Tuesday, Oct 17, 2017
Real Estate | South America | Colombia

Colombian real estate

"Real estate has to be sold part by part"

2 years ago
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Mr. Gabriel Díaz

President of Grupo Oikos

Oikos closed 2014 with 25% growth, with a turnover of COP 479.000 million. For 2015, it has set the ambitious target to grow 20%.

After the historical Summit of the Americas –one of reconciliation, as Cuba was present–, how do you see Colombia's positioning as a regional leader over the years?

Important things are happening, and I see Colombia has great capacity to reflect and guide in these critical moments. No one can deny that Colombia is going through a critical moment regarding the guerrilla situation, the problems with crude oil and the dollar, etc. However, it is important to highlight the valuable capacity of reaction we have, as we have quickly acted in response.

The peace progress is dangerous, difficult and complex, but can have brilliant results and it could change Colombia's image. Colombia's relationship with other countries has not been easy, particularly in the case of Venezuela. It has been a controversial dialogue, hard to handle and with ideological opposing poles that did not make things easy. However, the dialogue was managed with intelligence and accuracy. The proper handling of a crisis or a problem can lead to interesting opportunities. It is admirable how the rest of the world sees us as a great opportunity, whereas we Colombians are sometimes too shy to think about our country in that way. I see foreigners often come to Colombia, not only in the construction area but also in different entities and for the Presidents' Forum. We frequently meet people abroad who are planning on coming, or talk to managers who tell us that there are people in Brazil, in USA, who want to come to Colombia. There were several times in which we had to build warehouses for the Venezuelan industry, which is starting to settle here. Conversely, we have also had to visit Venezuela to see what is going on there, so as to replicate it here.

I believe that, if Colombia seizes the opportunity it has, and if we avoid confrontation and extreme positions, we can achieve a good year and great position to face what is coming. Nonetheless, the moment is critical, dangerous and fragile. If done wrong severe consequences, may take place, but I feel confident and calm that everything will be dealt with the way it should.

The peace process in Colombia has received unanimous support from all America, from Felipe Gonzalez, Jonathan Powell and Barack Obama, for example. What opportunities does this peace process create for the private sector?

Many, I think. Firstly, because numerous people who are now in the middle of the conflict will integrate into everyday life. It is possible that not every guerrillero –there are about 5,000 to 7,000 of them– will want to integrate, but it is different to deal with an organized guerilla than with 300 or 400 people who do not wish to integrate and are still outlaws. This would be a different fight, since we would not be dealing with a recognized organization that has considerable economic capacity, but with a group of people who do not wish to integrate. A common vision among businessmen is that we have to help. If businessmen have to take in the guerrilla, we will. If we have more than 10 million employees as 1% needs to cover the guerrilla, we have to make that effort.

Work is an opportunity for the people who will integrate; those people need education and progress. Some people will want to start their own company, or SME or trade, and we have to give them the chance to do it. If a group of former guerrilleros wants to start a company, we have to listen and support them. I believe this is very important, since peace is not only achieved by the government or the army: peace is accomplished by all of us. If we all agree on this, then we can take the step forward.

Construction and housing are economy-boosters; they propel the growth and employment of the country. Colombia is capable of improving its competitiveness through construction. How would you describe the improvement in competitiveness that construction will bring to the country?

An interesting phenomenon is going on regarding credibility and safety in construction. Two years ago, we started an area in the company called Metalikos, which is a merger between Metaza and OIKOS. We started it because the metallic construction –metallic structures and warehouses– is going to peak. About eight years ago, we shifted towards the construction of warehouses, we built a large terminal and the result was very good, so we realized there was an interesting niche there. We have already built more than ten warehouse complexes, and we are currently working on a very large one in Tocancipá, and another one in Barranquilla. Baranquilla is providing great momentum, and it is Colombia's gateway for other things. We also have a large warehouse project in Ibagué, which is Colombia's center, its heart. But Ibagué needs a cardiologist, because it is a heart lacking veins, and a heart without veins does not work. Ibagué has no train, river, airport or highway at the moment, but as soon as it has those four things, its heart will start beating and pumping. Ibagué has a road now; what now takes two or three hours used to take four. From Ibagué you can now go to Cali, Medellín or Bogotá, as the city is exactly in the middle, a strategic location. We have done well, and the first stage of the project is ready. People did not understand that Ibagué had all this potential, but they now get it. We will probably start a second and a third stage of the project, as the warehouse complex is very large.

