This week's headlines impacting commercial real estate in the emerging markets.
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Headlines:
Global
Chinese inflows consumed nearly all of the $12.1 billion that poured into emerging market equities in one week of January 2024. The investors appear to be driven by long-term contrarian value plays and not to be investing in fundamentals. This record inflow will mark either the turnaround in China's equities, or one of the final gasps of a vanquished and once outstanding investment case.
Blackstone is not alone in its ambitions to rapidly expand its data center holdings. Firms like KKR, Digital Realty, and Brookfield are also eyeing the asset class which has received a staggering $43 billion worth of investments in America alone between 2021 and 2023, five times the previous three years. Emerging Real Estate Digest has previously written a three-part data center series: (1) Introduction to Data Centers, (2) Drivers of the Investment Thesis, and (3) Cautionary Note (i.e., Bear Case).
On January 24, Barry Sternlicht was interviewed at the iConnections Global Lodging Conference where he discussed what he's seeing in the world of commercial real estate. Barry's voice matters because he is a co-founder (with Bob Faith) and CEO of Starwood Capital Group with $120 billion+ in AUM of mostly apartments and hotels. Watch him discuss big city “Detroit Cycles”, high interest rates, office-to-residential conversions, and the inability of Americans to return to the office while most other countries have.
Latin America
China's announcement of an additional $3.5 billion of investments in Brazil's mining sector is welcome news. The economic integration between the BRICS founding members is escalating and is largely responsible for the tremendous previous twelve months Brazil has had economically. As Lula continues to position Brazil as China's primary agent in Latin America, the risks grow of raising Washington DC's ire.
Mexico City has the unfortunate distinction as the fastest-sinking city on Earth. The city is sinking because it was built on top of a reclaimed lake by the Aztecs which was never designed to hold the modern structures and volumes of people it does today. Researchers warn that areas of Mexico City could drop 65 feet in the next 150 years, with some outskirts sinking even further. The impact on real estate is obvious. Have you checked your insurance policy for sinking risk lately?
Fibra MTY is perfectly positioned to dominate industrial developments as the main real estate investor in the main hubs where nearshoring is occurring most. The listing will primarily focus on Mexico, but also involve an attempt to tap into the US capital markets through private offerings. Emerging Real Estate Digest has previously written about the untapped potential of Mexican REITs to raise capital in America, as well as their progress in aligning management structures to investors' interests. Mexico's REITs are largely uninvestable for American REIT investors due to these alignment mismatches, gaps in the regulatory framework, and taxation issues.
Africa
African leaders are bracing themselves for a second Trump term and all that that entails. Trump is unlikely to pull the reigns on Africa engagement because the region has never been of more interest to America than it is now. After all, it has a vast and growing consumer market, packed to the gills with the minerals the world needs, and is a prime region where DC and Beijing will vie for influence. It was Trump who established the DFC which doubled the investment capacity of the government to $60 billion.
One has the feeling that Europe knows it is behind in Africa, and scurrying to catchup. For over a decade it has opted, like the Americans, to push social engineering and inefficient energy policies onto Africans while competitors were busy doing deals and investing. Africans are rightfully skeptical of bold commitments to invest from the Europeans. As Tom Cruise said in Jerry Maguire, "Show me the money!"
KoBold is a well-funded upstart in Africa mining that has secured rights to Zambia's Mingoba deposit which was first discovered in 1979 by Anglo American. Anglo and a handful of other miners subsequently passed on exploiting the deposit deeming it uneconomical. KoBold has raised nearly $400 million, across three funds, and from a handful of notable celebrity investors and large mining houses. Its claim to fame, apart from its celebrity funders, is that it uses AI to find resources not already known to the established miners. But in this case, the deposit is well-known and documented. We'll keep watching to see what the Silicon Valley upstart has up its sleeve on this one.
Southeast Asia
Last year Chinese real estate collapsed. Will Chinese manufacturing do the same this year? For the fourth consecutive month manufacturing activity has contracted in China leading some pundits to answer that question in the affirmative. Southeast Asia's rise is inextricably linked to China's dominion of the world's supply chains for virtually everything. The correlation between Chinese labor cost increases and the rise of Southeast Asian manufacturing is clear. As costs have gone up, the escape valve has been to tap into the industrious and affordable labor pools of Southeast Asia. Can this continue and what about the tumult in shipping lanes, growing geopolitical tensions, and increased costs of labor everywhere?
China's unilateral ownership claims to the South China Sea are not supported by its neighbors or any significant power. The trajectory of the dispute seems to be a mobilization of neighbors, inch-by-inch and with backing from Washington, to build up to a repudiation of China's claims. One should expect a framework to then be imposed, primarily to contain China, with the signatories agreeing to enforce the terms by force if necessary. The leaders also discussed increased trade with the goal of adding $10 billion to bilateral trade.
Real estate has been used by the CCP to inflate and manipulate its GDP resulting in unyieldy real estate debt and ghost cities sprinkling the communist nation's landscape. That house of cards collapsed in 2023, and in 2024 all indications are that a similar fate will soon meet China's industrial sector. American companies in the country see the writing on the wall and most are curtailing or cutting future investments, and nearly 39% say they are being mistreated relative to their Chinese counterparts. China's collapse is the biggest story impacting Southeast Asia that few are openly discussing.
