Mexico Infrastructure & Sustainability Review 2018 by Mexico Business Publishing

2018

â&#x20AC;&#x153;Wherever a highway, railroad, telecommunications tower or port is constructed, a door to progress and social inclusion is being builtâ&#x20AC;? Gerardo Ruiz Esparza, Minister of Comunications and Transport (SCT)

2018

A country’s prosperity is intricately linked to the quality of its infrastructure. Concrete and steel are the building blocks of a nation’s economy, boosting the competitiveness of its industries. For Mexico to join the world’s leading economies, it must invest more time and money in constructing and maintaining its infrastructure. 2018 will mark the end of Enrique Peña Nieto’s presidential term, placing the advancements of the National Infrastructure Plan (NIP) under a magnifying glass. With the country’s hefty US$544 billion infrastructure gap, Mexico would need to spend more on developing its road, rail, port and airport infrastructure fast, or else economic growth could be jeopardized. Against this horizon, 2017 was a year of uncertainty and caution but Mexico was able to rise up and demonstrate its attractiveness to world investors. The private sector continues to boost the performance of the construction industry and a financial gap has created new opportunities for institutional investors to become involved in infrastructure through the Mexican Stock Exchange (BMV).

Ahead of the 2018 elections, SCT is eager to check off as many commitments a possible from its list and will place its efforts not only on the remaining projects, but also in rebuilding three states damaged by the September 2017 earthquakes. The clock is ticking and the country’s growth depends on the completion of much-needed projects such as NAICM and the Mexico-Toluca Interurban Train to keep up with its fastgrowing cities. Sustainability will come through investment and the development of inclusive and competitive cities, which will drive the future of the country.

ALL RIGHTS RESERVED ÂŠ Mexico Business Publications S.A. de C.V., 2017. This annual publication contains material protected under International, United States and Mexican Laws and international Treaties. Any unauthorized reprint or use of this material is prohibited. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system without express written permission from Mexico Business Publication S.A. de C.V. Mexico Infrastructure & Sustainability Review is a registered trademark.

The publisher has made all reasonable efforts to provide accurate information, and the information contained in this publication is derived from sources believed to be true and accurate. However, the information in this publication should not be considered to be complete or definitive, and may contain inaccuracies or typographical errors. The publisher accepts no responsibility regarding the accuracy of information and use of such information is at your own risk. The publisher will not be liable to any party for any direct, indirect, special or other consequential damages arising out of any use of information in this publication. The publisher provides no representations or warranties, express or implied, including any implied warranties of fitness for a particular purpose, merchantability or otherwise in relation to any information provided by the publisher in this publication.

I S B N : 978 - 0 - 9 9 93 1 0 8 - 4 -7

TABLE OF CONTENTS

STATE OF THE INDUSTRY

COMMERCIAL REAL ESTATE

URBAN PLANNING & MOBILITY

RESIDENTIAL REAL ESTATE

TRANSPORT INFRASTRUCTURE

TOURISM INFRASTRUCTURE

WATER & WASTE MANAGEMENT

PROJECT FINANCE

SMART CITIES

FUNDING & INSTITUTIONAL INVESTORS

ENGINEERING & CONSTRUCTION

NAICM

INDUSTRIAL DEVELOPMENT

BUILDING THE FUTURE

Torre Latinoamericana, Mexico City

STATE OF THE INDUSTRY

The infrastructure industry is all-encompassing, its impact permeating all spheres of life. Mexico knows it must continue to develop its infrastructure and a growing number of private investors are willing to participate in projects that can better connect the country internally and externally. The best portrait of the state of the industry is painted through its most emblematic and avant-garde projects: NAICM, the Mexico-Toluca Interurban Train and the significant investment in real estate development across the country.

At the same time, the clock is ticking and there is only one year left to accomplish the ambitious goals the NIP established in 2013, with the outcome destined to have far-reaching implications for the countryâ&#x20AC;&#x2122;s competitiveness. All sectors must come together to strengthen the countryâ&#x20AC;&#x2122;s backbone, regardless of the hurdles resulting from unpredictable economic and political environments, both at home and abroad. This chapter provides an overview of Mexicoâ&#x20AC;&#x2122;s ever-changing industry through the eyes of the public and private sectors. Nonetheless, 2017 will prove to be a challenge for the development of the infrastructure the country desperately needs to become a true logistics hub and climb the global competitivity rankings.

CHAPTER 1: STATE OF THE INDUSTRY 8

ANALYSIS: The Year in Review

VIEW FROM THE TOP: Jorge Wolpert, CONAVI

VIEW FROM THE TOP: Gustavo Arballo, CMIC

VIEW FROM THE TOP: José Reyes, ISSSTE

VIEW FROM THE TOP: Enrique de la Madrid, Ministry of Tourism

VIEW FROM THE TOP: Francisco González, Bancomext

VIEW FROM THE TOP: José-Oriol Bosch, BMV Group

TECHNOLOGY SPOTLIGHT: The Mexico Projects Hub

INSIGHT: Sergio Forte, Banobras

INSIGHT: Ricardo Díaz de León, ProMéxico

INSIGHT: Francisco Ibáñez, PwC

VIEW FROM THE TOP: Renato Berrón, ISCDF

INSIGHT: Laura Ballesteros, SEMOVI

INSIGHT: Javier Solís, SEDECO Nuevo Laredo

ROUNDTABLE: Why Should There Be More Women in the Infrastructure Industry?

ANALYSIS

THE YEAR IN REVIEW In 2013, President Enrique Peña Nieto announced his ambitious, but muchneeded National Infrastructure Plan 2013-2018. The clock is ticking to finish 266 commitments, of which 210 are for road, transport, health and education infrastructure

CLOCK IS TICKING ON INFRASTRUCTURE

an average of MX$104.36 billion (US$5.46 billion) each

PROJECTS

year and 2.4 percent of the total budget. According to

With the election of US President Donald Trump, investors

the Global Infrastructure Hub, the public sector invested

and the private sector rang in 2017 with uncertainty and

more than US$70.6 billion and the private sector invested

conservative investments across all sectors. S&P predicts

US$12.2 billion in infrastructure in the last five years in

that that the NAFTA renegotiation could hurt Mexico’s

Mexico, equating to a total of US$16.56 billion per year.

transportation industry over the years due to a potential

With Mexico’s GDP standing at US$1.046 trillion, this adds

weakening of the country’s expected GDP growth. But after

up to just 1.58 percent of GDP, falling significantly short of

rating various infrastructure players, the agency believes the

the investment required to meet infrastructure demand.

sector has strong credit quality that will allow it to weather the storm. Investors were cautious, but nobody backed

In WEF’s 2017 Global Competitiveness Report, Mexico

away from the opportunities. After a couple of months, the

dropped two spots from 57 to 62 in comparison to last

sector began to see movement, especially within the real

year. Through this presidential term, Mexico failed to rise

estate segment. By March, Mexico emerged from under the

above the 57th ranking. This year, transport infrastructure

Cloud of uncertainty as the most alluring emerging market

was impacted the most, falling in the charts and impacting

and the peso began to pick up after a steep drop.

the total infrastructure ranking.

MEXICO’S POSITION

The country’s quality of infrastructure score is 4.3 of 7 and

Latin American countries on average invest 3.3 percent of

of the six axes, it performed the best under the Planning

their GDP in infrastructure development, while Asian and

and Selection section by having a public project pipeline,

Pacific countries invest on average 7.7 percent of their

a national infrastructure plan and guides for appraisal of

GDP, according to the World Bank. CEPAL states that for

projects. Nevertheless, in procurement, where the country

Latin American countries to bridge their infrastructure

does not publish procurement guidelines, it registers

gap, they would have to invest 6.2 percent of their GDP

low scores in terms of bid evaluations, transparency and

annually for eight years.

post-award management of contracts. GI Hub estimates that Mexico requires a US$1.1 trillion investment to meet

In the first five years of Peña Nieto’s term in office,

its infrastructure needs. It currently has a US$544 billion

MX$521.8 billion (US$27.3 billion) was allocated to SCT,

shortfall in that investment.

MEXICO'S INFRASTRUCTURE RANKING ON WORLD COMPETITIVENESS REPORT 2012-2018 2012-2013

2013-2014

2014-2015

2015-2016

2016-2017

2017-2018

Number of Countries

144

148

140

138

137

Mexico's Ranking

Overall Infrastructure

Roads

Railroad Infrastructure

Port Infrastructure

Air Transport Infrastructure

Electricity Supply

Mobile telephone subscriptions/100 pop

107

112

111

112

114

108

Source: WEF Global Competitiveness Report

PRIVATE SECTOR PARTICIPATION IN INFRASTRUCTURE 2013-2016(US$ MILLION) 10 9

9.64

developers because authorities with a different vision may prevent the continuation of important public projects. This creates a cycle of projects with a short-term

9.73

vision as it is difficult to ensure the long-term continuity

30 25

Lead Partner, Capital Projects and Infrastructure at PwC.

among rotating administrations,” says Francisco Ibáñez,

Mexico’s short-term vision has stunted its economic

15 6

growth due to a shortage of transport infrastructure.

Various road projects have been stopped for over six

4.8

years and the expansions of the country’s ports still have

a long way to go. “In my opinion, the current political leaders should ask themselves how they would like to

2013

2014

2015

2016

see that state or area in five years,” says Julio Amodio, Director General of CAABSA. “If we continue to base our

——Total Investment

Number of Projects

projects and decisions for the short-term, we will not

Source: World Bank: Private Participation in Infrastructure Database

move forward.”

THE ROAD TO ELECTIONS

To ensure the continuity of all infrastructure projects

Election years tend to make not only investors weary but

and that projects do not fall through the cracks amid

both the private and public sectors. With elections around

changing administrations, various industry leaders say

the corner, as of October 2017 there was little knowledge

that Mexico could learn from best practices in the UK

of candidate plans for infrastructure development. The pre-

and Australia and create an independent infrastructure

candidate for Morena, Andrés Manuel López Obrador, is

planning body. “To ensure the implementation of the plan

expected to impact infrastructure development if elected. In

despite the changes in the government, an independent

his book, 2018, La Salida, he discusses his vision for Mexico’s

body should be in charge of planning infrastructure

future infrastructure development. Apart from reverting the

development in Mexico and provide congruence to the

education, energy and fiscal structural reforms passed by

development of infrastructure across all sectors,” says

Peña Nieto’s administration, his plan includes the construction

Cesar Monroy, Director of Infrastructure at PwC.

of new highways, two new airstrips in the Santa Lucia Air Base and the cancelation of NAICM. He wants to develop new

A decentralized infrastructure planning organization

refineries in Tabasco and Campeche.

could take years to establish and would require a significant investment. “I believe in having an independent

Project continuity is one of the most pressing issues

citizen body that could push aside political interests

concerning industry players when it comes to changes

and have a long-term vision of Mexico’s infrastructure

in political terms. “A new administration is a risk to

development,” says Amodio. “It sounds like a great

CONSTRUCTION SECTOR CONTRIBUTION TO GDP 2013-17 (percentage) 5.9

4.7

4.0

3.1

3.5

1.5

0.0

-0.5

-0.6

-1

-1.5

-2 -3

3.0

-2.2 -3.2 -4.0

-4 -5

-4.9

-6 -7 -8

-6.9

Source: CMIC, INEGI

III

ANALYSIS idea, but these types of organizations would quickly

The SDGs that are impacted by or impact the Mexican

become politicized.” Transparency will be key in future

infrastructure industry are: Clean Water and Treatment,

projects to make investors and companies feel safe about

Decent Work and Economic Growth, Climate Action,

investing their time and money in infrastructure. The

Sustainable Cities and Communities, Industry, Innovation

federal government has taken several steps to promote

and Infrastructure, and Clean Water and Sanitation.

transparency, including online tenders on Compranet,

Companies within the infrastructure industry, such as

access to budgets, balance sheets and expenses online, as

Rotoplas, are taking matters into their own hands and

well as promotion of non-tolerance regarding corruption

establishing the same goals for their companies.

in infrastructure projects. But there is still work to be done to make the private sector feel at ease.

In September 2017, Mexico’s foundations were shaken by two earthquakes. The first on Sept. 7 with a magnitude

CONSTRUCTION PERFORMANCE

of 8.2 and an epicenter in Chiapas and the second on

The construction sector plays a major role in the economic

Sept. 19 with a 7.1 magnitude along the border of Puebla

development of the country and has the potential to

and Morelos. These two earthquakes destroyed more

represent between 4-5 percent of GDP. Budget cuts have

than 150,000 houses, leaving more than 250,000 people

deeply impacted the industry in the last five years. From

without a home, according to SEDATU. The country’s

2013 to 2016 it grew an average of 0.4 percent, mainly

housing deficit in 2017 was 12.2 million homes and will only

thanks to an increase in private sector investment and in

increase with the damage wrought by the earthquakes.

specialized works, which rose 4.2 percent and 10 percent

Material prices had been on the rise for the last few

in 2016, respectively.

months and with the earthquakes, it was predicted that prices would skyrocket as demand increases. In 1Q17,

In 1H17, the sector grew 1 percent in comparison to the

construction prices rose 12.5 percent compared to the

same period in 2016, a low percentage resulting from

same time last year, a rate not seen since 2008.

the cuts in public spending and rising interest rates. Even though the sector is experiencing slower growth,

THE PROPOSED BUDGET 2018

it is still the fourth most important economic activity in

Throughout the Peña Nieto presidential term, infrastructure

Mexico and the third most important sector in terms of

spending has fluctuated between 1.5 and 3 percent of the

jobs generation, representing more than 6 million direct

federal budget. SCT’s budget has varied through the years

jobs and 3 million indirect jobs.

with the highest percentage allocated in 2013, 2014 and 2015, following an investment pattern of lower spending at

According to CMIC, the market is worth approximately

the end of a presidential term. With the proposed budget

MX$2.4 trillion and is divided into 23 percent public

for 2017, a total of MX$522 billion (US$27.4 billion) will

sector and 77 percent private sector. Of the private

have been allocated to SCT from 2012-2017.

sector’s participation, industrial construction represents 15.6 percent; nonresidential construction, 8.7 percent; housing, 39.2 percent; construction of hospitals and schools, 9 percent; commercial, 18.3 percent; tourism, 4.4 percent; and maintenance and repair, 4.8 percent.

PROPOSED FEDERAL BUDGET EXPENDITURE 2018 (MX$ billion) 7

679.2

will be living in urban areas and by 2050 that figure will be more than 90 percent. As part of the 2030 Agenda, Mexico agreed to reach 17 Sustainable Development

121.8 77.2

1 0

Goals (SDG) that will help end poverty, fight inequality and ensure a prosperous future for all. Mexico must invest US$544 billion in infrastructure to 2040 to reach the SDGs.

Source: Ministry of Finance

64.2

37.1

26.5 24.7 Finance

2040, more than 88 percent of the country’s population

Public Education

Mexico’s cities are growing, and they are growing fast. By

282.5

Environment and Natural Resources

MOTHER NATURE TAKES A TOLL

Social Development

City and Sonora in the first months of 2017.

Communications and Transport

Zacatecas, Aguascalientes, Coahuila, Queretaro, Mexico

Health

are Morelos, Quintana Roo, Chiapas, State of Mexico,

IMSS

The states with the most construction sector activity

ISSSTE

In September, the Ministry of Finance proposed the

SCT BUDGETS DURING PEÑA NIETO'S PRESIDENTIAL TERM (MX$ billion)

budget for 2018 but the two earthquakes that struck Oaxaca-Chiapas and Morelos-Puebla have yet to be

Year

Amount

Percentage of Total Budget

2017 (Proposed)

77.2

1.30%

2016

105.2

1.99%

2015

126.1

2.45%

2014

118.8

2.42%

2013

86.2

2.00%

2012

85.5

3.11%

contemplated. The budgets for 2016 and 2017 were drastically impacted by dropping oil prices, but the preliminary budget for 2018 will not be as harsh, with a cut of MX$43.8 billion (US$2.3 billion, or 0.2 percent of the GDP). In 2017, the two main investment packages will be in the hydraulic sector and for communication and transportation projects under SCT. MX$11.5 billion

Total Allocated

(US$604 million) will be allocated to repairing and

599

constructing water infrastructure throughout the country. SCT will have a budget of MX$7.2 billion (US$378 million) to finish all the projects on its list, with more than 25 percent of the budget allocated to railway and

WHO GETS MONEY FROM SCT IN 2018? General Directorate of Railway and Multimodal Development 19.5

multimodal development. GACM will be allocated MX$5.8 billion (US$304 million) to advance the construction of NAICM and MX$3.2 billion (US$168 million) will be for the

GACM 5.8 7.53%

conservation of roads and highways. The states that will receive the most money in 2018 are Oaxaca, Guanajuato,

SCT Oaxaca

Campeche, Chiapas and Puebla. The 2018 budget cuts will place construction companies

3.2 4.15% General Directorate of Road Conservation 3.2 4.10%

and SCT on the tightrope as they race against the clock to complete the country’s most important infrastructure projects. The Mexico-Toluca Interurban Train, Guadalajara

SCT Guanajuato 2.5 3.18%

Electric Urban Train, NAICM and the government’s commitment to boost the country’s road network and

25.30%

SCT Campeche 2.4 3.07%

water infrastructure are the most important projects for the year to come.

Mexico Air Space Navigation Services 2.4 3.04%

The NIP details three mass transportation projects: Mexico-Toluca Interurban Train, Line 3 of the Guadalajara Electric Urban Train and Line 3 of the Monterrey Metro,

SCT Chiapas 1.9 2.47%

which have a 57.4 percent, 67.7 percent and 85 percent completion rate respectively as of July 2017. The Mexico-

SCT Puebla

Toluca Interurban Train, which was divided in three

1.7 2.25%

sections, has been advancing slowly. 0

The Zinacantepec–Lerma section, constructed by Grupo

Percentage of SCT budget

Hermes, is 79 percent complete at a cost of MX$12.6

Source: SHCP

billion (US$661 million) and La Marquesa Bitunnel, constructed by ICA, at a cost of MX$2.8 billion (US$247

were awarded. In 2018 the general aviation buildings,

million) has advanced 53 percent. The section with the

heliport, taxiways and platforms, radiocommunication

most difficulties has been the La Marquesa–Observatorio,

building, airport services center and security systems will

with only a 35 percent advancement and a cost of

be tendered. GACM plans to launch the remaining tenders

MX$10.4 billion (US$546 million). This section is being

before the elections in 2018 to stay on track and deliver

constructed by CAABSA.

the first phase of the project by 2020. GACM and SCT bulletproofed the project through its financial scheme

Regarding NAICM, 2017 was an extremely active year

using green bonds and involving many funding institutions

with the most important tenders being awarded, the

in order to ensure continuity and that it is not jeopardized

terminal building, control tower and airstrips 2 and 3

by a new administration entering office.

VIEW FROM THE TOP

NEW SCHEME TO BOOST ACCESS TO HOUSING JORGE WOLPERT Director General of the National Housing Commission (CONAVI)

Q: Which segments of the population have the greatest

We are also working with development banks and have

housing needs?

begun creating pilot schemes in the state of Oaxaca and

A: The countryâ&#x20AC;&#x2122;s informal housing is occupied by the

in two other states. The Mexican Bank Association has

segment of the population that does not have access

shown great interest in these new markets too.

to the social security system but that also has the constitutional right to a dignified home. The formal

Q: Which states will see the highest housing demand in

housing sector drew in approximately MX$450 billion

the coming years and which of CONAVIâ&#x20AC;&#x2122;s policies have

in investment in 2016, and this does not account for the

been the most successful within the sector?

more than 500,000 homes that were built independently.

A: Nuevo Leon and Jaliscoâ&#x20AC;&#x2122;s housing demand continues to

This year, we are not only focusing on low-income

grow due to the many working families who are in need of

families. We are also developing a new financial scheme

a new home and who already have access to credit. In the

that will allow Mexicans who are not part of the Social

coming years, we will see a boom of workers in the south.

Security system, or do not have a savings account, access

Oaxaca, Yucatan, Campeche, Tabasco and Veracruz have

to financing for a home. At the moment, more than half

experienced high demand for new homes and because

of families living in informal housing, which equates to

Infonavit has created loans for all salary brackets, more

approximately 4-5 million families, do not have access

families will have access.

to social security. This is an important sector for us but an even bigger market for those who decide to become

The integration of sustainable solutions into social housing

a part of this formula.

has been one of the most successful policies adopted by the industry, both in the public and private sectors.

The formal housing sector drew in approximately MX$450 billion in investment in 2016

At the moment, we offer different programs in various institutions that promote sustainable construction. The commission is developing a set of standards and criteria that will come into effect in 2018. It is important that these standards are created in order to incentivize investment. At the moment, there are various standards depending on the different institutions, and although they are similar, we are convinced that they need to be

This scheme is being developed and will most likely

homologous throughout all institutions.

not be ready for 2017, but we are adjusting the way we deliver solutions so it can be completed for 2018. To make

Q: How will the rules of the game change with the New

this work, we have started a dialogue with the many

Human Settlements Law and Housing Law in Mexico

companies involved in building social housing and have

City?

asked them to work together as an organized community

A: The city has announced that it will build more than

of social-housing constructors. They all have different

200,000 social homes in 2017 alone. We are extremely

views and perspectives on how to build better homes.

happy to hear these types of commitments and we will help make them a reality, especially since there had not been a plan for formal social housing in the city for

CONAVI is in charge of implementing the National Housing

many years. Congress has approved the new Human

Law and coordinates financing programs for housing subsidies.

Settlements and Urban Development Law, meaning that

It aims to boost the development of sustainable social housing

each state will now have to create its own law as well.

in Mexico and provide incentives for developers

Another large challenge is that the federal law will be

CONAVI Residential Development

scrutinized and it is important to also turn the housing

that will guarantee the peopleâ&#x20AC;&#x2122;s constitutional right to a

law into a general law.

decent home.

Social housing in Mexico has been drastically expanded

We must work together as one industry. We are on the

in the last few years and there have been many changes

right track. With more than 800 companies building

made since the last presidential term. All social homes

formal social homes. We need the industry to become

now have at least two bedrooms and institutions like

more engaged and to step out of its comfort zone and

Infonavit are providing loans for more than MX$500,000

cater to a niche that does not have many opportunities.

to MX$1.7 million. More than one-quarter of the total

Companies must work with their financers to create

credits approved by Infonavit have been delivered in

proper access to finance. It is important that they take

the last three years. Because the social housing policy

the risks, but feel safe that they have the support of both

falls under the Human Settlements Law, all the subsidies

the government and the banking system.

provided by CONAVI must be within the contention perimeters that will prevent inefficient urban growth.

Q: What do you hope will be your legacy as Director General of CONAVI?

Q: What must the private sector do to boost the

A: Particularly because I have been working in the housing

development of the social-housing sector?

sector for many years now, I see the opportunity to drive

A: We want to make sure that the public policy is

change and cater to these new sectors, and ultimately to

successful and that it is backed up by a robust system

create a sustainable system that works for everybody. I

and platform so that we can ensure continuity across

look forward to engaging the industry and other levels of

different political terms. The regional and global economy

government to follow the same public policy for housing,

is not growing at the expected rate. As for the domestic

as well as working with Congress to create the first General

economy, the housing and construction sectors will

Housing Law in Mexico. Although it is not generally

drive growth in 2017. We are entering a new era of social

discussed because it is not as popular as the Energy

housing in Mexico. Housing for non-affiliates of the

Reform or the Education Reform, the Human Settlements

Social Security system is a segment that has never been

and Urban Development Law addresses some of the most

addressed. It is a new market that needs a new approach

important issues the country faces.

VIEW FROM THE TOP

STEPS TO A SUSTAINABLE AND INCLUSIVE CONSTRUCTION SECTOR GUSTAVO ARBALLO President of the Mexican Chamber of the Construction Industry (CMIC)

Q: What is CMIC’s 2017-2018 forecast for the construction

continued inflationary pressures and an additional cut in 2018

industry, especially with the elections around the corner?

expenditures for public investment in infrastructure.

A: CMIC expects 2018 to be as difficult as 2017. The real estate industry, especially the construction of medium and high-end

Q: What are the construction sector’s concerns regarding

residential buildings, mixed-use developments, shopping

the New Housing Law in Mexico City and the federal Human

centers and tourism infrastructure, will likely play a leading

Settlements Act?

role for the remainder of 2017 and in 2018. The Center for

A: CMIC’s greatest concern within this context is the

Economic Studies of the Construction Sector (CEESCO)

urban resilience required to adapt to redensification and

estimates growth for 2017 from a contraction of -1 percent

transformation that entails generating vertical housing for

to a 0.5 percent expansion due to fundamental factors

inhabitants. We support both changes to the laws and urge

such as the 23 percent cut in the public investment budget

prompt implementation. There has been an exodus of city

compared with 2016, as well as increases in interest rates.

dwellers due to the lack of housing for workers with incomes

A reduction of 40,000 jobs is expected in the event of a

equivalent to less than 10 times the minimum wage who are

contraction or the creation of up to 20,000 jobs if there

eligible for INFONAVIT and FOVISSSTE, but we hope the new

is growth.

laws will address this and expedite access to housing for this demographic. Another result has been a rise in speculative

From January to July 2017, the construction industry

practices and constant increases in the prices of urban

contracted 0.6 percent compared with the same period in

land and houses due to the low supply of popular housing,

2016. It is likely that, for the remainder of the year, factors that

with values ranging from MX$900,000 to MX$.5 million

inhibit investment and growth will include reduced public and

per dwelling. Additionally, with a lack of activity in popular

private investment and the rise in the official interest rate to

housing, the construction industry working in this sector has

twice its 2015 level, which will make infrastructure projects

become stagnant, resulting in job losses. In an effort to assist

more expensive. The result of the NAFTA renegotiation

the current Mexico City government, CMIC’s members have

could also have an impact by restraining vital exports, in turn

identified plots of land that are eligible for use under the new

negatively impacting investment in industrial and commercial

housing law to encourage and facilitate the construction of

construction and services.

housing for workers entitled to homes in urban areas. We want to promote the construction of 10,000 living spaces, which

Private investment has been the driving force behind the growth of the construction industry since it represents 75 percent of the total investment in the sector

is only a fraction of what the inhabitants of this city require. On the subject of the General Law on Human Settlements, we are interested in information about the adjustments that the local authorities will make to their regulations as well as to their urban development plans, and how this will impact the construction industry. We also wish to see clear commitments and actions that promote real changes in the human settlements of our country, toward competitive,

In 2018, the construction industry is expected to grow

connected, coordinated and equitable models.

between 0.3 percent and 1 percent. Residential construction geared toward the middle and upper classes, as well as a

Q: What would make the construction sector more attractive

robust tourism sector, commercial and service infrastructure

to both investors and contractors?

will be the industry drivers in 2018. Risk factors include

A: In the January-May 2017 period, credit granted by

an even greater reduction in oil prices or oil production,

commercial and development banks to the construction

industry fell 6.5 percent in real terms compared to the same period a year before. The total amount of credit provided to

Mazatlan-Durango Highway, Grupo Hermes

the industry in May 2017 was MX$489.8 billion, MX$3.9 billion less than in May 2016. This result is due to two factors that have reduced credit availability to construction companies. The first is the reduction in public works that has narrowed the opportunities to obtain a contract. Without a contract, there is no guarantee with which credit can be obtained. The second is the gradual increase in interest rates, which lifts the cost of credit and reduces available financing. On June 22, 2017,

Banxico decided to increase the overnight interbank interest rate by 25 basis points for a third time to 7 percent. With this increase, the benchmark interest rate doubled compared to 2015 levels. Rising interest rates increase the cost of financing, inhibit investment and increase the cost of debt. In recent years, private investment has been the driving force behind the growth of the construction industry since it represents 75 percent of the total investment in the sector. The reduction of public resources for the development of infrastructure opens up a range of opportunities for the private investor to participate in complementary infrastructure projects like roads, ports, airports, railways, telecommunications and water projects to maximize

principles of transparency and accountability. We must also

economic and social benefit.

generate a more collaborative relationship between the public and private sectors, with the purpose of involving the private

But steps are being taken to address these issues. In Mexico,

sector in the design, financing, construction, operation and

we now have the PPP law, which establishes a stronger

maintenance of new infrastructure works, as well as the

legal framework for mixed participation, and allows for

expansion and modernization of existing infrastructure.

greater investment in infrastructure. In this way, the law has bolstered investor interest in the sector. It also provides

Q: Looking forward, what are the sectorâ&#x20AC;&#x2122;s top goals and how

greater legal certainty to the creation of projects that involve

is CMIC working to ensure that it thrives?

the joint participation of the public and private sectors.

A: Among the sectorâ&#x20AC;&#x2122;s main goals is the implementation of

Within the law, there is the novel USP scheme that allows

a public infrastructure policy that allows proper planning,

an investor the possibility of proposing a PPP project to the

contracting, execution, operation and maintenance of

government. The main areas of opportunity in Mexico for PPPs

infrastructure projects under conditions of economic

seem to be hospitals, petrochemical and natural gas, water

viability and financial sustainability and with adherence

supply, sanitation, power generation, telecommunications,

to environmental impact. Therefore, the private sector

penitentiaries, schools, roads, railways, ports, transportation

and CMICâ&#x20AC;&#x2122;s member organizations are working through

and housing.

consultation forums to make a public policy proposal oriented toward competitiveness and productivity, taking into account

Q: Which sectors represent the most important PPP projects

everything across the development cycle of the infrastructure.

for construction companies and what are companies looking

This includes project conception, planning and operation and

for to encourage participation?

maintenance, which help to improve efficiency and quality

A: All sectors are of great importance for the construction

of infrastructure. In addition, we have set out to identify the

industry, whether in hydraulic infrastructure, transport,

strategic projects that the country needs, from a regional

hospitality, education, energy, penitentiaries, railways or

perspective, to create a National Sustainable Infrastructure

ports. In this sense, CMIC recognizes the effort being made

Program by the year 2030.

by the Ministry of Finance to promote PPP projects in such complex times to achieve competitiveness, economic growth and job creation. But to overcome the problems caused by

CMIC represents the interests of construction companies,

federal budget cuts, the government needs to ensure that

offering services to promote a highly competitive industry

the processes of tendering, awarding and contracting PPP

at the forefront of innovation that incorporates social

projects are carried out competitively, efficiently and under

responsibility and technological innovation

VIEW FROM THE TOP

EXPANDING PUBLIC HOSPITAL NETWORK THROUGH PPP SCHEMES JOSĂ&#x2030; REYES Director General of the Institute of Safety and Social Services for State Workers (ISSSTE)

Q: What are the advantages of building hospitals

The Ministry of Health, ISSSTE and IMSS have developed

through PPP schemes?

a strategy that prevents duplication through mutual

A: ISSSTE has an internal infrastructure program as well

subrogation. If there is an IMSS hospital in a community

as its own fiscal resources but due to budget adjustments

with an ISSSTE clinic and a patient at the latter needs

we have had to vary our financing sources. We needed to

surgery, hemodynamics or cardiovascular services,

migrate to a new scheme involving the private sector to

the procedure will be performed at the IMSS hospital

continue building and expanding our network of hospitals

whenever possible. Services will also be subrogated from

and clinics. In 2016, ISSSTE invested over MX$4 billion

IMSS to ISSSTE, which does not mean implementing a

to build and/or expand a number of clinics and hospitals

universalization program but exchanging services and

throughout the country. We estimate that remaining

prioritizing cities and states according to the demand for

investments from PPP schemes during the current federal

services and the existing public infrastructure. All public-

administration could total about MX$14 billion.

sector agencies need to maintain a close relationship and exchange services before allocating them to the private

Q: What criteria helps ISSSTE decide where a new

sector. Of course, cooperation between public institutions

hospital or clinic will be built?

does not prevent the subrogation of services to private

A: The concentration of beneficiaries and the existing

hospitals. We have contracts for integral services like

public health infrastructure in a region are the key criteria.

hemodialysis and some minimally invasive surgeries. We also have collaboration and service-exchange schemes between both public and private entities.

IMSS Headquarters, Reforma Avenue, Mexico City

ISSSTE is analyzing several new hospital projects in Tampico, Acapulco, Oaxaca and Mexico City. We have also received requests for new hospitals in San Luis Potosi and Sonora. There is a PPP hospital being built in Merida and three others to be tendered: Mexico City-Tlahuac, Villahermosa and Tepic. Q: What are ISSSTEâ&#x20AC;&#x2122;s main priorities for the remainder of 2017 and beyond? A: First, we want to continue modernizing ISSSTE through several measures: building new facilities, installing new equipment, hiring better-qualified health technicians, reducing processing times for home loans and retirement payments, reducing surgery wait times, accelerating emergency services, consolidating our hemodynamics areas and developing the triage protocol at emergency departments. Secondly, we aim to humanize the institution. If we do not create a warm, more caring

ISSSTE is the second largest of Mexico's public health

ISSSTE, then we are failing. The Trato para un buen trato

institutions, providing services to almost 13 million government

program is an agreement between ISSSTE and its labor

workers. It has also released many USPs for the construction

union to make the hospital personnel more patient-

of new hospitals

friendly.

VIEW FROM THE TOP

INTEGRATE TOURISM INDUSTRY FOR GREATER GROWTH ENRIQUE DE LA MADRID Minister of Tourism

Q: What can be done to boost tourism investment in Mexico?

Q: How can the tourism industry improve the social

A: To drive investment, it is necessary to establish an attractive

development of communities in Mexico?

institutional framework on issues such as regulation, security,

A: Through the development of the tourism industry we can

environment and fiscal policy. We need investments in basic

bring growth and wealth to more communities in Mexico,

infrastructure from the public and private sectors, as well as

as tourism impacts a community through employment,

a destination-promotion policy to ensure a permanent flow

infrastructure development, provision of basic services and

of investment by lodging, transportation and entertainment

environmental protection. President Peña Nieto’s vision

companies. Creating added value in the tourism experience,

is to strengthen tourism to create economic growth and

such as food, guided tours, cultural and sports activities or

to generate development opportunities for the Mexican

theme parks, can boost investment. Today, travelers want in-

population. He believes tourism contributes to the creation

depth knowledge about their destinations. They do not want

and growth of the middle class in regions with tourism

to just spend time inside a hotel. We must take advantage

potential. However, the community must be involved. This is

of this trend.

the objective of the Programa Conéctate al Turismo (Connect to Tourism Program), which helps SMEs connect with players

Q: What are the main challenges facing the development of

in the industry to become service providers.

the tourism industry in Mexico? A: The tourism industry in Mexico is so large and diverse that the challenges are different depending on location. However, the main one is to stay attractive in a changing world and amid an increasing number of competitors. To achieve this, we need an innovative attitude when meeting tourist needs,

SCT’s investments help increase connectivity, reducing transfer times and mobility costs

infrastructure that allows us to receive tourists who have demanding and diverse objectives, and more destinations

Q: The country has a significant number of cities with tourism

to provide further options and generate benefits for more

potential that have not yet been developed. What strategies

Mexicans. All these elements will help build a robust and

are being implemented to develop these future tourist sites?

successful tourism sector.

A: It is very important for each destination to identify its strengths, its main attractions and how to create a product

Q: What efforts have been made in infrastructure to boost

that is commercially attractive to tourists. That is why Baja

the sector’s growth?

California’s wine region, the tequila district in Jalisco and the

A: SECTUR has a budget allocated to meeting the specific

henequen plantation route in Yucatan have developed so well.

needs of tourist destinations. Through this program, local

The creation of thematic routes was the key growth path for

authorities contribute a proportional amount. These budgets

those destinations. This is the idea behind the Mayan route

are determined by Congress through the federal budget but

in the southeast, the circuit of colonial cities in the center of

the infrastructure investment the tourism sector requires is

the country and the independence route in the Bajio region.

greater, so the sector benefits from investments by other

Branding also helps increase tourism in locations that have

entities. For example, SCT’s investments help increase

particular kinds of attractions, such as Pueblos Mágicos.

connectivity, reducing transfer times and mobility costs. NAICM has no budget from SECTUR but there is no doubt this project will boost the industry. The private sector also invests

SECTUR designs and implements public policies to develop

in infrastructure through projects such as marinas, cruise line

tourism, promote innovation in the sector, improve the quality

piers, convention centers, sports venues and malls, among

of tourist services and the competitiveness of national tourism,

other projects.

and contribute to the industry’s sustainable growth

VIEW FROM THE TOP

PROVIDING FINANCIAL ACCESS WITH GOOD RATES, ACCESSIBLE PAYMENTS FRANCISCO GONZÁLEZ Director General of Bancomext

Q: Bancomext is present in a number of sectors. What

Q: Bancomext also targets the tourism sector. What has

determines the bank’s involvement and what opportunities

been the reception and impact of the Mejora tu Hotel

does it look for?

program?

A: The bank is an important player in sectors where

A: Mejora tu Hotel encompasses the entire spectrum of the

currencies play a central role and in those that involve

tourism industry. This means that we can provide loans to

foreign trade and the global chaining of production

small hotels that have two or three stars. As a result, some

processes. In this sense, Bancomext’s main areas of

hotels have transformed from traditional small brands to

opportunity are tourism, industrial warehouses and the

establishments that comply with international standards,

energy sector. However, this does not mean that we neglect

which helps them increase their occupancy rates from

the transportation sector, which includes the automotive

30-40 percent to 70 percent. However, our offering is not

and aerospace industries and other segments such as

restricted to small hotels. We support large hotels that

metal-mechanics, electronics and telecoms.

want to expand their operations and we also participate in large complexes with as many as 6,000 rooms. Tourism

Q: How does the bank view the frequent increases in

is not only about hotels. It also includes the airlines and

Mexican interest rates?

infrastructure that support the growth of this sector, such

A: The interesting part of Bancomext’s portfolio is that

as the Cross Border Xpress in Tijuana (CBX).

we can access external financing. In 2015, we placed debt certificates totaling US$1 billion. In 2016, we placed

Q: How is Bancomext collaborating with Mexican

certificates worth US$700 million, which earned the

companies to reap the benefits and opportunities related

recognition of “Deal of the Year” by the World Finance

to Industry 4.0 (I4.0)?

magazine. We just placed certificates in Mexico totaling

A: It is important to note that Mexico will be the first

MX$7 billion in three and seven-year periods. Interest

country with the capacity to fully insert itself into the

rates have risen but margins have narrowed. We operate

I4.0 trend. We will be the first country to have a shared

efficiently and translate this efficiency to the client. We are

network that will provide a substantial percentage of

enjoying better international rates and opportunities and

the population with access to the 4G network and with

because of this, a significant number of the rates we offer

enough spectrum to allow communication in a more

have not been affected.

efficient and economical manner. The Internet of Things (IoT) will allow for a more dynamic communication than

Q: What opportunities does the creation of Special

what we are used to. In industries, either through Radio

Economic Zones (ZEEs) offer Bancomext?

Frequency Identification (RFID) or through the use of

A: As we are leaders in the financing of industrial

specific communication tools, we will see containers

warehouses, we see a significant degree of interest in

located at different ports communicating, arranging to

these projects and. We also see opportunities to support

be delivered at the same time, and the buyer will be able to

the importation of needed machinery. Since we work with

access all this information with just one click. We already

export trading agencies we can provide structured support

have the hardware and the software components but this

in this regard all around the world.

is all useless if we do not have the expertise to produce. In this regard, we already have clusters with the necessary manufacturing knowledge. Ricardo Hausmann, Director

Bancomext is Mexico’s largest development bank. Over its

of the Harvard Center for International Development,

80 years, the bank has played an important role in furthering

says that Mexico has the possibilities and processes to

Mexico’s export activities as well as financing the development

assemble cars, planes and medical devices. We only need

of the tourism and industrial sectors

to connect the talent.

VIEW FROM THE TOP

TAPPING BMV TO FINANCE INFRASTRUCTURE DEVELOPMENT JOSÉ-ORIOL BOSCH Director General of Grupo Bolsa Mexicana de Valores (BMV Group)

Q: What are the main challenges in promoting the

Q: What are the benefits of having more Fibras participating

participation of companies in the BMV?

in the market?

A: Lack of participation is an issue the country faces in

A: Having more than 10 Fibras in the market benefits the

general. The biggest challenge is creating a financial culture

industry and we welcome even more. Other countries,

in Mexico that is open to investing in the stock exchange.

such as the US, have had similar tools, such as Real Estate

The country has 5 million registered companies and only

Investment Trusts (REITS), since the 1980s. In Mexico, they

350 are using the BMV as a form of finance, of which 150

were only created in 2011 with Fibra Uno. Growth was quick

participate in the capital market. Another issue is that over

and at one point we were questioning if the market was being

90 percent of the 350 companies on the BMV are from

oversaturated with Fibras. But considering the size of our

only four states in Mexico: Mexico City, Nuevo Leon, Jalisco

economy and the existing potential in the real estate industry,

and the State of Mexico. There are 32 states in the country

Mexico should have many more Fibras. We just need to make

and 12 of these, such as Zacatecas, Durango and Guerrero,

sure growth is gradual to avoid a crash or inflation of shares.

do not have any companies listed on the Mexican Stock

These tools help facilitate real-estate investment and are a

Exchange in either capital or debt markets, regardless of

good choice for anyone interested in investing in the real-

the industry. This is inhibiting economic growth. But the

estate industry. They are also quite diverse — we have Fibras

root of the problem goes beyond the number of companies

for hotels, commercial centers, offices and more.

listed. If 200 companies were to list on the BMV tomorrow, there would not be a market big enough to buy these

CKDs have financed over MX$100 billion since their creation with close to 80 issues

shares. To create a healthy trading market, a balance of both companies and investors is required. If we had a larger retail base like that in Canada, for example, we could increase participation in the exchange. Banks and brokerages could help redefine this context by offering more financial education.

Q: How is the creation of a second stock exchange, BIVA, Q: What is the BMV doing to strengthen Mexico’s financial

impacting BMV and what opportunities to collaborate have

culture?

you identified?

A: Our main priority in this matter is to continue

A: We are hoping the impact will be positive. We recognize

developing a stronger financial and trading culture when

that issues in Mexico’s financial culture cannot be automatically

it comes to businesses, investors and brokerages. The

fixed through the creation of a second stock exchange. The

stock exchange and brokerage firms are collaborating

regulation in Mexico had to be changed to allow more than

to develop products and services that can better serve

one stock exchange to participate. The BMV strives to make

different types of companies and projects. Traditionally,

sure the additional costs of having a second exchange will not

the stock exchange serves the debt and equity markets

result in inefficiency or fragmentation. Even though there is

as other exchanges, but in the last years it developed

more than one stock exchange, both are regulated according

equity-financing nontraditional instruments such as

to the same norms and legislation.

CKDs. This tool was developed out of the country’s need for investment to generate resources, employment and new companies. CKDs have financed over MX$100 billion

BMV Group operates the Mexican Stock Exchange (BMV), Latin

since their creation with close to 80 issues. The main

America’s second-largest stock exchange, with over US$530

industries that participate in CKDs are infrastructure, real

billion. Infrastructure developers and investors are becoming

estate and private equity.

more active in the BMV through Fibras and CKDs

TECHNOLOGY SPOTLIGHT

The Mexico Projects Hub

UPCOMING INFRASTRUCTURE PROJECTS 2017-2018 Sector

Transport

Project

Investment (US$ million)

Type of Contract

Description • 24.52km of rail of which 1.22km will be at ground level and 23.3km in viaduct

Extension of Line 4 of the Mexico City Metro - Martin Carrera Tepexpan

1.29

Extension of Line A of the Mexico City Metro Chalco - La Paz

622

PEMEX: Port of Salina Cruz

520

N/A

Repair and Reduction of Leaks in Mexico City

367

Provision of services

Maintenance and Conservation of Arriaga - Tapachula Highway

244

Federal PPP

Public Works

• 19 new stations and one new terminal in Tepexpan, along with new workshops • Initial fleet of 24 new trains with nine cars, each with a capacity of 1,530 passengers per train

Public Works

• 12.8km of rail • Six pass-through stations and one terminal station • 32 new trains with a capacity of 1,530 passengers

• 1.6km breakwater arm • four docking stations

Transport

Water and Environment

Transport

Puerto Vallarta Bypass

180

Concession

Maintenance and Conservation of San Luis Potosi - Matehuala Highway

170

Federal PPP

Papantla Prison Social Infrastructure Source: Mexico Projects Hub, Bancomext

186

Federal PPP

• N/A

• Maintenance of 473km of road on the route MEX200 Teppanatepec-Talisman, from km 47 to 283.5 • Design, construction, operation and maintenance of drainage • 25.78km with four junctions, two tunnels and seven viaducts • Maintenance and conservation of 374km of federal road

• Construction, expansion and equipment of the federal prison facility in Veracruz • 28.1ha that will house 2,160 inmates • Four levels of housing with special security measures

INSIGHT

PROJECTS HUB TO INCREASE PPP TRANSPARENCY SERGIO FORTE Deputy Director General of Investor Relations at Banobras and Former Deputy Director General of Investor Relations and the Investment Projects Hub of Bancomext

The environment surrounding infrastructure development

the governmental websites and CompraNet where users can

includes an uncertain political environment, rising interest

find more information and contacts. Each project has a unique

rates and a shortage of public budget for projects. But

File Number and QR code to facilitate information sharing and

investors’ appetite to invest in Mexico continues to grow.

tracking of changes to the project. Forte believes that this

One of the top demands industry players have is to ensure

platform will help reduce international and national investors’

transparency and access to information for infrastructure

costs and time by allowing them to gain better visibility of

projects, especially since entering the Mexican market with

Mexico’s infrastructure pipeline.

just one project is extremely expensive. And the platform could not have come at a more opportune As a way to link investment projects with domestic and foreign

time for the industry. Given the shortage of public funds,

potential investors, as well as encourage new companies to

SHCP announced in March that it wants to encourage the

participate in bids, SHCP, through the Mexican system of

development of PPPs for infrastructure and released 30

development banks, developed Mexico Projects Hub which

projects involving an investment of over MX$60 billion. The

is an online database of Mexico’s current infrastructure

benefits of PPP projects are multiple, given they have a mature

projects. “As a development bank, we have also been on the

regulatory framework and offer more attractive conditions for

other side of the table and we understand the importance

both investors and participating companies. Although some

of having clear information about upcoming projects,” says

companies are cautious about the recent changes made to the

Sergio Forte, Deputy Director General of Investor Relations

PPP Law, PPPs and public works have become more efficient

at Banobras. “Mexico Projects Hub will increase transparency

in the last few years due to the adoption of best practices

and investment in Mexican infrastructure.” This free bilingual

across all sectors.

platform divides projects into four different stages: preinvestment, bidding, execution and operation to give investors

SHCP took on the challenge of creating the Projects Hub —

insight throughout all phases of project development. “The

the first of its kind in Mexico — to increase transparency and

main objective of Mexico Projects Hub is to display project

access to these PPP projects, but it has faced various hurdles

information alongside legal and financial data for the entire

along the way. Despite the hopeful announcements of more

industry to see,” he says. “It is a tool to provide players with

PPP projects, many players in the industry feel there is a lack of

information about similar projects that will increase their

innovative projects. “There is always the critique that projects

appetite to invest even more.”

are the same and that there are no new project opportunities. But, what matters is that there is a steady stream of projects

The hub contains information about greenfield and brownfield

being carried out,” says Forte. “Developers can find ways to

projects across all sectors within the industry including

incorporate innovation in the structure of the project or it can

electricity, transport, telecommunications, water and

be constructed by a group of companies.”

environment, real estate and tourism, mining, hydrocarbons and social infrastructure. The hub lists 75 different types

This platform is expected to level out the playing field when

of financial instruments such as Fibras and CKDs that can

it comes to bids and ensure that there are new companies

be used to invest in the maintenance and improvement of

stepping up to each challenge. One of the main objectives of

existing infrastructure. “There is a great deal of opportunity

the hub is to allow investors and participants to give feedback

in this sector,” says Forte. “The amount of money in CKDs that

on each of the different projects, especially when bids are

can be allocated to projects equates to approximately MX$50

about to start. “It is becoming more common for the same

billion of capital, ready to be invested into the industry.” Apart

two to three companies to bid in all of the projects in certain

from listing the basic information such as participants, amount

sectors in Mexico,” Forte says. “The platform will encourage

invested and entities involved, Banobras included links to all of

more companies to seek involvement in the industry.”

INSIGHT

CONNECTING MEXICO’S INFRASTRUCTURE INDUSTRY TO THE GLOBAL MARKET RICARDO DÍAZ DE LEÓN 22

Infrastructure, Mining, Logistics and Tourism Coordinator of ProMéxico

As the public sector continues to struggle with a shrinking

terminal tender on an international scale and attract more

federal budget, the infrastructure industry in Mexico

bidders. ProMéxico has a particular focus on promoting PPP

must continue to attract FDI to ensure that development

projects because the model encompasses a wide spectrum

does not come to a standstill, says Ricardo Díaz de León,

of sectors within the industry, from airports to hospitals.

Infrastructure, Mining, Logistics and Tourism Coordinator

“The model invites international companies to share their

of ProMéxico. There must be a unified effort from both

best practices within iconic projects,” explains Díaz de

the public and private sectors to ensure that Mexico’s

León. “But the model should be re-evaluated considering

infrastructure opportunities remain relevant enough to draw

that over 90 percent of infrastructure projects in Mexico

capital from the international market.

experience cost overruns and delays.”

According to the Center of Economic Studies in the

Nonetheless, he emphasizes that it is not just the public

Construction Sector (CEESCO), FDI attracted by Mexico’s

sector that bears the responsibility of making sure projects

construction sector dropped 53.8 percent in 2016 to

are completed on time. “Companies can contribute by

US$1.1 billion in comparison to 2015’s US$2.3 million.

choosing to participate only in projects to which they can

“Attracting new foreign private investors is one of the

offer added value,” he says. The scheme also needs to allow

biggest challenges the industry faces,” says Díaz de

the private sector to be more involved in the design and

León. “Foreign companies often battle with structures

planning phases to mitigate technical issues. This was a

in Mexico that highly favor companies already operating

lesson the government learned from the Mexico-Toluca

here.” Companies venturing into Mexico must also face

Interurban Train project. With the proper risk assessment

international players that already have a strong presence

and private-sector contributions, the rights of way problems

in the country, particularly those from Spain. To improve

faced by the project could have been avoided, therefore

the competitivity of the market and lower entry barriers,

preventing the delays and construction issues it has faced.

ProMéxico strives to help international companies

“Developing passenger trains in Mexico is difficult as the

identify areas of opportunity within Mexico’s industries.

region is used to freight trains while Europe and the US

“We organize international missions to bring information

have more experience managing a system that includes

about the industry closer to strategic players,” says

both passenger and freight trains,” says Diaz de León.

Díaz de León. “This is important because sometimes

Nevertheless, ProMéxico believes that the development

opportunities to participate and invest in the country

of these projects can greatly benefit the country. “The

reach investors too late.”

government must always be certain that the services they are offering to the public have economic advantages, even

As part of it mission, ProMéxico either promotes an entity

if the service is highly subsidized,” he says. “This train will

or a series of projects to regions that can complement the

facilitate mobility between the State of Mexico and Mexico

project’s objective, typically in collaboration with embassies

City and can result in economic prosperity and a better

and their commercial offices. “ProMéxico is currently

quality of life.”

organizing a mission in Asia to promote the Lazaro Cardenas port that recently opened its Tec II automated terminal,” he

Overall, Diaz de León believes that the infrastructure

says. “Strengthening ties with Asia has the dual advantage

industry would greatly benefit from more organization and

of diversifying Mexico’s commercial portfolio and ensuring

communication between governmental authorities and the

a strong flow of goods to the port as Lazaro Cardenas is

private sector. ProMéxico does its part by promoting the

one of the most important doors from Asia into Mexico.”

country internationally. “We strive to prove that Mexico is

Another notable collaboration was with GACM, which

not a mere export destination and that local companies

requested support from ProMéxico to promote NAICM

have talent to offer the global market,” he says.

INSIGHT

PUBLIC-PRIVATE PARTICIPATION TO BRIDGE INFRASTRUCTURE GAP FRANCISCO IBÁÑEZ Capital Projects and Infrastructure Leader at PwC

Stability and well-planned projects within Mexico’s

Bancomext’s platform goes a long way to increasing

infrastructure industry are factors that directly influence

transparency in infrastructure PPPs but one issue

the country’s economic prospects. Considering geopolitical

developers often face when working with the public

instability in the world, cooperation between the private

sector is extremely tight timelines. “Sometimes public

and public sectors is now more essential than ever to ensure

entities are only given a few months to submit proposals

the continuation of the country’s key projects, such as the

and this greatly inhibits competition and quality, which

Mexico-Toluca Interurban Train and NAICM. According to

limits the amount of companies that can participate in

Timetric, a leading global provider of market data and

the bidding process,” says Ibáñez. “Mexico can reassure

advisory services, Mexico’s infrastructure construction

investors and attract funds through the release of public

market is expected to reach a total value of MX$1.2 trillion

tenders that allow developers enough time to create well-

if large-scale infrastructure projects continue as planned.

planned proposals.”

But, according to Francisco Ibáñez, Capital Projects

To highlight these challenges and potential solutions,

and Infrastructure Leader at PwC Mexico, fragmented

PwC recently developed a report that includes

development of infrastructure projects in Mexico is an issue

recommendations and best practices from seven

that jeopardizes the growth of the industry and the country.

countries to promote healthy infrastructure growth. The

“Without clear multimodal planning, a government official

challenge is making sure that their suggestions and long-

could plan a highway near a port and not realize that the

term vision are adopted by the public sector. This concern

area actually requires a train,” he says. Government officials

is compounded by the upcoming 2018 elections, since

who plan the infrastructure in a way that solely focuses on

typically incoming administrations place little importance

their own projects without evaluating the true requirement

on continuity with the priorities of previous governments.

of the area are allowing room for error.

Although the administration has an obligation to fulfil the promises it established at the beginning of the term,

Intermodal planning is one tool Mexican officials can use to

developers are rushing to complete projects in light of a

implement successful projects and create an interconnected

possible change of priorities if a new political party takes

perception of infrastructure developments. “Intermodal

the reins. “A new administration is a risk to developers

planning can improve transportation logistics in the

because authorities with a different vision may prevent

country and strengthen Mexico’s ability to compete in the

the continuation of important public projects,” says

global market,” says Ibáñez. “It creates unity, certainty and

Ibáñez. “This creates a cycle of projects with a short-

transparency across a wide range of projects such as ports,

term vision as it is difficult to ensure the long-term

airports, highways and roads.”

continuity among rotating administrations.” He suggests the creation of an independent body that can oversee

To do this successfully, the private sector needs information

planning and promote the continuation of projects

and Ibáñez cites Bancomext’s recently created Mexico

beyond electoral periods.

Projects Hub as a timely development that will promote investment in Mexico. “One company recruited PwC for the

It is important to have well-planned infrastructure

sole purpose of listing PPP projects in the transportation

to ensure Mexico’s capacity to thrive in the global

sector, a service that would not be needed if authorities

market. Ibáñez stresses that the importance of a long-

made information more public,” he says. “Online platforms

term infrastructure outlook cannot be underestimated.

like Mexico Projects Hub can make information about the

“Ultimately, long-term infrastructure projects are Mexico’s

status of projects available to the general public because

backbone and they enable the country to compete

at the moment, this data is hard to find.”

internationally,” he says.

VIEW FROM THE TOP

PROMOTING EARTHQUAKE RESILIENCE IN CDMX RENATO BERRÓN Director General of the Mexico City Institute of Construction Safety (ISCDF)

Q: How does ISCDF contribute to the structural safety of

Q: What are the most common areas in which developers fail

Mexico City’s buildings?

to meet security standards?

A: ISCDF reviews new and existing public and private

A: Violations in administrative requirements and structural

buildings and provides technical opinions regarding their

security standards are not unusual. These violations often

structural safety and whether developments are in line with

come from errors, oversights, misinterpretations of the code

the law. We also financially support research institutions and

and, in some cases, negligence by developers that want to cut

projects that disseminate knowledge about building safety

costs. ISCDF is aware that many companies are responsible

and the management of Mexico City’s Seismic Alert. ISCDF

and pay for an exhaustive numeric and technical revision of

must find out which projects are noncompliant, issue a verdict

their project. But we have also noticed several projects being

on their structural safety and notify the agencies responsible

built that do not comply with the code to various extents.

for sanctioning developers. Mexico City has seen many real

Ideally, all new projects should be revised in-depth but

estate developments arise in several areas and ensuring they

sometimes investors fail to comply in an effort to maximize

comply with the law is the difficult task of ISCDF.

their profits.

Q: How have ISCDF responded to the September 2017

Q: How do differences in types of soil affect the costs of

earthquakes, in particular the second quake that leveled

achieving structural security?

buildings in Mexico City?

A: The type of soil determines the level of structural safety

A: The fact that the city resisted the first earthquake

that projects need. Building in former marshlands is more

was clearly no reason to feel overly confident about the

expensive because the technical requirements of buildings

structural security of some of Mexico City’s buildings.

are higher since muddy soil intensifies the impact of

There were several constructions in highly seismic areas

earthquakes. Constructions on hills are less robust because

whose structure was damaged by the 1985 earthquake

the soil is firmer and the structures suffer less stress in case

and that did not receive appropriate maintenance before

of an earthquake, which makes their structural safety more

the second earthquake hit. Since 2013, we have carried

inexpensive. Regarding the number of stories in a building,

out more than 40 studies on structural security, the results

Mexico City government’s “compact city” policy promotes

of which are used to update Mexico City’s construction

vertical growth to allow shorter commute times and less

guidelines on structural regulation, which makes the city

traffic. This policy and urban planning studies determine the

more earthquake-resilient. In terms of our response, we

kind of land usage applicable in each area and the number of

have carried out profound revisions of projects in the

stories that developments can have.

process of construction, and are collaborating in every way we can, given the small size of our institution. Mainly,

Q: What are the main engineering challenges of structural

we have conducted surveys in collaboration with several

security in Mexico City?

engineering firms and other related expert organizations.

