South of the Border: Investment capital is flowing to Mexico’s industrial and hotel properties

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South of the Border: Investment capital is flowing to Mexico’s industrial and hotel properties

5.9.2023

Spencer Levy
The subject of today's program doesn't always get its due on the international business stage. That's despite the fact that it's one of the largest countries in the world – top ten by area and top 15 by population. And it's got a top 15 economy, too, with advantages in geographic location and more. Part of that may be due to the country's troubles – border controversies, cartels and crime – which tend to make bigger headlines than any of the ways it has grown as a business destination. On this episode, we get to know our southern neighbor a little bit better, exploring the diverse business and real estate landscape of Mexico with two experienced players in this market. 

Federico Martin del Campo
You have pretty much every automaker in Mexico and you have a lot of industrial in Mexico from all over the world. So that makes it easy for any company to come to Mexico or to grow into Mexico. 

Spencer Levy
That's Federico Martin del Campo, a managing partner of Walton Street Capital and CEO of its Mexico platform. Walton Street is a privately held firm based in Chicago, but has invested in Mexico for more than two decades. 

Lyman Daniels
I originally came down for a three-year assignment, but I saw something special in Mexico. I saw growth. I saw opportunity. And you know what? I bet my career on it. 

Spencer Levy
And that's Lyman Daniels, the president of CBRE Mexico since 2009. Under Lyman's leadership, CBRE Mexico has been one of the company's fastest growing offices worldwide. Coming up, a trip to Mexico City for a discussion of this evolving nation – a look at everything from tourism to nearshoring, and a primer on how to invest in Mexico from abroad. It's a country that's in the news for a lot of reasons, but economically is on the rise. Mexico – I’m Spencer Levy and that's right now on the weekly page. 

Spencer Levy
Welcome to The Weekly Take. I'm so happy to be back in Mexico. It has been too long. Haven't been here in four years. But I'm back and had a great morning today organized by my friend Lyman Daniels, the president of CBRE Mexico. Lyman, thank you for joining the show. 

Lyman Daniels
Welcome back to Mexico, Spencer. 

Spencer Levy
Thank you, Lyman. And then Federico Martin del Campo, CEO of Mexico for Walton Street Capital. Federico, thank you for joining the show. 

Federico Martin del Campo
Thank you for inviting me. 

Spencer Levy
Federico, you've been here for 25 years. So let me just ask a very big question. Why Mexico? 

Federico Martin del Campo
So basically, we started investing in Mexico because of personal relationships of the partners in Chicago. And the results were good. There was a lot of curiosity for the market, and we started digging in. And then in 2006, we opened an office in Mexico. We've been investing since ‘98. The Walton Street capital was inaugurated in 1994. So it's basically 25 years now. And basically it's the size of a country, the domestic demand that you have and the proximity to the US, that's huge for most of all of our business. Specialty industrial and hotels. 

Spencer Levy
Mm hmm. Now Lyman, how did you get to Mexico and what keeps you going? 

Lyman Daniels
Well, I was a NAFTA baby. I came down right as NAFTA got approved. Things were moving. There was a lot of things on the horizon. Mexico was changing. I originally came down for a three-year assignment, but I saw something special in Mexico. I saw growth. I saw opportunity. And you know what? I bet my career on it. And it's been a good bet. We've seen growth ever since. But it's no lie. What I said is that after 29 years, right now, we're seeing more movement, more sophistication, more institutionalization of the market than we've seen before. 

Spencer Levy
Well Lyman, were you a native or a natural Spanish speaker before you got to Mexico? 

Lyman Daniels
No. And I think if you asked my wife and kids, which are all Mexicans, they'll tell you very easily that I am not. And my friends and colleagues will also agree with you. But I get by and I defend myself. 

Spencer Levy
Great. So Federico, when people think about Mexico from a real estate perspective, the first asset class that comes to mind is industrial. Why is industrial such a popular asset class here in Mexico? 

