Real Estate Investment Trusts, finally a completely functional scheme in Mexico
Jorge Reyna Zepeda and Guillermo Ortega.
Ortega & Zepeda
Mexico City
Jorge Reyna Zepeda (Bio)
Guillermo Ortega (Bio)
In the last decade the promotion of real estate investment in Mexico has grown considerably, along with the necessities of the market, and one of the most important vehicles that real estate investors have been trying to use for several years, in order to succeed, are the Real Estate Investment Trusts (REIT) schemes, through the offer of trust certificates to all kinds of investors in the stock market. This strategy has always been a viable and feasible way to attract the large sums of resources that are needed for any big real estate project, through its certificates issuance. Unfortunately, it wasn't until just a couple of months ago, that the first REIT in Mexico was successfully issued in the Mexican Stock Market.
Mexico's need for infrastructure and development of industrial and commercial real estate investment, especially in the tourism sector, creates a necessity for bigger and more fluid real estate investments. To achieve the needed resources flow, in the last decade some federal and local laws and regulations were amended in several occasions, in order to appeal to the real estate investors' attention and resources, unfortunately without much success, due to a lack of a better and comprehensive amendment of the Mexican law (since 2004 no less than three large, tax and administrative amends have been made to succeed in such matter).
The Real Estate Trust Certificates or CPI's (Certificados de Participación Inmobiliariaa) negotiable instrument under the corresponding Law of Negotiable Instruments, have been present for a long time in Mexico's law scope, however, it wasn't until now, after several law amends, that the applicable regulations of the Mexican Stock Market allowed the offer of such certificates. Along with such amendments, the federal tax law provided a new scheme, in which the individuals are completely responsible for their income, therefore releasing the trust of an important tax burden. This scheme allowed investors to pay taxes in a much easier and accessible way, allowing also the trusts to become a more transparent entity for any tax and fiscal purposes.
The above-mentioned certificates, entitle its holders the right to a proportion of the ownership, as well as a proportional right of the earnings produced by the trust's assets. Therefore, the Real Estate Trust Certificates, along with its tax regulations, now provide a perfect vehicle to attract more and more investors. The last problem to solve, was the local Real Estate Transfer Tax. Almost every state taxes law provided that along with the sale and transfer of the Real Estate Trust Certificates, ownership rights were also transferred, and therefore, the buyer of these certificates was subject to the Real Estate Transfer Tax. This problem is currently solved due to amendments in every state law, where local regulations provide now that if such sales and transfers are made through the Stock Market, the real estate transferred and the parties involved will not become subject of this tax.
Real Estate Investment Trusts or 'FIBRAS' (Fideicomisos de Inversión en Bienes Raíces), are documented by trusts certificates issued by a trustee, and Real Estate Trust Certificates (CPI's), which are offered throughout the stock market, are issued with the prior approval of the National Banking and Securities Commission. The trust's main purpose is to acquire the ownership of certain real estate assets in order to lease such assets for a period of time, having the duty of distribute 95% of its revenue among its investors.
Thanks to the above mentioned amendments and corrections, in February 2011 the first real attempt to issue a FIBRA (REIT) in the Mexican Stock Market was made, however, the trust could not issue the certificates to the public due to some differences with the valuation method used. Finally, on March 18 2011, the first FIBRA was successfully issued in Mexico, listed as 'FUNO' in the Stock Market, with Deutsche Bank Mexico, as Trustee, and Casa de Bolsa Santander, as the intermediary public issue brokerage firm.
In its initial primary offer, the certificates were sold at MEX$19.50 (approx.$1.75) per certificate. FUNO issued 185'385,543 certificates raising a record amount of MEX$3,6 billion (approx. $320 million). For the second trimester of 2011, FUNO distributed approximately MEX$15 million.
At the moment of its entrance to the Stock Market, FUNO began with the ownership of 13 assets, set along the Mexican territory. Afterwards, on April 15, the trust acquired one more property, and two new acquisitions are scheduled for next July 18 2011, in order for 'FUNO' to finally reach 16 assets. Behind this first REIT issued in the Mexican Stock Market, is the well-known company Grupo-E, with over 30 years of experience in the Mexican real estate market.