issuance of Uruguays first real estate investment trust
(Reit) is being quickly followed by more advanced deals. Strong
relationships with pension funds and the securities regulator
should be top priorities for managers looking to tap the
of high net-worth individuals entering the country and a
shortage of eligible investments for pension funds makes
Uruguay ripe for public Reits. And despite no Reit legislation,
the first IPO was launched last month by asset manager Indendendencia and
another, managed by Compass, is in its
preliminary stages (yet to be filed for
on both deals offer two warnings: work prospective
investors requests into the structure before filing with
the regulator; and then be willing to wait.
suitability of Reits for pension funds, Uruguays dominant
institutional investors, has driven the development of the new
& Regules partner Nicolás Piaggio who is working on
the Compass deal said there were not many products that are
eligible for investment. Therefore the pension funds are
eager to discuss and cooperate with whoever brings new products
to the market they want them to be eligible
investments, he said.
Reit allowed pension funds to participate for the first time in
the real estate market. The long-term nature of the investment
makes it attractive, but it also involves exposure to the asset
at the centre of the financial crisis.
partner Diego Rodríguez, lead counsel on the deal, said
this meant the first-time real estate investors requested
additional protections. It was complex to negotiate with
them and come up with a final structure with which they were
comfortable, he said.
Compared to the
US and other more established Reit markets, pension funds will
be more cautious. Here, when pension funds invest in
something they take a lot more precautions, controls and
formalities that are not all that common in other
countries, Rodríguez added.
Uruguay, they also get a greater opportunity to do
As part of
launching the product the developer discusses openly with the
prospective investors mainly pension funds and
then the product is tailor-made to the requests and needs of
prospective investors, Piaggio said.
must be prepared to engage with the funds throughout the
structuring process, and give serious consideration to their
requests. Managers, however, will also receive two key benefits
from this: great certainty about investor appetite when it
launches, and an appeased Superintendencia de Servicios
regulator sees this as a good opportunity for the promoters to
make the product better, Piaggio said.
Independencias Claudio Zichy, who led the deal
internally, the manager being known by the
Superintendencia, and known for having a good track
record with the countrys investors, will be crucial for
the approval of future Reits.
agreed that future deals will be easier now that there is a
precedent to work from, but only slightly. It takes some
time for [approval] to happen and you need to know the right
people to make it happen. If you go there and try to do it on
your own, it would be more difficult, he said.
could take a couple of years between the start of structuring
to the launch, Zichy said. Work on the Inderpendencia deal
started in 2007 and it listed on May 15 2012. As to be
expected, the deal stopped during crisis, but it still took
around three years of regular work before it
has mixed feelings about how receptive the regulator has been
in considering the new instruments. The authority can be
welcoming at the initial stages, but then approval can be
probably because they are swamped with work, but either way, it
takes too long to overcome the obstacles for these products to
be released into the market, he said.
makes Inderpendencias Reit most impressive is it was
structured under the countrys 2003 trust law. Uruguay has
no specific Reit law, meaning no tax efficient
other countries, tax benefits embedded in legislation is a
major reason for using the vehicle. But in Uruguay, connecting
pension funds with the real estate market is the main
said tax treatment under the Inderpendencia Reit was optimisied
by incorporating debt and equity features. The asset management
firms experience in Argentina, which also has no tax
efficient legislation, helped here.
done something similar in Argentina, we used what we learned
there and applied it in Uruguay as they use very similar
structures, he added.
Reit market is more developed than its eastern neighbour. The
similar regimes, and Uruguays economic growth, could
create an alternative for investors who are staying away from
Argentinas real estate market because of the
countrys political situation.
before the second Reit comes to market, it seems the
instruments development is accelerating.
Reit, which raised $60 million on its IPO, is limited to
investing in existing properties, creating sale-and-lease-back
opportunities for property owners wanting to free up their
was the first deal they didnt want to get involved in
construction, Rodríguez said.
Compass Reit, which is still at a preliminary stage after work
commenced late last year, is expected to raise up to $90
million. This vehicle will be able to invest in the development
of real estate.
makes is more complex to structure as it involves buying and
developing land, however it also appears to be where Reit
opportunities will be in Uruguay.
economy is growing quickly and the real estate industry has
performed well, but in the high-end residential and tourism
sectors more than commercial buildings.