Federico Martin del Campo
Sure. People talk about industrial today on the eyes of nearshoring. But Mexico has been an industrial powerhouse for a while now. Most of the changes in Mexico came like 30 years ago, more or less, when we started to invest in infrastructure. That was huge. Also, the NAFTA trade agreement was signed. And at that point in time, we also had an independent central bank because before it was not an independent central bank. So all of those things made a big difference in Mexico. So today, if you look at Mexico, you have, first of all, the proximity to The US. That's the main reason why industrial is important for Mexico. The second one would be the supplier clusters. You have pretty much every automaker in Mexico and you have industrial in Mexico from all over the world. So that makes it easy for any company to come to Mexico or to grow into Mexico. The other thing is obviously the proximity to the US where you talk versus China, for example, just traveling to China and communicating with China, the time horizon and the time to travel, it's a big difference. That's also been important in Mexico. Then Mexico formerly was more a maquiladora type of country, which maquiladora meaning it's only cheap labor, but not very sophisticated labor. So people came to Mexico just because we have cheap, unsophisticated labor. Today, people come to Mexico because we have lower-priced labor, but it's highly qualified. Mexico now has a lot of professionals working that are highly skilled in technology and a lot of engineers. So that's a big difference. And then finally, the cost of real estate and the rents. When you talk about home manufacturing company, they will spend most of their expenses is going to be on labor, but not on rent. So rents in Mexico, that's where the business for us is so good because they pay us in dollars. They're mostly credit companies and the rent is an important part of their PNL, but not the most important one. So that makes the real estate industrial sector very attractive for us. 

Spencer Levy
So let's stay in the labor thing for a moment here, Lyman. And Lyman, you run a diverse business here in Mexico. Not just brokerage, but asset management, property management right down the line. Tell us about how you handle the labor market here in Mexico with respect to CBRE hiring new employees. 

Lyman Daniels
Well, you have to first unplug yourself from what you expect in the US. And that took me a while when I first got here thinking that you were going to hire and use the same mold or use the same qualifications - the US. The population in Mexico is much younger, and although they may not have the real estate science experience or did not and now it's growing quite a bit. Extremely. Extremely willing. Extremely energized. And I would say CBRE, we're lucky to have a team like that. But that's not unique to CBRE. That is a part of a Mexican qualification. We actually see people wanting to work, wanting to stay, wanting to go the extra mile. So that willingness to put that in it has been a huge part. And so when we're hiring, we identify that, we look for that. And I think a lot of the industry does the same.

Spencer Levy
Federico, let's move beyond industrial now. Let's talk about the broader market. Let's start with hotels. Hotels is an area that I think for the average American who's not in the real estate business, that's how they know Mexico. They know Cabo, they know Cancún. Tell us how Walton Street knows hotels in Mexico. 

Federico Martin del Campo
So Walton Street has been an investor in hotels in Mexico for over 25 years. One of our first investments was hotels. The main thing that we like about hotels is that you sell to the US population. Again, you're next to the US, so we have luxury hotels. That's what we focus on, luxury. And you cater to the US population, so you get dollar revenues and you have peso costs, which is usually pretty good not today because the peso has been extremely strong. So now it's going the other way around. But basically, if you look at today, what's happening to hotels in the US. Because of inflation, costs are going up and hotels are struggling a lot and in Mexico it’s completely different. We're getting rates as you were mentioning in Cabo and in Punta Mita, where we have hotels, reaching historic levels of rates. Reaching historic levels of occupancy and the NOI, of course. So you look at the NOI or GOP per room and it's the highest we've seen in a long time now. So I also think it's because the pandemic changed a lot of the culture for travelers. So people now are traveling, I would say, more constantly. You don’t have that same spike that you had before over different seasonalities. And that's good because that’s stability. And then from an inflation standpoint, you can pretty much adjust your rate on a daily basis. So it's also very, I would say, friendly for inflation. Walton has invested $1.6 billion in hotels, not only in Mexico, but generally – 30,000 keys, 91 hotels. So we have an asset management team that specializes in hotels. And that's, I think, one of our main advantages in Mexico for hotels. 

Spencer Levy
Speaking macro about hotels, the place where it's not inflation adjusted, unfortunately is labor. Labor has gotten extremely expensive. How have you found it, Federico? 

Federico Martin del Campo
Yeah, labor has been an issue for sure. And also we've had some labor reforms in Mexico that made it more expensive. That has been a challenge for sure. But the only thing is, you know, we now are underwriting our projections and the way we manage hotels. We just get down into the numbers and adjust. But you still have a big difference between the US and Mexico in terms of labor for the hotels. And also, again, because you're paying them in pesos, it's a peso salary. It usually makes also for a big difference when you have a devaluation, you have a margin expansion. You don’t suffer with that, which again, that's not the trend we're looking at today. But over - if you look at the history, there's usually some type of devaluation over time between the Mexican and the US currency. So that's nice hedge -

Spencer Levy
Now, we spoke quite a bit or just a little bit about the vacation spots. We're here in Mexico City. What are you seeing now in terms of traffic to Mexico City, both for the leisure travelers and for the business traveler? 

