Paladin Partners with Local Development Company on Homebuilding Platform in Rio de Janeiro

Paladin Realty Partners continues its investment in Latin America, this time in Brazil, with a new partnership.

Paladin Realty Partners, L.L.C., has completed an equity investment in CP

Empreendimentos e Participaçoes Ltd., a newly created homebuilding joint venture with Construtora Calper Ltd., in the Rio de Janeiro market.

“Having highly talented local partners is the cornerstone of our investment philosophy, but another key element is diversification,” Randall Loker, Paladin Realty Partners’ chief investment officer, told Commercial Property Executive. “Rio is the second most economically significant city in Brazil and the beneficiary of billions of dollars of vital new infrastructure in anticipation of the Olympics. Establishing a long-term relationship with one of the top five homebuilders in this market is a great step in continuing to improve our diversification in Brazil.”

The new CP Homebuilding Platform will include a pipeline of residential projects catering to middle-income homebuyers in a variety of Rio’s submarkets, and will also consider for-sale office products on an opportunistic basis.

The joint venture is being capitalized with $10 million of equity from Paladin and another $5 million of equity from Calper, and is expected to develop projects with a total projected sales value of more than $66 million in its first platform.

Paladin Realty’s fourth institutionary fund has now made eight investments to-date in Latin America, including ventures in Brazil, Peru, Mexico and Costa Rica.

“We have been getting to know Calper over the past three years and it has become clear that the company has a high degree of integrity, a seasoned development team, and a strong reputation for high-quality products delivered on time,” Loker added. “This is exactly the type of organization we want to partner with.”

Looking ahead, Loker said 2015 is going to be slower than years past as the economic picture continues to weigh on consumer confidence.

“However, due to the huge gap between household formation and the industry’s capacity to produce homes, the opportunities to make solid returns in low and middle income housing remain attractive,” he concluded. “We expect an improved economic scenario in 2016, and with even a modest reform agenda the country can return to steady GDP growth going forward, which will continue to drive demand for housing.”

Calper has delivered more than 85 projects to-date, with an additional 19 projects currently under development.

Home values in Rio de Janeiro have doubled over the last five years, yet many analysts believe that Brazil’s residential real-estate bubble is slowly deflating as prices began leveling off at the end of 2014, after seven years of robust growth. According to data compiled by economic researcher FIPE and real-estate website Zap Imoveis, prices are rising at a rate of approximately one-third as fast as they did in 2011, due in part to an excess of home deliveries.

As for the possible office projects the joint venture is considering, Colliers’ 2014 4Q Market Report on Rio de Janeiro forecasts that now might be an opportune time for such a move, after a year that saw a period of speculation, with lower net absorption compared to previous years. The report shows the market is maturing regarding price flexibility and already registered some migrations.