New Fund Focuses on Investments in U.S., South America

New York City-based Falcon Real Estate Investment Co. has created a new investment fund that has four main sub-funds in three South American countries and the United States. The first phase of Falcon The Americas Real Estate Opportunity Fund is due to close in January 2009. The fund is based in Luxembourg and is aimed at institutions and high-net worth individuals seeking alternatives to the volatile stock and bond markets. Falcon officials said investors can choose which of the four countries they want to invest in, or rely on Falcon’s guidance. The U.S. portion of the fund will seek opportunities in distressed properties. The Latin American markets were chosen because of specific attributes, the company said in a news release. Falcon cited Colombia’s strong economy and underdeveloped commercial real estate market. The investment firm said Argentina’s growth in recent years has not been dependent on bank credit so its commercial real estate market is not affected by the global credit crisis. Falcon also stated there was no currency exposure from the U.S. dollar perspective because Argentina’s commercial estate market uses U.S. dollars. Brazil is one of the four BRIC (Brazil, Russia, India, China) emerging market nations that are expected to grow 3 to 4 percent in 2009. “When any diversified portfolio allocates a certain percentage to these four markets, which are only minimally correlated with the global stock and bonds market, it is reducing the volatility of the overall portfolio,” stated Amaury de Parcevaux, Falcon vice president & marketing director. “We hope to achieve 20 percent net return p.a. over the next five years for our clients. When you combine the risk and return, you have a pretty compelling product.” Dan Fasulo, managing director of Real Capital Analytics, noted that South American countries like Brazil and Argentina haven’t been as affected by the credit crunch as other places around the world because they have never used credit. But he said investing in the Latin American emerging markets is not for everyone. “A huge issue down there, and it’s come to fruition in the last couple of months, is the tremendous fluctuations in currency they have,” Fasulo told CPN. “Many pension funds who had looked at emerging markets…many have just turned around and come right back home.” In addition to currency fluctuations, he said there are concerns over geopolitical conditions in certain Latin American nations and the way they structure deals, such as leases. Fasulo said some countries have very short-term leases, while others favor very long leases of 15 to 20 years which limits upside potential for investors. Fasulo said he wasn’t surprised that Falcon was focusing part of the fund on distressed properties in the United States, adding that more investors around the world, “are looking at the U.S. as the biggest emerging market in 2009.” Falcon’s current portfolio is split into 21.4 percent multi-tenant office; 21.9 percent single-tenant office; 5.6 percent retail; 16 percent industrial and 35 percent development. Since being founded in 1991, Falcon has made approximately $6.5 billion in transactions. It also provides management services for over 13 million square feet of commercial real estate in major U.S. markets.