A: Land subsidence and seismicity are some of the key

So far, we have found 700 buildings with structural risk,

problems. The city sinks unevenly and not every area is

which require further study and structural rehabilitation

affected the same way by earthquakes. Land sinks up to 40cm

through reinforcement.

per year in areas like Iztapalapa and Venustiano Carranza while Mexico City’s center only subsides by about 20cm and other areas do not sink at all. These different subsidence rates

ISCDF is a decentralized agency of the Mexico City government.

jeopardize water lines and building foundations. In terms of

It is in charge of verifying that existing and new buildings

seismic activity, the center and east of the city are more

comply with the Mexico City Building Code. It promotes and

affected by earthquakes while the south and west register

finances research projects on structural integrity

little seismicity.

INSIGHT

FACILITATING THE PEDESTRIAN REVOLUTION LAURA BALLESTEROS Deputy Minister of Planning at the Ministry of Mobility (SEMOVI)

In Mexico City, the car was always king, so much so that it

Ballesteros believes parking lots are one of the top culprits

is easy to forget that the average person in the metropolis

in encouraging private car use. “We tried to balance the

does not even own a vehicle. For Laura Ballesteros, Deputy

use of private and public transportation in Mexico City

Minister for Planning at SEMOVI, this represents a massive

by publishing new parking standards in July 2017,” she

opportunity for carpooling to take the pressure off the

says. One of these standards eliminated the obligation

capital’s creaky infrastructure. “People tend to forget that

for parking space delimitation in new developments in

the average person –- around 60 percent of the population

an effort to better organize the city’s parking layout

of Mexico City –- does not own a car,” she says. “This

since many international studies show that an excess of

demographic travels four times a day using various mobility

parking lots can lead to additional traffic. “A reduction in

systems, yet cars are only shared among family, friends or

parking lot infrastructure could help us invest in sustainable

through the use of an application. That results in an average

public transportation like Metro and Metrobús,” explains

occupation of 1.2 people per vehicle in Mexico City.”

Ballesteros. “These standards are the most important the city has published in recent years and together with

According to Ballesteros, there are currently 5.5 million

Guadalajara we are leading this transformation in Latin

vehicles in Mexico City alone and 80 percent of its roads

America.”

are dedicated to vehicle use. “The problem we need to solve is how to successfully partition all the available mobility

Even with modern vehicles, she is skeptical that the

systems,” she says. “The city’s government has worked on

pollution that plagues the capital can be curtailed without

a strategy for two years and our goal is to designate 70

proper emissions management. “Hybrid and electric cars

percent of our budget to public transportation projects

are necessary to improve the air quality,” she says. “The

but to be successful we need the support of the federal

city is preparing an electromobility plan to promote the

government.” In 2014, Mexico City underwent a mobility

use of these vehicles in the short and long term and taxis

overhaul after the implementation of the new Mobility

are the first focus.” Old taxis are gradually being renovated

Law and the many programs related to road safety. The

and regulations are making it easier for drivers to choose

government’s goal was to make private vehicles only

hybrid models.

one of many options for transportation, fostering the implementation of carpooling when possible. To do that, it

SEMOVI is also lobbying to offer benefits to hybrid and

needed to invest in sustainable mobility with safe, connected

electric-vehicle owners, which should go hand in hand with

and quality public transportation. This included more space

the development of car sales and charging infrastructure.

for mobility options like Metrobús and Ecobici and enough

The government of Mexico City has an agreement with toll-

space to promote the use of private bicycles and sustainable

road operators to offer discounts to green vehicles and one

buses to replace the current microbus fleet.

of its commitments is the construction of infrastructure for electric buses. The 22km Green Corridor in Eje 8 Sur will be

The city’s urban planning is also a thorn in the side of

the first of its kind in Latin America. The governmental body

regulators. Due to the government’s previous policy of

also wants to make Mexico City’s roads safer for the millions

building the city outward, much of the population has a long

of pedestrians that use them each day. Almost 60 percent

commute to work. Business centers are focused in certain

of the people who die in a traffic accident are pedestrians

districts like Polanco, Reforma, Santa Fe and the city center,

and cyclists, while the other 40 percent are people driving

meaning at rush hour, the city gets saturated at certain

a vehicle. “All mobility options must offer the same safety

locations. To date, says Ballesteros, almost 45 percent of

conditions, even when some are more vulnerable than

the transit in Mexico City is generated downtown, making

others, which is the main reason why the city’s streets have

circulation almost impossible, particularly at rush hour.

evolved,” says Ballesteros.

INSIGHT

CROSSING THE BORDER WITH EASE AT LAREDO JAVIER SOLÍS Minister of Economic Development (SEDECO) for the city of Nuevo Laredo

When considering the contribution of logistics infrastructure

a presidential letter before tendering the project,” he says.

to Mexico’s economic development, it is necessary to take

“Applications have already been presented in Washington, DC,

into account the two Laredos, as they are an essential zone

and both the government of Texas and Washington welcome

for international trade. Javier Solís, Secretary of Economic

this initiative because they understand how necessary

Development for the city of Nuevo Laredo (SEDECO), believes

and profitable it is.” On the Mexico side, the South Laredo

an integrated approach is the way forward.

International Bridge has been declared a priority project by the Ministry of Foreign Relations (SRE) and SHCP. As soon as

“On Mexico’s side, Nuevo Laredo is the most important

the US presidential letter is received, the tendering process

onshore port in Latin America,” he says. “Forty percent of

will begin.

the goods traded between Mexico and its NAFTA partners cross through this city, which contributes about 26 percent

Given Nuevo Laredo’s focus on being a logistics town, rail

of all Mexico’s international trade-generated VAT.” Similarly,

giant Kansas City Southern de México (KCSM) is building the

on the US side, Laredo, Texas, has the third-most important

largest intermodal park in Latin America, which is expected

customs office in the US in terms of freight and value. About

to bring in operations from Monterrey and Laredo. KCSM

US$1 million in goods is transported per minute from one

estimates this park will increase its capacity by 60 percent

border to the other. New technologies and best international

and expand the number of trains that cross the border daily

trade practices tend to be rolled out in the Laredos due to its

by 40 percent. “This will help the city attract OEMs and build

strategic importance.

a supply chain as the local government is willing to offer land in the direct vicinity of KCSM’s intermodal terminal, all the

Cross-border relations between the Laredos is of the utmost

required utilities for production and a strategic position at

importance for economic growth, and with this in mind, SCT

the heart of NAFTA,” says Solís.

and the city of Laredo built a series of bridges to facilitate trade. Four bridges have been built so far: Gateway to the

To further improve its cross-border intermodal transportation

Americas, Juarez-Lincoln, Colombia-Solidarity and the World

system, it is necessary for Nuevo Laredo’s authorities to

Trade International Bridge. A fifth project, South Laredo

comply with US agreements and to streamline regulations,

International Bridge, is being considered in an effort to create

specifications and controls. An increase in its border-crossing

the first binational World Trade Center.

capacity and the number of transport companies with C-TPAT and other security certifications is a priority. This would not

This new border crossing will entail the creation of fiscal

only make transportation safer but also cut down on delays,

precincts placed right next to the World Trade International

as noncertified cargo carriers commonly wait between three

Bridge. “The new bridge is expected to have six lanes in

and seven hours to cross into the US, while certified carriers

each direction and will support approximately 18,000 trailers

only wait 45 minutes on average.

crossing through Nuevo Laredo on completion,” explains Solís. Within 10 years, this is expected to multiply to 26,000 trailers

International commerce crossing through the Laredos has

daily, significantly adding to the 14,000-daily capacity of the

grown at a yearly rate of 6 percent in the last eight to 10

World Trade International Bridge. This port is planned to have

years. Solís warns that if Nuevo Laredo does not start planning

mirrored fiscal precincts, so that both US and Mexican customs

how to channel its growth, the city will meet its maximum

services can be offered in a single office, thus reducing costs

capacity in about four years. “SEDECO is prioritizing the

for both CBP and the Ministry of Finance (SHCP).

implementation of solutions in the mid and long terms,” he says. “We want to fully take advantage of our strategic

Solís says this project must meet several requirements to

geographical position to become more efficient and attractive

come to fruition. “On the US side, it is necessary to receive

to investors.”

ROUNDTABLE According to the OECD, issues with poor mobility, social services, water, healthcare and safety infrastructure can affect women disproportionately more than men, and infrastructure must be designed with these nuances in mind. In a 2010 study carried out by Centro de la Mujer en la Alta Dirección, out of 112 million Mexican citizens, women made up 51 percent of the population but in business, women represented only 16 percent of the workforce. As more and more industries are working to be female-inclusive, Mexico Infrastructure & Sustainability Review asked some

WHY SHOULD THERE BE MORE WOMEN IN THE INFRASTRUCTURE INDUSTRY?

prominent female leaders in infrastructure about the importance of women’s participation in the industry.

Infrastructure is a largely male-dominated industry. My brother and I have been able to lead this company by gaining the trust of people within and outside of MABASA and pulling teams together. As a businesswoman, I try to bring a more human vision that complements the largely cold, purely commercial perspectives that are common in infrastructure. Doing this has enabled me to learn more about the industry and help MABASA reach the position it currently holds.

VANESSA BAUTISTA Administrative Manager of MABASA Soluciones Constructivas de Acero

I believe the role of women in the construction industry is the same as that of men: to foster a quality industry and boost the desired results in every way possible. Also, I believe that to include women in managerial roles is as important as to include younger or older people. In the end, we must aim to have different perspectives that will enrich a company’s perspective, which gives a lot of organizational strength through a diversity of opinions. I personally enjoy the constant challenge of bringing innovation that the industry presents in terms of engineering, management, and strategic planning.

DIANA MUÑOZCANO VP of Grupo Indi

As the Fourth Industrial Revolution unfolds, our industry needs preparation to adapt to disruptive changes coming ahead. Tackling gender gaps can unlock new opportunities for growth. Including women in the industry is a must as female talent remains one of the most under-utilized business resources. Mexico has a 50-50 gender balance and this is true in Universities along the country but not true in the workforce. This means we are investing in women’s education and not harvesting their potential to boost the economy.

ALICIA SILVA Founder and Director General of Revitaliza Consultores

MetrobĂşs in Plaza de la Republica, Mexico City

URBAN PLANNING & MOBILITY

Thanks to previous legislation that prioritized motorized transportation through the construction of highways and parking lots, Mexico’s capital ails from smogfilled landscapes and congested streets. The city is also battling against a growing population influenced by the global trend toward urbanization. The Valley of Mexico Metropolitan Area (ZMVM) has more than 20 million inhabitants and according to CONAPO, this number is projected to grow by 13 percent between 2010 and 2030. Fortunately, regulatory frameworks such as the General Law for Human Settlements, Land Use Planning and Urban Development and the new Mexico City Constitution are helping mold the future development of the capital’s infrastructure.

Urbanists hope that burgeoning cities such as Guadalajara and Merida learn from the mistakes and advancements of the capital to ensure they flourish in an orderly and inclusive manner. Mobility is one of the main challenges faced by cities in the country and strategies must be accompanied by infrastructure that interconnects not only neighborhoods but cities and states. Throughout this chapter, experts from both the public and private sectors discuss the hurdles the country’s urban hubs will confront in providing transformative living spaces for the country’s growing population.

CHAPTER 2: URBAN PLANNING & MOBILITY 32

ANALYSIS: The Sharing Economy: Creating Waves in Urban Planning and Mobility

INSIGHT: Bernardo Ortiz, IBI Group

VIEW FROM THE TOP: César Valle, IDOM

INSIGHT: Iñaki Echeverria, Iñaki Echeverria

VIEW FROM THE TOP: Andrés Gómez, GVA

ROUNDTABLE: What Do Mexican Cities Need to Improve Mobility?

INSIGHT: Rafael Monjaraz, Serrano Monjaraz Arquitectos

Juan Pablo Serrano, Serrano Monjaraz Arquitectos 41

VIEW FROM THE TOP: Francisco Martín del Campo, Arquitectoma

VIEW FROM THE TOP: Adriana Lobo, WRI Mexico

VIEW FROM THE TOP: Gabriella Gómez-Mont, Laboratorio para la Ciudad

INSIGHT: David Baltazar, Colegio de Urbanistas de México

INFOGRAPHIC: Unclogging Mexico’s Mobility Arteries

INSIGHT: Abel López, World Bank Group

VIEW FROM THE TOP: Alfonso Vélez, AutoTraffic

VIEW FROM THE TOP: Rodrigo Vázquez, BKT Bicipublica

INSIGHT: Luis Prados, Clear Channel Mexico

VIEW FROM THE TOP: Aaron Barrios, Plastimadera

VIEW FROM THE TOP: Guillermo Villarreal, UnderTerra

ANALYSIS: People Traffic Versus Car Traffic

ANALYSIS

THE SHARING ECONOMY: CREATING WAVES IN URBAN PLANNING AND MOBILITY Mexico is a predominantly young country and the habits of this age bracket are quickly changing the economy. The popularity of platforms that eliminate the need to purchase a car or a home has led to an expansion of the sharing economy and Latin America is starting to join the movement, with Brazil and Mexico at the helm

According to Investopedia, the sharing economy is an

COO of The Collective, a co-living startup based in

economic model in which individuals are able to borrow

London, said in an interview with architecture and design

or rent assets owned by others. These business models

magazine Dezeen, “In the future, we will all be homeless.”

are typically developed through online platforms or

He explains that the median age of marriage has shifted

applications. It is a relatively young system as many of

from 20 to 29 in the last four decades and that it is one

its initiatives were created in the last five years. But the

of many factors pushing young people to settle down at

areas of opportunities are endless for both the public

a later age. He predicts that housing will eventually shift

and private sector.

toward a model of subscription homes or the provision of living as a service. According to The Collective’s website,

The National League of Cities states in its report Cities,

London is only the beginning and it aspires to expand

The Sharing Economy and What’s Next, that authorities

to other cities around the world and redefine the way

often assume that these services are limited to ride-

people choose to live, work and play. The rise of co-

sharing and home-sharing but are unaware of the wide

living may not be so far off in Mexico as the capital has

range of sharing possibilities. “Municipalities, for example,

already incorporated the use of co-working spaces such

can even share heavy equipment, reducing overall

as Impact Hub and We Work.

expenditures and providing needed tools that might otherwise have been unavailable,” the report says. PwC

FACILITATING MOBILITY

projects that that the five key sharing sectors – travel,

Just as home-sharing services are impacting the face

car-sharing, finance, staffing, and music and video

of real estate, car-sharing services and alternative

streaming – have the potential to reach a global revenue

transportation platforms are changing the focus of the

of US$335 billion by 2025.

mobility sector. “The global trend is to offer mobility as a service,” says Laura Ballesteros, Deputy Minister

THE TRANSFORMATION OF REAL ESTATE

of Planning at SEMOVI. “The average person does not

Companies are quickly becoming aware of the changes

own a car in Mexico City. These people represent 60

the sharing economy is creating in people’s habits and

percent of the population and they travel four times a

are rushing to adapt their products and services to the

day using a different mobility system.” In Latin America,

new reality, including in real estate. Major developer GVA,

transportation is the second-biggest sector among

for example, has stated its commitment to understanding

sharing-economy initiatives, according to IE Business

and meeting the needs of newer generations. “Millennials

School.

do not want to be locked in an office and they seek through the use of technology new ways to work and

Uber proved Mexico’s potential to adopt the sharing-economy

interact,” says Andrés Gómez, President and CEO of

principles in mobility as Mexico City is the company’s busiest

GVA. “They are now freer to travel around the world

city in the world, followed by Sao Paulo. In August 2016, the

and work from their laptops. This means that they are

company registered 45 million trips in Latin America. The app

looking for accommodations that suit their lifestyles. We

is present in 36 Mexican cities and is continuously increasing

are transitioning toward this reality by taking a plunge

its reach, although Uber took a hit in September 2017 when

into the concept of shared living, an element of the

London decided not to renew the company’s license to

sharing economy trend driven by companies like Uber

operate. Some speculate the move could open doors for other

and AirBnB.”

cities to ban the application as well. But, according to Vicente Torres, Director General of PTV Group América Latina, Uber

According to GVA, shared living spaces allow individuals

is only the beginning of what the sharing economy can do

to rent spaces for days or weeks at a time without a

in terms of mobility. “Uber was able to provide a short-term

contract or financial commitments. The company’s

service but now the big OEMs are waking up to the trend,”

initiative for shared living spaces is one of many that

he says. “Ford has already stated it is no longer a car-making

are starting to appear around the world. James Scott,

company but a mobility-services provider and the new Ford

CEO came from the Ford Smart Mobility Division. That is a

Mexico takes second place in Latin America among

message to the market.”

countries with the greatest number of sharing-economy initiatives after Brazil, according to a 2016 report on the

Along with car-sharing, alternative modes of transportation

sharing economy in the region written by IE Business

are joining the movement. Public bike systems are becoming

School and the Multilateral Investment Fund (FOMIN).

increasingly popular. Mexico City alone hosts one of the

Brazil, Mexico, Argentina and Peru hold 69 percent of

biggest bike-sharing programs in the world, Ecobici. In the

the sharing-economy initiatives recorded by the report.

last six years, the platform has provided 36 million trips and

Brigit Helms, General Manager of FOMIN, says the

offers 6,500 bicycles in the capital.

sharing economy has the potential to generate a wide variety of benefits to the region, including the reduction

THE BEGINNING OF A NEW PHASE

of environmental impacts, promoting access to new

Developing countries may just have the upper hand when it

services and products and facilitating a more equitable

comes to the rise of the sharing economy as the infrastructure

distribution of wealth.

gaps in these regions can often be an advantage. “The lack of infrastructure is both a liability and a potential asset,” Jeremy

The rise of sharing-economy applications also offers

Rifkin, author and adviser to the European Union, told the

unique opportunities for the public sector to take

Huffington Post.

advantage of the collected data. “Data from sharingeconomy businesses, can be a useful tool in tracking

“It is often cheaper and quicker to erect virgin infrastructure

services to neighborhoods and designing more effective

than to reconfigure existing infrastructure.” Vicente Torres,

and equitable transportation networks,” says the National

Director General of smart mobility software company

League of Cities in its report. “City governments need

PTV Group América Latina, uses the example of the

to develop data-sharing agreements with transnational

telecommunications boom in Africa. “There were no landlines

companies to monitor services patterns, track pick-up

and the investment was never made to build the network,”

and drop-off locations and ensure that all neighborhoods

he says. “Instead the country did leap-frogged right into

maintain access to drivers.” In effect, with the population

cellphone technology by simply installing some towers.” He

constantly growing, especially in already-saturated urban

believes that smart mobility in Latin America will work on the

hubs, the sharing economy could lead to a smarter, more

same premise.

efficient Mexico.

Ecobici Station in Mexico City's Downtown

INSIGHT

PARTICIPATORY GOVERNANCE FOR INTEGRATED CITIES BERNARDO ORTIZ Managing Principal of Mexico and Latin America for IBI Group 34

As of 2015, more than 79 percent of Mexico’s population

With SEDUVI, the company carried out a study to transform

lived in a city and INEGI forecasts an increase to more

Mexico City’s Modal Transfer Centers (CETRAMs) into

than 90 percent by 2050. This fact alone is pushing

transportation hubs that are integrated into the urban fabric

some cities to look for more sustainable urban planning

and can displace residents throughout the city. Ortiz warns

and mobility strategies, with the aim of transforming

that interagency consensus and customer-focused design

themselves into Smart Cities. Becoming smart allows

must play a significant role in the planning and development

a city to increase its competitiveness and quality of

of these centers. “CETRAMs are sometimes not developed

life, efficiently use resources and support economic

with the right focus in mind,” he says. “There have been

sustainability by using technology and creativity to raise

cases where the public has to travel through an entire

the IQ of its environment. Mexico's cities will face many

shopping mall to transfer from one mode of transportation

obstacles before they can reach this goal and will have

to another, which happens when a commercial agenda is

to create strategies to align the priorities of the public

given priority over the end-user.”

and private sectors and citizens. When the private sector participates in infrastructure But the cities that need to brace for these changes –-

projects such as CETRAMs, it is looking to make a profit

Mexico City, New Delhi and Sao Paulo –- will encounter

in the long term but because these projects have a direct

the most hurdles to achieving sustainability, according to

impact on society, it is important that the PPP schemes

Bernardo Ortiz, Managing Principal of Mexico and Latin

implemented assign risks to the parties best equipped

America for IBI Group. “Large population cities make the

to absorb them between the public and private sectors.

development of Smart Cities even more challenging and

According to Ortiz, the element that will attract more

some important stepping stones to reaching this goal are

investment and foster the development of good quality

comprehensive planning, participatory governance and the

transportation projects will be transparency.

strengthening of institutions beyond borders to allow for seamless integration of transportation systems,” he says.

Another obstacle that could potentially block the

Transit is one of the main elements of a Smart City and

development of any type of infrastructure project in Mexico

Mexico City must find solutions for the many challenges

is continuity at both the planning and implementation

its metropolitan area faces.

stages. “We cannot continue to reinvent ourselves every six years when the presidential terms change,” says Ortiz.

In addition, Mexico will have to find a middle ground

“Infrastructure and transportation plans change each term

between private and public-sector interests in

and it is always difficult to create the correct schemes when

transportation projects with a focus on efficient mobility

there is no continuity.”

options and alternative modes of transportation. In the last few years, the private sector has had to play a larger

Participatory governance places emphasis on democratic

role in the development and financing of transportation

engagement and seeks to increase the participation of

projects due to large cuts to both the federal and

citizens in governmental decisions, which is a fundamental

state budgets. IBI Group has experience working in the

component of a Smart City. Although this is often seen as

planning, design and engineering of every aspect of

an obstacle for the completion of an infrastructure project,

infrastructure projects worldwide and in Mexico. It has

according to Ortiz, it can drastically increase the impact

worked with SEDUVI, SCT and other stakeholders in

it will have on society. “Smart Cities look to integrate

the public and private sectors to develop projects that

information into society through a series of initiatives that

increase the efficiency of transportation through public

use technology and the vision of what the city should be

financing or PPP schemes.

from the point of view of the end user,” he says.

VIEW FROM THE TOP

PRIVATE SECTOR WORRIES FOR ZEE SUCCESS CÉSAR VALLE Director General of IDOM 35

Q: What measures is the government putting in place to

out before the declarations could be approved. The ADZEE

create successful Special Economic Zones (ZEEs)?

has done a great job drafting the plan for these zones and

A: Several countries have established ZEEs, but not all

creating agreements between the states and municipalities.

have been successful. These zones take many years to completely establish and the Mexican government is doing

Q: In wich ways is the PPP Law helping to close Mexico’s

precisely what they should do to make them a reality. The

infrastructure gap?

Mexican government has established ZEEs in the states

A: PPPs will help solve the country’s infrastructure deficit

that have the lowest economic growth and to show its

through the financing of projects but I believe most

commitment, it created the Federal Authority for Special

importantly through experience. The private sector is able

Economic Zones (AFDZEE) and Federal Law for Special

to provide input and implement new methods of operating

Economic Zones (LFZEE) that will dictate how they will

infrastructure projects. PPPs are used all over the world and

operate. The AFDZEE will create the rules and establish

have proven to be a good method of obtaining funds and

all the necessary incentives, formalities and requisites for

creating efficient projects. USP are becoming more popular,

operating in these zones. The federal, state and municipal

especially within the healthcare sector. IMSS and ISSSTE

governments will have to work together to implement the

have created various project tenders under the PPP scheme,

LFZEE and ensure transparency.

especially because they realized that the involvement of the private sector in the health sphere could drastically

It is extremely difficult to guarantee that a ZEE will be

reduce operational costs. I believe this is a good method

successful and it will depend on many factors. The most

of developing more infrastructure in the country. The will

important factor is that the government provides continuity

and innovation of the private sector are there but there is

across presidential terms. ZEEs are zones within a country

still a lack of results. The challenge is that the government

that were unable to flourish on their own and that is why

must tender these projects and actually finish construction

they need the undivided support of the government. When

on time and on budget.

areas do not develop organically, the public sector must intervene to boost development artificially through fiscal

Q: What importance will be given to urban planning

and legal incentives.

initiatives in 2017-2018? A: Urban planning is necessary and it should be independent

Q: What are the private sector’s main worries regarding

of any electoral process. It is fundamental for the

ZEEs and how is IDOM participating in their creation?

development of existing and new cities. The legislation

A: The private sector has expressed various concerns

now covers the necessary legal processes for zoning in

regarding the ZEEs. These include the lack of infrastructure,

urban areas. This is important because many cities in Latin

security, more attractive fiscal incentives and the training

America have experienced an urban sprawl that has grown

of human capital. According to the rules, for companies to

too rapidly to completely organize, generating social and

receive these benefits they must generate long-term jobs

economic inclusion problems along with high infrastructure

and economic development of a disadvantaged region.

costs. Having an integral urban planning process optimizes the development of infrastructure and mobility alternatives.

IDOM was recruited to offer technical expertise in generating the viability studies of the four zones: Lazaro Cardenas, Coatzacoalcos, Salina Cruz and Puerto Chiapas.

IDOM is a Spanish engineering, architecture and urban

At the same time, we had to help with the process of

development consulting firm with experience in creating

creating the AFDZEE as well as the social and environmental

masterplans for Mexico’s developing cities. It has worked on

impact studies of these zones. The planning had to be carried

NAICM and ZEEs, among other projects

INSIGHT

PPP INNOVATION FOR SUSTAINABLE CITIES IÑAKI ECHEVERRIA Architect and Urbanist at Iñaki Echeverria 36

Innovation is often overlooked in the development of

For Mexico’s social infrastructure to fully develop, the

infrastructure in Mexico, especially in social infrastructure,

firm believes that this kind of socialization or “hacking”

according to Iñaki Echeverria, Architect and Urbanist.

of infrastructure as Echeverria calls it, is one of the

Developers of hospitals, schools, museums and other

greatest areas for growth. The country is demanding

public infrastructure often feel they must limit innovation

multifunctional infrastructure and when comparing

due to a lack of public budget, but the sector is beginning

the amount of federal resources that are allocated to

to adapt. “The great opportunity in social infrastructure is

social infrastructure to the amounts allocated to water

that 15 years ago, one had to convince developers and the

or transport, the gap is significant. “Social infrastructure

government to try these new strategies,” he says. “But now,

needs to be more dynamic, multifunctional and integrated

some governments are actually demanding them.”

seamlessly into society without decreasing its impact,” he says.

According to the 2017 Global Innovation Index, Mexico rose from 61 to 58 out of 127 countries in terms of

The participation of the private sector in the development

innovation from the previous year. And Echeverria has

of social infrastructure through PPPs is fairly new. This

seen that cities like Mexico City have adopted a more

year IMSS and ISSSTE created various PPPs for the

sophisticated mindset in that officials now demand

construction of public hospitals throughout the country,

innovative solutions to push the boundaries even further.

with great success. The federal budget cuts have pushed

“In the next 20 years, the industry will see big changes

the government to shift more responsibility to the private

to a more positive scenario that integrates planning,

sector, and the private sector is biting.

innovation and design. And along with it will be the increase in the demand for consultants and architects

Chicago is an excellent example of what happens when

like the ones in our firm,” he says.

cities hire private companies to do what they do best. It had a vision over 100 years ago to give both operative

According to the 2017 Global Innovation Index Mexico rose from 61 to 58 out of 127 countries

and budget independence to its public parks system. This meant that whatever money the park could make from events such as concerts was its own to reinvest. “This is why the city has one of the best systems in terms of urban infrastructure in the world,” says Echeverria. “In Mexico, if there is an art exposition in a museum, all the money goes to the central government. This does not provide

One of Iñaki Echeverria’s most innovative projects was

any incentive to improve social infrastructure.”

the design of Monterrey’s Children’s Museum. Instead of having it stand out in the skyline, the firm decided to bury

But with Mexico’s current centralized system, upcoming

the building underground. “Children’s museums should

presidential elections threaten to disrupt infrastructure

be fun and the idea of going underground and exploring

development. “In general, infrastructure industries in all

something new was an interesting twist to the traditional

countries are subject to political changes,” he says. “But

models,” he says. Aside from changing paradigms, this

the stronger the country is, the stronger its institutions;

design also came with a series of bioclimatic advantages,

in that sense, the executive power should have little

especially for an area like Monterrey, known for its hot

influence on the everyday agenda of its states and

weather. Creating an underground museum would

municipalities.” Ideally, he says executive powers should

drastically reduce energy consumption through air

have some influence on territorial development but the

conditioning, making the building much more sustainable.

responsibility should not lie solely with them.

VIEW FROM THE TOP

PREDICTING RESIDENTIAL, COMMERCIAL AND TOURISM TRENDS ANDRÉS GÓMEZ President and CEO of GVA 37

Q: How does GVA differentiate itself from competitors?

Q: What are the main challenges you face when creating

A: Throughout our 50-year experience in the market, we

a blueprint?

have had the opportunity to participate in a wide array

A: Through our blueprints, we prove our commitment to

of sectors, from tourism to commercial. We have offices

creating projects that are responsible and promote a better

strategically located in Latin America, in Mexico, Panama,

quality of life within cities. The idea is to make sure that

Colombia, the Dominican Republic and in London. We

70 percent of a person’s daily movement is within walking

are used to breaking paradigms to create innovative and

or biking distance. We develop integrated districts that

profitable developments. We consider ourselves business

can meet the needs of its inhabitants. We strive to go

partners to our clients on every project; we provide

beyond location, and ensure that projects have additional

leadership and solve each situation in a creative way. We

characteristics that make them unique and attract visitors.

are not afraid to stray from original plans and question developers in an effort to change structures that will

It is a challenge to find the balance between human

improve user experience and satisfaction.

interaction and the business model; we always aim to create added value for our clients. With each project, we strive

We have a multicultural and multidisciplinary team that

to design quality of life with creative solutions that are

ensures the inclusion of many perspectives into our designs.

respectful and in harmony with the environment. It is a big

Our team is made up of professionals spanning several

challenge to shift the mindset of clients that are not in tune

generations and that gives us an advantage in the way we

with sustainability. It is much easier to create an entirely

perceive and filter the contemporary world. We have vast

new neighborhood, as is being done at the University of

experience but we preserve a flexible structure that allows

Arkansas. When we are renovating an area, we have to make

us to evolve.

sure we sufficiently understand the needs of the district. Either way, we are always working in a complex ecosystem.

Q: What are the most important projects you are developing?

Q: How are you changing the concept of public spaces?

A: Two of our biggest projects are Arkansas State University

A: The designs of new shopping centers are blurring

Querétaro and América Centro Mundial de Negocios, which

the boundaries between commercial and public spaces.

is being developed in Bogota. We are also designing a

Streets are becoming an extension of shopping areas,

themed all-inclusive hotel, a mixed-use resort with a casino

creating a better experience for visitors, who can

and restaurants that will revolutionize the guest experience.

socialize and interact. I believe rather than changing

This project is expected to create new benchmarks for the

the concept of public spaces we are bringing back the

hotel industry in Mexico.

essence. The streets and public plazas are the true and original mixed-use spaces were people find solutions

The University of Arkansas is disrupting the concept of

to multiple needs, where we meet people, interact with

education because it is the first time that a public university

the environment, where we find local identity, where we

in the US has established a campus outside the country. It

should feel safe and in contact. We are trying to bring

is a significant achievement that it chose Mexico as its first

back those experiences.

international campus. The university’s educational model is quite innovative because it had to blend the US and Mexican schemes into one campus and it allows students to obtain a

GVA is a developer that creates sustainable and cutting-edge

degree that is valid in both the US and Mexico. Although it is

designs through the conceptualization of projects in harmony

a traditionally highly subsidized state university, it is private

with their environment. It integrates avant-garde architecture

in Mexico, which implies higher profits.

with the reasonable management of natural resources

ROUNDTABLE

WHAT DO MEXICAN CITIES NEED TO IMPROVE MOBILITY?

As part of a global trend, Mexico is becoming more urbanized than ever before. Cities often offer a better quality of life and access to job opportunities than rural areas, causing a major shift in the country’s demographics. But this comes with a need for more advanced mobility solutions. According to INEGI, Mexico had over 32 million registered vehicles in 2016. Fortunately, developers and companies that specialize in mobility see these gaps as areas of opportunity. Mexico Infrastructure & Sustainability Review spoke to leading authorities to find out what is being done to combat these challenges and the issues that should be addressed to

improve the mobility in Mexico’s cities.

The government’s goal was to make private vehicles only one of many options for transportation, fostering the implementation of carpooling when possible. To do that, we needed to invest in sustainable mobility with safe, connected and quality public transportation. This included more space for mobility options like Metrobús and Ecobici, enough space to promote the use of private bicycles and sustainable buses to replace the current minibus fleet. We also balanced the use of private and public transportation

LAURA BALLESTEROS Deputy Minister of Planning at SEMOVI

in Mexico City by publishing new parking standards in July 2017. One of these standards eliminated the obligation for parking space delimitation in new developments in an effort to better organize the city’s parking layout. Many international studies show that bad planning of parking lots and an excess of them can lead to additional traffic. These standards are the most important the city has published in recent years

We are committed to creating projects that are responsible and promote a better quality of life within cities. The idea is to make sure that 70 percent of a person’s daily movement is within walking or biking distance. We develop integrated districts that can meet the needs of their inhabitants. It is a challenge to find balance between human interactions and business models; we always aim to create added value for our clients. In each project, we strive to design quality of life with creative solutions that

ANDRÉS GÓMEZ President and CEO of GVA

are respectful and in harmony with the environment. It is a big challenge to shift the mindset of clients that are not in tune with sustainability. It is much easier to create an entirely new neighborhood, as is being done at the University of Arkansas. When we are renovating an area, we have to make sure we sufficiently understand the needs of the district. Either way, we are always working in a complex ecosystem.

Mexico City has the highest levels of traffic in the world according to the Tom Tom Index and it gets worse year after year. This is not an effect of migration into the city but rather citizens from the city getting married and moving to the outskirts. There are almost 50,000 people living in Mexico City who get married and 10,000 getting divorced each year. When they cannot find affordable and decent housing, they move to the outskirts, making the existing mobility problems a bigger challenge.

JOSÉ SHABOT Executive President of Quiero Casa

When people live closer to their jobs, mobility and the quality of life of the citizens is improved. Building homes closer to workplaces creates smart and sustainable cities. Convincing the communities where we build that their mobility challenges will improve if residential developments are built within the centers of the city usually takes more than one town hall meeting but we tend to be successful in convincing them.

By 2050, more than 90 percent of the Mexican population will live in the major urban areas and nobody is taking this into consideration when planning these projects. Data is needed in order to implement the right public policy. When tackling transportation and mobility issues, it is important to benchmark the current status of the area and have historical and real-time data to analyze. Because the majority of municipalities and states do not have access to this type of data, the implementation of policies is inefficient. To completely transform mobility in Mexico, there has to be a federal traffic law that is applied in all states

ALFONSO VÉLEZ Director General of AutoTraffic

and municipalities, including fines and rules. There must be coherence among all states and municipalities in the country.

One of the biggest challenges is making sure that comprehensive mobility strategies are tied to urban development plans. This is sometimes difficult because the federal budget often overlooks public transportation and non-motorized transportation methods. Municipalities are responsible for making sure there are bicycle routes and pedestrian walkways, but the lack of local resources and low prioritization at the federal level demotivates authorities lower down the chain. Power and fiscal resources should be more decentralized because no single authority has the capacity to oversee Mexico’s 2,000-plus municipalities. The first step in urban planning is

ADRIANA LOBO Director of WRI Mexico

establishing a vision. If we cannot imagine the city we desire, we will not be able to create programs that will provide the results we seek. The idea is to create a vision, share it and collaborate to make it a reality.

Cities need to be designed for the people, rather than vehicles. New generations are placing more value on efficiency, mobility and interconnectivity, and infrastructure must follow suit. Real estate developers must adapt quickly to the new generations and change their value propositions or risk becoming obsolete. What matters today and in the future, is the experience that space provides. We have to diversify, integrate the eight principles of urban development and stop encouraging the use of cars. Parking lots are the ultimate enemy of mobility. In San Pedro Garza Garcia alone, there are more than 123,000 people and 1.5 cars per person, and the creation of more parking

MARCO GARZA Founding Partner at GM Capital

spaces further encourages the use of vehicles. We spend more than 85 percent of our lives in three areas: our place of work, our house and in our car. We need to change our strategies completely and create spaces where families can thrive.

The main problem with Mexico’s development strategies is that they do not reinforce the importance of urban planning. According to legislation, housing dictates the development of the surrounding areas but it would make more sense if urban planning dictated where housing developments should be. It is important to raise awareness not only among the citizens but most importantly among the politicians who make these decisions. Politicians in Mexico are not interested in urban planning because it is a longterm process that traditionally spans several political terms. During the current political period, no new Metro lines were constructed because the Metrobús was given priority. This is not a complete solution for a city’s mobility problems because it is not designed for long distances. These types of MTS are best for interconnecting different modes of transportation and if not done correctly, it leads to high saturation of the system.

DAVID BALTAZAR Former President of Colegio de Urbanistas de México

INSIGHT

URBAN DENSITY: THE KEY TO SUSTAINABILITY AND EFFICIENCY

Rafael Monjaraz Partner at Serrano Monjaraz Arquitectos

Juan Pablo Serrano Partner at Serrano Monjaraz Arquitectos

Long hours of daily commutes and pollution have become

proven to be more sustainable,” he says. “A study compared

the norm in Mexico City, one of the largest cities in the world

Houston, a city with 15 people per hectare (pph), Madrid

with over 21 million inhabitants in the greater metropolitan

with 30pph, and Manhattan with 150pph. It found that

area. For the second year in a row, the TomTom Traffic

New York is the most efficient because its density reduces

Index ranked it as the city with the most traffic congestion

its consumption of energy, carbon emissions and travel

problems in the world. This issue causes drivers to take up

distances.” Urban density also has the benefit of requiring

to 66 percent more time to get to their final destination

smaller infrastructure investments when it comes to

in comparison to how long it would take under normal

transportation and other social services.

conditions. In all, drivers in the city add up to 227 hours per year in extra travel time, according to the report.

Unfortunately, instead of using density to create better planned cities and minimize urban sprawl, secondary

Developers can use the chaos of the capital as a learning

cities seem to be copying errors made in Mexico City.

opportunity to fix past mistakes through strategic urban

“If expansion is not properly controlled, it will be almost

design, says Rafael Monjaraz, Partner at Serrano Monjaraz

impossible to control elements such as transportation in

Arquitectos. He says Mexico City needs to be completely

cities like Merida and Tijuana,” says Monjaraz.

restructured. “Everything that does not work should be taken out,” he says. “Soon, we will have new technology like

This is where he sees Serrano Monjaraz’s expertise

self-driving cars completely changing our concept of roads

coming in. The architecture firm creates an impact in the

and streets. We need to adapt our concept of infrastructure

industry by creating structures that efficiently consume

to this reality.”

water and electricity. “We want to set an example for the entire industry,” he continues. “Being sustainable and fully

The process will take time and collaboration between the

integrated is no longer a choice, especially considering how

public and private sectors but for now, the architecture

far behind Mexico is in this matter.” The firm is composed of

firm strives to lead the transformation through award-

an interdisciplinary team that knows how to communicate

winning designs of innovative and sustainable spaces in

with project managers, construction companies, developers

the corporate, commercial, residential and tourism spheres.

and investors to help structures adapt to the demands of the industry, society and the incoming generations.

Serrano Monjaraz is developing blueprints for a wide range of projects in the Riviera Maya, Queretaro, Ciudad Juarez

The innovative firm believes there is still hope for Mexico

and Guanajuato for all types of industries. It has broken

City since the entire structure of the metropolitan area

paradigms in innovative use of space with the development

can be changed step by step. Serrano says the city should

of projects like Puerta Alameda, which has 650 apartments,

work toward reducing its periphery and incentivizing

each 60m2. “It seemed almost impossible to ensure a high

internal urban density as a way to create livable and

quality of life in such a small space,” says Monjaraz. “But

walkable spaces. “An example is the property that is

people that work all day and live alone do not need massive

being left behind by the current international airport in

spaces. We were even able to include terraces and a park

Mexico City,” he says. “Ecological groups are suggesting

in the residential building.”

it become a massive park but it makes more sense to allocate a few blocks throughout the city instead so

The creation of these mixed-use, all-in-one spaces is one

that housing developments can be surrounded by green

of the best ways to improve the quality of life of citizens

areas, rather than having one large park on the outskirts.”

in highly densified populations, according to Juan Pablo

Dynamic spaces create more unified neighborhoods and

Serrano, Partner at Serrano Monjaraz. “Dense spaces are

a higher living standard for residents.

VIEW FROM THE TOP

REUSE AND RECYCLE: MEXICO CITY’S NEXT OPPORTUNITY FRANCISCO MARTÍN DEL CAMPO Founder and Director General at Arquitectoma 41

Q: What opportunities have you identified for new

A: It is incredibly important to have all documents in

residential projects in Mexico?

order. Chapultepec Uno experienced a temporary

A: The country has a large housing deficit. The problem

decommissioning implemented by authorities but

is finding areas where people have sufficient purchasing

fortunately it only lasted 48 hours because all of the

power to buy homes. Certain areas outside Mexico City

project’s papers were in perfect order. The closure was

have a smaller economy and people cannot always afford

caused by a neighbor with enough influence to cause

to buy a house. Other markets like Puebla are oversaturated

trouble. Normally, the authorities give a warning at least

and everyone that has the ability to own a house already

one week before closing a project but in this case, it

has one. Queretaro is likely to be in a similar situation soon.

was carried out without the proper justification. The

Monterrey, Guadalajara and Mexico City will continue to

authorities often listen to influential people but projects

shine in the residential market because they have a

can protect themselves by making sure they are following

good balance between demand and purchasing power.

all regulations and norms.

Developers need to be more cautious with projects outside these cities. Tourism follows a similar pattern. Riviera Maya is picking up while Acapulco is attracting more national than international visitors, due to its security issues. Q: Given a lack of land, what is the next step for Mexico City’s real estate developers?

The next step for developments in Mexico City is to recycle and reuse empty and outdated buildings

A: The next step for developments in Mexico City is to recycle and reuse empty and outdated buildings. It is almost

Q: How do you use alliances to mitigate risk in your

impossible to find empty spaces and if companies are lucky

projects?

they may be able to find a parking lot on which to build. The

A: We overcome our weaknesses by allying with partners

city has a lot of potential to grow by remodeling abandoned

that have the right expertise. We can offer services in

and underutilized spaces. For instance, Paseo de la Reforma

architecture, construction and commercialization and

used to be mostly houses and it was necessary to gather

use them as necessary. If the project is only a few hours

several small plots of land and recycle them to develop

away by highway, we tend to build the project ourselves.

a large project. Areas like Polanco are transitioning from

Outside of Mexico City, we use local partners to facilitate

mostly residential to mixed-use and developers should take

access to water and electricity, making the process quicker

advantage of this momentum to remodel the neighborhood.

and smoother. In Puebla, Grupo Proyecta helped us to quickly schedule meetings with CFE to guarantee power

One issue is knowing the identity of the owner of a

for our projects. We also helped Proyecta by offering our

particular property. Sometimes, the original owner has

expertise on vertical construction in Lomas de Angelopolis

passed away without designating an heir. These kinds

for its first vertical projects. We received a percentage of

of problems promote underutilization of properties

the land value and found additional partners to finance

in prominent areas, even when they are in a state of

the rest of the project, including financial tools like CKDs.

abandonment. The authorities should have a bigger role in these matters but they often suggest people to not get involved.

Arquitectoma specializes in project design and real estate management. It designed one of the highest skyscrapers in

Q: Project closures can cause companies to lose time and

Mexico: Chapultepec Uno. Its High Towers development in Puebla

money. What can developers do to avoid these delays?

was nominated by Obras for Best Construction Project 2017

BBVA Bancomer Tower, Mexico City, Legorreta

VIEW FROM THE TOP

WORKING TOWARD A COMPACT, DENSIFIED AND BALANCED CITY ADRIANA LOBO Director of WRI Mexico 43

Q: What are the main challenges and benefits of the new

Cities are capable of creating powerful transformations.

Law of Human Settlements?

Public space projects in Paris, Seoul and Amsterdam

A: In the next two years, municipalities are required to

are clear examples of what an established vision and

complete the overhauling of their urban development

a coordinated effort to achieve sustainable urban

plans to adhere to the change of vision introduced by the

development can do.

new law. One of the biggest challenges is making sure that comprehensive mobility strategies are tied to urban

If Mexico City dedicated itself to shortening people’s

development plans. This is sometimes difficult because

commuting times, quality of life would improve

the federal budget often overlooks public transportation

considerably. The best projects take a long time to develop

and nonmotorized transportation methods.

but can have a strong positive impact on the population.

Municipalities have the responsibility to make sure there

The first step in urban planning is establishing a vision. If

are bicycle routes and pedestrian walkways but the lack

we cannot imagine the city we desire, we will be unable

of local resources and low prioritization at the federal

to create programs that provide the results we seek. The

level demotivates authorities lower down the chain.

idea is to create a vision, share it and collaborate to make

Power and fiscal resources should be more decentralized

it a reality.

because no single authority has the capacity to oversee Mexico’s more than 2,000 municipalities. Cities could

Q: What can be done to incorporate a more sustainable

more successfully create a customized plan through a

vision into the country’s infrastructure industry?

more balanced distribution of power.

A: Authorities have a responsibility to tender projects that promote sustainability and comprehensive urban

The new Law of Urban Development will bring life back

development. Developers are simply meeting the needs

to cities. It substitutes an obsolete law that was created in

outlined in the regulations from the public sector and

the 1970s when Mexico City was experiencing a large influx

will develop a project whether it has a positive impact

of immigration. The challenges have changed since then,

or not. Public regulations have a strong influence on a

with almost 80 percent of the country’s population now

city’s urban development. If the government improves

living in urban areas and smaller families boosting housing

sustainability requirements, companies will begin to

demand. Low-income communities have now been pushed

compete on that basis. The key to shaping the future of

to the outskirts of the city. The future of Mexico City needs

a city lies on planning and conceptual models.

to be less dispersed, more compact, more connected and more balanced. But we do acknowledge the considerable

Accountability mechanisms are among the issues behind

advances cities have made in the past few years.

the lack of quality in public works. When it comes to Mexico City, the political agenda is increasingly

Q: Which Mexican cities offer greater opportunity to

recognizing the importance of sustainable development.

improve their urban development?

At the federal level, the agenda is beginning to tackle

A: The country used to be highly centralized economically

topics like corruption and transparency.

and politically in Mexico City but secondary cities are more relevant now, which is creating a better balance across the country. Cities such as Merida and Queretaro have many

The World Resources Institute (WRI) has a global presence

opportunities to explore because their more compact sizes

and focuses on creating wellbeing and economic opportunities

allow them more flexibility to improve urban planning than

for people. It works to achieve eco-friendly development in

larger areas like Mexico City.

several areas including health, cities, forests and energy

VIEW FROM THE TOP

A PLATFORM FOR COMPREHENSIVE URBAN PLANNING INTEGRATION GABRIELLA GÓMEZ-MONT Director General of Laboratorio para la Ciudad 44

Q: What led to the creation of Laboratorio para la Ciudad

than 1,400 neighborhoods and asked what they thought

and which urban planning and policy areas are priorities?

were the biggest challenges and opportunities of urban

A: Laboratorio para la Ciudad was born four years ago

planning in the city. It was incredibly interesting because

under Mayor Miguel Ángel Mancera and it is officially

now we can categorize this information by age, by gender

the experimental arm of the Mexico City government.

and by block and determine how we imagine the future

I have 20 people on my team, half of whom come from

of the city.

disciplines related to areas like urban planning, sociology, political science and data analysis. The other half come

Even though there are differences from borough to borough,

from more creative, artistic fields, including artists,

we find that topics like corruption, mobility, public safety

designers, filmmakers, historians, journalists, architects

and water are the main concerns. In terms of potential, the

and activists. Most of what we do combines both these

number one opportunity across almost all areas was culture.

worlds. Another particularity is that we function as a

Under the leadership of Cuauhtémoc Cárdenas, the first

bridge between civil society and government. Public

Mayor of Mexico City, we surveyed 70 high-level people. The

participation is incredibly important because it can

survey results pointed to culture, creativity and diversity

help us better understand the city and implement new

as the top sources of potential for Mexico City. Because of

methodologies.

this, the Laboratory has focused its agenda not only on the city’s challenges but also its potential.

We believe that many social and urban challenges require different players to sit around the same table, and one

Q: Considering geopolitical transitions, how is Laboratorio

of the things we needed to do from the outset was to

changing its goals for the coming years?

create new tools to better understand the city. In the

A: The current times prove the need for governments to be

last four years, we have been implementing a number of

much more agile and to accept more collaboration both

projects. Our urban geography department has developed

on a local level and with other cities. This is extremely

interesting tools with which we have been geolocalizing

interesting because, although many of the systems in Paris,

certain information about the city. We can cross-reference

for example, can be adopted by Mexico City, Paris has also

data on the number of children per block with information

expressed interest in adopting some of our systems.

on access to open and public spaces and marginalization and segregation indexes across the city. We understand

The average age in Mexico City is 30 and the life of its

that in a city as sprawling and diverse as ours, more data-

citizens is very different than it was 30 years ago, so we

driven and focused policy is required.

need to ask ourselves how we can make government a place where the new demographics have a say in the

Q: What projects has the Laboratory implemented that

conversation.

demonstrate its value to the city? A: To really understand the city and include the voices

During the 1980s and ‘90s, Mexico City was seen as a

of citizens, we need to understand the city that lives in

sprawling megalopolis that nobody really understood.

people’s heads. We surveyed 31,000 people across more

In fact, the city was one of the first three to become a megacity worldwide and we have been one of the world’s largest cities since prehispanic times. The world is realizing

Laboratorio para la Ciudad is an experimental division of the

that megacities are the future of humanity and critics are

Mexico City government where global specialists pose new ways

now having to take a second look to examine how cities

of approaching issues relevant to the city, incubate pilot projects

have solved its problems. We are now starting to figure

and promote multidisciplinary meetings around civic innovation

out the sheer potential that megacities could unleash.

INSIGHT

LEGISLATION, TRANSPARENCY KEYS TO URBAN DEVELOPMENT DAVID BALTAZAR Former President of Colegio de Urbanistas de México 45

As cities grow denser, mobility, housing and water problems

Public transport is important for solving mobility

are becoming the norm. Modifications to the country’s

problems but it also has its limits and must be integrated

Human Settlements Law and the legislating of Mexico City’s

well into the urban design. During the current political

Housing Law illustrate a desire to promote strategic growth

administration, no new metro lines were constructed

and curtail these issues. But the question remains: what

because the Metrobús was given priority. “The Metrobús

more needs to be done for Mexico to slow its development

is not a complete solution for a city’s mobility problems

to a more manageable pace?

because it is not designed for long distances,” Baltazar explains. “These types of MTS are best for interconnecting

“The main problem with Mexico’s development strategies is

different modes of transportation and if not done correctly,

that they do not reinforce the importance of urban planning.

it leads to high saturation of the system.”

According to legislation, housing dictates the development of the area around it but it would make more sense if urban

Mexico has not completely explored the possibilities

planning dictated where the next housing developments

for more involvement from the private sector into the

should be,” says David Baltazar, former President of Colegio

development of these types of projects. Although the public

de Urbanistas de México. As a civil association, Colegio de

sector is adopting the PPP scheme for more and more

Urbanistas de México brings together the country’s urban

projects, there are still many other ways it could be applied.

development specialists by providing specialized courses,

Investors are still hesitant to become more involved in the

conferences and training.

country’s infrastructure development due to the many legal gray areas that still exist, especially regarding the ownership

Urban Planning, according to Wharton University, is a

of land. “This type of legal uncertainty, along with dealing

process that seeks to control the development of cities

with ejidos and legal disputes, discourages investors,”

through local regulations and direct interventions, to meet

Baltazar warns. “The ROW and working with ejidos are

a number of objectives. Mexico created regulations and

some of the costliest processes in the construction of a

strategies to moderate urban sprawl but still, progress is

project and even to this day, there are still plots of land the

slow. “It is important to raise awareness not only among

ownership of which are unclear, even to SEDATU.”

the citizens but most importantly among the politicians who make these decisions,” says Baltazar. “Politicians in

At the moment, the country is experiencing a real-estate

Mexico are not interested in urban planning because urban

development boom. Mixed-use has become the industry’s

development is a long-term process that traditionally spans

most popular development but Baltazar does not see these

several political terms.”

as a comprehensive answer to the problem. “Mixed-use developments are band-aid solutions,” he says. “The idea

Baltazar explains that the country does not have a national

of mixed-used projects is to allow inhabitants to work, play

urban-planning strategy independent of six-year terms that

and live in the same area. The real problem is that not all

would allow new administrations to build the infrastructure

Mexicans have access to financing. These islands are not

necessary for future generations. The Mexico City Metro

made for everybody but rather for certain segments of the

system is an example of why it is so important that these

population that can afford it.”

plans exist. By now, the city should have more than 20 metro lines but because no government wants to make

Baltazar suggests a remedy for these infrastructure

this expansion a priority in its short term, the system’s

challenges may be better management of public funds.

development is postponed again and again. This not only

Money collected from fines or concessions go into the

applies to Mexico City but also to Queretaro, Guadalajara

federal fund and from there are allocated to other areas

and Monterrey.

that may not be within the same community.

INFOGRAPHIC

UNCLOGGING MEXICO’S MOBILITY ARTERIES

To combat the congestion and environmental effects of

was a stride toward integrated urban planning as mandated

motorized transportation, the Mexican capital is setting

parking causes a shortage of living spaces, drives up the

an example for not only the country but also other cities

costs of housing and promotes the use of automobiles in

around the world by implementing innovative public policies

cities. The city was also the first in Latin America to use a

in mobility. In July 2017, Mayor Miguel Ángel Mancera

bike-sharing program in 2010. Mexico may still have a long

dropped regulatory requirements for parking spaces in

way to go in terms of mobility but concerned citizens and

the construction of new developments and pushed to

authorities are working to reverse the effects of car-oriented

incorporate new uses for existing lots. The announcement

legislation to develop healthier cities.

MEXICO’S BIKE REVOLUTION Bicycles are gaining popularity as a form of transportation. Over the last three years, the 30 most-populated cities in Mexico invested on average 0.3 percent of federal funds designated to mobility for bicycle use Extended Paths

Parking Facilities for Bikes Two massive bicycle parking facilities located at Modal Transfer Centers Pantitlán and La Raza (first of their kind in the city). Automatic accessibility system allows up to 1,200 uses per day

There are 737km of bicycle infrastructure in Mexico.

• Mexico City encompasses 170.11km (bike lanes, bus-bike lanes and complete street schemes) • 15km bicycle paths added in 2016 on main avenues (Revolución, Patriotismo and Buenavista) • In 2017, Mexico City hosted the Word Bike Forum

6 5 4 0 35,00

RIPS

T DAILY

1 0 LION

5.5 MIL

CARS

Y RY DA

G EVE

LATIN CIRCU

METROPOLES ARE MOTORIZED Vehicle fleet in Valley of Mexico Metropolitan Area more than doubled

MX$3.5 billion recived by Mexico City in 2015 from the Mexico-Chile Cooperation Fund Commission to keep promoting the use of bicycles.

in one decade; ZMVM includes the capital and 18 State of Mexico municipalities

30 million vehicles registered in 2015

Bike-Sharing System Early in 2010, Ecobici became one of the biggest bike-sharing programs in the world

• 452 stations and 6,500 bicycles • 36 million trips provided in six years

60%

of users did not use bicycles before joining Ecobici

• 2,652 tons of CO reduction (until 2016)

27,171,560 automobiles

Vehicle Increase (2005-2015)

159% ZMCDMX 81.6% Mexico

Sources: INEGI El Economista, Ciclo-ciudades, Governmental Reports

2,608,659 motorcycles

100

150

200

17% of Metrobus users left their cars to use this form of transportation

6 Lines

The New Line 7 Construction is underway for the new route on the emblematic Reforma Avenue

208 stations

8 hybrid buses (in Line 4) saves 30% of fuel consumption

125km extension

Will reduce commute time in the area by 40%

US$84.3 million total estimated investment

Annual reduction of 19,000 tons of CO2 emissions

US$618,000 for each double-decker bus

90 double-decker buses (for 128 passengers) will replace 180 obsolete units on the avenue

RANS

PLE T

PEO ILLION

D ON ORTE

IS Y BAS A DAIL

4 3 2 1 0

ILLION

AN 5 M

TH MORE

SE IT

EU PEOPL

DAY EVERY Renovation and Expansion

MEXICO CITY METRO The cost of public transportation in Mexico City is complex. The capital may have one of the cheapest The Mexico City Metro has 195 stations

It has 390 trains

• distributed over 12 lines

subway systems in the

• more than 5 million people use it every day.

affordable transportation

• 108 of those are under maintenance, special projects or in reserve

travels long distances using

world (and one of the most systems in Mexico), but as the average commuter

• 43km total

• for Line 1 (for 2018)

10 new trains

The construction of Latin America’s first waste-toenergy facility for Metro

more than one form of transportation, prices can add up in comparison to the base salary.