In the meantime, Tocancipá has a great future ahead, as many people want to leave Bogotá because of the heavy traffic. This will boost the twelve cities close to Bogotá, as these will be an outlet, causing housing to increase. For example, we are undergoing a large housing project in Zipaquirá, because we see the population density will increase. We are also undergoing housing projects in Funza, Mosquera and Cota. These are mainly middle and lower class houses, as for a person travelling from Cota to Bogotá it implies two hours of commuting in the morning and two hours in the evening. If that person has the chance of living ten or twenty blocks away from their job, we are giving their whole family a better lifestyle. However, schools, hospitals, services, supermarkets, shops, etc. need to be built as well. If not, people would be left isolated. It is good that house and job are close to each other, but there needs to be an infrastructure around it, and the vision of a city. We have always believed that and we have applied this notion into many of our projects. We are now starting a 1,400 houses project in Cajicá, which will have a shopping mall. The same goes for the project we are finishing in Tocancipá, which has office buildings that were sold in two shakes. It is crucial to build these small cities that cover people's needs.

You mentioned the approach you have regarding the construction of cities and of business clusters when it comes to building houses. Last week, we met with Felipe Sardi, the Vice-Minister of Business Development, and he said they want to boost and multiply exports, and generate an industry that does not depend upon oil. How important is what you are doing for business development?

I believe the future has to do with looking ahead. The past can bare many problems, but we need to get over it and look forward. In the future, people will need comfort at work and ease of travel, so the vision of small cities that can cover all these necessities will benefit people. When people work with more comfort they become more productive. Colombia has an advantage, and that is its location. We are one step away from the USA and South America, and we are on the route to Europe. If we have ease of work, we will encourage progress for people. The other issue is attracting people from outside Colombia. Provided people see that it is nice to live and work in Colombia, they will be tempted to come to the country.

Regarding the housing situation, the government wants to start a project called 'Mi Casa Ya' (My Own House, Now), which is aimed at the lower class –getting them a house but also fostering saving. What impact does this program have on a group such as OIKOS?

We have always had a social philosophy in the company, since it was born with the idea of building social–interest houses. We have always kept a minimum of two of these projects. We are not keen on handouts, as that can stimulate poverty. It is not about rewarding someone for being poor, but helping them not to be anymore.

Poor people need help in order to progress, and that is why these new plans give the poor help but they also demand something back. We are currently working with 'Ser Vivienda' on a project that devices houses where people do not need a down payment or they do not have to ask for a loan. How can a person who does not have enough for a down payment or who cannot ask for a loan buy a house? We sell it piece by piece. The person is given the house and pays rent, but they can buy brick by brick in the meantime. The house is securitized. For example, a house can cost 30,000 security titles, and the person can purchase on title at a time until they own the whole house. Maybe it will take them twenty years to do so, but they have the chance. It is not a handout nor have they to deposit a down payment or ask for a loan. They pay rent and buy the house piece by piece. We need to create mechanisms so that they can access a house, but also demand progress so that they overcome poverty.

Where you the one who devised the mechanism? Are there other applications as well?

This idea was born twenty five years ago. The director's board always had one or two people who did not know anything about construction so as to open our eyes. When it comes to construction an all of us think the same we may miss something, so there should be someone who sees things differently. That is how securitizing was born. Twenty five years ago, we were dealing with a large crisis as real estate was paralyzed. We were wondering why no sales were being made, and we concluded it was simply because, as we were in the middle of a crisis, people would not buy real estate in spite of it being a sound investment. So the philosopher then said that if real estate is the best investment there is and people are not buying, it was not because of the crisis but because we were not selling it well.