Lyman Daniels
Well, we're seeing people come back, obviously. Mexico City has not typically been the leisure destination. It's really a business travel destination. As many people start to travel again for business reasons. You're seeing starts of various projects around the city to try to take up some of that demand. It's slow, but it's coming back. It's not where it was on the business travel side pre-pandemic, but the leisure traffic that we have for the rest of the country has increased is above pre-pandemic levels. Mexico City, it's a thriving city. It is - There's 25 million people here. There are a lot of reasons to come visit the city besides just leisure. And we're seeing a lot of that traffic. The other thing that we're seeing is inflow of population is a lot of nomad workers. We're seeing nomads coming in from the US and other parts of the world and staying for four, six, eight months and doing their work from Mexico for a lot of different reasons. And that has increased demand as well; both hotel and office and retail. 

Spencer Levy
So Federico, let's stay with Mexico City and let's get to the most complicated issue in real estate today, which is office. The office market is suffering globally. How is it doing here in Mexico? 

Federico Martin del Campo
The office market in Mexico was in a very tough spot before the pandemic. So, you know, that doesn't help. There was a lot of oversupply in certain markets and the leasing activity was already going down. And another thing that we're looking at is usually you had in the AAA buildings and the main corridors, the CBD corridors, you would be leasing in dollars. So when you're leasing dollars, that means you can finance in dollars, of course; if you're prudent about how you do things. So those were not good dynamics. So at that point in time, we had an office building that we finished and we sold it and obviously it was a good decision, but we come from a very difficult spot and today, besides, Mexico is not that deep in terms of office. You have the Reforma corridor. You have Polanco-Lomas. You have Insurgentes. But if you go to the different corridors, you lose interest from the institutional investors. So it's also not a very deep or profound market. So today it’s suffering, for sure. The best properties and the best assets are always going to hold off better. But definitely the work from home trend and where we were before, has definitely affected. It's always cycles, you know, life is cycles, real estate cycles, so there's no construction in office and the space will be absorbed. And the best locations will be faring better than the older ones, no? But it's not a booming sector, for sure. 

Spencer Levy
Where are we from a supply standpoint of new office product here in Mexico City, and what do you tell investors? 

Lyman Daniels
Well, we tell investors that demand is increasing. You're absolutely right. The construction starts and the projects under construction. It's probably the lowest point that we've seen in the history of Mexico City development – office development. But it's coming back slowly. There are several projects that are underway and these developers have made the decision and the right decision to continue developing. And you know what? We're seeing some pre-leasing. We're seeing some tenants going say, you know what, I want to be in that building because that building has a quality and it's in the location that I want to be in. So quality sells, location sells, and the market is on its way back. 

Spencer Levy
And we're here in - it's called the Polanco district?

Lyman Daniels
We're in the Lomas area, which is next to the Polanco area. But it's the greater Polanco area, we can call it. 

Spencer Levy
And this is a newer office district within Mexico City. 

Lyman Daniels
Right. 

Spencer Levy
So they sort of – not dissimilar to what we're seeing in the United States. We see these districts that we call live, work, play. That we call BBDs: better business districts, rather than being in the traditional CBD: central business district. Is that a similar trend that you're seeing here in Mexico? 

Lyman Daniels
A little bit. The difference between Mexico is your transportation. And remember, we're 25 million people here in a fairly limited geographical area. So getting from point A to point B is a little bit difficult. When you talk about getting from one office to another, you usually don't say what's going to be a mile away or two kilometers away. You say, well, that's a 15 minute or a 20 minute or a 40 minute drive. And so live, work, play is here. And it's really something that in certain areas like Polanco, several projects have been very successful because a lot of the younger generation millennials say, you know what, I don't want to do that commute. I want to be close to where I can play. I want to be close to where - when I do go into the office, I can get there. 

Spencer Levy
So Federico, just walk us through the capital markets issue of how do you invest an American dollar in Mexico? How does that dollar then come back to American investors? 