42.3%

Line 12

of the approved budget comes from revenues raised by a price hike on tickets (from 3 to 5 pesos implemented in December 2013)

• US$11.2 million annual expense for maintenance (tracks and stations)

The Most Expensive and the newest Metro Line in Mexico City

Expansion of Lines 12, 9, A and B

• US$1.7 billion for service for 30 trains (17-year contract)

Huge Investment To catch up on the maintenance and repair lags of the system

• The metro requires a US$1.7 billion investment and an annual budget of US$1.1 billion, according to SCT • Approved by Mexico City Legislative Assembly (ALDF)

US$931 million budget for Metro

AVERAGE PRICE SINGLE-RIDE METRO TICKET 2017 COMPARED TO MONTHLY MINIMUM WAGE SALARIES

1824

1351

1682

677

2,500 2,000

0.35 125

1,000

Mexico City

0.35 Panama City

425 1 Montevideo

1.1-18

426

0.6-1.3 720 Hong Kong

1.4

Rio de Janeiro

1.5 Tokyo

Toronto

296

3 New York

Amsterdam

Copenhagen

London

3,000

1,500

Santiago

1844

Average price per single-ride Monthly minimum wage in (US dollars)

2.6

3.5

1550

3.84-5.76

8.53

2600

500 0

INSIGHT

ALTERING THE TRANSPORT LANDSCAPE ABEL LÓPEZ Urban Transport Specialist at World Bank Group 48

The World Bank is doing something few entities could:

to complement PROTRAM’s support and preparing bidding

changing the landscape of public transportation systems

documents for civil works or for a public-private partnership

in Mexico. This has been the main purpose of the US$350

arrangement,” López says.

million credit line the Bank extended to the Mexican government. “The role we play is conveying good practices

There are political and financial factors that have a direct

throughout the country,” says Abel López, Urban Transport

impact on a project’s completion. “Most politicians like to

Specialist of World Bank Group, which has been successful

be seen inaugurating public projects. If a project takes five

in its mission so far. “We participated in the design of

or six years to be completed, the three to four years that

the Federal Program for Urban Mass Transportation

most politicians are in office are not enough to finish it.”

(PROTRAM) and through the National Infrastructure

He argues that planning should always be prioritized over

Bank (Banobras) we finance projects that contribute to

cutting ribbons.

PROTRAM’s objectives.” Finances also play an important role. “Governments are While it is true that money does not solve every problem,

accustomed to assigning concessions and letting private

the Bank’s financing has contributed to the expansion of

individuals handle transportation services,” says López. This

the Bus Rapid Transit (BRT) system throughout the country.

practice results in dependence on the private sector and

“Eight years after PROTRAM started, we have financed

has led most local congresses to deprive cities of budget

projects, through Banobras, in Monterrey and Tijuana. We

that would have been allocated to public transportation.

are also in the process of financing systems in Mexico City, Cuernavaca, Acapulco, Campeche, San Luis Potosi and

Although the Bank’s credit line allows Banobras to fund up

Aguascalientes,” says López.

to 67 percent of the total debt of a project, a problem often encountered is the private-sector financing. Big commercial

Mexico has more than 93 urban zones with over 100,000 inhabitants

banks are also hesitant to provide financing to projects like Metrobús, as it is considered too small to merit their involvement in the other 33 percent. “Local banks have found a niche market that has been neglected by financial institutions. These banks have advanced the appraisal of these projects and created instruments for private-sector financing,” says López.

The country’s changing landscape from rural to urban conditions makes the implementation of BRT systems

For the World Bank specialist, the present administration’s

an attractive option. According to López, Mexico has

goal of adding 100km to 10 Metrobús lines by 2018 seems

more than 93 urban zones with over 100,000 inhabitants.

out of reach. But a respectable total of 80km of additional

“When PROTRAM began, we thought Mexico could house

Metrobús lines would be perfectly attainable in Mexico City,

approximately 15 projects,” says López. “Today, PROTRAM has

according to López. Currently, the World Bank has agreed

at least 40 projects in different planning stages of obtaining or

to finance the Extension of Line 5, which will contribute

using federal grants for BRT or city-wide transport systems.”

20km of the government’s 100km goal.

PROTRAM is not short of possible projects but most take

No one in Mexico City doubts the success of Metrobús,

half a decade to complete. “There are several potential

according to López. The challenge ahead is convincing

complications such as finding a government that wants to

entrepreneurs and governments from other entities of

carry out the entire project, obtaining the necessary funding

following the capital’s example.

VIEW FROM THE TOP

MORE COLLABORATION NEEDED BETWEEN AUTHORITIES ALFONSO VĂ&#x2030;LEZ Director General of AutoTraffic 49

Q: What needs to happen for Mexico to transform mobility?

in speeding along with a significant reduction in car crashes.

A: Data is needed in order to implement the right public

The SmartMobility Platform also maps out all the crashes

policy. When tackling transportation and mobility issues, it

in the area with a description of the incident. This kind of

is important to benchmark the current status of the area

valuable information will encourage the authorities to invest

and have historical and real-time data to analyze. Because

in these technologies.

the majority of municipalities and states do not have access to this type of data, the implementation of policies

It is important to complement the technology and controls

is inefficient.

with other solutions, such as pedestrian intervention infrastructures and street design. There are two ways to

The latest car crash statistics released by the National

make streets safer for all users: through the implementation

Center for Accident Prevention (CENAPRA) are from 2015.

of controls and by applying these modifications to slow

We are two years behind in terms of data. How can the

down traffic. Design can have a great impact on mobility

public or private sectors make decisions about mobility if

and helps people understand what is happening.

the information is out of date? When implementing a traffic safety project, there is no way of knowing the true impact it

Q: How can technology and controls be implemented by

is having in the area and how it could be improved.

municipalities with small budgets for mobility? A: AutoTraffic provides the technology and services

Q: How is AutoTraffic promoting the development of safer

through a service contract. Our projects are all self-

and sustainable urban-mobility solutions in Mexico?

financing and we are in charge of their entire operation.

A: AutoTraffic developed Mobility 3.0 that provides solutions

In a municipal contract, the government pays us for our

that are oriented to solving mobility issues as a whole and

services through the fines that are collected with the

not just safety or traffic. The goal is to create safe and

photo enforcement systems. We receive a percentage

efficient environments for all modes of transportation. We

or a fixed amount of only the fines that are paid to the

are creating traffic-control systems that include pollution

government. We do not directly charge or receive money

sensors to gather information on how traffic impacts the

from the fines.

environment. These street-level sensors measure CO2, NOx, O3 and micro particles emissions at highly congested

The private sector is far more adept in the implementation

intersections. The data gathered through this technology

of technology. The government should manage the city and

helps decision-makers create the right intervention strategy

leave the operation of the technologies to the private sector.

in terms of traffic regulation.

For our projects, we take care of all aspects, including cameras, sensors and even maintenance. In Mexico, when

The information we gather is displayed across our

the government invests in technology, it often does not

SmartMobility Platform that we created with Sin Trafico.

take into account the human capital needed to operate and

This platform was developed by 100 percent Mexican

maintain the systems. As a result, the systems are usually

companies. Puebla is the first city to implement the

broken or left operating without maintenance or oversight

SmartMobility data center, which began operation in

for months on end.

June 2017. Q: What kind of data has the SmartMobility Platform

AutoTraffic was founded in 2003, with the mission to save lives

collected?

within the mobility landscape. It is a leader in smart mobility

A: In areas where we have installed speed-control

and accident prevention technologies and aims to be a leader

mechanisms, the platform identified a 60 percent decrease

at the national level for safe, efficient and sustainable mobility

VIEW FROM THE TOP

DIVERSIFYING MOBILITY OPTIONS IN MEXICO RODRIGO VĂ ZQUEZ CEO of BKT Bicipublica 50

Q: What are the main challenges of implementing bike-

pushing the public sector to change its paradigms. It is

sharing systems in cities?

important to have a clear business model.

A: Our biggest challenge is making sure that the cities we enter have incorporated the idea of a public bicycle

Q: What role should the public sector have in promoting

system into their transportation blueprint, ensuring funding,

the use of bicycles within cities?

leadership and commitment. Since bike sharing systems

A: Authorities need to embrace non-motorized transportation

require the creation of norms and bicycle pathways, the

systems in the short and long term. Jalisco is an excellent

impact of the systems is wider than bicycles alone. The

example of efficient governance. The government made it clear

issue is that most cities do not have an agency to manage

to pedestrians, cyclists, motorist and public transportation

non-motorized mobility. The increasing use of bicycles is

users that budgets should be re-oriented to develop public transport and prioritize more efficient transport methods. This contributed to the funding of the MIBICI bikeshare system.

BKT Bicipublica has more than 10 years of experience in the

Today, the system is politically supported and reached 3

operation of public bicycle systems, operating the MIBICI system

million trips in September 2017. Our company is based on

in Guadalajara. It has more than 50,000 bicycles, 3,900 stations

the concept of social co-creation. We do not impose systems

and 160 million trips around the world

without community consultations.

INSIGHT

ALTERNATIVE MOBILITY FOR SMARTER CITIES LUIS PRADOS Director General of Clear Channel Mexico 51

Mobility is a key aspect of any city. Ideally, it is an organized

“By 2019 Oslo will ban the circulation of cars and by 2025

and coherent public transport system that eliminates the

it will stop selling gas-powered vehicles. At the moment, 17

use of fossil fuels. In Mexico City, this is not always the case.

percent of cars in Norway are electric.”

Companies and government players at all levels are moving to change that with the ultimate goal of creating a so-called

But what about Mexico and Latin America? According to

Smart City. “The first step toward transforming mobility within

Prados, Latin America’s issue is that it listens to respond and

a city is planning,” says Luis Prados, Director General of Clear

not to understand. “We usually hold these solutions at arm’s

Channel Mexico. “When cities try to make this transformation,

length due to the socioeconomic differences between Latin

authorities must first understand the unique characteristics

America and Europe, instead of really understanding what

of the city, its needs and how it will adapt.”

it implies, but there are also similarities. Just like Mexico, Norway’s main business is gas. But unlike Mexico, it decided

Since 2010, Clear Channel, one of the world’s largest

to place high taxes on gas-powered cars and exempted

outdoor advertising companies, has operated and

all electric cars from paying taxes.” Now, 50 percent of

maintained SEDEMA’s public bike-sharing system,

all new cars registered in Norway are electric or hybrid

Ecobici. Seven years, 5,120 bicycles and 42 million bike

and to further encourage citizens to purchase electric cars,

trips later, Ecobici has grown by 400 percent to become

they were also exempt from paying tolls on highways. “It

the largest bike-sharing system in Latin America. At a

is not that Norway is a first world country, but that the

cost of MX$416 (US$22) a year, over 240,000 users in

government was able to adapt to the needs and priorities

Mexico City are able to move through 43 of the city’s

of the citizens,” says Prados.

main neighborhoods across three delegations, covering an area of 35km2.

Ecobici has grown by 400 percent to become the largest bike-sharing system in Latin America

Like any other project, Ecobici has a phased approach to expansion within the city, but at the moment it is only present in three of 16 Mexico City municipalities. The program has had a 45 percent increase in bike rides since 2010, but due to its extremely low cost and budget cuts, it has not grown as fast as it could. “If users paid MX$1,200 a year, MX$100 a month, the entire system would be selfsustainable. The money could be used to improve and

Clear Channel wants to continue pushing for innovation

expand the existing system,” says Prados.

and its next plan is to incorporate its advertising infrastructure into the city’s communication system. Years

Intelligent mobility systems not only reduce traffic and

ago, contingencies, weather alerts and other important

saturation but can also help deter the impact from climate

announcements were made through the radio. But an IFT

change. “Cities occupy only 2 percent of the earth’s area,

report released in 2016 revealed that only 40 percent of

yet they consume 70-80 percent of the world’s energy

Mexicans listen to the radio. Clear Channel proposes a new

and generate over 75 percent of CO2 emissions,” Prados

way to communicate to the masses. “During contingencies,

says. “In Latin America alone, more than 36 percent of

our screens could be used to send out alerts or alarms in

the population lives in a city and by 2050, more than 90

places where the entire city can see,” says Prados. As of

percent of Mexico’s population will live in cities.” Rapid

2017, 90 percent of the company’s advertising infrastructure

urbanization is pushing the need for new and improved

is digital and it has screens of all shapes and sizes scattered

mobility solutions. “The future has no car traffic,” he says.

throughout Mexico City.

VIEW FROM THE TOP

COMBINING MATERIALS FOR GREATER SUSTAINABILITY AARON BARRIOS General Manager of Plastimadera 52

Q: What sectors take advantage of Plastimadera’s wood

Q: What is Plastimadera’s game plan when creating new

substitute and how?

applications for plastic wood?

A: Our products can be used in a wide variety of industries

A: We innovate through a double strategy. On the

and we complement them with tailor-made solutions.

one hand, we hire people who can help Plastimadera

Plastimadera manufactures industrial pallets, buoys and

overcome its weaknesses so the company can identify

speedbumps, building beams and pavilions, railway sleepers,

and take advantage of new opportunity areas. On the

fences, facades, footbridges, rough-use playgrounds,

other, Plastimadera develops strategic alliances that add

kiosks, paddocks, roof tiles and rough-use floors designed

value to its projects. For example, when we entered the

for industrial, real estate and infrastructure activities. Our

urban furniture market we brought in specialists who

core business is providing an environmentally-friendly

understand Mexican culture. They identified the flaws in

substitute for natural wood made out of recycled plastic.

our competitors’ products and designed more resistant products. Our allies also help us improve and win contracts.

We expect the real estate industry to continue growing

Public dependencies like the Mexican Transport Industry

for eight more years, which implies a market in which

back our products as well as real estate developers and

Plastimadera can also grow. Developers continue to

universities like UNAM, IPN and ITESM.

prioritize the sustainability, social and mobility aspects of their projects. Plastimadera thrives on the momentum

Q: What obstacles does Plastimadera face when

sparked by these trends.

introducing its products to developers? A: Convincing developers to use several materials to create

Q: How is Plastimadera positioned in the real estate

something sustainable is difficult. They prefer to use wood

value chain?

or metal because they are familiar with these materials.

A: Developers take advantage of our customized services

Being a young organization is challenging because we

to optimize their projects. They call during the first stages

have not introduced as many of our products as we had

of the project to incorporate our products into the design

hoped. Another issue is convincing developers of the cost-

of areas such as parking lots. Our products are then

benefit of Plastimadera’s products. People think recycled

installed near the end of the construction phase. In short,

materials are more inexpensive because the cost system

we help developers finish their projects by delivering tailor-

behind recycling is unfamiliar to them. They are not aware

made, eco-friendly solutions that impact sustainability

that producing a recycled material means investing in a

and mobility without breaking the project’s original

completely new manufacturing process.

architectural concept. For example, we collaborated on the renovation of Bosque de Chapultepec by assessing an

Q: How will Plastimadera continue to innovate with its

existing project and convincing our construction partner

products?

to use kiosks made of both metal and plastic instead of just

A: We are introducing a new eco-friendly line of lighting

metal. This made the kiosks more aesthetically pleasing,

poles called Alumbrateck in October and five new urban

more resistant and improved the general landscape while

furniture projects, including benches with umbrellas in new

adhering to the planned concept.

shapes. We innovate by taking a concept that already exists and making it eco-friendlier.

Plastimadera manufactures a wide range of products with

Plastimadera is present in Chihuahua, Jalisco, Quintana Roo,

recycled polyethylene to ecologically substitute wood and

Yucatan, Campeche, Queretaro, Puebla, Mexico City, State

eliminate the need to cut down trees. The company offers

of Mexico, Nuevo Leon, Colima and Veracruz. Many of our

customized services to each client and adapts to each project

projects in these locationsare ecological parks and hotels.

VIEW FROM THE TOP

UNDERGROUND INFRASTRUCTURE FOR BETTER MOBILITY GUILLERMO VILLARREAL Director General of UnderTerra 53

Q: What are the key urban development trends in Mexico?

Q: How did UnderTerra find the opportunities that

A: Urban centers that grow as far as the eye can see

pedestrian underpasses provide?

generally present mobility issues and those cities that

A: In 2009, we built four 3m wide tunnels in Silao, Guanajuato

fail to solve these issues will see their young population

that constitute part of the Federal Highway 45 and that were

flee to other locations. This is true for all social strata. A

geared toward solving the rainwater drainage problems that

construction worker or a young professional will generally

Guanajuato Interior Port was suffering. Six months later in a

earn the same amount regardless of the area of a city in

routine inspection of these tunnels we noticed pedestrians

which he or she works. If young people can make just

in the area did not use the pedestrian overpass and crossed

as much money working within walking distance from

the road directly. We came up with the idea of using the

their home and have convenience stores, bars and other

Tunnel Boring Machine that we used for the highway tunnels

businesses in their direct vicinity, there is no point in wasting

to build well-equipped pedestrian underpasses.

time and money in moving around the city. The future is in vertical growth with useful urban mobility.

Q: Where has UnderTerra implemented these underpasses? A: UnderTerra has built two tunnels thus far. We approached

Q: What role will a company that specializes in underground

the mayor of San Miguel de Allende and eventually built

structures play in vertical growth?

the first pedestrian tunnel in that city. It has had a positive

A: It is our duty as engineers to come up with solutions

impact by reducing the accident rate in the area. Another

that feed this trend. In the particular case of Monterrey,

underpass in Monterrey. The company dug an underpass

orography has defined the city’s layout but civil

that connected the new building of the Autonomous

engineering must now prevail over hills. Since the city

University of Nuevo Leon’s hospital with other buildings

is expected to grow vertically in the coming 25-30

through basement access. This enabled the hospital to

years, UnderTerra wants to contribute to urban mobility

transport hazardous biological waste to the incinerator

here by interconnecting areas and developments

without having to take it to street level.

through pedestrian tunnels. The center of Monterrey is practically deserted; there is an abundance of vacant

Q: What challenges has UnderTerra faced while trying to

lots and abandoned houses. This provides significant

implement these tunnels?

opportunities to develop the area and adjust it to the

A: We have faced tough resistance to these solutions. Looking

ongoing urban development trends.

for clients and promoting a unique idea is time and energyconsuming for the company, but it is worth it. For instance,

Q: What advantages do pedestrian underpasses or tunnels

a year and a half passed between us approaching the mayor

offer over pedestrian overpasses or bridges?

of San Miguel de Allende and the moment the crossing was

A: People commonly expose themselves to danger by

finished. But now that the tunnel is there, the press praises

crossing streets directly instead of using pedestrian bridges.

it. Our strategy is to educate the market. We show technical

Using a bridge at noon in 40°C heat means spending time

directors of public dependencies like SCT, construction

and physical effort to go up and down the structure that

companies and real estate developers how they can benefit

could be easily avoided by using a tunnel. A couple of

from these underpasses.

tenders for pedestrian bridges in Monterrey were recently awarded. We ran the numbers and realized that UnderTerra’s underpasses could have saved the public treasury 8 percent

UnderTerra is a Mexican company focused on underground

of the final costs of these bridges. The issue is that the

solutions for the infrastructure and real estate industry. The

tender was to build overpasses, so coming up with a

company builds gas, water, electrical, optic fiber-based and

pedestrian tunnel proposal was out of the question.

copper cable-based telephone networks

View of Circuito Interior

ANALYSIS

PEOPLE TRAFFIC VERSUS CAR TRAFFIC It is no secret Mexico needs to improve its mass transportation systems (MTS). Transportation is not only a problem in Mexico City, but now cities such as Monterrey, Guadalajara and Queretaro are seeing symptoms of the country’s dysfunctional, and in some cases nonexistent, public transportation systems. In 2015, CEPAL estimated that for every 1,000 habitants,

section of the Mexico-Toluca train. The train’s route has been

there were at least 300 cars. The lack of public transportation

changed due to the difficulty of liberating the rights of way

incentivized the use of cars and for this reason, cities

(ROW), as it will run through heavily populated areas from

began to carry out their urban planning around vehicles

Santa Fe to Observatorio. The train’s route was changed

too. According to AutoTraffic, most of public resources

once because of the inconvenience it would bring to the

assigned for urban infrastructure have been historically

people of Santa Fe and then changed again due to the

used in increasing capacity for cars, creating bypasses,

concerns of the quantity of trees that would be uprooted in

distributor roads and bridges. Approximately 77 percent

the process. Omega, one of the companies developing the

of federal investment in mobility has been for cars, yet three

project, stated that the changing of the original path has

out of four trips made in a city are made by bicycle, public

heavily impacted the estimated costs and budget, which

transport or walking, CTS Embarq estimates.

will impact the viability of the project drastically.

“There needs to be more investment in MTS and urban

The Mexico-Toluca Interurban Train is on a tight timeline

transportation alternatives because options like second floors

and the La Marquesa-Observatorio section as of October

are extremely expensive and in the long term are not a viable

2017 is only 35 percent complete. When completed, the

solution,” says César Monroy, Director of Infrastructure at PwC.

train should greatly reduce transportation times and

Local and federal governments are realizing that they have

traffic from Toluca to Observatorio. But the congestion of

to start investing in MTS and during Peña Nieto’s presidential

the Observatorio station could pose a problem. “The next

term, various projects were contemplated, including the

challenge to be solved is the connection between the train

Mexico-Toluca Interurban Train and the Guadalajara Electric

and Metro Observatorio since the current station will have

Urban Train. But as usual, tight budgets and ROW issues

to be adapted to receive excessive amounts of people at

make the projects go on for years and seem unfinishable.

peak hours,” says Monroy.

“Projects that are located inside the Mexico City metropolitan area are far more complicated due to the high level of interaction a project will have with existing infrastructure in the area,” says Jorge Torruco, Director of Construction at Omega. “This is complicated by the fact there is continuous congestion in terms of vehicles and people, which also generates social problems that can impact the performance of the project.”

When considering the 42,640m from Observatorio to NAICM, with approximately one block of margin, over 34,507 homes and more than 96,000 people could be impacted

CONNECTING MEXICO’S MEGAPROJECT Connecting NAICM to the rest of the city has been a

Observatorio will become the newest Mexico City Modal

pending issue in the government’s agenda given its remote

Transfer Center (CETRAM). The city currently has 42

location. One of the options the Mexico City government is

CETRAMs scattered in various delegations. These centers

considering is the Observatorio-NAICM Express Train. This

have been undergoing renovations for years but given the

train will travel between the Observatorio Metro station

high rates of passenger traffic, it is hard for authorities to keep

and NAICM, a distance of approximately 25km, passing

up. Tasqueña is one of the largest CETRAMs with more than

through the downtown area. According to INEGI, when

29.9 million users per year. It interconnects the south of the

considering the 42,640m from Observatorio to NAICM, with

city with incoming passengers from Morelos and Guerrero, as

approximately one block of margin, over 34,507 homes and

well as the Mexico City Light Train. Once the Mexico-Toluca

more than 96,000 people could be impacted.

Interurban Train is finished it will interconnect Line 1 and the future lines L9 and L12 of the Metro system. It will service

One party that is familiar with problems on the route to

more than 230,000 extra passengers every day in addition

Observatorio is Omega, one of the developers of the third

to the commuters that already arrive to Observatorio.

Guadalajara International Airport

TRANSPORT INFRASTRUCTURE

About 60 percent of goods in Mexico is moved through its highway and road system. The significant demand means there is an imperative need for new projects to make the transportation process more efficient, but also for maintenance, improvement and expansion of the existing routes. With few road tenders left to award, the Port of Veracruz is sure to spark the interest of many companies. Mexico’s ports need to be modified to meet the demand from the country’s booming industrial sectors and of incoming investors. If the country wants to become an international logistics center, it must link its transport infrastructure.

The NIP envisions Mexico as a world-class logistics hub. Three years into the plan, there are many projects yet to accomplish. The construction of several critical roads has been delayed due to issues with land rights and inflating prices. The addition of unsolicited proposals into the PPP Law has caught the attention of companies but there are many areas of opportunity left in the framework. This chapter presents the expertise of port, airport, road and rail developers and consultants to provide insight into where the country is heading, the latest trends and the requirements necessary to fulfill the NIP’s ambitious goals. This is a comprehensive insight into the long-term planning for transport infrastructure in Mexico.

CHAPTER 3: TRANSPORT INFRASTRUCTURE 60

ANALYSIS: What is Preventing Mexico from Becoming a Logistics Hub?

INFOGRAPHIC: Improving Mexico’s Logistics

VIEW FROM THE TOP: Eduardo Andrade, Sacyr México

VIEW FROM THE TOP: César Monroy, PwC

VIEW FROM THE TOP: Othón Pérez, Hill International

INSIGHT: Ángel Carrillo, INCA Ingeniería, Control y Administración

VIEW FROM THE TOP: Alfonso de la Parra, Tecnopeaje

VIEW FROM THE TOP: Benito Neme, CAPUFE

PROJECT SPOTLIGHT: The Road Now Taken

INSIGHT: José Rueda, APM Terminals

VIEW FROM THE TOP: Alejandro Manzanilla, API Campeche

INSIGHT: José Zozaya, Kansas City Southern de México (KCSM)

MAP: The National Railroad System

INSIGHT: Fernando Bosque, GAP

INSIGHT: Adolfo Castro, ASUR

VIEW FROM THE TOP: Alfonso Sarabia, ASA

MAP: The National Airport System

ROUNDTABLE: What Must Be Done To Promote Mexico’s Transport Infrastructure?

ANALYSIS

WHAT IS PREVENTING MEXICO FROM BECOMING A LOGISTICS HUB? For the remainder of the presidential term, SCT is expected to have a budget of MX$77.3 billion to complete its ambitious plan. With such a tight schedule and budget, the government will have to prioritize and accelerate the completion of the country’s most important projects

On the 2017 Global Competitiveness Index, Mexico’s

traffic of the saturated Mexico-Cuernavaca highway, which

infrastructure ranking has dropped from 57 to 62 in in

is the fastest route from Mexico City to popular tourist

comparison to 2016, with railroad, port infrastructure and

destination Acapulco on the Pacific coast. Three months

air transport infrastructure rankings falling the most. The

later, a sinkhole took the lives of two people on the new

country’s demand for transport infrastructure continues to

road. This incident placed SCT and the infrastructure sector

increase but budget cuts and ROW issues continue to set

under the microscope as the country began to question the

back the completion of projects. The government continues

planning and correct construction of the country’s roads

to look to PPPs and USPs to complete infrastructure

and highways.

projects, but tendering processes must be made more efficient to accomplish more goals.

The 2018 budget allocation has been announced as MX$15.2 billion for the construction and modernization of 423.2km

With only a year to go, there are many NIP Infrastructure

of the federal network, MX$1.37 billion for the liberation

commitments that are not close to being completed.

of ROW, MX$559.5 million for pre-investment studies and

“Planning is a skill that the Mexican market has yet to master

MX$5.27 billion for the provision of services. Just like in

completely, even though it is the base for any public or

2016, the conservation and maintenance of roads subsector

private project,” says Julio Amodio, Director General of

will be the most active. For this, MX$11.07 billion will be

CAABSA. “For 2017-2018, we expect to be more active

used to reconstruct 6km of roads and 21 bridges, the

constructing projects for the private sector than the public

periodic conservation of 2,100km and routine conservation

sector, given the proximity to presidential elections and

of 40.262km. All of this will be done through various

budget cuts.”

maintenance and conservation PPPs that will serve more than 2,103km of the network, which means that the private

The NIP placed significant importance on boosting the

sector will be more involved in 2018.

country’s road and highway network, detailing 76 road and highway projects: 15 highways, 29 roads, 16 beltways,

OFF THE RAIL

seven junctions and bridges and nine rural roads. By

The NIP detailed four rail commitments: the Aguascalientes-

mid-2017, the federal government had completed 59

Guadalajara railway, the Colima Rail Tunnel, the

road and highway commitments that added up to more

Coatzacoalcos Rail Beltway and the Celaya Rail Beltway.

than 700km and an investment of more than MX$28

These projects have all started construction but have not

billion. From June 2016 to June 2017, the government

yet been delivered. Between December 2012 and June 2017,

allocated MX$335 billion and concluded 17 projects.

the Matamoros rail beltway and the Multimodal Railway

Of the 59 commitments, the most important were the

Terminal in Durango were both completed, although they

Jala-Compostela-Bahia de Banderas highway and the

were not government commitments. In 2018, the subsector’s

modernization of the Portezuelo- Palmillas road.

budget will be MX$20.65 billion for the construction of rail beltways, preliminary studies that will be shared with three

Nevertheless, the big projects have yet to be marked off

mass transportation projects and the expansion of line 12

SCT’s to-do list. Cardel-Poza Rica in Veracruz, Tuxpan-

of the Mexico City Metro, a number dwarfed by the amount

Tampico, Oaxaca-Puerto Escondido and Oaxaca-Istmo,

required for the NIP projects.

to name a few, have been under construction for years, and some even since Felipe Calderon’s presidential term

For freight infrastructure, the private sector has been

in 2006-2012.

investing the most in maintenance and construction. Ferromex-Ferrosur invested more than US$250 million,

There have been other setbacks on the way for SCT. On April

of which 45 percent was for rail, bridge, tunnels and

5, 2017, the federal government alongside SCT inaugurated

telecommunications infrastructure. The remaining 22.7

the Express Way in Cuernavaca, Morelos. With a price tag

percent was for the construction of new terminals,

of MX$1.45 billion, it was designed to help relieve the dense

platforms and double rails. KCSM also committed

US$156 million in 2017 and entered joint ventures

the expansion of the Port of Veracruz that was 37 percent

with WTC and Watco to create a fuel storage facility

complete as of June 2017.

in San Luis Potosi. Because railways and adjacent land belongs to the government, it is up to legislators to

LOOKING TO THE SKIES

release the ROW and tender new projects to boost the

In 2017, NAICM took all the limelight, but seven

country’s freight capacity and efficiency. José Zozaya,

commitments and 14 strategic airport infrastructure

President of KSCM stresses the importance of boosting

projects were detailed by the NIP. From September 2016 to

Mexico’s rail connectivity with the US, given the trade

June 2017, the modernization of AICM in Mexico City was

relationship between both countries. “Border crossings

completed, along with modernization of the Chetumal,

like Brownsville-Matamoros and Laredo-Nuevo Laredo

Istmo, Poza Rica and Atlangatepec airports. With more

require better rail infrastructure and logistics for trains

than 71.9 million passengers and 588,600 tons of goods

to cross the border efficiently,” he says.

transported in that time period, a 13.2 percent and 5.6 percent increase compared to the previous year, there is

The ambitious NIP also included a plan to construct three

a real need to accelerate infrastructure development. In

MTS. The Mexico-Toluca Interurban Train, the Guadalajara

2017, the federal government invested more than MX$1.32

Electric Urban Train and the Line 3 of the Monterrey Metro

billion through the five airport groups – ASA, OMA, GAP,

System. With more people migrating into Mexico’s cities,

GACM and ASUR – to boost the efficiency of the national

MTS projects are urgently needed to move people from

airport system. The main ongoing projects are T4 of the

point A to point B. “There needs to be more investment

Cancun International Airport, the modernization of the

in MTS and urban transportation alternatives because

Guadalajara Airport, the expansion of T2 of the Los Cabos

options like second floors are extremely expensive and

Airport, the terminal building of the Acapulco Airport,

in the long term are not a viable solution,” says Cesar

expansion of terminal A of the Monterrey Airport and the

Monroy, Director of Infrastructure at PwC.

beginning of the expansion of the San Luis Potosi Airport.

During this presidential term, MX$40.3 billion has

From 2013 to 2016, ASA invested more than MX$2.27

been invested in MTS projects. As of June 2017, the

b i l l i o n to i m p rove i t s te r m i n a l s , a i r st r i p s a n d

Guadalajara Electric Urban Train is 81 percent complete

interconnection. ASUR is operating the second-most

and is expected to be completed by 2018. Line 3 of

important airport in Mexico, the Cancun International

the Monterrey Metro advanced 85 percent and is also

Airport. The completion of T4 will drastically increase

estimated to be completed by 2018. The Mexico-Toluca

its capacity to receive passengers and even help relieve

Interurban Train on the other hand is only 58 percent

some stress from AICM in Mexico City. But the country

completed due to various changes in the route and

needs NAICM to serve the demand. “Mexico City is still

ROW issues. “The Mexico-Toluca Interurban Train will

the hub for most flights arriving from both domestic and

drastically reduce the quantity of cars but any further

international points of origin, and its airport is the tent

notions of passenger trains between cities have been

pole that holds up the rest of the nation’s aeronautical

largely overlooked because the government has placed

infrastructure,” says Adolfo Castro, Director General of

too much focus on the country’s road development,” says

ASUR. “The construction of NAICM is therefore of the

Monroy.

utmost importance for the development of air traffic in Mexico.”

INCREASING PORT CAPACITY The NIP’s goals for its port system is to increase its

WILL THE TARGETS BE MET?

capacity to more than 520 million tons, and from

If SCT wants to complete its list of commitments and

December 2012 through June 2017, MX$56.05 billion

truly transform the country’s infrastructure, many in the

was invested in port infrastructure. Of its seven project

industry believe big changes must be made. Infrastructure

commitments, four have already been completed. The

development depends on the involvement of the private

modernization of the Port of Guaymas, Port of Matamoros,

sector, but tendering processes for PPP projects are

Port of Seybaplaya and Port of Altura were finished

still among the country’s biggest challenges. “The root

in 2017. MX$9.2 billion was invested from September

of all infrastructure projects stem from the urgency at

2016 to June 2017, of which 52.1 percent came from the

which the public sector wants to construct them,” says

private sector and 47.9 percent from the public sector.

Amodio. “Because the public sector is sometimes in

Mexico’s ports moved more than 1.34 billion tons in the

a hurry to start building a project, the proper studies,

last five years and both the private and public sector

preconstruction analysis and planning stages are not

have invested in various projects to increase capacity.

properly carried out.” This scenario can often leave the

One, if not the most important, project for 2018 will be

project vulnerable as important steps can be overlooked.

INFOGRAPHIC

IMPROVING MEXICO’S LOGISTICS A central objective of the NIP is the development of a transport

2016-17, however, shows that Mexico's “quality of overall

logistics platform that strengthens Mexico’s competitiveness,

infrastructure” improved since the previous report. The

productivity and economic and social development. Strategic

country jumped five positions to 69th of 140 ranked

investments from both sectors in port infrastructure and

countries. The quality of Mexico's railroad infrastructure

intermodal connectivity are key steps to achieve this goal.

improved in the same period and the country climbed two places to number 59. In 2016, the amount of railroad-

Mexico's logistics performance in terms of trade and

transported bulk freight more than doubled. In the "quality

transport-related infrastructure declined between 2014

of port infrastructure" parameter, the country remained

and 2016, according to the World Bank. The World

in 57th place, but investments in the expansion and

Economic Forum's (WEF) Global Competitiveness Report

modernization of ports can improve this figure.

Ferromex

Bulkmatic de

KCSM

México

FR Terminales

Ferrovalle

Ferrosur Investments in port infrastructure

Intermodal Corridors Maritime 2

Cross-border Domestic MAIN INVESTMENTS IN PORT INFRASTRUCTURE Port

Project

Investment Start of (MX$ million) Operations

Tuxpan

Construction and equipping of public pier for containers and general cargo

4,937.5

Mar. 2016

Matamoros

Consolidation of development and operation

1,425.2

Aug. 2016

Altamira

Equipping of multipurpose terminal

203.3

Nov. 2016

Seybaplaya

Modernization

192.4

Dec. 2016

Manzanillo

Dredging and pier sheet piling

435

Dec. 2016

Progreso

Expansion and modernization

1,047

May 2017

Lazaro Cardenas

Intermodal railyard

47.9

Sept. 2017

Ciudad del Carmen

Modernization

996.4

Oct. 2017

Lazaro Cardenas

Bulk carrier terminal modernization

60.0

Dec. 2017

Puerto Vallarta

Cruise passenger terminal

322.7

Dec. 2017

Veracruz

Construction of new port

31,006.2

Mar. 2018

Altamira

Expansion project

5,529

Nov. 2018

Mazatlan

Modernization

336.0

Dec. 2018

13 12 3 1

5 9 7

430 Mexican ports increased their total installed capacity (tons) 410

Sources: World Bank, World Economic Forum, SCT, Ferromex, DGDFM

405

9.45%

390

370

350

370

2015

between 2015 and 2016

2016

INTERMODAL (RAILWAY-ROAD) TERMINALS BY REGION Center-West

Center

• Aceitera El Gallo

• APM Terminals México

• FR Terminales, Terminal Atequiza

• Bulkmatic de México, Terminal Maclovio Herrera

• Jalmex Empresarial • Silos Tysa, Granos

• Bulkmatic de México, Terminal García • Controladora de Terminales México

• Diamond International de Mexico

• Sylos Tysa, Terminal El Salto • Ferromex, Terminal Intermodal de Guadalajara • Tracomex • Bulkmatic de México, Terminal Las Teresas • Ferroservicios • Lition Logistics

• FR Terminales, Terminal San Nicolás de los Garza

• Ferropark • FR Terminales, Terminal San Cristóbal • Katoen Natie Mexicana, Terminal Huehuetoca • Logística Integral en Transportación

• Networks Crossdocking Services • Rehrig Pacific Company

• Vamos a México

• Sylo

• Bulkmatic de México, Terminal Atitalaquia

• Internacional Regiomontana de Acero • Industrias KAM • Soporte Logístico en Distribución

• Nafta Rail • Siderúrgica de San Luís

• FR Terminales, Terminal Tizayuca

• Suministros Industriales Potosinos

• FR Terminales, Terminal Tula

• Transpolimer

• Terminal Intermodal Logística de Hidalgo

• Katoen Natie Mexicana, Terminal Silao 3

• Internacional de Contenedores Asociados de Veracruz • Almacenajes y Maniobras Integrales del Golfo • Distribución y Servicio Logístico, Terminal Veracruz

• Ferromex, Terminal Intermodal de Escobedo • Ferrolasa

• Distribución y Servicios Logísticos, Terminal Hidalgo

• Ferromex, Terminal Intermodal Silao

• FR Terminales, Terminal Apodaca

• Ferrotolvas

• KCSM, Terminal Automotriz de Toluca

• Logistik Servicios Multimodales

• Bulkmatic de México, Terminal Salinas Victoria

• Bulkmatic de México, Terminal Tlalnepantla

• Silos Tysa, Líquidos

South-Southeast

Northeast

• Thyssenkrupp Materials de México • Ferrosur, Terminal Intermodal de Puebla • Organizacion Intermodal de Trasvase Agroindustrial

• KCSM, Terminal Automotriz de Monterrey • TSIM, Terminal Escobedo • TSIM, Terminal El Carmen • Azinsa Logistics • Integradora de Insumos del Noreste • Servicios Integrales y Especializados de Coahuila

• Ferrovalle, Terminal Intermodal de Pantaco Northwest

• KCSM, Terminal Intermodal Salinas Victoria

• Ferrogranos México • Ferropuerto del Golfo

• Ferromex, Terminal Intermodal de Cd. Obregon • Ferromex, Terminal Intermodal de Hermosillo • Ferromex, Terminal Intermodal de Mexicali

• Altamira Terminal Multimodal • Ferromex, Terminal Intermodal de Chihuahua • Sindicato Único de Carreros y Camioneros de Gómez Palacio • Rancho Lucero

4 8

INTERMODAL CORRIDORS

70 railroad freight terminals in Mexico; Nuevo Leon (17) has the most followed

PORT INFRASTRUCTURE

26,891km

by State of Mexico (10). Of the 70

total length of Mexican

companies and 61 are operated by

railway system

permit-holding companies.

terminals, nine are licensed to railway

BULK FREIGHT ON THE RISE

MX$11.33 billion invested in port infrastructure in 2016

drop in containerized freight in TEUs

Bulk freight is

growing at a

high rate while containerized freight

is on the decline

20 0

51.5% private sector 48.5% public sector

75.7

36.3

43.9

17.9 2015

2016

146% Freight growth in tons 108% Freight growth in liters

VIEW FROM THE TOP

STRATEGIC ALLIANCES AT THE FOREFRONT OF INFRASTRUCTURE EDUARDO ANDRADE Director of Sacyr México

Q: How is Sacyr supporting Mexico’s infrastructure

have won tenders for a freeway and a hospital, and our goal

development?

is to continue growing. PPPs require previous experience of

A: Sacyr’s operations in Mexico are still incipient but we are

two to three years. We presented un unsolicited business

starting to grow and profit from the country’s significant

proposal for a project in Bahia de Banderas more than a year

market. Mexico requires first-world infrastructure, which

ago. We did not win the tender but this case exemplifies

is something I believe all the administrations of the past

our vision for the Mexican market and how we have been

20 years understood. That is why the plans are very

working on this idea for several years.

ambitious. Sacyr is committed to helping Mexico achieve its goals. To be more precise, we have several projects

Our goal is to be leaders in infrastructure development in

under construction. These include four hospitals, involving

Mexico, so we plan to take advantage of the related reforms,

an investment of MX$3.5 billion, a freeway that will cost

such as the Energy Reform. Also, the legal certainty that

about MX$1.3 billion and the elevated and underground

the country offers fosters a better investment environment.

trains in Guadalajara, worth about MX$8 billion. We have

Sacyr is a major global player, which I believe is important

also completed several transmission lines with a value of

when participating in PPPs.

MX$500 million. Q: What were the main challenges when competing for

Sacyr has several projects under construction, including four hospitals, with an investment of MX$3.5 billion

NAICM’s tenders? A: There is a high level of competition for the tenders, but what I find remarkable is the quality of the companies that are bidding. For the airport tenders, the system works through prices and points awarded for the qualitative part of the proposal to ensure the winning company represents the highest value. The winning bid must include

Q: What alliances have you fostered to create consortiums?

a competitive price, the guarantee that the cost is worth the

A: We are creating alliances with Mexican companies, a goal

excellent quality delivered and compliance with a deadline.

that complies with GACM’s requirements. They are helping

I believe this scheme is very useful, as it promises Mexicans

us to be more competitive and to understand the country’s

will have an airport built by knowledgeable firms that were

construction market. In an association, we seek an emphasis

fully prepared to face such a challenging project.

on work-related safety, the quality of the work, efficiency and commitment and we ask that the company partner with

Regarding how we obtained the concessions, we had to

us on an attractive price proposal. Our goal is to combine

be more creative than our competitors. We provided a

our international experience with the local knowledge of

more efficient use of time and presented modern designs

our potential partners.

that incorporated the use of the newest materials and technologies. In my opinion, the challenge is to dream big

Q: How will your decision to participate in PPPs impact

while comparing our infrastructure with other countries in the

Sacyr’s strategy in Mexico?

region, such as Chile, that have accelerated their development

A: The legal framework for PPPs in Mexico is well-

processes. We understand that Mexico requires infrastructure

defined but still new, so many realizations are being

development to be efficiently intercommunicated. Sacyr is

made in the process regarding infrastructure financing,

committed to advancing this goal.

design and expectations. Also, many of the proposals lack a cohesive thread. Nevertheless, we believe this scheme is

Q: How do you plan to implement a greenfield-projects

the future of infrastructure development in the country. We

approach in Mexico?

Guadalajara Electric Urban Train

A: Sacyr looks for concessions that can create jobs in

A: We want to be market leaders in the development

the construction field, so we look for greenfield projects

of infrastructure for basic and energy services. We are

because these allow us to have control from the beginning

a company that possesses strong leadership in several

of the development. There is uncertainty surrounding

countries and we intend to translate this to the Mexican

brownfield projects and uncertainty hinders our capacity

context. I believe the market, given its growing needs and

to be completely accountable. When we build greenfield,

its high-quality competition, is perfect for the application

Sacyr is present from the inception of the project, so we

of this strategy.

can answer any questions about the quality of its execution and the decisions made to complete it. Also, the fact that

Q: What are your expectations for the next administration’s

we are vertically integrated allows us to be present in the

infrastructure program?

design, financial, execution, operations and maintenance

A: We expect aggressiveness and ambition. I believe

of projects.

all candidates understand the difference between the infrastructure we have today and what we aspire to have

Q: When do you expect to finish Guadalajara’s light train?

in the future. I expect an ambitious administration that

A: We will finish on time and according to plan, as we use a

accelerates the infrastructure development in the country.

raise bore drill that helps us to make fast progress. President

I would also like to express my gratitude to Mexico and

Peña Nieto visited the construction site and asked us

its institutions for welcoming Sacyr and for providing a

whether we would meet the deadline and we were able to

high-quality and industrially safe environment. The private

respond with confidence. The project is on track as we have

sector should continue to invest in Mexico's infrastructure

regained the time lost at the beginning of the construction

to increase the quality of life of the country's citizens.

stage. It is a very interesting development and it is an honor to be able to participate in a project of such a magnitude in a country like Mexico.

Sacyr is a multinational infrastructure and services company. Its emphasis on innovation and international expansion have

Q: What role does Sacyr want to play in Mexico in the

made it a world leader in the building and management of

long-term?

infrastructure, industrial projects, and services in 29 countries

VIEW FROM THE TOP

MEXICO NEEDS AUTONOMOUS INFRASTRUCTURE PLANNING CÉSAR MONROY Director of Infrastructure and Project Financing at PwC

Q: What are the biggest areas of opportunity with Mexico’s

autonomous if its decisions are to build trust among the

infrastructure development?

industry’s players.

A: Planning and preparation are the most important phases in the infrastructure development cycle, yet these phases

Q: Why is there a lack of USPs and what characteristics

have great areas of opportunities in Mexico. A thorough

should they have to expedite approval?

planning stage is essential in order to identify the country’s

A: The government wants to continue encouraging the

infrastructure needs and to assess the possible solutions

development of USPs because this is a way in which the

and select the appropriate one. Planning is also essential

private sector can participate in the preparation of projects.

because in this stage the government defines a long-term

Of course, when a project is self-financed, a USP has more

vision in terms of infrastructure development, as well as the

possibilities to be approved and tendered; however, the

strategies and goals that will help accomplish the vision.

proponent must show the government that the project is

Long-term planning is crucial to initiate a correct preparation

self-financed. If the projects are not self-financed there are

and tender of the project. Moreover, it provides certainty to

other options such as a mixed PPP or a pure PPP. In both

the private sector and society on what the government will

cases the government makes a payment to ensure the project

invest in the following years. There are two main elements of

is viable. In the case of USPs, it is essential that tenders are

a good infrastructure plan, the first is a long-term perspective

competitive to encourage other companies to participate.

and the second is that it has to be integral. To ensure the

The government is looking for ways to ensure this and that

implementation of the plan despite the changes in the

the premium provided to the proponent of the USP is fair.

government, an independent and trans-sexennial body should be in charge of planning Mexico’s infrastructure and provide

Q: What projects should the government give priority to in

congruence to the development of infrastructure across all

terms of road and rail?

sectors. This body would improve synergies and investment

A: The largest challenge is Mexico’s cities and developing

productivity, as well as dictate the country’s priorities and find

the country’s urban networks, which is where the money

the synergies to be created within sectors.

should be allocated in the coming years. There needs to be more investment in MTS and other urban transportation

Q: If an independent body for planning was created, how

alternatives, especially because options like second floors are

can you ensure it would have an impact on infrastructure

extremely expensive and not a viable solution in the long term.

development?

The Mexico-Toluca Interurban Train will drastically reduce the

A: In countries such as Australia or the UK, a planning

quantity of cars but any further notions of passenger trains

entity has existed for some years; however, these entities

between cities have been largely overlooked because the

needed a period to mature and develop capabilities in

government has placed too much focus on the country’s road

order to influence the development of infrastructure in

development.

their countries. Besides, the legal framework must be modified to confer specific responsibilities to the entity,

Q: Will the Mexico-Toluca Interurban Train be completed on

and of course it should have enough resources to perform

time and what challenges will it face?

its activities. It is crucial that this body is completely

A: The Mexico-Toluca Interurban train is an immense challenge. Environmental, social and rights of way issues have delayed the project. Hopefully the social and environmental issues will

PwC helps organizations and individuals create value by

not cause any further delays in the construction of the project.

delivering assurance, tax and advisory services. With offices in

The next challenge will be the connection between the train

157 countries and more than 223,000 people, it is among the

and Metro Observatorio, since the current station will have to

leading professional services networks in the world

be adapted to receive more people during peak hours.

VIEW FROM THE TOP

LEARN FROM INTERNATIONAL BEST PRACTICES OTHÓN PÉREZ Director of Hill International

Q: What are the major risks that infrastructure companies

large infrastructure projects is not aligned with the six-year

face around the world?

administrative rotations in Mexico. On one hand, presidents

A: The major risks are experienced more by investors in the

are worried about leaving a legacy after a six-year term; on

private and public sector than by infrastructure companies

the other hand, projects require almost 30 years to include

themselves because the owners are the ones who pay the

a proper planning and construction process. A decentralized

cost overruns of a project. Risk mainly arises from a lack of

planning model would help create a more long-term view of

planning, an improper estimate of costs or the extension

the industry.

of a deadline. The largest infrastructure projects normally finish later and with a larger budget than expected. Projects equally struggle to acquire enough property to build versatile infrastructure projects such as highways and railways. It is important to create forums where both the public and private sectors can discuss how to improve the tendering process to avoid these situations and to learn from

Risk mainly arises from a lack of planning, an improper estimate of costs or the extension of a deadline

international best practices. Countries like the UK realize the importance of including private companies throughout the

Q: How does Hill International participate with both the

tendering process. They collaborate with companies to create

private and public sectors?

a financial model for projects in a preparatory stage instead of

A: Private projects make up 95 percent of our portfolio in

releasing tenders without previous consultancy. It is a model

Mexico. We find it hard to attract public projects because

that promotes the mitigation of risks and transparency that

they require us to have some already in our portfolio. Hill

Mexico could incorporate.

International has tried to participate in a wide range of PPP projects, from water to highways, but the lack of PPP

Q: To what extent would a decentralized agency that can

experience in Mexico inhibits our entry. In many cases, we

supervise tenders in Mexico be successful?

are not permitted to use our international experience with

A: A decentralization of the planning process is a phenomenon

public projects as a corporation because our legal entity in the

that we are seeing around the world. It promotes the inclusion

country is labeled as Mexican (Hill International de México).

of the private and public sectors and could even include the

For instance, our branch in Holland has experience working

academic sphere. Construction requires technical expertise

in metros but Mexican authorities do not accept this because

more than political. A decentralized agency would work as

our presence in Mexico is through a company with a slightly

a hybrid of knowledge, allowing us to take advantage of the

different name. It is hard to gain the trust of the authorities

knowledge of prestigious universities in Mexico. It would

and for this reason we stick with the private sector. We focus

help promote a more unified and long-term perspective of

on residential, office and commercial buildings in Mexico. Hill

Mexico’s infrastructure projects. Mexico could learn from

International has a large team of engineers working onsite and

the UK model. The UK already has two large agencies: the

helping administrate the projects. We help our clients connect

Infrastructure and Projects Authority and the Major Projects

with construction companies and employees.

Authority. The former is part of the Cabinet Office and HM Treasury, and works like the Mexican Investment Unit of the Ministry of Finance. The latter works as a hybrid that

Hill

helps create the project pipeline. The planning cycle of an

management, cost engineering, inspection, scheduling, risk

infrastructure project is quite long and it can take up to 10

management and claims avoidance to clients involved in major

years before the first brick is placed. The true lifecycle of

construction projects worldwide

International

provides

project

and

construction

INSIGHT

LACK OF PUBLIC FUNDS PUTS PROJECTS ON HOLD ÁNGEL CARRILLO Director General of INCA Ingeniería, Control y Administración

For years, Mexico’s highway blues have stemmed from a

money without a return for 30-40 years,” he says. “Mexico

lack of federal budget to complete road corridors through

has yet to develop a scheme to finish constructing its

the country, according to Ángel Carrillo, Director General

highway network.”

of leading Mexican engineering and supervision firm INCA Ingenieria. “Although the country has been continuously

There are many highways in the NIP that have been under

growing, the need for more funds has meant many

construction for many years and due to technical and

important projects have been put on hold,” he says.

financial problems are under pressure to be completed. Carrillo uses the example of the Barranca Larga-Ventanilla

In the late 1980s, the federal government identified

section of the Oaxaca-Puerto Escondido highway,

the need to bridge its road infrastructure gap but

which was offered as a concession in 2009 and is only

budgetary constraints meant it had to reach out for

between 51-75 percent complete eight years later. This

support from the private sector by tendering road

30-year concession was originally awarded to ICA but

concessions. At that time, there were few highways and

its social, rights of way, environmental and budgetary

many incomplete routes. During President Carlos Salinas’

problems have delayed its completion, according to

1988-1994 administration, private operators were allowed

Mexican Construction Chamber CMIC. To reactivate the

concessions for 52 highways to drastically expand the

construction of the highway, FONADIN had to inject more

federal network. Highways such as Mazatlan-Culiacan and

than MX$1.6 billion. Carrillo believes that these types of

Libramiento de Queretaro were among these and went

roads will most likely lack the traffic needed for an ROI

on to become part of the Highway Concession Recovery

high enough to cover its expensive price tag.

Support Trust (FARAC). INCA Ingenieria has experience working on over 25 road FARAC was created in 1997 to rescue 23 of the 52 federal

and highway projects and is familiar with these types of

highways that were facing financial problems, absorbing

situations. According to Carrillo, many of these priority

a MX$57.7 billion debt. When these roads were rescued,

road projects traverse mountains and difficult terrains,

INCA Ingenieria was invited by BBVA Bancomer as an

making them far more expensive. He explains that one

independent engineering contractor. “We were in charge

of the most expensive parts of a project is related to

of the operation and maintenance of the highways, thus

the construction of bridges. “Cost overruns are mostly

rapidly expanding our expertise in the sector,” says Carrillo.

generated in steel structures and bridges because they demand specialized staff, materials and machinery to get

The 2013-2014 NIP’s goal of transforming Mexico into a

to those hard-to-reach areas,” he says.

world-class logistics hub involved an aggressive road and highway development plan but it encountered the same

Although many of the roads needed to complete the

problem other infrastructure plans have experienced.

country’s system are in these high-risk areas, Carrillo

“Road projects are always a priority in government

believes there are still many other opportunities to boost

agendas but the issue is that there are never enough

the competitiveness of the country’s road infrastructure. In

public funds,” says Carrillo. He explains that there are

2017, the government released various road conservation

many roads that are a priority for the government in order

and preservation PPPs for federal highways that were in

to finish interconnecting the country. The government

need of maintenance. Carrillo is confident that the appetite

has continued to invite private companies to participate

is there and these goals will be completed, and by primarily

through concessions but many roads do not produce the

Mexican companies. “Mexico is home to a great number of

volume needed for a favorable ROI. “It is not viable to

strong construction companies that are capable of taking

expect a private company to invest such large amounts of

on the most difficult of challenges,” he says.

VIEW FROM THE TOP

TECHNOLOGY TO BRIDGE HIGHWAY GAP ALFONSO DE LA PARRA Director General of Tecnopeaje

Q: In your opinion, what is the current status of Mexico’s road

A: In 2008, SCT created a system to monitor the country’s

and highway network?

highways. It would oversee the operations on all the routes

A: There are various issues related to Mexico’s highway and

and then provide users with information on the status of the

road systems. The sector is divided into two: CAPUFE and

highways. It was a good system but then SCT cut its staff

Banobras on one side and everybody else on the other.

levels. There are not enough people working on these projects

CAPUFE works on its own projects but with many operational

and the operation was really never taken advantage of. We

deficiencies. Processes are extremely slow with CAPUFE. For

designed a system that collects data, organizes it and once

example, Mexico-Queretaro is one of the oldest highways

standardized, is used to report back to the customer, which

in Mexico. The road needs maintenance and after years of

may be the authorities, road administrators or users.

construction, the hydraulic concrete phase is about to be completed on the last sections. But the problem is that

Our ITS is used to retrieve data on everything from how much

it took so long to be completed and now it needs to be

traffic there is in a certain section of a highway at a certain

expanded. Vehicles no longer fit and SCT is not releasing

time, speed, congestion, weather or even number of users. It

enough projects. The growth of cargo in the country is

is important to take measurements in specific time intervals

absorbed directly by the road system. Approximately 60

to ensure that enough data is collected and compared. After

percent of goods in Mexico are transported through its

gathering large amounts of data, our system can then identify

highway and road system. The growing demand means it is

risky conditions on the roads or many other issues that may

crucial that there are always new projects for maintenance,

be taking place. All sectors need to use an efficient ITS, from

improvement, expansion and construction of new roads. The

SCT and the municipalities to developers. The system will

only way to remove cargo transportation off the highways is

give companies and the government information on how

by expanding the railway system, which is a very expensive

many people pass through an area, peak hour traffic and

and difficult initiative.

obstructions, among other indicators.

