Following the closing of its inaugural fund today, Dec. 1, LAVCA spoke with new Member firm Jaguar Growth Partners about their strategy to invest in real estate in LatAm, including two recent investments: An Andean region logistics company; and a shopping center in Brazil. Managing Partners Gary Garrabrant and Thomas McDonald also discuss how the recent US election is affecting their strategy in the region.

LAVCA: Please provide some background on Jaguar Growth Partners.

Jaguar Growth Partners: Jaguar Growth Partners was founded in 2013 as an emerging markets investment management firm focused on the real estate sector. We invest equity and/or debt in early, mid- and later-stage operating platforms and companies. These companies comprise both private and publicly-held, all of which are poised for growth. We are continually seeking to optimize value and ultimate liquidity. Our inaugural fund JREP I closed on December 1, 2016 and we anticipate launching our second fund in early 2017. We are headquartered at The Lever House in New York with a satellite office in São Paulo, Brazil.

LAVCA: What was the impetus for creating Jaguar Growth Partners? What opportunities did you see that informed this strategy?

Jaguar Growth Partners: Jaguar saw an opportunity to continue its experience institutionalizing emerging markets and investing in scalable companies and platforms in collaboration with leading local operating partners.  We continue to capitalize on strong secular trends of growing working age populations, urbanization, and an expanding inclusion enhanced consumer base. These trends are expected to increase middle class incomes and consumptions in our target markets, resulting in an increased demand for diversified portfolios of real estate and related services.

LAVCA: You just closed (as of Dec. 1, 2016) a dedicated LatAm fund. What was the appetite for Jaguar’s strategy and market focus in the current environment? Who were your investors?

Jaguar Growth Partners: Our initial Jaguar Fund is focused in Latin America where we possess the deepest partner network, collective experience, and most actionable attractive investment opportunities.  We feature a diversified portfolio of investments in terms of geography, sector, public/private, and a blend of late stage to earlier stage businesses.  We have aligned our interests with a group of leading institutional investors, including insurance companies, university endowments, international development, and private investment groups.

LAVCA: What can you tell us about the fund’s strategy?

Jaguar Growth Partners: The fund anticipates investing an average of US$40 million – US$50 million of equity per transaction in sectors including logistics and distribution, retail, hospitality, specialty finance, and for sale residential.  There is a larger universe of opportunities today because, for the first time in 20 plus years of investing in Latin America, there is deep value, in addition to the traditional high growth stories.  Drivers of these opportunities include the increase in publically listed companies that are in need of capital to fuel consolidation or expand, as well as traditional low levels of real estate related financing.

LAVCA: What are the opportunities and risks investing in real estate in Latin America? Has the recent US election influenced your plans in these markets? How/why?

The real estate investment opportunities in Latin America have broadened over the past several years to encompass both growth and value. Growth opportunities include emerging sectors such multi-family residential and student housing as well as under-served sectors such as logistics property. Value opportunities are more a product of public market dislocation than the over-leverage found in developed markets. The risks have expanded beyond partner, company, and sector selection to timing, enhancing the value of Jaguar’s deep knowledge and unique experience in assessing these risks, and their impact on underlying business fundamentals.

Jaguar Growth Partners: The real estate investment opportunities in Latin America have broadened over the past several years to encompass both growth and value.  Growth opportunities include emerging sectors such multi-family residential and student housing as well as under-served sectors such as logistics property.  Value opportunities are more a product of public market dislocation than the over-leverage found in developed markets. The risks have expanded beyond partner, company, and sector selection to timing, enhancing the value of Jaguar’s deep knowledge and unique experience in assessing these risks, and their impact on underlying business fundamentals.  Emerging markets in general and Latin America in particular have been out of favor for many institutional investors.  The recent U.S. election results extend, if not amplify this uncertainty, which creates new opportunities for opportunistic and contrarian investors such as Jaguar.

