36 PREA Quarterly, Fall 2008
F
F E A T U R E
Brazilian Real Estate: Focal Point for
Thomas D. Conway, M3 Capital Partners
Thomas D. Conway
The New Reality
For many investors, mention of Brazil still conjures thoughts
of hyperinflation, political instability, and the infamous ur-
ban shanty towns called favelas. While the country still has
its share of problems—including poverty, inefficient gov-
ernment spending, and a burdensome tax system—Brazil
has made great strides over the past two decades, reining
in inflation and enacting measures that have led to contin-
ued stability and economic growth. Today, multinational
companies from a wide range of sectors are eagerly tapping
into a Brazilian population that is young, highly urbanized,
and growing in wealth. As the most populous country in
Latin America, with more than 190 million people, and the
world’s ninth-largest economy, Brazil has become the focal
point for Latin American investment.
Brazil is the B in the BRIC nations that many investors
refer to in a discussion of emerging markets (Russia, India,
and China complete the quartet). Prudent allocation strat-
egies that include emerging markets in a well-balanced
global portfolio can enhance returns, improve diversifica-
tion, and decrease portfolio risk by providing exposure to
growing economies not directly tied to the cyclicality of the
U.S. market. With this in mind, even the most risk-averse
institutional investors are seeing the inherent benefits of in-
ternational diversification, and when it comes to fulfilling a
Latin American allocation, Brazil is becoming the preferred
place to start.
Compelling demographic and macroeconomic trends,
along with improvements in structural and regulatory con-
ditions and investment in infrastructure, are driving real
estate capital flows into Brazil. But before diving in, inves-
tors seeking appropriate investments need to become com-
fortable with the underlying political and macroeconomic
environment, the drivers of growth for real estate,