Q: What areas of opportunity have you spotted within

Mexico-Queretaro is one of the oldest highways in Mexico

Mexico’s planning of transport infrastructure? A: Peak hours for cargo on many highways are an absolute nightmare and SCT cannot wait 20 years to expand them. Before any project is tendered, the project needs to exist. By this I mean the planning process must be thorough and include the right of way, permits and studies, which could take

Q: Why are some companies reluctant to integrate ITS

four to five years to complete. The right of way could even

systems into projects?

take longer depending on the area. Infrastructure projects

A: The public and private sectors are already using similar

are now even more complicated because it is obligatory that

systems. For instance, SCT established ITS as a requisite for

companies submit social-impact studies but that means that

road and highway projects, but there is a lack of saturation.

the planning phase of these projects must be even longer. To

The technologies often require fiber optics but because this

fix Mexico-Queretaro’s highway overcapacity problem, SCT

is expensive and a target for theft, companies do not install it.

could construct an alternative road but then it would redirect money from the most profitable highway in Mexico. Tecnopeaje was established in Mexico City in 2003. It is a

Q: How could technology be further integrated into the

consultancy that fuses capacity and experience to develop

sector and why are Intelligent Transportation Systems (ITS)

specialties in road management. It offers both consultation

relevant for developing projects?

and social-impact advisory services for highway projects

Maravatio-Zapotlanejo Highway, Guadalajara

VIEW FROM THE TOP

BUILDING AND MAINTAINING ROADS TO EFFICIENCY BENITO NEME Director General of CAPUFE

Q: What is the difference between the road network

Ministry of Finance, SCT, the Ministry of Public Service (SFP)

CAPUFE operates and networks franchised to third parties?

and Banobras itself. It is the latter that provides CAPUFE with

A: The network CAPUFE operates entails 44 highways

the authorized resources.

totaling 4,198km of road or 15,146.35km when adding all the lanes, amounting to 44 percent of the National Toll Roads

Q: How does CAPUFE plan to invest in technological

Network. This network also includes 18 national and 14

developments for toll booths and electronic invoicing?

international bridges, representing 65 percent of the National

A: Since the beginning of the current administration

Toll Bridges Network. CAPUFE is the largest operator of

CAPUFE has undertaken a wide modernization program in

toll roads in Mexico and one of the largest worldwide. This

its toll road network. This program aims to widely publicize

governmental body has almost 60 years of experience

useful information to support safe, smooth user transit on

in operating and maintaining toll road infrastructure

CAPUFE’s roads, to handle incidents and to provide help and

in Mexico and was a pioneer in the implementation of

emergency services in a timely and efficient manner. This

electronic toll service technologies. CAPUFE offers over

program entails the installation of variable-message electronic

15 services as an added value to its toll road network.

signs, monitoring and local control centers connected to

These include emergency ramps, user insurance, medical

the National Control Center and Users Assistance Central.

assistance and telecom technologies, including the 074

Between 2012 and 2016, all toll equipment and systems within

hotline, through which various toll road services like traffic

the Mexico City–Cuernavaca–Acapulco highway corridor

assistance and information are provided. CAPUFE’s Integral

and the Chamapa–Lecheria highway were renewed. Users

Emergency Attention System handles accidents and

can now pay the tolls electronically or with cash, which has

medical emergencies. CAPUFE’s vehicle park includes 298

significantly reduced crossing times at toll stations. In 2017, the

emergency response units including ambulances, towing

technological modernization of the Mexico City–Queretaro–

trucks, dynamic traffic-signaling units and rescue units, all

Irapuato highway corridor started. This corridor is vital for

operated by specialized staff and ready to provide efficient

industry and tourism because of the number of vehicles

assistance anywhere along CAPUFE’s road network.

transporting cargo and passengers through this road system.

Q: How do CAPUFE, SCT and other public agencies interact

Q: How much do you expect tolls to rise in the coming years?

to develop new highways and renewal projects?

A: CAPUFE’s tolls were dropping in relation to inflation

A: CAPUFE is in charge of renewing, expanding and

between 2012–2016 because the tolls had not been raised

modernizing the existing road infrastructure it operates.

since 2012. FONADIN ordered CAPUFE to raise its tolls 8.7

However, building new roads is the responsibility of SCT.

percent in November 2016 to reduce this lag. These new

In the case of concessions awarded to CAPUFE, this

tolls enable CAPUFE to allocate funds to cover the costs

decentralized body defines and proposes maintenance and

of operation, user services and road maintenance. CAPUFE

modernization projects for highways and bridges to SCT.

uses 56 percent of its budget to perform major or minor

SCT then procures the necessary funds from the Ministry of

maintenance on its toll road network. In 2017 CAPUFE’s

Finance using the Federal Expenditure Budget every fiscal

conservation and modernization program amounted to

year. For those highway and bridge projects that integrate

MX$7.3 billion.

the network of the National Infrastructure Fund (FONADIN), the process is different. CAPUFE defines and presents Banobras a proposal underlining the funds required to

CAPUFE is a public dependency in charge of operating,

execute the projects. Banobras submits these proposals for

maintaining and improving roads that are part of its network,

authorization before the Technical Committee of FONADIN.

either directly or through concessions to private investors. It

This committee is composed of representatives from the

also participates in projects to develop new roads and bridges

PROJECT SPOTLIGHT

84km

network designed to make life easier for travelers

THE ROAD NOW TAKEN Every journey has a beginning, a middle and an end. The best journeys are those that start smoothly, continue in comfort and ease, and end as expected at the destination without complications. The roads that carry you between points play a vital role in determining the quality of each of these elements. Building a connection between three key Mexican cities, infrastructure company COCONAL is constructing more than just a highway; it is creating a better journey for travelers. The first step in this particular journey begins in Toluca, State of Mexico, almost 10 years ago. COCONAL saw an opportunity to ease the congestion that plagued the routes to the city of Zitácuaro in the neighboring state of Michoacan and to vacation destination Valle de Bravo. The Toluca-Zitácuaro highway begins at the entry junction to the Toluca-Atlacomulco highway from Toluca’s northeastern beltway and ends in El Puerto on the border of both states. The first 40km were opened on April 23th 2008, and the last 15km will be finalized and inaugurated by mid-November 2017. Completion of the connection to Valle de Bravo was the second stage. In the early 2000s, the existing access roads to this tourist region were sinuous, narrow, dangerous and long. The average speed reached only 60km/h, the majority of the route consisted of narrow curves and the roads were dangerous and prone to accidents. COCONAL consequently built the Valle de Bravo access road and the Valle de Bravo-Avándaro walkway. The access road to Valle de Bravo starts from the TolucaZitácuaro highway at Laguna Seca and provides an entry point into the valley and lake. Its 29km have been in operation since August 2011 and the road has become a quick and popular route to the town, not only for Toluca but also for residents of Mexico City. The final phase of the project was the Valle de BravoAvándaro walkway, a vital connection between these two towns, since it prevents unnecessary crossings through the narrow and already saturated streets. Overall, the project has allowed a better traffic distribution between the three locations, and has helped revive Zitácuaro as an economic hub, facilitating the commercialization of products and services. An added bonus is the shortened and more comfortable journey to Mexico City.

INSIGHT

APM HERE FOR THE LONG TERM JOSÉ RUEDA Managing Director of APM Terminals

Amid the surprise results of the Brexit referendum and the US

Ultimately, we follow the same process of communication

presidential elections in 2016, the global business community

and negotiation and we have the background and experience

is understandably wary of any potential for political upheaval.

to handle these problems.”

With Mexico’s 2018 presidential elections around the corner, questions are being asked about the impact from a change

With the introduction of the Energy Reform in 2014, the

in administration on various projects, including high-profile

government is now beginning to place greater emphasis

infrastructure developments.

on port infrastructure, meaning opportunities for more terminals. But Rueda does not necessarily believe the

José Rueda, Managing Director of APM Terminals, is not

increase in terminals equates to price hikes but rather

concerned. This despite a US$500 million investment in

the opposite. “The industry will be driven by competition,

the first phase of Latin America’s first automated terminal

driving prices down,” he says. “Terminals will be incentivized

TEC II at the port of Lazaro Cardenas on Mexico’s Pacific

to strengthen operational and customer service as the main

coast and the US$400 million development of the second

drivers of their growth.”

phase due to start in 2021. He dismisses the possibility of the political context interfering in the company’s investment

Another driver of this growth will be the need for logistics

plans. “We have made a commitment to Mexico for at least

hubs deriving from the government’s creation of ZEEs.

the next 30 years and we plan to work with every government

Opportunities, he says, will be based on the industries set up

administration that is elected within that time,” he says. “The

within the zones, so the government should evaluate whether

most important thing we can do to mitigate any impact is

incentives should be based on the automotive industry or

maintain open communication channels with authorities and

agriculture for example, depending on saturation. Although

adhere to all the requirements expected of us during our

Rueda does not expect APM to be considerably involved

tendering process.”

in the initiative in the near term, ultimately these zones will require strong logistics services to remain competitive. “In any

More than US$500 million was invested in phase one of TEC II

case, APM has a direct rail connection operated by Kansas City Southern Mexico to the Cuautitlan Izcalli facility, located in the State of Mexico, in the heart of the country,” says Rueda. “This will be a leverage for growth.” Being the only facility in Mexico with the capabilities to receive Maersk’s Triple-E vessels that have a capacity of more than 18,000 Twenty-

APM has survived some stormy waters in the development

Foot Equivalent Units (TEUs) gives APM Terminals another

of TEC II. In 2012, APM signed a contract with infrastructure

competitive advantage.

giant ICA for the construction of the megaproject but ICA subsequently found itself in serious financial difficulties that

All these factors convince Rueda that APM’s ambitious TEC

forced it to pull out of the project. APM announced in January

II facility will achieve its objective of becoming a logistics

2016 that it would go ahead with construction without ICA

hub, not just for shipments from the Far East but also as the

and the first shipment was received in February 2017. The

preferred terminal to send and receive deliveries across North

setback, says Rueda, was unfortunate but unavoidable. “It

and South America. For the moment, his priority is to ramp

was one of the most challenging problems we faced but

up the recently minted first phase. “We will analyze customer

ultimately we completed the project, albeit one year later

service levels and the requirements of final customers, and

than planned,” he says. To address problems, APM tries to

right now this is our priority,” he says. “The plan for phase two

preserve constant communication. “As a company working in

is already defined so now we have the freedom to focus on

59 countries and operating in over 64 ports, problems arise.

our existing facilities.”

VIEW FROM THE TOP

SECURITY, EXPERIENCE, LOCATION ALEJANDRO MANZANILLA Director General of API Campeche

Q: What added value does API Campeche offer in terms of

and dredging studies to allow it to accept bigger ships.

supporting infrastructure for the Mexican oil and gas sector?

This modernization is not only for the incorporation of

A: Our strength relies on three elements. The first is

international companies but also for PEMEX, as the NOC is

security, and we are the number one state as far as port

looking to become more competitive.

security goes. For our three ports in Campeche – Carmen, Seybaplaya and Lerma – we developed partnerships

Q: What is API Campeche’s strategy for consolidation in

with the Ministry of Public Security through which it

the near and midterm?

provides special security operations at our ports. This

A: We want to stop being seen only as a tax collector and

has provided us with a strong competitive advantage

administrator. To achieve this, we are venturing into new

because most companies in the sector looking to launch

working schemes that are helping us to create partnerships

port operations always ask about security. Second, we

with public or private companies. API Campeche is already

have broad experience with the market. Working for more

working on PPP schemes to develop all the projects that

than 30 years in the energy sector, both with PEMEX

will be needed in the short and medium term and that will

and international companies, has allowed us to amass

require large capital investments, such as the potential

the knowledge and relationships to facilitate the entry

development of a ship and a platform yard. To capture the

of new participants into the market. The third point is

attention of companies in this specific area we published

Campeche’s strategic position in relation to the main

official announcements of intent in the main national media

oil fields in Round Zero. Being the closest port for 80

outlets. We are also talking directly with companies we

percent of PEMEX’s shallow-water wells offers great

know could work with us. We have received interest from

potential for future operations related to farm-outs and

important companies, such as Keppel, and hope to launch

for future shallow-water rounds located in our shores. API

the official bidding rounds soon.

Campeche also has strong relationships with other port administrations. Q: How is API Campeche preparing for the expected boom in Gulf of Mexico operations? A: We are developing important infrastructure in the ports of Carmen and Seybaplaya. Carmen will see an investment

Carmen and Seybaplaya will see an investment of over US$110 million, allowing for 12ha and 7ha expansions, respectively

of over US$55 million, allowing for a 12ha (30ac) expansion with 1km extra of docks. The same investment amount is

API Campeche wants to support the operations of all

expected in Seybaplaya, resulting in another 7ha and 412m

the companies that are coming to Mexico and starting

extra of docks, as well as a modernization of the energy and

operations. The new facilities at all our ports must be

potable-water installations at the port. The related industrial

strongly focused on providing support for the energy

parks at both ports will also be modernized and the ports’

sector, providing tailor-made solutions for companies in

ISPS codes will be recertified.

the sector, while opening space for other opportunities, such as those in the commercial sector.

One of the main advantages of modernizing the port of Carmen is that it will give the port a 7m draft, meaning almost 3m more. This will allow the port to manage bigger

API Campeche is the port authority responsible for more than

vessels that are required by the offshore operations

a dozen ports and terminals. Carmen and Seybaplaya are

expected in the short term. The same is being done at

the state’s main ports with operations concentrated on the

Seybaplaya port where we are developing underground

logistics activities of Mexico’s offshore oil industry

Kansas City Southern de MÃ©xico Train Car

INSIGHT

BAJIO, NORTHERN REGION OFFER OPPORTUNITIES FOR RAIL INFRASTRUCTURE JOSÉ ZOZAYA President of Kansas City Southern de México (KCSM)

Mexico’s first locomotive blew a steam cloud in Mexico City in

Zozaya, KCSM is responsible for moving 40 percent of this.

1873. Since that moment, the economic development of the

Of this 40 percent, 17 percent belongs to the automotive

country has been closely linked to the efficient transportation

industry and the rest to grains, fuels and other products.

means that railways provide. The future seems more than

Zozaya says that automotive companies arriving in Mexico

promising, says José Zozaya, President of Kansas City

establish their plants as close as possible to the largest

Southern de México (KCSM).

railway networks. “This is one of the reasons why the automotive industry has bloomed in the Bajio region, San

“In railway freight, the greater the volume, the higher the

Luis Potosi and Nuevo Leon,” he says. Railways enable

speed and the longer the distance, the greater the efficiency

companies to transport light and heavy vehicles and auto

of train transportation,” he says. This makes proximity to

parts in a cost-efficient way over long distances. In the

railways a must for cross-border trade and export-oriented

specific case of Celaya, Zozaya says that OEMs and their

industries such as automotive. This means the Bajio region

suppliers put pressure on the railway network to expand

and the north of Mexico offer the most opportunities for

but that KCSM still has the train capacity to support the

construction and improvement of railroad infrastructure

growth of the automotive manufacturing plants. “We work

in the form of city-rail beltways, rail border crossings and

together with these companies and jointly prepare for their

switchyards. “Brownsville-Matamoros and Laredo-Nuevo

projected transportation needs,” he says. “Locomotives

Laredo require better rail infrastructure so that trains can

are locomotives, whether they belong to KCSM or its

cross the border faster,” Zozaya says. “A major rail bypass in

competitors, but we transport merchandise at lower costs,

Celaya is also needed to make railway transportation more efficient and safer.” KCSM is exploiting opportunities in these areas. The company contributes to making the crossing of goods by railway in the Nuevo Laredo-Laredo region swifter and safer. “KCSM is building a double-track that stretches from the Sanchez Switchyard to the Nuevo Laredo International Bridge to create a safe corridor,” says Zozaya. He explains that KCSM is improving the capacity of this bridge by hiring train crews with dual nationalities. “This eliminates the need to stop convoys in the middle of the international bridge for crew changes,”

“

with high delivery efficiency and security.”

Efficient logistics infrastructure is much more than creating and maintaining the physical infrastructure”

As production volumes in the automotive and agriculture

he says. In Celaya in the Bajio region, KCSM identified the

industries grow, Zozaya is confident that the use of railway

need for a major rail bypass, a project in which it would like

freight in those industries will grow as well. He believes this

to participate. “This city experiences a great deal of railway

will detonate growth and enable railway companies to move

traffic because the local automotive industry requires high

up to 35 percent of the total freight transported nationally in

numbers of trains and because both Ferromex and KCSM

the long term. In the meantime, he says KCSM will continue

operate there,” Zozaya says. The problem with high levels of

investing in Mexico as the company has committed US$156

rail traffic in the area is that they force trains to move slowly,

million for 2017 and has agreed a joint venture with Watco

putting convoys at risk of being vandalized and reducing their

and WTC Industrial for a fuel-storage facility in San Luis

efficiency.

Potosi. But, as he puts it, “Efficient logistics infrastructure is much more than creating and maintaining the physical

In Mexico, railway-transported freight accounts for 27

infrastructure.” He says more regulations are needed to

percent of the total goods transported and, according to

enable logistics companies to transport goods swiftly.

NATIONAL RAILROAD SYSTEM

Main routes in the national highway system National railway system KCSM's cross-border connections Grupo México's cross-border connections KCSM'S access to ports Grupo México's access to ports

Source: SCT, KCSM, Grupo México

Grupo México 9,952km

Grupo México's railroad network

GRUPO MÉXICO RAILROAD NETWORK Subsidiaries: Ferromex and Ferrosur Connections to the US through 5 border crossing points Ferromex has a network of 8,130km with access to 6 ports Ferrosur has a network of 1,822km and access to 2 ports

KCS 10,622km KCS's railroad network

KCS RAILROAD NETWORK The KCS coordinated rail network includes KCSR, KCSM and Tex-Mex between the US and Mexico Connected to major seaports: TampicoAltamira, Veracruz and Matamoros Exclusive access to Lazaro Cardenas Port Crosses through international bridges in Nuevo Laredo and Matamoros

INSIGHT

MEETING THE CHALLENGE OF NAICM HEAD ON FERNANDO BOSQUE Director General of Grupo Aeroportuario del Pacifico (GAP)

With the eagerly awaited NAICM project, there is a huge

with enough demand will not be jeopardized,” he says. “For

expectation that many of the major airlines will compete for

example, the Guadalajara to Los Angeles route will not be

slots within the megaproject. Fernando Bosque, Director

lost as it makes no sense to connect through NAICM on this

General of Grupo Aeroportuario del Pacifico (GAP), welcomes

route.” In fact, he believes the new airport actually represents

the competition. “The customer’s goal is to arrive in the

an opportunity for operators like GAP to consolidate point-

fastest time, at the lowest cost, with the lowest number of

to-point routes.

connections,” he says. “At GAP airports, we offer an extremely competitive service.”

Other routes, however, face some danger, particularly internationally. “Typically, to travel to Europe, many

GAP operates 12 airports across Mexico’s Pacific coast

passengers connect through US airports like Dallas or

and central belt: Tijuana, Mexicali, Hermosillo, La Paz, Los

Miami,” he says. “But passengers may find it is now quicker

Cabos, Los Mochis, Puerto Vallarta, Guadalajara, Manzanillo,

and cheaper to fly to Europe direct from NAICM.” Even at

Aguascalientes, Guanajuato and Morelia. The group’s

home, there could be issues. “Some of GAP’s airports that are

infrastructure greatly impacts the national aerospace market,

closer to Mexico City may be jeopardized,” he says. He lists

with five of its airports ranking within the Top 10 in terms

Morelia, airports in the Bajio region and even Aguascalientes

of Mexico’s highest passenger-traffic levels, representing

as possible danger zones.

26 percent of the total passenger traffic in Mexico in 2016. Guadalajara is in third place with 11.4 million, Tijuana in fifth

But Bosque sees this as an opportunity, since it will motivate

with 6.3 million, Los Cabos in sixth with 4.1 million, Puerto

other operators to improve their offering and provide more

Vallarta is seventh with 4 million and Guanajuato ranks 10th

competitive deals. “The real value is the passenger’s time, so

with 1.7 million.

it all depends on which airport can offer the lowest cost and the least travel time,” he says. “To protect ourselves, we remain

With more than 32 million passengers served per year overall,

competitive, offering low costs and shorter time frames.”

GAP is the country’s second-largest group after AICM in terms of passenger traffic volume. “The composition of GAP airports

Low-cost carriers have a significant role to play in maintaining

contributes significantly to Mexico’s civil aviation boom, in

GAP’s competitiveness. These airlines provided 38 percent of

relation to the balance between national and international

all GAP seats in 2010 but now offer 59 percent. Volaris and

passengers, the characteristics of passengers by destination,

Viva Aerobus alone provide almost 40 percent, meaning they

cities, business or regions,” says Bosque.

play a fundamental role in the development of new routes, the frequency of flights and the capacity at GAP airports. “These

Passenger growth at some of GAP’s airports has been

airlines are expected to place a great deal of orders to keep

relatively high compared to the average at national airports.

their fleets up to date in the next few years,” Bosque says.

Stand-outs include Guadalajara and Tijuana, with 31 percent

“This is not only positive for GAP but for the entire economy

and 28 percent growth, respectively. Los Cabos and Puerto

as it underpins growth and increases capacity for passengers.”

Vallarta are not far behind, at 12 percent and 9 percent. “The group as a whole experienced growth of 26 percent in

Bosque takes GAP’s role in the country’s economic

passenger volumes in 2016 compared to 2015, second only

development very seriously. “For GAP to strengthen its smaller

to AICM,” says Bosque.

airports like Manzanillo, Los Mochis and Morelia, we must foster industry in the regions,” he says. “It is important that

The development of its routes in the most popular destinations

we anticipate the needs of the airlines and the passengers, and

like Tijuana and Guadalajara is among the reasons Bosque is

in this way, we can remain in the most competitive position

not worried about the NAICM project. “Point-to-point flights

possible.”

INSIGHT

SUFFICIENT AIRPORT CAPACITY KEY TO ECONOMIC DEVELOPMENT The unrestricted movement of people and goods plays a vital role in facilitating a country’s economic development. Air connectivity has a direct, positive impact on the economic activity of an area, which in turn creates jobs and benefits local communities. It is therefore of utmost importance that airport groups like ASUR ensure that all of its airports are efficiently run and have well-maintained infrastructure and sufficient capacity to handle the traffic received, says Adolfo Castro, the group’s Director General. ASUR operates nine airports in the south of Mexico and one in Puerto Rico. It also recently secured a majority share in two Colombian operators, Airplan and Aeropuertos de Oriente, which combined oversee 12 airports across the country. Castro

“

Mexico City is still the hub for most flights arriving from both domestic and international points of origin and its airport is the tent pole that holds up the rest of the nation’s aeronautical infrastructure” Adolfo Castro, Director General of Grupo Aeroportuario del Sureste (ASUR)

says the acquisitions will be an important strategic addition to the ASUR portfolio that allows the Mexican operator to enter the South American market. “These acquisitions will

of-the-art baggage-handling and screening systems that are

considerably extend the scope and scale of the airport services

probably the best in Latin America,” says Castro. The group

we offer by giving us the opportunity to serve 10.4 million and

has also tried to streamline operations by installing the latest

5.2 million additional passengers through Airplan and Oriente,

self-service check-in facilities and immigration facilities. It

respectively,” he says. “We plan to invest in these new assets to

has been looking into alternative sources of clean energy, to

bring them up to the high standards in terms of infrastructure

reduce the airport’s environmental impact.

and services that we have achieved in other airports in our group.” These high standards can be seen in the pioneering

The group is not only trying to improve its own facilities. It is

role ASUR has played in the Mexican aviation market, says

also working with fellow airport administrators to strengthen

Castro. “We were the first privatized airport group in Mexico

the Mexican aviation sector. ASUR has been active in the Latin

and the first airport group to be traded simultaneously on

America Chapter of the Airports Council International (ACI-

the New York Stock Exchange and the Mexico City BMV,” he

LAC). Its director of regional airports served as president of

says. “We set new standards for safety and passenger service

ACI-LAC between 2005 and 2008 and it is a regional adviser

in our airports.” With regard to the growth of civil aviation in

to the organization’s World Governing Board. “We have

Mexico, ASUR worked actively to invest to create the necessary

also worked with other airport groups in Mexico to bring

infrastructure for growth of its airports.

new airlines and routes to Mexico and to promote Mexico as a tourist destination in a wide range of international

ASUR operates Cancun airport, one of the most important and

events,” Castro says. “We plan to continue working with and

busiest in the country. Between 1999 and 2017, the group has

supporting new and existing airline clients to develop routes

invested over US$1.13 billion in the infrastructure of this airport

and increase frequencies on existing routes, whenever this

alone. Some notable projects have been the construction of

makes good business sense.”

two completely new terminals -– Terminal 3 inaugurated in 2007 and Terminal 4, which will be open this year -– as well

Even though ASUR works in the south of the country, Castro

as a second parallel runway that allows simultaneous takeoffs

welcomes the development of NAICM in the center. “Mexico

and landings, baggage-handling and security systems, new

City is still the hub for most flights arriving from both domestic

FBO installations and the tallest control tower in Latin

and international points of origin and its airport is the tent

America. “Getting things built on time, on budget and to the

pole that holds up the rest of the nation’s aeronautical

right specifications is always a challenge but with a lot of hard

infrastructure,” he says. “The construction of NAICM is

work from our local team we have managed it,” says Castro.

therefore of the utmost importance for the development

ASUR is working toward making Cancun airport an “airport

of air traffic in Mexico. We expect that by eliminating slot

of the future” through the incorporation of new technologies.

constraints the new airport will allow more flights between

“The safety and security of airlines and passengers alike is of

Mexico City and other airports around the country. It will

fundamental importance, so we have invested heavily in state-

create growth in the industry at the national level.”

VIEW FROM THE TOP

LONG-TERM COMMITMENT TO SUSTAINABILITY OF AIRPORTS ALFONSO SARABIA Director General of Aeropuertos y Servicios Auxiliares (ASA)

Q: What is ASA’S role in the Mexican aviation market and

Q: What are the most urgent airport infrastructure needs

how does it contribute to civil aviation growth?

at the moment?

A: ASA administers and operates 19 airports in the Mexican

A: Airports follow “Master Development Plans” that help

Airport System. These are located in Campeche, Ciudad

forecast their growth or capabilities. ASA updates these

del Carmen, Ciudad Obregón, Ciudad Victoria, Colima,

programs yearly and transforms them into investment and

Chetumal, Guaymas, Ixtepec, Loreto, Matamoros, Nogales,

planned maintenance programs. Likewise, we implement

Nuevo Laredo, Poza Rica, Puebla, Puerto Escondido, Tamuín,

annual actions to cover present and potential airport

Tepic, Tehuacán, and Uruapan. Likewise, it contributes in

needs, which are often tied to the behavior and demand

five airplane terminals in Cuernavaca, Palenque, Querétaro,

of passengers and freight for a given airport.

Toluca and Tuxtla Gutiérrez. During the first half of 2017, ASA’s airports reported a passenger growth of 8 percent,

Q: What will be NAICM’s impact on ASA’s airports?

compared to the same period 2016.

A: It varies by airport. From its construction, Puebla International Airport was planned to be mostly a cargo

Furthermore, ASA Airports are strategically located in

airport due to the Volkswagen plant and others in the

Mexico. They have been essential in the management of

region. But it has been gaining importance in passenger

natural phenomena that has affected airplane connectivity,

traffic. Given the intense promotional campaign undertaken

allowing us to guarantee the safe and optimum

by the government of the State of Puebla and ASA, a

transportation of goods, people and other products.

significant improvement in infrastructure has been made. Therefore, both passengers and airlines are confident in

Q: How does ASA monitor the safety and quality of the

using the airport, which increasingly offers new routes and

airlines that operate in its airports?

alternatives so passengers do not have to resort to AICM.

A: It is paramount for ASA to guarantee safety, which for us means ensuring the safety of the people and the aircraft.

Airlines can also use terminals in Puebla, Cuernavaca,

Every terminal complies with the safety regulation of civil

Querétaro and Toluca within the Metropolitan Airport

aviation (AVSEC), which sets the basic procedures for

System to attend to the demands of the Valley of Mexico’s

prevention and safety measures for passengers, crew, land

metropolitan area and other nearby states. Each airport has

staff and civil safeguards.

its own market and importance, as does that in Mexico City.

Q: What are the main lessons ASA has learned through

In Toluca’s case, the market demand is from the west zone

its experience in the construction, expansion and

and its surrounding areas. Its operation allows users to do

rehabilitation of airports?

what they need to do in less time and with more ease, both

A: ASA has more than 50 years of experience, a trajectory

for national and international flights. Queretaro is farther

that has allowed us to consolidate a group of experts in

away from Mexico City so the airport has gained its own

planning, design, construction and operation of airports

market, which is performing healthily. Finally, in Cuernavaca,

that comply with national and international regulations.

ASA has made significant investments to improve the

Moreover, our experience allows us to offer consulting

infrastructure there and to promote the airport’s usage

services in environmental permit management, analysis

and demand, which we will continue to support through

and technical studies for sustainable development.

the generation of new air routes.

Also, ASA’s Unit of Verification (UVASA) evaluates the compliance with regulations regarding airport

Q: What strategies are you implementing to foster the

operations, with the authorization of the Mexican Entity

growth of smaller airports like those in Nogales, Tehuacán,

for Accreditation (EMA).

Loreto, Nuevo Laredo and Tamuín?

A: For these airports we implement different strategies.

A: ASA takes into account the published annexes by ICAO

We foster regional aviation, hold onto strategic air routes,

and DGAC to have safe airports. Regarding sustainability,

develop new routes based on an efficient identification

we are also complying with environmental regulations,

of the market’s needs and demands and promote the

which we implement through environmental certifications

establishment of potential new routes at a national and

in 18 of our airports. Likewise, ASA has recently supported

international level. Consequently, we have created specific

ICAO in the second conference on aviation and alternative

committees for air routes and promote interinstitutional

fuel. These efforts seek to contribute to the development

agreements with SECTUR, CPTM and other states.

of clean fuels, like biofuels.

Q: Are you collaborating with the federal and local

Q: How is ASA preparing to face the increasing demand

governments to strengthen these airports?

for jet fuel?

A: ASA has a clear responsibility and commitment regarding

A: We have a strong commitment to being the main

connectivity through the optimum maintenance and

jet fuel provider in Mexico, which we have successfully

operation of its airport infrastructure and the permanent

accomplished. We are a solid organization that is prepared

creation of new air routes. We have developed strong

to adapt and evolve according to the new challenges arising

alliances with the entities with which we share common

in the industry. We guarantee all our services. Accordingly,

goals, such as the federal government through SECTUR

our main strengths are: 37 certified fuel stations with

and several airlines. Collaborating with other entities helps

ISO 9001:2008, ISO 14001:2004 and OHSAS 18001:2007,

us carry the goal of connecting Mexico in an efficient way

a certified quality-laboratory (ISO 17025), 300 supply

through its airspace. Likewise, the Airport Law considers

vehicles, a 99.97 percent certainty level in operations

the operation of consulting committees coordinated by

that are environmentally responsible, more than 52 years

airport managers, allowing the participation of private firms

of experience with ND-qualified personnel through the

to add know-how and propose solutions, thus fostering a

Trainair Plus OACI.

PPP collaboration. Q: What is the impact of sustainable technologies and Q: What are the long-term plans ASA has to improve

lower fuel consumption on ASA’s operations?

connectivity and promote aerial services to all socio-

A: We are on track for improvement in this regard. We use

economic levels?

fossil fuels but in the near future we will prioritize the use of

A: The Mexican development of aviation has been marked

biofuels, which we have been promoting since 2009. ASA

by ASA’s 50-year commitment to excellence. Accordingly,

is the main promoter of this new sector in the country after

one of our most important objectives is to foster growth

the Flight Plan (Plan de Vuelo) initiative. We believe Mexico

and enhance aerial connectivity through airports in different

has huge potential for the generation, use, production and

regions to generate business, industry and tourism bonds

management of aviation biofuel.

through a safe and high-quality service. The use of biofuels in aviation is a technically proven reality, Aerial connectivity in Mexico is a goal of the National

according to the ICAO. This technology will allow us to

Development Plan that corresponds to the improvement

reach the goals of reducing polluting emissions in the

of airport interconnection, which we are achieving through

industry. To date, more than 2,000 green flights have been

the infrastructure of the airport facilities in our network,

made worldwide, 36 were promoted by ASA, from which

and through the promotion of new air routes and the

the following stand out: Mexico City-Costa Rica, Mexico

incorporation of new airlines.

City-Sao Paulo and Mexico City-Madrid.

Q: What are the main challenges that Mexican and

Alternative fuels are the future we must develop now.

International airlines operating in ASA’s airports face?

Soon, the total transition to this product will be a reality.

A: The aircraft acquisition by Mexican airlines will allow

ASA coordinated the second conference for aviation and

them to bid for new routes and airports, which in the end

alternative fuels, which took place Oct. 11-13, in which member

benefits customers by providing more alternatives. Hence,

countries promoted actions, solutions and recommendations

the challenge will be related to operational efficiency

for the development of alternative aviation fuels.

for optimum profitability, a better service quality for the client and an expansion of the air routes with an increased connectivity and broader offer for passengers.

ASA a dministers and operates 19 airports in the Mexican Airport System. The company also contributes to five airplane

Q: How will ASA’s collaboration with DGAC and ICAO

terminals in Cuernavaca, Palenque, Querétaro, Toluca and

guarantee safe and sustainable airport operations?

Tuxtla Gutiérrez

NATIONAL AIRPORT SYSTEM

4 8 5 6

16 19 9 20 17 22 18

21 24

29 23

3 27

MX$1.32 billion invested in 2017 to modernize and

conserve airport infrastructure

67 of 137

in quality of air according to WEF's Global Competitivness report

Modernized New Airports

OPERATORS North Central Airport Group (OMA)

Pacific Airport Group (GAP) Mexico City Airport Group (GACM) Southeastern Airport Group (ASUR)

Airports and Auxiliary Services (ASA) Chiapas Airport Group (GAC) 15

30 xx 31

38 37

40 41 42

43 33 55

44 53

45 48

51 47 49

NATIONAL AIRPORT SYSTEM

Airport Name

State

Operator

Tijuana International Airport

Baja California

Mexicali International Airport

Passanger traffic 2016*

2017*

GAP

4,090,274

4,726,550

Baja California

GAP

458,256

489,076

Nogales International Airport

Sonora

ASA

1,726

1,305

Hermosillo International Airport

Sonora

GAP

1,003,890

1,039,471

Guaymas International Airport

Sonora

ASA

8,564

9,814

Ciudad Obregón International Airport

Sonora

ASA

169,214

196,350

Cuidad Juárez International Airport

Chihuahua

OMA

728,006

836,438

Chihuahua International Airport

Chihuahua

OMA

836,357

927,921

Torreón International Airport

Coahuila

OMA

419,835

418,668

Monterrey International Airport

Nuevo Leon

OMA

6,010,989

6,488,531

Nuevo Laredo International Airport

Tamaulipas

ASA

55,958

54,455

Reynosa International Airport

Tamaulipas

OMA

371,819

344,382

Matamoros International Airport

Tamaulipas

ASA

68,604

58,590

Cuidad Victoria International Airport

Tamaulipas

ASA

46,506

41,042

Tampico International Airport

Tamaulipas

OMA

481,780

478,437

Loreto International Airport

Baja California Sur

ASA

50,064

59,408

La Paz International Airport

Baja California Sur

GAP

559,601

567,867

Los Cabos International Airport

Baja California Sur

GAP

2,797,275

3,307,980

Los Mochis International Airport

Sinaloa

GAP

184,848

191,601

Culiacán International Airport

Sinaloa

OMA

1,106,676

1,209,814

Mazatlán International Airport

Sinaloa

OMA

650,328

679,102

Durango International Airport

Durango

OMA

283,705

268,808

Tepic National Airport

Nayarit

ASA

100,949

98,386

Zacatecas International Airport

Zacatecas

OMA

227,206

240,605

San Luis Potosí International Airport

San Luis Potosi

OMA

326,843

368,427

Tamuín National Airport

San Luis Potosi

ASA

1,346

1,237

Puerto Vallarta International Airport

Jalisco

GAP

2,797,673

3,132,886

Guadalajara International Airport

Jalisco

GAP

7,417,206

8,400,149

Aguascalientes International Airport

Aguascalientes

GAP

452,066

497,393

Guanajuato International Airport

Guanajuato

GAP

1,106,181

1,257,228

*Data from January-August, Source: SCT

Airport Name

State

Operator

Querétaro International Airport

Queretaro

Poza Rica National Airport

Passanger traffic 2016*

2017*

ASA

407,455

515,558

Veracruz

ASA

26,560

20,195

Veracruz International Airport

Veracruz

ASUR

871,620

913,116

Minatitlán Aeropuerto Nacional

Veracruz

ASUR

160,204

140,540

Manzanillo International Airport

Colima

GAP

121,774

127,417

Colima National Airport

Colima

ASA

92,799

84,646

Uruapan International Airport

Michoacan

ASA

85,394

101,560

Morelia International Airport

Michoacan

GAP

354,066

413,159

Toluca International Airport

State of Mexico

ASA

531,367

509,844

Mexico City

GACM

N/A

New Mexico City International Airport (NAICM)

Mexico City International Airport (AICM)

Mexico City

GACM

27,295,955

29,643,254

Cuernavaca International Airport

Morelos

ASA

15,820

5,552

Puebla International Airport

Puebla

ASA

241,179

322,984

Tehuacan Aeropuerto Nacional

Puebla

ASA

2,393

2,934

Ixtapa/Zihuatanejo International Airport

Guerrero

OMA

400,662

441,318

Acapulco International Airport

Guerrero

OMA

496,171

486,844

Puerto Escondido International Airport

Oaxaca

ASA

148,484

171,392

Oaxaca International Airport

Oaxaca

ASUR

495,679

558,900

Huatulco International Airport

Oaxaca

ASUR

451,589

540,027

Tapachula International Airport

Chiapas

ASUR

197,446

196,522

Tuxtla Gutiérrez International Airport

Chiapas

ASA

825,415

911,955

Palenque International Airport

Chiapas

GAC

12,262

9,062

Villahermosa International Airport

Tabasco

ASUR

801,213

856,541

Campeche International Airport

Campeche

ASA

116,968

125,796

Cuidad del Carmen International Airport

Campeche

ASA

331,356

245,241

Mérida International Airport

Yucatan

ASUR

1,249,329

1,406,389

Cancún International Airport

Quintana Roo

ASUR

14,797,853

16,504,361

Cozumel International Airport

Quintana Roo

ASUR

402,987

405,304

Chetumal International Airport

Quintana Roo

ASA

139,282

175,387

Render of NAICM Interior

ROUNDTABLE

WHAT MUST BE DONE TO PROMOTE MEXICO’S TRANSPORT INFRASTRUCTURE?

When Mexico’s National Infrastructure Program 2014-2018 was launched, MX$7.75 trillion was allocated to 743 projects over the course of the administration. As of March 2017, 70 percent of the plan was completed, according to Minister of Communications and Transport Gerardo Ruiz Esparza. Among the most important road projects are the first section of the Piramides-Texcoco highway, with an investment of MX$1.92 million, the rehabilitation of the Mexico-Queretaro highway, with an investment of MX$2.85 million, and the AtizapanAtlacomulco highway, with a MX$8.5 million investment. Mexico Infrastructure & Sustainability Review asked industry leaders how this kind of infrastructure can be optimized.

We were in charge of the operation and maintenance of the highways, thus rapidly expanding our expertise in the sector. The 2013-2014 NIP’s goal of transforming Mexico into a world-class logistics hub involved an aggressive road and highway development plan but it encountered the same problem other infrastructure plans have experienced. Road projects are always a priority in government agendas but the issue is that there are never enough public funds. It is not viable to expect a

ÁNGEL CARRILLO Director General of INCA Ingeniería, Control y Administración

private company to invest such large amounts of money without a return for 30-40 years. Mexico has yet to develop a scheme to finish constructing its highway network.

We are looking at the sector from a new point of view. Our vision is different from other consulting companies. Consulting companies tend to look at operational things through using traditional methods of research and point of view, which tends to be a sophisticated way to maintain the road infrastructure. We evaluate a highway based on the driver experience, the risk factors, the number of accidents. Many of the country’s highway problems are related to inefficient operations. For instance, the layout of the

ALFONSO DE LA PARRA Director General of Tecnopeaje

highways is split into three lanes, where cargo trucks use the right lane, slow cars use the middle and the left lane is for overtaking. The majority of Mexico’s highways are in really bad shape and have many accidents. Highway developers need to have a longterm vision and create a better flow for cars. The people who see this first hand are the highway users.

We can use international best practices to learn how to make an independent planning model more viable in Mexico. Mexico would also have to change its law to create space for an agency of this type. The constitution has to be tweaked as the National Development Plan does not contemplate the need for infrastructure. The current national infrastructure plan is only a small component of the National Development Plan. We would have to thoroughly analyze what laws need to

OTHÓN PÉREZ Director of Hill International

be changed and discuss it with governmental authorities to obtain approval of these modifications. A modified legal structure and finding funds to finance an independent institution are important challenges that need to be overcome to create an independent planning model.

We make sure to differentiate between the various needs of the infrastructure industry in our methodology. Within the project and infrastructure team, Moody’s has over 20 approaches that adapt to the various types of assets and sectors in the industry and two of them are dedicated to PPP projects. One of them covers the construction stage and another one is for the operational phase. Our main focus is the distribution of risks among the governmental and private parties of a project. We asses this element because an unbalanced distribution of risks can put at risk the continuation of a PPP. Moody’s also evaluates the drivers behind the demand of a project, operating and financial performance and metrics.

ADRIÁN GARZA VP Senior Analyst at Moody’s Investor Services

Serious construction companies and sponsors should be able to account for these important factors.

We rely on three project development models. One is completely built by the government, another built, operated and maintained by the private sector through the provision of services paid by authorities and the last model requires the private sector to assume the entire risk of the project. We select the model based on demand, fees and risk. We are not keen to invest in projects with a high percentage of merchant risk. The government can also intervene by reducing security issues that we cannot control. An alternative way to mitigate risk is through long-term PPPs but to win these tenders we would have to drop prices to a level that is no longer viable. We try to find a model that sits somewhere in

LUIS VILLALOBOS Partner and Director of Business Development at EXI

between.

Mexico’s main problem is the lack of implementation of public policies. We are accustomed to creating projects depending on the priorities of the current administration. There are so many authorities at the federal, state and municipal levels who have different visions of how they want to tackle the mobility issues in their jurisdictions. By 2050, more than 90 percent of the Mexican population will live in the major urban areas and nobody is taking this into consideration when planning these projects. There is a huge need to start planning the future and implement public policies that maintain continuity across presidential

ALFONSO VÉLEZ Director General of AutoTraffic

administrations terms.

Mexico needs to change its approach to planning and developing these kinds of projects. This country is used to solving problems and meeting demands rather than planning for the long term and generating demand. We must start planning ahead of demand so that Mexico stops building roads when a connection between two points is already needed, schools when children already need them and industrial complexes when foreign companies have already arrived. The country must start thinking of the present while planning for the future through major infrastructure projects. This can be achieved by approaching the development of real estate and infrastructure projects holistically.

JORGE ACEVEDO President and CEO of JA Group

Aerial View of El Realito Aqueduct, San Luis Potosi

WATER & WASTE MANAGEMENT

Mexico’s expanding economy has created strong demand for infrastructure and housing developments as cities grow. But growth also poses challenges and among the most urgent is a fragmented water and waste management system in dire need of innovation and repair.

In 2015, Mexico generated 53.1 million tons of solid waste, a 61.2 percent increase from 2003. This implies 1.2kg of solid waste generated per habitant on a daily basis. And according to the latest data available, only 9.6 percent of waste is recycled. When it comes to water, 105 of the 653 aquifers in the country are being overexploited beyond their capacity to recharge. Demand for water in Mexico City alone is among the highest in the world at 300 liters per person.

To mitigate the risks related to these issues, the country’s public and private sectors need to work together to provide creative solutions for the system and ensure the healthy development of infrastructure projects. This chapter highlights the insights from the sector’s experts on how Mexico’s water and waste system could be improved and the role of the private sector in optimizing its management.

CHAPTER 4: WATER & WASTE MANAGEMENT 94

ANALYSIS: The Forgotten Jewels in Mexico’s Water and Waste Management

VIEW FROM THE TOP: Ramón Aguirre, SACMEX

INFOGRAPHIC: Mexico’s Water Conundrum

100

INSIGHT: Gerardo Garza, SADM

101

INSIGHT: Roberto Olivares, ANEAS

103

INSIGHT: Carlos Orduz, TICSA

Stefano Sacchi, TICSA 106

ROUNDTABLE: What are the Main Areas of Opportunity in Mexico’s Waste Management?

107

INSIGHT: Jordi Valls, SUEZ Mexico

108

VIEW FROM THE TOP: Francisco Chozas, Fypasa Group

109

INSIGHT: Mario Romero, Rotoplas

110

VIEW FROM THE TOP: Daniel Posadas, Inbode

Francisco Peralta, Inbode

112

VIEW FROM THE TOP: Iram González, O-tek Mexico

113

INSIGHT: Héctor Castillo-Berthier, Institute for Social Research of UNAM

114

VIEW FROM THE TOP: Luis Alva, Vertical and Grupo Motion Corp

115

VIEW FROM THE TOP: Jahir Mojica, SUEMA

117

TECHNOLOGY SPOTLIGHT: Paving the Way Toward a Circular Economy

ANALYSIS

THE FORGOTTEN JEWELS IN MEXICO’S WATER AND WASTE MANAGEMENT Thanks to its geographical location and size, Mexico is known for holding some of nature’s most beautiful treasures. But with an increasingly urbanized population of more than 120 million people, authorities and the private sector must work together to face the rising challenges of Mexico’s water and waste management

According to SEMARNAT’s 2015 report on water, Mexico

is no clarity on the roles, responsibilities and returns of each

has 653 aquifers, of which 105 are being overexploited. This

party,” he adds. “There are only five to 10 successful cases

implies that 16 percent of the country’s aquifers are being

of private investment in water infrastructure so for many

used at a faster rate than they are being replenished. With only 36 reported overexploited aquifers reported in 1972, the progression of high demand and low supply within the space

investors this sector is still too risky.”

DISTRIBUTION OF THE REGIONAL SUSTAINABLE DEVELOPMENT FUND 2 URBAN SOLID WASTE COLLECTION SYSTEM

of just 45 years could have dire consequences for the country. Mexico has a natural water availability of 447.26km3 on average per year, which is higher than most European countries, according to SEMARNAT. The issue is that the four hydrological regions with the highest level of renewable water resources – 67 percent of the country’s

53.1 million tons of solid waste generated

dumps

total – are located in the southeast of Mexico. But these

8% Controlled dumps

regions contain only 23 percent of the national population

5% Recycled

and contribute a mere 22 percent of the national GDP. Meanwhile, the Baja California Peninsula, the North Central

64% Landfills 23% Open air

Sources: SEMARNAT 11% Mazapil

2% Sahuaripa

Basin and the Valley of Mexico are regions with consumption

9% Cananea

rates that exceed the aquifer’s ability to recharge by over

When it comesde toGarcia the country’s water system, 7% Nacozari 2% Eduardo Neri some believe

100 percent. This implies a misdistribution between the use

that one of the biggest challenges both in terms of attracting 5% Fresnillo 2% Aquila

of water in the country, the location of water sources and

investment is the highly 4% Ocampoand encouraging 2% sustainability Alamos

the most economically productive areas in the country.

subsidized tariffs that are in1% place. “Regulations in Mexico 4% Caborca Chinipas

2% Morelos

are fundamental 2% aSierra Mojada area of opportunity,” 47% other says Carlos Orduz,

DISTRIBUTION OF THE REGIONAL SUSTAINABLE TYPE OF SOLID FUND WASTE2 GENERATED IN 2015 IN DEVELOPMENT

Director General ofEconomy TICSA, 1 a private Source: CGM, Ministry of With figuresMexican to March ofsubsidiary 2015

MEXICO CITY

of state-owned Colombian public-domestic-services company EPM. “Projects in this sector are not financially,

47.7% Residential 15.4% Open air dumps

13.6% Controlled

12,843

dumps

daily tons

10.6% Markets 5.1% Mixed 4.6% Central de Abastos

environmentally or socially sustainable without a regulatory model where people pay for what they consume. It is the final end user who must pay so that the system is feasible and this regulation must be implemented on a federal level. Subsidizing tariffs removes the urge to save water.” Considering the context, the country is not simply in need of more water infrastructure projects but requires developments

Controlled

Sources: Mexico City Government, SEMARNAT

that are sustainable over time. According to Orduz, “even

11% Mazapil

2% Sahuaripa

in the case of projects carried out with federal funds and

9% Cananea

2% Morelos

guarantees, if the city government has payment-collection

7% Nacozari Garcia 2% Eduardo Neri THE WATER de CHALLENGE

problems, that project will fail.” In this sense, companies like

5% Fresnilloare beginning to 2%identify Aquila opportunities to fill Companies

TICSA are interested in working with local authorities and

4% Ocampo 2% Alamos best practices and significant gaps through international

organizations that are committed to providing a service to

4% CaborcaBut as Roberto1% Chinipas innovation. Olivares, Director General of

the people. “We want to work with committed authorities

2% Sierra Mojada other ANEAS explains, the private 47% sector often does not prioritize

that seek commercial efficiencies, reduction of water losses

these projects dueofto the factWith they do not offerofthe level Source: CGM, Ministry Economy figures to March 2015

and that can provide constant domestic water delivery, even

returns that highways and toll roads do. “The private sector

in the absence of a compulsory regulatory framework,” says

is reluctant to invest in these projects because legally there

Stefano Sacchi, TICSA’s Commercial Director.

Cultural indifference in both the public and social sectors are

TOP AND LOW WASTE PRODUCERS Federal entity

Tons

National %

Top states

further problems that need to be addressed, says the CEO of waste-to-energy company SUEMA, Jahir Mojica. He says

State of Mexico

6.7 million

16.1

Mexico City

4.9 million

11.8

Jalisco

3.1 million

7.2

Veracruz

2.3 million

5.5

Nuevo León

2.2 million

5.1

that initiatives that address these issues are often rejected by a political party or agenda. “In Mexico, each day there are more projects aimed at recycling and transforming waste into energy but at a citizen level there is still a large opportunity for growth,” he says. “This lack of culture has also increased

Bottom states 0.82

prices and promotes informality within the sector.” Castillo-

339,000

0.81

Berthier adds that to develop a system in which a city can

272,000

0.65

take care of its waste appropriately, it is necessary to address

Baja California Sur

259,000

0.62

local disposal systems and the type and amount of waste

Colima

228,000

0.5

Nayarit

347,000

Tlaxcala Campeche

produced.

Source:INA

TRASH TO TREASURE THE STATE OF MEXICO’S WASTE

Progress is slowly cropping up across the country as cities

While its limited supply of water is being depleted, Mexico’s

like Saltillo stand out for having implemented effective water

landfills are being filled to the brim. In 2015, Mexico

systems. “We like working in Saltillo with Aguas de Saltillo, a

generated 53.1 million tons of solid waste, which is a 61.2

company that is 55 percent private and 45 percent public,”

percent increase from 2013, according to the report. This

says Jordi Valls, Director General of Suez Mexico. “We find its

averages out to 1.2kg of waste per inhabitant on a daily basis.

business model to be unique and efficient as it uses a healthy balance of regulatory and business knowledge. It is easier

According to Héctor Castillo-Berthier, a researcher and scholar

to work under a company with this model and ensure the

at the Institute for Social Research of UNAM (IIS-UNAM) and

viability of projects.” He believes that this company has one

a specialist in waste-related social dynamics, the main barrier

of the best performance standards in Mexico’s water industry.

for more companies to enter waste management is that generally city governments are in charge of this activity and corruption is rife. “Officials often ask for bribes to subrogate these services to private companies, which harms their ability to efficiently dispose of garbage,” Castillo says. STATES WITHPRODUCTION THE MOST LANDFILLS AUTO PARTS PER YEAR IN MEXICO

17 Guanajuato

Chihuahua

daily average of solid waste per habitant Veracruz

1.2kg

27 Jalisco

28 State of Mexico

5 0 Source:SEMARNAT

According to National Association of Plastic Industries (ANIPAC), the recycling market in Mexico is worth US$3 billion, and growing 10% every year But according to the National Association for the Plastic Industry (ANIPAC), the recycling market in Mexico is worth US$3 billion, and growing 10 percent every year. In 2016, BMV-listed waste-management company Promotora Ambiental (PASA) reported profits over MX$3.5 billion. This firm controls 33 percent of the private formal trashcollection market, 19 percent of domestic concession

Another issue is that governmental authorities report that

collection and 33 percent of the final waste landfill market.

over 64 percent of urban solid waste in the Mexican collection system end up in landfills while only 5 percent is recycled and

In May 2017, SUEMA became the first company to install a

five states alone create 46 percent of the country’s waste. This

biodigester in Mexico, which was also the first of its kind in

includes the State of Mexico, Mexico City, Jalisco and Nuevo

Latin America. “To convince the public sector to invest in

Leon. Smaller cities that are growing show the fastest increase

these types of projects, we first began offering support in the

in the generation of solid urban waste, which from 1997-2012

expansion of the biggest compost plant in Bordo Poniente

rose 84 percent from 1.9 million tons to 3.5 million tons.

five years ago,” says Mojica. “With that we began earning

Source: INA

their trust and gaining a reputation for our work."

VIEW FROM THE TOP

GREATER DECENTRALIZATION NEEDED FOR ADEQUATE WATER INFRASTRUCTURE RAMÓN AGUIRRE Director of the Mexico City Water Management System (SACMEX)

Q: What is SACMEX’s project timeline for the water plan

Q: What strategies are you implementing to reduce

for the future of Mexico City?

water consumption?

A: Water management for Mexico City is divided into

A: We need people to change their consumption habits if

three main issues. First, there is much to do to solve

we are to reduce water usage by 30 percent. To facilitate

the problem and the key actions to be implemented

this, we are implementing two strategies: we have

require a certain level of infrastructure. For example,

launched marketing campaigns on traditional and online

we estimate that 70 percent of the city’s pipelines need

media sources and we are implementing differential

to be replaced, which equals 15,000km, and this takes

tariffs and sanctions for high consumption.

time to achieve. Second, the cost to develop this level of infrastructure is significant. Third, Mexico City cannot be

Q: What is the private sector’s role in reducing the

treated as an isolated system. The capital’s plans must be

budget gap to enable compliance with the Water

integrated with those of the State of Mexico. The required

Management Plan for Mexico City?

investment is approximately MX$256.03 billion, implying

A: I see a great ally in the private sector to provide services,

a huge total investment. But we can adjust the timeline to

paid with results. PPP schemes are advantageous in that

ensure that it is attainable. Our current plan foresees an

the reward is derived from benefits of a specific project.

annual investment of MX$6 billion over 40 years.

For example, rather than paying for a water-treatment plant, SACMEX essentially pays for drinkable water, as

Sacmex estimates that 70 percent of the city’s pipelines need to be replaced, which equals 15,000km

our interest is not in the plant but in the quality of the water. But by law, water treatment, distribution, drainage and supply services cannot be privatized. Although water management should be a public endeavor, I believe that it is better to involve the private sector to ensure the proper control of certain services. The problem is that it is simply unconstitutional.

We need to strategically solve the problem of leaks, given that about 40 percent of water is being lost. The most urgent

Q: What do you believe would be the ideal relationship

leaks must be prioritized and eventually, the pipeline network

between the public and private sectors for water

must be replaced completely, as the pipes are 57 years old,

management?

on average. Next, we need to focus on the sewer system,

A: Ideally, we would have service provision contracts paid

which is deteriorating. We need to foster water reuse at all

according to results. The problem with the private sector

levels and maximize rainwater collection to better manage

is that the company controls which projects it wants to

resources and avoid flooding. Likewise, we must improve our

participate and can withdraw from a project if it no longer

supply sources and we are considering deep wells as a short-

finds it lucrative. Conversely, the public-sector finances

term solution. We also need to build metropolitan treatment

projects because it is required to and not only because

plants to reuse water in agricultural areas so they do not

it is cost-effective.

put a strain on the aquifers, which are being overexploited. Q: What strategies are you implementing to guarantee that the 40-year agenda will transcend administration The Mexico City Water Management System (SACMEX) started

changes?

operations in 2003 with the merging of the General Direction for

A: The Legislative Assembly is about to create a new

Hydraulic Constructing and Operation and Mexico City’s Water

binding law to draft and fully execute a strategic plan

Commission. It operates under the the Environment Department

to manage the issue in the long term. Part of this law

Atotonilco wastewater treatment plant, CONAGUA

requires the city government to allocate an annual

Department of Public Safety, the Fire Department,

budget for water.

Civil Protection, Water System Management, the Urban Management Agency, the Social Development

Q: To what extent do you believe that local governments

Department and Health Department, is successful in

should have more autonomy in terms of budgeting for

reducing the risk of flooding by managing water properly. Â

water management? A: Mexicoâ&#x20AC;&#x2122;s management model is not adequate, as the

Q: What is your position regarding the real estate boom

dependencies in charge of water constantly change due

in Mexico City and the amount of water that each project

to political decisions, and their representatives are not

will require?

appointed on merit. The system is politicized, instead of

A: We are demanding developers make up for the water

working according to a technical plan. We need to change

they will use. It is clear that a lot of water is being lost

our current model and prioritize technical decision-making.

due to pipeline leaks, so we want each developer to implement key actions for structure rehabilitation to

Q: What can be done to make authorities prioritize water

compensate for the consumption the project will involve.

management in the country?

