While this episode’s guest, Jaime Fasja, has a family background in real estate dating back 50 years, he crafted his own way to the highest echelons of retail, hospitality, and industrial real estate investment & development across Mexico and the Caribbean. The 180-person firm that he started from scratch in 2012 and now leads as co-CEO, Thor Urbana, owns assets in 20+ locations, primarily consisting of lifestyle retail centers and luxury hotels. Last week, Jaime and his team opened their latest project, the Ritz-Carlton Mexico City, adding to their roster of hotels featuring such flags as Thompson, Montage, and Four Seasons. As you will hear, Jaime has experienced both pleasant surprises and acute challenges since the start of COVID as he navigated temporary mall closures, pandemic safety protocols, leisure travelers from the USA, and new acquisitions. These aspects notwithstanding, Thor Urbana has emerged stronger than ever from the past 20 months and is ready to continue a steep growth path in the years ahead.
Jaime completed his undergraduate studies in architecture and urbanism at Universidad Iberoamericana, as well as his MBA with a concentration in real estate finance at Columbia Business School.
Thor Urbana is a partner company of Thor Equities, a leader in the development, leasing, and management of commercial, residential, retail, hotel, and mixed-use assets in premier urban locations worldwide. It owns over 160 properties representing $20+ billion of AUM and 50 million square feet. Joseph Sitt is both the Chairman & CEO of Thor Equities and Chairman of Thor Urbana.
0:42 – Episode Overview
Kyle starts by providing a high-level perspective on how Mexico has navigated COVID-19, as well as how tourism was affected. He introduces Jaime and sets the stage for the episode’s content.
05:50 – CAREER FOUNDATIONS: The Ascent of a Dealmaker
06:04 – Family Real Estate Background and Education
Jaime trained as an architect and then worked at his family’s real estate company, GFA Grupo, upon graduation.
07: 48 – Reasons for Business School
Columbia Business School helped Jaime couple his existing real estate experience and architectural background with a financial education. This foundation would later help him court institutional capital into Mexico.
08:57 – Mexico’s Historical Lack of Institutional Capital
Prior to Thor Urbana’s presence, Mexico suffered from a lack of institutional capital due to the distaste family-run investment firms displayed toward the rigidity of these different rules.
10:35 – Relationship with Co-Founder Jimmy Arakanji
Jimmy and Jaime have known each other since childhood, went their separate ways during university, and then studied together at Columbia. As Jimmy initially worked at Thor Equities, he introduced Jaime to Joe Sitt and later joined forces with the two of them in a new real estate venture (Thor Urbana).
12:36 – Steps of Creating Thor Urbana
In 2011 Joe, Jimmy, and Jaime conceived of a simple business plan to take advantage of Mexico’s reduction in tariffs toward China and the lack of institutionally managed centers that could accommodate top retail brands. Within three months of venture creation, a term sheet had been signed with a Canadian pension fund for a $500mm commitment.
15:22 – Focus on Retail vs. Hospitality
Initial thesis was to be in the best locations in urban markets with large populations and barriers to entry. It was largely a coincidence when Thor Urbana purchased a retail redevelopment site that had two hotels on it, leading to their keen interest in the hospitality sector.
17:52 – Selection of Partners
While Joe had been examining the Mexico market for several years, he had not found an apt partner because of a lack of synergies or chemistry. The combination of Jaime’s real estate experience and Joe’s track record managing institutional capital was an immediate fit.
19:53 – Leveraging Thor Equities Resources
Prior to closing a first commitment, the team was “two guys and a laptop.” Initially they relied on Thor Equities for certain aspects of the acquisitions and due diligence process, but then were able to quickly hire talent once the fund was closed.
23:12 – Culture at Thor Urbana vs. Thor Equities
Although Thor Equities shares Joe as a partner, Thor Urbana tries to create its unique culture by retaining an entrepreneurial spirit, encouraging agility, and valuing energy & experience.
25:46 – Co-CEO Responsibilities
While some overlap exists, Jaime focuses on acquisitions and development while Jimmy leads the operational side.
27:44 – Expansion into Other Countries
The key is to find the right scale to justify entry into a new country. Aside from Brazil, the combination of Columbia, Peru, and Chile might satisfy this threshold. Thor Urbana has a presence in Belize, as it was able to leverage the nearby Mexican infrastructure to create a hotel of unparalleled quality. Several factors are also leading to increased investment from the firm into the logistics sector.
30:23 – Greatest Challenge at the Moment
Largest challenge is ensuring retail centers will continue to be relevant. Jaime feels Thor Urban is well positioned to capture the latest trends.
32:00 – MAKING THE MARKET: A Research Perspective
32:09 – Real Estate Comparison of Inland Cities vs. Coastal Markets
Mexico City is by far the largest market in Mexico, which drives retail and hospitality demand. Guadalajara is also gaining momentum within technology and fashion circles, which also helps retail. Coastal markets are primarily attractive for luxury hotels, especially Cabo San Lucas, the Nayarit Riviera, and Riviera Maya. In particular, Cabo has been a huge beneficiary of COVID.
39:25 – Riviera Nayarit News
Not only is Thor Urbana opening the Ritz Carlton Reserve, but new roads are being constructed to help spur new development and facilitate access to announced projects such as the Auberge, and Rosewood.
41:32 – Mexico City Luxury Hotels
The city has not historically been viewed as a luxury hotel market because of business travel dominance. More recently, museums, culture, and restaurants/nightlife have helped Mexico City attract leisure travelers and high-end hotel developers.