Federico Martin del Campo
Sure. So the first thing I would say is our first fund was funded with US pension funds mainly, no? And obviously it was a dollar fund and we made most of the investments in dollars. It's key not to have a currency mismatch, right, if you have a dollar fund. And fortunately enough you have a lot of asset classes in Mexico. By the way, the ones that are most in-demand today, which is industrial and high-end hotels, which are dollar denominated. So currency is not an issue there. So the first funds we raised money from the US and then we basically switched to raising money from the AFOREs in Mexico, You know, the pension funds in which were able to invest in Mexico. They understand the market very well. And the AFOREs have come a long way when they started investing in real estate that we're learning. And today it's amazing the amount of knowledge that AFOREs have for investing in real estate in Mexico. So that's what we've done, basically. Today it's a good time to raise money in Mexico because everything that's going on in the world is benefiting Mexico. So it's a good time. We've seen a lot of interest from non Mexican funds, which is not the trend. Usually you have much more interest from the Mexican funds. But today, I would say in hotels, but mostly in industrial because of the nearshoring, you have a lot of Middle Eastern and Canadian, American pension funds interest in Mexico. So that's a good thing today. The other thing is you don't have a lot of institutional investors in Mexico because institutional real estate investing in Mexico is pretty new. It's also very hard to get into the Mexican market because you don't have a lot of institutional investors. The other thing I would say is it's very important to have a local team that you can rely on for the long term. Like if you're going into a new market, you just need to have a local team that you rely on. So these 25 years -- our Chicago partners, they know Mexico better than some Mexicans, to be honest. So I think that's our main competitive advantage: the local team and the knowledge of the US team. Today, most of our money comes from Mexico, from Mexican pension funds and the peso – which today we have dollar funds that are just, you know, flow to the US. 

Spencer Levy
Let's now turn to the debt capital markets in Mexico, because in the US, I think a typical investor is looking to get called 50 to 60% or more loaned value on their deals. But the cost of debt today, I think the central bank in Mexico - Banxico? What do they call it, Banxico?

Federico Martin del Campo
Banco de México.

Spencer Levy
Banco de México, thank you, just raised the short term rates to about 11 and a quarter. Long term rates are high as well. So tell me about the capital structure of a typical deal here in Mexico. 

Federico Martin del Campo
Sure. That's another interesting advantage in Mexico for dollar denominated assets. Hotels, for example, what I would say in hotels, the prudent leverage would be around 50% and you will get loans. If you compare Mexico to the US around 25, maybe 50 basis points higher. And in industrial, the current leverage would be around 65% loan to value. And there's a lot of activity in Mexico, especially around industrial. Industrial, we see very liquid and a very deep market and it's dollarized and it's been around for a while, as I mentioned before. You can still get good loans in industrial today in this environment. The most important thing is cap rates in Mexico versus the US. You have like a 200 to 300 basis spread difference between the US and Mexico. So you take that, but if you put in the leverage, that's only 50 basis points higher in Mexico, then you can still get to your ROE of double digits. So the point being is in Mexico today, you get positive leverage under the current rate environment in dollars. And in the US you would have negative leverage. So that's a huge difference in you the ROE that you can get in Mexico today and that's what also makes the country so attractive. 

Spencer Levy
Sure, an ROE, just for our listeners is Return On Equity. And so let's talk about those cap rates a little bit more specifically. And again, every assets different, but where are cap rates today for good industrial for where they were, say, a year and a half ago and where is the cost of debt? 

Federico Martin del Campo
Cap rates have been compressing over time for the last ten years. And today I would say a good industrial portfolio core would be around 87%. cap rate. Development yield on cost would be around 9 to 9 and a half percent. And if you take cap rates in the US, I mean, the US, again, it's a much deeper market. So it is different, you can take the Los Angeles or Chicago, no. But you would have at least 3 to 400 basis point difference. Now in terms of leverage to where you would be getting the base rate plus 350 basis points/300 basis points, depending on the asset class and the specifics of the deal. The rates have been going up, the spreads have been going up and the base rate, but not as much as in the US, that's the first thing, and then the cap rates have gone up a little bit in the secondary markets and not the premium markets, but in the main markets, industrial markets, I wouldn’t say they have gone down, Lyman has done a lot of transactions lately, but I would say they they've been stable in a growing rate environment. 

Spencer Levy
Got it, an asset class that I think Mexico is far behind Europe, far behind the US, but I think maybe coming is apartments, is multifamily, is rental. Federico, what's your point of view on multifamily and whether it represents a future opportunity here in Mexico? 

