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Is Brazil the next Real Estate Frontier?

Is Brazil the next Real Estate Frontier?. Brazilian American Chamber of Commerce September 15 th , 2009. MaxCap. Focused in Opportunistic Real Estate Investments targeting aggressive returns Over $ 400M in equity investments in: 3 Operating Companies (Developers)

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Is Brazil the next Real Estate Frontier?

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  1. Is Brazil the next Real Estate Frontier? Brazilian American Chamber of Commerce September 15th, 2009

  2. MaxCap • Focused in Opportunistic Real Estate Investments targeting aggressive returns • Over $ 400M in equity investments in: • 3 Operating Companies (Developers) • 33 Real Estate Projects located in 11 cities across Brazil • 5 Senior Partners, with: • Average of 17 years experience in Real Estate Investments in Brazil and Mexico • Over $ 3B investment track record • JV Partners of Merrill Lynch / BofAfor real estate investments in the region

  3. Summary • Brazil: Strong Economic Fundamentals • Brazilian Real Estate Fundamentals • MaxCap Vision & Strategy • MaxHaus: An Investment Case • Conclusion

  4. Strong Economic Fundamentals Brazil is the 2nd Largest Economy of the Americas and the 8th Largest of the World… CAGR: 16.4% … as a result of a solid and consistent growth, which tripled its per capita income in the last 6 years Source: Ipeadata, FGV, IBGE, MaxCap

  5. Strong Economic Fundamentals …bringing 68%of its population to the upper and middle classes AB 130 M Inhabitants C DE 60 M Inhabitants Dec 2004 Jul 2009 Source: FGV, JLLS

  6. Strong Economic Fundamentals This trend is expected to continue supported by declining interest rates and controlled inflation Source: BACEN, Global Insight/JLLS

  7. Strong Economic Fundamentals • Brazil was also hardly hit by the recent global crisis • Due to its globalized and market driven economy … however, it is one of the first countries to recover from it Source: Ipeadata, FGV, IBGE, Maxcap

  8. Brazilian Real Estate Fundamentals • The Country has been a target consensual destiny for Global Direct Investment Capital … CAGR: 18% Source: Ipeadata, Maxcap

  9. Brazilian Real Estate Fundamentals • … and has also a dominant position within the public market investments The Sao Paulo Stock Exchange responds for: • 56% of LatAm Market Cap • 80% of LatAm Daily Volume • 89% of LatAm New Offerings • Source: WFE (World Federation of Exchanges), 9 mo 2008

  10. Brazilian Real Estate Fundamentals • A healthy and sustainable Mortgage System is back [after 20 years]… Mortgage Collapse NEW MORTGAGE SYSTEM Source: BACEN, ABECIP, MaxCap

  11. Brazilian Real Estate Fundamentals • …indicating an enormous potential growth for the next decades… • Past decade Brazil produced 14 Mnew households , virtually without mortgages • Next decade new homes are expected to grow at an average of 2.1 M per year. • Roughly 20% of new homes in the current decade should be financed by a mortgage Brazilian New Households per Decade Source: IBGE, MaxCap • … extra fueled by the recent “Minha Casa, Minha Vida” program sponsored by the government for the economic segment Source: IBGE, MaxCap

  12. Brazilian Real Estate Fundamentals • … however, despite its sharp growth, the mortgage penetration is still very timid compared to other economies Source: ABECIP

  13. Brazilian Real Estate Fundamentals • As consequence of its economic strength and the emergence of its middle class, shopping mall sales have been increasing at 12% per year in the current decade… Annual Shopping Mall Sales (R$B) Source: ABRASCE

  14. Brazilian Real Estate Fundamentals • Boosted by its robust economy, the office sector is also showing an impressive resilience, even during the current global crisis • São Paulo is probably the only metro area in the globe where prices went up significantly in the last 12 months Source: JLLS, OESP

  15. Brazilian Real Estate Fundamentals • However office prices are still cheap when compared to other cities CBRE Global 50 Index Ranked by Occupancy Cost (US$ / sqf / year)

