Colombia-Chile-Peru Interview with Real Estate experts

INTERVIEW WITH REAL ESTATE LEADERS:

ALEJANDRO LUNAVP Latam

GLL REAL ESTATE PARTNERS GMBH

Germany

CRISTIAN ARMAS MOREL

Director EjecutivoEMPRESAS ARMAS

Chile

GABRIEL FLOREZGerente General

PÉNTACO Colombia

ANTHONY JAMES DIBIASE

Principal - CA InternationalCA VENTURES, LLC

USA

ANDRÉS STÖRMANNPartner

E&S PROPERTY INVESTMENT S.A.S.

Colombia

HERNANDO FORERODirector

GRUPO PEGASUS COLOMBIA SASColombia

JUAN FELIPE YARCE VILLACountry Manager

ColombiaGRUPO LAR

Colombia

MAURICIO VARELACEO

EMPRESAS SOCOVESA Chile

TOMÁS URIBEManaging Partner

JAGUAR CAPITALColombia

COLOMBIA CHILEPERU GRI

2015Q A&

http://www.globalrealestate.org/colombia2015/Participants

Q A&Where do you see Colombia/ Chile/ Peru in the real estate investment cycle?

Gabriel Florez: We see that Colombia is near the peak of the cycle in many sectors. For example within the office and the industrial sector, the vacancy has increased dramatically in the main cities.

Hernando Forero: Although my perspective is biased towards Colombia, the market I am active in, it seems that all three markets appear to be off their peaks. It is still not clear how far the adjustments will go and when the markets will reach their troughs; yet, the adjustments will depend to a large extent on macro-economic factors that are in turn linked to commodity prices. A significant correction in dollar terms has already occurred; yet, corrections in local currencies are still to materialize. One would expect real local currency corrections to occur as well over the next 18 months as a result of a reduction in rent levels and a potential cap rate expansion. Offices in Colombia,

particularly in Bogota, provide a good example of a sector in which rents appear to be falling due to an imbalance between supply and demand, and as a result a reduction in property prices is expected.

Anthony DiBiase: It depends on the product type. But in general Colombia and Peru as a whole are still in growth mode for office and residential. Santiago, Chile is a bit overbuilt in office. In residential all three are behind in purpose built residential rental property.

Andrés Störmann: The Colombian economy reported a 2.8% growth in the first quarter of 2015. We experienced expansions of the sectors of commerce, construction and financial services which recorded growth rates greater than 4%. However, that was not enough to offset the performance of the mining and oil industry. We also experienced a lower rate of exports and of government

consumption, while household consumption and gross fixed capital formation recorded growth rates of 3.9% and 6%, respectively.Despite the deceleration of the Colombian economy, the country leads the region’s growth rates, above countries like Mexico, Chile and Peru. Colombia´s expanding market, its political incentives and its increasing construction sector offer excellent opportunities to buy into a market with an expected long-term growth.

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http://www.globalrealestate.org/Colombia2015

Q A&Where do you see Colombia/ Chile/ Peru in the real estate investment cycle?

Mauricio Varela: Chile is having a strong 2015 year in the residential market. Both prices and volumes are above 2014. I think this cycle is going to moderate and during 2016 residential demand will soften. In the office market vacancies are up in Santiago, the main market for A class buildings. Market conditions are favourable for companies looking to find good lease conditions.

Tomás Uribe: Colombia is in a very interesting point of the cycle. It’s more compelling to invest in the country now than it was a couple of years ago given the drastic adjustment of our currency ensuing the drop in oil prices. The economy is slowing down and will likely have a couple of years of low growth. However the fundamentals are still there - young population, controlled inflation, relatively healthy fiscal balance and a diversified economy.

Alejandro Luna: Chile has already seen the whole cycle for foreign investors and is an active and attractive market, Peru is already starting to move and already has foreign investors participating in the market and Colombia for reasons like financing and strata ownership has been complicated for foreign investors looking to acquire core assets, we hope that changes in the short term.

Juan Felipe Yarce Villa: I don’t know for Peru and Chile, but I think Colombia continue to be at its peak in the investment cycle, mainly because of its financial and macroeconomic stability.

Cristian Armas: In the consolidation step and developing strong social living politics.



Q A&Between Colombia, Chile and Peru which country will provide the best opportunity

for investors in 2015/2016, and why?

