CKD as an instrument to finance real estate projects
Today, 30% of the housing in CDMX is for rent informally: 14% of the houses are rented, as well as 39% of the apartments. In addition, in the last five years, for every two homes built, one is for rent.
CreditSuisse will raise 9.5 billion pesos to grant loans to developers, and Alignmex plans to obtain 5 billion pesos to build rental housing.
Given the volatility of the markets, some investors have taken their reserves to place their capital in the different instruments at their disposal. However, Mexico continues to position itself as the destination country to inject resources and put both national and foreign capital to work. Given the few quality real estate assets left in the market, CreditSuisse will work to issue a Real Estate CKD with the aim of converting it into a Commercial Mortgage Fiber in the future.
Given the opportunities to meet the demand for rental housing in Mexico, Alignmex Capital will focus its efforts on also issuing an exclusive CKD for the development of rental housing. The real estate market is also advancing at an accelerated pace, offering more and more financing options for developers and better returns for investors, and without a doubt, the housing market is an important engine in the economy, which is why BanRegio advances in diversification of mortgage products to serve the business sector and contribute to the placement of the vertical housing market.
From CKD to Fibra Hipotecario Comercial with the experience of CreditSuisseraul-gallegos
CreditSuisse has detected the need that small and medium developers have to obtain loans to finance their projects; For the moment, banks have been focused on the largest vehicles, because there they can place several of their products, but in light of this need, Raúl Gallegos and Alejandro Rodríguez -who recently joined the CreditSuisse Asset Management area, after extensive development experience at GE Mexico – will be tasked with designing a Commercial Mortgage Fiber, with a dedicated and vertically integrated platform to grant real estate credit.
In an interview for Inmobiliare, Raúl Gallegos explains that to take the step towards the Commercial Mortgage Fiber, they will first develop a Real Estate CKD –Development Capital Certificate-, so that they can originate the loans and have a significant mass that they hope to reach in three years, so they would eventually become Fibra Hipotecario Comercial.
“We were not born as a Fibra from the beginning, because we have neither the assets nor a developed portfolio. We will focus on giving credit to developers, and the distribution will be the amount generated by the payment of interest and payment of the principal ”, explains Raúl Gallegos.
As for the Commercial Mortgage Fiber, it details that it will be on commercial properties that generate income in the sectors of industrial buildings, shopping centers, hotels, offices, and later housing for rent. “We are raising the equivalent in pesos of 500 million dollars, and We will seek leverage of the vehicle for 1,000 million dollars in debt, to have a total of 1,500 million dollars of capacity to grant credit ”.
The participation of the CKD to form the portfolio would be for different stages of development: construction, transitional and stabilized; and on average they would be financing 75% of the value of the properties. He also mentions that he sees a greater opportunity in the development of hotels in all categories – businesses, beach hotels, resorts – as well as shopping centers.
“Based on our way of operating, we can give a loan for five years, but since we know that the property has a useful life of 40 years, in the fifth year it could be refinanced, since it is already worth more and has stabilization; By then, there may be refinancing from other banks or from ourselves. Fibra Hipotecario Comercial has fewer risks than a traditional capital CKD –buy land, build and sell- or Fibra Inmobiliario, because even when there is a risk that interest and principal will not be paid, the property is under guarantee ”.
“When we become Fibra, we expect to distribute among the holders, above the 90% that is received from the flow of interest and capital; but if we stay as CKD, we will distribute until the credits are prepaid ”, emphasizes Raúl Gallegos.
CKD of rental housing from the hand of Alignmex Capitalraul-ordorica
With just over a year operating, SíRENTA is a developer and administrator of housing for rent of Mexican origin in Mexico City and the metropolitan area, which will accelerate its growth due to ALIGNMEX Capital –Administrator of capital funds-, will issue an exclusive Development Capital Certificate (CKD) for the development of rental housing, contemplating obtaining 5,000 million pesos.
“This amount will allow us to develop between 2,500 and 3,000 units, but it will depend on average home prices. The main difference that we have is that we are vertically integrated; while in many other CKDs there is an administrator who later co-invests with a developer, our model allows us to have between 6 and 8% in our favor; that is, as we do not have a partner that we depend on to develop the property, we better align interests and are more efficient, so we can generate returns between 6 and 8% above what we have seen the market do, ”explains Roberto Ordorica, co-founder and CEO of ALIGNMEX.
In addition, he considers that the rental housing market has great potential, because today 30% of the housing in the metropolitan area of Mexico City is for rent, although informally. However, it is observed that 14% of single-family homes in the metropolitan area are rented, while this number is notably higher when it comes to apartments, reaching 39%. Another relevant piece of information is that in the last five years, for every two homes that have been built in Mexico City -unifamily or multifamily-, one of them is intended for rent, but informally, because a person bought it as an investment and decided to put it up for rent.
“There were some factors that had made rental housing in Mexico difficult to develop: First, the housing policy, since since 1970 it had privileged the purchase of housing; However, Mexico has flat cities with many vacant lots, where we have not developed enough density to take advantage of existing services and infrastructure. Second, the legal framework, since there were no uniform laws that would give certainty to the recovery of a property; Fortunately, Conavi and state governments worked for many years to standardize the laws both for a financial institution that requires recovering a property due to non-compliance, and for a tenant who needs to recover a property due to non-payment. And third, Mexican banks do not have much experience financing rental housing; And not because they do not want to finance it, but because there are not many rental buildings where financial institutions have developed experience, and risk teams have defined parameters; however, today the banks finance hotels and developers of housing for sale ”, details Roberto Ordorica.
He mentions that at the moment they do not have stabilized projects, because there are not many assets to buy, so the only way to have assets is to develop them, which will take 24 months, at least.
