Esteban Thesis - ReporteInmobiliario · Esteban Edelstein Pernice Submitted in partial fulfillment...

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RESIDENTIAL DEVELOPMENT OPPORTUNITIES IN BUENOS AIRES

By Esteban Edelstein Pernice

A Real Estate Development Project Presented to

The Faculty of Architecture, Planning and Preservation

Submitted in partial fulfillment of the requirements for the degree

Master of Science in Real Estate Development

Graduate School of Architecture, Planning and Preservation

COLUMBIA UNIVERSITY

May 2004

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RESIDENTIAL DEVELOPMENT OPPORTUNITIES IN BUENOS AIRES

By

Esteban Edelstein Pernice

Submitted in partial fulfillment of the requirements for the degree

Master of Science in Real Estate Development

Abstract

The intention of this thesis is to show the opportunities for developing residential

real estate available in Argentina today. While the general perception about the country is

that it is the land of trouble, by reading the paper the reader will understand how certain

economic conditions, like having construction costs in Argentine Pesos and selling prices

in American Dollars, have created extraordinary opportunities for residential real estate

development.

By analyzing the reasons and understanding what is going on, the reader will leave

behind his fears of those risks more associated with misinformation than with real facts.

Once these “misinformation risks” are no longer a concern, the investor will be able to

explore and measure the “real risks” that exist in investing in a country with the

characteristics of Argentina.

Thesis Advisor: Michael Buckley

Title: Director

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Acknowledgement

I would like to dedicate this thesis to my parents, Ricardo Edelstein Pernice and

Maria Teresa Harosteguy. I would like to thank them for being my model and guidance in

life and for introducing me into the fascinating world of real estate.

I would like to thank my thesis advisor and director of the program Michael

Buckley for his thesis recommendations.

Finally I would like to thank my wife Florencia and my daughter Catalina for their

support and understanding. Their smiles gave me the encouragement I needed to write

this thesis.

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Table of Contents Abstract 1 - Introduction 2 2 - Brief Outline 3 3 - The Basics for Argentina 4

3.1 - Political Structure 4 3.2 – Urbanization 5 3.3 - Ciudad de Buenos Aires 6 3.4 - Brief History of Argentina 7 3.5 – Economic Crisis 10

3.5.1 - Internal forces 10 3.5.2 - External forces 12 3.5.3 - Consequences of the crisis 12

3.6 – Transposition of value due the Dollar Appreciation and Loan Pesification. 14

3.7 – Argentina Today 18 3.7.1. - Political Situation 18 3.7.2 - Economic Activity 18 3.7.3 - Construction sector booming 20 3.7.4 - Investment continues strong expansion favoring Employment 21 3.7.5 – Consumption 22 3.7.6 – Agriculture 22 3.7.7 – Inflation 23 3.7.8 - Financial Sector – Banks 23 3.7.9 - Exchange Rate 24 3.7.10 - Stock Market performance 24 3.7.11 - Foreign investment in Argentina 25

3.8 - The Big Pending: Debt negotiations with investors of Argentina's Foreign Debt. 26

3.9 - The Future 27

4 - Residential Real Estate in Argentina 29

4.1 - Cultural Considerations: 29 4.1.1 -Love of property 29

4.1.2 - Aversion to debt 29

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4.1.3 - Residential Stability 30 4.1.4 - Real estate versus Bonds and Stock 30 4.1.5 - Big families together 30 4.1.6 - Real Estate as a protection against inflation 31 4.1.7 - People do not trust banks 31

4.2 - Prices of the Property are in Dollars 31 4.3 - Demographics 32 4.4 - Lease Law 33 4.5 - Ownership 34 4.6 - Taxes 35 4.7 - Public Property Register 36 4.8 - Loan Market 36

4.8.1 - '90s 36 4.8.2 - Economic Crisis effect on the Loan Market 37 4.8.3 - Current situation 37

4.9 - Modern Real Estate Instruments – Act 24,441 39 4.10 - Correlation with American Real Estate 40

5 - Real Estate Market Review 41

5.1 - Suburban: 41

5.1.1 - The '90s 41 5.1.2 - Economic Crisis 43 5.1.3 - Current situation - Lot Prices have recovered

and New Construction in Record levels 44 5.1.4 - Changing Demand profile 46

5.1.5.1 - Young families 47 5.1.5.2 - New Profile of buyers 48

5.1.5 – Drivers for buying a house in the suburbs 48 5.1.6 – New Construction 49

5.2 - Urban development 50 5.2.1 - '90s 50 5.2.2 – Economic Crisis 52 5.2.3 - Current Situation 53 5.2.4 - Apartment Prices Evolution 56

5.2.5 – Drivers for buying an apartment in the City 58 5.2.6 - Evolution Construction Cost 59 5.2.7 - Cost of Land in the city 62 5.2.8 - Extraordinary Profit Situation – Prices in Dollars, Costs on Pesos 63 5.2.9 - Currency Risks and its effects in Prices and Costs 65

5.2.9.1 – Prices 65 5.2.9.2 - Cost - Risk of Dollar Inflation 66

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5.2.10 - Bank Construction Financing plus “Fleet Float” Financing 67 5.2.11 - Property Market Transparency 68

6 – Conclusion 69

6.1 - Why invest abroad? 69

6.1.1 - Diversification. 69 6.1.2 - Opportunistic Return 69

6.2 - What are the reasons for Investing in Argentina? 70 6.2.1 - On-Going recovery 70 6.2.2 - Young Democracy 71 6.2.3 - Property is a hard asset 71 6.2.4 - Liquidity in Dollars 71 6.2.5 - Residential Real Estate – Demographics – Young Population 72 6.2.6 - Extraordinary Profit Situation 72 6.2.7 - The opportunity now is to build 73 6.2.8 - Bank Construction Financing plus “Fleet Float” Financing 73

6.3 - Opportunity for a Residential Real Estate Investment Fund 74 6.3.1 - Investment Objective of the Fund 74 6.3.2 - Typical project 74 6.3.3 - Type of investment 74 6.3.4 – Size 75 6.3.5 – Term 75 6.3.6 - Diversification / Number of investments 75 6.3.6 – Management responsibilities: 75 6.3.7 - Exit Strategies 76

References: 77 Author Bio 79

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List of Exhibits: Exhibit 3.1 - Map of Buenos Aires and suburbs 7 Exhibit 3.2 - Map of Buenos Aires City 7 Exhibit 3.3 - International Reserves, 1995 – 2004 11 Exhibit 3.4 - Transposition of value – Loans “Pesification” 15 Exhibit 3.5 - Economic Activity, 1995 – 2004 20 Exhibit 3.6 - GDP Growth– By Sector, 1997 – 2003 20 Exhibit 3.7 - Permits issued – City of Buenos Aires 20 Exhibit 3.8 - Investment, Consumption and GDP 21 Exhibit 3.9 - Un-employment Rate 21 Exhibit 3.10 - Supermarket Sales 22 Exhibit 3.11 - Automobile Sales 22 Exhibit 3.12 - Inflation 23 Exhibit 3.13 - Exchange Rate, 1995 – 2004 24 Exhibit 3.14 - Stock Performance – Merval Index 25 Exhibit 4.1 - Demographics Argentina 33 Exhibit 5.1 - Existing infrastructure -Northern Access 42 Exhibit 5.2 - Village Cinema Complex located in the city of Pilar 42 Exhibit 5.3 - Pilar Grow in figures 43 Exhibit 5.4 - Price Evolution – Prices per Sq Ft 45 Exhibit 5.5 - Pilar County – New Construction 46 Exhibit 5.6 - Use of Homes – Comparison 47 Exhibit 5.7 - Comparative Cost House 2000 SqFt - $ 50 Exhibit 5.8 - An image that shows how Puerto Madero was in the 80’s 51 Exhibit 5.9 - A current image of Puerto Madero. Boats, Recycled docks,

La Nacion building, and Telefonica building. 51 Exhibit 5.10 - Puerto Madero - Women’s bridge by Santiago Calatrava. 52 Exhibit 5.11 - Another current image of Puerto Madero.

Retail on the ground floor and residential or office above. 52 Exhibit 5.12 - Permits Issued – City of Buenos Aires 55 Exhibit 5.13 - City of Buenos Aires – Index New Construction 55 Exhibit 5.14 - Prices of New Apartments 57 Exhibit 5.15 – Exhibit 5.15 - Price Comparison New Apartments 58 Exhibit 5.16 - Construction Cost – General Index – in Pesos 60 Exhibit 5.17 - Construction Cost – Materials 61 Exhibit 5.18 - Construction Cost - Labor 61 Exhibit 5.19 - Construction Cost – In Dollars 62 Exhibit 5.20 - Cost variations from Year 2000 63 Exhibit 5.21 - Price variations from Year 2000 63 Exhibit 5.22 - Increase in Profit – Comparison 64 Exhibit 5.23 - Example of this increasing in Profit 64 Exhibit 6.1 - Extraordinary Profit analysis 73

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1 - Introduction

The intention of this thesis is to show the residential real estate opportunities

available in Argentina today. While the general perception about the country is that it is

the land of trouble, by reading the paper the reader will understand how certain economic

conditions have created extraordinary opportunities for real estate investors.

The opinion that American investors have of Argentina is based on the information

received from the major newspapers. Most of the news during the last years was related

to issues such as the negotiation with private owners of Argentine Debt, the negotiation

with the IMF, and the like. While this is the way newspapers should cover the country's

macroeconomic and political situation, it sometimes does not represent the performance

of the different industries in the country.

One of the industries that are performing strongly is Residential Real Estate. This

thesis explores the reasons why this is happening so that an American investor can get a

better understanding of them and explore potential business opportunities that exist in the

country.

By analyzing the reasons and understanding what is going on, the reader will leave

behind his fears of those risks more associated with misinformation than with real facts.

Once these “misinformation risks” are no longer a concern, the investor will be able to

explore the “real risks” that exist in investing in the country.

