Brazil's Vinci Partners bets big on real estate as prices fall

A weak economy and corporate credit squeeze are depressing asset prices

PUBLISHED : Wednesday, 15 April, 2015, 6:00am
UPDATED : Wednesday, 15 April, 2015, 6:00am

Vinci Partners Investimentos, the Brazilian private equity and asset management firm, is betting on real estate as a faltering economy and corporate credit squeeze push asset prices lower.

"Most real estate companies in Brazil are trading below their book values so if you sell the properties they own, you'll get a better price than selling their shares," Alessandro Morgado Horta, the chief executive of Rio de Janeiro-based Vinci, said last month.

Vinci has committed to invest as much as 300 million reais in a capital increase that could total 500 million reais to restructure PDG Realty, a real estate developer with a market price less than a fifth of its book value. BTG Pactual and Brookfield Property planned to pay as much as 3.58 billion reais to take private BR Properties, a real estate company that has a market value that is 63 per cent of book, the companies said in February.

Real estate prices fell 3.1 per cent in the first three months of this year discounted for inflation, according to the FipeZap home price index, as the government struggles to avoid a credit downgrade amid predictions of a recession. Economists surveyed estimate the economy will contract 0.75 per cent this year. Brazil's Ibovespa benchmark stock index has dropped almost 9 per cent in the past seven months and the currency declined 26 per cent.

"The moment is very complex for Brazil to attract capital, but also because of that we see more opportunities," Horta said.

JP Morgan Chase's Brazil chief executive, Jose Berenguer, said in an interview last month that he was starting to see "bottom fishing" by investors looking for value, "but they aren't in a hurry".

PDG shares have tumbled about 80 per cent since August 2012, when Vinci invested 480 million reais in a capital increase to restructure PDG debt. After buying shares on the secondary market, Vinci now has a stake in PDG of about 30 per cent, data shows.

If Vinci injects 300 million reais in the next capital increase and no other shareholder participates, it would get a stake of about 49 per cent.

"In 2012 when we invested in PDG, the economy was different; now we have a recession, higher interest rates," Horta said, adding that PDG was the only private equity investment Vinci had made that had declined in value.

An official at PDG did not immediately respond to a request for comment.

Vinci, founded in 2009 by former partners of Banco Pactual, a predecessor of BTG Pactual, was also raising a fund to invest in commercial real estate and shopping centres, Horta said. The fund had 500 million reais in total assets and Vinci was planning to raise a further 300 million reais, he said.

"Brazil has a lot of advantages for private equity investments because it's possible to generate huge returns by increasing productivity when managing a company," Horta said.