Ultimately, they will not completely solve the problem but

A: I have perceived a certain level of neglect from the federal

this solution will help us mitigate it.

government in the cutting of our budget. We need to make the authorities realize their duty to correct this error, given

Q: What are SACMEXâ&#x20AC;&#x2122;s top projects for 2018-2019?

the consequences it carries by limiting our sphere of action.

A: Our budget was reduced, so for 2018 we will be

The issue is highly dependent on the involved players,

focused on small projects that address the current crisis

especially those in charge of the budget, as this is not a

in the most reasonable and efficient way possible. We

matter of goodwill but of financial capabilities.

do not have or plan to start a large and emblematic project. Rather, we will continue with the rehabilitation

Q: What is SACMEX doing to prepare in case of

of the existing infrastructure, among other small new

meteorological or other natural phenomena that may

initiatives. Regarding 2019, the upcoming administration

endanger water systems?

will decide the projects it wants to focus on. There are

A: The only and best way we can prepare is to take action

many interesting potential projects, especially related

to ensure that our infrastructure will work efficiently.

to water network rehabilitation, water-treatment plants

That is, to ensure that our storm program, which deals

and deep wells, which I consider very important. I would

with rainfall issues and coordinates the actions of the

probably invest in any of those.

INFOGRAPHIC

MEXICO'S WATER CONUNDRUM

According to a 2015 report from SEMARNAT, four

in the country and optimize the use of the resource, large

hydrological regions in the southeast of the country

quantities of capital are required to modernize outdated

encompass 67 percent of renewable water resources but

systems. In 2017, the approved budget for CONAGUA was

represent a mere 23 percent of the national population and

cut more than 38 percent to MX$14.9 billion in comparison to

contribute only 22 percent of the national GDP. Meanwhile

2016. The Water Commission estimates water infrastructure

aquifers in the Valley of Mexico have one of the lowest

projects require an investment of MX$306 billion to meet

water-availability rates in the country but serve a projected

the country’s water demand by 2030. Considering this, the

9 million people in Mexico City. To increase water availability

collaboration between the public and private sectors is vital.

LARGEST CONSUMERS OF WATER IN MEXICO

Agriculture

Domestic use/ II

urban public sector I

Industrial use

THE DISTRIBUTION CHALLENGE VII

38.9%

61.1%

9 million Mexicans

In 2016, Mexico had over

do not have access

with a capacity to move over 112

to potable water

cubic meters of water per second

from aquifers

III

from superficial sources

3,000km of aqueducts

VIII

WATER AVAILABILITY IN MEXICO’S HYDROLOGICAL-ADMINISTRATIVE REGIONS (HAR) 2015 Zone

HAR

Baja California Peninsula

Renewable or available water (hm3/year)

Natural average drain, total surface (hm3/year)

Total average aquifer recharge (hm3/year)

Degree of pressure on water resources

4,958

3,300

1,658

High 79.8% High 81.4%

Northwest

8,273

5,066

3,207

III

North Pacific

25,596

22,519

3,076

High 42.1%

Balsas

21,678

16,805

4,873

High 49.8%

South Pacífic

30,565

28,629

1,936

None 5.1%

Rio Bravo

12,352

6,416

5,935

High 77.1%

VII

Northern Central Basin

7,905

5,529

2,376

High 48.4%

VIII

Lerma-Santiago Pacific

35,080

25,423

9,656

High 44.8%

North Gulf

28,124

24,016

4,108

Medium 20.4%

Center Gulf

95,022

90,424

4,599,5.1

None 5.9%

South border

144 459

121,742

22,718

None 1.7%

XII

Yucatan Peninsula

29,324

4,008

25,316

Low 14.3%

XIII

Aguas del Valle de México 1

3,442

1,112

2,330

Very High 138.7%

446,777

354,990

91,788

Total

None <10% Low 10%-20% Medium 20%-40% High 40%-100% Very High <100%

INFOGRAPHIC OVEREXPLOITED AQUIFERS

MAIN WATER PROJECTS OF THE NIP 2014-2018 (in terms of investment)

Water use exceeds

PROJECT

aquifer recharge by:

WINNING CONSORTIUM

East Drainage Tunnel

• 121% Baja California Peninsula

MX$40.26 billion

COMISSA (CISA, ICA, COTRISA, Constructora

Under Construction

Estrella and Lombardo Construcciones)

Monterrey VI Project

Concretos y Obra Civil del Pacífico. Controladora

MX$16.16 billion

de Operaciones e Infraestructura, Desarrollos y

Under Review

Construcciones.Rogar, RECSA Concesiones and

• 106% North Central Basin • 101% Valley of Mexico

Productos y Estructuras de Concretos

Valley of Mexico Metropolitan Area has the lowest water

availability in Mexico,

El Zapotillo Project

DAM: La Peninsular Compañía Constructora, FCC

with only 150m3 per

MX$40.26 billion

Construcción, Grupo Hermes

habitant per year

Under Construction

Aqueduct: Abengoa México, Abeinsa Infraestructuras medio ambiente, Sociedad unipersonal, Abeinsa, ingeniería y construcción industrial

Atotonilco WWTP

Promotora del Desarrollo de América Latina.

MX$9.56 billion

Controladora de Operaciones de Infraestructura.

Completed

Atlatec. Acciona. Agua, Desarrollo y Construcciones Urbanas, Green Gas Pioneer Crossing

MORE PEOPLE, LESS WATER Between 1950-2014, annual water

Mexico’s natural water availability is

availability dropped 79 percent per inhabitant as the population

447.26 km3

grew: • 1950: water availability

on average, per year

(17.7km3) population 25.8 million • 2014: water availability (3.7km3) population 120

XIII

XII

million • 2030: water availability

expected drop to 3.3km3

X XI V

BEST-SELLING BRANDS IN MEXICO (JANUARY-JULY) GRÁFICA BARRAS WATER TREATMENT PLANTS ONDE THE RISE

• Mexico has more than 5,100 dams with a storage capacity of 150hm3

2012

2014

2,477 2,832

2,337 2,639

2000

2,342 2,520

DAMS

2,186

2500

2,850

3000

1500 1000

• 180 dams represent over 80 percent of the storage capacity of the country

Source: PwC, SEMARNAT, SACMEX, CONAGUA

500 0

2010

Municipal

Industrial

2016

INSIGHT

ADDRESSING WATER SCARCITY IN MONTERREY

100

“

People are used to paying very little for the resource and it makes it hard to adjust the tariffs to the real cost of water and its treatment” Gerardo Garza, Director General of Water and Waste Management Services for Monterrey

Gerardo Garza, Director General of Water and Waste Management Services for Monterrey (SADM), an autonomous public utility under the government of the state of Nuevo Leon, acknowledges that Monterrey is in a difficult position. “Water subsidies have become part of the culture,” he says. “People are used to paying very little for the resource and it makes it hard to adjust the tariffs to the real cost of water and its treatment.” By not charging the true cost of water-management services, the burden is passed from municipalities to federal authorities as the city cannot raise enough capital to bridge the gaps in the system. “These prices are not sustainable

Monterrey is undeniably one of Mexico’s most important

and it forces municipalities to request money from the

economic hubs and industrial centers. According to

federal budget to meet the costs of basic infrastructure,”

CONAVI, Nuevo Leon took a leading position as the

says Garza.

state that offered the highest number of new housing developments in 1H16 with over 50,000 new units thanks

To address its water-related issues, Monterrey generated

to its 2015 economic boom. But buried beneath all this

various solutions and strategies, including the creation of a

growth is an increasing demand for water and waste-

2030 Water Plan as a way to mitigate the scarcity. “Plans are

water services that are made even more complex by the

becoming more long term to make sure that water supply and

city’s drastic climate conditions and the urban sprawl that

treatment can support the economic growth of the country

inhibits proper water distribution.

and cities like Monterrey, with a focus on efficiency," he says.

INSIGHT

A PREVENTIVE, NOT CORRECTIVE APPROACH ROBERTO OLIVARES Director General of National Association of Water and Sanitation Utilities of Mexico (ANEAS)

Mexico’s infrastructure industry has a reputation for

Olivares suggests the government could increase transparency

taking a more corrective than preventive focus and

by overhauling the General Water Law, which was last

water infrastructure is no exception. Climate change and

modified in 2005 and believes that, after a one-year transition

increases in sea surface temperatures are factors that

period, this increased regulation would help the system work

have contributed to a substantial increase in hurricane

like it does in other countries. He takes the example of Cuba.

activity since the early 1980s, according to the American

“In Cuba, the authorities began substituting the water network

Meteorological Society. This spells trouble for Mexico,

little by little,” he says. “Now the country has finished this

a country that is prone to hurricanes but desperately

process and is already earning money with the system.”

underprepared for their impact, says Roberto Olivares, Director General of the National Association of Water and

Compared to Cuba, Mexico’s opportunities in water

Sanitation Utilities of Mexico, (ANEAS).

infrastructure are vast, he says. “In the north of the country, there is little availability and to create it, a great deal of

He offers the example of the 2013 Pacific hurricane season,

investment is required,” he says. “In the central zone, water

which saw 12 tropical storms and hurricanes that affected

availability is unstable and in the south, there is a lot of

Mexico. Hurricane Manuel in September of that year was a

availability but no infrastructure to connect it to the rest

Category 1 storm that affected the entire eastern coast of

of the country.”

Mexico and caused US$4.2 billion in damage. In Guerrero’s La Montaña region, for example, heavy rains caused

He reiterates that private participation is a “stupendous

landslides and the raising of the river level, which triggered

and noble solution” to decrease Mexico’s infrastructure gap

extensive flooding.

but warns that this has been confused with privatization in the past and has been unfairly demonized. The way the

“We need to adapt and anticipate these scenarios, even

government introduces PPPs to the public is extremely

more so now as climate change has a greater impact,” he

important. Olivares cites Baja California as an example of

says. “We need to adopt a preventive mindset so we can

what should be avoided. “The Baja California government

find ways for our water systems to continue working in

was correct to implement the PPP law but it was done in

the face of these intense weather conditions. If we do not

a bad way,” he says. Olivares stresses the need for state

bridge the infrastructure gaps, the damage caused by these

governments to be transparent when implementing these

extreme weather conditions will mean loss of water through

systems so the public can see exactly how they work.

leaks will increase to 40-50 percent.” One government he believes to have implemented the He suggests that a potential solution to these shortfalls

system in the correct way is that of Saltillo. “The previous

is a better-regulated and more highly promoted PPP

water system in Saltillo was very poor so the state and

system that would encourage the participation of the

municipal government examined how they could create

private sector. But the private sector is often reluctant

an alliance with the private sector,” he says. A new body –

to invest in water projects, due to the fact they do not

Aguas de Saltillo – was created, with the state and municipal

offer the level of returns that those like highways and toll

government owning a 51 percent share. Aguas de Barcelona

roads do. “The private sector is reluctant to invest in these

was brought in as the project’s operator and owner of the

projects because legally there is no clarity on the roles,

remaining 49 percent. This model should be followed on a

responsibilities and returns of each party,” says Olivares.

bigger scale, says Olivares, but there are certain conditions

“There are only five to 10 successful cases of private

that must be established to guarantee success. “The service

investment in water infrastructure so for many investors

should have well-defined costs, roles for all parties and

this sector is still too risky.”

budgets,” he says.

101

Wastewater Treatment Plant, TICSA

102

INSIGHT

CREATE CLEARER REGULATIONS TO MOTIVATE PRIVATE SECTOR Carlos Orduz Director General of TICSA

Stefano Sacchi Commercial Director of TICSA

Water scarcity is a common issue in several regions of

TICSA participates with both the public and private sectors,

Mexico where access to sewage and potable water is limited.

specializing in building and operating water-treatment

But government subsidies mean that the public sector bears

plants. Diversifying between Build-only and Build-Operate-

the brunt of costs related to water-provisioning services.

Transfer (BOT) projects as well enables TICSA to mitigate

Companies that build and operate water-treatment plants

risks and balance its income. “Build-only projects provide

would benefit from clearer regulation and the creation of

immediate cash flow while BOT projects provide a long-

a regulatory enforcement body within CONAGUA, which

term cash flow that helps when sales are low,” says Sacchi.

in turn would motivate more private players to enter the

This diversification has served the company well. It currently

sector, says Carlos Orduz, Director General of TICSA.

operates 10 wastewater plants under this scheme.

“Regulations in Mexico are a fundamental area of

In the public sector, water-management projects generally

opportunity,” Orduz says. “Projects in this sector are

require large investments with long financing periods that

not financially, environmentally or socially sustainable

the authorities cannot assume alone. In light of this situation,

without a regulatory model where people pay for what

TICSA now manages these investments by collaborating

they consume.” TICSA, a private Mexican subsidiary

with more players. “Federal institutions like FONADIN or

of state-owned Colombian public-domestic-services

CONAGUA provide part of the financing required, local

company EPM, follows a business model that guarantees

governments may contribute as well, and private banking

ROI through tariffs. This model depends on the input of a

institutions provide the remaining funding,” explains Orduz.

regulatory agency to control efficiencies, water-loss levels, consumption and investment. “It is the end user who must

The main challenge is not in developing projects, he says,

pay so that the system is feasible and this regulation must

but in making them sustainable over time. “Even in the case

be implemented on a federal level,” says Orduz.

of projects carried out with federal funds and guarantees, if the city government has payment-collection problems, that

A key issue for water management is that local governments

project will fail,” he says. In this sense, TICSA is interested

usually manage the community’s domestic water service.

in working with local authorities and organizations that are

This jeopardizes the profitability of water projects in absence

committed to providing a service to the people. “Committed

of a national regulatory body. In a country with over 2,000

authorities translate to greater commercial efficiencies and

municipalities, there is no continuity across domestic

provide constant domestic water delivery, even in absence

water services and no clear framework for developers and

of a compulsory regulatory framework,” says Sacchi. The

operators. “Each city government has to make do with few

commitment is mostly found in governments that are

resources, so most municipal water systems are lacking,” says

more stable and provide better domestic water services,

Stefano Sacchi, Commercial Director of TICSA.

according to Sacchi. “From a business point of view, it is easier to improve operating efficiencies in water boards

TICSA prefers to carry out public projects alone because

with deficient services,” he says. “But those cities tend to

collaboration implies sharing profits, says Sacchi. Generally,

be the ones with less stability, which threatens financial

it is able to make use of parent company EPM’s credit lines,

long-term sustainability."

but if the project is too costly or large for TICSA to develop on its own, the company may look for partners to share the

In the meantime, TICSA’s work in the private sector is where

risk. Sacchi points to PPPs as an important mechanism for

the company sees an opportunity to shine. TICSA is now in the

developing water services. “PPPs are an option to finance

process of building a Wastewater Treatment Plant (WWTP) for

municipal projects and make projects sustainable in the

the Constellation Brands’ brewery in Mexicali, Baja California,

long term,” he says.

which will be one of the largest private investment in the state.

103

ROUNDTABLE

WHAT ARE THE MAIN AREAS OF OPPORTUNITY IN MEXICO’S WASTE MANAGEMENT?

According to SEMARNAT, Mexico generated 53.1 million tons of solid waste in 2015, a 61.2 percent increase from 2003. This implies 1.2kg on average of generated waste per habitant on a daily basis. Considering the amount of waste being generated, the lack of synchronicity in the country’s urban solid-waste collection system can be worrying. Oaxaca, for instance, has 87 municipalities without this service, which represents 3.5 percent of municipalities at a national level. The gaps in the system have proven to be profitable for companies that can offer innovative solutions. In 2016, Promotora Ambiental (PASA) reported revenues of more than MX$3.5 billion from its waste-management services.

106

To optimize the use of biodigesters in urban areas, selective collection requires a modification in the waste pickup route to collect specific materials. This process could take years and is greatly related to culture. For projects to be successful, optimal markets like central supply centers and restaurant areas should be identified first as they generate large amounts of organic waste. There would have to be campaigns to teach local citizens how to separate waste. The main objective is that people

JAHIR MOJICA CEO of SUEMA

embrace these customs and become aware of what biodigesters can offer their communities. Approximately 80 percent of the components for our Milpa Alta plant were manufactured in Mexico and only the extremely specialized pieces that could not be found in Mexico were imported.

The state will have to make a decision to stop subsidizing public domestic services or do so according to social strata so that domestic services are profitable. It is under such models where the opportunities in system operation lie. Moreover, the private industrial sector will continue being an important area of opportunity since there are solid investment projects in it. Cities with efficient access to public services, greater coverage, water quality, service continuity and planning show much

CARLOS ORDUZ Director General of TICSA

greater competition and fewer opportunities for improvement. Because there is no clear regulation each municipality operates of its own accord. Some will continue deeveloping and some will continue lagging. The basis of economic development is providing good public services.

Mexico’s recyclable and waste products market is largely unregulated so public budgets for it are mismanaged and local leaders exercise de facto control of the process. Monterrey, for example, manages its garbage in an industrialized way while other cities hire private companies to perform this activity. Oaxaca merely has open dumps into which people throw garbage without any second thought. On the other hand, Aguascalientes is an example of a municipality that developed

HÉCTOR CASTILLOBERTHIER Researcher at IIS-UNAM and Founder and Director General of Circo Volador

a moderately efficient system suited to the city’s needs but overall, the country manages its solid waste poorly, mindlessly and without a long-term vision. To develop a system in which a city can take care of its garbage appropriately it is necessary to address local disposal systems and the type and amount of waste produced.

INSIGHT

SUBSIDIZED WATER TARIFFS A DANGER TO WATER EFFICIENCY JORDI VALLS Director General of SUEZ Mexico

Water is quickly becoming a scarce resource in many parts

lakes and rivers, as in Mexicali, which is surrounded by

of Mexico and this problem is only exacerbated by the

deserts. He says these proposals could potentially solve

fact that many areas across the country suffer outdated

the issues created by flat tariffs that do not properly control

treatment systems. “The country is in need of a remodeling

consumption nor motivate people to be more conscious

of its water infrastructure as almost 40 percent of the

of water use.

resource is lost through inefficient pipelines,” says Jordi Valls, Director General of Suez Mexico.

An exception in the faulty water system is Aguas de Saltillo, a company that is 49 percent private and 51 percent public. It

According to WWF, water may cover 70 percent of the

helped the city of Saltillo in Coahuila acquire one of the best

planet but only 3 percent of it is considered freshwater that

water-performance standards in Mexico. “Its business model

can be used for drinking, bathing and irrigation. Of this 3

is exemplary as it combines the best of both worlds through

percent, two-thirds are inaccessible as they are present in

a healthy balance of regulatory and business knowledge,”

glaciers. Considering this reality, the cost and use of water

says Valls. “It is easier to work under a company with this

should reflect its scarcity, says Valls, who points out that

model and ensure the viability of projects.”

water is almost given away in Mexico. “The country cannot provide efficient water services at current prices because it

Suez also highlights the BOT model for guaranteeing

cannot raise enough profits to pay for maintenance costs.”

transparency and legal certainty. The model requires a private company to build, invest and operate a plant for

As a company that provides water-treatment services, Suez

a certain period of time and allows the company to gain

struggles with the highly subsidized water tariffs authorities

its investment back through trusts and tariffs paid by the

have set. “A middle point needs to be found between the

public sector. The tariffs depend on the cost of capital and

subsidized tariffs and the financial needs of the project to

the volume of water treated, says Valls. BOT is commonly

make it more viable,” he says.

used by operators and construction companies in the Mexican water industry to mitigate risk and attract much-

Despite the pricing issues, Suez considers Mexico to be one

needed capital. “The government could use a completely

of its most high-potential markets, with a large portfolio of

public model to develop its water infrastructure but the

projects that need to be developed. The company already

amount of capital these projects require often surpasses

has over 300 plants and more than 50 years of experience

its financial capabilities,” Valls explains.

in the country. Considering the billions of dollars on the line, companies To make water-treatment services more sustainable and

like Suez and Veolia depend on banks to finance projects

profitable, Valls proposes a scale for tariffs that is divided

and risk losing access to capital if costs and timelines are

into blocks and terms of use. “The average family only

not well-structured. “Some projects are simply ideas that

requires 18m of water and households that use more than

are not executable,” he says. The physical part of the project

this should be paying more because water is becoming

-– the construction phase –- takes three years to develop

increasingly scarce,” he says. “Besides consumption, tariffs

but planning is the most important phase.

could also be based on the socioeconomic context as certain families have enough acquisition power to pay for

Suez prioritizes this stage to protect the investment of

the services without subsidies.” Valls believes other factors

financial institutions. “The best way to mitigate these risks is

should be taken into consideration, such as proximity to

by investing plenty of time into the project’s planning phase

water sources. Water services should not cost the same

to make sure that it is executable,” he says. “Fortunately,

in Chiapas, for example, a state with an abundance of

Mexico has an abundance of capital.”

107

VIEW FROM THE TOP

BIODIGESTERS TO REDUCE TREATMENT COSTS FRANCISCO CHOZAS President of the Fypasa Group

108

Q: What opportunities did Fypasa identify in the operation

the largest plant in Latin America removing arsenic, besides

of water-treatment plants?

manganese and iron, and treating 1,000L/s of underground

A: In 1992, the Mexican government implemented a policy to

water in the metropolitan area of Guadalajara.

build water (WTP) and wastewater-treatment plants (WWTP) under the Build-Operate-Transfer (BOT) framework for the

Q: What is Fypasa’s strategy for securing public contracts

first time. Before this, public-owned WTP and WWTP projects

through the tender process?

were undertaken through construction bids, and subsequently

A: Fypasa exists because of water. We are a highly

the engineering was carried out by consultants and did not

specialized company that, through public bids, treats

include the plant’s operation, which was carried out by

the potable water the country needs and cleans the

authorities. We identified the opportunity to transform from

wastewater the country produces. There is no secret to

construction to BOT or turnkey (design, build and start up)

winning a bid. By rule, the most inexpensive, technical

projects. We shifted from a construction company to one that

solution and applicable proposal must win. However,

could also design and operate these plants.

sometimes bids are won by companies that merely offer the lowest price. This leads to cheap projects but not

Considering the opportunities that the new policy opened,

necessarily to quality projects. Sometimes, fraudulent

we allied with GMD and won a bid to design, build and

companies offer impossibly cheap proposals and then

operate the Toluca WWTPs. We created two special-

raise their prices upon winning, flee with the advance

purpose companies to operate each plant: Ecosys I for

payment for the project, do not finish the work, or simply

the North Toluca plant and Ecosys II for East Toluca.

never build the plant. On the other hand, there are some

These WWTPs are a source of pride for us. They currently

large and economically powerful companies that can offer

discharge 1,700L/s of treated wastewater into the Lerma

low prices but lack the technical expertise and support

River that eventually reaches Chapala Lake, which is one of

to build good, well-equipped treatment plants. Fypasa

the water supply sources for the city of Guadalajara.

is a medium-sized company, but it has many years of experience and plenty of engineering expertise in the

Q: Which water or wastewater-treatment plants have

water and wastewater-treatment sector.

posed the most difficult challenges for Fypasa? A: The most challenging project was the industrial wastewater-

Q: What trends are on the horizon for water and wastewater

treatment plant of Leon. The complexity of this project derives

treatment?

from the high amount of garbage and highly concentrated

A: In terms of funding, the water infrastructure sector

and dangerous pollutants that the tanneries of the local

has experienced deep budget cuts in the last few years.

leather industry discharge into the sewerage system. Gerry

Companies will start using PPP models to develop and

Shell, one of our company’s consultants, labeled Leon’s

operate WTPs and WWTPs. PPP models have not been

wastewater “the mother of all wastewaters” because of its

applied in this sector but they soon will be. In terms of

nature and concentration, and because of the difficulty of

water problems that need to be solved, another key trend

treating it. Another challenging project was the design,

could be desalination plants, because in many regions of

construction and operation of the Toluquilla WTP, which is

the country it is not feasible to provide water in any other way. Using biodigesters to produce biogas from the residual sludge of a WWTP for power and heat generation would

FYPASA established in 1942 under the name Filters and

be a common way to reduce the operational costs of many

Purifiers Aztlán, is specialized in constructing water treatment

medium and large-sized WWTPs. Indeed, Fypasa is doing

infrastructure. Since its inception, it has developed its

this at the Leon WWTP and will also soon begin performing

capabilities to be able to treat water at a rate of 23.86m3/s

this operation at the Hermosillo WWTP.

INSIGHT

DIVERSIFYING FROM WATER TANKS Rotoplas’ water tanks are an omnipresent feature across Mexico, and continue to be one of the company’s biggest products, driven by water scarcity. But the company’s newest segment, water treatment, is its fastest growing, with a range of products and solutions for water treatment and recycling. Mario Romero, CFO of Rotoplas says this is the segment the company is now focusing on. “Consumers are leaning toward buying water purifiers instead of purchasing water bottles, boosting the demand

“

Mexico City’s water has to be pumped from 500km away, meaning 40 percent of the water is lost through leaks” Mario Romero, CFO of Rotoplas

for new home solutions,” he says. “Rotoplas is committed

109

to changing the way we think about water and creating

Mexico agreed to change this percentage at COP21,

sustainable solutions for future generations.”

where it committed to treating 100 percent of its water and recycling at least 20 percent by 2030. Rotoplas is

Water tanks allowed Rotoplas to build a strong brand

focused on solving potential water issues by adapting

among Mexican consumers. The challenge the company

sustainable solutions for the future.

is facing now is changing the consumer mindset to incorporate an array of products. “Today, water tanks

Rotoplas aims to continue finding new ways to treat and

represent no more than 30 percent of our total sales, and

recycle wastewater, which applies to both horizontal and

we continue to diversify our products,” he says. “As we

vertical construction since usage levels remain the same.

continue our efforts toward sustainable water, consumers

He says that creating the proper infrastructure to manage

will change their thoughts on what Rotoplas does.”

and transport wastewater in cities is not only difficult, but extremely expensive. “We must start recycling and

Water scarcity is a worldwide problem, aggravated by

treating our water locally,” he says. “By 2030, Mexico

three different factors: population growth, migration into

has agreed to change its water habits and recycle

urban areas and the direct increase of water-consumption

more water.” This is an area where he sees the greatest

levels as incomes rise. The fact that demand is growing

opportunities for Rotoplas’ growth.

too fast is creating stress on water availability. Today, it is compulsory for all new construction, from Each country has its particular problems and in Mexico’s

office buildings to commercial centers, to build their own

case, Romero says the infrastructure has not been

water-treatment plants. The problem, says Romero, is

properly maintained throughout the years, which poses

that the vast majority of these are not correctly operated,

a major challenge. “For instance, the processes to bring

making it hard to recycle the water.

water into Mexico City and remove sewage are extremely inefficient,” he says. “The city’s water has to be pumped

Rotoplas now offers O&M services for plants to ensure

from 500km away, meaning 40 percent of the water is

the water can be recycled. “We have some clients that

lost through leaks.”

can recycle up to 70 percent of their water,” he explains. “The government can no longer afford to subsidize water

Mexico City will continue to grow exponentially, with a

and as prices continue to rise, people are beginning to

projected population of more than 30 million by 2030.

take a closer look at their water bills.”

At the moment, each person uses more than 250 liters of water a day for drinking, cooking, cleaning and bathing,

But even as the largest player in point-of-entry water-

and this number will only increase in the years to come.

treatment and recycling plants in Mexico, Rotoplas is

In Mexico, only 30 percent of water is treated and only 1

constantly looking for ways to improve its products. It

percent is recycled.

recently acquired an innovation center in Canada with unique water-treatment and recycling technology. “Our

The country aditionally has to worry about the fact that

goal is for all houses to have our products to recycle and

renewable water availability dropped 79 percent between

treat water, which we feel is a more efficient way of solving

1950 and 2014 from 17,742 cubic meters to 3,736 cubic

water scarcity and sanitation issues,” says Romero. “Each

meters per inhabitant and will keep dropping. Mexico's

day, more cities and companies are realizing that this is the

environmental agency also estimates that 9 million

path we must take to create a more sustainable country

Mexicans do not have access to potable water.

and Rotoplas is ready to work alongside them.”

VIEW FROM THE TOP

MEXICO CITY’S OUTDATED WATER INFRA IN NEED OF REPLACEMENT Daniel Posadas Director General of Inbode

110

Francisco Peralta Technical Manager of Inbode

Q: How did Inbode become a leader within Mexico’s

time necessary with other methods. Apart from efficiency,

water segment?

the materials have no ill-effect on the public and can be

DP: We have more than 27 years of experience in Mexico’s

guaranteed for more than 50 years.

water sector. We understand the different necessities of Mexico’s cities and municipalities and the issues they

We have had various projects in Mexico City. For instance,

face. We are constantly innovating to help solve different

we were responsible for repairing the drainage pipes on

problems. The company began commercializing Vacall,

Michoacan street, which crosses through Parque Mexico

RST, Global and Thompson Pump brands. Over the past

in Condesa. We were able to repair a 252m segment in

three years, we have been working closely with SACMEX

just one weekend. The advantage was that people could

due to an increase in problems with Mexico City’s water

continue using the park and footpaths during the entire

infrastructure. We want to continue innovating and taking

repair. We first diverted the dirty water into a tank and

the next steps to ensure the country’s future water supply.

then dug a hole from which we could fix the entire section of the pipe. We have specialized in large diameter pipes

Inbode has repaired pipes that are more than 110 years old and made of brick

and in potable water services. We are the only company in the country that has this technology. Q: What is the status of Mexico City’s infrastructure and why is it taking so long to improve it? DP: The biggest problem the country will face in the coming years is that its water infrastructure is extremely

Q: How can Inbode’s solution improve Mexico’s water

old. Roma and Condesa have some of the oldest water

infrastructure system more efficiently and quickly?

infrastructure in the city. For years we have been

DP: Our solutions allow us to completely repair and

repairing the pipes but it has now gotten to the point

replace Mexico’s ancient water pipes without having

where they need to be completely replaced. The country’s

to dig them out of the ground. There are several pipes

ancient system has many leaks and was constructed using

beneath major roads in the city, and completely changing

asbestos cement, which is now prohibited due to related

a pipe creates mobility and safety problems for citizens.

carcinogenic problems. We have even repaired pipes that

For instance, once the Line 7 of the Metrobús is installed

are more than 110 years old and made of brick.

on Reforma, it will be impossible to remove or replace any of the water or drainage infrastructure underneath. This

With so many budget cuts and increases in expenditures,

is where we can help because we can rehabilitate water

local water systems cannot afford the costs of repairing

pipes without having to extract them from the ground.

and improving existing infrastructure. The government has been trying to get loans from international development

Our products are inserted into the pipeline that covers

banks to finance these fixes but nothing is concrete yet.

the old pipe. Our solution is made from fiberglass and automatically repairs the entire pipe in a fraction of the

FP: Mexico repairs approximately 1km of pipelines each year while the US repairs more than 200km of pipelines. Mexico City for example has more than 12,000km of

Inbode is a leading provider of hydropneumatics machines,

sewage pipes and 12,000km of potable water pipes,

pumps and drainage inspection equipment in Mexico. It offers

which are divided into primary and secondary networks.

maintenance and repair services for large-diameter water

Less than 5 percent of these systems has been changed

infrastructure pipes that have minimum impact on surroundings

since they were first installed. But because nobody can

actually see the infrastructure, nobody notices how much

Q: What challenges have you faced in convincing the

water is actually lost through leaks. Mexico’s water system

public sector of the value of your products?

loses more than 40 percent of the water it transports and

FP: Sensitizing the public and private sector to the added value

this is only accounting for registered water.

our solutions offer has been the biggest obstacle we have encountered. Because our pipeline substitution products do

Q: Why should the private sector be more involved in

not require excavation it can be unsettling to some decision-

improving the country’s water infrastructure?

makers. The public sector wants to carry out projects that

DP: It is probable that many municipal water systems will

are visible, so that the public can see investments are being

be managed by private-sector players in the future. This is

made to improve infrastructure. Although our products may

why we have created a partnership with Suez whereby we

be more expensive at first, closing down a street, digging and

service its concessions and solve its water infrastructure

completely replacing the pipe is far more expensive.

problems. We are working together in San Luis Potosi and Ciudad Juarez.

Reaching out to the public sector has been a difficult task. It has the power to make these products and

A huge problem with Mexico’s water system is that there

methods mandatory for concessionaires. Most of the

are many needs that must be fulfilled, but no money to do

concessionaires at the moment are focusing only on

it. When the private sector is responsible for managing

potable water systems and not sewage but both systems

and ensuring the performance of a water system, it will

should be made a priority. Potable water is always given

invest the money necessary to secure a return. Most

preference and nobody is quite sure why.

public-sector leaders who are responsible for the water infrastructure systems prioritize their decisions based

DP: The lack of financial resources is also the reason why

on what they can see, and not necessarily on what is

the sector has adopted technology and innovation so

most urgent. The private sector is more likely to take

slowly. To use our H20 Saertex Liner, which is manufactured

into account not only financial costs, but also social and

in Germany, CONAGUA asked us to obtain a certification

environmental costs that could be generated during a

from IMTA so that it can be used for potable water.

project. It is much easier for us as a service provider to

CONAGUA should be the one setting the rules for the

convince a private company of the added value of our

products and materials that need to be used in the water

solutions rather than the public sector.

systems. It is the only entity that can influence change.

111

VIEW FROM THE TOP

GRP FOR HIGHER QUALITY, LOWER COST IRAM GONZÁLEZ Director General of O-tek Mexico

112

Q: What is O-tek’s area of expertise within the hydraulic

construction companies and the government our natural

works sector?

targets. Many decision-makers find it difficult to implement

A: O-tek’s DNA is in agricultural irrigation. Most of our sales

technologies like GRP piping into their projects because

have been in the Bajio region and in the north of Mexico.

they have been working with concrete, steel or PVC pipes

The largest projects we have developed in the country are

for decades. O-tek approaches potential clients and offers

irrigation district 001 in Pabellon de Arteaga, Aguascalientes

its technical expertise in optimizing projects so that they

and the modernization of the La Purisima irrigation district

can acquire the most suitable solution while also delegating

in Guanajuato. O-tek has started targeting development

responsibility for repairs if a water line is damaged.

in coastal cities like Cancun, Los Cabos and Tijuana. They are still developing their water infrastructure and are

To illustrate the advantages of GRP pipes to potential

attractive targets because we can offer pipes that resist

clients, O-tek provides a portfolio comprising over 300

corrosion from highly saline water or that can withstand UV

projects that have used this technology so they can request

exposure. The company has installed over 600km of Glass

performance references. We also show them how these

Reinforced Plastic (GRP) piping in several water segments

pipes can solve and prevent problems. For instance, O-tek

including pluvial drainage, sewage, hydropower generation,

can help all players involved in installing or changing a water

desalination, irrigation and industrial applications.

line within a city. The public sector benefits because of the long life of GRP pipes, thus reducing maintenance and

Q: What advantages do O-tek’s pipes have over metal or

repair costs. Construction companies installing the water

concrete pipes for water lines?

line can reduce construction time by using our products.

A: The key features that Glass Reinforced Plastic (GRP)

For such projects, we deliver pipe sections that 3m wide

pipes deliver are long-term cost-efficiency and endurance.

and 12m long for an easier, faster installation that requires

These pipes can virtually eliminate maintenance costs in

less machinery than shorter concrete or steel pipe sections.

hydraulic works. While metallic, concrete, PVC and high-

O-tek can effectively reduce installation time to a quarter of

density polyethylene pipes are so fragile they require

that for alternatives. The less time a water-line construction

constant maintenance or renewal over the lifespan of a

takes, the less time streets need to be closed, resulting in a

water line, GRP pipes have a maintenance-free, 100 to 150-

direct benefit for the city’s inhabitants.

year lifespan. Also, GRP pipes weigh less than pipes made of other materials and are produced and sold in longer

Q: What projects have piqued O-tek’s interest?

sections, making them easier and faster to install. Project

A: We want to participate in iconic projects like NAICM.

for project, O-tek is less costly and delivers more.

The airport will be located on a seismic marshland, which poses many challenges for building and maintaining the

Q: How is O-tek marketing its services to the public and

water lines and rainwater-collection facilities NAICM will

private sectors?

need. O-tek’s GRP pipes can withstand both the salinity

A: Our direct clients are mostly construction companies

of the area and earthquakes that measure up to seven on

although our final customers are local, state and federal

the Richter scale, and these products are easier to install

public dependencies like CONAGUA. This makes

by pipejacking than pipes made of other materials. The company is aditionally interested in continuing to work with CONAGUA. O-tek is in the process of demonstrating

O-tek International is a subsidiary of Colombian-based

to SACMEX how our pipes can resist seismic movements

multinational company Grupo Orbis. O-tek focuses on

while preventing water waste through leaks. The company

applications for Glass Reinforced Plastic (GRP), particularly

also wants to take advantage of the opportunities that the

pipes for hydraulic works

Energy Reform will unleash in the renewable-energy

INSIGHT

GAINS HIDDEN IN GARBAGE HÉCTOR CASTILLO-BERTHIER Researcher at the Institute for Social Research of UNAM

It is easy to simply throw garbage away without giving it

processing all the organic waste Mexico City produces would

another thought, but this waste does not simply disappear.

require 12 15ha plants that could process over 1,000 tons of

Trash disposal is a complex economic activity involving large

trash a day and those do not exist yet.” The second trend

amounts of money, hundreds of thousands of people and

is an increasing demand for elements found in electronic

political interests. It also represents an emerging opportunity

waste, such as silver, gold, platinum and other valued

for companies, provided regulations change and businesses

materials from computers, cellphones and discarded devices,

have the foresight to see its bottom-line value.

which scavengers dig out and separate to sell. “There are two problems related to this activity: its health hazards are

A company’s ability to find value in waste will determine

unknown and there is no regulation on the sale of these

how much it can take advantage of it, according to Héctor

materials,” he says.

Castillo-Berthier, a researcher and scholar at the Institute for Social Research of UNAM (IIS-UNAM) and a specialist

As with other markets, Mexico is part of the global waste

in waste-related social dynamics. “The private sector

trade. Castillo-Berthier explains that the country imports

generates, buys and resells garbage,” he says. He believes

valuable garbage from other countries like high-quality

companies like Danone and PetStar are among only a few

wastepaper from the US and exports electronic waste to

private organizations that have profited from their garbage.

China. The main obstacle to this trade is that “Mexico’s

These companies hire scavengers and pay them decent

recyclable and waste products market is largely unregulated

wages to separate and collect recyclable materials that are

so public budgets for it are mismanaged,” he says. “This

reintroduced to companies’ manufacturing processes. The

prevents the implementation of better management.”

main barrier for more companies to enter waste management is that generally city governments are in charge of this

Garbage management also varies from city to city. “Monterrey,

activity and corruption is rife. “Officials often ask for bribes

for example, manages its garbage in an industrialized way

to surrogate these services to private companies,” he says.

while other cities hire private companies to perform this activity,” Castillo-Berthier explains. “Oaxaca merely has

According to 2015 data, the latest available, from Mexico

open dumps into which people throw garbage without any

City’s Environment Secretariat (SEDEMA), this city generates

second thought.” He points to Aguascalientes as an example

around 13,000 tons of waste daily or 4.8 million tons yearly,

of a municipality that has developed a moderately efficient

meaning solid waste transfer stations, which prepare the

system suited to the city’s needs but overall, he believes that

garbage from several municipalities for transportation, work

the country manages its solid waste poorly, mindlessly and

at maximum capacity around the clock every day. “A lot of

without a long-term vision. “To develop a system in which a

taxpayer money goes to sending garbage for disposal to the

city can take care of its garbage appropriately it is necessary

State of Mexico,” says Castillo-Berthier, SEDEMA reports that

to address local disposal systems and the type and amount

Mexico City’s waste-management costs total around MX$3

of waste produced,” he says.

billion annually, or about MX$8.2 million a day. He calculates that about 300,000 people -– workers and their dependents

He uses Sweden as an example of a society that appropriately

–- rely on Mexico City’s garbage disposal directly or indirectly.

manages its garbage. “It has a strong consciousness regarding the processes of generation, collection and final disposition of

Castillo-Berthier lists two key trends where value from

garbage,” he says. Meanwhile, in 60 years there has been no

garbage can be extracted, each with its specific challenges.

initiative that seriously addresses the problem of garbage in

First, extracting biogas from organic waste, which amounts

Mexico. For the country to improve its garbage disposal and

to half of all garbage produced in Mexico, to produce energy.

waste management, it needs a long-term, national strategy

“This can be a good business for companies,” he says. “But

that meets the disposal needs of each area, he says..

113

VIEW FROM THE TOP

FINDING OPPORTUNITIES IN RESIDENTIAL, HEALTH, NAICM LUIS ALVA Director General of Vertical and Grupo Motion Corp

114

Q: What role does Vertical want to play in the development

A: Installing a pneumatic waste system is extremely viable.

of more sustainable waste solutions in Mexico?

NAICM will produce 50 tons of waste each day, making it

A: We are pioneers in bringing sustainable technology into

necessary to have a pneumatic waste system, although we

Mexico. We have been in Mexico for more than 14 years

do not yet know in which tender this will be incorporated.

and with more than 1,200 installed projects. We want

We are currently working on the design phase of the project.

to play a large role in the proper disposal of waste and

GACM has been receptive and encourages innovation for

encourage the culture of separating trash in homes. There is

the various tenders for NAICM.

a growing demand for our vertical waste-disposal products. The verticalization of cities has increased the construction

Q: How would Motion Corp adapt pneumatic waste systems

of high-rise apartments that need garbage chutes for the

to the unique terrain in the Lake of Texcoco?

owners’ comfort. Any building higher than five stories

A: The pipe that is buried beneath the ground would be

should effectively have a garbage chute installed.

given a surface anticorrosion treatment according to the aggressive conditions of the terrain. Based on this, a

Our pneumatic waste systems are well received and the

procedure will be applied that adheres to the maximum

market wants to automate these types of processes and

aggressiveness permitted under ISO 12944. This procedure

move toward more sustainable waste systems. We have not

is certified for steel structures submerged in salt water and

installed a pneumatic system in Mexico yet because they

is the same coating applied to the hulls of icebreaking ships.

are long-term projects. The technology transports waste

The application of the coating would consist of 450 microns

to the dumpster at about 70km/h and can be applied for

of glass fiber-reinforced epoxy polyamide. Regardless of

developments with more than 500 apartments.

the coating applied, a cathodic protection system should be provided, in principle by means of a printed circuit. Given

Q: What are the main barriers of entry for a pneumatic waste

the high aggressiveness of the terrain, the quality control

system in Mexico?

measures should again test the integrity of the coating once

A: One barrier we have encountered is the lack of

the pipes have been placed in the trench by means of a

information in the market regarding the benefits,

porosity detector.

technology and impact these systems have on their infrastructure developments. There are no other products

Q: How would one of these systems impact the

like this in Mexico so we have to break the paradigm of

sustainability of the airport?

traditional trash-collection systems. This is a medium-

A: Firstly, it would greatly eliminate the collection truck

term investment but because it is installed in buildings

traffic entering and exiting the eight waste collection

with more than 500 apartments it is a more efficient, less

docks. That eliminates CO2 emissions into the atmosphere

expensive option.

and also contributes to better logistics. Secondly, the system would collect the already-separated waste, so

Q: Given that pneumatic systems are used in airports

there would be no substantial manual separation work.

around the world, are you looking to install a system in

The waste would be reused, which is fundamental from

NAICM?

the environmental point of view. Finally, inside the airport building, the current garbage container routes would be eliminated. Trash would be hidden during transit,

Grupo Motion Corp has two subsidiaries: Vertical and Sistemas

transported through pipelines with minimal electricity

Neumáticos de Envíos. Vertical is an industry leader in the

cost. This means logistics would improve significantly

handling and disposal of garbage. It has installed more than

and the image of the airport would be more modern and

1,200 systems in 800 buildings

attractive.

VIEW FROM THE TOP

A GREENER FUTURE, ONE BIODIGESTER AT A TIME JAHIR MOJICA CEO of SUEMA

Q: Where does Mexico stand in terms of waste-management

This helped us earn the public sector’s trust and build a solid

culture?

reputation for our work. Because of the brand’s prestige,

A: Mexico has not fully developed a recycling culture. There

we were able to approach other municipalities to suggest

are many initiatives to raise awareness but they are not

more projects. Our involvement in social media helps to

given the importance they require. Projects for recycling

demonstrate that cost aside, a project has many benefits on a

and transforming waste into energy are multiplying but at a

social level. Anti-construction factions commonly arise against

citizen level there is still a large opportunity for growth. This

infrastructure projects, which can be tackled by co-designing

lack of culture has increased prices and promotes informality

projects with communities. This makes projects more viable

in recycling, although we see this trend is changing. Since

when they are taken before decision-makers. In Milpa Alta

the public sector is lagging in the adoption of strategies, the

local communities were happy with the project because they

private sector is taking matters into its own hands. Large

took part in it from its beginning.

corporations like Danone and Coca-Cola are investing strongly in materials recovery through recycling.

Q: What municipalities or states have shown the most interest in this type of projects?

Q: What makes Mexico an attractive market for anaerobic

A: Iztapalapa and Miguel Hidalgo are interested in developing

digestion infrastructure?

their own plants. These two municipalities are governed by

A: The market for biodigesters in Mexico is extremely

different political parties, which demonstrates that these

attractive. Mexican waste composition is mostly organic since

changes are taking place regardless of political ideology. The

the public usually purchases fresh produce from markets

initial investment for Milpa Alta was approximately MX$15

and the process of waste management is not especially

million but 40 percent of that was dedicated to knowledge

industrialized. However, if we do not develop the necessary

generation. The next projects will have a much more flexible

infrastructure, this useful waste will go straight into a regular

initial investment with an ROI of between three to five years.

landfill where its processing is more difficult due to the high

By investing in onsite biodigesters, companies could save all

amount of gases. The size of Mexico’s agribusiness sector

the costs of transportation and collection. However, waste

also creates great demand for these types of infrastructure.

separation can pose a challenge. For instance, a clean PET bottle is worth more than a bottle containing organic waste.

Thanks to the public sector embracing and promoting the technology, the private sector has become far more open to it.

Q: What risks are associated with creating a waste

Now our clients are 50 percent public and 50 percent private.

management plant through a PPP?

Mexico City developed Milpa Alta, the largest biodigester built

A: Many municipalities are closed to these types of businesses

in an urban area and in Latin America. It pioneered the waste-

thanks to local laws that prohibit concessions. Mexico City’s

to-energy segment in Mexico, showing the rest of the region

new constitution prohibits the concession of the collection

that recycling is not only good for the environment but that it

and treatment of waste. The plants that we want to build

can also provide economic benefits to those companies and

should not be seen as waste-management plants but instead

governments that embrace it.

as energy plants. This allows us to participate in the market by selling energy to companies.

Q: As the first of its kind in Mexico, what steps did SUEMA take to break the paradigms regarding investment in biodigesters?

SUEMA is a Mexican startup that focuses on generating energy

A: To convince the government to invest in this kind of project,

and compost out of organic waste through biodigesters. It

we started offering the public sector support in expanding

uses agribusiness and public sector landfills to produce biogas

the largest compost plant in Bordo Poniente five years ago.

and compost that can be used to generate energy and fertilizer

115

TECHNOLOGY SPOTLIGHT

PAVING THE WAY TOWARD A CIRCULAR ECONOMY SUEMA, a company that specializes in the development of innovative waste-management solutions, broke fresh ground in Mexico with its Milpa Alta biodigester. The plant can produce biogas out of organic waste that can be used to produce heat by combusting it and then turning it into electricity. It is unique in Mexico and even the world thanks to its in-situ processing of the waste, its financial model and its technology. The Milpa Alta project can be divided into two systems: the biodigester and the generation unit. While the biodigester produces biogas, the generation unit creates two types of energy, electricity and heat, through the use of biogas. The land hosting the plant belongs to and is installed right beside the central market in Mexico City’s Milpa Alta district. This means that the project was embraced and supported by the community before the government. The project received MX$13 million from Mexico City’s Ministry of Science, Technology and Innovation (SECITI), a quantity that almost funded the entire MX$15 million project. This money was awarded not as a subsidy but as an investment.

Mexico City’s Ministry of Science, Technology and Innovation (SECITI) provided MX$13 million of the total MX$15 million The project is expected to produce enough biogas to generate around 150kWh of electric energy per day in its initial phase. All of the electricity produced will be transmitted to the central market of Milpa Alta, where the residues used to create biogas are produced, through an interconnection with the main grid. For the time being, the project will use a net-metering scheme to lower the electricity consumption from the main grid of the Milpa Alta market. As energy production stabilizes, and even increases, the net-billing scheme is expected to become more attractive and create a positive economic inflow for the market. Eventually some of the biogas will be transferred to small surrounding businesses. SUEMA promotes the development of a circular economy, an economy in which residues are either eliminated or reduced as much as possible. The company believes the plant will demonstrate the potential and positive results circular economies can provide to Mexico.

117

Autodesk's Smart City Technology

SMART CITIES

Each year more and more people leave behind rural areas in search of a better quality of life. Authorities are starting to prioritize the efficiency and integration of cities through the incorporation of technology and data that encompass the Smart City movement in the world. Technological advancements now allow them to identify and predict traffic patterns to better plan streets and public transportation, among other benefits.

The challenge is for companies to make these solutions affordable enough for the public sector. Mexico is taking important strides as it was chosen to host the Smart City expo for Latin America and show the public sectorâ&#x20AC;&#x2122;s commitment to develop better planned cities. The concept also prioritizes sustainability and minimizing the environmental impact of highly populated regions. According to PwC, Mexico is predicted to be one of the top ten economies in the world by 2050 above Japan, Germany and the UK. Transforming and maximizing the potential of Mexican cities will help make this prediction become a reality.

This chapter unites leading developers and suppliers of smart solutions to discuss the main advancements and areas of opportunities in Mexico.

119

CHAPTER 5: SMART CITIES 122

ANALYSIS: Connectivity Advance to Have Deep Impact

124

VIEW FROM THE TOP: Javier Cordero, Oracle Mexico

126

INSIGHT: Marco Vigueras, Nokia

127

VIEW FROM THE TOP: Alejandro Preinfalk, Siemens Mexico and Central America

128

INSIGHT: Vicente Torres, PTV Group América Latina

129

INSIGHT: José Fenollosa, Meypar Mexico

131

VIEW FROM THE TOP: Carmen Muñoz, Citelum

132

VIEW FROM THE TOP: Miguel Angel González, Danfoss Mexico

133

INSIGHT: Manuel Gutiérrez, Carrier Mexico

134

ROUNDTABLE: What Are the Main Trends Seen in Smart City Development in Mexico?

136

INSIGHT: Ramón García, Vertiv Mexico

137

VIEW FROM THE TOP: Adán Morales, Avantec

138

VIEW FROM THE TOP: Antonio Quintanilla, Thales Mexico

139

VIEW FROM THE TOP: Francisco Caballero, Alliance Corporation

140

VIEW FROM THE TOP: Pedro Torres, Smartnett Carrier

121

Orlando Armienta, Smartnett Carrier

141

VIEW FROM THE TOP: Patricio Zorrilla, UltraVision

142

INSIGHT: Xavier Paez, WG Fuentes

143

VIEW FROM THE TOP: Gabriel Covarrubias, Grupo Droppin

ANALYSIS

CLOSING GAPS IN MEXICO'S CONNECTIVITY Everyday life in Mexico is about to change dramatically with the upcoming implementation of the 4G shared network, also known as Red Compartida. The PPP project is expected to provide mobile internet and telephone services to over 90 percent of the country’s population by 2024

122

Everyday life in Mexico is about to change dramatically with

cities in the race to become smart is the quality of the

the upcoming implementation of the 4G shared network, also

available infrastructure and its functionality,” Vigueras says.

known as Red Compartida. The PPP project is expected to

“Before talking about IoT, Cloud networks and Big Data, we

provide mobile internet and telephone services to over 90

have to have the adequate foundational infrastructure to

percent of the country’s population of 120 million by 2024. The

handle these processes.” He believes that for cities to thrive,

project could facilitate the rise of Smart Cities in the country

they must become smart, safe and sustainable by investing

as authorities and the private sector will be better equipped to

in shared, secure and scalable infrastructure, also known as

integrate data from traffic lights and transportation systems to

the “Six S” strategy.

control movement while greatly improving the quality of life. Investment and deciding who is responsible for taking the According to the Federal Telecommunications Institute (IFT),

first step, however, are key hurdles. “The challenge is in

Mexico’s telecommunications network suffers from high levels

identifying who will pay for the required infrastructure,”

of saturation, leading to high prices, poor service and a lack

Vigueras says. “In the long run, this will no longer be a hurdle

of investment. The development of telecommunications

because Smart Cities make smart use of city budgets. There

infrastructure in Mexico is becoming an urgent need as a

are many costs that can be reduced if we use technology,

low percentage of households have access to a network.

but the problem is getting started.”

“According to INEGI, 30 percent of homes in urban areas and only 4 percent in rural areas have access to an internet

THE SHARED NETWORK

connection, leaving a major area of improvement for

This is where PPPs like the Red Compartida project

infrastructure development,” says Marco Vigueras, Country

will come in. One of the largest projects of the current

Senior Officer at Nokia.

presidential term, the project’s goal is to improve Mexico’s telecommunications infrastructure. In November 2016, this

Dolia Estevez, a senior foreign correspondent that specializes

project was awarded to the Altán Networks consortium

in Mexico’s billionaires, reports that America Movil, the biggest

that has Grupo Multitel as a strategic partner. Its financial

wireless telecommunication and Pay-TV provider in Latin

investors are Morgan Stanley and Caisse de dépôt et

America, still owned 60.8 percent of the market share in 2016,

placement du Québec (CDPQ) as well as the International

just 0.7 percent less than it owned in 2013. Although analysts

Finance Corporation (IFC). Local partners are Axtel and

speculate that by 2020, its share of the market could drop to

Mega Cable.

55.5 percent, a small number of companies still own the lion’s share of Mexico’s telecommunications market, discouraging

The tenders equally caught the attention of some of the

competitive pricing and affecting accessibility.

largest telecommunication companies in the world, such as Huawei, Motorola and Nokia, which joined the project

In the second quarter of 2015, INEGI reported that 57.4

as service providers. The shared network requires an

percent of the population 6 years or older in Mexico declared

investment of US$7 billion. As the first self-sustaining

themselves internet users. Of these, 70.5 percent are below

PPP in Mexico, the SCT states that the design of the legal

35 years old. INEGI finds that 77.7 million people in the

framework for the Red Compartida means the project can

country have a cellphone and two out of three users have

attract 100 percent FDI. It will sell all of its services only

a smartphone. Data show that the growing population of

to operators with infrastructure. It will not compete with

millennials is bound to create an increase in internet use and

its clients as it will not sell services directly to end users.

the country needs to act now if there is any hope of meeting the growing demand.

In an article written for El Financiero, Gerardo Ruiz Esparza, Minister of Communications and Transport, said the shared

The development of telecommunication infrastructure is an

network contract signed by the consortium in January 2017

essential stepping stone on Mexico’s path toward improved

made history for being the biggest of its kind in the world.

connectivity. “An important challenge faced by Mexico’s

The PPP was also the first to adopt standards set by the

Autodesk's Smart City Software

123

World Bank on open contracts. The federal government will

to the report, the price of the cheapest package in the market

be in charge of operating the network but it will be built

was hiked at the same it broadband speed increased. While

and financed by the private sector.

quality improved, accessibility dropped, which is reflected in the ranking. But the report says that individual usage is

The winning Altán Redes consortium proposal promises to

rising thanks to gains in mobile broadband subscriptions.

offer 92.2 percent of the population a 4G network under a 20-year concession through a series of phases. The first

THE FIRST STEP ON A LONG ROAD

phase should start in March 2018 and Altán is responsible

Many hope that the success of the Red Compartida will

for covering 30 percent of national territory and 25 percent

continue to inspire similar projects in Mexico and that

of the Pueblos Mágicos with its network. By January 2020,

the availability of PPPs will attract further private-sector

the group needs to meet 50 percent of its network goal,

investment. “Innovation in the market is important, in

which implies 50 percent of the population and 50 percent

particular with PPP schemes,” says Aniceto Huertas,

of the Pueblos Mágicos.

Director of Fundamental Risk at Afore Citibanamex. “The shared network for telecommunication is the first of its kind

MEXICO’S DIGITAL ECONOMY

in the world and is an example to follow within the sector.

An expansion of Mexico’s network is important for Mexico’s

This infrastructure initiative can be replicated in other

global competitivity as the OECD’s Digital Economy

sectors and has the potential to create many opportunities

Outlook 2017 states that in countries like Denmark, Iceland

for future development.”

and Japan over 97 percent of the population has access to internet while in Mexico and Turkey this number is less than

Until Mexico prioritizes telecommunication, its Smart City

60 percent of the population. “Mexico’s lag in connectivity

technology will always lag behind in the global rankings,

harms the country’s competitiveness, which affects the

no matter how much effort is placed on innovation, says

social sphere,” says Pedro Torres, Managing Director at

Torres. “In terms of IoT, cities and countries cannot achieve

Smartnett.

‘smartness’ until everything can be connected,” he explains. “The country will eventually become more conscious of its

According to the World Economic Forum’s Global

connectivity needs but the government should accelerate

Information Technology Report 2016, Mexico’s Network

the internet adoption process across all economic sectors

Availability reached 76th place, a significant drop from the

and bring connectivity to remote areas. Doing so will speed

69th place it touched in 2015. This was primarily due to the

up both the government’s and companies’ operations and

way the pricing of broadband access is captured. According

ensure better operational control.”

