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Is Brazil the next Real Estate Frontier?
Brazilian American Chamber of Commerce
September 15th, 2009
2
MaxCap
Focused in Opportunistic Real Estate Investments targeting aggressive returns
Over $ 400M in equity investments in:
♦ 3 Operating Companies (Developers)
♦ 33 Real Estate Projects located in 11 cities across Brazil
5 Senior Partners, with:
♦ Average of 17 years experience in Real Estate Investments in Brazil and Mexico
♦ Over $ 3B investment track record
JV Partners of Merrill Lynch / BofA for real estate investments in the region
3
Summary
Brazil: Strong Economic Fundamentals
Brazilian Real Estate Fundamentals
MaxCap Vision & Strategy
MaxHaus: An Investment Case
Conclusion
4
Strong Economic Fundamentals
Brazil is the 2nd Largest Economy of the Americas and the 8th Largest of the World…
… as a result of a solid and consistent growth, which tripled its per capita income in the last 6 years
2002 2003 2004 2005 2006 2007 2008$ 2,000
$ 4,000
$ 6,000
$ 8,000
$ 10,000
0%
4%
8%
12%
16%
GDP Per Capita - US$ vs. Unemployment
GDP Per Capita Unemployment %
CAGR: 16.4%
Source: Ipeadata, FGV, IBGE, MaxCap
5
Strong Economic Fundamentals
43%32%
45%53%
12% 15%AB
C
DE
Dec 2004 Jul 2009
Source: FGV, JLLS
…bringing 68% of its population to the upper and middle classes
130 M Inhabitants
60 M Inhabitants
6
Strong Economic Fundamentals
2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E0%
10%
20%
30%Interest Rates vs. Inflation
Inflation - IGP-M Index EOP Interest Rate - SELIC
This trend is expected to continue supported by declining interest rates and controlled inflation
Source: BACEN, Global Insight/JLLS
7
Strong Economic Fundamentals
1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09
-4%
-3%
-2%
-1%
0%
1%
2%
1.2%
0.6%
1.7%
1.1%
1.8%1.4%
1.0%
1.7% 1.9%1.6%
1.4%
-3.7%
-0.8%
1.9%
GDP - Quarterly Change
Brazil was also hardly hit by the recent global crisis♦ Due to its globalized and market driven economy
… however, it is one of the first countries to recover from itSource: Ipeadata, FGV, IBGE, Maxcap
8
Brazilian Real Estate Fundamentals
2002 2003 2004 2005 2006 2007 2008
16.6
10.1
18.115.1
18.8
34.6
45.1FDI - US$ Billion
CAGR: 18%
The Country has been a target consensual destiny for Global Direct Investment Capital …
Source: Ipeadata, Maxcap
9
Brazilian Real Estate Fundamentals
… and has also a dominant position within the public market investments
The Sao Paulo Stock Exchange responds for:
♦ 56% of LatAm Market Cap
♦ 80% of LatAm Daily Volume
♦ 89% of LatAm New Offerings
Source: WFE (World Federation of Exchanges), 9 mo 2008
Brazilian Real Estate Fundamentals
10
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
261 267 259
45 43 3562
132
182
68 75
4165 54 61
47 38 36 39 35 37 36 29 3654 61
114
196
300
Units Financed (000s) by Mortgage System
NEW M
ORTGAGE
SYST
EMMortgage Collapse
A healthy and sustainable Mortgage System is back [after 20 years]…
Source: BACEN, ABECIP, MaxCap
11
Brazilian Real Estate Fundamentals
1990's 2000's 2010's0 M
5 M
10 M
15 M
20 M
25 M
14 M17 M
21 M
Brazilian New Households per Decade
Source: IBGE, MaxCap
♦ Past decade Brazil produced 14 M new households , virtually without mortgages
♦ Next decade new homes are expected to grow at an average of 2.1 M per year.
♦ Roughly 20% of new homes in the current decade should be financed by a mortgage
…indicating an enormous potential growth for the next decades…
… extra fueled by the recent “Minha Casa, Minha Vida” program sponsored by the government for the economic segment
Source: IBGE, MaxCap
12
Brazilian Real Estate Fundamentals
DenmarkHoland
UKUSA
SpainSweden
GermanyBelgium
FranceAustria
ItalyChile
MexicoBrazil
0% 20% 40% 60% 80% 100% 120%
100.8%98.4%
83.1%74.5%
58.6%56.7%
51.3%36.3%
32.2%23.5%
18.7%18.0%
9.0%1.5%
Percentage of GDP Attributable to Mortgages 2006
… however, despite its sharp growth, the mortgage penetration is still very timid compared to other economies
Source: ABECIP
13
Brazilian Real Estate Fundamentals
2000 2001 2002 2003 2004 2005 2006 2007 20080
10
20
30
40
50
60
70Annual Shopping Mall Sales (R$B)
As consequence of its economic strength and the emergence of its middle class, shopping mall sales have been increasing at 12% per year in the current decade…
Source: ABRASCE
14
Brazilian Real Estate Fundamentals
2Q/08 3Q/08 4Q/08 1Q/09 2Q/09 25
50
75
100
125 Lease Rates (2Q/08 = 100)
Beijing Mumbai Moscow São Paulo
Boosted by its robust economy, the office sector is also showing an impressive resilience, even during the current global crisis
São Paulo is probably the only metro area in the globe where prices went up significantly in the last 12 months
Source: JLLS, OESP
15
Brazilian Real Estate Fundamentals
However office prices are still cheap when compared to other cities
CBRE Global 50 Index Ranked by Occupancy Cost (US$ / sqf / year)
16
Brazilian Real Estate Fundamentals
2004 2005 2006 2007 2008 2009 YTD
0
20
40
60
80
0
10
20
30
40Market Cap Real Estate Public Co (R$ Bn)
Market Cap.
