Member: HASTA Capital
Executive: Rodrigo Suarez, Chief Operating Officer and Co-Founder
News Coverage: Search LAVCA
LAVCA spoke with Rodrigo Suarez, Chief Operating Officer and Co-Founder of real estate investor HASTA Capital, about the multifamily opportunity in Mexico and appetite from Mexican LPs for access to dollar-denominated investments. Suarez also discusses how the new administration in Mexico might affect local real estate investments and the importance of ESG considerations for the firm’s portfolio.
LAVCA: Please provide some background on HASTA Capital.
Rodrigo Suarez: HASTA Capital was founded in 2016 by me and Mark Hafner as a Development and Investment Real Estate platform focused on multifamily rentals. Our two main areas of business are development of new assets in Mexico and acquisition of existing assets in the US, mainly with Latin American Private Capital. Currently our portfolio is about US$500m of asset value (US$190m of equity).
LAVCA: Tell us about your background. What experience did you have leading up to your role at HASTA Capital? What was the opportunity that motivated you to create HASTA Capital?
Rodrigo Suarez: Prior to founding HASTA, both Mark and I were at Greystar, a global development and investment company focusing on multifamily rentals. Mark oversaw Greystar’s international businesses and in 2013 he hired me to open Greystar’s Latin American operations, starting with Mexico. In our time there, we realized that the opportunity to develop the institutional multifamily industry in Latin America was enormous, certainly the biggest opportunity either of us would get in our careers. We also recognized that there was a lot of appetite for Latin American capital to invest in the US. Our track record and experience made us uniquely qualified to take advantage of these amazing opportunities, which is why we decided to take the leap and start HASTA.
“We realized that the opportunity to develop the institutional multifamily industry in Latin America was enormous…”
LAVCA: What markets do you cover? What cities/areas within Mexico are most attractive for your strategy and why? Do you anticipate expanding your geographic coverage to other countries in the future?
Rodrigo Suarez: In the US, our assets are in the DC metro area, Houston, and Seattle. For our Mexico developments, they are currently located in the Mexico City metro area. Besides Mexico City we like several markets in the country, like Guadalajara, Cancun, Queretaro, Puebla, and Monterrey.
Right now, Mexico is undergoing a massive political transition, and this affects everything from the Federal to the Municipal level. The repercussions of this transition will shift the relative attractiveness of the different markets, although right now it’s too early to tell exactly where things will end up. We are definitely planning to expand our geographic coverage to other Latin American markets in the future. We have done a lot of work in Chile and love that market for multifamily. We also like Colombia and Peru.
LAVCA: What opportunities and challenges do you foresee for residential multi-family rental in Mexico as a result of policies put forth by the new administration?
Rodrigo Suarez: The biggest challenge right now is at the municipal level. Certain municipalities, most prominently Mexico City, are now controlled by politicians who are anti-development.
Certainly, a lot of work needs to be done to fix and improve the city’s infrastructure, particularly water and sewer, and developers are willing to work with the authorities to do this. But it is not the developer’s responsibility to provide the appropriate infrastructure. Blaming developers for the insufficient infrastructure is like blaming a wall for damaging your car when you crashed against it. The new municipalities need to realize that the solution isn’t to shut down construction, but to work in a productive way so that together we can create a better city for everyone.
LAVCA: Are you seeing an appetite from institutional investors locally or internationally to commit to your fund? What types of LPs have committed to HASTA to date?
Rodrigo Suarez: We are seeing a lot of appetite for our US investment strategy. Our investors are mostly family offices (mainly Mexican and Chilean). These families love investing in real estate because of its low risk profile, it’s dividend yield, capital appreciation, all of which translate into very attractive risk-adjusted returns.
They also like having dollar-denominated investments, but they actually don’t have very many attractive ways to invest in US stabilized real estate. Our platform is a great way for them to do so, and that is why we’ve seen so much appetite for our investments.
For the Mexico development strategy, we are still seeing healthy appetite but obviously with a lot more caution. The uncertainty in the market makes investors a lot more careful. Investors are looking to structure deals in more creative ways to be able to mitigate some of the risks. Fortunately, during uncertain times there is a flight to quality, and the sponsors that are attentive to risk mitigation and do business in a transparent and institutional way like HASTA are better able to attract investors.
“Investors are looking to structure deals in more creative ways to be able to mitigate some of the risks.”
LAVCA: What is your average investment size? Please describe in detail some of the projects HASTA has backed.
Rodrigo Suarez: Our US investments range all the way from US$30m to US$95m in total asset value. We typically lever them 60-65%, mostly through Fannie Mae or Freddie Mac. We buy existing stabilized assets where we can, through active asset management, generate operational efficiencies, increase revenues, and significantly reduce operating costs.
Typically, we underwrite a 5-year hold for our acquisitions. In Mexico our developments range from US$35m to US$50m total project cost. These projects are ground-up developments where we take them through design, permitting, construction, lease-up and stabilization. It takes anywhere between 4 and 7 years to round-trip a development project, depending on the size and the complexity of the permitting process.
LAVCA: How do ESG considerations play a role in your investment strategy?
Rodrigo Suarez: ESG considerations are extremely important to us. Personally, one of the reasons I came back to Mexico after many years living abroad was to impact my country by making a positive difference. That means that as a company we aim to be responsible participants and productive contributors to society. The clearest example is in how we design our buildings to be efficient consumers of resources. While we don’t necessarily push any particular standard such as LEED (because we don’t think they are particularly accurate benchmarks) we do aim to significantly lower energy and water consumption. We believe in spending capital up-front to minimize long-term expenses, and that translates into efficient buildings.
LAVCA: What is the timeline and strategy for exiting your investments? Who are potential buyers?
Rodrigo Suarez: For the US assets, we underwrite 5-year holds. However, something that’s very important to us is to never sell at the wrong time just because you have an exit timeline. All our investments are structured with flexibility around the exit timeline so we can pick the right moment to sell.
For multifamily, there are many potential buyers such as other private equity funds, institutional investors, REITS, etc. In Mexico the timeline is longer because of the permitting and construction period. The potential buyers are similar, mainly PE funds and Fibras.
LAVCA: What challenges and opportunities do you predict for the real estate market in Latin America in the next 5-10 years?
Rodrigo Suarez: We expect that both the US and the Mexican markets will experience some type of recession in the mid-term. After all we are in year 11 of the cycle. While recessions are always a challenge, they also generate attractive investment opportunities. We are working very hard to be well positioned so that when the cycle turns, we can be ready to invest heavily on the other side and take advantage of the attractive entry point.
LAVCA: Why did you join LAVCA?
Rodrigo Suarez: LAVCA is a great community of like-minded companies and we wanted to be a part of that. We think we can benefit greatly from the conferences and networking events. We also hope to use the platform to make ourselves more visible to new potential investors that might be interested in our strategy and in working with our team.
