Realty Firm Is Cooking in Brazil’s Hot Market

SAO PAULO — Brazil Realty SA was startled when it sold 536 apartments in Sao Paulo during one torrid 20-day stretch last year.

Still, the real estate company partially controlled by hedge fund manager George Soros is hoping that’s just the tip of the “hot” property market in Brazil’s wealthiest, most populous city.

“We didn’t expect the market to be so hot,” said Daniel Citron, finance director of the Sao Paulo-based company. “It was the right product at the right time.”

Brazil Realty, which sold the $70,000, residential hotel suites in November and December, claims it was the city’s best real estate transaction of the year. The one-bedroom apartments, which provide maid service and other amenities, were acquired by upper-middle-class buyers who bought them as investments, Citron said.

Apartments have traditionally been a favorite investment for members of the Brazilian middle class, who see them as a safe haven in an economy that’s been buffeted by high inflation, changing currencies and at least one economic program that froze personal savings accounts.

The company saw its earnings surge eightfold to $7.5 million in 1996, compared with $924,000 a year earlier. Equity reached $121 million, compared with $27.4 million in 1995.

Brazil Realty is now following up with office space that can be rented for short periods, a new concept in Brazil. The company sold almost three-quarters of the space in a complex offering such space, known as “The First,” within 60 days of announcing the venture, Citron said.

A construction boom that began after the government slashed inflation to less than 10% from 5,000% in 1994 has spurred sales. Cement production is up 58% since the anti-inflation program began in July 1994.

“The pent-up demand is almost absurd,” Citron said.

Brazil Realty also has benefited from 66-month loans with some of the lowest interest rates charged in Brazil: a local inflation index’s rate plus 12%. Occupants won’t move in for 36 months while the building is constructed, a common practice because financing for real estate is scant.

Brazil Realty began in 1993, a joint venture between Brazilian developer Elie Horn and IRSA Inversiones y Representaciones SA, an Argentine real estate company in which Soros is a major shareholder. The company bought its first property in late 1994 and went public in October, when it sold $80.5 million of shares in a global offering.

Brazil Realty has $62 million in cash ready to invest when the opportunity arises, Citron said. All investments to date have been in greater Sao Paulo, where the company knows the market. The company would also consider investments elsewhere in Brazil, though it would seek a local partner who knows the market, he said.

Brazilian newspaper reports said Brazil Realty would bid for Ceagesp, a state-controlled food warehouse, and a lot owned by the Matarazzo family on Avenida Paulista, a major business district. The reports were wrong, Citron said.

“We learned of the Ceagesp auction through the press,” which led Brazil Realty to examine and then decline to bid on the property, he said. “People remember all the things we’re not doing.”

The company last year opened a textile wholesale complex with 170 spaces, the ABC Plaza shopping center, six residential buildings and three buildings with office space.

Office space and shopping centers will remain Brazil Realty’s focus until financing becomes more available for residential homes and buildings, Citron said.

“One day [residential sales] will be the best, but you don’t have a mortgage system,” he said.