LAVCA: Please describe your recent investment in Costa Rica’s LatAm Logistics Properties. What made this an attractive investment? How do you plan to grow the business in the Andean region?

Jaguar Growth Partners: We spent over 18 months researching the business opportunity, relying on direct past experience in the sector in Brazil, Mexico, and China. The dearth of institutional space for multinational consumer goods, freight forwarding, and logistic operators, is reminiscent of Mexico in 2000 and Brazil in 2003.  After interviewing local participants in all of the target markets, our network provided an introduction to Mike Fangman.  Mike’s experience as an institutional operator and domain expertise gained while working for AMB and Prologis in Mexico and Brazil made him the ideal profile of the partner we were searching

Jaguar committed equity capital for up to US$200 million (US$50 million from our Fund and the balance from co-investors).  This capital will be invested over 3-4 years, and with local financing and will allow us to pre-lease and build an initial portfolio of 4-5 million sq. ft. institutional logistics space in Costa Rica, Colombia, Peru, and Panama.  The first building is built and 100% let, the second building is 70% let before building. The space will be between 30-40% more efficient than existing stock in the market, due to ceiling heights, column spacing, parking and access layouts LLP’s capital base will allow us to satisfy our clients’ needs across the region.

Our approach is mostly organic, focused on delivering new, pre-leased space and build to suit (BTS) product.

LAVCA: Please describe your recent investment in Brazil’s Aliansce Shopping Centers. How has the macro environment in Brazil impacted the real estate sector and your overall strategy in the country? How do you effectively source opportunities?

Jaguar Growth Partners: Aliansce is a shopping mall owner and operator in Brazil, with its operations focused on the growing middle class, aspiring consumer class, and brands. Jaguar has in-depth knowledge and experience in the Brazilian shopping mall space and will help lead Aliansce to the next wave of growth and consolidation in the market.

The current Brazilian market turmoil and recent start of recovery provided a unique entry point for our investment in a resilient, income producing sector in Brazil. The expected reduction of interest rates, control of inflation, and acceleration of growth will provide a scenario for the development of our investment thesis in Aliansce.

We source opportunities in Brazil through developed relationships built over decades of investment experience and investment team members in Brazil. Those relationships coupled with a deep knowledge of the main industry verticals in real estate allow Jaguar to source proprietary opportunities with local partners that see in Jaguar a perfect match in the path of institutionalizing their companies and accessing the global financial markets.

LAVCA: What is the timeline and strategy for exiting your investments? Who are potential buyers?

Jaguar Growth Partners: We invest with an expected medium-term holding period of 5-7 years, although later-stage companies with opportunistic entries are candidates for an earlier liquidity event.  We invest in and build sector-focused, leading companies which enable multiple exit options.  We are agnostic as it relates to achieving liquidity including strategic buyers, institutional investors, as well as accessing public markets.  Strategic buyers are generally international companies seeking to establish a strong presence through acquisition of an existing, scalable platform, led by an established management team. Institutional investors include sovereign wealth funds, retirement plans, and insurance companies.

LAVCA: What challenges and opportunities do you predict for the real estate market in the next 5-10 years in Latin America?

Jaguar Growth Partners: Our long-term vision is guided by our direct experience and awareness of the same movie playing globally, with individual markets entering the theatre at different times.  We are privileged to be at the vanguard of institutionalizing markets, sectors, and companies.  In other words, privileged to be one of the first, if not the first, to enter the theatre. Continued uncertainty will challenge us to keep institutional partners focused and, at the same time, will present unprecedented investment opportunity.  We expect the markets in Latin America to become substantially larger and more institutionalized, with access to proper debt capital at the project level and a greater number of publicly-traded companies across the real estate spectrum.

LAVCA: Why did you join LAVCA?

Jaguar Growth Partners: We joined LAVCA to remain informed investors in the LatAm region, to raise awareness of our brand, and connect with a global audience.