Number of Companies
Global Public Investors have been paying huge premium to take part of this game…
…however Brazilian Real Estate has been still ignored by global private investment community
Source: BOVESPA, MaxCap
Our Strategy
17
FIRST MOVERS ♦ Highly Diversified Operations
♦ No Focus
♦ Taylor Made Products
♦ Family owned
♦ Highly Opportunistic
♦ Capital: competitive advantage
WINNERS♦ Focus
♦ Specialized Portfolio
♦ Volume / Scale / Process
♦ Disciplined Management
♦ Operational efficiency
♦ Capital: just a consequence
MaxCap has had a contrarian view about the real estate investment opportunities in the Brazilian market
♦ We believe the current market status is a reflection its initial institutionalization phase. Capital hasn’t played its disciplinary role yet.
Our Strategy
REAL ESTATE PROJECTS
1 2 N x y
OPERATING CO
MAXCAP FOUNDING PARTNERS
OTHER INVESTORS
80% to 99% (Full Control)
1% to 20%
80% to 99%If MaxCap declines RFR
< or = 50% > or = 50%
18
MaxCap invests in efficient and focused developers in a very creative capital structure (MaxCap Platform Strategy)
1% to 20%
19
Our Strategy
19
♦ Residential Middle Income
♦ Environmentally Oriented
♦ Residential Urban Middle Income
♦ Design, Technology, Lifestile Oriented
♦ The Only Pure Office Developer in Brazil
♦ A Leading Player in the Segment
MAXCASA
MaxCap successfully invested in 3 focused operating companies, through its Platform Strategy Structure
20
An Investment Case
MaxCasa is probably the most focused apartment developer in the globe
It only produces MaxHaus 70 sqm apartments…
♦ Open spaces, with no standard walls
♦ Highly customizable
♦ Cutting Edge Technology & Design
♦ Units can be combined horizontally or vertically into 140, 210, 280…sqm
…faster and cheaper than their ordinary comparables, due its high level of scale and standardization.
21
An Investment Case
21
22
An Investment Case
Premium neighborhoods
Upcoming neighborhoods
Peripheral regions
São Paulo
'
MaxHaus has 9 projects in SP in different kinds of neighborhoods (4 to be launched this year)
MaxHaus is a blockbuster everywhere it goes
23
An Investment Case
MaxCasa currently sells faster than any other real estate developer in Brazil
♦ Out of 1,024 units launched since mid 2008, just before the global crisis, MaxCasa only 10% remains in stock
2H08 1H09
11.5% 12.8%
34.5%
57.8%
Sales Absorption - VSO %
São Paulo Market Maxcasa
Source: Companies Financial Reports, MaxCap
24
An Investment Case
MaxHaus Vila Leopoldina (3 towers comprising 318 apartments) was launched August 15th, 2009…
♦ It was fully sold in a single weekend!
♦ 1,340 people packed its show room, trying to buy a MaxHaus!
♦ 150 brokers couldn’t handle the demand!
♦ Only a single advertising was published in the 2 main SP newspapers
…demonstrating that the MaxHaus concept and the brand is a home-run in the country
25
An Investment Case
MaxCasa also generates more profits than generic companies, due its operational and marketing efficiency
♦ MaxHaus margins are 75% higher than the average public real estate company
♦ Investment cycle is typically half of a comparable diversified company’s investment cycle
Net Margin G & A
10.4% 9.0%
18.1%
3.5%
2008 Performance Public Companies vs. Maxcasa
Public Companies MaxcasaSource: Companies Financial Reports, MaxCap
An Investment Case
26
43%32%
45%53%
12% 15% 20% of Population
Household Growth next Decade: 2.1M /year
MaxHaus Potential Market: 420,000 homes
If MaxHaus Penetration = 1.5%
MaxHaus will produce 6,200 homes / year
This is a R$ 1.6 B business
The industry see MaxHaus as a niche player ♦ Even though MaxHaus sales conversion (visitors x contracts) is 20%,
the highest in the market (average of 7.5%).
AB
C
DE
Source: IBGE, FGV, MaxCap
27
Is Brazil the next Real Estate Frontier?
There isn’t any other sizable economy with similar positive fundamentals:
♦ Robust per capita income growth
♦ Gigantic Emerging Middle Class
♦ Declining interest rates
♦ Pent up demand derived from 20 years with no mortgage system
♦ Politically stable country, with centennial legal and institutional framework
MaxCap estimates that over U$ 30 B will be invested in this sector in the country within the next 5 years.
Where will you be in this timeline?