VIEW FROM THE TOP

SOFTWARE GIANT CHANGES PARADIGMS TO MAKE CITIES SMART JAVIER CORDERO President and Director General of Oracle Mexico

124

Q: What does the digital revolution mean and how is

Q: In terms of infrastructure, how do you evaluate Mexico’s

Mexico embracing this concept?

readiness to adopt the digital revolution?

A: The world is undergoing a digital transformation

A: When it comes to digital transformation, neural

that is not about technology adoption but rather about

networks (ANNs) are fundamental. It is not only telecom

empowering people to create new business models that

companies that are responsible for their development,

generate real progress. For instance, Netflix changed the

but networks in general must strengthen to support

entire industry paradigm and business model and started

the existing demand for connectivity. Right now, we are

something bigger. While a lot of technology is required for

focusing on the traditional business but new industries

a business such as Netflix to function, the big turnaround

such as IoT are connecting everything to the internet.

is not necessarily technology but the change in paradigm that was made possible through the existence of an

Mexico does not have the infrastructure to support this

enabler. In Mexico, Oracle is focused on supporting the

transformation just yet but this is slowly changing. There

country’s digital transformation through our technology

are several companies heavily investing to reinforce the

management. We are enablers for companies and we

existence of the 4G network. Telecom companies are now

are looking for new business models within this digital

working toward a new generation of 4G where users will

transformation.

be able to access cable-speed connections without being connected to a cable. This will lead to new business models

This new way of thinking has to be incorporated by all

that we cannot even imagine right now.

companies, including SMEs. The growth of e-commerce has made competition global instead of local. When it

Q: What is Oracle’s definition of a Smart City and what are

comes to digital transformation, Mexican companies are

the main components it must have?

understanding the strategic value of business models

A: A Smart City is one that achieves harmony and efficiency

between its inhabitants and suppliers. To achieve this,

a digital strategy was a response to the need to become

Smart Cities require IoT, the Cloud and Big Data. IoT is

more efficient, to save money or to just follow a trend.

fundamental, since every element of the city must be

Companies are now venturing into a new digital world to

connected to send information to the Cloud. All these

find new business models and to offer new products and

data become Big Data and must be analyzed to obtain

services to a more demanding public.

intelligence and thus make cities more efficient.

The use of technology is no longer exclusive to big

The evolution of Smart Cities must now include public

corporations. It is not a matter of size and scale, it is a

policy. Logically, in Smart Cities, tax collection is more

matter of how the world operates. The world has changed

efficient, which means that more money is available for

and fortunately, Mexican entrepreneurs are beginning to

infrastructure and education projects. With education,

understand this. This means that we are seeing a significant

it is easier to access better-paid jobs, which generates

transformation toward the digital world, regardless of the

a lower crime rate. The trigger for all this to happen is

company’s size.

management technology, which is what enables Smart Cities. Unlike other companies that have very focused management technologies, we are working alongside the

Oracle is

multinational

computer

software

company

digital transformation.

headquartered in California. It offers an integrated array of applications, databases, servers, storage and Cloud

Q: How can Oracle help fast-track the development of Smart

technologies to empower modern business.

Cities in Mexico?

A: If a project does not become self-sustainable and does

databases, information storage and transportation

not transmit knowledge to other generations, it is very hard

models are all developed by Oracle. We see limitless

for it to survive. Unfortunately, almost every infrastructure

possibilities within digitalization. Worldwide, we are

initiative in this country is contemplated over a period of

experiencing double-digit growth and in Mexico we are

only six years. There are some infrastructure projects that

growing at triple digits. This growth is not a coincidence;

are imperative, but are so expensive that they cannot be

it is inertia from technology that is working.

completed within the six-year time frame. This means that most governments prefer to shift the responsibility to the

Q: Where do you see Mexico in terms of digitalization in

next administration. The only real way to provide continuity

five years?

is to implement projects that are self-financing. But beyond

A: Digitalization in Mexico has several nuances. It is hard to

this there needs to be the political will to improve the country.

answer since it varies depending on the industry. In the next

Oracle is working on these aspects, creating self-financing

five years, the telecoms industry will be highly developed,

projects that can transfer knowledge to institutions. We

because it is the vehicle for digital transformation. It is an

have been working in Boulder, Colorado, alongside the cityâ&#x20AC;&#x2122;s

industry that generates significant business opportunities

government to establish self-financing projects that do not

surrounding the IP part of telecommunications, which is

depend on budgets from future administrations.

experiencing noteworthy growth.

Q: What areas of opportunity has the company recognized

The financial sector will also experience significant

within Mexicoâ&#x20AC;&#x2122;s digital development?

development. The current low levels of access to banks

A: Every human discipline and science is on the path

and financial services present both a challenge and a

toward greater digitalization. For instance, with the

growth opportunity. We cannot transform ourselves

Telecommunications Reform, public television is now

into a first world country with the low levels of banking

digital, as are the taxation system and administrative

access we currently have. That is why the financing

procedures. This means that data has to be managed,

sector is making a concerted effort to become more

stored, transported and analyzed, regardless of the

sophisticated. Unlike others, the manufacturing industry

discipline. Oracle is focusing on all these tasks. Digital

is not developing at the required pace.

Data Center, Oracle

125

INSIGHT

A SHARED NETWORK TO BUILD SMART CITIES MARCO VIGUERAS Country Senior Officer at Nokia

126

“Smart” has quickly become an everyday word in the

adaptable to 5G as soon as this technology is available

vernacular of development. Whether it is Smart Cities,

in the Mexican market.” He believes that one of the main

smartphones or smart cars, smart has become the goal

challenges that the project may face is in meeting its

of most cities and companies. More than 59.5 percent

completion deadline, but Nokia has made the Shared

of Mexico’s population aged six years and older use the

Network its priority in Mexico.

internet and more than 57 percent use a smartphone. But how can Mexico get “smart” if the possibilities for

Vigueras believes that another hurdle that has delayed the

technology are developing faster than the country’s

development of Smart Cities in Mexico is investment. “The

capacity to support it?

challenge is in identifying who will pay for the required infrastructure,” he says. “In the long run, this will no longer

Telecommunications infrastructure has seen growth in the

be a hurdle because Smart Cities make smart use of city

last few years thanks to the Telecommunications Reform

budgets. There are many costs that can be reduced if we

but not enough to keep pace with the quickly evolving

use technology. The problem is getting started.”

industry. “An important challenge Mexico’s cities face in the race to become smart is the quality of the available

For Nokia, becoming involved in infrastructure projects

infrastructure and its functionality,” says Marco Vigueras,

such as the Shared Network is a part of its progression. “We

Country Senior Officer at Nokia. “Before talking about IoT,

are transitioning toward developing more IoT and Smart

Cloud networks and Big Data, we must have the adequate

City solutions for enterprises,” says Vigueras. “Although

foundational infrastructure to handle these processes.”

they were not our main focus a couple of years ago, these segments represent new opportunities for us to expand.

According to INEGI, 30 percent of homes in urban areas

Moving on from our roots in mobile phones, we want to

and only 4 percent in rural areas have access to an

create products that will make communication even more

internet connection, leaving a major area of improvement

efficient in the future.”

for infrastructure development. To improve Mexico’s telecommunications infrastructure, the government

Nokia believes that for cities to thrive, they must get

launched one of the largest projects of the Peña Nieto

smart, safe and sustainable by investing in shared, secure

administration, the Red Compartida, with the goal of

and scalable infrastructure, also known as the “Six S”

providing 85 percent of the Mexican territory with internet

strategy.

access by 2018. Ultimately, before a city can begin looking at applications In November 2016, this project was awarded to the Altán

to become a Smart City, it has to ensure that it has shared,

Networks consortium. Nokia has worked with Altán

secure and scalable infrastructure. This allows cities to

Networks for many years and was chosen to provide its

minimize costs, keep information safe and ensure that the

consultancy and technology services to build the network.

infrastructure will be able to keep up with the rapid growth of its population base.

The telecommunications giant chose to get involved with the project because it could see the massive potential it

Infrastructure is the foundation to the development of

offered to the country’s development. “The Shared Network

any city, but it is not the only element that is needed

will reduce the number of duplicated elements needed to

for a city to flourish. Vigueras says strong technology

provide coverage, sharing infrastructure between different

leadership is critical. “The speed in which these changes

companies using one single network,” says Vigueras. “It is

are implemented depends greatly on the government and

a 4G network, it will provide a high speed and it will be

on how it is encouraging this transformation,” he says.

VIEW FROM THE TOP

STRENGTHENING MEXICO’S ROLE IN THE SMART CITY MOVEMENT ALEJANDRO PREINFALK Vice President of Energy Management, Building Technologies and Mobility at Siemens Mexico and Central America

Q: What role do Mexico and Latin America play in the

or standards we offer. Our major segments are utilities, thanks

development of Smart Cities and how is Siemens helping?

to all the new projects that are emerging in clean energy,

A: Smart Cities use technology to improve sustainability

with solar and wind power. The industrial market is a major

and energy-consumption goals. Latin America is playing a

cornerstone of our business as a wide variety of industries can

major role in international agreements such as COP21 and

take advantage of our smart technologies efficiently, including

COP22 and Mexico, in particular, is committed to setting

the construction market. According to our calculations up to

and achieving goals related to carbon emissions and

40 percent of electricity in Mexico is used by buildings, which

energy generation. For instance, 35 percent of the country’s

leaves a large carbon footprint. This is a major opportunity

energy-generation needs are to come from clean energy

for Siemens to make the country’s energy consumption

sources by 2024. The government is facing this goal head

more efficient. Our intelligent lighting could reduce energy

on through clear steps and actions. Siemens is collaborating with the government to help it reach its goals. We strive to reduce the country’s carbon emissions by 60 percent through our technology and to make Mexico carbon neutral by 2030. We have clear goals that we strive to meet with our own operations and clients to minimize carbon footprints. In Mexico, we reduced CO2 emissions by 4 million tons in 2016 through the use of our sustainable technology. Q: What are the costs involved in creating a Smart City?

“

consumption by 80 percent.

We strive to reduce the country’s carbon emissions by 60 percent through our technology and to make Mexico carbon neutral by 2030”

A: In most cases where we ran a budgetary simulation, we found that it takes up to two years to see a return on

Q: In what ways is the private sector taking advantage

investment with this kind of technology. That being said,

of Siemens City Performance Tool in Mexico?

this can vary greatly from case to case. The renegotiation

A: We received a lot of positive feedback from the first

of NAFTA is one of the elements impacting our business

report we developed with the government of Mexico City,

the most because the possibility of a weakened trade

where we analyzed how to improve the city’s environmental

deal with the US is making our customers more cautious.

conditions. We found three major solutions: renewable-

Fortunately, as the year goes on, the market is improving

energy sources, building automation and e-mobility. Clean

in terms of certainty. The exchange rate between the peso

energy has a strong capacity to improve conditions as

and the dollar is improving and becoming more stable

does building automation because both can greatly reduce

and by the end of 2017 we expect an overall more stable

energy consumption in structures. E-mobility also provides

context in Mexico.

cities with smart traffic solutions through automated subways and electric cars. Our customers have shown a

Q: What allows Siemens’ solutions to deliver more added

strong interest in incorporating these tools.

value than its competitors? A: We have a strong footprint in Mexico that allows us to provide quick access to services and manufacturing. We have

Siemens is

been in the country for over 123 years, which is a guarantee

conglomerate founded in 1847. The company provides energy

to our customers that we will not disappear tomorrow. None

efficiency and a range of digital solutions to the infrastructure

of our competitors in the market can match the performance

industry

German

manufacturing

and

electronics

127

INSIGHT

MOBILITY REVOLUTION THE NEW INDUSTRIAL REVOLUTION VICENTE TORRES Director General of PTV Group América Latina

128

There is a common misconception that Mexico’s Smart City

worked with cameras and had to wait until a problem like

infrastructure is years behind that of developed countries.

a traffic jam happened before they were able to react.

Industrialized countries have been working on their city

Authorities can now be proactive rather than reactive.”

infrastructure for 50-100 years and have invested trillions of dollars in creating efficient networks. Many believe this

The authorities, Torres says, have been extremely receptive

is a good basis to create a Smart City and that developing

to the software. PTV is working with various government

countries will take many years to catch up.

bodies, both at the state and federal levels, to help them plan the next infrastructure investments they need to

Not so, says Vicente Torres, Director General of Smart

make. For SCT and the General Directorate of Highway

Mobility software company PTV Group América Latina. In

Development, PTV helped to create a model of the entire

fact, he believes Mexico and other Latin American countries

country and the ministry can now measure vehicle volume

actually have the advantage in this regard. “I like to use the

on the highway network, meaning it can predict strategic

example of the telecommunications boom in Africa where

projects for the next NIP. Similarly, with PTV technology,

there were no landlines and the investment was never made

the Mexican Transport Institute can model and research

to build the network,” he says. “Instead, the country did

Mexico’s freight patterns, meaning it can accurately

a leapfrog jump right into cell phone technology simply

measure the impact of NAFTA.

by installing some towers.” He says that smart mobility in Latin America will work on the same premise. “If there is

At a local level, PTV has been working with SEMOVI,

something that is moving, PTV Group has a way to optimize

SSP and SEDEMA within Mexico City for the last four

that process and make it work better.”

years. “Initially, SEMOVI began to run microsimulations to better understand the impact of some of its projects,”

For almost 40 years, the company has been developing

says Torres. As SEMOVI began to show this technology

modeling, simulation and optimization software and

to the corresponding authorities, others began to request

Torres predicts a very aggressive growth trajectory over

modeling software such as SSP. PTV was also able to create

the next few years. “In our first year, we expected losses

a model for SEDEMA with integrated emissions factors for

but had earnings,” he says. “Over the next few years, we

Mexico City’s cars.

grew at steady rates and have ambitious projections for those to come."

PTV believes that mobility is moving away from focusing solely on cars and more toward mobility systems. It strives

Torres is constantly striving for bigger and better things.

to be at the forefront of that movement as the operating

“Five years ago, running a substantial model could take

system of choice for cities.This potential was also identified

between two and 24 hours depending on its complexity,”

by Porsche Automobil Holding SE (Porsche SE), a company

he says. “Now, the complexity of technology and power

that acquired PTV Group in July 2017 in a €300 million

competition allows us to run models in real time.” PTV’s

deal. “This was a strategic long-term investment because

technology is capable of measuring information about how

Porsche SE understands the future of mobility,” says Torres.

the city is running, including highways, subways and even bike lanes. It then extrapolates this information to form a

He believes this acquisition will only have a positive impact

complete overview of the city that can predict patterns five,

on PTV’s operations in Mexico, a country that accounts for

10 or 60 minutes into the future.

roughly 45 percent of all the company’s Latin American income. Having operated in Mexico for five years, Torres

“This technology is groundbreaking in terms of traffic

predicts the fast-growing market will be one of the most

management,” Torres says. “In the past, the authorities

interesting in the world for Smart City technology.

INSIGHT

PARKING EFFICIENCY AND INNOVATION IN PARALLEL JOSÉ FENOLLOSA Director General of Meypar Mexico

With much of Mexico City’s population facing long public

by pointing drivers to available parking spaces but also by

commutes and poor transport links, many choose to

letting them pay their parking fees from their cellphones.

travel to work by car. But this poses a problem since there are relatively few parking spaces in the city’s highly

There are two main challenges to creating smarter

saturated business and financial districts.

parking services. The first is Mexican users’ resistance to buy and adopt new technologies common to Smart Cities.

Having identified this challenge, Meypar has developed

The second is that developers are generally reluctant to

a strategy to make the use of parking spaces smarter

cooperate with each other by sharing information as they

through IT. “It is necessary to reduce the number of both

do not like working with competitors. “Meypar needs to

free and paid parking spaces to counter automobile

connect all mobility players through on- and off-street

dependency,” says José Fenollosa, Director General of

parking technology by integrating its products and

Meypar. “But parking will always be a necessity and

services in a single multiservice platform,” says Fenollosa.

charging for it is a huge area of opportunity for innovation

“Our technology will enable operators to gauge parking

and business.”

demand to adjust fees accordingly and promote flow by preventing overoccupancy.”

The creation of more parking spaces in urban centers to meet demand poses a hurdle for urban mobility, public transportation competitiveness and production of affordable housing areas within the city. Meypar, a company that specializes in parking solutions such as high-tech, energy-efficient parking meters, attempts to both innovate in parking services and discourage the use of the automobile in urban centers. In Mexico City alone, the Mexican Institute for Competitiveness (IMCO) approximates the existence of 6.5 million parking spaces that incentivize the use of the more than 9.5

6.5 million parking spaces incentivize the use of more than 9.5 million automobiles in the ZMVM

million automobiles that INEGI estimates circulate in the Valley of Mexico Metropolitan Area. Reducing the

Fenollosa trusts that Meypar can improve users’ parking

number of parking spaces will promote the use of public

experiences, yet there are several challenges that the

transportation systems and compel parking service

parking services market needs to overcome. The public

companies to innovate.

has a misconception that parking should be a free service while ignoring the costs behind it. “Parking fees are the

Meypar sees charging parking fees as a key way

only way shopping centers gain revenue from customers

to discourage the use of both parking spaces and

who visit without purchasing anything,” says Fenollosa.

automobiles. As Fenollosa explains, “Charging more for

“These fees enable parking lots to provide security

parking is one of the best ways to counter common urban

through video surveillance, maintain the installations and

issues like pollution and traffic as people will not use

sometimes even install charging stations for electrical

public transportation when it is easier and cheaper to

vehicles.”Through the implementation of parking

drive and park.” The company also wants to develop a

solutions, Meypar looks forward to collaborating on

mobile app that will help reduce overoccupancy, traffic

several projects with large developers, such as GICSA,

and waiting times in paid parking lots. Meypar expects

Fibra Uno, Liverpool and GDI, and bidding for projects

this technology to make parking more efficient, not only

in Santa Fe and Satelite."

129

Ă ngel de Independencia, Mexico City

130

VIEW FROM THE TOP

LIGHT CREATES SAFER, SUSTAINABLE CITIES CARMEN MUĂ&#x2018;OZ Director General of Citelum

Q: What impact can lighting have on the social and

partner able to design and lead to success, that provides

economic development of a city?

guarantees that the KPIs will be met and with the experience

A: Innovation and the development of new technologies has

necessary to provide financing solutions that will allow for a

and will further change the role that lighting plays in cities

smooth implementation.

in Mexico and around the world. Lighting can change the way people feel within a city: installing the right light at the

Q: How can the private sector benefit from the services

right place is an invitation to spend more time outside at

Citelum offers?

night, which then translates into spending more money at

A: Cities are not the only entities that realize that light and

hotels, restaurants and stores. This logically improves the

smart services can help them reach their goals. Citelum

local economy. In addition, new technologies now allow us

already works with real estate and tourism developers in

to integrate CCTV into our projects to ensure visitor and

Mexico and around the world. We worked on indoor and

citizen safety. The perception of personal safety is directly

outdoor lighting projects for large hotels in Puebla. The

correlated to the amount of light in an area. To reach these

night landscape in this city allows it to attract tourism and

goals, it is important that cities not only upgrade their

increase its safety. We see more of these projects coming in

current lighting: there also needs to be an in-depth analysis

the next few years and expect them to grow in complexity

to understand the cityâ&#x20AC;&#x2122;s socio-economic patterns so that

as technology improves.

improvements are optimized based on the goals. Beside Wi-Fi, we also deploy Li-Fi. These light poles integrate LED lighting also has a huge impact on the volume of

technology that functions like a Wi-Fi signal, providing

energy that streetlights consume, with municipalities

mobile users with information. Citizens will be able to retrieve

generating 50-70 percent of savings by upgrading

information in places such as schools, hospitals and touristic

their lighting systems. In addition to lowering energy

areas, by simply connecting to the network. The public and

consumption, upgrading these systems drastically reduces

private sector could use light to send information to the

CO 2 emissions. The use of LEDs can also reduce light

public without any interference. We are currently in bidding

pollution by strategically placing these lights toward the

process in several cities to provide this service.

desired objects instead of the sky. Q: What are Citelumâ&#x20AC;&#x2122;s most popular solutions and products Q: What types of financial schemes have been most

in Mexico?

successful between local, state and federal governments?

A: Delivering the right lightning, at the right place and

A: The cost of these projects depend on their size and

through an application, is our priority in Mexico. In the

scope. We have implemented projects from US$10 million

future, the integration of urban services into Smart City

to US$100 million. Decisions for most projects are taken at a

platforms could deliver more savings and improve the

local level but financial schemes can be diverse. One of the

quality of life of its citizens. With the development of

most common schemes in the world are PPPs, as it allows

new technologies and issues such as climate change, we

cities to upgrade their systems without having to provide

anticipate that Smart services will soon play a much larger

upfront investment, which is one of the main limitations for

role in the Mexican market.

these projects. Under this financial model, the company designs, builds, finances, operates and maintains (DBFOM) the system for the public client.

Citelum is a world leader in smart lighting solutions for both the public and private sectors. It works closely with municipal

Cities around the world are taking the lead against climate

and state governments to light public streets and monuments

change and they want to act now. They need a private

throughout various cities

131

VIEW FROM THE TOP

SMALL INNOVATIONS MAKE BIG DIFFERENCE MIGUEL ANGEL GONZĂ LEZ General Manager of Danfoss Mexico

132

Q: What is your greatest innovation for the development

I think the authorities need to continue to provide support

of smart buildings?

to allow companies like Danfoss to contribute toward

A: The heart of any refrigeration system is a small

these initiatives.

regulation valve, which is the component on which the company was founded. That valve is capable of controlling

Q: How do your products contribute to energy efficiency

the entire internal process across the refrigeration system.

in buildings?

We have developed this valve to create new products, such

A: If the infrastructure sector grows, Danfoss grows because

as an electronic expansion valve, which can contribute to

we differentiate ourselves with our energy-efficiency

energy savings.

systems. We are a Danish company so in our DNA we have integrated environmental consciousness, a reduction of

Another product is the variable-speed drive. Fifty percent of

contaminants in the environment and energy efficiency.

the global electrical energy consumed is through electrical

We have a variety of products â&#x20AC;&#x201C; around 30,000 for cooling

motors. The ability to control the speed of these motors

and 50,000 for heating. The big difference is the innovation

through a variable-speed drive saves a substantial amount

we provide, investing more than 4 percent of our revenues

of energy. This technology helps regulate the speed of the

in R&D, in addition to our expertise. We work based on

motor instead of constantly stopping and starting it. With

the megatrends we see globally and we predict the future

these small components, we are making a big difference.

needs of our core clients.

The good thing about Danfoss is that these components can be combined with other smart technologies like

Our technologies can reduce the energy consumption of

compressors to create an energy-reducing system.

a regular building by about 30-40 percent, depending on the system and the scope of the project. This means

Q: How can the private sector cooperate to ensure all the

less contaminants in the environment, a reduction in CO2

components work well?

emissions and a tangible financial saving for our customers.

A: Innovative companies like Danfoss need to make

Our projects are sustainable, with a very short ROI of around

alliances with other big companies. I do not think only

three years and the main benefit is that we contribute to

one company holds the solution but multiple companies

the reduction of global warming.

can provide a complete, comprehensive solution for these applications. Of course, we need to work together

Q: How do you see the industry adapting to these new

with the private sector and the government to make this

types of technology, especially in Mexico?

happen. Various organizations have a strong impact.

A: It is a process because it is a new culture to which many

These include the Industry Transformation Chamber of

companies need to adapt. This applies not only to the

Nuevo Leon (CAINTRA), which convenes the industrial

company as a whole but to all its staff. At Danfoss, we are

leaders in Monterrey and drafts regulations. Another is the

thinking about using renewable energy at our manufacturing

National Association of Self-Service and Department Stores

plant in Monterrey. This plant has around 1,000 employees

(ANTAD). Together, the two boast around 15,000-20,000

and we have gradually changed features like lighting;

members representing 10-15 percent of GDP.

instead of using regular lamps, we now use LED and we are generating our own energy. Of course, we want to diversify our use of renewable energies and are evaluating

Danfoss creates technology that enables the world of tomorrow

the possibility of buying from off-takers like CEMEX. We also

to do more with less. The company meets the growing need

have a policy in relation to company cars whereby there is

for infrastructure, food supply, energy efficiency and climate-

a limit to the amount of CO2 they can emit. These processes

friendly solutions through its innovative products

are gradually becoming more popular across the industry.

INSIGHT

SMART AIR CONDITIONING SYSTEMS TO REDUCE WASTE MANUEL GUTIÉRREZ General Manager of Carrier Mexico

Delivery of effective, targeted air conditioning solely in

buildings smarter, Carrier is positioning itself at the

spaces where it is needed can significantly cut back on

forefront, developing innovative solutions that promote

electricity consumption, reducing costs while limiting a

sustainability while also reducing costs for developers

building’s environmental footprint, says Manuel Gutiérrez,

and operators.

Director General of Carrier Mexico. “This industry is not about merely conditioning air but making spaces

This push toward innovation motivated Carrier to form

comfortable without impacting the environment,” he says.

a JV with Japanese electronics giant Toshiba to create Toshiba Carrier, a company that produces Variable

Commercial and residential buildings account for 30 percent

Refrigerant Flow Units (VRFU). These are flexible systems

of global energy demand, of which 30 percent accounts for

that can be adapted to both new and existing buildings

space heating and 5 percent for space cooling, according

and can reduce energy costs by up to 40 percent.

to the 2016 Global Status Report of the Global Alliance for Buildings and Construction. This makes reducing energy

The technology’s key advantages are its distribution

waste in these specific areas a key priority for real estate

systems that use refrigerant instead of water and their

and infrastructure developers.

ability to measure the amount of energy being used or wasted in each unit. This enables a building’s operator

HVAC systems company Carrier developed its i-Vu Building

to accurately charge tenants for the energy that they

Automation System to address the issue of energy waste

use to condition their spaces. In June 2016, the company

by interconnecting every HVAC unit and emergency

announced that the systems can be connected to i-Vu,

system in a building. This enables operators to easily

further increasing efficiency and accuracy, while reducing

manage them through a webpage, schedule when units

energy waste.

will start and stop working, limit electrical demand and even set contingency plans for how HVAC units should react in case of fire. Gutiérrez believes energy efficiency will be one of the key trends to watch out for in real estate development. “There are many product lines in which we mostly focus on optimizing the use of electrical power to condition spaces,” he says. “The company can now achieve cooling capacities of 0.3kW/t, which was difficult a few years ago.”

Commercial and residential buildings account for 30 percent of global energy demand

In Mexico, tourism and residential have traditionally been the largest and most important real estate sectors

But the move toward increasingly smart construction is

for HVAC systems, especially for large air conditioning

creating a more demanding customer base and Carrier

units. These are easily installed and used in each room.

sees the importance in adapting to changing customer

However, the company also works in other commercial

needs. The company is developing its plans for the next

subsectors like offices and restaurants, in the hotel sector

five years and one major trend it has identified is in the

and in industrial applications of air conditioning through

growing demand for sustainability certifications. As a

its air-cool and water cool-based chillers. To maintain its

founding member both of USGBC and its Mexican chapter,

diversified portfolio, Carrier has a policy of continuous

Carrier can offer its unique expertise to its clients that are

investment in R&D. As the world moves toward making

looking to obtain the all-important LEED certification.

133

ROUNDTABLE

WHAT ARE THE MAIN TRENDS SEEN IN SMART CITY DEVELOPMENT IN MEXICO?

Technology is being developed at an exponential rate and, given that companies are struggling to adapt to the context, municipalities face even more challenges as they must balance a growing population and budget cuts while still meeting demand. Fortunately, Mexico launched the Association for Mexican Municipalities and Smart Cities (AMECI), which strives to connect strategic sectors, such as energy and mobility with information and communication technology Mexico Infrastructure & Sustainability Review asked leading experts in technology and executives from influential infrastructure companies their opinion on the matter.

134

A Smart City is one that achieves efficiency between its inhabitants and suppliers. To achieve this efficiency, Smart Cities require IoT, the Cloud and Big Data. IoT is fundamental, since every element of the city must be connected to send information to the Cloud. When it comes to digital transformation, neuronal networks are fundamental. We are focusing on traditional business, but new technologies such as IoT are connecting everything to the internet. Mexico does not have the infrastructure

JAVIER CORDERO President and Director General of Oracle Mexico

to support this transformation just yet. However, this is changing and we are on the right path. There are several companies heavily investing to reinforce the existence of the 4G network. Telecom companies are now working toward a new generation of 4G where users will be able to reach cable-speed connections without being connected to a cable. This will lead to new business models that we cannot even imagine now.

The challenge is in identifying who will pay for the required infrastructure. In the long run, this will no longer be a hurdle because Smart Cities make smart use of city budgets. There are many costs that can be reduced if we use technology, but the problem is getting started. We are transitioning toward developing more IoT and Smart City solutions for enterprises. Moving on from our roots in mobile phones, we want to create products that will make communication even more efficient in the future. In

MARCO VIGUERAS Country Senior Officer at Nokia

order for cities to thrive, they must become smart, safe and sustainable by investing in shared, secure and scalable infrastructure, and this is known as the “Six S” strategy. The company is looking to help cities achieve this mission through a holistic and horizontally-layered framework. The speed in which these changes are implemented depends greatly on the government and on how it is encouraging transformation.

We believe that many social and urban challenges require different players to sit around the same table, and one of the things we needed to do from the outset was to create new tools to better understand the city. In the last four years, we have been carrying out a number of projects. Our urban geography department has developed interesting tools with which we have been geolocalizing certain information about the city. We can cross-reference data on the number of

GABRIELLA GÓMEZ-MONT Director General of Laboratorio para la Ciudad

children per block with information on access to open and public spaces and marginalization and segregation indexes across the city. We understand that in a city as sprawling and diverse as Mexico City, more data-driven and focused policy is required.

The first thing holding back development is the current infrastructure. As a company, we need to continue innovating our solutions and connected components so we can connect people’s minds to the machines. Smart components can help us predict if something is wrong or if something will happen that will put the system at risk and it can raise yellow flags that allow preemptive action to be taken. For me, Smart Cities have to be based on the optimal quality of life in each city so this same process that we apply on a micro level can be applied to Smart Cities.

MIGUEL ANGEL GONZÁLEZ General Manager of Danfoss Mexico

135

Industrialized countries have been working on their city infrastructure for 50-100 years and have invested trillions of dollars in creating efficient networks. Many believe this is a good basis to create a Smart City and that developing countries will take many years to catch up. But Mexico and other Latin American countries actually have the advantage in this regard. For instance, a telecommunications boom occurred in Africa where there were no landlines and the investment was never made to build the network. Instead, the country did a leapfrog jump right into cell phone technology simply by installing some towers. Smart mobility in Latin America will work on the same premise.

VICENTE TORRES Director General of PTV Group América Latina

Large populations make the development of Smart Cities even more challenging and some important stepping stones to reaching this goal are comprehensive planning, participative governance and the strengthening of institutions beyond borders to allow for seamless integration of transportation systems. Mexico City and the State of Mexico must coordinate to overcome their transit problems and create an interconnected and efficient transportation system. Technology needs to be integrated both at a federal and local level and although Banobras, CAPUFE and SCT have various projects in the pipeline, there needs to be more of a macro vision. It is not just constructing the infrastructure but knowing how to operate it with a

BERNARDO ORTIZ Managing Principal of Mexico and Latin America of IBI Group

focus on the end user. There are many cities that can still be molded into smart cities, but we have to start planning now.

End users are looking for ease of use and a smoother parking experience and this demand will spur the entrance of payment applications in the market. When it comes to parking tariffs, clients want to pay their fee quickly, using their phones, for example, so they can avoid waiting in line to pay. Technology will assist in cutting the time users spend finding available spaces and the traffic that the process creates. As this type of technology requires the strategic collection and analysis of data, Clouds will become an increasingly important factor for owners that want a convenient location to place all of the information they receive. In theory, the data should be shared so that software developers can create better apps but in practice, companies struggle with the idea of giving away business intelligence.

JOSÉ FENOLLOSA Director General of Meypar

INSIGHT

RELIABLE DATA CENTERS BOOST MEXICAN SMART CITIES RAMÓN GARCÍA General Manager of Vertiv Mexico

136

Mexico is lagging in its data centers which prevents the

Another area of opportunity for Vertiv is smaller companies

growth of IoT and Big Data management, according to

that have not yet accessed this technology that will seek

Huawei’s Global Connectivity Index 2017, which ranks the

a host for their servers with a major telecommunications

country in 32nd place out of 50. SMEs increasingly require

company or establish a small in-house data center. For

data centers to achieve edge computing and strive for an

those companies requiring this service, Vertiv can host the

optimal use of electricity and network bandwidth to cut

clients’ servers in its installations and for those looking for

costs.

an in-house data center, Vertiv offers different solutions ranging from small cabinets to full rooms, all with thermal

“Mexican SMEs are the main drivers behind the Mexican

and electric back-ups.

economy, accounting for 52 percent of GDP and 72 percent of jobs,” says Ramón García, General Manager of Vertiv

But technology advances at a fast rate and it is costly both

México. “Their increasing need for IT infrastructure and

for companies offering shared network services and users

services creates opportunities for building, maintaining

purchasing the latest devices able to connect to them.

and managing data centers to achieve edge computing.”

“SMEs are ready to invest in edge computing through data centers and advanced shared networks,” says García. “But

Edge computing is the process of gathering and processing

the market’s needs for high-velocity information gathering,

data in close proximity to customers, which enables a more

processing and transmission are a matter of economies

efficient use of bandwidth and energy to take place. Vertiv

of scale.” When telecommunications companies start

provides this for customers by establishing and maintaining

dismantling their older 2G and 3G networks, they help

in-house data centers and hosting clients’ servers, as well

their users pay for devices that can ease the adoption of

as by providing solutions in intelligent thermal conditioning

new technologies and prevent the need to maintain older

and energy support.

networks. The availability of data centers for companies and the ability to access shared networks by final customers and

Data centers have a noteworthy impact on the

users are key for edge computing.

environment as they require copious quantities of energy to both function and remain thermally conditioned to

Although García predicts that the trend of Smart Cities

prevent breakdowns. According to the SMARTer 2020

will penetrate Mexico soon, he says it is imperative that

report by the Global e-Sustainability Initiative, the

IT infrastructure, including data centers is improved to

presence of data centers is expected to increase most

anticipate the increased demand. “Smart Cities will depend

rapidly in the ICT sector with a 7 percent compound

on connection points and data management,” says García.

annual growth rate, reaching 0.29 gigatons of CO 2

“They require IoT and Industrial IoT to make decisions

emissions by 2020.

automatically, which involves hundreds of thousands of connected devices gathering and processing data. Huge

“For all data centers, energy is one of the main expenses,

amounts of data and the need to process and send this

with up to 45 percent allocated to server-cooling services,”

information at a high enough speed are the challenges data

says García. Energy and thermal efficiency are goals

centers face.”

for companies using in-house data centers and major telecommunications companies providing hosting services.

Developing data centers close to the final customers to

Vertiv offers electricity and thermal conditioning optimizing

achieve edge computing is the main opportunity in the

solutions like iCOM Autotuning, an automated, intelligent

sector. To effectively develop and improve Smart Cities,

device that operates a data center’s complete cooling

enough data centers capable of managing data and

system in real-time.

connecting devices efficiently are required, García says.

VIEW FROM THE TOP

DISTRIBUTING CONNECTIVITY INTELLIGENTLY: SOLUTIONS IN SERVICE PROVISION ADÁN MORALES Engineering Manager at Avantec

Q: How is Avantec helping to improve connectivity in

areas is not much more expensive than in cities but it takes

Mexico?

about 8 percent longer, which slightly increases labor costs.

A: In the telecommunications and video surveillance sectors, Avantec uses its technology to help the private

When it comes to transportation, Avantec works with airport

and public sectors optimize their use of wired and wireless

groups like ASUR and Grupo Aeroportuario del Pacífico

networks. When it comes to the government we show it how

(GAP). We collaborate to develop airport customs systems,

technology can optimize its services and operations through

ensuring connectivity between airports and promoting

trials and demonstrations. We can help authorities complete

security. We will also operate as the technological branch

connectivity gaps by developing joint studies and providing

of a construction company that won various concessions in

solutions in video surveillance and intelligence.

NAICM by providing video surveillance.

Mobile connectivity is one of Avantec’s vertical markets

Q: What challenges does Avantec encounter while working

but our participation in this sector is scarce as it requires

with the public sector in terms of project continuity and

a significant investment. Among the projects Avantec

budget?

develops in this segment, Avantec plans to provide

A: Fitting our solutions into limited governmental budgets

Wi-Fi in the Guadalajara subway by collaborating

and ensuring project continuity between administrations

with MetroCarrier. We are also developing the wireless

has been a challenge for us. To achieve this, Avantec

transportation network for the Metrobús stations in Leon.

develops objective and cost-effective projects using

Our system already manages the telemetry of prepayment

statistical intelligence. After ensuring connectivity, we study

machines and video surveillance. We are still in the process

key areas that require internet, video surveillance or other

of consolidating the second phase, which will connect

services. These areas generally show large rates of foot

the system to the Cloud and allow end users to view the

traffic, casualty rates or economic affluence. Based on this

number of available seats and arrival time of the next bus.

information, Avantec creates system solutions that meet

This data can help reduce traffic, commute times and in

the specific needs of its partners.

general improve the quality of life of commuters. Q: What is Avantec’s growth strategy and what new cities Q: What projects has Avantec developed in Mexico and

would it like to be present in?

what challenges did it encounter?

A: Avantec develops mobility and telecommunications-

A: In 2012, we developed a WiMax-based telecom network

based connectivity projects in Aguascalientes and Yucatan.

in Jalisco designed for 3,000 users. It required 30 radio

We look forward to having a direct, physical presence

base stations throughout the state. This infrastructure

across the entire country, especially Monterrey, Guadalajara

enables governments to provide services like internet,

and the southeastern region of the country by establishing

modules for civil procedures, video surveillance,

more commercial offices with technological operators and

emergency alerts and traffic control. Avantec additionally

technicians. Nationally, our company is starting to develop

developed infrastructure for these services in Sonora and

projects in the energy sector and provide IoT infrastructure

Colima using newer technologies like LTE and free-band.

that can support Smart Cities.

This project was challenging because it required the construction of a ring that enables wireless connection and signal repeaters on hills so that the entire state is covered.

Avantec is a bulk distributor of products for wireless telecom,

Building the towers and transporting the technology to uphill

CCTV and telecom infrastructure. Its engineering area designs

locations often required the use of mules and ATVs due to

and develops telecom projects across several sectors including

the lack of roads. Building telecom infrastructure in remote

oil and gas, health and security

137

VIEW FROM THE TOP

SAFETY, CONNECTIVITY GO HAND IN HAND ANTONIO QUINTANILLA CEO of Thales Mexico

138

Q: How would you describe the level of Mexico’s connected

A: Thales is interested in doing more in avionics, particularly

infrastructure in comparison to the rest of the Americas?

products related to IFE systems. This is not a decision that

A: Mexico is hungry for innovative technologies. As both

has been made, though. Thales is developing software and

private companies and public-sector customers are keen

installing urban security systems in Mexico. In the security

to adopt the latest solutions, Mexico has top-of-the-line

industry, Thales together with its technological partner

technology implemented throughout the country and is

Telmex implemented one of the largest urban security

a world leader in ATC systems. Thales’ strategy for the

systems in the world in Mexico City. We placed 15,000

Americas includes providing total onboard connectivity

cameras around the city and built the C5 command center

through satellites. The company recently signed an

and five smaller command centers called C2s. We created

agreement with satellite operator and manufacturer SES and

another two mobile C2s that are used at concerts and events.

broadband operator Hughes to provide telecommunications

In this industry, Thales is looking to offer video analytics

coverage over the Americas via satellite. This service should

services in Mexico City. In the transportation sector, Thales

start operating by the end of 2018. The company also

provides tolling systems for CAPUFE and concessionaires

signed an agreement with SES for the construction of the

that operate highways and tolling systems, ticketing systems

new Ka band High-Throughput Satellite (Ka-HTS) that will

for several Metrobús lines and signaling and communication

be launched in 2020 to provide coverage to a large part

systems for the Mexico City-Toluca interurban train.

of North America, South America, the Caribbean and the Atlantic. Once this system is operative, all flights from the

Q: What role will the acquisitions of Guavus and Vormetric

US to South America will have total connectivity to Europe.

play in Thales’ long-term strategy? A: The acquisition of Guavus is mostly related to Big Data,

Q: What is Thales Alenia Space’s value proposition in its bid

data mining and artificial-intelligence solutions. The more

to build the support satellite for Morelos III?

systems evolve, the more sensory information needs to

A: That depends on the path the client wishes to follow. SCT is

be integrated to manage this input. Finding the relevant

looking for a leasing agreement with an operator rather than a

information that needs to be presented to the user through

satellite manufacturer. Thales can provide whatever capacity

the exploitation and exploration of data has become an

SCT needs, but we need to partner with a satellite operator.

increasingly complex challenge. The acquisition of Guavus

We can work together with any satellite service provider

is important for us to overcome this challenge.

to offer customers the right hardware to send into space. Thales is the number one payload manufacturer worldwide as

Q: How is Thales planning to further contribute to NAICM’s

it builds the satellites and their onboard electronics and also

development?

defines the bands in which the satellite will operate. Thales

A: Thales wants to maintain its position as ATC systems

can meet any expectation for this L-band satellite by working

supplier to NAICM authorities. We have started working

together with the Mexican government’s operator of choice.

on a value proposition for NAICM regarding the airport’s security perimeter, its operational control centers,

Q: Beyond its production of security and transportation

internal communications systems and anything related

systems, in which segments would Thales like to work?

to the communications systems inside NAICM’s terminal. Thales wants to take part in any future train and bus line projects that go to and from the airport. There are

Thales Mexico operates on five continents and offers

many opportunities for the company to take part in the

unique value propositions to help customers meet the new

development of NAICM. This constitutes a key priority for

challenges of globalization, urbanization and cybersecurity.

the company as the call for tenders will come out at the

Interoperability is one of its key differentiators

end of 2017 and the beginning of 2018.

VIEW FROM THE TOP

EXPANDING HORIZONS THROUGH LESS TRADITIONAL MARKETS FRANCISCO CABALLERO Director of Broadband Latin America for Alliance Corporation

Q: What are Alliance Corporationâ&#x20AC;&#x2122;s main opportunities for

challenging because we are increasingly incorporating more

security and surveillance in Mexico?

products into our portfolio. Soon we will have to expand

A: Demand for security services in Mexico is among the

our 3,000m2 warehouse.

highest in the world, particularly when it comes to surveillance. The capital is setting a benchmark in this market that other

Deciding how much we want to invest into our warehouse

cities follow because all municipalities have large gaps to fill

is tricky. Companies in the US tend to only invest in

when it comes to surveillance and security in the country.

warehouses after contracts are signed but in Mexico clients

We actively participate in municipal initiatives to establish

want to see that we have the products readily available

safe cities.

before signing. We have to adapt to these expectations and cultural differences. Our goal is to modernize not only

NAICM is also of interest to us, particularly video surveillance

our company but the entire industry.

for both the construction and operational phases. A project like this requires a complex distribution of antenna systems

Alliance Corp also strive to be the best and most strategic

and fiber optics to ensure complete and connected coverage,

option for partnership, not simply the biggest distributor.

which we can provide. Industrial warehouses are another

This is when our service helps us stand out the most. Certain

opportunity area. We predict a boom in wireless needs for

competitors may be able to ship in shorter times but the

this segment that will be similar to that seen with commercial

initial contact process takes much longer. Clients have to

centers and hotels.

contact several people to decide what to purchase and then place their order, waiting a week or longer for a reply

Alliance Corporation normally works with integrators that

while we can respond to inquiries in less than two days.

work for developers. They request our support in wireless

Competitors may be able to ship instantaneously but we

and security services to complement the requirements

can identify the needs of our clients more quickly.

outlined in their tenders. Alliance Corporation can provide the entire security and surveillance system needed by both

Q: What role does the private sector play in your business

the public and private sectors. Many projects need exact radio

strategy?

frequencies and high levels of efficiency that our equipment

A: For 2018, we want to pursue partnerships to consolidate

can provide. We differentiate ourselves from competitors

larger private-sector accounts. Alliance Corporation in

through our financial options and services. Unlike other

Mexico plans to have a diverse portfolio that includes both

companies, we allow clients to rent our equipment and

large and small companies. Our portfolio is transitioning

divide the payments in terms of up to five years. This financial

from being more traditionally public sector to one that is

model adapts perfectly to the public sectorâ&#x20AC;&#x2122;s budget or for

increasingly private because the public sector has dropped

integrators that have to balance many responsibilities.

its demand significantly. It is also important for us to establish relationships with small companies because many have the

Q: How can Alliance Corporationâ&#x20AC;&#x2122;s services help projects

potential to grow into medium or large companies. We want

shorten logistics times and costs?

to achieve consistent and high rates of profit because the last

A: As a global company, we are introducing international

couple of quarters have been challenging for us.

benchmarks to Mexico. For instance, in the US most distributors deliver directly to project sites instead of warehouses or storage centers, reducing time and costs

Alliance

while facilitating the installation process. But this is not the

manufacturer for the wireless Industry. With strategically

culture in Mexico and many clients do not understand why

placed stocking facilities throughout North and South America,

we offer onsite delivery. Offering this service can also be

it carries a broad range of industry-leading products

Corporation is

full-service,

distributor

and

139

VIEW FROM THE TOP

DEDICATED LINKS FOR RELIABLE OPERATIONS

Pedro Torres Director General of Smartnett Carrier

140

Orlando Armienta Strategic Relations and Image at Smartnett Carrier

Q: How would you describe Mexico’s key areas of

percent to 65 million Mexicans in 2017 from the 40 million in

opportunity when it comes to connectivity?

2013. Fixed internet subscriptions have also grown 23 percent,

OA: There is no real connectivity policy. Attempts

which is three times more than mobile internet.

have been made but they have fallen short of meeting the connectivity needs of the population. The Mexico

OA: Despite the efforts of the private sector and the

Conectado program was a first attempt but this is still

government to improve connectivity, Mexico’s public policy

lacking. The 2014 Telecommunications Reform is also

does not clearly guide the constitutional mandate in terms of

falling short of expectations. It is not strong enough

broadband access. One example of the latter is the fact that

to generate secondary laws that promote connectivity

our country occupies last place in OECD when it comes to

among companies or generate new investment channels

fixed broadband penetration with 12.8 subscribers per 100

for national capital. The Mexican government needs to

inhabitants.

promote investment in technology development instead of technology importation. In terms of the shared network,

Q: What knock-on effects does Mexico’s connectivity lag

the Telecommunications Reform approved in May 2017 does

have on other areas?

not really change the current connectivity situation because

OA: Mexico’s connectivity gap harms the country’s

it cannot be fully applied. All articles that are focused on the

competitiveness. 50 million Mexicans lack access to internet

shared network will not be fully implemented until 2020.

and there are no transversal policies that combat the problem integrally. The private and public sectors do not usually

Thanks to the Telecommunication Reform, access to internet increased 63 percent to 65 million Mexicans in 2017 from the 40 million in 2013

attribute enough importance to technology and connectivity, even if they require critical connections to operate. PT: The public sector in Mexico does not invest as it should in connectivity. Instead, it segments its expenditure to reach the masses without making substantive changes in their lifestyle or fully achieving adoption of connectivity technology. When the government and major companies start giving

PT: When both sectors start paying more attention to

connectivity technology its due importance, the country will

connectivity quality instead of connectivity price and the

start growing economically at a much faster pace.

government understands the importance of investing, the paradigm will change and so will the connectivity situation

Q: Who are Smartnett Carrier’s clients in the public and

in Mexico.

private sector? PT: Smartnett has provided connectivity solutions to clients in

Q : Wh at h ave b e e n t h e m a i n re s u l t s o f t h e

the private sector that have high-tech requirements such as

Telecommunication Reform?

DHL, Aeroméxico and Condelmex, as well as internet services

PT: Governmental sources show that thanks to the

for events like the Porsche World Roadshow, Silicon Valley Day

telecommunication reform, access to internet increased 63

and INNOVATION Fest 2015. In the public sector, our sales proportion is smaller because

Smartnett Carrier offers a variety of telecommunication

these clients look for strong security in their connections

services including symmetrical internet, dedicated internet

through access restrictions and content filters. In this sector,

bandwidth link, digital telephone networks and data centers. It

Smartnett provides Wi-Fi for both AICM terminals and has

uses its optic fiber to provide its services

worked on an event for the Ministry of Foreign Affairs (SRE).

VIEW FROM THE TOP

INTEGRATING ALL ELEMENTS FOR SMARTER CITIES PATRICIO ZORRILLA Vice President of UltraTelecom

Q: What is UltraTelecom’s most important contribution to

mobility. Most Mexican cities are easy places to implement

Smart Cities in Mexico?

these systems because they have appropriate weather and

A: UltraTelecom has three main divisions that are working

are usually flat and small. There are, however, other cities

toward Smart Cities. The first is UltraTelecom, which is a

such as Cuernavaca or Xalapa that are challenging due to

pioneer in internet services through the LTE 4.5G Pro

their rugged topography.

network it develops hand in hand with Nokia. We are about to offer the seamless connectivity Smart Cities are based on.

Q: What are the benefits of the LTE 4.5G Pro network?

Having this network working in 1Q18 is our top priority in the

A: It is the most advanced network in the world, with an

short term because it could affect up to 15 million people.

incomparable network capacity and connectivity. Smart Cities require connectivity anytime, anywhere and we are

Also, our public bicycles division, Urbanismo Positivo,

working closely with Nokia to supply this. The applications

continues to offer public bicycle systems and urban

this network will have are multiple - everything from using a

furniture that promotes mobility. Sharing systems for

smartphone’s data service plan to connect to social media,

bicycles benefit communities in matters of health and

to powering water and electricity meters and public traffic

promotion of social interaction. The urban furniture required

lights through IoT. UltraTelecom is working with various

includes tools and air pumps where the bicycle stations are

suppliers to promote the creation of solutions in these areas

established. City governments that worry about providing

where new applications could be developed to improve

citizens with better mobility solutions should pay attention

quality of life. For example, devices that track a person’s

to public bicycle systems.

vital signs could use this connectivity to alert a person’s physician and family in case of an emergency.

Finally, the Telemetrika division develops apps where citizens can report problems and situations they face in the streets to

Q: How does the network promote connectivity?

the authorities. The company can connect urbanism needs like

A: It eases the process of connecting and increases

signaling or parking with the responsible authorities through

coverage, capacity and readiness. Every ICT solution

software and IoT. Potholes are an example. Combining these

has distinct requirements. Some solutions need little

apps with UltraTelecom’s radio services helps people raise

bandwidth but constant connection, while some solutions

their voices on public issues and have authorities address

need plenty of bandwidth to transmit critical information

them. UltraTelecom acts as a facilitator between citizens and

but do not require permanent connection. We have only

authorities through information communication technology

experienced the tip of the iceberg in Smart Cities. Many

like mobile apps and connections.

areas like health, security and transportation will deeply benefit from connectivity and UltraTelecom wants to offer

Q: How does the Urbanismo Positivo bicycle system

complementary services in all these areas. This project

contribute to Smart Cities?

requires the installation of transmission centers. We will use

A: The Urbanismo Positivo division promotes healthy, eco-

our own locations, those of other internet providers through

friendly mobility and employs several initiatives related to

roaming agreements and access sites in public offices to

quality of life. Also, this division is linked to the connectivity

maximize coverage and efficiency.

division. All bicycle sites and urban furniture are connected; they offer positive marketing opportunities and gather information on the city for more informed decision-making.

UltraTelecom is a communications and media company that

Urbanismo Positivo is starting to work with universities to

works in news, radio, television and sports. The company works

provide shared-bicycle services on campus. We work to

to generate value in Mexico, with a mandate to entertain,

raise awareness on eco-friendly, inexpensive and practical

inform and communicate to the country

141

INSIGHT

SMART FOUNTAINS FOR SMARTER PUBLIC PLACES

“

Families with children are attracted to spaces that have water with sound and lights, which changes a plaza’s ambience”

142

Xavier Paez, Founder and CEO of WG Fuentes

But Paez is also eyeing a new strategy. “WG Fuentes will stop selling fountains and start creating smart public places around fountains through its division WG Espacio Público,” he says. To achieve this goal, the company needs to first collect information on how people move around a fountain and use that information to better plan public spaces and position every element. “Developing this intelligence will allow us to evaluate the best position for every element of the public space.” One of WG Fuentes’ patented products, Social Media

Mexican culture has historically revolved around water, from

Fountain, employs an app that people can use to control

the ancient Mesoamerican rain god Tláloc, who played a

a fountain’s colors, to make the water dance and so on,

vital role in the civilization’s cultivation of corn, to the city

but it also allows the company to collect user data.

of Teotihuacan, built as a series of canals and serving as the foundation for Mexico City as it exists today. For Xavier Paez,

With the exception of water pumps, all the technology

Founder and CEO of smart water fountain company WG

WG Fuentes implements, including software, modules

Fuentes, integrating water into public spaces is a rising trend

and illumination, are created by Mexican engineers. In

in Mexico, especially since the fountain in the Monumento a la

2017, WG Fuentes launched the new RGB-BB illumination,

Revolución (Monument to the Revolution) in Mexico City was

which includes all common colors plus white. Previous

built in 2010. “This was a game changer and people wanted

systems could only generate white by combining all

something similar in other public spaces,” he says.

other colors but the company felt it did not look as aesthetically pleasing.

WG Fuentes mainly works with the private sector, especially large property developers in the commercial

The company also plans to start employing water robots

and residential subsectors, to install smart water

to create aquatic shows using floating fountains. “For

fountains in lobbies and plazas. “People have noticed

WG Fuentes, the technological challenge is not the

water is a unifying element in public spaces,” explains

most difficult to overcome because most of the required

Paez. “Families with children are attracted to spaces

technology for its projects already exists,” explains Paez.

that have water with sound and lights, which changes a

“Generating new concepts and ideas is more difficult

plaza’s ambience.” He believes installation of a fountain

because our goal is always to implement at least two

can completely transform a public space.

concepts in each shopping center where we work.”

With the mixed-use trend gaining momentum, WG

As far as generating new concepts, WG Fuentes offers

Fuentes has found plenty of opportunity to work in

a turnkey service, accompanying clients from the

developments in Mexico City, Puebla, Guadalajara and

design stage to the moment a fountain is installed and

Monterrey. The company is currently working with

inaugurated and beyond. The company helps clients

Grupo Sordo Madaleno on the Landmark Guadalajara

design and conceptualize the spaces and engineer the

development, which includes water as a central element.

processes through monitoring and supervision of the

The company also works in the public sector, offering

construction’s evolution. “The water fountains we sell are

different kinds of products to suit the needs of towns and

merely metal, water pumps, lightbulbs and cables,” says

cities of different sizes, from metropolises to small towns.

Paez. “The success of WG Fuentes is due to the additional services we provide.”

According to Paez, any plaza in Mexico could be a smart public space. One of WG Fuentes’ goals is to bring the

Mexico is a stable market for WG Fuentes, with strong

experience of megacities to the smallest town by offering

organic growth. But to push its growth to higher rates,

solutions from MX$200,000 to MX$40 million or more so

WG Fuentes has entered Chile and Peru, allied with

that all communities can access its products according to

distributors in the US and Canada. “We also expect to

their size, needs and budget.

enter the UK and France in 2017,” Paez concludes.

VIEW FROM THE TOP

INTEGRATED TECHNOLOGICAL SOLUTIONS IN PUBLIC SERVICES GABRIEL COVARRUBIAS Director General of Grupo Droppin

Q: What are the advantages of Grupo Droppin’s devices?

Q: What is the strategy to gain clients in the public and

A: Grupo Droppin offers an integrated solution in the form

private sectors?

of a “Droppin.” These devices provide free drinkable water,

A: The public sector is tricky. Access to internet and water

cellphone charging and Wi-Fi in public spaces, while

are constitutional rights so city and state governments

also video surveilling and advertising municipalities and

must ensure their availability. We can provide society these

private companies’ socially responsible actions. They

services on the government’s behalf in exchange for being

are designed to counter health, safety, pollution and

allowed to use the space at no cost, the availability of

connectivity issues. A Droppin encourages people to drink

electrical power and the civil work needed to install Droppins.

water instead of sugary beverages, reduces the reckless use of PET by refilling water bottles, provides video

But we have faced several permit challenges. In Puebla, we

surveillance and innovative advertising means and can

suffered a six-month delay because we required a permit

collect bottles and connect with the emergency services

from INAH to install the Droppin. We also had to adapt to

through emergency buttons.

the security guidelines of the Department of Civil Protection and the installation of electrical power took several months.

Droppin’s advertising opportunities are opportunities

In the private sector, it is much easier. Grupo Droppin

for private companies to publicize CSR actions and

approaches a university or shopping center and installs the

municipalities to present their social policies and programs.

devices without major issues. Working with the government

We use software to understand precisely how many people

helps us generate a presence in the private sector when

approach Droppins to connect, fill a water bottle or charge

people acknowledge the advantages of having a Droppin

a cellphone and use this information to promote them

in a public space.

among possible advertisers. Advertisements on our devices are designed to reach pedestrians and bystanders in public

Q: What alliances are you developing?

spaces with noteworthy foot traffic. The revenue we obtain

A: In the public sector, Grupo Droppin is already in

from advertising covers the costs of water, power, internet,

negotiations with the city authorities of Guadalajara,

maintenance and liability and damage insurance.

