FEATURES
Understanding Brazilian Shopping-Center Market Stakeholders
Navigating the Retail Real-Estate Landscape MICHEL CUTAIT*
Abstract: Although the Brazilian market for shopping centers is promising, many barriers face foreign investors who hope to establish new businesses there. This article highlights the impact of the global industry on domestic shopping- center owners; the transformation of the industry due to the role of pension funds, the stock market and international partnerships; and the challenges and potential opportunities associated with transportation.
Retail development expanded tremendously in Brazil
over the last 10 years. Currently, the nation’s shopping- center stock has grown to 457 properties in operation as of February 2013, and 47 more are projected to be open by the end of 2014.1 With this boom in retail properties, there is much interest among foreign investors and international tenants in the Brazilian market. However, before entering that market, a few key facts should be known about the domestic players and influences. This article will explore the role, function and mindset of entrepreneurs, investors, retailers, franchises, consumers, employees and the government to better help the international community navigate the Brazilian market.2
Entrepreneurs Most Brazilian shopping centers are owned by a few
companies: BR Malls, Multiplan, Sonae Sierra, Aliansce, Iguatemi, Ancar, General Shopping and Westfield Almeida Junior S.A. The way these companies design, develop and manage their centers is strongly linked to the way their landlords learned the business from the global competitive marketplace, which—in turn—heightens the competitive environment for new entrants into the market. An important feature about Brazilian shopping-center
entrepreneurs is the family history of many of these companies. With the exception of BR Malls, a company recently formed as a foreign investment, most shopping- center businesses in Brazil grew out of family-managed companies created from the work, vision and ambition of the founders/entrepreneurs who, in hereditary fashion, trained their children in the design, management and
operations of the firm. These family operations learned from foreign companies that often pioneered best practices. Because these management methods had already been successfully tested in shopping centers around the world, such enterprises have also effectively managed to control costs and increase revenues in Brazil and expanded its rate of return by 15% from 2010 to 2011 and by 10% from 2011 to 2012.
Investors To understand the development of shopping centers in
Brazil, it is important to discuss three sources of capital that have changed the landscape over the years. Those capital sources are from pension funds, the stock market and partnerships. The direct investment from pension funds, whether private or public, was crucial to the building of many of Brazil’s first shopping centers. In those early days when domestic investors were more focused on other investment opportunities, pension funds allocated a substantial portion of their investment to retail projects. These funds, which were seeking the safety of long-term real-estate investments while preserving the consistency of their returns, were a critical source of money to enable Brazilian entrepreneurs to build centers, and they continue to play an active role in the industry even today. However, beginning around 2005, Brazilian companies
began to increasingly tap equity capital through initial public offerings (IPOs). These IPOs unlocked value in the professional management and ownership of these properties, which triggered significant asset-value growth
* Chief Executive Officer, MAKE IT WORK® 1 ABRASCE (Brazilian Association of Shopping Centers) 2 In addition to these players, it is also relevant to consider additional influences on shopping-center and retail operations, including unions, the community, suppliers, associations and non-governmental organizations.
INTERNATIONAL COUNCIL OF SHOPPING CENTERS 19 1 RETAIL PROPERTY INSIGHTS VOL. 20, NO. 1, 2013
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