Published On: Sun, Jun 9th, 2013

Schwarzman set to sink a billion dollars into Brazil

Stephen Schwarzman’s Blackstone Group, signing a $1 billion deal, in conjunction with their Brazilian partner Pátria. The deal will be with building contractor Gafisa in which Blackstone will  acquire controlling interest in a division of the company specializing in building high-end residential properties.

CEO of Blackstone Stephen (Steven) Schwarzman / Getty

Blackstone, who already holds a 40 per cent share in Brazil’s Pátria Investimentos, will now become the majority shareholders in Alphaville Urbanismo, well known in Brazil as being developers of exclusive gated communities to deal with the fast-growing band of wealthy property owners in the massive country.

The forthcoming agreement marks the first made since Schwarzman acquired his stake in Pátria in 2010 and  will be Blackstone’s largest investment in the Latin American country. News of the possible investment began to break a few days ago, when Gafisa informed their shareholders that it was studying “strategic options” for its Alphaville division and was currently  “ in talks with various parties”  including Blackstone.

Gafisa’s chief executive Duílio Calciolari, had already leaked to local financial channels  that the company was considering spinning off their high-end Alphaville unit, currently involved in building projects throughout Brazil, whilst looking to  raise capital through a public offering.

With Gafisa believed to be struggling with cash flow problems, the sale of Alphaville, despite the fact that it is reported as being one of the company’s most profitable units, would provide them with a much-needed influx of capital.

Due to its flourishing economy, Brazil has witnessed a massive growth in its middle class, leading to the long overdue development of local credit markets. This development has fuelled a major boom in consumer spending and a tremendous spot in construction starts over the past decade.

However, it has become increasingly of obvious recently, that local contractors are lacking in specific expertise to manage the major property boom leading to a combination of cost overruns as well as some alarming defaults among members of the Brazilian public anxious to get their foot on the run of the property market without the sufficient financial wherewithal to do so. A situation which has caused companies such as Gafisa to report feeling losses

Gafisa recently reported a first-quarter net loss of $27 million, considerably more than expected, with the principal cause being attributed to customer defaults as well as blaming sales cancellations in their Tend division, which is heavily exposed in the lower end of the property and construction sector.

Blackstone’s real estate division has been specifically active of late, diversifying from its traditional markets in commercial real estate, into the private housing sector throughout North America as well as Europe and Asia.

Established in 1985 by Stephen A. Schwarzman and Peter G. Peterson driving colleagues at Lehman Brothers, Kuhn, Loeb Inc., Blackstone has grown to become of the world’s largest private equity investment firms.

 

Photo: Stephen A. Schwarzman/ Getty 

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