October 25, 2014
Jorge M. Pérez, Chairman and CEO of The Related Group real estate firmSunday, June 1, 2014
‘I’ve never been able to complete a transaction in Argentina due to political issues’
for the Herald
Date of Birth: Oct. 17, 1949
Newspaper: The New York Times
Book: One Hundred Years of Solitude by Gabriel García Márquez
“We need this in Miami, Il Materello in Miami,” Jorge Pérez, a US billionaire real estate magnate born in Buenos Aires, shouts his praises at the owner of a classy Italian restaurant on Thames street in Palermo. Listed by Forbes as being worth US$1.2 billion last year, Pérez, who has been called the Donald Trump of the “tropics” by US magazine Time, is in Buenos Aires on a lightning three-day trip, looking at art, and trying to catch the eye of potential investors: Argentines with greenbacks keen on an opportunity to place their cash in the longtime favourite southern US city. While he talks to the Herald, friends and associates come and go, seemingly whispering and smiling about potential investment opportunities.
Tell me why you’re in Buenos Aires.
To visit friends and family, to go look at some art at the fair (arteBA) and because we build condominiums in Miami and many of our clients are from Buenos Aires. We have about 80 projects that range from affordable housing subsidized by the federal government to US$30 million apartments.
Do you invest in Argentina at all?
I’ve tried to several times, but I’ve never been able to complete a transaction due to different zoning issues, political issues. I would love to build an iconic building in Buenos Aires, but I haven’t had any luck.
When did you look to invest here?
Probably over the last 10 years. I haven’t looked at all in the last three. The last one I was very involved with was with the Elsztains (IRSA) trying to develop the former Ciudad Deportiva, where Boca Juniors used to be (in 2007). We had a lot of plans, but we were never able to get the zoning permits.
What do you think of the real estate boom we’re seeing in Miami, and do you see as many Argentines going as maybe ocurred in 2001-02?
Well, we’re seeing more Argentines. In the last 10 years, the leading groups buying in Miami from Latin America have been Venezuelans, Colombians and Argentines. In the downtown area Argentines are now buying the most.
Do you keep up to date with Argentine current affairs?
Just by reading the newspaper. I have an affinity with Argentina because I was born here. I think Buenos Aires is the most beautiful city in South America, with the best pasta outside of Tuscany. But it’s got issues, uncertainty. It’s not easy to understand the market, the currency and get things done.
The foreign exchange issue is probably your main concern.
Well that’s one of the issues. The country right now doesn’t have a great demand for the type of products that we build. The real estate market is a little bit stuck. We’re seeing a hold pattern to see what direction will be taken after the elections.
Do you think we will see real estate stagnate until 2015?
Yes. I think this is a very rich country and city, but with uncertainty markets freeze. Money from abroad doesn’t come in because people don’t know if they’ll be able to take it back out, and they don’t invest because they don’t know what will happen with the exchange rate. That’s why they opt for a market in dollars that has a very clear positive long term outlook, like Miami, over Buenos Aires.
Do you have any Argentines licitly sending money to Miami from the country?
I have no idea. I know it’s not dirty money, we conduct all those checks for the federal government, but I have no idea whether there are movements of capital outside Buenos Aires. Many already have money in the United States. I would presume many are taking more out of Argentina, but I have no knowledge of that.
A property worth US$500,000 in Miami brings annual returns on the initial investment of four percent when rented out, while rental returns of that nature in Buenos Aires rise to seven or eight percent. Does the comparative ease of staying local not undermine the lure of Miami?
You can even get higher returns in other parts of the US. But then you’re not in Miami. In cities that everyone wants to go to, you’re going to get much higher prices and lower returns. Price appreciation in Miami has been much greater than in other cities. Why? Because it’s the only city other than New York or maybe LA that has a huge level of international demand you want to be in a place with stable demand.
Is that what you would tell someone on the fence between renting a property two blocks from where they live in BA and in Miami?
We don’t use the income argument at all in Miami. We don’t sell investment properties, we sell condominiums. We never tell clients they’ll get four percent returns. All I can say is what the rental market looks like. We don’t promise returns. There is a virtual one hundred percent occupancy rate in the downtown area.
Would the Argentine demand for Miami property continue without inflation or exchange restrictions?
Miami is a very lucky place, because when countries are doing very poorly, and people want to remove their money, they go to Miami. When things are going well and the dollars are flowing in, they still find their way to Miami.
What does your clientele mainly use the properties for?
Everything. Some are second homes, some people buy because they’re moving to Miami. Some want to have a home to retire to in Miami. Some rent it out. But yes, people see higher returns in property than in a Certificate of Deposit, and that property value appreciates, although we do not use that as a selling point.
The logistics of an Argentine managing a property from Buenos Aires, is that not expensive or a hassle?
It’s very easy. The US is a lot more transparent. We have a management company that rents over 20,000 units.
What does the square metre in a premium downtown apartment cost?
New apartments are going between US$5,000-8,000 a square metre, while in the beach area between US$10,000 and US$30,000.
How long do you see the boom lasting for?
It’s sustainable. We don’t finance any more as in the previous booms. Now the buyers are putting most of their money up front. By the time the building is complete, we already have 70 percent of the money. There will be ups and downs as always, but at a much higher level. Miami has very restricted land to expand due to the sea on one side and the everglades on the other, so prices will edge up as construction and land becomes more expensive.
What will happen when you run out of land?
Buildings will be knocked down and bigger ones built, which is already happening, just like in New York.
Is it correct to say you set up a vulture fund to buy distressed real estate?
Yes. Particularly during the recession, we thought it was cheaper to buy than to build, and we bought over US$1 billion through this fund of distressed assets. We got very good at that, and we’re probably going to Spain now to emulate what we did in Miami.
That’s just business?