With the real estate investment trust (REIT) sector gaining strength and attracting investors in recent years, a group of six asset managers has joined forces to lead the institutionalization of the Brazilian market, as well as the Latin American market, aiming to attract resources from outside the region.
The firms Alianza, Guardian, Suno , TRX , Valora , and Vinci Compass , which together manage over R$ 370 billion in assets, along with the law firm I2A Advogados, announced this Friday, May 29th, the creation of Lareal (Latin America REITs Association), an association that aims to lead the institutionalization of real estate investment trusts (REITs) in Brazil and Latin America.
The assessment is that the Brazilian and Latin American markets need to organize themselves, consolidating international data and standards, to expand the presence of institutional investors, both local and foreign, in a market whose growth has been driven until now by retail investors.
“Our market is already quite large. Brazil is the seventh largest market for real estate investment trusts (REITs), but it lacks a consolidated voice and international visibility,” says Potyguara Camargo, president of Lareal, to NeoFeed . “The volume of foreign capital could be much greater if there were standardization.”
According to him, Lareal wants to engage the market to establish an institutional infrastructure capable of organizing data and creating standards for presenting information, aiming to translate the segment for different investors.
The association aims to promote the consolidation and standardization of information according to the standards required by professional investors, the monitoring of eligibility criteria, and the production of market intelligence, in addition to carrying out advocacy work.
Camargo says that the institutionalization of the market aims to attract different investor profiles, from pension funds to multi-market funds. "Lareal seeks to be a gateway for any investor who is not yet involved in the REIT market," he states.
Standardization is seen as fundamental to attracting foreign investors, who do not understand the peculiarities of the Brazilian and Latin American markets. In Brazil, for example, FIIs (Real Estate Investment Funds) have a legal structure similar to investment vehicles, while in the United States, REITs (Real Estate Investment Trusts) operate like traditional companies.
Despite this, global investors analyze a significant portion of Brazilian real estate funds using the same logic as listed international real estate investment vehicles. The association aims to use this point of convergence to bring the Brazilian and Latin American markets closer to the global industry.
According to Camargo, there is interest from foreign investors in the region. He says that the gateway for this audience is through ETFs, with the first movements occurring in 2022, when the president of Lareal was working on the institutional FII (Real Estate Investment Funds) desk at XP Investimentos .
The assessment is that adapting REITs to global criteria will allow more Brazilian funds to enter international indices and ETFs , attracting a greater flow of resources to the sector in the short term.
Measures like these can improve the representation of REITs in global real estate benchmarks. According to Lareal, Brazil has an 8.69% share in the FTSE EPRA Nareit Emerging Index, an international index that tracks companies and real estate vehicles listed in emerging markets and is used as a reference by global investors and ETFs.
With greater inclusion of Brazilian funds in the index, the country's share could reach 13.45%, with a market cap of US$25.5 billion, up from the current US$14.04 billion.
To achieve this, local asset managers need to be engaged in meeting the eligibility criteria required by the indices, such as size, liquidity, free float , governance, and the composition of their investor base.
“Often, when we talk about foreign investment with some managers, since it's not yet so much on the radar of the local market, they end up thinking it's a milestone for four or five years from now. However, there are issues that can be unlocked, paving the way for this to become a reality in the Brazilian market in a short time,” says Camargo.
He says that Lareal is already in talks with four other Brazilian asset management firms. Further down the line, the idea is to bring asset managers from other Latin American countries into the association, excluding Mexico , which already has an equivalent structure.
Lareal is already associated with the Global REIT Alliance, a group that brings together associations from different countries and works to harmonize global standards for governance, reporting and disclosure of fund data, representing Latin America.
In June, the association will participate in REITweek in New York, with the goal of representing Latin America in the international debate on real estate vehicles in the region and expanding dialogue with investors, associations, and other participants in the global industry.