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2 - Brief Outline:

Since an investor would not invest in something he or her does not understand,

Chapter 3 addresses a description of Argentina, its history, the '90s, Political Structure,

the Economic Crisis, and the current situation. By going over this chapter, the reader will

get a general understanding of the country and will be prepared to analyze potential

opportunities in the country.

Chapter 3 also explains some of the consequences of the crisis, like the

transposition of value due to the appreciation of the Dollar against the Peso and by the

“Pesification” of loans.

Chapter 4 describes some general characteristics of Argentine Residential Real

Estate. It starts pointing some cultural characteristics of Argentines thinking as regards

Real Estate, and analyzes important aspects for the real estate investor such as ownership

structure, taxes and the like.

Chapter 5 analyzes the suburban and urban residential market during the '90s and

how the crisis affected Argentine residential real estate.

The thesis concludes with a review of the reasons why an investor should invest in

Buenos Aires' residential market and with a proposal of the type of fund that has to be

developed to invest in the country.

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3 - The Basics of Argentina

With a population over 454 million versus 303 million of the United States and

Canada, Latin America is the world’s least studied and least understood markets.

In Latin America, it is Argentina -a country well known worldwide because of its

Tango and its Soccer- that was used as a model of the economic model of the '90s and it

went from being the model to undergoing one of the strongest economic crises ever.

It is the existing opportunities for residential real estate development in this country

that we will analyze.

In the belief that an investor would not invest in a market he or she does not

understand, in this chapter we summarize some of the facts that would give the potential

investor the basic knowledge he or she needs to undertake an analysis of any business in

Argentina.

3.1 - Political Structure

The Executive power is vested in the president, who traditionally has dominated

federal politics. The president appoints the cabinet of ministers. Following the 1994

revision to the constitution, the president is elected for a four-year term and is eligible to

stand for a second consecutive term of office. The president is elected by universal

suffrage.

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The 1994 constitution also introduced the role of cabinet chief, equivalent to a

prime minister. The cabinet chief oversees administrative matters nationwide, acting as a

nexus between the executive and the legislature, and coordinating business within the

cabinet. The president himself appoints him.

A two-chamber Congress holds legislative power. The lower house, the Chamber

of Deputies, comprises 257 members, who are elected (under a proportional

representation system) for four-year terms. Half the seats are renewed every two years.

Under the constitution, the judiciary is separate and independent from the

government. The president appoints the nine federal Supreme Court judges when a

vacant is produced, and the Senate ratifies them.

3.2 - Urbanization

Argentina is an urbanized country with close to 90% of the population living in

urban centers. Moreover, 49.3% of the population live in urban centers with more than

500,000 inhabitants, and close to 55% live in Buenos Aires, Gran Cordoba and Gran

Rosario.

Buenos Aires concentrates a population 9.4 times superior to that one of the second

urban center of the country, Gran Cordoba.

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In order to focus the scope of this thesis and because of the relative size of Buenos

Aires' economy in the country’s economy, the examples will be based on numbers

gathered from actual projects in Buenos Aires. This does not mean by any means that

similar opportunities do not exist in other cities of the country.

3.3 - Buenos Aires City

Buenos Aires City has a surface of 202 km2 and 3,100,000 inhabitants. If the

Greater Buenos Aires (metropolitan area) is added, the total population for the area is

more than 10,000,000, making it one of the ten most populated urban centers in the

world.

The limits are the Rio de La Plata River to the East and the Riachuelo River to the

south. The rest of the perimeter is surrounded by the Av. General Paz, which borders the

city from North to South.

Buenos Aires is connected with the rest of the country and the world through an

extended transportation network, which is composed by an important port, two airports,

various railroad connections, highways, national routes and a bus terminal.

In Exhibits 3.1 you can observe on the right the City of Buenos Aires with the

Greater Buenos Aires area and the major highways and routes that connect the city to the

suburbs and to the rest of the country. In Exhibit 3.2 you can observe the map of Buenos

Aires City and its neighborhoods.

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Exhibit 3.1 – Map of Buenos Aires and suburbs Exhibit 3.2 – Map of Buenos Aires City Source: www.argentinaworld.com.ar Source: www.buenosaires.gov.ar

3.4 - Brief History of Argentina

Argentina achieved independence from Spain in 1816.

In the second half of the nineteenth century and the early twentieth century

Argentina enjoyed great prosperity and stability. The foundation stone for that earlier

period of well being was set in place in 1853 when the country adopted a constitution

similar to that of the United States. In the succeeding years, Argentina’s economy

became well integrated into the world's trade system, capital flow and payment. This

economic growth was founded on rising exports of beef and wheat to Europe.

At the turn of the last century, Argentina was among the 10 richest countries in the

world, with an income per person higher than that of France, Germany or Sweden.

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In 1929 a military coup brought to power. They were followed by a succession of

civilian and military governments that were either misguided or weak. They presided

over a 60-year virtual hiatus in Argentina’s economic developments.

In 1983, things began to change. The country suffered a major economic and

political collapse after its defeat in the Malvinas War. The military lost all credibility as a

force for sound government, which made a return to democracy inevitable.

With Alfonsin as president focusing on strengthening the democratic institutions,

and with an expansionary monetary policy, inflation galloped to a point where it was

running at 200% a month at the time this government ended.

President Menem adopted a free-market approach that reduced the burden of

government by privatizing, deregulating, cutting some tax rates, and reforming the state.

Being Domingo Cavallo the Economy Minister the Convertibility Law was passed. On

January 1, 1992, the new Argentine currency, the peso, was issued, and it was established

at an exchange rate of 1 Peso = 1 Dollar. Inflation plummeted from 2,314 % in 1990 to

4% in 1994.

Argentina’s reforms were faster and deeper than those in any country at the time

outside the former communist bloc. Real GDP grew more than 10 percent a year in 1991

and 1992, before slowing to a more normal rate of slightly below 6 percent in 1993 and

1994.

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This exchange rate 1 to 1 with the Dollar made the country receive record Foreign

Direct Investment (FDI) that were motivated by the returns in Dollars. These FDI was

especially strong in service areas, the telephone companies and the banks being among

the sectors that received more foreign capital. The other face of the coin is that this strong

Peso made imports increase replacing national production, practically destroying the

production system and increasing the unemployment rate to figures close to 20%.

In December 2001 president De La Rua, who was elected president after two

periods in office of President Menem, resigned from the presidency and triggered the

worst economic crisis the country had ever had.

The Legislative Assembly immediately appointed a President (who lasted

only a week in office and ordered the suspension of payment of the country’s

foreign debt), then two further Presidents (who remained in office for a few

days) and, finally, Duhalde was elected President.

President Duhalde decided the end of the Convertibility Law and allowed

the peso to float, which produced a devaluation of the peso of over 300 per cent

against the Dollar. All contracts signed in Dollars were converted into Pesos at

the exchange of 1 dollar equal to 1 Peso, which produced the general chaos.

Loans in Dollars were also converted into pesos at an exchange rate of 1 Peso =

1 Dollar.

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3.5 – Argentine Economic Crisis:

At the moment the crisis exploded the country had experienced 4 years of recession

and the unemployment rate in October 2001 was 18.6 %.

The economic crisis was the result of various factors, the most significant being:

3.5.1 - Internal forces:

• A strong currency during the '90s increased imports that replaced local

production, increasing unemployment.

• In late 1999 and early 2000 the economy was showing signs of growth. In

December 1999, Fernando de la Rua succeeded Carlos Menem as president. His

government, pressured by the IMF, enacted a tax increase that killed the budding

economic recovery. Tax increases reduced confidence in government finances by

discouraging growth in the private sector, the source of the government’s tax

revenue.

• In March 2001, ministers of the Frepaso political party resigned from president

De La Rua’s coalition cabinet in protest over proposed cuts in spending. These

resignations marked the beginning of the political crisis that leveraged

Argentina’s economic problems.

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• Important withdrawals of savings from the banks by depositors during the year

2001 made the financial system collapse. Federal Reserves went from 28 Billion

Dollars at the beginning of the year 2001 to close to 15 Billion Dollars at the time

the “Corralito” was installed at the end of the same year.

The “Corralito” was the popular name for the Government Regulation by which

the money from savers was trapped in the banks with the intention of protecting

banks and the financial system from bankruptcy. Later the “Corralon” was

installed with even more limitations for savers than the “Corralito” but for the

effect of simplifying this thesis we will refer to both “Corralito” and “Corralon”

as “Corralito”.

Exhibit 3.3 - International Reserves, 1995 – 2004

Source: Banco Central de la República Argentina

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3.5.2 - External forces:

• The Asian currency crisis of 1997 and the Russian crisis of 1998 made investors

more cautious about investing in developing countries.

• Brazil, Argentina’s largest trading partner, allowed its currency to float rather

than maintaining the “crawling peg” to the dollar that previously existed. The

Brazilian real quickly depreciated from 1.21 per dollar to 2.18 per dollar. Brazil

economic growth fell from 3.3 percent in 1997 to 0.1 percent in 1998 and 0.8

percent in 1999. When the Brazilian real plummeted in 1999, the peso was unable

to follow suit, leaving Argentine exports vastly more expensive than those of its

neighbor.

• A decline in world prices for farm products, and the global economic slowdown

had a negative effect on Argentine economy.

• Lower exports, due to the unfavorable exchange rate have limited the country’s

ability to earn the foreign currency needed to repay dollar-denominated debts.

3.5.3 - Consequences of the crisis:

• In December 2001 the “Corralito” was established.

• Dramatic changes in the government – 5 presidents in 10 days.

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• Default on the Argentine Debt.

• Devaluation of the national currency.

• Federal Reserves went down during the year 2001 and continued going down

after it. If you observe Exhibit 3.3, you will notice that Federal Reserves decline

continued even after the “Corralito” was established.

