Tishman Speyer is joining forces with Brazilian construction and holding company Camargo Correa Desenvolvimento Imobiliario to develop a pair of 36-story office towers in Rio de Janeiro. Katherine Farley, senior managing director at Tishman, said the first phase of the $204 million project should be completed in the summer of 2008.
Rio has a shortage of office space that is considered Class A by international standards. She expects to lease the roughly 1.1 million-square-foot project, which will have large, efficient floor plates and modern HVAC systems, to multinationals and high-end Brazilian tenants. “There are Brazilian companies in buildings with small floor plates who would love to move,” Farley said. She estimates that vacancy in the Class A Rio market is 2% to 3%, with rents in the few comparable buildings in Rio and Sao Paolo about $35 per square foot (around 70 Brazilian reals per square meter per month). The building has not been pre-leased as there is no tradition of pre-leasing in Brazil.
Tishman has more than 500,000 square meters of space in development in Brazil, a market it’s been in for eleven years. This is its first project in Rio and its first venture with CCDI. CCDI is an equity partner and will serve as a contractor for construction as well. The project is being financed with 100% equity.
Farley said the strategy is to build, lease up and eventually sell the building, while continuing to manage it. She said cap rates on stabilized assets in Brazil have typically been 12% in a market that was dominated by local pension investors, but the number is compressing into the 8% to 10% range as North American investors have entered the fray.