Gabriel Florez: Given the fact that the Colombian market should rebalance; there are great opportunities to come because of distressed situations that come from the fact that there is a great deal of the Real Estate that was built for the past years that was sold to retail clients and not to institutional investors. The years to come should allow the industry to professionalize and that is a great opportunity.

Hernando Forero: Given that the three countries have sound economies and good medium term growth prospects, the best opportunities in 2015/2016 will probably be offered by the country that experiences the sharpest market correction. On the basis of the dollar denominated corrections, Colombia probably offers the best short-term opportunity. Notwithstanding the above, given that Chile has the most mature and deep institutional real estate market of the

three, it could offer the largest and most actionable institutional opportunities.

Anthony DiBiase: I believe it will be Colombia over Peru and Chile simply because of the overall size of the market and the diversity of population in multiple markets as compared to Peru which has only Lima and Chile has only Santiago.

Andrés Störmann: Peru and Colombia are definitely the two countries within Latin America with the biggest potential for investors in 2015/2016.Despite the strong annual growth of residential construction in Peru, the demand for this asset class is still growing and is attracting new national and foreign investors. The growing purchasing power of the Peruvian population and the greater access to loans are factors that favour the dynamism of the Peruvian housing sector.

In Colombia, we are expecting a growing middle class of approximately 37% of the population in 2020 and 46% in 2025. The Colombian government has decided to invest approximately $16.8 Billion Colombian Pesos in infrastructure and education through a new incentive to boost productivity and employment (PIPE 2.0) in order to create up to 322,000 new jobs. Colombia tops the region for doing business in 2015 and according to the World Bank it ranks the tenth place worldwide and the first place in Latin America in terms of investor’s protection. It remains the benchmark in Latin America in terms of implemented political reforms to facilitate business and I think we can transfer these figures to the real estate sector.




Q A&Between Colombia, Chile and Peru which country will provide the best

opportunity for investors in 2015/2016, and why?

In 2016, we expect growing interest in the residential and industrial property sector with larger participations of foreign investors who are looking for profits from Colombia´s currency depreciation.

Mauricio Varela: I think Chile continues to offer favourable conditions for international investors in the real estate sector. Profitability is available for good projects and savvy investors, and the country provides an adequate legal and institutional framework to work in.

Alejandro Luna: For investors like GLL any of the three would do if we find the right asset. We are active in Chile, Peru and Mexico and looking for opportunities in Colombia.

Juan Felipe Yarce Villa: I would say Colombia, because besides being stable both political and macroeconomic, the peace

process should bring more attention to the country.

Cristian Armas: Chile because the very high Return on invest and IRR. Colombia because of the very big market, especially in the Strato 4 and 5 and Peru in the B and C+ sector.



Q A&

Gabriel Florez: It will increase because of a broader market.

Hernando Forero: Although the MILA is a positive initiative, trading volumes linked to it are still low and its potential is yet to be realized. We would need to see greater cross-border activity by institutional investors in the four countries for the MILA to have a material impact on a capital intensive industry like real estate. The Pacific Alliance, an institution-light grouping for like-minded countries, does not in itself increases investor appetite for its members. However, the Alliance reaffirms the story of why these open-market oriented democracies are attractive to investors looking for prudent macro-economic policies and the rule of law.

Andrés Störmann: The Pacific Alliance bloc (Mexico, Colombia, Chile and Peru) will continue to play a major role in improving

economic links with the more advanced North American countries, through coordinated macroeconomic policies and pragmatic diplomatic relations. The “MILA” and the broader Pacific Alliance are the foundations of the future transnational projects, which will create added value to these regions. It gives a positive signal, a growing independence of Brazil´s market and we expect an increasing investors´ appetite especially for Colombia, Peru and Chile.

Mauricio Varela: These are good news for these three countries. It won’t affect real estate markets directly, but reinforces the view that Chile, Peru and Colombia are on the track of continuing theirs development process.

Alejandro Luna: I think it really won’t affect in a big way as MILA’s intention is to integrate equities and stock markets in a way that its

participants can invest in the other countries stock exchange in an easy way in their own currency and with local brokers. Actually for foreign investors, looking to invest in Latin American stock exchange markets, it presents as an option that offers better products and opportunities.