This was due to the effect of the “Amparos”. Different Judges ordered these

“Amparos” because they ruled that the country's government had acted illegally

when it ordered bank deposits held in dollars to be converted into pesos. By

“Amparos”, which were ruled on a case by case basis, banks were obliged to give

savers their deposits in Dollars . So at the end, the “Corralito” did not completely

turn off the faucet by which the money was leaving the banks but reduced the

speed.

• When it was the Argentine Supreme Court that declared the current freeze on

bank deposits to be unconstitutional, the government established a plan by means

of which established an index of actualization and a withdrawal schedule.

• “Pesification” converted dollar obligations to peso obligations at the exchange

rate of 1 dollar equal 1 Peso. This affected every contract signed in Dollars and

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generated a total chaos.

• One important effect of “Pesification” was the one it had on Residential Loans of

less than 100,000 Dollars, which were also converted at the exchange rate of 1

Peso per Dollar. Those loans of more than 100,000 Dollars were converted at the

exchange rate of 1.4 Peso per 1 Dollar plus a salary index.

• Credit disappeared.

• Poverty and unemployment grew to record levels.

• Price distortions, inflation, and uncertainty occurred.

• Transposition of value due the Dollar Appreciation and Loan Pesification.

3.6 - Transposition of value due the Dollar Appreciation and Loans “Pesification”

The government passed a law by which all residential loans for amounts below

100,000 Dollars were converted to pesos at the exchange rate of 1 Dollar = 1 Peso,

creating at the beginning of 2002 an enormous transposition of value from the depositors

to the borrowers.

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Exhibit 3.4 – Transposition of value – Loans “Pesification”Example. Apartment Located in Belgrano Neighbourhood

PRICE 70 m2 U$S 100,000

LOAN U$S 80,000

U$S 70,000

2001 2003

$ 80,000

U$S 27,000

Equals at exchange rate 2,96

Owner Equity

U$S 20,000 U$S 43,000

Source: Castex Propiedades S.A.

In Exhibit 3.4 this “Transposition of value” can be appreciated. In this example, the

loan that was 80,000 Dollars became 80,000 Pesos, which at an exchange of 2.96 Pesos

per Dollar, was equal to 27,000 Dollars.

Since the price of this apartment went down from 100,000 to 70,000 Dollars in year

2002, the difference between the new “converted” loan and the new apartment price is

the equity of the borrower in the apartment. When comparing this number with the

20,000 Dollars that was her previous equity in the apartment, you can see how

devaluation increased the equity of this borrower in the apartment by more than 100%.

The borrowers who used to have 20,000 Dollars equity position in this hypothetical

apartment in 2001 saw their equity increase to 43,000 Dollars (70,000 – 27,000).

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- Another group that benefited from the crisis was that of all those Argentines that

had their money out of the Argentine financial system. This includes the people that own

bank accounts in countries like USA, Switzerland or Cayman Island; and those who

could take their money out of the banks either before the “Corralito” was installed or by

using an “Amparo” rule by a judge.

The estimates for the money that belongs to Argentines and is deposited in Bank

accounts outside the country are about 120,000 Million Dollars, plus 20,000 Million

Dollars that have stayed in Argentina but outside the banking system.

The perception internationally is that the money of the depositors was trapped in

the banks, and that everybody lost in the devaluation. But when this is analyzed in greater

you can see that:

• Depositors took the money out the Argentine banking system during 2001.

• More deposits were recovered by depositors because of “Amparos” ruled by

judges who ordered banks to return the money to depositors in Dollars. These

Judges ruled that the Government Ruling was illegal.

• The depositors who left their money in the banks at the end recovered a

substantial part of their money due to an index that was applied to their deposits.

• Some people used the deposits to buy properties, to cancel loans, or sold it on the

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market at important discounts.

During a period of a few months at the beginning of year 2002 deposits could be

used to buy property, so many people did do. The problem was that the money the seller

obtained would have to remain in the “Corralito”, a condition that made it very difficult

to find sellers who were willing to accept it. Sellers who had loans that were converted

into Pesos did sell and many people did great business buying property during the worse

part of the crisis and have seen its prices increase over time.

Saving deposits in one bank could be used to cancel loans in the same bank and,

since those deposits were transferable some people sold their deposits at important

discounts. People who bought these transferable deposits ended canceling their loans at

less than one Peso per each Dollar they owed.

The people who benefited the most from the situations described above were the

most informed ones, who perceived that Banks were running out of cash, and the ones

who could hire lawyers in order to proceed with the “Amparos”. At the time of

“Amparos” it was common to hear that deposits of 200,000 or 300,000 Dollars were

returned to depositors.

People who were less well off did not have the information or the possibility of

hiring a lawyer, so they were the ones that suffered this situation the most.

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As a result, those who benefited from this transposition of value are now

relatively richer than before since they have increased their equity (By Pesification of

Loans) or have an increasing purchasing power. This increase in purchasing power is the

result of having the prices of goods in Pesos (including the most construction costs that

are analyzed in the following chapters), which means that with the same amount of

Dollars they can acquire more goods.

3.7 - Argentina Today

This section presents the current situation of the Argentine economy.

3.7.1. - Political Situation

President Kirchner entered office with the weakest mandate in Argentine history

after winning the election by default when former President Carlos Menem dropped out

of a runoff race.

But today, Kirchner's approval ratings are above 70%. His party is majority in both

chambers of Congress but he does not control them directly but through party alliances.

3.7.2 - Economic Activity

The country’s economy is recovering. The country's GDP grew 8.4% during 2003,

making Argentina one of the countries whose economy grew the most during 2003. This

recovery was motivated by many factors, the sectors that are driving the economic

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recovery being industry, tourism, construction, commerce and farm exports, especially

soybean.

In the Exhibit 3.5 it is easy to perceive the constant drop in the Economic Activity

from 1998 to Mid-2002, which represents the four years of recession. It is also easy to

perceive the importance of the recovery starting in the second half of 2003.

In the chart 3.6 on the right you can observe the performance of three of the most

important sectors, Agriculture, Industry and Services, all of them undergoing a significant

recovery. What is most interesting is to observe the recovery in industry, which was

motivated more by the necessary replacement of imports that took place due to the new

exchange rate than by production for exporting. This means that the effects of the

favourable exchange rate did not have an important effect on exports of manufactured

goods, which also means there is potential there, and many industries are investing in

their facilities with the focus of exporting.

Growth has remained very strong in most sub-sectors, with printing and publishing,

machinery equipment and non-metal mining expanding at rates close to 50% yearly.

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Exhibit 3.5 - Economic Activity, 1995 – 2004 Exhibit 3.6– GDP Growth– By Sector, 1997 – 2003

Secretaría de Programación Económica. Source: Ministerio de Economía y Obras y Servicios Públicos,

3.7.3 - Construction sector booming

All sub-sectors registered double digit growth rates, with infrastructure projects and

housing leading the way.

Exhibit 3.7 – Permits issued – City of Buenos Aires

Percentage variation comparison %

December '03/ '02 76,8%

12 months '03/ '02 331,4%

Source: Informe sectorial de construcción y mercado inmobiliario Centro de Estudios Avanzados (CEAV) - INSTITUTO DE ECONOMÍA - UADE

In the Exhibit 3.7 the Evolution of Construction Permits in the City of Buenos

Aires gives a picture of how construction today has become an important driver for the

economy.

0%

50%

100%

150%

200%

250%

300%

350%

December '03/ '02

12 months '03/ '02

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The reason why this new construction is happening is analyzed in following

chapters. When comparing years 2002 and 2003 it can be observed that the construction

in the City of Buenos Aires increased by 331.4 % during the 12 months period. In

analyzing these numbers it is important to keep in perspective that 2002 was the worst

year of the crisis and there were almost no new projects in the City.

3.7.4 - Investment continues strong expansion favouring Employment

Exhibit 3.8 shows how investment has recovered with the economy. The imports of

Capital Goods had tremendous growth during year 2003 motivated by industrial

production, which are investing in their plants to increase production, both for national

consumption and exports.

Exhibit 3.8 – Investment, Consumption Exhibit 3.9 - Un-employment Rate

and GDP

Source: Ministerio de Economía y Obras y Servicios Públicos, Secretaría de Programación Económica

In the Exhibit 3.9 it can be observed how the unemployment rate, one of the main

concerns of the present government and one of the most serious problems of Argentina, is

decreasing.

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Official figures show that new jobs grew during year 2003 by 6.7% and salaries

increased by 32% in industry and between 20% and 40% in other sectors of the economy.

This increase of 6,7% in employment represents the creation of 800,000 new jobs.

Only in the city of Buenos Aires, 140,000 people found a job in the last year

reducing the unemployment rate for the City from 17.4% to 11.3%.

3.7.5 - Consumption

Car sales and supermarket sales are up this year as slower inflation and a stable

exchange rate helped lift demand.

Both Supermarket Sales and Automobile Sales started to increase in the middle of

year 2002, when the worst part of the crisis began to be left behind.

Exhibit 3.10 - Supermarket Sales Exhibit 3.11 - Automobile Sales

Source: Ministerio de Economía y Obras y Servicios Públicos, Secretaría de Programación Económica

3.7.6 - Agriculture

Demand – mainly from China – for soybean has driven prices up threefold in two

years, triggering a surge in exports and tax revenues. The government collected a record

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23.4% of GDP in taxes last year, mainly because of taxes in agricultural exports and bank

transactions.

The country’s exports have risen 16 percent this year, led by a boom in soybean

shipments, which rose to 8.4 million tons in 2003 from 5.9 million tons in 2002,

according to the cereal stock exchange in Buenos Aires.

3.7.7 - Inflation

Inflation rose 3.6 percent in 2003 from 41 percent in 2002. This inflation is likely

to go up in the second half of 2004 due to utilities’ fares increases that are becoming

inevitable due to the lack of maintenance the infrastructure has had since devaluation, in

January 2002.

