INMOBILIARE No. 71

Título Macroeconomíade sección Españolgrow over the next five years (See figure 7).The investment mandate of Mexico’s pensionfunds (Afores/Siefores) has historicallybeen very conservative, and was primarily focusedon domestic government fixed-incomesecurities. In 2009, however, the regulationswere amended to allow for direct equity investmentsin private equity, infrastructure and realestate. It is estimated that approximately $8Bn of investable capital is currently availablefor these new asset classes.Mexico launched its first real estate investmenttrust (known in Mexico by its Spanishacronym as a “FIBRA”) in March 2011. FIBRAUno, with an initial public offering raise of $300mm listed on the Mexican stock exchange in2011; the proceeds of the offering were usedto acquire its initial properties. In general, FI-BRAS are expected to enhance liquidity in thereal estate market, expand the size of the internationalmarket and increase market transparency.The FIBRAS and the Afores are expectedto create growing pools of domestic capital forinvestment in commercial real estate assets.FDI is not expected to reach 2007 levels until2015 or later, and this has been only partiallyoffset by the pending capital flows from Aforesand FIBRAS. By contrast, FDI flows to Mexico’sLatAm peer, Brazil, increased by 87% between2007 and 2011. As an investor, we view theretrenchment of foreign capital as a positivefactor in the current investment environment.Risks Related to MexicoAfter five years of heightened governmentefforts to quell the violence, Mexico’s deathtoll has stopped rising and appears to have leveledoff at approximately 12,000 deaths peryear. This has been largely driven by bettercooperation between the municipal, state andfederal branches of government as well as amajor commitment of resources. Another factor(albeit a negative one) that may be reducingviolence appears to be the increasing dominanceof some drug groups in certain regions/cities, limiting inter-gang warfare. A negativetrend, however, is the spread of violence tonew locations outside historic hotspots. Broadreforms to the police force and judiciary arenecessary to improve security and this issueconstitutes an important electoral plank in thecurrent Mexican presidential campaign.Early indications are that Mexico’s upcomingnational election, scheduled for July 2012 will resultin a change of leadership. It appears that thecurrent ruling party, the Partido Accion National(PAN), will be replaced by the Partido RevolucionarioInstitucional (PRI), led by Enrique PeñaNieto. (Under Mexican electoral law, the currentpresident, Calderón cannot seek another term ofoffice.) The PRI ruled Mexico for 70 years until2000 and has again become more dominant, havingwon a string of state governorships in 2011.Unless the new president commands a majorityin Congress, however, prospects for significantreform are uncertain. While there is mountingpublic pressure for the government to addressrising crime and major structural issues in theeconomy, the shift in political power may lead toa weaker government and incremental legislativechanges. We believe that a lack of political willto pursue various necessary reforms is a threat tothe Mexican growth story.ConclusionMexico has a large, young and growing urbanpopulation, which is enjoying rising incomeand increasing employment opportunities. Webelieve that the country’s positive long-termeconomic outlook and proximity to the UnitedStates position Mexico’s manufacturing basefor continued growth. This is particularly soas the rising cost of transportation and increasedproduction costs in China have increasedMexico’s relative attractiveness. Foreign directinvestment has slowed markedly over thepast few years, and even with the offsettingimpact of domestic capital pools, we think thatthis lower FDI level has the potential to makeattractive opportunities available for real estatebuyers. Inflationary pressures also remainmoderate and the country’s ratio of debt to GDPis very low at 27%.In our view, the macroeconomic outlook forMexico is quite positive. There are risks, to besure, that nonetheless require careful analysisand underwriting. We continue to believe thatcarefully selected sectors and markets have thepotential to generate attractive risk-adjustedreturns for real estate investors. •SOURCES1. El Economista.com, January 24, 20122. Wall Street Journal Online3. La Asociacion de Tiendas de Autoservicio yDepartamentales (“ANTAD)4. EIU5. 2011 State of Housing in Mexico, publishedOctober 2011.END NOTESThis is not an offer to sell, or solicitation of offersto buy, securities and this communication is notmade in connection with, or as a recommendationto purchase, any investment funds sponsored byClarion Partners or any other investment product.Investments in any real estate private equity fundcan be made only pursuant to such fund’s subscriptiondocuments and private placement memorandumand after careful consideration of the riskfactors set forth therein. Investment in real estateentails significant risks and is suitable only forcertain investors as part of an overall diversifiedinvestment strategy and only for investors able towithstand a total loss of investment. Unless otherwisestated, all dollar amounts contained in thisreport refer to U.S. dollars. Past performance isnot an indication of future results.Statements regarding forecasts and projectionsrely on a number of economic and financialvariables and are inherently speculative. Suchstatements are based on complex calculations andformulas that contain substantial subjectivity andno express or implied prediction is made herebywith respect to any Clarion Partners fund or anyother actual investment. Clarion Partners and anyof its officers or employees, including the authorsof this report, may have a position or otherwise beinterested in the types of investments referred to inthis publication. There can be no assurance thatmarket conditions will perform according to anyforecast or that any real estate investment programwill achieve its objectives or that investors in anysuch program will receive a return of their capital.The information contained in this report,including information supporting forecasts andprojections, has been obtained or derived fromindependent third party sources believed to bereliable but Clarion Partners cannot guaranteethe accuracy or completeness of such informationand has not reviewed the assumptionson which such information is based. None ofClarion Partners or any of its affiliates or principalsnor any other individual or entity assumesany obligation to update any information orforward-looking statements as a result of newinformation, subsequent events or any other circumstances.Such statements speak only as ofthe date that they are originally made. Prospectiveinvestors are cautioned not to place unduereliance on any forward-looking statements orexamples included in this report.Copyright and database rights protection existsin this publication and it may not be reproduced,distributed or published by any personfor any purpose without the prior express consentof Clarion Partners. All rights are reserved.20www.inmobiliare.com