Zacatecas and Veracruz. Also, public universities like the Distinguished Autonomous University of Puebla (BUAP)

Q: What challenges did you face meeting Puebla’s request

and some municipalities in Mexico City show interest in

to have Droppins installed?

leasing our products.

A: When we presented them in 2016 at the Smart Cities conference in Puebla, the state government wanted these

In the private sector, we are negotiating with Anahuac

devices installed immediately in different public spaces

University in Puebla. The company would like to place

of the state capital. We faced two important hurdles to

Droppins in large hotels, gastronomic corridors, sport centers,

achieving this: the models installed had a water tank

airports, shopping centers, subway and bus stations and

limited to 180L and the Droppin screens were too small

parking lots, and expects to do so soon. Our company has

and not designed to work outdoors. We had to innovate

the ability to produce up to four Droppins a day and adapt

and increase Droppin’s water storage capacity to 450L and

them to the specific needs of clients.

changed the type and size of the screens. This reduced refill requirements and improved the picture quality of the advertisements. Depending on where they are placed, some

Grupo Droppin is a young company dedicated to research and

Droppins have more users than others. Puebla’s Zocalo

technological innovation, based in the city of Puebla. Grupo

experiences higher and more constant foot traffic than

Droppin drafts proposals that help solve societal issues such as

Parque del Arte, for example.

health, safety, pollution, information and connectivity

143

BBVA Bancomer Tower, Reforma Avenue, Mexico City

ENGINEERING & CONSTRUCTION

Transforming ideas into reality is the scope of the countryâ&#x20AC;&#x2122;s strong engineering and construction companies. According to BMI Research, the Mexican construction industry is expected to experience 2 percent real growth in 2017 and an average 2.8 percent annually to 2025, despite the various economic factors causing market uncertainty. Nevertheless, the logistics and the allocation of those resources must be made significantly more efficient through intelligent design and long-term integral planning to lower transportation costs and increase competitiveness. Moreover, a fundamental problem of the industry is rooted in the lack of continuity, which is subject to the terms of political administrations instead of strategic planning that prioritizes the most needed projects.

The increasing popularity of PPPs and the introduced regulation for USPs in the countryâ&#x20AC;&#x2122;s legal framework have begun to change the old rules of the game. As public works projects become increasingly limited, companies are looking to participate in more private-sector developments. The companies presented in this chapter are taking on the countryâ&#x20AC;&#x2122;s most important infrastructure projects and working towards the sustainable development of cities in Mexico.

145

CHAPTER 6: ENGINEERING & CONSTRUCTION 148

ANALYSIS: Transparency Needed to Build the Future

149

ROUNDTABLE: What Lessons Can be Learned From the September 2017 Earthquakes?

150

VIEW FROM THE TOP: Roberto Calvet, AECOM

151

VIEW FROM THE TOP: Héctor Ovalle, COCONAL

152

VIEW FROM THE TOP: Iñigo Mariscal, Marhnos

Nicolás Mariscal, Marhnos

153

VIEW FROM THE TOP: Julio Amodio, CAABSA Infraestructura

154

VIEW FROM THE TOP: Jorge Torruco, Grupo Omega

155

INSIGHT: Mario Rosado, MARQ

156

INFOGRAPHIC: The Legacy of Mexico's Construction Giants

158

VIEW FROM THE TOP: Alejandro Maluf, Techint Engineering & Construction

159

VIEW FROM THE TOP: Fabricio Menegoni, Gerdau Corsa

160

INSIGHT: José Maria Garza, Grupo GP

161

VIEW FROM THE TOP: Giacomo Bonfanti, GDI

162

VIEW FROM THE TOP: Raúl Berarducci, Bovis

163

INSIGHT: Arturo Bañuelos, JLL

164

VIEW FROM THE TOP: Juan Manuel Grimaldi, Grimaldi

165

VIEW FROM THE TOP: Guillermo Ortiz, Consorcio IUYET

166

VIEW FROM THE TOP: Nicolás Morris, Ayesa

167

VIEW FROM THE TOP: Vanessa Bautista, MABASA Soluciones Constructivas de Acero

168

INSIGHT: José Manuel Cánovas, Owens Corning

169

INSIGHT: Agustín Monzón, GGD Bandas y Servicios

147

ANALYSIS

TRANSPARENCY NEEDED TO BUILD THE FUTURE Boosting the development of the Mexican infrastructure industry will take time, but steps must be taken now to ensure a prosperous future. Players are aware of the main factors that are weighing on the industry and what must happen to bridge the country’s infrastructure gap. But the question is: how will it be done?

148

Transparency continues to be the biggest concern not only

is a risk to developers because authorities with a different

for construction companies, but all participants across the

vision may prevent the continuation of important public

infrastructure value chain. From lack of transparency stems

projects. This creates a cycle of projects with a short-term

project continuity and land acquisition issues, which are

vision as it is difficult to ensure the long-term continuity

the main hurdles the sector encounters when trying to

among rotating administrations.”

complete an infrastructure project.

AN EXAMPLE TO FOLLOW WEF estimates that 10-30 percent of the value of the

The plan to construct NAICM first took root in 2001 with then-

global construction industry is lost through corruption and

President Vicente Fox, who began the expropriation of land.

approximately the same amount is lost by mismanagement

But it was not until Peña Nieto’s term that the construction

and inefficiency. According to the organization, in any country,

actually began. Fox, the subsequent President Felipe Calderon

infrastructure is the sector that is the most impacted by

and Peña Nieto each had their own plan for the megaproject,

corruption and transparency issues because of the uniqueness

from architectural design to the financial scheme.

of each project, complex transaction chains and the scale of the investments. According to the Transparency International

Eighteen years later, AICM is about to buckle under the

Corruption Perception Index, Mexico is one of the least

weight of the country’s demand. For the 2018 elections,

transparent countries with a rank of 123 of 176 countries.

the construction sector is worried that the project could be canceled and all of its investment could be lost. Because

According to the OECD’s Partnering Against Corruption

this has happened before, GACM and SCT have shielded the

Initiative – Infrastructure and Urban Development study, the

project through its financial scheme to ensure continuity

top-ranking forms of corruption experienced by the private

through presidential terms. “Almost 80 percent of the

sector in Mexico are bribery, facilitation payments and

project’s budget will be allocated by the end of the year

conflict of interest, while nepotism, bribery and conflict of

to the tenders that have already been published and are

interest are experienced in the public sector. This study says

about to be awarded,” says Reyes Juarez, Director General

that 71 percent of the private sector has a low to moderately

of FOA Consulting, the project’s PMO.

low level of trust in the public sector, a big change from 10 years ago, when the number was closer to 58 percent. The

INFRASTRUCTURE ACROSS ADMINISTRATIONS

study says 84 percent of the private sector stakeholders

Projects such as NAICM, the Mexico-Toluca Interurban Train

are likely to engage in corrupt practices.

and the construction of highways such as the ones in Oaxaca are extremely complex projects that require the efforts of

TRANSPARENCY EQUALS CONTINUITY

hundreds of companies and government officials. Putting in

Any new administration wants to prove itself with a prolific

place transparent tendering processes and setting a clear

infrastructure project and Peña Nieto’s government is no

regulatory framework is crucial for projects' success.

exception, with its iconic NAICM airport. But issues arise when political terms change, as in Mexico any uncompleted

And the lack of continuity could be addressed in a

infrastructure project from the previous administration is

more tangible way, according to César Monroy, Director

unlikely to be continued. “I believe there is a lack of continuity,

of Infrastructure at PwC. “In order to ensure the

and we have not yet managed to accomplish a long-term

implementation of the plan despite the changes in the

vision across different governmental administrations in

government, an independent body should be in charge

Mexico,” says Diana Munozcaño, Chief Investment Officer at

of planning the infrastructure in Mexico and provide

Grupo Indi. “In the end, we have projects on hold for several

congruence to the development of infrastructure across

years until somebody restarts work on them.”

all sectors, independent of any one political party,” he says. “This body will improve the productivity of investment, as

Likewise, Francisco Ibáñez, Capital Projects and

well as dictate the country’s priorities and find the synergies

Infrastructure Leader at PwC says, “A new administration

that could be created within sectors.”

ROUNDTABLE Mexico straddles two tectonic plates: the North American plate and the Caribbean plate, with a volcanic axis running across the country’s central belt. On Sept. 7, 2017, a deadly earthquake shook the southern states of Oaxaca and Chiapas, and the tremor could be felt strongly in Mexico City, around 700km to the northwest. As the country was recovering, a second deadly earthquake struck in Axochiopan, Morelos, causing devastation and

WHAT LESSONS CAN BE LEARNED FROM THE SEPTEMBER 2017 EARTHQUAKES?

collapsed buildings, including in Mexico City. In light of the destruction, Mexico’s developers, construction companies and regulators are asking themselves how to ensure a disaster of this magnitude never repeats itself.

149

ISCDF reviews new and existing public and private buildings and gives technical opinions regarding their structural safety and whether developments are in line with the law. We also financially support research institutions and projects that disseminate knowledge about building safety and the management of Mexico City’s Seismic Alert. Violations in administrative requirements and structural security standards are not unusual. These violations often come from errors, oversights, misinterpretations of the code and, in some cases, negligence by developers that want to cut costs. ISCDF is aware that many companies are responsible and pay for an exhaustive numeric and technical revision of their project. But we have also noticed several projects being built that do not comply with the code to various extents. Ideally, all new projects should be revised in-depth but

RENATO BERRÓN Director General of the Mexico City Institute of Construction Safety (ISCDF)

sometimes investors fail to comply in an effort to maximize their profits.

Mexico is a seismic country between two oceans, which increases risks of flooding, hurricanes and earthquakes and everyone in the value chain understands this. It is in a company’s best interest to insure projects against any potential disaster or technical failure. In Mexico projects are insured mostly because property owners and investors request it; they insist on having insurance in place for a project to be carried out, which makes the market similar to any country where Swiss Re operates and where the insurance culture may be more developed. So far, we have not found any distinction between the reinsurance cultures of national and international companies.

RICHARD SCHNEIDER Director General of Swiss Re

Swiss Re supports insurance companies that take on big, specific and complex risks as well as risks related to natural disasters.

It is difficult to design and build prefabricated housing facilities en masse because some cities like Mexico City are made up of three seismic zones with distinct needs and specifications for earthquake resistance, making it costlier and difficult to build modules for each zone. In the social sector, ITISA offers solutions for building resistant hospitals and schools, which alongside other Type A structures require more resistance to earthquakes to, firstly prevent collapses of crowded buildings, and secondly, ensure victims of an earthquake can receive medical attention in a safe area.

GABRIEL SANTANA Commercial Director of ITISA Prefabricados

VIEW FROM THE TOP

SINGLE-COMPANY MANAGEMENT BOOSTS PROJECT EFFICIENCY ROBERTO CALVET Director General of AECOM

150

Q: How is AECOM innovating in project management and

or financial feasibility because neighboring communities

how are its clients benefiting from this?

are always severely affected by infrastructure projects.

A: Clients require a single contact that understands the

The third factor is innovation. Mexican companies do not

project’s needs and that can single-handedly address

invest enough in their innovation departments, especially

those needs. It is risky to have several companies develop

in implementing information technologies like BIM or

processes and introduce distinct technologies without

Lean construction. Mexico continues to plan and execute

coordination. AECOM’s Integrated Delivery Strategy (IDS)

projects as it has done for 40 years. Finally, ethics and

allows us to manage a project with a unified guarantee

transparency weigh on the ability of foreign and national

and a client-supplier strategy. We can manage every stage

companies to jointly work on large infrastructure projects

of a project, from conception to operation throughout the

in Mexico.

project’s life. This includes planning, design, engineering, construction and operation.

Q: What can be done by the government to address these challenges?

Q: What are the challenges of implementing this strategy

A: The National Council on Infrastructure (CNI) is an initiative

in Mexico, where several companies are usually involved

developed by CMIC. Its purpose is to provide a roundtable

in the management of large projects?

opportunity for the private and public sectors to discuss the

A: Clients need to understand the advantages in terms

planning of complex projects. It was designed to guarantee

of technology, efficiency and quality of having a single

that the government is not the only one to conceive and

company manage the entire process. Implementing

define the priorities for an infrastructure project by having

AECOM’s IDS does not imply that other companies will

the private sector – represented by chambers of commerce

not take part in the project, but that a single management

and associations — present its ideas. The government

methodology is established and that suppliers from various

could take advantage of similar roundtables by listening

sectors are more efficiently integrated into each step of a

to scholars and businessmen to address projects with more

project’s development.

than political priorities and budget in mind.

Q: What factors are the most troubling for foreign

Similar councils or committees where private companies,

companies that want to develop infrastructure projects

government dependencies and academic institutions

in Mexico?

can take part would be ideal. If they existed, large

A: Planning, sustainability, innovation and ethics. First,

infrastructure projects would have to be revised by a

infrastructure projects in Mexico are not properly planned.

committee integrated by members of all three groups and

All the necessary conditions and factors are not addressed

each aspect of the project would be thoroughly analyzed.

in the best possible way. Second, project sustainability

The participation of the government through a public

must go beyond addressing how environmentally friendly

organism is important so that the social and political

projects are. The economic, political and social elements

aspects of infrastructure projects are not ignored by the

of sustainability must also be considered. Social impact

private sector. This is critical because public infrastructure

studies must be as important as environmental impact

projects are oriented toward creating a social benefit. This interaction between sectors has provided satisfactory results in other countries. In the UK, for instance, the

AECOM designs, builds, finances and operates infrastructure

private sector has come up with innovative concepts

assets in more than 150 countries. In 2016 its revenues totaled

within public tenders – the compulsory use of BIM is a

US$17.4 billion, it was ranked first in Engineering News Record’s

good example. Today, tender packages are delivered in a

“Top 500 Design Firms” for the eighth straight year

BIM format instead of a blueprint format.

VIEW FROM THE TOP

NAICM WINNER TARGETING OTHER EMBLEMATIC PROJECTS HÉCTOR OVALLE President of COCONAL

Q: How does COCONAL differentiate itself among

safety and ensure we provide the optimum equipment for

construction firms in Mexico?

personal protection and the safety of our staff.

A: Hard work, quality and commitment. I believe this industry

151

requires companies to provide a remarkable added value,

Q: What is the importance of the material banks and how

not only by doing things well but by delivering a useful

did you secure them?

product that adds value. Our goal is to execute our projects

A: First, it is necessary to carry out a general inspection

with the best quality and with a strong social component

with geologists in the field. Once we have located the

that will benefit the market. Our levels of competition at

quarries, we negotiate with their owners. We are managing

an internal and external level are high but I believe that

30 tezontle quarries with volcanic foam and 25 rock

many of our competitors have neglected efficiency and

quarries. Each one has a specific process for exploitation.

struggle with corrupt, wasteful practices and poor quality.

For example, for the rock, we use explosives, while tezontle

Conversely, we stand out by always remaining transparent

is extracted with tractors.

and providing a quality service, as our main focus is in creating suitable infrastructure, not only in making money. The construction industry in Mexico is experiencing a crisis rooted in the disappearance of big Mexican companies and enhanced by the generalized belief that construction is an endeavor that can be managed by any professional, even those who are not qualified as civil engineers. Mexico lacks compliance with the professional law, both in the private and public sectors. To build infrastructure, experts with the

The Toluca-Valle De Bravo highway concession was designed, completely developed and funded by COCONAL, representing a MX$1.3 billion investment

required technical skills are required to solve the problems that may arise. Our company stands out due to its adequate

Q: Apart from NAICM, what other emblematic projects

channeling of human resources, as all our employees are

is COCONAL targeting at the moment?

qualified and specialized in the discipline in which they work.

A: At an international level, we are bidding for a highway

For example, we hire our engineers right after they finish

in Guatemala and another in Costa Rica. Our market is in

their undergraduate degrees and provide incentives for

Central and South America, as we have found that the

them to obtain their diplomas. Likewise, we invest in their

US has very different market conditions that are rarely

education and training by sending them to local or foreign

friendly to Mexican firms. At a national level, we are

courses so we also foster a great loyalty within them.

concluding the last, 15km stage of the Toluca-Valle De Bravo highway concession. This project is very important,

Additionally, we stand out for having a comprehensive

as it was designed and completely developed by our

plan in key areas. First is our strategy for the adequate

company, representing a MX$1.3 billion investment, which

management of human resources. Secondly, our

was provided 100 percent by COCONAL. We expect to

environmental strategy includes about 15 environmental

inaugurate it by Oct. 17, 2017.

engineers and biologists who focus on waste management, recycling, environmental best practices, permit follow up and legal adherence. Likewise, we encourage our

COCONAL d evelops infrastructure projects with a focus

employees to celebrate World Environment Day and we

on timeliness and cost-effectiveness. Its services include

participate in reforestation by planting 40,000 trees per

constructing,

year, among other actions. We also have a high regard for

rehabilitation and transport of related machinery

concessions,

infrastructure

operation

and

VIEW FROM THE TOP

PPP HOSPITAL OPPORTUNITIES FOR CONSTRUCTION COMPANY Iñigo Mariscal Commercial Director of Marhnos

152

Nicolás Mariscal Commercial Director of Marhnos

Q: What market segment do you expect will see the most

developers to constantly improve and, in this case, to

growth during the next year?

have a more efficient service that is permanently available

IM: Residential housing for the middle class lagged behind

for the hospital’s customers. At the moment, we are

for several years, so it will continue to grow in the near

operating two hospitals that have proven to be huge

future. We have acquired the land necessary to develop

successes. The one in Tlalnepantla has provided a high-

residential projects up to 2020. PPP hospitals are a

quality service since the day it was inaugured. Also, we

potentially profitable segment in the near future. We hope

are bidding for ISSSTE and IMSS tenders.

to develop another hospital by next year but generally, growth highly depends on the particular conditions of

Q: What are your strategies and requirements for making

each state. The projects we have developed allow us to

your future projects successful?

reach a certain level of stability, which in turn enables

IM: First, the top priority is to have a pipeline of

us to explore upcoming opportunities without risking

new projects, which is why we have a strong focus

the company. Also, we have developed a comprehensive

on developing new initiatives and fostering market

process for selecting the projects we want to invest in,

competition, as more supply implies more market growth.

which involves a multidisciplinary team that evaluates the

Regarding the CKD market, we believe it has matured.

viability of every opportunity.

We are raising our second CKD and plan to co-invest with other institutions. The co-investment model has

Q: What are the advantages and disadvantages of PPP

many benefits, given that both parties assume the risk

hospitals and how can this scheme be improved to

together and put the same effort into making the project

incentivize investment?

successful.

IM: I believe the main advantage of this model is that from the design process onward, the goal is efficiency.

Our vision focuses on finding the best options available

Given that the design firm is also the operator, it has an

in the market. For example, we have just been recognized

interest in making the project efficient and sustainable.

by the Real Estate Developers Association with an award

High-quality infrastructure goes hand in hand with

for the best housing project in 2017. This award evaluates

optimal operations and effective tariffs, which benefit the

a project’s architectural design, execution, social impact

government. Also, customer service improves because

and commercial success. This sort of recognition reaffirms

processes are supervised and errors are penalized, which

our belief that it is beneficial to invest in quality, and

incentivizes the hospital’s operative capacity to always be

also that we are successful in capitalizing on our past

100 percent. We believe the health industry is a big area

experiences and improving our processes.

of opportunity for future development in Mexico, so our goal is to participate in more PPP hospitals.

NM: When Marhnos wins a tender, Mexico also wins. We are interested in housing projects, especially in areas

NM: Our company creates wellbeing and this is the

that are well-interconnected, and create possibilities for

main goal in all our projects. We focus on fostering the

people to live in central developments that are easily

owner’s vision, because we believe that this incentivizes

accessible and close to their workplace. Also, we put a lot of focus on the architectural design of all our projects. It is paramount for us to understand our clients’ use of

Marhnos is committed to creating welfare through infrastructure

environment, so we can incorporate this knowledge into

and real estate projects. The company’s goal is to triple its value

the design and the materials used. We are focusing our

by 2020. It is divided into five business sectors: roads, public and

attention on vertical developments, especially in Mexico

private buildings, hospitals, real estate and residential

City and Guadalajara.

VIEW FROM THE TOP

OVERCOMING CHALLENGES WITH THE INTERURBAN TRAIN JULIO AMODIO Director General of CAABSA Infraestructura

Q: What strategy has led to the success of CAABSA

aspect to consider when forming a consortium is that the

Infraestructura in the Mexican market?

companies involved create synergies and complement each

A: CAABSA has been building Mexicoâ&#x20AC;&#x2122;s infrastructure for

other with their unique specialties. For instance, Cargo has

more than 38 years. Today, we are constructing Mexicoâ&#x20AC;&#x2122;s

the equipment and experience to mount the large pieces

largest and most important projects thanks to the

of the structures. Pret and Gonzalez Soto specialize in

experience we have gathered over the years. To grow and

prefabricates and has the experience creating the special

participate in many projects, we first had to secure financial

columns and locks and concrete structures. As for Omega

support for the company. CAABSA created the real estate

and CAABSA, both are experienced in constructing

arm Desarrollos Grupo CAABSA to support the company

complex projects such as this one. We are the company in

financially, in the event that there are few public works in

charge of coordinating the entire consortium.

the market or an infrastructure project is delayed. Q: In your opinion, what are the main challenges construction Q: What have been the main challenges during the

companies face while participating in public works projects?

construction of the Mexico-Toluca Interurban Train?

A: The root of all infrastructure projects stem from the

A: The main challenges we have encountered in the

urgency at which the public sector wants to construct

development of this project are the change of route for the

them. Because the public sector is sometimes in a hurry to

train and the lack of liberation of the rights of way (ROW)

start building a project, the proper studies, preconstruction

for the project. By not having the ROW before the project

analysis and planning stages are not properly carried

begins, it delays the entire construction and can drastically

out. There are many differences between participating

increase prices. The ROW for the interurban train had not

in a private-sector project and a public-sector project.

been liberated before the project began and that is why

Public works are based on unit prices that allow more

even though construction was supposed to begin in January

flexibility when managing the budget. This often extends

2015, it began in December 2015. There were many social

construction times and creates cost volatility. In the private

problems, especially near Vasco de Quiroga and the town

sector, projects are more likely to completed on time and

of Santa Fe, forcing the path to be changed.

budget, although they have their own complications. Typically, private works have a defined budget and they

Q: Why is ROW one of the main problems for the successful

have to stay within that budget, leaving little room for

construction of Mexican infrastructure projects?

contingencies. Planning is a skill the Mexican market has

A: The Public Works Law establishes that the dependency

yet to master even though it is the foundation for any

has the obligation of liberating the ROW for all infrastructure

public or private project. For 2017-2018, we expect to be

projects. The number one rule for construction is that the

more active constructing projects for the private sector

developer must be the owner of the land. The interurban

than the public sector, given the proximity to presidential

train project will cover more than 50km, passing through

elections and budget cuts. At the moment, we are still

hundreds of land owners and ejidos, which makes

completing various public projects, such as the Mexico-

negotiations for ROW even more difficult. The government

Toluca Interurban Train, CETRAM Iztapalapa and the new

does not expropriate the land because that would lead to a

Papalote Museum.

legal trial that could take even longer. Q: What are the main characteristics a consortium should

CAABSA Infraestructura is a Mexican civil engineering firm

have when bidding for a construction project?

that belongs to the CAABSA Group. It is dedicated to the

A: For the interurban train, we formed a consortium with

construction, consulting, supervision and administration of all

Cargo, Gonzalez Soto, Pret and Omega. The most important

types of construction projects

153

VIEW FROM THE TOP

MTS PROJECTS FACE SOCIAL CHALLENGES JORGE TORRUCO Construction Director of Grupo Omega

154

Q: What are the main problems construction companies

A: Projects that are located inside the Mexico City metropolitan

encounter with public infrastructure projects?

area are far more complicated due to the high level of

A: The fundamental problem is that infrastructure projects

interaction a project will have with existing infrastructure in

are always subject to the terms of political administrations,

the area. This is complicated by the fact there is continuous

not to a strategic and integral plan. This leads these projects

congestion in terms of vehicles and people, which also

to be tendered without the necessary planning or studies.

generates social problems that can impact the performance

On a local level, as a construction company we are always on

of the project. For these projects, it is important to efficiently

the lookout for new and interesting projects to participate in

coordinate the construction and management teams along

and rights of way is one of the elements that we worry about

with the local authorities to prevent or mitigate any problems

the most. The preconstruction stage is extremely important

that could arise. MTS can also bolster the transportation link

because it will provide information regarding the types of

between cities. Although the national road and highway

permits and land that must be acquired for the project.

systems have been improved, they are not ideal for the transportation of large quantities of products and goods.

Legislation, legal framework, rights of way and social-impact issues keep the country from bridging its infrastructure gap

Q: What measures does Omega implement before becoming involved in an infrastructure project, such as the Mexico-Toluca Interurban Train? A: Before starting a project, we do our own investigation but we cannot be as thorough as we would like because it is an expensive task. We cannot invest such large sums

I believe that we have the necessary legal framework

without some guarantee we will win the project. For the

but it is not applied appropriately. There are many laws

third section of the Mexico-Toluca Interurban Train, in which

that favor quick land acquisition but these are almost

we are participating, the changing of the original path

impossible to apply because there are always social

heavily impacted the estimated costs and budget that was

pressures that do not allow the state to take possession

established at the outset. We are currently discussing the

of the land without having the rights of way completely

extraordinary costs with the government and the real impact

liberated. No tendering process should begin unless

is being analyzed. From my point of view, these setbacks will

the rights of way are guaranteed. In Mexico, it is not a

impact the viability of the project drastically. As a strategic

problem of technical complexity because we have the

project, it is supposed to be finished by the end of President

skilled human capital to carry out the project. Instead

Peña Nieto’s term.

it is a question of legislation, legal framework, rights of way and social-impact issues that keep the country from

Q: Why has the third section of the interurban train been

bridging its infrastructure gap.

more complicated than the rest of the project? A: When this project was tendered, having it operate in

Q: How do MTS differ from other transport infrastructure

phases was not considered because it did not seem like

projects in Mexico?

there would be a problem adhering to the established budget and time. Although it seems more logical to have the urban section operating initially as a way to generate

Grupo Omega is a Mexican construction company responsible

income to fund the rest of the project, that section is the

for construction of various highways such as Durango-Mazatlan

most complicated due to social and environmental issues,

and Veracruz-Coatzacoalcos, as well as Line 6 of the Mexico

particularly in the Observatorio area. Toluca-Marquesa has

City Metrobús and the Chicoasen II hydroelectric plant

advanced quickly.

INSIGHT

PROJECT MANAGEMENT, CONSTRUCTION AND BIM COMBINED The PM Body of Knowledge (PMBOK) standard, with its 54 different processes, is widely accepted among project, program and portfolio managers as the industry standard to ensure quality projects. But MARQ, a Mexico City-based project management and construction company, goes one step further by adapting the methodology to whatever necessities its projects demand. “We adapt PMBOK to the Mexican market depending on the individual project,” says Mario Rosado, the company’s

“

We adapt PMBOK to the Mexican market depending on the individual project” Mario Rosado, Director of MARQ

terms of PM and construction management, we normally submit individual bids.”

Director. “For example, the PMBOK does not cover industrial safety on worksites, so we supplement the standard with

Traditionally, MARQ's core business is in the private sector but

our own processes.” MARQ typically looks at about 15

Rosado says it has started to participate in the public sector.

indicators when planning a project, regardless of whether

In the health sector, MARQ has experience building hospitals

it is a hospital, a train or a highway. It evaluates cost, scope,

for IMSS and Rosado hopes to continue this relationship

time, acquisitions, safety and a host of other items. Related

for the next few years. The firm has wide experience with

to each of those, the firm carries out a planning, control,

partners, having collaborated with Acciona Infraestructura,

execution and closing processes.

ATCO and a Mexican-Chinese company called iBuiltec on public-sector ventures. MARQ also strives to increase its

MARQ is a holding company that owns three other

participation in airport infrastructure as it has experience

companies and it is in the process of transitioning from

working in AICM. “We are bidding for a few of the remaining

a family-owned business into a more institutionalized

tenders for NAICM – some as a standalone company and

company. One of its subsidiaries is a construction company

some as part of a larger consortium,” Rosado says.

that normally works in the private sector. Another is a project management and project supervision company

In terms of the PPPs that were recently released by SCT in

and with this MARQ participates a great deal in the public

the health sector, Rosado says that, although MARQ would

sector. The third company works with BIM technology. “Due

not participate in these projects on a standalone basis, many

to our wide expertise, depending on the project, we can

are accessible to the firm through a consortium with Acciona

submit a standalone bid or participate as a consortium,”

Infraestructura. This is not only within the health industry but

Rosado explains. “Normally with construction, we try to

also roads and transportation infrastructure. “We have many

participate as a consortium along with larger firms or

projects to evaluate and we are assessing in which areas to

sometimes we are subcontracted for niche projects. In

assert ourselves for the next few years,” he says.

155

INFOGRAPHIC

THE LEGACY OF MEXICO'S CONSTRUCTION GIANTS The construction industry faced a challenging first half of

Periferico to the Tlalpan Tollbooth, the Elevated Viaduct

2017, according to CMIC. Public and private investment

over the Mexico-Veracruz Highway, the Tepic-San Blas

in the sector are low, interest rates are on the rise and

Highway, the Palmillas-Apaseo el Grande Macrobeltway

possible negative results of the NAFTA’s negotiations

and some sections of the Guadalajara Macrobeltway. CMIC

could harm investment attractiveness in industrial and

expects the construction industry to grow by between 0.3

commercial construction. The industry registered a

percent and 1 percent during 2018 thanks to the momentum

contraction of 0.6 percent between January and July 2017

of residential and commercial real estate and tourism

but this does not mean that construction has stopped.

infrastructure.

In his fifth governmental report, President Enrique Peña

156

Nieto announced the completion of eight road projects

CMIC lists the following construction firms as the largest

between September 2016 and June 2017. Investment in

Mexican companies in terms of their sales volumes. These

these projects amounted to MX$27.6 billion. The report

companies participated in the largest ongoing infrastructure

referenced the Interconnection of the Second Story of

and real estate projects.

TOP 5 LARGEST MEXICAN CONSTRUCTION COMPANIES IN TERMS OF SALES VOLUME AND THEIR MOST IMPORTANT ONGOING CONSTRUCTION PROJECTS (MX$ billion)

1. Empresas ICA MX$20.4 billion

Location

Most important ongoing construction projects

Completion

Project value

Nayarit

Tepic-San Blas Highway

4Q16

1.4 – 2.2

Queretaro, Guanajuato

Palmillas-Apaseo el Grande Macrobeltway

2Q17

5.2 – 5.8

Oaxaca

Mitla-Tehuantepec Highway

3Q17

2.6

State of Mexico

NAICM Terminal Building

4Q20

8.5

But it is still involved in

State of Mexico

NAICM Foundation Slab

3Q18

7.6

important ongoing projects

Sonora

Santa Maria Dam

4Q18

3.7

Nuevo Leon

Monterrey VI Aqueduct

1Q18

2.7

Mexico City

Túnel Emisor Oriente (TEO)

3Q18

2.4

Mexico City, State of Mexico

Churubusco - Xochiaca Water Tunnel

4Q18

1.9

Mexico City, State of Mexico

Mexico - Toluca Interurban Train

4Q18

2.2

Most important ongoing construction projects

Completion

Project value

Mexiquense Exterior Beltway

N/A (First phases finished, but OHL will build the rest when it sees demand)

24.8

Bicentenario Viaduct

N/A (First phases finished, but OHL will build the rest when demand grows)

11.8

Elevated Viaduct on Mexico - Veracruz Highway (VW Plant Cuahutemoc Stadium Section)

3Q16

10.5

Atizapan – Atlacomulco Highway

2Q17

2 - 8.5

As of Sep. 2017, Empresas ICA undergoes a restructuring and insolvency process.

including NAICM’s terminal building and foundations. ICA specializes in road and railway infrastructure, hydraulic works, airport infrastructure and tunnels.

2. OHL México MX$18.9 billion

Location

State of Mexico

OHL México is a subsidiary of Spanish Grupo OHL. It integrated Mexican investors in 2010 and is listed in the

Mexico City, State of Mexico

Mexican Stock Exchange. Its specialty is building and operating road infrastructure but it also works in the Toluca Airport project.

Puebla State of Mexico

SUBSECTOR

3. Carso Infraestructura y Construcción MX$18.5 billion CICSA is part of business group Grupo Carso. It works in the hydraulic, social and road infrastructure sectors but also develops real estate. It partakes in the construction of NAICM’s terminal building and Runway 3.

Airport Infrastructure

Location

Completion

Project value

State of Mexico

NAICM Landstrip 3

3Q18

7.4

State of Mexico

NAICM Terminal Building

4Q20

Nayarit

Tepic Beltway

1Q16

1.6

Interconnection of the Second Story of Periferico to the Tlalpan Tollbooth

3Q17

0.7 - 2.5

Jalisco

South Guadalajara Beltway

3Q17

Oaxaca

Conclusion of Oaxaca-Istmo Superhighway

2Q17

9.3 - 11.9

Mexico City

Túnel Emisor Oriente (TEO)

3Q17

9.6

Commercial Center in Tlalnepantla

1Q19

0.9

Mexico City

Commercial and Office Real Estate

Most important ongoing construction projects

State of Mexico

4. IDEAL MX$15.7 billion IDEAL finances, implements and operates infrastructure projects. It often hires CICSA in the construction process as Grupo Carso and GFInbursa are Road infrastructure

related parties founded by Carlos Slim. But it also builds projects on its own Most important ongoing construction projects

Completion

Project value

Jalisco

Las Varas – Puerto Vallarta Highway

3Q19

7.2

Oaxaca

Mitla – Tehuantepec Highway

2Q17

9.6

Toluca – Atlacomulco Highway Expansion

N.A.

5.5

Atotonilco WWTP

2Q17

Location

State of Mexico Hidalgo Hydraulic Works

5. Fibra Uno MX$13.3 billion FUNO is the first and largest Fibra; the Mexican version of a REIT. It operates, acquires, develops and manages industrial, commercial and office real estate assets. It is building one of the tallest buildings in Mexico City; Torre Mitikah. Most important ongoing construction projects

Completion

Project value

Mexico City

Mitikah Tower

2Q24

Mexico City

Cuarzo Tower

3Q17

3.4

Midtown Jalisco

2Q18

4.4

Mexico City

La Viga

4Q17

1.6

Mexico City

Berol

4Q17

1.3

Mexico City

Mariano Escobedo

3Q18

0.4

Mexico City

Tlalpan

4Q17

1.3

Mexico City

Espacio Tollocan

4Q17

0.5

Location Railway Infrastructure

Jalisco

Mixed-use Real Estate

Source: Grupo ICA, Grupo Carso, IDEAL, Fibra UNO, OHL México, CMIC, Obras Magazine

157

VIEW FROM THE TOP

PESQUERÍA TO DELIVER PROGRESS TO NUEVO LEON ALEJANDRO MALUF General Manager North America of Techint Engineering & Construction

158

Q: What has been Techint’s experience participating in PPPs

following a green concept, allowing us to achieve LEED

and how could the process be improved?

Certification. This certification not only guarantees the client

A: We are seeing quite a lot of movement in PPPs in many

that the project was originally conceived with sustainability

fields, such as hospitals and oil exploration and extraction. In

in mind, but also that this approach will endure through its

this context, we are monitoring the opportunities. Soon we

whole lifecycle.

will see more in energy through CFE. In our experience, the PPPs have proven to be the optimal scheme for deploying

Q: What are the main challenges the group faced in the

large projects that will boost Mexico’s economy. We feel

construction of this project?

comfortable working under this scheme as it provides

A: Given the magnitude of the project, safety was a major

sustainability and progress for society. The PPP Law, however,

challenge. We were able to achieve 11 million man hours

does not provide much flexibility for the participation of

without a single serious accident. Safety is one of our main

stakeholders. Usually there are stakeholders that have primary

goals in all our projects and we always establish the necessary

interest in the early stage of a project, like financing or EPC.

precautions to ensure the safety of our team, especially on

In those particular cases, we are interested in participating in

such a demanding project. Another important challenge was

the construction phase, maybe even for the entire warranty

the short time in which the project was accomplished. It is not

period. The law has certain constraints when it comes to

common to see a plant like this one being constructed in 28

changing the components of the consortiums developing

months without cost overruns. The total amount of investment

the projects. But we believe they are a great way of keeping

was US$1 billion. Another challenge in the early stages was the

the country moving because they combine the best efforts

heavy rains in the areas where construction started. This type

from both the public and private sectors. This translates into

of risk, which is usually difficult to foresee, can have a great

benefits for the entire country.

impact on a project. The only way to finish on time is to be creative and recover as much time as possible. We developed

Q: What are the characteristics of the Pesquería Power

an acceleration plan for one of the critical activities, which

Central in Nuevo Leon?

involved the piping erection work. Working around the clock,

A: All the companies within Techint Group were involved in the

we were able to exceed the standard of installing 450 tons

design and development of this project. The plant is operated

per month to overcome the impact of the rain.

by Techgen and provides energy to Tenaris-Tamsa and Ternium facilities in Mexico. It was an extremely challenging

Q: Why did Techint decide to participate in the construction

project due to the advanced technology involved. This

of Roberto Roca Technical School in Pesquería?

combined-cycle energy plant makes optimal use of natural

A: This is the second school of a network that we are

gas by introducing a second stage that uses a state-of-the-art

building. The first was inaugurated in Campana, Argentina,

GE steam turbine, making it far more environmentally friendly.

in 2013. Education is at the heart of our community work

The plant consumes 35 percent less fuel and one-third of the

and the Roberto Rocca Technical School is named after one

water of a traditional plant. The whole facility produces zero

of the founders of the Techint Group, an advocate of high-

wastewater because it uses water that comes from the Nuevo

quality, technical education. It is an amazing feeling to see a

Leon water-treatment plant. The buildings were conceived

place like Pesquería grow through the years. We have built an industrial center, the power plant and the school, and we will continue to grow. Pesquería is now producing large

Techint Engineering & Construction provides engineering,

amounts of energy, products and at the same time local

supply, construction, operation and management services

talent and knowledge for future generations. We believe

for large-scale projects worldwide. It employs 24,800 people

that an industrial project like ours has to grow alongside

worldwide and has completed over 3,500 projects

the community in which it operates.

VIEW FROM THE TOP

THE ADVANTAGES OF STEEL IN CONSTRUCTION FABRICIO MENEGONI Executive Director of Gerdau Corsa

Q: Why should projects choose steel over other materials?

the company toward a new organizational culture, focused

A: Today more than ever there is a great demand for steel

on two main business imperatives: empowerment and

in society. Construction tends to be increasingly efficient in

accountability. We are nearing the end of a supercycle

its use by investors. When constructing using steel beams,

that started approximately eight years ago. It was a rough

there are several advantages that help make the use of

patch for the company and it pushed us to incorporate

these resources more efficient to meet current and future

a new business model. The cultural change and new

demand and guarantee sustainable growth. An advantage

practices pushed operations around the world to be more

of steel beams is that they can be adapted to a wide

accountable for profits and revenue. The distribution of

variety of structures and designs in a short construction

responsibility helped promote innovation in Mexico

time. Moreover, using steel can help projects attain LEED

and made it more competitive and cost efficient. These

certification because it is made from recycled material and

rough cycles were also experienced in other industries

is lightweight.

such as real estate and mining. It made the company start to incorporate cultural change and create more

Q: Considering the geopolitical context, how is Gerdau

accountability in operations. It pushed us to create the

Corsa diversifying its commercial ties?

aforementioned educational programs along with other

A: Mexico is a very competitive country, among the 15 largest

methods that promote collaboration and innovation. We

economies in the world. It is an open economy with more

allow space for collaboration and motivate our team to

than 40 free trade agreements, making the steel industry’s

propose solutions in our company through transparency.

supply chain more competitive. In addition, it is among the 10 countries with the highest consumption of steel and the

Q: In what ways does Gerdau Corsa collaborate with the

only country in Latin America to appear on the list. We chose

country’s educators?

Mexico to be the home of our manufacturing hub thanks to

A: Our company has a strong set of values that need to be

its geographical position and its abundance of raw materials.

reinforced through education. We have established strong

We are providing the civil construction and industry markets

relationships with technical schools and universities in Mexico

with more than 110 measures of steel beams, which are

to collaborate and promote programs in the educational

produced in a short time, facilitating their availability and

system related to steel construction that complement the

providing multiple benefits to all players in the supply

work we do as a company. Gerdau Corsa is introducing steel

chain. We seek to transform Mexico from being a traditional

foundations with beams, a new construction technology in

importer of steel into being a manufacturing hub that can

Mexico. This technology is already being used in the country

export steel mainly to Central America. We continuously

but is generally used more widely in Latin America to boost

invest in our line of products and our ability to manufacture

the growth of the sector. We have invested in the creation of

products in Mexico. It is a way to help customers remain

a steel design software for student use, which is available for

close to our products and receive the material they need at

free on our website, so that students can improve their steel-

a quicker pace. Gerdau Corsa sees Mexico’s determination

design techniques. Students and teachers are frequently

to be an open economy as positive but every supply chain

taken to our plants to learn about the production process

needs to be more competitive.

for steel beams.

Q: How has Gerdau Corsa adapted international trends to its operations in Mexico?

Gerdau Corsa is a steel producer with more than 110 years of

A: In Gerdau Corsa we seek synergies with global trends,

history that coincides with the transformation of the global

so that the best decisions and practices are implemented

steel industry. Founded in 1901 in Brazil, the company began its

for the business as a whole. There is a significant push in

internationalization in 1980

159

INSIGHT

STABLE PAYMENTS ESSENTIAL FOR PRIVATE-SECTOR SUCCESS JOSÉ MARIA GARZA President of Construction and Development Division of Grupo GP

160

As the public sector battles high levels of debt and smaller

salaries do not increase at the same rate as inflation, people

budgets, authorities are left with less capacity to close

will not be able to afford housing. “It is important to have a

infrastructure gaps, fueling a greater need to promote

balance between demand and supply to avoid oversaturating

private-sector participation in Mexico’s infrastructure

the market,” he says. “Monterrey for instance has too many

industry. But considering economic challenges and inflation,

houses in the market and not enough people willing or able

the authorities must keep their end of the deal and ensure

to buy them.” He believes the best way to mitigate the risk

stable payment terms for private service providers to

of payment delays is by making sure advance payments

guarantee their continued partnerships with the public

are part of the contract. It also helps to treat suppliers as

sector.

partners. Garza emphasizes that a company’s ability to supply materials can affect project completion. By seeing

“PPP projects are almost the only option states have

themselves as partners, suppliers become more committed

to meet infrastructure demand. For this reason, the

to the project and its needs.

government needs to make sure they have the capacity to make payments,” says José Maria Garza, President of

This is especially true for Grupo GP, a company that takes

the Construction and Development Division of Grupo

great pride in its reputation. “As a company, we never

GP. “Hospitals, for example, built through PPPs require

celebrate receiving a contract; we celebrate when we

companies to take responsibility for operations. Despite the

manage to complete a project on time and on budget while

responsibilities that are being assumed, service providers

making a profit.” This attitude is increasingly important as

need guarantees for the payments that they were promised.”

construction bids become more competitive with no hard

He warns that the delays can demotivate the private sector

and fast guidelines to follow. “We manage risks by focusing

from participating in future public projects. In other words,

on type, location and size,” he adds. “If a company takes

these types of contracts have to be 100 percent bankable.

on a project that is new, in a location in which it has never worked and on a scale that it has never managed, the project

Considering the economy and inflation rates, missed

is considered high risk.”

payments can greatly impact the wellbeing of construction companies. According to Garza, 2017 is showing a backward

Despite the challenges, Grupo GP sees potential in PPP

trend compared to the steady inflation rates the industry

projects and in Mexico. The company is participating in

experienced over the last 12 years. “The rise in prices of steel,

various projects. It is equally taking part in the construction

concrete and labor are causing the cost of construction to go

of Line 2 and Line 3 of the metro in Monterrey, a project

up along with interest rates,” he says. “If the government fails

that faces difficulties due to the presidential transition. “We

to pay its service providers five months in a row, companies

expect the metro to be operational in the next year or so as

have to deal with the costs associated with much higher

these issues clear up,” Garza says.

interest rates.” Among the group’s other important projects is the new The country’s annual inflation rate has been on a steady climb

Michelin plant in Leon, Guanajuato. The plant is expected

in the past year but leapt to 4.72 percent in January 2017

to manufacture 5 million tires a year. The company has

from 3.36 percent in December 2016. It now stands around

experience working with international firms such as BMW

6 percent on the back of a weaker peso and higher gasoline

that tend to be more demanding than their domestic

prices in the aftermath of that market’s liberalization. The

counterparts. “We are building two of the four buildings

central bank has reacted by pushing interest rates to an

that BMW has planned for San Luis Potosi. It is challenging

eight-year high. Inflation is causing the housing industry

because we must meet the strict benchmarks and standards

to become more expensive as well. Garza worries that if

of a German company.”

VIEW FROM THE TOP

DIVERSIFICATION HELPS MAINTAIN GROWTH GIACOMO BONFANTI Commercial Director of GDI

Q: What role does GDI play in Mexico?

Q: What are the most challenging aspects of starting

A: In the last year or so, we obtained a contract for a 1,500km

and managing a project in Mexico?

pipeline in the Bajio region so this is the project we will be

A: Everything comes down to planning. In Mexico, it

focusing on in 2017. But we are now seeing a decline in major

is easy to find those who have a closed mind to new,

gas pipelines in Mexico so last year we decided to diversify

innovative ideas. At GDI, when we draft a proposal, we try

toward small-diameter pipelines. Most of the equipment we

to involve the commercial team, the logistics team and the

own can also be used for infrastructure development and

operations team in order to review the project from each

urbanization. We have been quoting different projects in the

point of view. This allows us a general, comprehensive

Sea of Cortez, which requires a great deal of urbanization

perspective on how to start a project. When we start, we

to make room for hotels. Highways and telecommunications

outlay a detailed cash-flow plan and we try to understand

in terms of fiber optics are areas where we see strong

the nuances of the project to accommodate the most

opportunities. We are participating with the Red Compartida

crucial risk factor. This is normally something out of our

project and we are waiting for confirmation of how the EPC

control like a permit or the acquisition of land that does

contract will be structured. There are nine regions in which

not fall within our scope. But it gives us a fundamental

the project could be developed and we think that in one

understanding of the project and removes much of the

of those, the fiber-optic segment will be tendered. One of

strain when issues inevitably arise over the course of the

the machines we want to use is our city trencher, which is

project.

a machine that allows engineers to place all the fibers in a small trench. This is much safer than over-ground fiber optics

Q: Within the infrastructure sector in Mexico, what are

and it also provides a greater deal of certainty and security

the biggest areas of opportunity you have identified?

because the cables will not be broken or vandalized. There is

A: I believe building construction in Mexico City needs

also the aesthetic aspect to consider. This is a specific niche

to stop and infrastructure development must be given

of the telecommunications sector where we feel we could

a greater focus in other parts of the country, such as

add a great deal of value. It also allows us to find out if there

San Luis Potosi, Queretaro, Durango and Guadalajara.

is any hindrance during the installation of the fiber optics,

The country is so big and has many resources but in

such as a gas pipeline.

my view, the current logistics do not work well. Having everything centralized in Mexico City causes companies

Q: How are you working with the players that enter the

to incur higher transportation costs. Mexico needs a more

tenders for PPP projects and what can you offer that no

intelligent design regarding the allocation of resources

competitor can?

in order to become more competitive as a nation. The

A: We offer a unique flexibility. The proposal alone can cost

development of transportation infrastructure would

US$2-3 million and GDI will work with a potential client at

create a more integrated society and would have a

this point for free on the understanding that, if the project is

significant impact on the distribution of labor across the

won by the company, GDI will be guaranteed a contract. This

country. The ability to travel from Mexico City to Puebla

is usually done with interesting projects in order to provide

or Queretaro in one hour through the use of trains or

the client with the necessary alignment to win the proposal.

buses would alleviate many of the problems faced.

It can be mutually beneficial but it also presents a great deal of risk for both companies. We are aware of cash-flow issues for project owners so we always try to establish a cash-flow

GDI is a 100 percent Mexican company with more than 13 years

schedule to understand our needs and why we have them.

of experience in providing infrastructure services, specializing

With cash flow, it is important to outline the appropriate

in engineering, procurement, construction, transportation and

amount of money we will need to carry out the project.

production of aggregates

161

VIEW FROM THE TOP

BEST PRACTICES TO ELEVATE MEXICAN CONSTRUCTION RAĂ&#x161;L BERARDUCCI Director General of Bovis

162

Q: What role does Bovis play in the Mexican infrastructure

unexpected events and promoting a more efficient and

sector and its development of new projects?

coordinated way of working. Our attention to safety and

A: With more than 15 years of experience in the market

sustainability in the construction of our projects helps us to

and having participated in important projects and

maintain order, take care of participants and improve quality.

consolidated a team of more than 250 employees, Bovis

We understand the risks at each stage of a project and work

has established itself as one of the most important

to mitigate them, always trying to be one step ahead.

project management and construction companies in Mexico. Over these 15 years, we have developed from

We strive to demonstrate that working in an orderly, safe

offering consultancy services and client representation

way according to best practices can reduce the risk of time

to general contracting services. This process has been

overruns and improve the quality of projects. For this we

characterized by a learning curve, cautious growth, deep

have cutting-edge management, planning and simulation

market knowledge and a long-term vision.

programs that allow us to plan and develop our projects in an efficient way.

Tools like BIM and VR software now allow developers to virtually build the projects, considerably reducing unexpected events

Q: What are the biggest challenges in applying best international practices to the Mexican context? A: It is very important for us to work according to international best practices and construction methodologies. The experience amassed by companies like ours around the world and carried out under different

It is very important for us, together with our clients

conditions provides us with expertise that helps improve

and suppliers, to establish the objectives of the project,

the construction process. The challenge is to work with

agreeing on a singular way of working and aligning partners

these best international practices and remain competitive in

with our values. Our role in a project is to lead the entire

an environment where labor costs are low and compliance

development process, from prefeasibility, preconstruction

with regulations is not standard practice. We place a

and construction, to establishing the participantsâ&#x20AC;&#x2122; wishes,

lot of emphasis on developing suppliers, designers and

defining logistics, planning strategies and controlling

contractors to join this effort and uncover better results.

compliance. We like to get involved in every part of the process and take ownership.

Q: How important are partnerships with developers and contractors when it comes to sustainable projects?

Q: What is the company doing to demonstrate the added

A: The construction industry, as one of the most polluting, is

value of technology like BIM and virtual reality (VR)?

obligated to reduce its negative impact on the environment

A: Usually the construction industry adopts new technologies

by promoting the development of sustainable and efficient

with great caution, but we have seen accelerated advances

projects. It is our responsibility to assist in this process and to

in the last few years. Tools like BIM and VR software now

contribute our experience to create projects characterized by

allow us to virtually build the projects, considerably reducing

their sustainability and efficiency. Incorporating sustainability and best practices into a project

Bovis is a project management company with more than 15

is not difficult if the parameters are established from day one.

years of experience in the Mexican market. It works across

The projects we work with, whether certified or not, must

project lifespans, from the prefeasibility to the management

meet certain benchmarks in areas such as waste management

and construction of the project, and offers turnkey services

and water consumption.

INSIGHT

BRIDGING THE PROJECT MANAGEMENT GAP ARTURO BAÑUELOS Executive Vice President of Project and Development Services at JLL

Project management is an old concept in the US and in

appropriate according to the time and budget available.

European countries, but in Mexico it is a relatively young

Bañuelos says that there are many opportunities to save

segment, having started here a mere 15 years ago. Companies

money, but insists the main aim is to create value, not make

can gain a number of benefits by employing the services

projects cheaper.

of a project manager, says Arturo Bañuelos, Executive Vice President of Project and Development Services at JLL, but

The current economic environment has encouraged JLL to

many are unaware of the value of this service. “In Mexico,

target new types of projects and to diversify its activities.

project management is relatively new, making it extremely

JLL’s project and development services division has worked

difficult for companies to understand what we do and what

in the construction of various airport terminal buildings in

added value we can bring to projects,” says Bañuelos.

Mexico, including two terminals at Cancun International Airport. Developing the airport’s Terminal 3 from scratch

Companies are always looking to avoid cost overruns and

was a challenge that required a deep understanding of

save time, especially when there is uncertainty in the market,

the regulatory framework. JLL had to create synergies

precisely where project management can help. Project

between ASUR, SCT, construction companies and other

managers evaluate all scenarios and options to ensure the

players to enhance communication and ensure the quality

least number of mistakes. The tide may be shifting, however.

of the project. It completed the construction of the terminal

“We noticed that in 4Q16 and 1Q17, our clients were a lot

building in Cancun three weeks before the deadline and

more cautious and allocated more time to planning and

under budget. “These projects are no longer just waiting

decision-making processes,” says Bañuelos. An adequate

rooms for people to take their flights,” says Bañuelos.

and thorough planning stage for a project is critical in order

“These spaces now contain places for travelers to dine,

for it to be successful. “Planning is essential and it allows us

shop and entertain themselves. They are shopping centers

to carry out the proper value engineering practices and find

complementing the airport.” Travel demand for Cancun

ways to save resources.” Value engineering allows project

International Airport is growing at 10 percent annual rate,

managers to optimize and improve various aspects of an

requiring construction of a fourth terminal that is expected

infrastructure project and to find the solution that is most

to be completed this year.

163

VIEW FROM THE TOP

KEEPING INDUSTRY ROLLING JUAN MANUEL GRIMALDI Director General of Grimaldi

164

Q: How is Grimaldi involved in the development of

service. Our goal is not to merely supply companies with

infrastructure in Mexico?

our products but also to help them achieve their maximum

A: The government is increasingly investing in the

efficiency levels by meeting additional needs such as tire

construction of infrastructure throughout the country,

care and maintenance. We prioritize operational safety

creating many business opportunities for Grimaldi. Our tires

and the care of those that handle these products. We

can be used in any infrastructure project that requires the

analyze and offer recommendations in facilities to optimize

movement of earth, such as highways, bridges or dams. It is

the lifespan of the products we offer. Our team inspects

crucial that companies have quality tires in order to complete

operations on a daily basis to ensure that everything is

a project on time and budget. These types of projects can

working optimally. Dealing with details such as potholes in

be tricky because they are often in isolated areas. We recruit

roads is an important way to minimize the rise of logistical

and train people from surrounding communities and offer

problems.

them certificates. It is a way to ensure safety, efficiency and social responsibility within operations.

Our success lies in our ability to combine high quality and basic products with an efficient provision of services. We

Q: Why should companies prioritize tire maintenance

used to only offer premium tires but we realized that not

and repair in their projects?

all industries prioritize quality over cost. Grimaldi found

A: Tires can represent a large chunk of a projectâ&#x20AC;&#x2122;s budget.

that the right amount of additional services can make both

For example, in transportation tires are the fourth-largest

premium and basic products equally effective. We adapted

element in the budget after equipment, fuel and salaries.

to the needs of the industry by expanding our portfolio and

This makes maintenance an essential part of the sector that

offering bias ply tires in addition to Michelin tires. The key is

can help companies save large amounts of money and time.

knowing when and how to use premium and basic products.

Massive tire service can take a few hours and it is beneficial

The price of the tire can also vary greatly among sectors. In

for companies to plan their tire maintenance carefully in

infrastructure, the market is still dominated by lower-cost

order to avoid any accidents that could affect productivity.

products over quality while mining is quite specialized and is willing to pay more for a product that can provide a fair

Apart from suppling pneumatics, we also educate our

balance between cost, quality, performance and safety.

customers on improving their driving habits and helping them to optimize their equipmentâ&#x20AC;&#x2122;s loading, which is a key

Q: How is the company adapting to the Internet of

factor in material handling. We work hard to maintain our

Things (IoT) and digitalization?

position in the market by staying ahead of the pack and

A: Digitalization and IoT are creating important waves in

investing in innovation and development

the Mexican market. Software allows clients to manage and register information about the efficiency of the tires

Q: In such a competitive market, what is the value

and their lifecycle. It helps companies make smarter

proposition that Grimaldi offers to its clients?

decisions, optimize processes and reduce costs. Gathering

A: The market has many tire and accessory distributors

information about tires and their performance allows us to

but we stand out by offering a completely integrated

measure and improve our services as well. We work hard to always be up to date with technology and we look for the best in the market. For example, TIRE SENS technology

Grimaldi is a Mexican pneumatic products supplier for the

allows us to put sensors inside tires and constantly track

infrastructure and mining industry with presence throughout

their pressure and temperature, whereas VBOX data

the country. It specializes in tires and maintenance services for

software provides us with reliable information, enabling

automobiles, trucks and industrial vehicles

mines to use tires efficiently.