Exhibit 3.12 - Inflation

Source: Banco Central de la República Argentina

3.7.8 - Financial Sector - Banks

Year 2003 saw the consolidation in the recovery of deposits, a build-up in liquidity

and a revival of new lending, particularly at the end of the period. In the case of the

24

financial sector aggregate, the increase in peso deposits for the year was approximately $

15.2 Billion while short-term loans in the same currency rose by over $ 320 million.

3.7.9 - Exchange Rate

The exchange rate has been stable during the last year around 2.85 Pesos Per Dollar

and there is no signal by which it should not keep around those numbers.

Exhibit 3.13 - Exchange Rate, 1995 – 2004

Note: End-of-month market exchange rate. Source: Banco Central de la República Argentina

3.7.10 - Stock Market performance:

Argentina's benchmark stock index more than doubled during 2003 becoming the

third-best performer among 59 indexes tracked by Bloomberg.

You can observe in the chart below the performance of the most important Buenos

Aires Index, the Merval, which measures the performance of the most important stocks in

Buenos Aires Stock Exchange Market.

25

Exhibit 3.14 – Stock Performance – Merval Index

Merval Index - Source: MERVAL, Buenos Aires Securities Market

3.7.11 - Foreign investment in Argentina:

Investment increased by 40 percent during the third quarter of 2003, as compared

with the same period of 2002.

Several foreign companies have made notable acquisitions in just the past two

months. The Canadian dairy giant Saputo announced a deal to buy the country’s third

largest milk producer; the Mexican food conglomerate Bimbo has purchased a leading

local bakery, and Carlos Slim, the Mexican telecommunications magnate, has snapped up

a slew of properties ranging from an Argentine cell-phone company to radio stations and

even a Buenos Aires zoo.

Brazilian companies are also moving to Argentina, buying up some of the country’s

biggest and best corporate names. Over the last two years, Brazilians have taken control

of Quilmes, Argentina’s largest brewery and Perez Companc, its biggest independent oil

26

company.

3.8 - The Big Pending: Debt negotiations with investors of Argentina’s Foreign Debt.

General guidelines of the government’s negotiating terms were released in

September 2003. Finance officials offered debt holders a payback of 25% of the nominal

principal amount of outstanding eligible debt (US$ 94.3 billion), proposed that accrued

interest from January 2002 (US$ 11 billion) be written off and insisted on an extension of

existing maturities at lower rates.

Bondholders continue to reject the government’s offer, claiming the size of the cut

in principal is unacceptable and that the government should provide a 35% payback and

offer to negotiate on accrued interest.

In the absence of successful negotiations, investment in Argentina is likely to fall

short of levels needed to provide a more sustainable footing to the economy that is still

rebounding from a four-year recession.

After lengthy negotiations with several banks, three international institutions were

appointed: Merrill Lynch, Barclays, and UBS. Other three institutions were appointed for

the domestic market: Galicia, Frances, and Nacion.

At stake for Argentina are the timing and the terms of its re-admittance to the

global capital markets. Its current leaders complain that it has wasted much of the past

27

decade trying to make the country safe for foreign investors. By binding itself to a

currency board, pegging the peso to the dollar, Argentina let the ebb and flow of foreign

capital dictate its booms and its busts, the last of which persisted for four years. Now,

shut off from world capital markets, its economy is growing again, at a growth rate of

8.4% last year.

3.9 - The Future:

The Infrastructure is there. During the '90s many reforms took place, the most

important probably being the privatizations. While some of these privatizations are being

criticized today Argentina has better service infrastructure today than is had before the

companies were privatized. People over 30 years remember when the waiting time for

getting a new telephone line was longer than two years. This is especially true in the City

of Buenos Aires, which today has an extraordinary infrastructure like for example the

Telecommunications Network and the Highways, which are like the best world.

The data presented in this chapter shows the recovery of Argentina. The future

seems to be promising but this is especially true if the negotiation with the private

investors in Argentine Debt works out well. This is probably the most important concern

about the future and the reason that is stopping both foreign investors and Argentines

from investing more in the country. If this negotiation is successful, the world will once

again see Argentina as an interesting market to be in.

It is important to realize that Argentina's democratic history is short compared to

28

that of the US. It has a little more than 20 years of uninterrupted democracy. Comparing

it to the life of a human being the country's democracy is the age of a teenager, and as

such, it has lot of things to learn. This learning process has been intensive during the last

years. Changes have been made, problems have arisen and more changes have been

made.

The future is auspicious and the government is trying not to make the same

mistakes other governments have made before.

The people are more involved than never before, which may be seen by the more

than 4,000,000 signatures that were collected asking for a new security law. This is a sign

of maturity of democracy, and politicians are responding to this pressure from the Public.

There is the general feeling that a new country is trying to emerge from this crisis

and there is no reason for believing that this will not be the case. After all, it seems that

the teenager will finally grow up, and if this negotiation with the investors of Argentine

private foreign debt can be solved in a satisfactory way for the country, a new country

will emerge.

29

4 - Residential Real Estate in Argentina

4.1 - Cultural Considerations:

In order to understand Buenos Aires' real estate market, it is important to

understand some cultural characteristics of Argentines thinking as regards real estate.

4.1.1 -Love of property

An important percentage of Argentina's population descends from Italians and

Spaniards; and Argentines' love of property is probably the strongest inherited trait.

This strong feeling makes Argentines' objective to own real estate; in most cases

not even considering the financial alternative of renting. People only rent when they do

not have a chance to buy.

Real estate is seen as a safe box where people may leave their savings.

4.1.2 - Aversion to debt

There is a strong feeling and fear about debt in general. This is true both for adults

and for young people, who heard terrible stories from their parents, like they could lose

their apartments if something went wrong.

This feeling, coupled with the issue that financing has not always been available in

the country, makes it common for Argentines to buy in a 100% cash transaction.

30

It is also true that when financing was extensively available during the '90s, lot of

young people took loans, but only after they realized that was the only way they could

afford to buy.

4.1.3 - Residential Stability

It is less common in Argentina than in the States to move from one city to another.

People generally stay in the city they were born in. This is another reason why real estate

is seen as a permanent investment, rather than as a transitory place to live.

4.1.4 - Real estate versus Bonds and Stock Market

When Argentines save money they want to invest it in real estate. There are only a

small percentage of people that invest in the stock market. Real estate is preferable as it is

seen as a more stable place for protecting savings.

It is common in Argentina to own real estate as a form of saving and getting the

rents as dividends, especially when retired. Everybody's dream in Argentina is to live on

his or her investments.

Argentines perceive Real Estate almost as a risk-free asset.

4.1.5 - Big families together

Argentines are in general family oriented, which is reinforced by the fact that all

the family usually live in the same city.

31

A clear example of how this “family oriented” environment affecting real estate is

the situation that is going on right now in the suburbs of Buenos Aires. Grandparents

(also motivated by one of the lowest construction costs in history) are buying weekend

houses with rooms for sons, daughters and grandchildren; with the clear intention of

getting the family together at least once a week, usually on Sunday. This is happening

many years after their children left their family dwelling.

4.1.6 - Real Estate is seen as a protection against inflation

With the inflation Argentina went through, Real Estate is seen as an effective

method of protection against inflation.

4.1.7 - People do not trust banks for savings accounts

Argentines want to see and touch their savings. Since they have had a bad

experience with their bank savings Argentines do not trust banks and are afraid to leave

their saving in the bank. This is the reason why, whenever possible, these savings are

converted into real estate.

It is estimated that Argentines have 120 Billion Dollars in bank accounts outside

the country and more than 20 Billion Dollars are maintained either in cash under the

mattress, in the microwave, or in banks safe boxes.

4.2 - Prices of the Property are in Dollars:

32

It is important to understand that prices of property in Argentina are in Dollars in

most areas. This is the way it has always been; it is today and will be in the future. At the

time of devaluation some experts predicted that this would change and some adds were

published in Argentine Pesos but time proved them wrong and that situation was

something that lasted no more than a few weeks.

The exceptions are low-income neighborhoods where real property is transferred in

Argentina Pesos.

Since homeowners always thought about their properties as a capital in Dollars,

they are not interested in selling in prices much lower than the ones they could get before

the devaluation.

Moreover, the governmental solution for residential loans that is fully explained

later in this thesis did not force anyone to accept lower prices but the opposite.

This situation has given a rise to an extraordinary opportunity for developers who

have their prices in American Dollars but costs in Argentine Pesos.

4.3 - Demographics:

Demographics in Argentina are one of the biggest drivers for residential demand.

Argentina has a young population that is entering the work force.

33

You see in the chart below the Argentine population is young, with 53% of the

population less than 30 years old. This young population will get married and need one

house first, and, in a few years, a new bigger one to accommodate the standard Argentine

family with two kids.

These particular demographics, different from the ones existing in the States show

clearly the need of housing that will be added to the existing housing deficit.

Exhibit 4.1 - Demographics Argentina

0 500 1000 1500 2000 2500 3000 3500 4000

10-14

25-29

40-44

55-59

70-74

85-89

100 -

Group Ages

Number of people - Thousands

Source: Instituto Nacional de Estadisticas y Censos

4.4 - Lease Law:

Argentina lease law is favorable to the tenant in the sense that the tenant can cancel

a contract after 6 months of rent paying a penalty for early resolution.

A good characteristic of this law is that it makes it easy to vacate an apartment if

someone is not paying the rent.

34

The parties signing the contract are allowed to choose the currency in which they

sign the contract.

It is important to mention that while this law existed in January 2002 when the

“Pesification” law was issued the contracts in Dollars were converted into Pesos. The

government's argument was that when the lease contract was signed there was a law

establishing that one Dollar was equal to one Peso.

4.5 - Ownership:

The type of ownership is Freehold and Condominium.

Foreign ownership is unrestricted. There are two ways for a foreigner to own real

estate; as an individual or as a Corporation or Trust.

