts are indexed to the national construction cost index, hedging revenue against increasing costs
Zero-Carbon Affordable Housing Developments
Paladin Realty has been developing affordable housing across Latin America for over 20 years and has been doing so with certified sustainability over the past decade utilizing the EDGE (“Excellence in Design for Greater Efficiencies”) system developed by the International Finance Corporation (IFC) to save energy, water, and embodied energy in materials. Sustainable housing provides benefits for both investors, developers and homeowners, further bolstering the case for housing in Latin America. Specific programs vary country to country, but depending on the market, homebuyers of “green” housing:
- save upwards of 40% on energy costs vs. traditionally constructed homes; such savings allow for higher LTVs on mortgage products, as lower utility bills mean that more disposable income is available for mortgage payments
- are able to obtain lower interest rates on mortgages vs. traditionally built homes
benefit from resales at 4-10% premiums vs. traditional homes (per IFC)
Depending on the country, developers of sustainable housing benefit from:
- reduced interest rates on construction loans
- tax advantages for incorporating sustainable features
- reduced insurance costs
- faster sales as sustainable products are more affordable and/or desirable, as described above
In 2021 Paladin Realty was honored as an “EDGE Champion” by the IFC for its commitment to the program, having now certified 18 projects totaling over 5,800 units in Brazil, Colombia, Mexico, Peru, and Costa Rica. Most notably, Paladin Realty certified the first “EDGE Zero Carbon” residential project in the world at its 1,639-unit Villas del Fresno affordable housing development outside of Mexico City.
Paladin Realty is committed to replicating the performance of this project across the region, continuing to push the boundaries of what is possible in sustainable affordable housing, while still achieving compelling returns.
Paladin Realty is also a pioneer in the development of purpose-built rental apartment properties; the strategy is focused on São Paulo, a city of 20 million inhabitants, with 40% renters and only a handful of purpose-build rental apartment buildings. Paladin has a platform of five multifamily projects in various stages of development, located in the city’s most desired submarkets of Itaim, Pinhieros, Jardins and Vila Madalena, within walking distance of metro stations, shopping, restaurants and other attractions.
Boutique Office Investments
Taking advantage of the COVID-induced trend towards smaller, healthier, more conveniently located office buildings, together with local partners Paladin has structured a Fundo de Investimento Immobiliario (“FII”, the equivalent of a U.S. REIT) to build a portfolio of boutique office buildings in the city’s most desirable, supply constrained neighborhoods. Four ground-up development projects are currently underway in prime regions with single-digit vacancy rates.