Sam Zell and Goldman Sachs Invest in Argentine Real Estate
April 03 2018 - 5:53PM
Dow Jones News
By Peter Grant
A venture led by Sam Zell's Equity International and Goldman
Sachs Group Inc. is investing more than $300 million in Argentine
real estate, a vote of confidence in the economic overhaul being
pursued by the three-year-old government of Mauricio Macri.
The venture has purchased a portfolio of commercial property
including an office park and mall in the Buenos Aires area and land
for future development. It is also buying the developer of those
two projects, a company named Rukan, which is being renamed ARG
Realty Group.
ARG Realty plans to spend more than $200 million in the "next
few years" to buy other properties and develop projects in the
pipeline, said Tom Heneghan, Equity International's chief
executive.
"Argentina has been a country that's been shut out of the
capital markets for over a decade," he said. "From a real estate
perspective, it's been starved."
The deal is one of the largest foreign investments in Argentine
real estate since Mr. Macri took office in 2015. He has scrapped
currency controls and has been pushing forward a wide range of tax
cuts and austerity measures designed to overhaul the country's
economy and attract investment.
Goldman is investing in the venture through its merchant-banking
division, which operates as a private-equity firm. The deal marks
the first time the division has invested in Argentina in more than
15 years.
Mr. Zell, who is chairman of Equity International, is a
well-known U.S. real-estate investor with a career spanning a half
century. He made a fortune -- and earned the sobriquet of the
"grave dancer" -- buying distressed real estate in the early 1990s
and profiting handsomely later. In 2007, he sold Equity Office
Properties for $39 billion in the largest-ever leveraged buyout at
the time.
Since then, most of his real-estate investments have been
through Equity International, which focuses on building property
companies in emerging markets and taking them public. Eventually
that is what the venture hopes to do with ARG Realty, Mr. Heneghan
said.
Equity International began eying Argentina five years ago, but
the country was still "a bit of a mess" back then, Mr. Heneghan
said, partly because of its history of defaulting on sovereign
debt. Last year, Mr. Zell met with President Macri and was
impressed by his plans, Mr. Heneghan said.
It is too early to gauge how successful Mr. Macri's strategy
will be.
"The question is: are they really on a path to fixing it and
living up to their potential, or could they disappoint," Mr.
Heneghan said.
If Argentina disappoints, the venture has "downside protection"
from the income from the office building and mall, he said. That
net income amounts to a double-digit yield on the venture's
purchase price, he said.
Rukan was the real-estate-development unit of Grupo Pegasus, a
South American investment firm with offices in Buenos Aires and
Bogotá.
Jeronimo Bosch, one of the founders of Pegasus, will continue to
work for ARG Realty as a senior executive on the management team.
Also, some of the original investors in Pegasus, including
Centaurus Capital LP, are participating in the new venture.
About $240 million of the Rukan purchase price is going for
land, the operating business and the two buildings: a 50,000 square
meter (538,000 square foot) office park named Urbana and the 45,000
square meter Tortugas mall north of Buenos Aires. The rest is
capital for future growth in expectation the economy gains
traction.
Mr. Heneghan said the venture is considering investments in all
classes of commercial real estate.
"Office looks interesting. Warehouses look interesting," he
said. "All are benefitting effectively from the same thing:
undersupply."
Write to Peter Grant at peter.grant@wsj.com
(END) Dow Jones Newswires
April 03, 2018 17:38 ET (21:38 GMT)
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