If an individual owns a property, he or she has to ask for permission to the AFIP

(argentine IRS) to sell his or her property. The AFIP controls that the seller has no debts

with the Argentine government and authorizes the sale. This process could take a few

months.

While the legal structure has to be adapted for any particular case, the most

common and practical ways for foreigners to own or invest in real estate in Argentina are

with a Corporation or with a Guarantee Trust (or Private Trust), in which case the

35

investors become the beneficiaries of the Trust.

4.6 - Taxes:

Foreign investors pay taxes at the same rates as corporations do. The Tax Gain rate

is 35%.

Foreigners and companies do not have a differentiated tax rate between gains

generated from rents and the Capital Gain generated at the moment of a sale.

Taxes paid in Argentina are deductible from taxes in the USA, so double taxation is

not a problem that American investors doing business in Argentina do face.

Foreign firms are subject to the same tax liabilities as their Argentine counterparts.

The government has launched a high-profile drive to clamp down on tax evasion; given

the importance of raising revenue to the government's finances, these efforts are likely to

persist.

There do not exist restrictions for transferring dividends abroad. Since there are

Bank Accounts in Dollars, dividends obtained in Dollars do not have to be converted into

Pesos for being transferred.

36

Economy Minister Roberto Lavagna mentioned in April 2004 that there would be

adjustments to improve the tax structure, like for example accelerating amortization of

investments and reducing the tax on bank transactions.

4.7 - Public Property Register

Argentina has a very broad and well functioning Public Property register. The

buyer, the broker or the Public Notary usually orders a Domain Certificate before closing.

Then, the Public Notary prepares the closing document and signs the document at

closing.

Public Notaries are also responsible for collecting any un-paid taxes the property

has at the time of closing.

After that Closing Act when the money is exchanged, the Public Notary registers

the transaction in the public register, where information on every property is recorded.

4.8 - Loan Market:

4.8.1 - '90s:

Act 24,441, which instrumented Securitization and allows the formation of trust

allowed the loan market to go from 4,900 Million Dollars in 1994 to 10,800 Million

Dollars in 2000, representing an increase of more than 100% in 6 years.

As of 1 January of 2001 it is allowed to deduct the interest paid up to the sum of an

37

amount close to 7,000 U$S from personal income tax.

4.8.2 – Economic Crisis effect on the Loan Market

Loans in Dollars where converted into Pesos while deposits from depositors in

banks were converted at the exchange rate of 1 Dollar equal to 1.4 Pesos. This imbalance

between deposits and loans was the main reason that made banks stop financing real

estate.

4.8.3 - Current situation:

By the forth quarter of 2003, banks started to issue loans again. While these loans

are not as readily available as they were during the second half of the '90s, it is a good

sign that banks are issuing them again.

In this direction it is important to point out that in many cases banks are offering

loans in Argentine Pesos at rates that are at an historic low for loans in Argentine

currency. These rates in Pesos are even lower than rates banks use to offer for loans in

Dollars, when the usual situation during the economic boom of the '90s was that loans in

Pesos were more expensive than those in Dollars.

Banco Hipotecario and Banco Santander from Spain are carrying out an important

marketing campaign at this moment promoting these loans in Pesos.

38

Today the situation for banks is different than it was before. Banks can only make

money by lending to the private sector. Before the crisis, Banks could lend money to the

National Government but now the State has surplus and the financial system needs to

lend to the private sector in order to subsist. Moreover, deposits have increased forcing

banks to start offering loans again after the crisis.

All these conditions forecast that loans should be more accessible in the country in

the near future, but to make this possible there are still a few problems that have to be

solved to have a massive loan market like the one the country had during the '90s.

Problems banks are facing in order to underwrite loans:

• Persuade people to take loans again. People today prefer to buy in cash.

• Hard to qualify.

While banks started financing residential real estate, it is very hard today to qualify

for a loan. This is because residential real prices are in Dollars and salaries are in Pesos.

This means that a person needs, in order to qualify for a 100,000 Dollars Loan,

which requires a payment of 1,300 Dollars per month, a monthly income of 4,500

Dollars, which before the devaluation was equal to 4,500 Pesos. Today, 4,500 Pesos is

equal to 1,600 Dollars so this person would need to be earning a salary three times that

39

amount to qualify for this same loan of 100,000 Dollars. While it is true that salaries are

recovering, there is no signal that they will increase 300 % in the short term.

The consequence of this is that people who needs financing is only able to finance

residential property with lower loans to value than in the '90s, when a loan to value of

80% was normal, and have to come with the difference in cash.

4.9 - Modern Real Estate Instruments – Act 24,441

Argentina has specific legislation aimed at improving certain aspects of its legal

environment and facilitating investments in the real estate sector. The Housing and

Construction Act 24,441 of 1,994 provided more certainty for different legal structures.

This law permitted expansion of financing alternatives by providing clear legal

guidelines for the creation of Trusts and Securitization. Introducing Real Estate

Investment Trusts and Securitization had a positive effect on the housing sector and

allowed an increase in demand for residential construction.

After this law was enacted, many of the mortgage loans originated by commercial

banks were transferred to Banco Hipotecario. By using a Financial Trust (fideicomiso

financiero) as a vehicle, Banco Hipotecario securitized these loans to obtain additional

funding. Most of the funds obtained by securitizing these mortgage loans were used to

provide additional liquidity for residential housing.

40

The Trust structure that was created by this law is being used today in the most

important residential development projects in Buenos Aires mainly because of the

benefits it offers for protecting the buyers' pre-payments before closing.

The legal framework that permits Securitization and the formation of Trust is today

available in Argentina's Legal System.

While there is no Securitization activity in Argentina today due to the lack of

creation of new loans and the conversion into Pesos of previous loans, having the law

passed is important for leveraging the mortgage market when loans become fully

available again.

4.10 - Correlation with American Real Estate:

Something that could be of interest for a potential investor is the little correlation

that exists between the residential American market and the Argentine market.

Residential real estate in Argentina is mainly related to the country's demographics

and economics, and demand of residential dwellings has little to do with American Real

Estate.

41

5 - Real Estate Market Review

5.1 - Suburban

5.1.1 - The '90s

During the second half of the nineties with the construction of the new highways,

Buenos Aires' suburban real estate market grew incredibly.

New projects appeared close to any new highway that was built, and different types

of projects were introduced into the market. The most important example of this new

suburban era is Nordelta, the first Master Plan Community in the country, and the most

important in Latin America.

Housing projects started as an alternative to only buying the lot and hiring an

architect, which was the usual way of doing things, the first project of this type being

developed in the country Campos de Echeverria, marketed by Castex Propiedades S.A. A

sign of how this market got developed was the entrance into the market of Pulte Homes,

one of the most important Home Builders in America.

Also during this time new infrastructure was built in different suburban areas.

Observe the Panamericana Highway in Exhibit 5.1 below. Gas stations, hospitals,

schools, supermarkets, cinema theatres and retail appear in different areas of this new

suburbia.

42

Young families in search of a new quality of life were moving to these new areas and

moving their children to the new schools that were built close to their dwellings.

Exhibit 5.2 – Village Cinema Complex located in the city of Pilar at the north of the City of Buenos Aires – restaurants, shops and entertainment.

Exhibit 5.1 - Existing infrastructure Panamericana Highway - Northern Access to the City of Buenos Aires

This suburban development may be appreciated by observing some statistics for the

City of Pilar, which is, with Tigre, the Mecca of this suburban growth. The population of

Pilar County grew 115 %, from 130,000 to 280,000 from 1993 to 1999.

The following chart published by the Argentine economic magazine “ Revista

Mercado” in year 2000 shows also other interesting data that shows this growth, like the

growth in the number of Private Neighborhoods, which went from none in 1,993 to sixty

in six years.

43

1993 1999

Inhabitants 130,000 280,000

Families 40,000 100,000

Country Clubs 27 30

Private Neighborhoods None 60

Industrial Park 90 companies 110

Banks 7 12

Hypermarkets None Two

Shopping Centers None Three

Schools 20 public 100 (53 public, 47 private)

Universities 1 (Del Salvador)

2 (Del Salvador – Austral)

Hospitals 1 4

Cinemas 2 10 (Village 8)

Medicine Companies None Four

Hotels None 12 (being studied)

Exhibit 5.3 -Pilar Grow in figures Source: Chart Mercado magazine

5.1.2 - Economic Crisis

The first semester of 2002 was the worst part of the economic crisis in the country

and prices of lots in suburbia went down abruptly driven by uncertainty. Lots that used to

be sold at 40,000 Dollars were sold at less than half that price.

44

5.1.3 - Current situation - Lot Prices have recovered and New Construction in

Record levels

During 2003, with a new president who was elected by the people in national

elections and having the exchange rate and inflation under control, prices of well-located

suburban lots increased 100% to values close to the ones that existed before the crisis.

There was more new construction in the first quarter of the year 2003 than in any of

the years of the '90s, when the country was booming and financing for construction was

broadly available.

In Exhibit 5.4 below we can appreciate the recovery of the values in American

Dollars in suburban lots located in prestigious Private Neighborhoods and Country Clubs

in different areas on the outskirts of Buenos Aires.

The projects that are presented in the chart are private developments located in

different areas of Buenos Aires.

“La Delfina” is a Private Neighborhood of 460 lots located in the City of Pilar, to

the north of Buenos Aires. “Campos de Alvarez” has 455 lots and is located to the West

of the city of Buenos Aires. “El Rocío” is located to the Southwest and has 314 lots, and

“La Alameda” is one of the neighborhoods of the Ciudad Pueblo Nordelta, the most

45

important Master Plan Community in South America and is located 30 minutes away

from the City to the Northern access, in the municipality of Tigre.

Exhibit 5.4 - Price Evolution - Prices per Sq Ft

0

100

200

300

400

500

600

700

800

199719992002M ay-04


All of these Private Neighborhoods have a Club House, tennis and soccer courts

and other recreational infrastructure. La Alameda is also part of the Master Plan

Community Nordelta that has three schools, a Medical Facility, a Shopping Center, a gas

station, access to the River Lujan and Ten Residential Projects on the market.

