September 14, 2011 / 9:35 PM / 8 years ago

BR Properties, BTG team up to buy Brazil's WTorre

SAO PAULO (Reuters) - BR Properties (BRPR3.SA), Brazil’s largest commercial real estate developer, agreed on Wednesday to buy rival WTorre Properties, growing by another leap as demand for office and warehouse real estate booms in Latin America’s largest economy.

BR Properties signed a memorandum of understanding with local securities firm BTG Pactual, WTorre Properties’ majority shareholder, to acquire 100 percent of the Sao Paulo-based developer within 90 days, according to a filing. BTG bought a 72 percent stake in WTorre Properties in March.

Under terms of the deal, BTG Pactual will become BR Properties’ biggest shareholder with a 30.8 percent stake. None of the existing shareholders of BR Properties will exit the company, executives said in a conference call with reporters.

The transaction highlights BTG Pactual’s big bet on commercial real estate in Brazil, where investors such as Sam Zell’s Equity International and real estate investment trust Hines have banked sizzling gains through the development and sale of warehouses, office compounds and shopping malls.

BR Properties, founded in 2006 by a group of private equity investors led by GP Investments GPIV11.SA, the largest Latin American buyout firm, will have over 10 billion reais ($5.8 billion) in property holdings when the deal closes.

“The bigger operation from this combined portfolio will give us leverage to continue making major acquisitions,” said Claudio Bruni, chief executive of BR Properties, in the call. “The combination is giving us a backlog of projects that is simply hard to match.”

The acquisition of WTorre Properties comes as BR Properties expands through acquisitions in the commercial real estate market, where demand for new office space and warehouses continues to outpace project launches.

Lack of office space in Brazil’s main cities should keep demand high and continue to be a key driver of growth, Goldman Sachs Group analyst Leonardo Zambolin said in a recent report.

According to real estate consultancy firm CB Richard Ellis, about 400,000 squared meters of new office space will be delivered in 2012, of which about one-quarter already has a rental contract signed. This compares to about an estimate of 280,000 squared meters this year.

Shares of BR Properties fell 2.2 percent on Wednesday to 17.25 reais and were down about 4 percent this year.

STRUGGLING GIANT

BTG Pactual BTG.UL, the largest independent investment bank in Brazil, bought a controlling stake in WTorre Properties after the latter’s parent company, WTorre Emprendimentos, faced financial difficulties.

WTorre Emprendimentos, which in recent years underwent fast growth after overseeing the construction of Banco Santander Brasil’s (SANB11.SA) Sao Paulo headquarters, parks and other commercial works, suspended an initial public offering late last year.

Similar plans by WTorre’s founding partner Walter Torre to attract strategic partners and raise fresh funds by using assets as collateral did not take off.

Partners at WTorre will hold 8.4 percent of BR Properties under terms of the deal, the filing said.

Recently, Brazil’s second-biggest homebuilder Cyrela (CYRE3.SA) and other construction companies have faced a decline in demand for new homes, tougher financing conditions and difficulties trying to offload inventory.

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