UNITED STATES - Pension funds in the United States are increasingly looking at the Mexican industrial market as a solid investment opportunity.
Rob Kochis, principal with real estate consultancy The Townsend Group, said the Teacher Retirement System of Texas is one such pension funds to make the leap with its investment into a commingled fund that invests in industrial properties in Mexico to tap into the growth potential of new industrial property.
"There are several factors that lower the risk with this strategy but one is the same tenants that occupy buildings in Mexico also lease space in the United States," said Kochis.
"This makes us feel more comfortable because the industrial buildings that are being developed in the market are very similar to the kind of product being constructed in the United States."
Pension fund capital is being used in the development of the Mexican industrial market because there is a lack of existing institutional quality industrial properties in the country and there are therefore likely to be higher potential returns on the industrial sector.
Texas Teachers has so far invested $75m (€54.5m) into the ProLogis Mexico Industrial Fund I - predicted to produce a 13% net IRR yield over a 10-year holding period, according to Kochis - to add to a real estate portfolio valued at $1.1bn or just 1% of its total assets.
"There is an existing portfolio of industrial assets in the commingled fund totaling around $200m. These properties are producing a current cap rate of 8.2%, based on the building’s current net operating income so this will give the pension fund a 200 basis point higher return than what is available on industrial properties in the United States," Kochis continued.