This increase in prices of individual lot was motivated by:

• Low construction costs, which caused construction to reach records levels in

2003. In the graphic below you see that new construction in Pilar County – one of

the suburbs that grew more during the first quarter of year 2003 surpasses that of

year 1998, which has the record level of new construction during the '90s. This

46

situation can be perceived in the records of permits issued in the City of Pilar in the

first quarter of 2003 that are shown in the chart below.

• No new projects have been developed. Only during the second half of 2003, have

developers very slowly started to analyze new projects and it will be some time

until these projects are designed, approved and reach the market.

Exhibit 5.5 – Pilar County - New Construction

050

100150200250300

ENEFEB

MARABR

MAYJU

NJU

LAGO

SEPOCT

NOVDIC

Months

Num

ber o

f new

hou

ses

19961998200120022003

Source: Pilar Municipality

5.1.4 - Changing Demand profile

A change in the demand profile has occurred in the suburban market.

During the '90s, with easy access to credit as the main driver, young families with

kids in search of more green space and a better quality of life were the most important

consumers of these suburban projects.

47

As you see in the Exhibit 5.6 during the second half of the nineties, 90% of the sales

were oriented to first residents who were mainly these young families with kids. After the

crisis, this percentage changed and the percentage of sales oriented to weekend use

increased.

The Suburban Residential Market is today clearly divided into two segments;

Young families that are buying a house to make it their primary dwelling, and more

mature couples that are buying the new house for weekend and vacations use.

Exhibit 5.6 - Use of Homes - Comparison

1995 - 2001 2002 - 2003

Weekend users - 10 %

Principal dwelling - 90 %

Weekend users - 40 %

Principal dwelling - 60 %


5.1.4.1 - Young families:

The young families that are moving to the suburbs today are selling their

apartments and putting the difference in cash, which is financed either by savings or by

family gifts or loans. As it was explained in the previous chapter, while banks started

48

during the last quarter of 2003 to promote residential loans again, it is very difficult for

these young families to qualify.

This demand profile that wants to move from the city to the suburbs experimented

an advantageous situation due to devaluation. In many cases, their apartments in Buenos

Aires lost 20% or 30% of its value and constructing the new house in the suburbs costs

them half the amount it would have cost them before devaluation.

The good news is that they need less cash than before to move from their apartment to

the suburbs. The bad news is that they no longer have access to a loan to finance that

difference, so they have to cover this difference with cash.

5.1.4.2 - Weekend users - New Profile of buyers

This profile of buyers that has become more active in the market since devaluation

is more quality oriented and in many cases is in search of a house that is big enough to

host his/her family during the weekend. In many cases this house is close to the place

their son or daughter moved to some years ago.

5.1.5 – Drivers for buying a house in the suburbs

• The opportunity of buying or building at an historic low price,

• The transposition of value due to Dollar appreciation and loans “Pesification”

explained in Chapter 3.

49

• The New Income that is being generated by some industries and farms,

• The fear Argentines have of leaving their saving in the banks.

• And low yield international investments options.

5.1.6 – New Construction

This new construction was distributed between different architects and construction

companies, being most of new construction built for clients on client’s lots.

Not much speculative construction went on, with the clear exception of Pulte

Homes, a company that clearly led the market during 2003 with more than 300 houses

sold that year.

In Exhibit 5.7 this situation of lower costs is showed. Keep in mind that all these

figures are in Dollars.

You can notice that lot prices are the same because they have already recovered

their pre-devaluation prices in Dollars. Those people who bought their lots during 2002

did it half these prices.

Construction prices in Dollars are now half what they used to be. This situation is

50

due to the fact that cost of labor, materials, and utilities are in Pesos. While the exchange

rate today is close to 1 Dollar = 3 Pesos, construction cost is not one third but one half

what it was before because of inflation in construction costs.

Lot 50.000

Construction Cost 140.000

50.000

2001 2003

70.000

Exhibit 5.7 - Comparative Cost House 2000 SqFt - $

Total 180,000 120.000


5.2 - Urban development 5.2.1 - '90s:

The city grew at the same time as the suburbs were growing. New areas in the city

were developed and consolidated areas improved as well.

New products were developed during the '90s. The most successful product type

during the '90s were the Garden Towers, which generally include private security, a gym,

swimming pools and tennis courts, among other amenities.

Another popular creation of the '90s was Lofts. This Loft-style living became very

51

popular among young people. Loft projects were developed all over the city, Puerto

Madero being the most exclusive location.

Puerto Madero area changed from being one of abandoned warehouses to being one

of the most exclusive areas in the city. In Puerto Madero you can find hotels (Hilton and

Faena Universe – a hotel designed by Philip Stark under construction at present), offices

complexes designed by famous architects, more than 20 of the most exclusive restaurants

in the city, and the most amazing residential projects.

Exhibit 5.8 – An image that shows how Puerto Madero was in the 80’s

Exhibit 5.9 - A current image of Puerto Madero. Boats, Recycled docks, and Estudio Aisenson and HOK International La Nacion building, and Cesar Pelli’s Telefonica building.

52

Exhibit 5.10 – Puerto Madero - Women’s bridge by Santiago Calatrava.

Exhibit 5.11 – Another current image of Puerto Madero. These building have retail on the ground floor and residential or office above.

Another area that grew in the city during the 90’s was Las Canitas in the

neighborhood of Belgrano, an area that position itself at the place for young people.

Again, there are more than 20 restaurants in this area, but opposite of Puerto Madero, this

restaurants are target to young people.

5.2.2 – Economic Crisis:

Immediately after devaluation with uncertainty about what could happen with

residential loans some people sold their apartments at huge discounts with the sole

intention of not losing all their equity and save same of it. But most of the people

preferred to wait, especially since the government announced that Loans in Dollars were

converted into Pesos.

The situation was that there were buyers looking for opportunities to buy but

nobody wanted to sell at prices those buyers were willing to pay. Since 2001 there had

53

not been much new construction and the market was empty of sellers but full of buyers,

reason why lot of these buyers could not buy.

In a few months prices recovered to prices in Dollars that are 30% or 20% below the

prices of the '90s.

5.2.3 - Current Situation

Construction in the city started later than in the suburbs.

The decision to build an apartment building is not as easy as the decision to build

an individual dwelling in the suburbs. The decision is more complex since more things

have to be taken into account. The construction of an apartment building does not take 6

months but at least 18 months, and when the future was uncertain as it was in Argentina

during 2002, developers did not start new constructions.

Once a new president was elected, the exchange rate found its equilibrium and

remained stable for more than a year, the economy started doing better; new construction

is started in the city, especially in those neighborhoods of upper-middle income or high

income people.

At first, this new construction could only be perceived in neighborhoods like

Belgrano or Palermo with buildings that have a surface of less than 20,000 sq ft, but now

it has extended to other neighborhoods and to a few residential complexes of more than

54

100,000 sq ft.

New construction can also be seen today in Puerto Madero where there are many

residential buildings under construction.

You may observe in Exhibit 5.12 the increase in the number of permits in the City

of Buenos Aires from year 2002 to year 2003. An increase in construction permits higher

than 300 % between two consecutive years shows an extraordinary situation, and in this

particular case the reasons were on both sides of the equation; year 2002 was the worst of

the crisis and there was very little new construction, and during year 2003 the economy

grew 8.4% and new construction started favored by the fact that costs are in Pesos and

Sale Prices are in Dollars, situation that is explained in more detail in this chapter.

On Exhibit 5.13 the situation can be observed including the analysis of years 2,000

and 2,001. This chart shows the permits for new construction relative to a Base Index

from 1,991. Year 2000 was the beginning of the crisis, year 2001 was the year when the

people were taking the money out of the banks and when President De La Rua left the

government, January 2002 was the month of the devaluation and the beginning of the

year of the uncertainty, and year 2003 is the year of recovery. The consequences or

influences of the economy on new construction can be appreciated on Exhibit 5.13.

Interesting for a potential investor is that, while construction grew 331.4 % during 2003

in comparison to 2002, the level of construction is still lower than the one existing in year

2000.

55

Exhibit 5. 12 – Permits Issued – City of Buenos Aires

Percentage variation comparison %

December '03/ '02 76.8%

12 months '03/ '02 331.4%


0.010.020.030.040.050.060.070.080.090.0

100.0

Base Index

1991 = 100

2,000 2,001 2,002 2,003

Year

Exhibit 5.13 - CITY OF BUENOS AIRES -Index New Construction

CITY OF BUENOS AIRES – Base Index 1991=100 AREA APROVED FOR CONSTRUCTION

2,000 2,001 2,002 2,003

91.6 57.5 15.2 72.0


0% 50%

100%

150%

200%

250%

300%

350%

December '03/ '02

12 months '03/ '02

56

Another factor is that since there was no supply of new apartments during years

2000 and 2001, an important part of this demand is waiting that new projects appear in

the market.

5.2.4 - Apartment Prices Evolution

Residential Prices in good areas of the City of Buenos Aires are in American

Dollars. That is simply the way it is, it always has been and it always will be in

Argentina. When devaluation occurred, some developers (with debt that was converted

into Pesos) and some brokers made an effort to advertise properties in Pesos but this

attempt last less than one month because the market just do not think about real estate in

Pesos.

What happened with the residential market prices after devaluation was hard to

predict even for the experts. Remember that 1 American Dollar used to be 1 Argentine

Peso and suddenly it turned into a value floating between 3 and 4 Argentine Pesos in a

few months. Today the exchange rate has been floating between 2.7 and 3.0 Pesos per

Dollar for more than a year.

The consequences the crisis had on prices were different depending on the areas.

For the analysis we have divided the city of Buenos Aires in two very distinctive areas

with different pricing consequences, one with prices in Dollars and one with prices in

Pesos.

