"We're not a bunch of ex-bankers who fancy a bit of property. Most of them didn't have a clue." So says James Morse, chief executive of Squarestone Brasil. The Brazilian shopping centre specialist is hoping to raise £250m on Aim later this month, promising to take the "western mall concept" over to Latin America. If it succeeds, Squarestone will be the first significant overseas property fund (OPF) to list on London's junior index for nearly three years.
The property boom spawned hundreds of OPFs promising investors a high-risk, high-reward gamble on property markets in the emerging economies of India, China, Eastern Europe and beyond. Often run by ex-bankers, these funds were usually highly geared, and paid far too much for assets of dubious quality. The credit crunch ended the foreign holiday; values plunged, tenant markets collapsed and loans remain deep underwater.
Conscious of the chequered history of Aim-traded property funds, Squarestone Brasil has a simplistic management structure (avoiding the OPF cliché of an external fund manager able to cream off extortionate fees). The fund will be seeded by two large retail malls in Sao Paulo which Squarestone already manages (Bonsucesso Mall, which is tr ading, and a 50 per cent stake in Golden Square Mall, which completes in 2011). Three more development sites totalling 1m sq ft are also being eyed.
Ex-MEPC man Mr Morse is now a Brazilian resident, and his team has spent three years on the ground working up the business plan with local investment bank BTG Pactual, which has signed a letter of intent to potentially partner Squarestone on project funding if the listing succeeds. Looking at the economic statistics, it is easy to get caught up in Brazil's carnival atmosphere. However, investors should be aware of the long-term nature of development projects, and unpredictable nature of returns.
Written by: Claer Barrett
