Paladin Realty has been active in Brazil since 1999 through a series of joint venture relationships with local developers, as well as executing certain strategies in-house. The firm has historically focused on for-sale housing, but has capitalized on several opportunistic investments in income-producing assets over time, and is executing to compelling income-producing strategies today.
To date, Paladin Realty has invested in X projects in Brazil, with the majority being in São Paulo; the firm has also invested in Brazil’s other principal cities of Rio de Janeiro, Porto Alegre, Belo Horizonte, and throughout the state of Santa Catarina.
The firm’s key investment themes in Brazil are currently:
Paladin Realty invested in X for-sale residential projects in Brazil over the course of the past 20+ years, totaling X units and X of total cost. Due to Brazil’s young population and inadequate housing, it is estimated that approximately 1.5 million housing units are required annually just to keep up with incremental demand. Consolidated national figures are not available but Paladin estimates that less than 500,000 units are built every year, representing a 3:1 ratio of potential demand to supply. This disparity has made housing a relatively resilient real estate product throughout economic cycles, which has been well confirmed during the pandemic; in 2020 housing sales in São Paulo totaled 51,417, setting an all-time record. This record was surpassed in 2021, when 64,103 units were sold.
Paladin alongside its partners has built homes in several Brazilian cities, but today is concentrated in São Paulo, home to the largest demand and the most sophisticated development partners.
In early 2020 Paladin, alongside local partner Idea Zarvos, formed a platform to develop purpose-built rental housing in São Paulo’s most desirable neighborhoods. The fact that there are virtually no purpose-built rental apartment buildings in São Paulo, a city of 20 million residents, provides a compelling investment opportunity. While yields on cost generally range from 5-7% in other Latin American cities, projected yields for this platform are in the 10-12% range. Two assets are currently in operation and three projects are in various states of development; the assets are 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.
In late 2020 Paladin entered into a partnership with local developer Idea Zarvos to build a portfolio of boutique office buildings in the São Paulo’s most desirable, supply constrained neighborhoods. The business plan takes advantage of the COVID-induced trend towards smaller, healthier, more conveniently located office buildings that will be key for tenants to attract top talent.
Together with the participation of local fund manager Hedge Investimentos, Paladin was successful in raising additional capital for the platform from local investors in the form of a Brazilian Fondo de Investimento Immobiliario (“FII”, the Brazilian equivalent of a REIT), where local investors committed an additional R$237 million of equity to the program. Four projects are currently underway, located in the desirable neighborhoods of Itaim, Pinheiros, Paulista, and Jardins.