57

In those neighborhoods that were more popular with lower and middle classes,

prices were converted into Pesos.

In those neighborhoods for upper-middle class and upper class, located mainly in

the northern part of the city, prices stayed in dollars and went down approximately 20 –

30 % on average, recovering today in some cases the same or higher price “in dollars”

they had before devaluation. This recovery in prices occurs in a context where loans are

not available as they were in the '90s.

The evolution of prices can be observed in Exhibits 5.14 and 5.15 prepared with the

information provided by the “Report on the Construction and Real Estate Sector”

provided by the Economics Institute of the Universidad Argentina de La Empresa en

Buenos Aires.

Exhibit 5.14 - PRICES OF NEW APARTMENTS

NORTHERN AREA

Base Index 1991=100 Percentage variation compared to 2000

2000 2001 2002 2003 2000 2001 2002 2003

155.4 153.1 87.5 107.7 100 -1.48% -43.69% -30.69%


In these exhibits the reader can observe the fluctuations of prices in the Northern area

of the City, an area composed, among others, by the neighborhoods of Belgrano,

Palermo, and Recoleta. This is the area where the most important concentration of wealth

occurs in the City of Buenos Aires, and where most of the new buildings are being built.

58

020406080

100120140160

Base Index 1991=100

2000 2001 2002 2003

Year

Exhibit 5.15 - Price Comparison New Aparments - Northern Area of the City - In Dollars


Prices of apartments during 2002 were the lowest in the last 30 years. While

prices have started to recover they are still 20-30% below the prices what they were

during the '90s. Some experts predict that when loans become extensively available

and costs increase due to inflation these prices will increase and recover to prices

closer to the historic prices.

5.2.5 – Drivers for buying an apartment in the City

• The opportunity of buying at an historic low price that was explained above.

• The transposition of value due to Dollar appreciation and loans “Pesification”

explained in chapter 3.

59

• The New Income that is being generated by some industries and farms.

• The fear Argentines have of leaving their savings in the banks.

• Low yields that international investments options are providing.

• The differences in prices with other cities around the word have never been so

big.

5.2.6 - Evolution Construction Cost:

During 2003, Construction Cost in Pesos increased by 14,5%. This increase was

motivated by a 15,3% increase in the Cost of Materials, which represents by 46% in the

composition of the Index “Indice General del costo de la construccion” and an increase of

12,8% in Labor, which participates with 45.6% in the General Index. The Soft Cost,

which represents 8.4% of the index increase in the same period 12,8%. In Exhibit 5.16

the increase in the cost of construction in Pesos can be appreciated.

60

0

20

40

60

80

100

120

140

160

180

200

2000 2001 2002 2003

Exhibit 5.16 - CONSTRUCTION COST - GENERAL INDEX In Pesos


While construction workers live in Pesos; buy their groceries in Pesos and

commute in Pesos, labor cost increased to cover increases in general prices.

Nationally produced construction material prices remain in $ and suffer increases

produced by any imported component they may have. Imported materials prices are in

Dollars but Argentine production materials have replaced many of those.

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0

50

100

150

200

250

Base Index 1991=100

2000 2001 2002 2003

Years

Exhibit 5.17 - CONSTRUCTION COST - MATERIALS

150

160

170

180

190

200

Base Index 1991=100

2000 2001 2002 2003

Year

Exhibit 5.18 - CONSTRUCTION COST - LABOR


Something important to keep in mind when looking at these numbers is that the

costs expressed above are in Argentine Pesos and that is the currency they are paid in.

When these costs in Pesos are converted into Dollars the result can be observed in

Exhibit 5.19 below. Comparing Construction Costs in Dollars with Construction Cost in

Pesos, it can be observed that the index during years 2,000 and 2,001 are the same in both

charts. This is because one Dollar was equal to one Peso.

But when comparing year 2002 and year 2003 in both exhibits the results are

different because of devaluation. For calculating the construction cost in Dollars, the cost

in Pesos is divided by the exchange rate. For the chart, an exchange rate of 3.2 was used

for year 2002, and one of 2.85 was used for year 2003.

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0

20

40

60

80

100

120

140

Base Index 1991=100

2000 2001 2002 2003

Year

Exhibit 5.19 - CONSTRUCTION COST - In U$S


It is important to understand that the construction cost in Dollars depends not only

on the construction cost in Pesos but also on the exchange rate. If construction costs

remain stable but the Argentine Peso recovers its value against the Dollars, construction

cost in Dollar will increase without having to increase construction costs in Pesos. This

situation of Dollar inflation is further explained in this chapter.

5.2.7 - Cost of Land in the city:

Well-located lots for residential buildings are in some cases more expensive than

they were before the devaluation. Weird through this may sound, owners of land realize

the profit the developers are making with this extraordinary situation and want to get a

share of it.

In many cases owners of land prefer to hold instead of selling, which produces a

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situation where it is not easy to find a lot to buy.

5.2.8 - Extraordinary Profit Situation - Prices in Dollars, Costs in Pesos

Having the prices in U$S and costs in $ produced an extraordinary opportunity for

residential developers and investors. In Exhibit 5.20 and 5.21 you can observe the

variations in cost and in prices of residential real estate in the northern areas of the City

of Buenos Aires. Today costs have gone down by 50% compared to the year 2000, while

prices have gone down by only 30%, thus increasing the profit margin.

Exhibit 5.21 - Price variation from prices Year 2000

-50.00%

-45.00%

-40.00%

-35.00%

-30.00%

-25.00%

-20.00%

-15.00%

-10.00%

-5.00%

0.00%2000 2001 2002 2003

Year

Perc

enta

ge

varia

tion


Exhibit 5.20 - Cost variations- from year 2000

-70.00%

-60.00%

-50.00%

-40.00%

-30.00%

-20.00%

-10.00%

0.00%2000 2001 2002 2003

Year

Perc

enta

ge v

aria

tions

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You can observe in Exhibit 5.22 how the profit has increased due to this situation

where costs are in Pesos and Prices are in Dollars. These are the figures per Square Foot

for an apartment building in the neighborhood of Belgrano. The profit in this example for

this type of project went from 31% in year 2000 to 56% in 2003.

102

32

70

39

0

50

100

150

Price Per SQ FT

2001 2004

Year

Exhibit 5.22 - Increase in Profit - Comparison

Profit

Costo

The same example can be appreciated in more detail in the exhibit below for a 643

Sq Ft apartment. The Exhibit below shows how the change in cost and in price affects

the profit.

Exhibit 5.23 – Example of this increase in Profit

Cost60 m2 U$S 66,000

Sale Price U$S 86,000

U$S 45.000

2001 2003

U$S 70,000

Profit number – Apartment building – Belgrano, Bs.As.

Unleverage Profit U$S 20,000 U$S 25,000

UnleverageProfit % 30 % 56 %

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Prices are driven by supply and demand and not by construction costs, which was

proved after the recent devaluation.

5.2.9 - Currency Risks and its effects on Prices and Costs

The effects a change in the exchange rate could have on the business have to be

considered by the foreign investor, although the exchange rate has been stable for more

than a year.

5.2.9.1 - Prices

Since residential sale prices are in Dollars the effect of a variation in the exchange

rate will not have an important effect on Prices. As a recent antecedent, when devaluation

was 300%, prices of apartments located in good areas went down by 30%; and now seem

to have found a new equilibrium between 20% and 30% below the prices they had before

devaluation.

Prices won’t go down. Argentina having undergone the worst economic crisis in its

history, the depreciation of the Peso against the Dollar will not have a negative effect on

price since it seems they have reached the lowest price people are willing to sell for. This

is reinforced by the fact that loans in Dollars have been converted to Pesos by the

government so people do not need to sell.

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There are two possible reasons that could make prices increase, but neither of these

is likely to occur in the near future:

- If cost in Dollars increases enough to reduce the profit, prices will move up.

- If residential loans become more accessible a new group of buyers will be in the

market and this increase in demand could push prices up.

5.2.9.2 - Cost - Risk of Dollar Inflation

Pre-selling carries the risk of inflation in Dollars. Dollar inflation means inflation in

Dollars that is caused either by inflation in pesos with a stable dollar, or by appreciation

of the Peso against the Dollar.

In the case the exchange rate goes from 2.8 Pesos per Dollar to 2.7 Pesos per

Dollar, the cost in Dollars, while prices are in Pesos constant, will increase by 3.7%. If

the units are pre-sold in Dollars and cost increase in Dollars, profit will be reduced. The

opposite is also true.

While this situation is probably underestimated in Argentina because of the general

belief among developers that the existing spread will cover any change in the exchange

rate, this situation has to be taken into account when deciding how many units to pre-sell

in Dollars in order to obtain “fleet float” financing.

Another way of mitigating this risk is buying construction materials in advance. By

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doing this, the developer assures a price. Some of the components that are usually bought

in advance are concrete, elevators, and windows, among the most important.

5.2.10 - Bank Construction Financing plus “Fleet Float” Financing

While Banks are in the market offering Construction Financing for developing

residential projects in Argentina there is no guarantee that financing will finally be

obtained. So, a foreign investor investing in Argentina should not take bank construction

financing for granted.

To replace this possible lack of financing the developer is allowed to use the money

the buyer pays during construction to finance the project.

The range of the money that is anticipated by the buyers during construction goes

from 30 % to 80 %, depending on the location, the project, and the developer.

Using this money does not have a cost for the developer, becoming “Fleet Float”

Financing for the project.

But, on the other hand, if the prices of the units increase when the building gets

built, more pre-sale or fleet float financing equals less total revenues at the end.

The market risk should also be considered when deciding how many units to pre-

sell, since more units pre-sold means fewer units to sell, reducing the market risk.

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In conclusion, by pre-selling the developer does obtain fleet float financing and

reduces the market risks, increasing the return on equity. The disadvantage is that some

revenue could be left on the table. The right combination of fleet float financing and

equity has to be decided for each particular case.