Federico Martin del Campo
It is definitely a future opportunity in Mexico. But today, if you look at the risk return equation, we believe that there are other industries where it's better to put your money to work. The main reason is, number one, multifamily in Mexico is going to be based on the nominative. The US has the lowest cap rates in multifamily, but you have leverage is different in The US and you have the Fannie Mae, etc. due to different government agencies. And in Mexico you'd be leveraging 11 and a half plus a spread. So today, but even before and it's a highly operating business. It's not only leasing, but it's leasing and then all the expenses and occupancy and the maintenance. So first of all, what's your margin? People usually make mistakes when they talk about margins. They think it's easier than it is when you have that type of operating business, what you're getting versus what you're actually getting to your pocket, which is the margin, operating margin, you know, it's a big thing. So that's the first thing. I think it's more of a levered play, today and for the short term for sure, and it's a mexican peso play. I've seen a lot of people do that, not as much as institutional, but more family offices, that type of thing. And then it becomes a good business because you're on leverage. You're getting a ten, 11% return, which is just the same that you're getting today in the risk free rate in Mexico. But you have the inflation, which you don't have in a government interest rate, you have the protection with inflation and you have the appreciation of the real estate. Because today in Mexico, apartments are not as expensive as they were before. The housing market is weak today in Mexico. That's how we see it. So I think it's a strong market for unlevered Mexican peso players. Not for dollar denominated players that are looking for leverage. 

Spencer Levy
Let me bring up a difficult issue, an issue that I have to bring up because it's come up in the US more and more recently, which is the crime issue. We've seen it in major markets, and it certainly comes up in most conversations about Mexico. Which is why I'd be remiss if I didn't bring it up. So let's start with you, Lyman. How do you address that with investors? 

Lyman Daniels
First of all, crime makes great headlines in the States. If I am trying to sell newspapers, I am going to take whatever story, I can amplify it and I am going to give you a great story. That's not to say that there's not a problem and there are pockets of problems. Is it an institutionalized problem where I am afraid to go out at night and go to dinner with my wife? No. I live in one of the largest cities in the world and I don't have a problem going out and having dinner. I don't have a problem going and traveling to another city. There are, just like other places, there are cities or neighborhoods. There are areas that you know what, you want to be a little bit more careful. The crime, remember, is not just random crime. The crime that we have experienced in Mexico has been what I call crime on crime. This is various entities fighting each other and not going and doing random acts of violence. So when you have tourists come down and say, Oh my God, this is a scary place to be. No. If you're selling drugs, if you're buying drugs, if you're in the drug trade. Yes. It's a scary place to be, I would imagine. But if you're doing business in Mexico, just like everybody else coming down. It's a great place to be. And there are a lot of safe places to do that. 

Federico Martin del Campo
I agree with Lyman. It's cartel-related, basically. And what I could tell you when you have the unfortunate event that, you know, there is some violence in a resort market in Mexico. If you get a travel advisory, it's a huge hit in the hotels because you lose group business and you lose group business, then you have to go to your clients and reduce rates. So that's not a good thing. But it's – in industrial markets, for example, when you have the violence, it's cartel related and it doesn't really affect the industrial market. It affects mostly retail, entertainment, that type of market. But the other thing that I think it's important is right now because it's a reality, but it's also a reality that it's formalized as Lyman was saying. But also today, the investors and entrepreneurs and basically the business owners, they're taking a step and doing something. To give an example, in Cabo, when there was violence in Cabo, then all the hotel owners and most of the business owners got together and there were changes both in the police force. There was money put in for construction of a new naval base in that area. And there were a lot of changes and now it's controlled. And so that's a big difference. So when you bring money also from the private sector, along with the government and you say, why do we need to defend this? Because this is our way of living. It goes a long way. And that's what we are seeing today. The business owners getting together with the government and saying, how can we control this? And that we've seen happening with great results in the resort markets. That's the other trend that we're looking at that is good for Mexico. Obviously, it's much better not to have any violence. But if there is violence, as long as you can control it within your resort areas, by the way, that I'm saying, you know, collaborating between the private sector and the government, you go a long way. 

Spencer Levy
Let's bring up another issue about the environment, water, clean air. Those are increasingly enormously important issues, not just in the US, but I would argue, being led by our European friends and investors who are insisting on all of their investments to be some measure of ESG compliant complying with The Paris Climate Accord. How do you see this issue?