Juan Felipe Yarce Villa: Mila has been what everybody expected, but efforts should continue on that front to open capital markets for other investors. The alliance we will have to see what are the main benefits.

Cristian Armas: I don’t see any relation, the Investors select where they allocate their money in relation to risk and IRR, and the Andean Region, especially Chile Peru and Colombia are the very Best places to invest.


How will the introduction of the “MILA” (Mercado Integrado Latino Americano) and the broader Pacific Alliance affect investors’ appetite for these countries?


Q A&

Gabriel Florez: I believe they are looking for returns that given the Latin America country risk are worth taking. In that sense they are looking for stable countries with a regulatory environment that won’t change the game rules as they see fit.

Hernando Forero: Although the global emerging market volatility will in the short-term keep some international investors away, international players with a long term view will remain active as they take advantage of investment opportunities offered by the current macro context. In the medium-term, international investor activity will grow as the real estate sector institutionalizes and more real estate companies or funds raise institutional capital in the private and public markets. In the short-term, investors will be looking for attractive entry prices; yet, over the medium and long term these investors will be

primarily looking for growth. Moreover, they will also want to see in the vehicles they invest in investor friendly governance structures, seasoned management teams with good track records, robust deal pipelines and scale.

Anthony DiBiase: I do see more international activity. I believe this is due to the markets becoming slightly more evolved and political and economic stability. Also, the evolution of investment funds from leaders such as BTG Pactual and others are encouraging to developers.

Andrés Störmann: Yes, definitely! International investors are becoming more and more aware of the advantages of investing in Colombia and the Andean region. While most common emerging Latin American countries like Mexico and Brazil are stagnating, countries like Chile, Peru and

Colombia withdrew the attention towards their investment markets. Particularly Colombia with its outstanding US$16,257 Million foreign direct investment in 2014 is one of Latin Americas most promising markets for international investors.

E&SPI´s clients are mostly interested in industrial properties, office developments in primary cities like Bogotá and Medellin, but also in Warehouses. We also expect a growing demand for residential developments in secondary cities as well as for special properties like hospitals. We think international investors are looking for higher yields, asset diversification and experienced local market players with whom they can partner and grow.



Do you see more international investors becoming more active? What do they look for in Colombia, Chile, Peru?


Q A&

Mauricio Varela: In Chile we continue seeing interest from international investor, especially those with a value view and medium to long term investment horizon. Investors are attracted by Chile’s stable economy and legal framework, and love the fact that returns in the real estate industry are attached to the unidad de foment (UF), tough are inflation protected.

Tomás Uribe: We have seen several international investors that are able and willing to take a contrarian view on EM become recently attracted to our country as a consequence of the drop of our currency. They understand that the country has some of the strongest fundamentals in the region and that real estate is a long-term bet. They look for institutional and economic stability and growth potential. In all these variables Colombia stands out in the region.

Alejandro Luna: For sure, there are plenty of investors looking to invest in these markets. The opportunities that are being looked at really depend on the nature of the funds and their capacity to assess risk, for some an opportunity in a “value add” asset may not be appealing because they might be “core or core plus” oriented, while for others that may just be their target.

Juan Felipe Yarce Villa: Yes. They will look mainly for infrastructure projects.

Cristian Armas: Yes I do, Brazil will liberate high capital resources that will go to Chile, Peru and Colombia. And new resources taking the opportunity of strong dollar versus local currency of each country.


Do you see more international investors becoming more active? What do they look for in Colombia, Chile, Peru?


Q A&

Gabriel Florez: We are fans of existing assets and we believe that given the current economy, there is a lot of the interesting stuff that is going to come from what we already have or what is getting built right now.

Hernando Forero: There are several large mix use projects in Colombia that are interesting for several reasons. First, they are mostly built for lease rather than for sale, a relatively new model in the country. Second, the different uses will attract a mixed traffic that will complement and reinforce each other. Third, they have the necessary scale to attract large institutional capital. Finally, some of these will be built under a PPP (Private Public Partnerships) framework that opens the door for a multitude of opportunities to work alongside the government in the development of large scale real estate projects.

Anthony DiBiase: I see rental services oriented real estate growing. Including rental which has been historically built to sell is now being built as a rental property to be held in a portfolio.