5.2.11 - Property Market Transparency

A great difference between Argentina’s Real Estate market and that of the US is the

lack of public information that governs real estate in Argentina.

The traditional way of getting information on the residential real estate market in

Buenos Aires is talking to brokers in order to understand what is being built and what

consumers are willing to buy. Brokers receive inquiries all the time and are great

suppliers of information, especially when the information required is about what is being

sold on the market.

An alternative to this will be to conduct, or hire a specialist to conduct, some market

research. There are a few companies that provide this kind of service.

This lack of public information that appears to be a disadvantage could become an

advantage since it can prevent new competitors to enter the market.

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6 - Conclusion

The aggregate of the country’s recovering and some of the consequences

devaluation had on residential real estate prices and costs provide an extraordinary

opportunity for developing residential projects in Buenos Aires.

Investors should understand that the country's financial system and the economy

operate differently from that in the U.S. and that is the reason why having a local partner

to rely on is probably the most important decision at the time an investment of this nature

is decided.

6.1 - Why invest abroad?

There are two main motivations for investing in a country like Argentina,

diversification and opportunistic investment, when an investor seeks returns higher than

the ones that could be obtained in the US.

6.1.1 - Diversification.

Diversification works between Argentina and the US because there is very little

correlation between residential real estate in the US and in Argentina. Real Estate is local

and has very few external influences.

6.1.2 - Opportunistic Return

Compared to the US real estate market, Argentina represents additional risks.

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An assessment of the additional return required to make up for this additional risk

compared with the return of a particular project will define the opportunity of making the

investment. Any project in Argentina has to return “at least” this additional return.

Any particular investor should assign an arbitrary additional return for their

investment in Argentina, and match that target return with the opportunities available in

that market.

Investing in Argentina involves - for an American investor - a series of extra

efforts, and the investor has to be paid an additional return in compensation for this

additional effort he or she is making.

Some of these extra efforts involve understanding a new market and its players,

differences in laws, cultures and practices, the effect of exchange rates, and the additional

effort of doing business in a country where the main language is not English.

6.2 - What are the reasons for Investing in Argentina?

6.2.1 - On-Going recovery

After undergoing the worst economic crisis in its history Argentina is experiencing

a striking recovery. With a growth of 8.4% in the GDP during 2003 and the economy

being motorized by industry, tourism, farms, construction and internal consumption, it

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seems that Argentina is trying to get back into the game.

The future is promising, which is especially true if the negotiation with the private

investors in Argentina’s debt works out well.

6.2.2 - Young Democracy

It is important to realize that Argentina's democratic history is short compared to

that of the US. It has had little more than 20 years of uninterrupted democracy.

Comparing it to the life of a human being, the country's democracy is the age of a

teenager, and as such, it has lot of things to learn. This learning process has been

intensive during the last years. Changes have been made, problems have arisen and more

changes have been made.

There is the general feeling among the population that a new country is trying to

emerge from this crisis, and there is no reason for believing that this will not be the case.

After all, it seems that the teenager will finally grow up.

6.2.3 - Property is a hard asset

Owning real estate is preferable to owning bonds or stock. Argentines also prefer to

buy real estate rather than keep their money in the banks.

6.2.4 - Liquidity in Dollars

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Apart from money that is being generated with the recovery of the economy, it is

estimated that there are 140 Billion Dollars belonging to Argentines outside the

Argentine Financial System, either in Bank Accounts offshore or kept under the mattress

in the country.

6.2.5 - Residential Real Estate – Demographics – Young Population

Young population - 53% of the population is under 30 years old.

6.2.6 - Extraordinary Profit Situation

Having prices in Dollars and costs in Pesos has produced an extraordinary

opportunity for residential developers.

In the Exhibit 6.1 below you can observe this in a real example. These are the figures

for an apartment building in the neighborhood of Belgrano. Due to the fact that costs are

in Pesos and prices are in Dollars an extraordinary profit is produced.

Prices are driven by supply and demand and not by construction costs, which was

proved after the recent devaluation.

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Exhibit 6.1 – Extraordinary Profit analysis


6.2.7 - The opportunity now is to build

Due to the fact that sales prices are in Dollars and Costs are in Pesos the biggest

opportunity is in building, not in buying.

6.2.8 - Bank Construction Financing plus “Fleet Float” Financing

Between 30% and 80% of the price of an apartment can be obtained as Fleet Float

Financing. This Fleet Float Financing can be used to replace or to complement

construction financing, thus leveraging the returns of the investors.

By being able to use fleet float financing (money from pre-sales) the developer and

the investor also reduce the market risk but could leave some revenue on the table by

selling at prices lower than the ones that could be obtained when the project is close to

Cost60 m2 U$S 66,000

Sale Price U$S 86,000

U$S 45.000

2001 2003

U$S 70,000

Profit number – Apartment building – Belgrano, Bs.As.

Unleverage Profit U$S 20,000 U$S 25,000

UnleverageProfit % 30 % 56 %

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completion.

6.3 - Opportunity for a Residential Real Estate Investment Fund

6.3.1 - Investment Objective of the Fund

The goal of this fund is to take advantage of the residential opportunities that exist

today in Argentina in developing residential projects for sale targeted at the upper-middle

and upper classes.

The IRR goal will be 25% (net of fees)

6.3.2 - Typical project

An apartment building located in the neighborhoods in the north of the City.

Whenever suitable, the projects will have amenities.

6.3.3 - Type of investment

1) Develop its owns residential multi-family projects.

2) Enter into Joint Ventures with other developers in the market whose projects meet

the investment criteria of the fund.

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In the case of investment through Joint Ventures with developers, the developer

should provide 20 % of the equity and the Fund will concur with all major decisions of

the venture.

6.3.4 - Size

This fund has to have a minimum of 20 Million in equity that will be leveraged

with “fleet float” financing and bank financing if available.

6.3.5 - Term

The term of the fund will be four years with the goal of having the money assigned

among the different projects in 18 months.

6.3.6 - Diversification / Number of investments

It is anticipated that the fund will invest in approximately 7 to 12 projects.

6.3.6 – Management responsibilities:

- Finding the opportunities

- Acquiring the land

- Defining the appropriate product for each project

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- Hiring the appropriate professionals and consultants for the different stages of the

project

- Entering into contracts for the construction and development of the residential

buildings

- Supervising construction

- Managing the sales and closing

- Management duties

6.3.7 - Exit Strategies

The easiest way of exit is by selling the apartments. Since there is an important spread

between the cost and the sale price, the possibility of selling faster at a sale price that is

between the asking price and the cost seems to be an easy way to exit.

Each unit could be sold to individual buyers and if there is a need to sell some units

at a discount, there will be Argentine investors ready to buy those units.

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References: - New York Country programmes and related matters, September 2002 – UNDP - UNITED NATIONS - Executive Board of the United Nations Development Programme of the United Nations

Population Fund - Second country cooperation framework for Argentina - (2002-2004) - Global Economic Forum - The latest views of Morgan Stanley Economists Argentina:

What Has Changed? Gray Newman and Luis Arcentales (New York) - Argentina’s Economic Revolution, By Domingo Cavallo, Washington, DC, 1991 - Argentina’s Economic Crisis: Causes and Cures, Jim Saxton (R-NJ), Vice Chairman Joint Economic Committee, United States Congress, June 2003 - Latin Finance Magazine – April 2004, Common Sense to the Rescue, and The Struggle must go on, By John Barham - Retail Traffic, Latin America Roundtable, 2000 - Shopping Center World Staff - BBC news – Q&A: Argentina’s Economic crisis, February 2003 - Bloommberg.com December 19, 2003 - The World Factbook 2003 - Latin Advisory – Solutions for international lawyers and executives - The end of the affair? - Feb 20th 2004 - From The Economist Global Agenda - Economist.com - Alternative Investments - International Opportunities in Real Estate - April 2002 - Harvard University. - Panorama - http://www.amisa.com/arg_econ_rep.html - Agencia Maritima Internacional - Argentina's Economic Crisis Has Taught U.S. Investors the Importance of Carefully Evaluating Investment Opportunities in Latin America - By Stephen Finn - Spatial Analysis of Public Investment Flows in Urban Argentina: An Approach to

evaluating Urban Quality and Inequality – Anna Wellestein, Urban Cluster, World Bank

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- Standard and Poor’s Publication Date: July 18, 2001 - Crisis Tests Argentine Banks - Argentina’s Economic Meltdown: Causes and Remedies. February 2002, U.S. House of

Representatives, Subcommittee on International Monetary Policy, Committee on

Financial Services, Washington, DC.

- Fundacion Invertir Argentina - Argentina Business - The complete guide to Business with Argentina - Investment Management Services – Argentina, The Process of Debt Restructuring,

September 2003 - Globeandmail.com - News from The Globe and Mail - Argentina's top court rules forced 'pesofication' illegal, By PAUL WALDIE - Central Bank of Argentina – Reports on Banks – May, 2004 - Latin Focus Consensus Forecast country briefing - Merrill Lynch, Latin America Investor Conference, Saturday March 27, 2004 - An Update on Argentina by Guillermo Nielsen, Secretary of Finance, Argentina.

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Author Bio

Esteban’s experience is in the development, marketing and sales of residential

projects.

He began his career at Castex Propiedades S.A., a Buenos Aries based broker and

developer. At Castex, he has been responsible for the sales and marketing of more than

5,000 residential units. In 2000, Esteban was invited to be the sales manager and a

member of the executive committee for Pulte Home’s launch in Argentina. Esteban has

also served as an advisor to Argentine companies investing in Florida real estate. For

more than 5 years, he has been a member of the Urban Land Institute. Esteban holds an

undergraduate business and marketing degree, and a MS in real estate development from

Columbia University.

Esteban Thesis - ReporteInmobiliario · Esteban Edelstein Pernice Submitted in partial fulfillment...

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