Lyman Daniels
It's both. ESG is alive and well in Mexico. A lot of companies and investors like Federico and his group and others are embracing ESG, and that's helping. It's lots of drops in the bucket. Mexico City for many, many years did not have many restrictions on pollution on contamination on water supply, etc. But gradually it has adopted processes. It has adopted laws. It's morphed into being more responsible. It's embraced mass transit. Years ago, when I first got to Mexico, leaded fuel was sold. It's been a long time since leaded fuel was sold in Mexico. There are controls. They monitor the air quality. When air quality gets to a certain level. In our major cities like Mexico City, there's an alert and they restrict the amount of vehicles that can circulate at any time. There is a consciousness of a need to protect our environment. There is a consciousness of a demand by the population for ESG type improvements. 

Spencer Levy
Federico, from an investor standpoint, how do you approach ESG? 

Federico Martin del Campo 
It's an interesting question because as Lyman was saying, Mexico – we've come a long way in Mexico. 20 years ago, the laws around environmental were completely different from what they are today. But we've always been doing things the way an institutional - US institutional investor would do them. Where we're doing phase one to phase two. Studies when you're there and require them and remediation and a little of that. So from our standpoint, we were always doing more to the US standard. So that has helped us a lot. And it's also within our culture and our principles. And today you were talking about the European investors putting that at the forefront, but also in Mexico, I can tell you that Mexican pension AFOREs. They would not invest with anybody that doesn't have a good ESG policy. And they will actually make you a full study and an analysis of how you comply with the three main pieces of ESG. So that's not only key, but it's – I would say at the heart of the investors today in Mexico. And it's fortunate because we've come a long way and we need to do it. 

Spencer Levy
So just a couple more questions. I know Mexico in two ways: as an institutional investor-advisor, which is how I know Mexico City, and as a tourist, as I've been to many of these wonderful locations. But there are a lot of places for institutional investors, including Guadalajara, Monterrey. Just very briefly just give our listeners just a playing field of the different markets that are in Mexico and the types of institutional investments you're seeing in them. 

Lyman DanielsWell, I would start with what is the darling of the investment class of real estate in Mexico? and that's industrial. Industrial, there are 13 major industrial markets. Now think about the overall size of Mexico. It would cover a large fraction of the US. It's a large geographic area. And we have 13 major markets and then a handful of other large markets that don't make our top 13 list. And each of those markets have their own characteristics. Along the border, we've seen a huge growth in activity, the industrial market along the border, we have a vacancy rate of close to zero. 

Spencer Levy
What's the name of that market, Lymon? 

Lyman Daniels
Well, there’s three. Tijuana, Ciudad Juarez, and Reynosa are the three top cities along the border that are all super competitive. And there's actually, I don't want to say a waiting list, but we have clients begging us to help them place themselves in the market. And this is not only users coming from the US, but users also coming from overseas. Asia, China specifically, has been one of the prime movers of new business coming into Mexico. So that's the industrial side. Office is mainly Mexico City. It's 92% of the office markets, Mexico City. Retail, everywhere, obviously. And I think we've covered hospitality, which along the beach resort towns. 

Spencer Levy
I'm glad you mentioned China in the sense that when we talk about de-globalization, very often people are saying, well, we'll move out of China to someplace else. But China, interestingly, as you mentioned, is one of the big countries that's investing in Mexico, say, well, we're going to lose some in China, let's put it in Mexico. 

Lyman Daniels
More than anything, users are coming to Mexico. The Chinese users are discovering that they can put operations into Mexico using some of their same processes, using their capital. And they're closer to their market. They are closer to the market. Their transportation costs are less. Sometimes they're partnering with Mexican or other foreign entities and cooperating and able to enter the US and other markets more easily. So we’re seeing a huge impulse of near-shoring, especially in the north eastern part of the country, the Monterrey and Reynosa area. 

Federico Martin del Campo
The only – you just mentioned Monterrey, because – you mentioned three markets, Tijuana, Juarez and Reynosa – but I think Monterrey, the net absorption of Monterrey, has tripled in the past three years. It's amazing, right? That's happened before Tesla. Now Tesla is coming to Monterrey and a lot of the Chinese companies are coming to Monterrey. So I would say I agree with Lyman, you know, Tijuana, Juarez, Reynosa, but also Monterrey, I think it's a sweetheart for light manufacturing in Mexico. And then you have the barrio region, which is more towards the center of the country, which includes Queretaro, that has a lot of aerospace, etc.. But those are, for sure, the main area for industrial in Mexico. 

