City on the move

MBA Students at Welcome DinnerTraffic: a sign of a city on the move. Bogota, Colombia, is indeed on the move, upward and outward. Members of the UNC Kenan-Flagler real estate concentration visited Bogota as part of our Global Immersion Elective (GIE). We met with leading real estate entities in the country thanks to the efforts of Adriana Hurtado (MBA ’10), who works at Nexus Capital in Bogota.

Nexus president Fuad Velasco Juri provided an introductory lesson on Colombia real estate by highlighting two primary themes, which unfolded throughout the study trip: strong development and overbuilding in the office sector and the emergence of the nascent private equity and REIT industry.

The real estate market in Colombia is becoming increasingly professionalized to resemble what U.S. real estate professionals would recognize. And insurance and pension funds are starting to accept that real estate should be part of their investment portfolio. Gaining insight into these trends was invaluable and prompted our class to compare our fundamental real estate knowledge with the principles and practices being used to create the sector.

During our visit to Terranum, a premier development firm, we learned that available square feet of office and industrial space grew by more than 100 percent since 2010. In logistics, vacancies are 15 percent today versus 6 percent in 2013, and office vacancies are 29  percent today versus 5 percent in 2014. In Bogota, tenants search for rental space very shortly before they intend to rent, so developers assume construction risk without securing tenants. This practice revealed the speculative nature of Colombia real estate development.

A visit with Opinas, another large developer, provided insight into the development process in Colombia. The lack of development in downtown Bogota because of a lack of infrastructure and social services has led to a sprawling city. This issue has been gaining prominence as an impediment to downtown commercial growth, and the government plans to address the issue.

MBA Students in front o Bogota graffitiSince Colombia’s professionalized real estate market is in its infancy, access to information has been limited. Logan Valuation outlined their work in forging market relationships to build a database and platform that tracks marketplace rents and data for brokers – a tool that we take for granted in the U.S. marketplace.

We also witnessed a development in progress: the massive America Centro de Negocios, a two-phase $1 billion project of office and retail space that will become one of the premier parcels of real estate in the country. Despite office oversupply in the market, this project will be the only A+ project in a northeastern neighborhood of Bogota, home to many multinational corporations. The project illustrated another significant contrast to the U.S. market: Colombian tenants purchase their retail and office space versus renting. The developer is trying to shift the project to a traditional tenant rental, which will make it very attractive for institutional investors. However, the developer faces a daunting task to change local norms.

The GIE trek to Bogota was an incredible educational experience, one that our group will draw upon as we progress in our real estate education. We will be excited to track the growth and progress of the Colombian real estate market.

By John Raymond (MBA ’18)