“Our investment platform today has the capacity to develop a thousand rental housing units per year and they would be inaugurated in a phased manner. We are focusing on intra-urban housing in the metropolitan area, and the great challenge is to find the land to build, depending on where we are developing our land reserves and the profile of the rental product. We believe that there will be a great opportunity to professionalize the sector through companies such as SíRENTA, which can gradually institutionalize it, since a CKD’s main investors are insurance companies, Afores and Mexican institutional investors ”, concludes Roberto Ordorica.
BanRegio bets on mortgage loans for vertical developments
When observing that the supply of vertical housing is growing not only in Mexico City, Monterrey and Guadalajara, but also in medium-sized cities, BanRegio -one of the well-known “niche” banks focused on the business profile client- launched at the beginning of 2016, an innovative destination to use mortgage credit focused on the acquisition of vertical housing.
In an interview for Inmobiliare, Cristina Por ras Pérez Guerrero, Director of Crédito Hipotecario BanRegio mentions that the mortgage market in commercial banks is doing very well, and is that according to figures from 1H2016 “we see the performance of the mortgage market with great enthusiasm. And although the number of credits placed by commercial banks is 2.2% lower than in 2015, in terms of the amount of financing it has shown a growth of 9.6%, which means that there is an increase in the average purchase ticket. The purchasing power has been improved with the historical rates that we have had so far, because at the end of 1H2016 -with data as of June 2016- the bank has 68,000 million pesos in mortgage loans; and as the second semester is normally more dynamic, it is estimated that commercial banking closes above 130,
He adds that banks are placing mortgage loans for an amount greater than Infonavit. Of the total mortgage market as of 1H2016, which was 145,000 million pesos, Infonavit placed around 39% and banks 47%. “At BanRegio we are very happy, because in portfolio, the banking system has grown close to 12.7%. BanRegio has grown 36% in this same category, with a significant participation in the last year. At the moment, within the bank we are changing systems and processes, this has allowed us to increase our customer base in mortgage loans. Of the 74,000 million growth of commercial banking, we have a participation of 2.5 percent ”.cristina-porras
It should be noted that the emergence of BanRegio was in Monterrey, where they dedicated themselves to serving the clients of small and medium-sized companies; therefore, the majority of his clients are entrepreneurs who do not verify their income through payroll receipts, but take into account deposits in account statements and other more versatile forms of verification. As for the average of the ticket in the mortgage credit that BanRegio has, it is in one million 700 thousand pesos, above the average of the commercial bank that has one million 100 thousand approximately.
Mortgage credit destinations Interested in helping families decide to acquire an apartment in a vertical development, which allows making cities smarter, BanRegio designed a mortgage credit destination that supports the client to stabilize economically, before starting to pay your mortgage. For example, a person who is renting a house, over the two years it takes to build the vertical development, will be paying the down payment, and at the time of delivery, will have to absorb the deed expenses, as well as a series of additional expenses.
“We have the possibility to offer our clients a grace period to start paying; that is, if the client pays a 20% down payment, we give him up to three months to pay his first monthly payment; with a 30% down payment, you would be granted up to six months for the first payment; and with a 40% down payment, you can have up to a full year without paying a single monthly payment on your credit. If the client can pay before the end of his grace period, the contributions can go directly to the capital payment, and that allows him to save on interest ”, explains Cristina Porras.
Among other destinations such as the traditional one, where they attend the acquisition of new and used housing, they can finance up to 90% of the value, and with Cofinavit, up to 95%. Something in which BanRegio stands out is in the acquisition of land, where they can provide up to 80% financing and 90% in plus land, with terms of up to 20 years; the percentage difference lies in the location of the property. In addition, they can provide financing for construction on the land that was acquired.
Regarding the mortgage improvement, BanRegio offers rates from 8.75%. The rate is assigned according to the risk profile of the client, and two more advantages are added: the interested party can choose between lowering his monthly payment or lowering the term of the credit, and according to his ability to pay, he could access a line of additional credit of up to 20% of the original balance.box-1
BanRegio’s Director of Mortgage Credit recommends that in order to take out any mortgage loan, the credit options are considered and the needs of each person are identified. “In particular, people pay attention to the interest rate only, and do not see other characteristics such as associated expenses or commissions on a product with a seemingly low rate; at the time of reviewing the amortization table over time, it turns out to be more expensive compared to others that do not have so many administrative expenses throughout the loan.
“Reviewing the part of the insurance that they offer with the mortgage credit is fundamental; we have to analyze them carefully and see the benefits they have. For example, we offer unemployment insurance for three months and we have the advantage that it can be used several times throughout the credit, given the existing labor mobility. We also have life insurance, total and permanent disability, damage insurance, contents and civil liability that are all included within a basic policy. Regarding the down payment, although it is possible to access the credit with a 5 or 10% down payment, we recommend that customers contribute at least between 20 and 30%, because that allows them to offer better financial conditions. At BanRegio we have mortgage loans in pesos with a fixed rate, and we have options of fixed payment or increasing payment ”, Cristina Porras continues detailing.
He adds that among his group of clients there are many young entrepreneurs, because the entrepreneurial culture is very strong, especially in Monterrey; And an interesting fact is that they give support to women, because more and more are applying for a mortgage loan, either individually or even as holders of a couple’s loan.
For 2017, BanRegio plans to generate at least three additional mortgage products. The bank has managed to lower its past-due portfolio below 2%, compared to the data of commercial banking, which on average has 3%. “At the moment we have 144 branches, we want to consolidate ourselves in those places with the highest growth, and continue contributing to the development of Mexico by supporting the productive sector with business and consumer loans,” concludes Cristina Porras.