UNITED STATES - More pension fund capital is being ploughed into the Mexican real estate market and heading for retail and ‘single family home' developments, according to property investment firm ING Clarion.

Jim Hendricks, managing director with ING Clarion Partners, said his firm is pursuing opportunities in the Mexican ‘single family home' residential space in particular as changing demographics and wealth growth mean families are now seeking improved living positions and this is creating more demand for properties.

"We are seeing that Mexico is producing a growing middle class and this is creating more disposable income for a good part of the population," said Hendricks.

Strong investment potential is seen in retail and single-family as there is a need for new builds, according to Hendricks.

"This situation has created a big need for grocery-anchored shopping centres. Mexico is under-resourced in this kind of retail space so one of our main strategies will be to develop grocery-anchored properties very similar to the kinds of centres that you would see in the United States."

At the same time, Hendricks added: "The demographics tell us that a good part of the middle class will be able to afford buying a new single-family home."

It is in these environments much of the $640m equity raised through its Lion Mexico Fund, which closed at the end of August, will be placed through local development partnerships, albeit the other property type being considered for development is industrial.

Lead investor in the commingled fund - which is expected to have total capitalization of over $1bn through 50% leverage - was the Oregon Public Employees Retirement Fund, investing $100m into the fund, while Kansas Public Employees Retirement System committed $30m.

A typical size transaction for the real estate manager will be in the range of $20m ($14.7m euros) to $40m.

A good portion of ING's developments are expected to be done in the northern part of Mexico but the company notes there is now widened interest in the Mexican market from institutions such as the California Public Employees Retirement System (CalPERS) and Pramerica Real Estate Investors and such competition has reduced investment returns from 12% to 8% over the past 3-4 years.

"We view this as an opportunity for our company, but do realize it's more difficult now that it would have been a few years ago," added Hendricks.