00:00Soy Luis Miguel González, El Economista y tengo un enorme gusto de presentar a uno de los mayores
00:09expertos del mundo en bienes raíces, Spencer Levy, CBRE. Welcome Spencer, how are you? I'm great,
00:17great to be back in Mexico City, as we were talking before. This might be my 25th trip here,
00:22love it here. How does Mexico looks right now, March 25? Well, first of all, you gave me a
00:29beautiful weather day out there, so I'd rather be doing this interview outdoors, but Mexico looks
00:34very good, and I look at it from an economic perspective, and the reason why Mexico looks
00:40very good is why Mexico has looked very good for the last 10 plus years, which is there are so many
00:45industries here that are thriving, led by manufacturing, industrial, but other forms of
00:52real estate are doing well, also retail. I think that Mexico has many competitive advantages over
00:58other markets around the world, which are only going to get stronger. They have a very deep
01:04and inexpensive labor force. They have proximity to the United States. They got great weather
01:10today, and great newscasters like you.
01:14You mentioned the last 10 years. How does in this changing era serve the last 10 years to look
01:24into the future? I think the competitive advantages of Mexico aren't going anywhere, and these competitive
01:30advantages are some of the things I mentioned a moment ago having to do with the low cost of labor,
01:36proximity to the United States, lots of virtuous cycles of manufacturing. When I say that, what I mean
01:43is manufacturing can't be done in a desert. It has to be done near other manufacturing, near logistics,
01:50near industrial. And so you have all these clusters here in Mexico that have formed around certain
01:55industries, notably automotive, but there are other pharmaceuticals. And I think those are only going
02:00to get better as the year has progressed, because most of the world has a labor shortage. Mexico does not.
02:09Last year, last two or three years conversation in Mexico about real estate has been dominated by
02:15a magical word, near-shoring. How does near-shoring looks like right now?
02:24Well, I think near-shoring is a big word that really means on one hand you have globalization,
02:30on the other hand you have near-shoring. And the question is, are we de-globalizing? Meaning,
02:35are we moving as a world away from China and Asia and towards the Americas?
02:41I think to some degree we are, but not as much as a lot of people think. Because much as I was
02:50suggesting a moment ago that Mexico is building these regions within the country that have these
02:55virtuous cycles of manufacturing, they're already in Asia. And they're very hard to pick up and move.
03:01So I think the world is moving towards near-shoring for a lot of the reasons we've talked about,
03:07the cheap labor force proximity to the United States. But I think that we're still going to be in a very
03:12global trade world for a very long time, which I think is good. Because I think that certain
03:18countries have competitive advantages in making certain types of goods and services. And that
03:23will continue. So yes, near-shoring is going to help Mexico a lot. And Mexico, until a couple of years
03:29ago, was the number one destination of foreign capital, of foreign direct investment. I think China
03:34putting 25 billion dollars one year. I mean, it's a huge numbers coming here. And I think that will
03:39continue.
03:41You've been here in Mexico like 25 times.
03:45Mexico City. I've also been to the touristy areas on the shot like Riviera de Maya and Cancun.
03:52But I come here to Mexico City a lot.
03:55Let's talk about regions in Mexico. We have the border. We have Valle de Mexico, western cities like
04:06Guadalajara. How do you compare those regions from the real estate point of view?
04:15When you're dealing with regions outside of Mexico City, outside of the tourist areas, areas that are closer
04:22to the border, those are the real areas of interest for manufacturing and industrial real estate.
04:29Once you're dealing with deeper population centers like we have here in Mexico City,
04:34that opens the door to other forms of real estate, most notably office, but also retail. And an area
04:40which I think Mexico is lagging, but I think that people should take a firmer push into, is multi-family,
04:47is apartments. I remember about 15 years ago, I wrote a white paper about why people should build
04:54and buy more apartment buildings in Europe. And they thought I was crazy because Europe had all of
04:59these regulatory reasons, landlord-tenant laws that made it very difficult to build and to operate
05:05those things. And candidly, you have many of those challenges here in Mexico today. But that is the
05:10opportunity. If you are able to somehow modify some of these regulations, you have a golden opportunity
05:17to build apartments here because Mexico needs it. I think the world is housing short.
05:26We were talking about the industrial facilities and then you jump and talk about residential.
05:32Yes. Let's start the conversation about residential. Not meaning stop talking about industrial.
05:40Sure. But there's a huge window of opportunity. That's correct. I mean, look, I think for the
05:46American, for the global investor, the reason why industrial looks so good is not just the near-shoring.
05:54It's not just these clusters. There are some very bottom-line economic reasons. Most industrial
06:01transactions are priced in American dollars. They are not priced in pesos. Retail deals are priced in
06:07pesos. Multifamily deals are priced in pesos. Makes it much more difficult to transact. And the
06:14reason is the inflationary risks associated with the peso. It's why it's very difficult to do
06:20certain types of deals in Brazil, because all the deals there are done in the real, their local
06:25currency. But the fact that industrial can do it in the American currency has given a level of
06:30stability to that market that it probably wouldn't have had otherwise.
06:35So you mentioned multifamily residential as an opportunity. Is there any song that you like the
06:44most? We have a lot of Americans that are looking in beaches, but there are also big urban
06:53buildings. For example, Monterrey, for example, Guadalajara, Mexico City, Tijuana.
07:00Those are the places I'm thinking of. I'm not thinking about the touristy areas.
07:04There is condominiums, and then there is rental housing that you use for your primary residence.
07:10Condominiums, maybe your primary residence, maybe a vacation home. I'm talking about the cities you just
07:15mentioned, including Mexico City, that I think is ripe for a lot of new multifamily development rental.
07:23The challenge being the regulatory environment, where it's challenging when you build, challenging
07:29A, to build it. B, once you do build it, the relationship between landlord and tenant makes
07:33it very challenging to operate it. But I think that's the opportunity here. I think that if you want to
07:38have new housing in a place that desperately needs it, these are the things that the developers should
07:46be speaking to the local politicians about. I've been reading the most recent issue in The Economist,
07:53and they say there's a big temptation all over the world to regulate rents. What's the advice you give
08:01to the politicians, to the public? Well, first of all, you should know that The Economist magazine is my
08:06favorite magazine. I'm not just saying because I'm on your show. I love it because it's so dense, it's so
08:13thought-provoking. But the challenge with rent regulation is it comes from a good place. It comes
08:21from a place of, I want my tenants to live a better life, not be rent poor. That's a term people use.
08:31And by doing that, we're going to limit the amount of rent they pay.
08:33The challenge is if you do that, people won't build any more of it. It is a direct relationship
08:41between rent regulation and limiting new supply. The only solution to affordable housing is more
08:48supply. And if you want more supply, the question is, well, how do you do it
08:54and also keep rents affordable for others? If you create enough supply, it will bring rents down.
09:03Is it a longer term thing? Absolutely is. And so in the short term, the challenge for the existing
09:09renter is they may have more upward pressure on their rents. But over the long term, you will bring
09:15rents down if you have more supply. So I certainly understand the political pressure behind rent regulation,
09:22and I'm not going to suggest that their motivations are bad because they want to keep rents down. But
09:27if their motivation is to have greater supply, cheaper housing over the long term, I'd ask them to
09:32consider the implications to supply of some of the rent regulation.
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