If you are buying real estate, it is hard to do so with little money, and if we are selling a whole property then we are leaving a large market out. Real estate has to be sold part by part, and that is why we brought securitization to Colombia. For example, the Mobil building is yielding an annual 26% between rent and valuation, but you do not care because the building costs $35,000 million and you do not have that kind of money. However, if we divide it into 35,000 units of $ 1 million each, then you are interested. By getting the hang out of real estate, we enabled many people to enter the market, and we can now serve the people who do not have enough to buy at once and do so brick by brick, as well as the one who bought the whole building but now needs the funds, so they securitize it and get the money back. Mobil had the money to buy the building, but they are now paying a monthly 2% rent and investing the money on petrol at a monthly 18% interest. Think of a bank were deposits yield an annual 4% rate while loans cost an annual 15%. Why not combine the two, lend at an annual 10% and benefit both parties? They do not do it because of a lack of trust. How do we generate trust? Through a trust fund. When we out the Mobil building in a trust fund, we split it into $1 million units and sell it to anyone who will buy it. Mobil gets the money and invests it in petrol, while the trust fund has a legal framework in which Mobil only can rent the building, at a monthly 2% rate.

We carry out many securitizations for people that do have the funds to buy but need them. For example, Newman School needs money to build an extension, but cannot ask a bank for a loan because banks do not lend to schools. Therefore, they securitize the school, take the money and buy the titles back after twenty years of paying a very low sum. Securitization may be for people who cannot purchase the whole property at once, and buy it little by little, or for those who already own the property and need cash without forsaking the property. Securitization is a liquidity mechanism.

You were in securitization for twenty years. What is the future of that area?

There are between ten and fifteen fiduciaries that carry out securitization in Colombia. When we brought the concept in, people did not know what it was. Nowadays, there are a lot of people doing it. Even hotels and shopping malls are being securitized. For example, the Andino shopping mall's fourth floor extension was not sold but rented, on my recommendation. Some said that it could be built for $ 3 million the square meter and be sold for $30 million. But by renting it, Andino are receiving $ 4,000 per square meter a month. Is it not better to sell a property every year during fifty years, than to sell it only once? We you rent property you are receiving more a year than what it cost. Today, Andino receives more for renting the fourth floor than what it charges in administration fees for the whole mall.

Nowadays, all international investors' eyes are set on Colombia, as proved by the fact that the main North American investment funds have invested more than US$ 400 million in the last year. What can alliances with private companies and investors from other countries generate?

These companies have the capacity to purchase a whole building, which is good for construction, as there is less risk in building something that has already been purchased than building in order to later sell the properties. During the 2000 crisis, people would build in order to sell the property afterwards, so when the crisis struck it caught us off guard. I do not think this would happen now, as everyone sells first and then builds. We have twenty-three ongoing projects, and not one of them begun without reaching the 60% equilibrium point.         

The Colombian businessman is about to face a tax reform –as Colombia is joining the OECD– that will imply new requirements. What advantages can a foreign investor or an alliance with a foreign company bring in order to overcome these difficulties?

When it comes to taxes, a foreign investor can bring more liquidity and economic relief. These investors have large budgets and can bring considerable financial security for the construction area.

You have highlighted the diversification of the 'where' and the 'what' as one of the salient points of your management. You have diversified at a regional level, expanding throughout the country, and at a product level with a new line of business. Where do you think future opportunities lie?

We have always maintained diversification within construction. The five areas that we currently have are construction, real estate, securitization, storage and metals. These five lines enable us to overcome a crisis, because they are solid enough for us to rely upon.

There is a constant battle between the architect that designs a building with a modern approach, and the engineer, who provides a more technical service that considers the economic aspect. Which side are you on?

One has to be aware of both the legal part as well as the technical aspect. I respect and admire the architects' work, but it is not my forte. The architect has to contribute, not damage. The architect has a vision in certain fields of construction, such as design, what is next, avant-garde. However, the architect sometimes lacks a notion on the costs and the commercialization. They tend to fixate on what they like and what is special, but they do not ask themselves whether the property sells well or if it is useful for people. We have to combine both aspects, which is why I believe the dialogue between architects and engineers is productive provided one listens to the other. To believe on is always right and to avoid asking help from others is dangerous, because that is where architecture and engineering are destroyed. When we listen to others, it is possible they end up convincing us we were not right. If both parties know how to listen and see, the combination of the architect and the engineer is quite productive, as both poles of an idea are present.