Spencer Levy
So I think the lesson for our listeners, if I could sum up the segment of the conversation, office is largely concentrated in Mexico City. Not completely… 

Lyman Daniels
Correct.

Spencer Levy
…but largely. 

Lyman Daniels
Yes. 

Spencer Levy
Hotels, largely in the resort areas. But there are some interesting hotel opportunities here in Mexico City, and retail is kind of everywhere. And one of the things I know about retail, which we didn't talk about much on the show today, is how Mexico has evolved from an Internet penetration standpoint. Because when I was here four years ago, your Internet penetration was half of what it was in The US. It was around 10%. Now it's like 23%. 

Lyman Daniels
23% right now. 

Spencer Levy
And I think that's a wonderful step because what it's done is – and I hate to put it in such simple terms – it's now separating the haves from the have nots and retail, which is exactly what's happening in the United States. It's becoming an institutional grade asset class again. Do you agree? 

Federico Martin del Campo
I completely agree. And you bring up a very good point. Industrial, we mentioned, is very focused on these areas and hotels for sure. But retail, we've done a lot of retail in Mexico. We've had 30 to 40 shopping centers, and that's the only asset class that we've had presence in almost every state. Yes, retail is deep. It has the same fundamentals in Mexico City that you can have in Chiapas or you know, different fundamentals, of course, but I would say the same need, you know. Mostly for service oriented retail. And that has also, interestingly enough, that for pretty well in the pandemic because it's service oriented. So obviously there's been a shake down in retail, but I think that's a very attractive asset class for sure in Mexico, and that's where you could invest all over the country. 

Spencer Levy
Great, so we only have a couple of minutes left so I'm going to ask both of you for your final thoughts. Lyman, Mexico today, Mexico five years from now, real estate. What do you tell investors. 

Lyman Daniels
I mentioned earlier, I bet my career on staying in Mexico. I bet my career on the growth of especially the commercial real estate market in Mexico. My children are now graduating from university. They came to me, said, Dad, where should I land? I said, Guys, you're bicultural, bilingual, come back to Mexico. And I mean it because there is the same opportunity that I lived through for the last 30 years they're going to have throughout their professional lifetime. 

Spencer Levy
Federico, what's your point of view? 

Federico Martin del Campo
I think the impact that it's going to have in Mexico is huge in terms of its growth and developing the country in general. And then the other thing that I would tell to investors is not only today, but Mexico has had for the past 15 years very responsible fiscal policies. We don't spend a lot of money. We don’t leverage too much. That's because we have independent central banks controlling inflation. And our treasury secretaries have also been highly educated and very orthodox. They know we're a developing country. If you look at Mexico before it was like the huge ups and downs. And today Mexico, in terms of the economy, it's a pretty stable country. I mean, today you just look at the exchange rate and where we are in terms of debt to GDP ratio, etc., compared to the world I could say today, Mexico would be the best emerging market to invest in for sure. And most of the investors agree because you can see that again in the strength of the exchange rates. And in the next five years, it's only getting better. 

Spencer Levy
Well I can’t end it better than that. On behalf of The Weekly Take, what a privilege to be back in Mexico again. Lyman. I'm sorry it took me four years to come back. It will not take me four years again. What a great discussion on the Mexican markets for investors. First, I want to thank my old friend Lyman Daniels, President CBRE, Mexico. Lyman, thank you very much. 

Lyman Daniels
Thank you for coming back, Spencer. 

Spencer Levy
Thank you for having me. And Federico Martin del Campo, the CEO Mexico for Walton Street Capital. Thank you so much for joining the show. 

Federico Martin del Campo
Thank you for inviting me. 

Spencer Levy
With many thanks again to our guests – or muchas gracias, I should say. We hope you enjoyed our visit to Mexico City. For more, please visit our website, CBRE.com/TheWeeklyTake. We hope you'll share this episode and share your feedback with us using the new “Talk To Us” feature right there on the landing page. You can send questions, comments or requests, and perhaps you'll even hear back from us for a follow up on your episodes. So drop us a line. Tune in next time. A top independent investment advisor with a unique specialty on interest rates, talks real estate and hedging strategies. It's an important perspective, especially in the market environment of today. For now, I'm Spencer Levy. Be smart. Be safe. Be well.