  16. Brazilian Real Estate Fundamentals • Global Public Investors have been paying huge premium to take part of this game… • …however Brazilian Real Estate has been still ignored by global private investment community Source: BOVESPA, MaxCap

  17. Our Strategy • MaxCap has had a contrarian view about the real estate investment opportunities in the Brazilian market • We believe the current market status is a reflection its initial institutionalization phase. Capital hasn’t played its disciplinary role yet. • WINNERS • Focus • Specialized Portfolio • Volume / Scale / Process • Disciplined Management • Operational efficiency • Capital: just a consequence • FIRST MOVERS • Highly Diversified Operations • No Focus • Taylor Made Products • Family owned • Highly Opportunistic • Capital: competitive advantage

  18. Our Strategy • MaxCap invests in efficient and focused developers in a very creative capital structure (MaxCap Platform Strategy) MAXCAP FOUNDING PARTNERS OTHER INVESTORS < or = 50% > or = 50% OPERATING CO 80% to 99% If MaxCap declines RFR 80% to 99% (Full Control) 1% to 20% 1% to 20% 1 2 N x y REAL ESTATE PROJECTS

  19. Our Strategy • MaxCap successfully invested in 3 focused operating companies, through its Platform Strategy Structure MAXCASA • Residential Middle Income • Environmentally Oriented • Residential Urban Middle Income • Design, Technology, Lifestile Oriented • The Only Pure Office Developer in Brazil • A Leading Player in the Segment 19

  20. An Investment Case • MaxCasa is probably the most focused apartment developer in the globe • It only produces MaxHaus 70 sqm apartments… • Open spaces, with no standard walls • Highly customizable • Cutting Edge Technology & Design • Units can be combined horizontally or vertically into 140, 210, 280…sqm • …faster and cheaper than their ordinary comparables, due its high level of scale and standardization.

  21. An Investment Case 21

  22. An Investment Case • MaxHaus has 9 projects in SP in different kinds of neighborhoods (4 to be launched this year) • Premium neighborhoods ' • Upcoming neighborhoods • Peripheral regions • MaxHaus is a blockbuster everywhere it goes • São Paulo

  23. An Investment Case • MaxCasa currently sells faster than any other real estate developer in Brazil • Out of 1,024 units launched since mid 2008, just before the global crisis, MaxCasa only 10% remains in stock Source: Companies Financial Reports, MaxCap

  24. An Investment Case • MaxHaus Vila Leopoldina (3 towers comprising 318 apartments) was launched August 15th, 2009… • It was fully sold in a single weekend! • 1,340 people packed its show room, trying to buy a MaxHaus! • 150 brokers couldn’t handle the demand! • Only a single advertising was published in the 2 main SP newspapers • …demonstrating that the MaxHaus concept and the brand is a home-run in the country

  25. An Investment Case • MaxCasa also generates more profits than generic companies, due its operational and marketing efficiency • MaxHaus margins are 75% higher than the average public real estate company • Investment cycle is typically half of a comparable diversified company’s investment cycle Source: Companies Financial Reports, MaxCap

  26. An Investment Case • The industry see MaxHaus as a niche player • Even though MaxHaus sales conversion (visitors x contracts) is 20%, the highest in the market (average of 7.5%). AB 20% of Population Household Growth next Decade: 2.1M /year MaxHaus Potential Market: 420,000 homes If MaxHaus Penetration = 1.5% MaxHaus will produce 6,200 homes / year This is a R$ 1.6 B business C DE Source: IBGE, FGV, MaxCap

  27. Is Brazil the next Real Estate Frontier? • There isn’t any other sizable economy with similar positive fundamentals: • Robust per capita income growth • Gigantic Emerging Middle Class • Declining interest rates • Pent up demand derived from 20 years with no mortgage system • Politically stable country, with centennial legal and institutional framework • MaxCap estimates that over U$ 30 B will be invested in this sector in the country within the next 5 years. • Where will you be in this timeline?

  28. Thank you! José Paim de Andrade Jr. jp@maxcap.com.br

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