Construction has always been very criticized when it comes to sustainability. In your group, what could you highlight regarding your social and environmental responsibilities?

Ever since OIKOS was born, our philosophy has been a social one. We have always attached great importance to people working at ease at a company, because if people are at ease they work better and more. At the end of the day, I benefit from this, because the employees produce more. If my employees only come to earn a wage and meet schedules, they will produce less with each day. I am not paying them for sitting; I am paying them for thinking.

For people to dedicate their thoughts to the company, they need to care about it. This is something that has always been important to us. We have made our best efforts so that employees will care about the company and will feel pride of working at OIKOS. This has been quite useful because people tend to last more at their jobs, and because people produce happily and when they see a problem, they point it out. If you do not have a work team that cares about the company, making people think is very hard. This has been one the things that has given us strength.

We also care about returning customers. How do I make a customer come back? It is easy; they need to leave happy. A happy client who just bought a house not only comes back, they bring more people with them. The greatest thing about a company is seeing the people one served speak well of one –partners and coworkers alike. We own OIKOS and two big societies, Caledonia and Koboko. In these two societies, in which we are partners, we have six or seven projects each. We own a part because that enables us to bring more customers and makes people care about us and trust us. The value of trust is very important for a company, particularly a construction one, because people buy real estate before it exists. We always do it through a trust fund, so that people invests in the trust fund and knows that whatever happens, that money cannot be touched. The more confidence one receives the more security one has to answer with. It is very important that people come to OIKOS happily and feel at home. They come back that way.

Regarding USA, the world's most advanced market and Colombia's main geopolitical and commercial partner, Mauricio Cárdenas himself told us they want to encourage exports again, since Colombia became a net importer this year. How do we turn this situation around and make Colombia an exporter again?

The more capacity Colombians have of producing, the more possibilities we will have of exporting. We will export to the extent that we offer good quality agricultural and manufactured products. If we lower the quality, we will not be able to compete despite the fact that our prices might be low. It is very important that we keep a quality level, and to do so employees need to be able to produce accordingly. This is achieved through education, training and technology. The world has a lot to gain from importing our products, but we need to provide a reasonable level of quality.

The FTA's benefits have been considerable and have multiplied during these two years. As President of the OIKOS group, what are the main opportunities you can see?

Basically, Colombians purchasing power has improved in an outstanding way, thanks to all the factors you have just described. Colombians' purchasing power has multiplied a lot in the past twenty years because of the more entrepreneurship, productivity and ability to do business, which keeps money flowing and generates wealth. We have lowered the poverty level considerably, and we should keep doing so for everyone to overcome poverty.

How do you see the relationship between Miami and Colombia?

Miami has a great advantage, because people speak more Spanish than English there. So for people who cannot speak English, it is just like being here in Bogotá. Besides, the lifestyle is very Latino and there is much to learn. Miami is an interesting market where to learn, bring new ideas and participate in businesses.

The Austrian philosopher Peter Drucker used to say that the best way of predicting the future was to create one. What made you to transition from philosophy to engineering?

I first studied philosophy because I was on my way to becoming a priest. I was in the seminar and I needed to study philosophy. When I was done, I realized I had a career in engineering. My father was a civil engineer and I quite liked engineering because of what I saw in my father, so I studies civil engineering like him. They complement rather well. Philosophy is not easy to exercise in the professional world, because it is a more introspective profession. Philosophy enables you to exercise engineering in a rational way, since it studies knowledge and truth. One can learn plenty from philosophy that will not study in engineering. Exercising engineering with a philosophical foundation enriches one when it comes to the professional world. A company has to produce, but the most important element in a company is not money but success: to be admired, to propel forward, and to come up with interesting phenomena. Of course making money is good, but we need to do so while looking ahead. I believe most of the people that work with OIKOS come back and do so happily, because we treat people well. 




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