46:39 – Mexico City Rate Increase
While room rates in Mexico City have been steadily increasing as a result of enhanced leisure travel, Mexican costal markets command at least twice the price.
47:48 – Domestic and International Guests
Historically ~60% of hotel guests in Mexico City hotels represent domestic demand. Americans comprise 70-75% of all international visitors.
49:33 – COVID’s Effect on Mexican Lifestyle
The beach hotels have largely thrived during the pandemic due to favorable owner measures. Cities have presented a more challenging scenario, though most of Thor Urbana’s outdoor retail centers are very close to in excess of pre-pandemic sales volues.
52:44 – Lender Discussions During COVID
Within Mexico’s real estate market, few players were over-levered prior to COVID. Based on reduced cash flow during the pandemic, Thor Urbana was able to capitalize interest at several properties and repay it at the end of loan term. On the tenant side, Jaime had to use creative techniques to create win/win scenarios for all parties.
57:15 – Pandemic’s Effect on Lease Structure
Pre-COVID trends accelerated during COVID, as retailers had been moving more toward percentage rent. Owners like Thor Urbana need to find right balance between percentage rent and fixed rent, especially when presenting deals to lenders.
58:43 – Recent Acquisitions Activity
Underleverage and family ownership keep market healthy, as there continues to be a bid/ask spread. With this said, Thor Urbana has made offers with innovative structures to account for the unpredictability of retail performance. The firm is also buying hotels for redevelopment.
1:02:54 – Deal Competition
Both Mexican and foreign capital are actively pursuing deals. Family offices have become especially aggressive in bidding due to their long-term ownership.
1:04:28 – POLITICIANS AND ATTORNEYS: Bureaucracy and Red Tape
1:04:40 – Pending Legislation Affecting Real Estate
The new norm under this current administration is change. As the vice president of the Mexican Real Estate Association, Jaime is lobbying the government to create favorable legislation for the industry.
1:06:34 – Entitlement and Permitting
Mexico City is the most organized and digital-friendly part of the country when it comes to the entitlement process. Whereas many of the coastal markets are also relatively straightforward, the governments from certain communities experiencing rapid growth have experienced challenges.
1:08:57 – Legal Action for Title Claims
Title related legal action is not common unless a buyer fails to complete a thorough due diligence process.
1:10:53 – Property Taxes
While they change state by state, property taxes in Mexico are much easier to underwrite than in the US. property taxes.
1:12:21 – Frequency of Litigation
Mexicans, in general, litigate less than in the US. Thor Urbana’s philosophy is to strive to reach fair agreements and, if needed, resort to arbitration instead of more severe legal action.
1:14:50 – FINANCE AND FORMULAS: The Economics Behind the Deal
1:15:28 – Discovery of Opportunity
Thor Urbana has had Reforma on its radar for a long time and knows this neighborhood intimately. Ultimately, it found an attractive site owned by a family who wanted to build a mixed-use project and sell the hotel condo.
1:18:34 – Construction Timeline
The project took five years from start to finish, though COVID delayed the timeline. The general contractor for the building was a party with whom Jaime had an existing relationship.
1:20:21 – Equity vs. Debt
Thor Urbana closed on the acquisition of the core & shell of the hotel condo all cash, but then acquired a low-leverage (45%) loan from BBVA for the interior build-out.
1:21:31 – Choice of Ritz Carlton as Flag
Thor Urbana conducted a beauty contest with 11 hotel brands. Ritz-Carlton, which had been trying to enter Mexico City for many years, prevailed because of Marriott’s scale and its Bonvoy program.
1:23:39 – Fee Structure Negotiation
The leverage was in Thor Urbana’s favor during the brand selection process. The decision was not purely an economic one, but rather related to the reputation of the brand and its ability to make the hotel successful on a long-term basis.
1:25:40 – Ritz-Carlton Compared to Comp Set
Containing a mere 154 rooms, Jaime expects the hotel to have more appeal to the leisure traveler. While some corporate or business related events will take place there, Thor Urbana does not want its property to become a conference hotel.
1:27:54 – Unique Amenities & Technology
Each room has a terrace, which is made possible by the building’s double façade. The 11th floor ballroom and 12th floor pool are both spectacular. Jaime prefers simplicity when it comes to room controls, so has not gone overboard on outfitting them with technology.
1:30:47 – Planned Hold Period
Thor Urbana has three different investment platforms in addition to the initial Canadian pension fund, namely two Mexican pension funds and a family office capital source. This hotel is co-developed with a local family & developer. Jaime is planning a long-term hold for the Ritz-Carlton, but is open to selling if the market presents a lucrative sales opportunity.
1:32:30 – TOURIST IN YOUR OWN TOWN: How to Spend Three Perfect Days
1:32:36 – To-Do List
Jaime recommends visitors to 1) walk through neighborhoods such as Polanco, Chapultepec, Condesa, and Roma; 2) embark on culinary tour of the city; 3) visit at least one of many museums; 4) go to Teotihuacan Pyramids; 5) explore the growth of the city in areas such as Santa Fe.
1:35:26 – First Time Visitor Tip
While keeping safety in mind, allow oneself to get lost in the city, whether by foot, bike, or Uber.
Additional Links
Thor Urbana – https://www.thorurbana.com/
Instagram – https://www.instagram.com/thorurbana/?hl=en
Facebook – https://www.facebook.com/thorurbana/