Andrés Störmann: I personally love the Atlantic coast of Colombia and I see plenty of real estate projects worth mentioning in Cartagena, Santa Marta and Barranquilla. Projects like the “Cartagena Global Center”, a combination of “class A” offices, shopping centre and Marriott Hotel, the project “Puerta de Oro”, which will provide the country’s largest convention centre and the mega-project “La Loma” in Barranquilla, where the new city hall, several business centres and apartment buildings will accommodate on 96 hectares gross area are projects that contribute to the increasing prosperity of the region. In Barranquilla, the Mayor Elsa Noguera has done a great work throughout

the last years. She managed to change the cities face, investing in infrastructure projects like “Puente Pumarejo”, the airport redevelopment and the rehabilitation of the river “Río Magdalena”. We expect Barranquilla to gain even more importance in the near-term and are currently acquiring foreign investors for real estate projects in this area. Mauricio Varela: The office market is probably the one that offers the bigger and more sophisticated projects in Santiago, Chile. Some of them are A class projects with international standards, and are going to provide great value in the medium to long term.



Which new or upcoming real estate projects do you see as the most interesting in these countries?


Q A&

Tomás Uribe: There’s great potential for urban renewal projects. Both Bogota and Medellín have enacted zoning regulations to curtail sprawl and incentivize redevelopment.

Alejandro Luna: In all these countries there are various A+ Assets under development that will be appealing to investors in the near future. Every day more, the competition to acquire the “Best in Class” asset increases as funds become more available and asset quality improves.

Juan Felipe Yarce Villa: Infrastructure and housing.

Cristian Armas: I see lots of opportunities in the middle class in Housing projects and especially in social living in Chile and Colombia.


Which new or upcoming real estate projects do you see as the most interesting in these countries?


Q A&

Gabriel Florez: I believe sectors like industrial are going to be very interesting within the next 24 months. With the economy slowdown and the fact that the majority of the industrial companies in Colombia still own their real estate there is going to be an opportunity for the funds industry to provide capital and for the companies to monetize part of their assets.

Hernando Forero: The sub-sectors in Colombia I am most optimistic about are Retail and Logistics. The former given the remaining low retail penetration in certain neighbourhoods and cities and the continuous growth in retail sales despite the slowing economy. Tenant demand for high quality retail assets in good locations remains strong. The latter given the scarcity of high quality institutional Logistics assets for rent. More so, the considerable investment in road infrastructure in the country is likely to create

new demand for Logistics space to serve both international and inter-city trade.

Anthony DiBiase: I like Student Housing, purpose built rental apartments and street level retail.

Andrés Störmann: We are most optimistic about the middle class residential, industrial and warehouse sectors.

Colombia´s middle class will triple in the next ten years, its purchasing power has doubled in the last ten years and despite the growing construction activities there is still an unmet demand for residential property.

We also see more and more multinational companies settling in Colombia. The growing demand for adequate industrial and storage space stimulated construction activities in this sector throughout the last few years and

in the context of “MILA” and the broader Pacific Alliance we expect this sector to grow even more in 2016.

Mauricio Varela: The residential market in Chile and specifically in Santiago, is very competitive and provides great opportunities. As Chile continues to grow during the upcoming years, the projects dedicated to attend middle class, urban and modern consumers are going to find a deep and favourable market. In these regard, it is interesting to note the infilling process that Santiago is undergoing. At Empresas Socovesa we have participated of these process trough our companies and projects. More information can be found at www.infilling.cl



Which sub-sector[s] are you most optimistic about in 2015/2016, and why?


Q A&

Tomás Uribe: We want to maintain our focus on retail for middle and low income population and secondary cities. We believe we have a built a competitive advantage over recent years for his product and these market segments.

Alejandro Luna: The markets should adjust in a way that we see less strata ownership overall, which ultimately helps to stabilize and control the market rents, generates interest from investors and at the same time drives growth. Dollar denominated rents in any sector (office, retail or logistics) will always be attractive to foreign investors since they help to minimize the risk that usually results from currency exposure. Markets and countries where tax laws facilitate investment and don’t punish the investor will also be very attractive and favoured by domestic and international investors.

Juan Felipe Yarce Villa: Housing and infrastructure. Because government policies continue to be very friendly for investing in this sectors.


Which sub-sector[s] are you most optimistic about in 2015/2016, and why?
