Bloomberg has recently reported how Brazil’s homebuilders are turning to private-equity firms to finance their projects as banks withdrew most of lending after cost overruns added to rising debt burdens. As it has been noticed lately, banks are tightening credit to homebuilders after surging labor costs shrank margins and triggered costly delays.
Still according to the article:
“Billionaire Sam Zell’s Equity International, Paladin Realty Partners LLC and Prosperitas are offering to fill a funding gap as Brazil’s President Dilma Rousseff tries to make good on her promise of 2 million new homes by 2014. The portion of bank deposits used to finance home construction fell 17 percent in the first quarter to 6 billion reais ($3.1 billion) from a year earlier as loans to buy houses rose 32 percent to 11.6 billion, according to Abecip, Brazil’s mortgage lenders association.
Gary Garrbrant, Sam Zell’s business partner at Equity International said the following:
“… it’s virtually unlimited in terms of potential opportunities, I’d be delighted to invest hundreds of millions of dollars into this sector. Brazilian banks really don’t like to lend. If Brazilian banks would be more aggressive, there wouldn’t be investment opportunities for international lenders.”
“We continue to see a lot of interest from investors to participate at the project level, not exactly at the company level. Now with the interest rate going down, it’s becoming much more attractive for this type of investor.”
In a typical project, homebuilders put up the first 30 percent of financing, the private-equity firm invests the next 20 percent, and bank lending covers the remaining half.
“The unmet demand for housing remains at a very high level,” said Garrabrant of Equity International. “That’s where demand lies.”