July 26, 2016 Riding a Boom

Volume 11 | Issue 2

Hines interests knew it wanted to get into Mexico – but it didn’t quite realize what it was getting into. A boom in real estate there and cheap capital in the U.S. has meant that this property development company has a problem many could only dream of: too muchwork. Hines now has the luxury of picking only the best and most lucrative projects. Peter Krupa reports.

The world continues to shrink, metaphorically speaking. Literally, however, the world’s real estate retains its original size, and remains one of the few things in the global economy that you can’t replace or make more of (artificial islands off Dubai excepted). Governments change, markets fluctuate, and titles shuffle from hand to hand, but one square meter of dirt remains one square meter of dirt.

What you do with that dirt, on the other hand, is an entirely different matter. You could build a parking lot. Or, if the dirt is in the right location, you could build a multi-million dollar multi-use skyscraper complete with a shopping center, residences, and – why not? – a rooftop swimming pool.

Extravagant? Maybe, but in the white-hot Mexican real estate market it’s not so unusual these days, just like it’s not so unusual to see global property development and management company Hines Interests shepherding such projects from the investment stage all the way through to the long-term management of the finished building. Office, industrial, residential, and public: Hines does it all. These days, just don’t ask it to develop anything worth less than $50 million. They are very busy.

INTO MEXICO
Hines is a privately owned, global property development company with $16 billion in assets under its stewardship. It was founded in 1957 by Gerald Hines, making this year the company’s 50th anniversary. The company has offices in 16 countries around the globe, and many, many more cities within those countries. To date, the company has completed or is in the process of developing 950 properties, including everything from medical centers to skyscrapers to corporate headquarters.

It was in the early 1980s that Hines entered the Mexican market. Things went well, and in 1994 Hines opened a regional office there. Like the rest of the company, Hines’ Mexico division offers the full range of services required by investors with tens, even hundreds of millions of dollars looking to design, build, and manage a high-end property.

Hines’ main customers tend to be multinational companies working with institutional capital, like U.S. pension funds.

“They have high standards so they tend to be expensive,” said
Hines Mexico manager Pierre Arriz.

MAJOR PROJECTS
Since entering the market in 1994, Hines has carried out many important projects in Mexico. It did Del Bosque, twin, round residential towers that rise above the surrounding buildings like foreshortened tree trunks. The company also has done high-end office projects, like Reforma 350.

One of its bigger projects at the moment is industrial – a logistics park called, simply enough, Parque Logístico in San Luis Potosí in the state of Mexico. The park will sit at the junction of important logistics tools like railroads and Highway 54, Mexico’s most important highway. Facilities in the park will be completely intermodal, making transportation from one logistical medium to another simple.

Altogether, Hines has completed, owns, or manages 650 million square feet of real estate and has some 600 acres of land infrastructure under development. Arriz said that in the last two and a half years alone the company has undertaken $600 million worth of development projects. It’s just the tip of the enormous real estate and construction boom sweeping Mexico.

“Put it this way. We’ve never had so many projects in any one international location going up at one time as we have in Mexico,” Arriz said.

TOO MUCH BOOM
The problem Hines is having now – if you can call it a problem – is too much work. Expensive though its projects tend to be, there has been so much ready cash in the U.S. economy, and so much opportunity for profit in the Mexican real estate market, that Hines is having to pull back a bit and refocus on even higher end developments. The big problem, Arriz said, is the extra back office work all the projects are requiring.

“We knew the market was hot,” he said. “We just didn’t anticipate the kind of back office work we would have as a result of that.”

Hines already has the biggest geographical footprint of any of its competitors, with offices in 17 cities, and its main markets are Guadalajara, Mexico City, Monterrey, and Querétero. But having 20 projects underway, 24 property management assignments and four management construction jobs – as opposed to the two or three projects total that used to be typical – is proving to be costly for the small staff of 200. The new idea, Arriz said, is to do less with more.

BIGGER AND MORE EXCLUSIVE
It’s a simple concept: two $40 million projects require twice as much back office support as one $80 million project. That’s why Hines is moving up to refocus on more expensive projects. In the past, $30 million and $40 million were regular for the company, but now the bottom limit is somewhere around $50 million, Arriz said. The company’s latest three projects have been worth $90 million, $80 million, and $60 million.

“We don’t strive to be the biggest and the baddest,” Arriz said. “We have no interest in trying to meet everybody’s needs. We’re a niche player.”

The investment is available for Hines to focus on the more expensive projects, and the market is open in Mexico. Arriz did mention, however, that there are some concerns that it might overheat – as there always are with a real estate boom. Hines, however, remains optimistic, and the high-end clients it serves are likely to build regardless.

WANTED: SKILLED LABOR
Interesting challenges remain ahead for Hines. One of the more mundane also might be one of the most serious. It’s hard, Arriz said, to find qualified people in Mexico, people that are trained to deal with complicated multinational real estate, investment, and development deals.

“It was a fairly small industry to begin with as far as people qualified to work to international standards,” Arriz said.

Hines seeks “fully integrated individuals” with a wide variety of skills and expertise that can be used to carry projects out. The company is responding to the shortage in qualified workforce by training up its own people, but, Arriz said, “It takes time.”

But there’s no doubt the company will build itself up to retain its leadership position in the industry.

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