VIEW FROM THE TOP

FORMING PARTNERSHIPS TO PROTECT AGAINST VOLATILITY GUILLERMO ORTIZ CEO of Consorcio IUYET

Q: What challenges has Consorcio IUYET encountered

communities could visualize what the project would look

within the infrastructure industry?

like once finished and could see that it would have no

A: To successfully integrate our high-tech products

impact on their assets. By using drones, we are able to

into such a complex industry, we had to specialize. The

supervise the construction process of the project from

country has had various political, social and economic

above and ensure that it was developing correctly. Our

factors impacting its growth. Its dependence on the oil

job is to take the project to the desks of decision-makers

and gas industry was shaken by the oil price drop, which

so that they can see, examine and review it.

led to drastic cuts in the infrastructure spending. We specialize in offering the best engineering technologies and services to our clients, no matter the political term. To continue being competitive a company has to be the best in what it offers and that is what we do. Q: What impact did Consorcio IUYET's technology have on the Mexico-Toluca Interurban Train? A: For the train, we provided our services through

HDS™ technology, drones and BIM helps identify mistakes or problems that could arise during the construction of the project saving time and money

a Technical Support Contract for the Mexico City government. It consisted in monitoring the development

Q: How are the public and private sectors responding

of the project and informing the government of all

to new technology and what partnerships has the

changes to project. As of June 2017, there have been

company created to continue growing?

more than 30 changes several adjustments to the

A: Approximately 97 percent of our projects are for the

original project due to rights of way and social impact

public sector. Most companies in the industry are afraid

implications. The rail intersects the route followed by the

of the public sector because there is the misconception

Cutzamala water system, which is a high-risk situation

that payments take longer from the public sector. But

because if the foundation piles would have accidentally

we have realized that the private sector takes much

punctured the system, the city would be left without

longer to pay and sometimes does not pay at all. We

water. HDS™ technology allowed us to identify where

believe it is important to establish a good relationship

the route would exactly cross to avoid a perforation in

with commercial banks to have the solvency required

the system. Applying these types of studies and BIM

to participate in the country’s most important projects.

allows us to identify mistakes or problems that could

There is a vicious cycle that impacts the entire industry:

arise during the construction of the project, which saves

if no investment is made in technology, a company

both time and money.

cannot enter tenders for large projects. But if it does not enter large projects, then it lacks the money to

Socially, this technology has been especially helpful

invest in technology. We have worked with many banks

with the third section, which runs from Santa Fe to

throughout the years to a point where they will support

Observatorio. Apart from securing the route for the

us in any project we choose to be involved in.

project, the technology has also helped alleviate various social issues along this route. Surrounding communities began to protest against the construction of the project,

Consorcio IUYET is a Mexican company that offers services

they thought it would destroy their sightlines and lower

the value of their properties because it would cross in

management, construction supervision, BIM and engineering

front of their homes. With the 3D modeling of the train,

projects

civil

engineering.

specializes

project

165

VIEW FROM THE TOP

ROOM FOR THE PRIVATE SECTOR IN WATER INFRASTRUCTURE NICOLÁS MORRIS Regional Director for Mexico, Peru and Colombia of Ayesa

166

Q: What are the main issues Ayesa has identified within

The other role played by Ayesa is all the engineering behind

Mexico’s water infrastructure?

the projects. Ayesa elaborates executive projects that consider

A: To solve the country’s pressing water problems, especially

the whole lifecycle of the project, from the feasibility studies

in large cities such as Mexico City, we must look at the issue

to commissioning, operation and maintenance. In this role,

from a different perspective. There are different strategies

Ayesa has participated in Zapotillo, Purgatorio and Santa

that will have to be implemented to meet future demand.

María Dams, a wide portfolio of water-treatment plants, water

Extracting water from the city’s aquifers is no longer an option.

supply and sewage systems and irrigation systems.

The water that is extracted is of poor quality and extremely difficult to purify due to the amount of minerals it contains. We

Q: How can the private sector play a larger role in bridging

must limit the quantities of water that we extract and instead

the water infrastructure gap?

look for alternatives. The Cutzamala System is the country’s

A: Private companies can manage certain parts of the water

largest water infrastructure project and acts as the ZMCM’s

cycle. Privatization is a delicate word in Mexico and personally

water tap. It distributes, stores and purifies much of the area’s

I do not know why we are afraid of it. I believe that it is

water supply. We are involved in the expansion of Line 3 of

necessary to have the private sector become more involved,

the system, which includes more than 7.7km of pipes. Apart

perhaps not in the complete privatization of a city’s water

from bringing water from other locations, we must address

system but certain parts of the process. For instance, the

the efficiency of the existing water infrastructure. Of the water

collection of fees for water services or water treatment could

that is pumped through Mexico City’s water system, less than

be privatized. Atotonilco will function under a PPP scheme

50 percent actually makes it to the faucet because of leaks

wherein the Mexican government contributes a large sum of

and system malfunctions. Another project in which we are

money and this is complemented by the private sector, which

participating is Atotonilco Waste Water Treatment Plant, that

constructs and finances the project. The private sector will

when completed, will be the largest water-treatment plant

receive a return on its investment through the fees charged for

in the Americas and will treat 60 percent of Mexico City’s

the use of the water-treatment plant. We must combine public

wastewater. This is a huge step and authorities are aware that

resources with private partners to get the most of the limited

water-treatment infrastructure is a priority.

resources the country has. Nevertheless, it is crucial that the private sector and investors feel comfortable participating

Q: What role does Ayesa play in the construction projects

under a PPP framework in Mexico.

such as Atotonilco and Zapotillo? A: Ayesa has different roles in these projects. We have

Q: Given the high subsidies on water services, how can water

supervised the construction of Mexico’s most important

infrastructure projects become more attractive to investors

water projects, such as the Aqueduct II in Queretaro, the

and engineering companies?

third line of the Cutzamala System and the WWTP in

A: Water projects with a standalone private investor are not

Atotonilco. The role of a supervisor involves technical and

viable. Much investment is needed to close the water gap in

constructive expertise, being the eyes of the client and

Mexico. Along with public and private investment, we need a

verifying that everything is being done according to what

cultural change and citizens must pay the real cost of water.

was established in the contract.

For Atotonilco to be developed, it needed heavy public investment. As we move forward and require more private investment, we need to give investors the security that they

AYESA implements computer systems to manage public

will see adequate returns. The goal of the private sector is to

finances, health and education, among others. It designs

make money. If the right price is not paid for water, utilities

infrastructure, provides aircraft manufacturing engineering,

companies will not be able to operate the system and this will

works in oil and gas, chemistry, biotechnology and mining

promote the misuse of water in general.

VIEW FROM THE TOP

CREATING STEEL-HARD CLIENT RELATIONSHIPS VANESSA BAUTISTA Administrative Manager of MABASA Soluciones Constructivas de Acero

Q: How does MABASA add value to the industry’s supply

its supply chain. If the company responsible for building

chain and differentiate itself in such a highly competitive

the structure has not delivered, our company cannot

market?

mount its products, therefore delaying the process. When

A: There are many competitors in the prefabricated steel

such issues arise, MABASA endeavors to solve the delay,

segment but many companies engage in questionable

putting in an extra effort to make up for this lost time. If

practices. This makes many clients feel steel suppliers and

clients undergo inspections, we can support them so that

assemblers do not care whether their projects succeed.

they see us more as a commercial partner than a simple

The market knows which companies raise the costs for the

supplier-assembler.

customer over time or which one delivers steel that fails to meet established quality standards. MABASA not only

Q: What other emblematic projects has MABASA

stakes its reputation on honesty to differentiate itself from

participated in?

its competitors but also provides customers follow-up and

A: MABASA was involved in the construction of the

consulting services. MABASA wants to be perceived by its

Santuario de los Mártires de Cristo church in Guadalajara.

client companies not only as a steel supplier and assembler

The intricacy and extent of the metal structure in this

but also as a construction adviser and commercial partner.

project enabled us to start taking part in major projects.

We use a PMI methodology to guide customers throughout

To assemble the steel roof at a height of 60m, MABASA

all project stages, including startup, planning, execution,

formed a JV with a German company and applied

monitoring, control and closing processes. MABASA

a construction system that required rappelling and

pays close attention to these stages and uses various

implementation of a safety network to prevent accidents.

software to detect and correct inefficiencies and other

We also installed 23,000m 2 of steel roof as part of

issues. Being aware of the market and customers’ needs,

Guadalajara’s light train system and built six stations of

we have structured ourselves to provide these services.

the Greater Mexico Suburban Train.

MABASA advises its clients after monitoring projects and drafting engineering studies. This helps MABASA offer an

Q: How can MABASA assist foreign steel manufacturers

experience that is attractive to customers.

to enter the Mexican market? A: Some European and US suppliers are interested in having

Q: As a steel supplier, what are the main challenges

MABASA distribute their products in Mexico given its

MABASA has faced in participating in NAICM?

experience as Ternium’s main distributor in Mexico. These

A: Since MABASA does not work directly with the public

alliances let us grow as a company and offer customers

sector, it creates partnerships with winning bidders

a wider range of products. Large suppliers look forward

in projects such as NAICM. For this project, MABASA

to producing and selling in large volumes, yet they can

created alliances with Kingspan and other companies to

develop special products such as steel in various colors

supply the winning consortium constructing the terminal

to fit the project’s architectural needs. Traditionally simple

building with at least 3,000m of the airport’s roof. Also,

commercial and industrial buildings now incorporate more

since sustainability is an important element in this project,

aesthetic designs, so MABASA is entering a niche where

MABASA must ensure all its insulated panels and steel

it no longer sticks to industrial panels.

roofing meets the requirements that help our partners achieve LEED certification. MABASA has experience working on several LEED projects and our partnership with

MABASA is a 100 percent Mexican construction company

Kingspan helps us offer better products to our clients.

that prides itself on the quality of its customer service and

NAICM also requires that suppliers and assemblers use

efficiency of its technical and professional staff. It designs and

Just-In-Time systems, making MABASA fully dependent on

carries out projects with high standards of quality and safety

167

INSIGHT

INSULATION TO PROMOTE SUSTAINABLE INFRASTRUCTURE JOSÉ MANUEL CÁNOVAS General Manager Insulation LA of Owens Corning

168

During the COP22 summit in November 2016, Mexico

“Companies end up having to use a lot of toxic chemicals

established itself as a leader in the charge toward

to mitigate these effects.”

emissions reductions when it became one of the first three countries globally to pledge a 50 percent reduction in

Despite the competition from lower-priced suppliers,

carbon emissions by 2050. José Manuel Cánovas, General

many see the value in Owens Corning’s products, and the

Manager Insulation LA at Owens Corning, says that Mexico

company participates in the most important commercial

is on the right path to support sustainable industries, but

projects in the country. “The market appreciates our high

the government still needs to walk the walk. “Protocols

standards and quality,” says Cánovas. “We are leaders in

signed by the government still need to be converted into

the Mexican insulation market and we have a technical

reality,” he says.

office that offers advice to architects and engineers.” The company is so committed to the country that it established

One way to help reduce emissions is to optimize buildings.

a plant in Mexico City that produces fiberglass products.

According to the WRI, at least 20 percent of Mexico City’s

“We are strategic about the countries in which we establish

greenhouse gas emissions come from buildings, but the route

facilities and we saw value in investing in Mexico,” he says.

to lowering these numbers could be simpler than previously thought. “Studies show that beyond energy-saving air

Within the company’s international business strategy,

conditioners, the best way to reduce energy consumption

Mexico plays an integral role. It represents the US

is to simply eliminate its use when possible,” says Cánovas.

company’s entrance to Latin America and plays the part

“This can be achieved through proper insulation systems that

of Owens Corning’s entry point to the region. Due to its

keep spaces warm and cool as needed.” He believes Mexico

strategic positioning, Owens Corning representative office

could still impose more demanding norms and standards

in Mexico plays a key role to export and gain market share

when it comes to insulation requirements in construction.

in the insulation market in Latin America. “We see many areas of opportunity to continue penetrating the insulation

An issue is that investors and contractors tend to choose

market as companies are not insulating their buildings

cheap insulation materials, especially if they intend to

properly, and many have yet to incorporate any insulation

simply flip the property when it is completed. “What

at all,” says Cánovas.

makes our fiberglass insulation more expensive than that of some competitors is the fact that we pursue very high-

As part of its expansion strategy, the company plans

quality standards,” says Cánovas. “We believe the quality

to fine-tune its services by offering a wider variety of

of our products contributes to our identity as permanent

products. “Instead of trying to place fiberglass insulation

market leaders and allows us to be recognized for our

throughout the entire building, we want to help companies

efficiency and sustainability.” Fiberglass insulation is often

identify the best type of insulation for each area,” explains

not prioritized because it is located between walls and

Cánovas. For example, fiberglass insulation is not the best

therefore not an aesthetic factor for developers.

material for basements; plastic insulation tends to be a better fit. The company’s R&D efforts are routed to provide

As end users eventually have to face important costs

a solution for any and all projects. Owens Corning’s foam

if their buildings are not properly insulated, cheaper

glass insulation is one of the few that provides a 50-year

materials end up creating higher costs for end users, and

quality guarantee. In Europe, it is widely used in airports.

they are more prone to fire and safety hazards. “Some of

“Companies that are already investing billions of dollars

the insulation products in the market today claim to be

into a project should choose this material,” Cánovas says.

more ecological, but these popular and cheaper methods

“It is a beneficial, incomparable long-term investment and

attract rodents and are highly flammable,” says Cánovas.

ideal for iconic projects.”

INSIGHT

RISK MITIGATION THROUGH DIVERSIFICATION AGUSTÍN MONZÓN Sales Manager at GGD Bandas y Servicios

When the need for a new product or replacement arises,

“When construction investment rises, mining tends to fall

companies often struggle with the selection process and

and vice versa,” Monzón says.

finding the time to filter through suppliers in search of the

169

best quality and price. Agustín Monzón, Managing Director

GGD divides its business in the infrastructure industry between

at GGD Bandas y Servicios, helps customers to reduce costs

the public and private sectors. The public sector covers 30

and avoid wasting time through a full package of services,

percent of sales while the remaining 70 percent comes from

both presale and aftersale. “We strive to understand our

the private sector, says Monzón. “We collaborate on projects

customers well,” he says. “If necessary, we will visit the

with CFE or get subcontracted as part of the supply chain for

manufacturing plant to properly assess their needs. We also

companies already working in public infrastructure projects

offer samples for test trials before installing a product so that

such as Carso Infraestructura y Construccion and COCONAL,

clients feel sure of their purchase.”

which are both part of the NAICM project.” Along with its participation in the new airport, GGD Bandas played a role in

As a company that traditionally serves the Mexican mining

PEMEX’s fertilizer plant in Coatzacoalcos.

industry, GGD Bandas is using its expertise in conveyor belts to complement the gaps in the country’s infrastructure

The company’s ability to obtain these high-profile contracts

industry. “Mexico’s economy is largely influenced by the

is a mark of the quality of its products and the variety it

infrastructure sector and we can facilitate the exploitation,

can offer, says Monzón. The company imports most of the

grinding and transportation of construction materials such

sourcing materials for its conveyor belts because only one

as gravel, sand, volcanic rock and basalt,” he says. “Our

company in Mexico manufactures the pieces. “The US used to

conveyor belts are measured by their capacity to transport

be our main supplier but the facilitation of trade now allows us

material and not time, which creates a great deal of demand

to obtain more material from China, India, Europe and South

for our products.” By having a diverse portfolio and servicing

America,” he says. “We import according to the needs of our

different markets, the company greatly mitigates the risks

customers. Premium products from the US are for our most

of cyclical phases in the economy and the variation in the

affluent customers while middle-quality products come from

international prices of metals that weigh on performance.

India and the most inexpensive from China.”

Uline Distribution Center in Apocada, Monterrey

INDUSTRIAL DEVELOPMENT

Mexicoâ&#x20AC;&#x2122;s economy has been buoyed by its manufacturing industry, which is largely a product of NAFTA. In 2015, the automotive industry alone contributed 3 percent of the countryâ&#x20AC;&#x2122;s GDP. Japanese, Korean and German OEMs and manufacturers also invested a total of US$13.3 billion in Mexico. One segment that has benefited greatly from this boom is industrial real estate. With so many manufacturers entering the country and setting up facilities to meet growing demands, an appropriate space is essential.

But the inauguration of President Trump in February 2017 made the atmosphere especially thick in Mexico. With his promises to renegotiate or even cancel NAFTA, the industrial real estate sector plunged into a period of uncertainty. Industrial real estate developers in Mexico are eagerly awaiting the outcome of the renegotiations.

In this chapter, the leading industrial real estate developers discuss the challenges related to the new political landscape in North America and the potential benefits that could be wrought from the new NAFTA talks. Leading lawyers, meanwhile, provide their views on the future of the trade relationship between Mexico, the US and Canada.

171

CHAPTER 7: INDUSTRIAL DEVELOPMENT 174

ANALYSIS: E-Commerce Sparks Hope Among Industrial Developers

175

VIEW FROM THE TOP: Claudia Ávila, AMPIP

176

VIEW FROM THE TOP: Luis Gutiérrez, Fibra Prologis

178

INSIGHT: Juan Torres Landa, Hogan Lovells Mexico

179

VIEW FROM THE TOP: Alberto Chretin, Terrafina

180

VIEW FROM THE TOP: Michele Porrino, WTC-SLP

181

VIEW FROM THE TOP: Armando Moreno, Logistik Parque Industrial

183

PLANT SPOTLIGHT: Logistik Industrial Park a Home Away From Home

184

INSIGHT: Mauricio Garza, Interpuerto Monterrey

185

VIEW FROM THE TOP: Jorge Acevedo, JA Group

187

VIEW FROM THE TOP: Rafael Gonzalez, BDI

188

INSIGHT: Salvador Magaña, PARQMEX Industrial Development

189

VIEW FROM THE TOP: Benjamín Mizrahi, Construye Industrial

190

VIEW FROM THE TOP: Carlos Ochoa, Holland & Knight

191

VIEW FROM THE TOP: Alicia Barnetche, Kepler

193

PLANT SPOTLIGHT: Steel Producer Invested in Mexico

194

INSIGHT: Miguel Suaste, DINTELCO

Jorge Noveron, DINTELCO 195

INSIGHT: Jesús Arredondo, ARTRON

196

ROUNDTABLE: How Will Nafta Renegotiations Impact the Infrastructure Industry?

173

ANALYSIS

E-COMMERCE SPARKS HOPE AMONG INDUSTRIAL DEVELOPERS With the growth of its manufacturing industry after NAFTA, Mexican industry became extremely reliant on the country’s relationship with the US. But since the election of Donald Trump threw a spanner in the works, how will the renegotiation of the treaty impact the performance of the industrial real estate sector in Mexico?

174

According to CEPAL, FDI in Mexico decreased 7.9 percent

2017. “The US leader, Amazon, recently established

from US$34.8 million to US$32.1 million from 2015 to 2016,

operations in Mexico and has launched its Prime program

but Mexico continues to be the second Latin American

that guarantees one-day delivery,” says Luis Gutiérrez,

country with the most FDI after Brazil. The first round of

Director General of industrial giant Fibra Prologis. “This

NAFTA renegotiations caused relatively little movement in

encourages other e-commerce companies to upgrade

the country’s industrial sector, and although there is still

their platforms to compete with the service offered by

uncertainty in the air, investors and developers are still

Amazon. For us, this means there will be a greater demand

betting on the Mexican market. “In the months following

for more logistics space and the traditional warehouse is

the election we have already witnessed the checks and

changing as a result.” Stores such as Liverpool and Palacio

balances in the US working as they should, which has

de Hierro must increase their online presence and their

restored a lot of investor confidence in Mexico,” says Juan

logistics capacities to keep up with competitors such as

Torres Landa, Partner at Hogan Lovells.

Forever21 and even Walmart.

But these circumstances have made the industrial sector

AMPICI data show that Mexico’s largest urban centers

more cautious and as a result, occupancy rates dropped in

are those that embrace this trend the most. Mexico City

comparison to 2015. According to CBRE’s 1H17 Industrial

leads the race. Amazon announced in 2017 that it would

Marketview Report, the net absorption was over 20.7 million

be opening a 92 million m2 warehouse on the outskirts

ft , with the highest absorption rates in the Bajio region.

of Mexico City. It has two distribution centers located

But Cushman and Wakefield recorded a decrease from

in Cuautitlan Izcalli in the State of Mexico with a total

5.4 percent to 4.5 percent in vacancy rates and average

capacity of 46,452m2, both developed by Fibra Prologis.

prices for Class A properties dropped from US$5.69 to

“Companies are following this trend and retail spaces

US$5.05 per ft2 from 2Q16 to 2Q17. Fluctuation in exchange

are becoming more compact with warehouses placed

rates and speculation in the market had an impact on the

strategically around cities to cash in on e-commerce,” says

performance of the sector, with national construction

Victor Lachica, President and CEO of Mexico and Central

decreasing 3 percent from 2Q16 to 26.9 million ft from

America of Cushman & Wakefield.

27.7 million ft2. RETAILERS FIGHTING BACK DEVELOPERS LOOK TO NEW HORIZONS

Commercial real estate developers now have to up their game

Despite the numbers, industrial developers and Fibras are

to secure their multimillion-dollar investments in hundreds

beginning to look to e-commerce to pick up the sector’s

of malls throughout the country. “E-commerce is fulfilling a

slack in the next few years. With wary automotive and

purchasing need, rather than a human need, and we need to

manufacturing investors, e-commerce is expected to

anticipate this and provide what e-commerce lacks and what

increase the demand for warehouses and other logistics

new generations are demanding,” says Jimmy Arakanji, Co-

real estate. In the last six years, e-commerce has grown

founder and Co-CEO of commercial developer Thor Urbana.

more than 400 percent in Mexico, instilling developers with even more hope. From 2013 to 2014, e-commerce in Mexico

The entrance of e-commerce will help diversify the country’s

grew 34 percent from US$9.2 billion to US$12.2 billion;

real estate industry and push the standards of developers

from 2015-2016, the industry grew another 25 percent to

to ensure quality infrastructure that meet the demand of

value US$16.22 billion, according to the Mexican Internet

tenants in the years to come. But industrial developers are

Association (AMPICI). This trend is seen continuing in the

sure to be the winner in the e-commerce race. “In the Amazon

coming years.

era of increased e-commerce, we find it more dynamic to be present in distribution,” says Roberto Ordorica, Director

The big players leading the demand, according to Credit

General of ALIGNMEX. “I would rather own Liverpool’s

Suisse, are Walmart Mexico, Privalia, Linio and Amazon,

distribution center rather than build a shopping center with

which will be investing substantially in Mexico through

Liverpool as a tenant.”

VIEW FROM THE TOP

INDUSTRIAL REAL ESTATE ATTRACTS FDI CLAUDIA ÁVILA Executive Director of the Mexican Association of Industrial Parks (AMPIP)

Q: What type of companies are affiliated with AMPIP and

A: Due to economies of scale, AMPIP’s members focus on

what are the benefits of being part of the association?

huge developments, which is more cost-effective. It is too

A: AMPIP’s members are mostly developers and suppliers.

costly for a developer to invest US$1 million in a power station,

Among the developers are construction companies, such as

urbanization project or water management facility if they

Copachisa, Grumesa or Crocsa and the suppliers include input

supply a single building. However, if this station supplies 20-

producers like CEMEX or Kingspan, among others. AMPIP

100 buildings, the overall costs are reduced for the developer.

helps parks achieve certifications that make them attractive to

The costs of labor and other inputs are relatively similar,

foreign companies. AMPIP’s program to promote international

whether it is a 1,000m2 or a 10,000m2 development. It just

best practices in industrial parks helps our members be

makes more sense to go big. Building an industrial park in any

prepared for new trends in the market. Our alliance with the

random location is not feasible and several factors must be

Commercial Real Estate Development Association (NAIOP),

considered: proximity to trade routes, levels of urbanization,

an equivalent US organization, helps us be aware of future

availability of skilled labor and even some amenities for foreign

trends coming to Mexico. Companies in the US must engage

investors related to life quality, such as bilingual schools for

in certain environmental protection practices that are

their children, health services and golf courses. Transportation

not obligatory in Mexico yet, so we are preparing for the

infrastructure is important when planning an industrial park,

moment they become compulsory. AMPIP also encourages its

yet this depends on the kind of transportation that tenants

members to meet the Mexican Standard for Industrial Parks,

would prefer. Although large quantities of semi-completed

which provides evidence of compliance with general public

goods pass through the ports, they are not processed near

regulations and makes them attractive to companies because

the ports. About 80 percent of manufactured materials in

this standard is similar to that in the US.

Mexico are transported through land-based logistics channels, mostly targeting the US.

AMPIP created the Green Industrial Park Recognition based on PROFEPA’s National Program for Environmental Audit.

Q: What role does the public sector play in the development

This recognition works as a stepping stone to PROFEPA’s in

of industrial parks in Mexico?

terms of regulation compliance. It contemplates the correct

A: AMPIP makes alliances with state governments in order to

management of solid waste, as well as savings in energy and

ease the process of land acquisition and permit facilitation.

water consumption. AMPIP works closely with PROFEPA and

Many governments are interested in having industrial parks

with the German Agency for International Cooperation (GIZ)

because they attract companies that create jobs in their

to implement environmental protection and sustainability

regions but these developments require a high level of

practices and detect opportunities for sustainability within

specialization that few people have. AMPIP encourages state

parks. Having this certification attracts foreign companies

governments to find a partner and build these parks together.

that ask for a park’s administration to provide environmental

Since building such a development takes several years, project

protection evidence. In terms of security, potential tenants

continuity between administrations is usually jeopardized.

look for parks with international security standards such as

AMPIP is fostering a new model among governments. They

the Authorized Economic Operator (AEO) Program. Led by

put land in a trust and facilitate the permits while investors

the World Customs Organization (WCO), this certification

assume part of the risk of urbanization and developments.

is part of a new international trend among countries, to avoid possible terrorist activity and other kind of risk, along global value chains.

AMPIP represents owners, investors and managers of parks and industrial buildings before national authorities and investors

Q: What are the key factors that influence the size and

abroad. It promotes best practices in infrastructure and logistics,

location of an industrial park?

among others

175

VIEW FROM THE TOP

GROWING E-COMMERCE TO BOOST INDUSTRIAL DEMAND LUIS GUTIÉRREZ Director General of Fibra Prologis

Q: What is your outlook on the industrial real-estate sector

environment for more investor appetite. We could be on

in Mexico in terms of Fibras?

the verge of seeing a growth in Fibras within the market.

A: This year got off to a very rough start with a lot of 176

uncertainty. The US-Mexico relationship and NAFTA were

Q: What is Fibra Prologis’ role regarding the development

brought into question by the US president. Since NAFTA

and maintenance of industrial assets?

is arguably the most important trade agreement Mexico

A: Prologis owns 46 percent of Fibra Prologis and has

holds, questions surrounded the future of US-Mexico trade

the land bank in its portfolio. Prologis performs the

and the markets became nervous. In January 2017, the value

development and Fibra Prologis has the exclusive right to

of the peso fell to MX$22 to the dollar and GDP was revised

buy from Prologis. We are present in six markets – three

downward.

related to consumption, which are Mexico City, Guadalajara and Monterrey. The other three are tied to manufacturing

Having said that, it now seems that the rhetoric and tone of

in Reynosa, Tijuana and Ciudad Juarez. Prologis has been

the US government has improved. In that sense, for Mexico,

developing properties in those six markets and the one with

there has been a partial recovery in confidence levels. The

most growth has been Mexico City.

exchange rate has rebounded by almost 20 percent, trading at MX$18 to the dollar as of June 2017 and in addition there

Fibra Prologis is designed to be a stabilized portfolio.

are now talks about opening up the NAFTA agreement to

The operating metrics of Fibra Prologis have been very

try to modernize it with a mutually beneficial arrangement.

strong and our 1Q17 numbers show 97.4 percent occupancy

Now, the financial markets are much more stable and there

rates. There is also a very good pipeline of projects being

is a new forecast for the Mexican economy.

developed by Prologis and once these are leased, they are offered to Fibra Prologis so we can grow our portfolio.

The real-estate markets have been very strong and consumption has been the key driver of the economy, with

Q: Why is Mexico City the driver of growth at the moment?

the second being manufacturing and exports. Therefore,

A: The Mexican economy has been driven by consumption

Fibras that are exposed to these industries are promising

and this is fueled by growing employment, the growing

because there is a good perception of growth for the

population and an increase in credit, which is very much

Mexican economy for 2017. Some of the securities that trade

focused in Mexico City. That is producing higher sales. One

in relation to infrastructure construction may benefit from

of our key customer segments is retailers who demand

more stable markets. Industrial real-estate funding vehicles

better spaces to store more products, especially in Mexico

can be seen as a positive instrument to take advantage of

City, which is serving as a logistics hub to service the

this new strong economy.

rest of the country. Logistics operators like DHL, FedEx, Kuehne + Nagel, UPS and Geodis have seen double-digit

For a few years, Fibras fell out of favor among investors

growth because a lot of companies want to optimize their

but these factors may create a context wherein investment

supply chains and recruit these third parties to do so. These

in Fibras will be more attractive. A lot of Fibras are now

companies demand modern infrastructure, which is now

trading below their net asset value but this may be a better

growing in Mexico City. A newer trend is e-commerce. Sales in Mexico are 2 percent,

Prologis is the world’s leading industrial real estate company, with

which is very low compared to 8 percent in the US. The

more than 30 years’ experience in the market. Prologis entered

leader, Amazon, recently established operations in Mexico

Mexico in 1996 and, through a merger with AMB in 2011, went on

and has launched its Prime program that guarantees one-

to become the pre-eminent global industrial real estate company

day delivery. This encourages other e-commerce companies

177

Construction of Fibra Prologis Industrial Park

to upgrade their platforms to compete with the service

space to cater to the anticipated demand stemming from

offered by Amazon. For us, this means there will be a

e-commerce. It will be different for every city but I think this

greater demand for more logistics space and the traditional

strategy will certainly be applied to Mexico City.

warehouse is changing as a result. Q: How have you educated your potential clients on the Prologis and Fibra Prologis is taking advantage of this trend

benefits of real-estate leasing?

and this is why Mexico City has been the main growth driver

A: We have seen that manufacturing companies do not

of our portfolio over the last few years. Mexico City has

want to tie up their capital in real estate, unless it is a

experienced the highest demand for industrial space in all

strategic acquisition. Going down the chain, the major

of Mexico so we are bullish on the potential of this market.

plants are usually owned by the corporations because those tend to become highly specialized projects. They are built

Q: What opportunities do you see in Mexico for multistory

according to a specific model with tools and specifications

warehouses?

that cannot necessarily be used by any other company. It

A: Prologis has experience globally and the multistory

would be very difficult for them to find a company to lease

concept began in Japan. In Japan, it was discovered that the

those projects. Often, car companies change their models

warehousing had to be located very close to the population

and need to carry out extensive remodeling to retool their

because people want rapid delivery services. Companies

production lines.

cannot afford to position warehouses at a distance but land in urban centers in Japan is scarce. Prologis then started

For Tier 1 suppliers in the automotive industry, plants

to build those vertical warehouses, which have up to five

tend to be highly specialized to fulfil long-term contracts.

levels, so we have a lot of experience in this regard, both

Sometimes these facilities can be leased or sold but as

in China and Japan.

a renter those facilities are not necessarily attractive for the previously mentioned reasons. In terms of Tier 2 and

Very recently, Prologis established warehouses in the Seattle

Tier 3 suppliers, contracts tend to be smaller and more

and San Francisco downtown areas where land is expensive

short term so these suppliers have no interest in owning

and we are building multistory facilities to cater to the demand

facilities. These are normally the types of clients we cater

from the urban area. I believe that, although e-commerce sales

to and we steer away from Tier 1 or very sophisticated

in Mexico are 2 percent today, as this figure grows, Mexico

manufacturers. If someone requests a specialized plant,

City will become an ideal market for vertical storage. The city

normally we do not provide this because we like to have

is extremely land-locked and there is a lack of warehouse

flexible warehouses.

INSIGHT

ENERGY REFORM OPENS OPPORTUNITIES FOR INDUSTRIAL DEVELOPERS JUAN TORRES LANDA Partner at Hogan Lovells Mexico

178

In 2014, the Energy Reform was passed in Mexico and state-

familiar with the procurement rules and the complexities

owned companies PEMEX and CFE no longer held the

involved in getting a project successfully off the ground,”

monopoly over the country’s oil, gas and electricity markets.

says Torres Landa.

In the years that followed, auctions took place for oil fields, gas fields and electricity contracts, which allowed private entities

In the more established states such as those in the Bajio,

to enter the market and create the kind of competition that

industrial real-estate developers are not being given enough

is expected to fuel the country’s growth for years to come.

incentive to develop, says Torres Landa, with most of the tax breaks directed toward the occupants of the units. That

But the benefits of the Energy Reform do not stop there.

being said, states recognize the importance of industrial

With the opening of the energy market, Juan Francisco Torres

developers because, without their facilities, it would be

Landa, Partner at law firm Hogan Lovells, believes there will

almost impossible for many companies to set up operations

be many benefits for industrial developers and occupants

within the state. “The original incentives for industrial

of industrial real estate. “The aerospace and automotive

developers were far more significant because the states

hubs in the Bajio region are huge consumers of natural gas

wanted to attract companies and their investments,” he

so there will be a need for pipelines that can provide this

explains. “Now, this has become relatively diluted in certain

service effectively and reliably,” he says. The growth of the

states that have well-established industrial hubs and do not

Bajio has been a huge driver of all types of infrastructure, with

have an overwhelming need to attract new developers.”

OEMs and other companies demanding highway expansions and more strategic logistics routes for greater connectivity

But he points out that this varies greatly depending on the

to their client base. OEMs have attracted Tier 1, 2 and 3

size of the investment. In 2015, when Toyota announced

manufacturers to the states in which they have set up shop,

plans to build a new plant in Mexico with a US$947

giving the suppliers a greater incentive to contribute to the

million investment for the first stage alone, the Japanese

infrastructure within the corresponding states.

OEM was immediately courted by a variety of different states. Ultimately, Toyota settled on Apaseo el Grande in

Hogan Lovells represents several developers and operating

Guanajuato. The state government gifted the land to the

industrial parks and, given the demand in the Bajio region,

company in exchange for a long-term commitment to the

companies are now considering additional expansion. The

state. Construction of the plant began in November 2016 and

law firm helps in securing the clean property titles, satisfying

is guaranteed to create immediate construction jobs, which

environmental and energy-related concerns and ensuring

will then be reinforced by the direct and indirect employment

proper contracts for connectivity in the area.

offered when the facility begins operating in 2019.

Sometimes this can mean dealing with all three levels

“There are varying factors in the incentives provided by

of government for issues related to zoning, permitting

the individual states, including existing industry footprint,

and incentives. “It is important to be very familiar with all

investment scale and labor availability,” Torres Landa says.

aspects of government processes so we can offer the most

In some industrial areas, there is a real lack of qualified

comprehensive service possible to clients,” says Torres

labor and this is something he believes is important for

Landa. The firm was formed in 2014 when international

developers to bear in mind when choosing a location for

firm Hogan Lovells merged with local legacy firm Barrera,

industrial infrastructure. But he does not believe that any

Siqueiros y Torres Landa (BSTL), which already had 65 years

one state is overly attractive for industrial investment

of experience in the Mexican market so is well-equipped to

because it varies according to requirements, the type

maneuver complex governmental processes. “Because we

of company, the investment level and the necessary

have represented the government in many projects, we are

transport links.

VIEW FROM THE TOP

FIBRA DOMINATES THE INDUSTRIAL REAL ESTATE SECTOR ALBERTO CHRETIN Director General of Terrafina

Q: What role should Fibras play in the development of

RMC Real Estate and Amistad Real Estate, to develop

more sustainable cities and industrial infrastructure?

solutions that meet their real estate needs.

A: Developers must invest in infrastructure, land acquisition, building construction and promotion and must also attract

Q: How has Terrafina’s relationship with PGIM impacted

investment. By financing these, Fibras create investment

its success in the market and what new partnerships are

opportunities for industrial developers and allow smaller

required to reach its goals?

investors to invest in real estate. Historically, real estate

A: Without a doubt, Terrafina has the best corporate

investment could only be carried out with extremely large

government of all Fibras thanks to having PGIM as an external

sums. With the issuance of CBFIs, Fibras make real estate

advisor. In 2013, PGIM had a 19 million ft2 portfolio in two

investment available to a wider segment of the population,

closed funds, which the company brought to Terrafina. When

giving them access to profitable, stabilized cash flows with

Terrafina was launched as an independent firm, PGIM stayed

interesting returns adjusted to risk.

onas an external adviser for real estate, portfolio management, compliance, treasury and capital markets.

The government’s goal in modifying the Mexican income tax law for the introduction of structured instruments, such as Fibras and CKDs, into the public market was to support the development of real estate. Fibras have greatly supported industrial developers by allowing them to speed up projects, especially in the industrial sector. Fibras are an important instrument to attract investment and allow

Terrafina has distributed almost US$300 million to its shareholders

property managers and developers to continue increasing their activities and to build more. The development of

Our collaboration with PGIM has allowed us to double our

sustainable portfolios will depend on how the market values

portfolio in less than five years. We have distributed almost

them. All of Terrafina’s buildings comply with environmental

US$300 million to our shareholders and also enjoyed a

regulations, and some are green buildings.

successful capital-raising campaign that was 2.5 times oversubscribed, meaning that while we raised US$300 million

Q: How will Terrafina differentiate itself, given that experts

we had orders for US$750 million. Terrafina had a dividend

predict there will be more than 40 Fibras in the market

yield of 10.3 percent during the first quarter of 2017 and 7.1

by 2050?

percent in the second quarter due to dilution. Our strategy is

A: Terrafina has one of the largest and the best industrial

fully aligned with the interests of our investors and has allowed

portfolio in Mexico because it is spread across many

us to become leaders in acquisitions. We bought American

locations and has a diverse range of lessees from many

Industries’ portfolio in 2013, which included 84 excellently

sectors, including electronics, medical devices, logistics,

located properties totaling 11 million ft2 for US$600 million.

automotive and aerospace. We focus mostly in industrial real

We also bought 45 properties representing almost 6 million

estate for maquila exports, which involves solid companies

ft2, including new buildings for the automotive, medical and

with long-term growth strategies. These companies are also

aerospace industries, from Intermex.

influencing the sector by allying with academia to modify study programs for the aerospace industry. There is a strong connection between Mexican manufacturers creating a

Terrafina is a real estate trust, specialized in industrial and

stable business environment for all manufacturing sectors,

designed mainly to acquire, own, develop and manage real

including aerospace. Terrafina works closely with property

estate in Mexico. The properties within its portfolio consist of

managers such as American Industries, Intermex, O’Donnell,

stores and light-manufacturing properties

179

VIEW FROM THE TOP

PLETHORA OF SERVICES, AMENITIES KEY TO ATTRACTING PARK TENANTS MICHELE PORRINO Executive Director of WTC Industrial San Luis Potosí (WTC-SLP)

180

Q: What is WTC-SLP’s occupancy percentage and which

Q: What are the advantages of operating in WTC-SLP?

industries dominate the company’s facilities in San Luis

A: We are interested in FDI coming to Mexico, specifically

Potosi?

to WTC-SLP, so we promote our parks’ provision of

A: WTC-SLP comprises two industrial parks: WTC1 and

services such as natural gas, water and electricity. The

WTC2. In the former we are at 93 percent occupancy and

state has a young population, which means the area

are closing negotiations to reach full occupancy in 2017. We

offers a well-prepared, competitive workforce that never

have already started signing contracts with companies that

goes on strike. We also benefit from having a strategic

want to operate in WTC2. WTC1 covers an area of 700ha

fiscal precinct that aims to reduce operational costs.

and WTC2 covers 1,400ha. A commercial zone, an office

The park has the largest intermodal logistics terminal

building and a hotel are among the in-park amenities that

in Mexico, in-house customs services and amenities that

attracted clients to our first park and we want to replicate

include our commercial zone. Queretaro is a competing

those amenities in the second. We are also exploring

region but one of its weaknesses is air connectivity. San

outside of San Luis Potosi and we built an industrial unit

Luis Potosi’s airport is more practical, with several daily

for an important client in San Jose Iturbide, Guanajuato.

flights to Houston, Dallas, Cancun and Mexico City. The metropolitan area in which we operate is peaceful. A study published by the Mexican Institute for Competitiveness (IMCO) in 2016 ranked San Luis Potosi as one of the safest cities in Mexico.

WTC1 covers an area of 700ha, WTC2 covers 1,400ha and will reach its full capacity in 2017

Q: What are the challenges of operating in WTC-SLP and how is the state government supporting the automotive industry? A: The current road infrastructure struggles to cope with the consequences of exponential regional growth but local authorities are addressing that. We may participate

About 70 percent of our clients belong to the automotive

in a tender to build an alternative road to Highway 57

industry. WTC-SLP works closely with San Luis Potosi’s

that would lead to the industrial zone and alleviate

automotive cluster and ProMéxico’s offices. Our company

traffic. A deficient public transportation system can

supports the automotive industry and vice versa, so the

harm employee mobility so companies need to invest

more automotive companies there are in an area, the more

in transportation for workers from residential areas who

attractive the area becomes because suppliers are so close.

often depend on public transportation to commute to

Still, although the automotive industry is very important for

WTC-SLP. We are lucky enough to have a business-driven

the company, we cannot depend on it. Therefore, we are also

government, which is sensitive to the needs of companies

trying to attract businesses from a variety of sectors, mainly

and supports a variety of clients, offering incentives for

chemical, electrical appliances and fuel-related companies.

OEMs to offer credit to their suppliers. The government

The size of WTC2 enables us to divide the park by sector.

and private sector have been working to attract OEMs, such as Ford and BMW. There is a need for more hotels for visiting employees and business partners. We are

WTC-SLP is the logistics development property of real-estate

currently completing one in our industrial park, which

giant Grupo Valoran. It comprises two industrial parks: WTC1

is expected to rapidly achieve full occupancy. If this

and WTC2, a strategic fiscal precinct, customs agent and

happens, that hotel franchise may ask us to open more

intermodal terminal

hotels in the area.

VIEW FROM THE TOP

ADAPTING TO MEET AUTOMOTIVE DEMANDS OF SLP ARMANDO MORENO Director General of Logistik Parque Industrial

Q: What is Logistik Parque Industrial’s most important goal?

out registration and other legal and accounting procedures,

A: We want to create a community of industrial companies

to create a corporate checking account and so on. We want

inside the park as a way to add value to their operations and

to bring in those companies interested in a well-made facility

to create a trickle-down effect that benefits the communities

and that want to take advantage of the park’s world-class

that surround us. Logistik Parque Industrial is the largest

infrastructure. Logistik Parque Industrial admires its clients

industrial park in Mexico, which makes it versatile when

as many of them are pioneers in their sectors. We expect

offering spaces to potential customers. We can offer plots of

our clients to contribute to our industrial ecosystem by

land in various sizes, starting at 1ha, while keeping more than

complying with our emissions regulations and not harming

150ha of terrain in reserve. This enables us to chase business

the communities that surround the park.

with large assembly plants and Tier 1 and Tier 2 suppliers, and it provides an opportunity for these companies to create

Q: Why is establishing in San Luis Potosi more attractive than

synergies in their direct vicinity and to improve their supply

in other regions that have a booming manufacturing sector?

chains. The automotive, electronics, agricultural and industrial

A: First, the city and the state of San Luis Potosi can supply

equipment industries are particularly attracted to these kinds

the companies establishing here with qualified and highly

of communities because of the high level of systematization

specialized labor. Second, government entities at all levels

of their production lines.

are business-friendly. Finally, Logistik Parque Industrial value proposition is not limited to a great location and available

Q: How did Logistik Parque Industrial evolve from selling land

inputs for operation. Our goal is to offer our customers

to entering the construction industry?

certainty and an opportunity to be part of the increasingly

A: We evolved into a developer to meet the needs of the

sophisticated industrial ecosystem of San Luis Potosi. In the

automotive industry in San Luis Potosi. A few years ago,

industrial real estate sector, a retained client represents a 1.5

General Motors needed a space to install its operations and

percent rate of reinvestment in local companies. We want our

Logistik Parque Industrial provided it. Our company is facing

customers to see a space in Logistik Parque Industrial as a

a turning point right now. Our core business is the sale of land,

guarantee for prosperity. To this day, there is no better place

but we are interested in strategic alliances to take advantage

to be in terms of logistics than in San Luis Potosi and Logistik

of the build-to-suit (BTS) and speculative building models.

Parque Industrial specifically.

BTS is optimal for tenants because the location where they install is designed specifically to meet their needs in every

Q: What are Logistik Parque Industrial’s goals for the

way. But building industrial units according to the speculative

short term?

model enables the developer to consolidate a more varied

A: We have an ambitious growth plan and we still also have

offer for customers. Speculative building provides more

a lot of land in our hands. Logistik Parque Industrial is paying

flexibility when negotiating with potential customers. We

close attention to the renegotiations of NAFTA and will make

expect these alliances to increase our ability to cater to our

the most financially suitable decisions to pursue its growth

customers’ needs and add value to their operation.

goals plan once that process is over. We will continue leading the industrial real estate sector by catering to the needs of

Q: How does Logistik Parque Industrial help new foreign

the customers that are installed in the park.

entrants successfully launch their manufacturing operations? A: Logistik Parque Industrial accompanies them throughout the entry process and helps to minimize or avoid any hurdles that

Logistik Parque Industrial is Mexico’s largest industrial park at

launching operations in a new country entails. Our specialized

2,000ha. Its services include an in-park railway and intermodal

services division helps companies that lack experience in

terminal along with amenities such as water, electricity,

Mexico to incorporate into the business landscape, to sort

wastewater treatment, gas and optic fiber lines

181

PLANT SPOTLIGHT

182

LOGISTIK INDUSTRIAL PARK A HOME AWAY FROM HOME Located in Mexico’s heart in San Luis Potosi, LOGISTIK Industrial Park offers assets and commodities that surpass expectations. Even though it is already positioned as the largest industrial park in the country, that is only the beginning of what this lustrous property has to offer. Day after day the global market becomes increasingly competitive and demands more out of the industry than ever before. Due to this, it is of utmost importance that the needs of manufacturers are met with the best care and personalized attention there is to offer. LOGISTIK Industrial Park is familiar with these needs as it has worked with manufacturers that are established in its installations as well as potential clients. No longer is it only about competitive labor costs and location, there are other needs that must be met and desires that companies crave to have satisfied as they expand into new markets. As the Park moves into a new era not only with high-end clients such as BMW, GM, Eva Group, Minghua and LÓreal, among others, it also moves into a new administration. Directed by Armando Moreno, the team seeks the complete fulfillment of its members, providing an industrial community focused on logistics, sustainability, security and commercial adaptability. LOGISTIK Industrial Park offers solutions for the members of its community, facilitating not only the availability of services such as energy, water treatment plants, natural gas and optic fiber, but also special attention to client needs such as security, transportation advantages with the NAFTA corridor and rail facilities operated by Kansas City Southern. LOGISTIK Industrial Park caters to the needs and desires of its community and makes sure that they find their home away from home in a city that offers an optimal climate of 18-24°C, with beautiful historical sites and a variety of museums and cultural events, first class shopping centers, recreational parks, and enjoyable golf clubs where relaxation and entertainment is easy to find. The park is located not only in a strategic location for business but also for travel and pleasure, close to the three most important cities in the country and to cities that are rich in culture and capture the visitor’s eye with their beauty. Among these cities are San Miguel de Allende, Real de Catorce, Xilitla and the Huasteca Potosina, which offer a wide range of options for the adventurers who enjoy Eco Tourism. LOGISTIK Industrial Park is not only the largest industrial park in the country, it is also a community and a home away from home.

183

INSIGHT

MULTIMODAL SOLUTIONS NEAR THE BORDER MAURICIO GARZA Director General of Interpuerto Monterrey

184

When it comes to industrial parks, suppliers are often

“Interpuerto Monterrey can offer multimodal solutions to fit

attracted to those with premium locations and accessibility,

clients’ specific needs,” he says. The park has developed its

and Monterrey finds itself in a privileged position right in the

service offering to the point of becoming a partner in real-

heart of the NAFTA market, says Mauricio Garza, CEO of

estate solutions. “We can sell lots to clients so they can build

Interpuerto Monterrey.

their plants with any construction company they choose, we can build their plants according to the client’s specifications

Nuevo Leon is already one of Mexico’s automotive hubs along

and lease them, we can build the plant and sell it to companies

with Guanajuato and Queretaro. After Kia’s manufacturing

once finished, or develop speculative buildings and lease them

operations arrived in the state, many new suppliers started

to tenants,” he explains. “In other words, we are a real estate

looking for the perfect site to establish facilities and become

solutions company.”

Kia’s suppliers, says Garza. This created an opportunity for Interpuerto Monterrey. Located in the Salinas Victoria

Despite the park’s optimal transport access, it is combatting

municipality and only an hour away from Monterrey’s

one of the industry’s main concerns in customs operations.

city center, the park offered an advantageous position for

According to several logistics providers including Hellmann

companies wanting to supply both the domestic market and

and UPS, customs is among the processes with the most

the NAFTA region.

opportunity for improvement so that Mexico can increase its attractiveness as a logistics hub. Interpuerto Monterrey

A two-hour drive is the only thing separating Interpuerto

wants to address this. “Most of our clients are importers and

Monterrey from the nearest crossing to the US. It allows

exporters, so an internal customs agency would be a crucial

companies that choose to source or work with companies

advantage for us,” he says. Garza’s three-stage program for

in the Bajio to have direct access to the highway. Shipments

Interpuerto Monterrey places a customs office at the top of the

moving to and from the park can reach the Mariano Escobedo

list, which must follow the Customs Technologic Integration

International Airport in less than 35 minutes. Its flexibility

Project (PITA) established by the federal government. This

has allowed Interpuerto Monterrey to target not only the

initiative seeks to automate and expedite customs operations

automotive sector but also the food and beverage, logistics

for products entering or leaving the country and Interpuerto

and agricultural sectors, with 10 companies located in the

Monterrey will be one of the 60 points of revision that the

park. Based on its current occupancy, the company is positive

Tax Administration Service (SAT) appoints to manage over

about its development as an infrastructure and logistics hub.

99 percent of Mexican customs operations. “We expect to

“We expect to reach double-digit growth figures in 2017,”

deliver the facilities to SAT by the end of 2017,” says Garza.

Garza says. In the medium term and in the interest of attracting business, Interpuerto Monterrey also offers strong rail connectivity with

Garza wants to make the park a free-trade zone (FTZ).

both Kansas City Southern and Ferromex lines passing right

According to the latest regulations established by President

next to the park, which is a considerable benefit given the

Peña Nieto’s administration and SAT, parks no longer require

limited rail infrastructure in the country. Garza says Interpuerto

a minimal square footage to become an FTZ. Companies

Monterrey is promoting the use of rail as a cost-efficient

cleared under FTZ’s regulations can authorize longer

solution for imports and exports. “Mexican logistics are almost

temporary import terms of up to 24 months for products

twice as costly as in other developing countries,” he says.

entering the supply chain. These advantages have made FTZs

“But rail is an attractive option for investors when comparing

an attractive solution for recurrent importers and exporters.

volume and shipment costs.” Garza says the industrial park

“We are advancing with this project along with potential

will not rely solely on its accessibility to promote Interpuerto

clients that might use this service because companies have

Monterrey. It also stands out by offering tailor-made solutions.

to be certified to apply for free-trade status,” says Garza.

VIEW FROM THE TOP

HVM, HIM METHODOLOGIES FOR MORE STRUCTURED DEVELOPMENT JORGE ACEVEDO President and CEO of JA Group

Q: What does Mexico need to do to improve its transport

across terms. Also, civil society needs to empower itself

and industrial-oriented infrastructure?

and push for the respect of trans-sexennial continuity.

A: Mexico needs to change its approach to planning and developing these kinds of projects. This country is used

Q: How will international trade through Nuevo Laredo be

to solving problems and meeting demands rather than

improved through the application of HVM and HIM?

planning for the long term and generating demand. We

A: Around 43 percent of Mexicoâ&#x20AC;&#x2122;s global trade crosses

must start planning ahead of demand so that Mexico stops

through this single dry port. The challenge is convincing

building roads when a connection between two points

Laredo and Nuevo Laredo to take advantage of their trade

is already needed, schools when children already need

importance to promote economic and social development.

them and industrial complexes when foreign companies

It is necessary to ease the trans-border crossing of freight.

have already arrived. The country must start thinking of

Nuevo Laredo needs to create infrastructure that promotes

the present while planning for the future through major

the manufacturing sector. There are great carriers, customs

infrastructure projects. This can be achieved by approaching

agents and logistics operators but they do not really

the development of real estate and infrastructure projects

contribute to the value chain.

holistically. Q: How does the application of these models make value Q: How do JA Groupâ&#x20AC;&#x2122;s Holistic Vision Model (HVM) and

chains more resilient against harmful macroeconomic

Holistic Infrastructure Model (HIM) help both sectors

trends?

overcome these issues?

A: JA places the strategic development initiatives and

A: These models diverge from the premise that the whole

intercompany cooperation projects in mathematical

is much more than the sum of its parts. There is no point

simulators and bombards them with variables. We assess

in developing social, educational and economic programs

how these projects will react before all kinds of political,

in a fractured way because doing so does not add up

economic and social factors to come up with possible

to sustainable growth and development. HVM works as

outcomes that help mitigate or overcome potential harm.

a navigation chart that guides social and economic

The variables tested can include everything from the

development in the middle and long term by coordinating

results of NAFTA renegotiations to possible terrorist and

the efforts of both sectors for mutual gain. HIM is the

cyberattacks and educational and religious factors. Planners

application of this holistic vision to the development of

and developers should consider all kinds of internal and

infrastructure. This entails the use of tools like PMI,

external factors, or they will end up merely patching up

Balance Scorecard and LEAD to make the development of

projects when issues arise and they have no action plan.

construction projects more efficient and integral.

For instance, an integral vision of the supply chain helps each economic player understand how it can add value in

Q: What are the main challenges that JA Group has faced

each step of the supply chain. Considering everything from

when implementing these models?

intermodal infrastructure and customs to kindergartens

A: First, the lack of knowledge about these models

for workersâ&#x20AC;&#x2122; children enables each link to maximize its

and their advantages is challenging. State and city

participation in the value chain.

governments are in office for a short term, which makes the implementation of long-term projects difficult. When new state and federal administrations enter office,

JA Group consists of consulting companies that promote

there is rarely continuity for projects begun by previous

business development and innovation that deliver a social

administrations. All government levels need to understand

benefit. Its main pillars are its Holistic Vision Model and Holistic

that the best legacy projects are those that are continued

Infrastructure Model

185

Florido Industrial Park, Tijuana, Baja California

186

VIEW FROM THE TOP

US EXPERIENCE HELPS ANTICIPATE TRENDS RAFAEL GONZALEZ Director General of Building Design International (BDI)

Q: How did BDI grow its business to become an important

A: We decided to invest in these states due to the growth in

player in the industrial sector?

the region fueled by construction in Merida and Cancun. The

A: We are based in Mexicali, Mexico with two subsidiary

Riviera Maya is a contributing factor and the expansion of

company that have been in business for over 50 years

the sea ports in the region are spurring the need for strategic

specializing in the commercial sector and with several

distribution, logistics and staging points. We would like to

shopping centers in our real estate portfolio. We also have

expand into Baja California, specifically the peninsula. The

an import and export division with cold storage warehouses

Tijuana-Cabo San Lucas corridor also has huge potential.

on the US and Mexico sides of the border that specializes in the import and export of beef, dairy, vegetables and fruit.

Q: What can Mexico’s industrial park market do to reduce

BDI was created to service these two companies all under

its dependence on the US?

the same umbrella. Expansion across Mexico over the past

A: We must work strategically with foreign companies and

10 years has been steady through organic growth, repeat

create import partners specifically at major seaports and

clients and word of mouth. Our core business is project

airports so that goods and services can enter the country

management, construction management and industrial

independently from the US. We can also leverage the

construction. We will continue to offer our world-class

government to create incentives with foreign countries to

services to Mexican developers and investors and keep

export goods and services to Mexico.

expanding our own commercial portfolio. Q: What trends or patterns are you expecting in this sector In Mexico, we mostly build logistics, industrial and

regarding growth?

manufacturing parks but we are beginning to view the EIP

A: BDI sees several trends in the industrial sector in the coming

Eco-Industrial Park as the future. BDI is mostly interested

year. There is a need to increase inventory space and, given

in developing along the border with the US because of the

the lack of such, we have seen developers begin to build

area’s potential as the maquiladora corridor. We feel it is a

vertical storage facilities in industrial settings. We believe

sustainable market due to the strength of the US economy

LEED will take a backseat at industrial properties, given the

and it is where we are most competitive.

plethora of other priorities for the sector. Politics will have a direct influence on foreign direct investment but importers

Q: What are the biggest challenges when building

will increasingly look to foreign trade zones for tax breaks

industrial parks in Mexico?

and better shipping times. Intermodal shipping will remain

A: The occupancy of industrial parks in Mexico is closely

a dominant force and continue to grow and transportation

linked to the US economy, since our northern neighbor

management systems will become more sophisticated,

is by far Mexico’s most important partner in trade and

seamless and mobile. Security, both on the ground and online,

investment. The development of new industrial projects

will grow in importance. Finally, and perhaps one of the most

will depend on better market conditions, as well as strong

important trends, is that e-commerce will encourage brick

cash positions from investors. As a builder, the challenges

and mortar retailers to consolidate services. At BID, we are

of building industrial parks in Mexico are varied and based

prepared for these trends as they are already unfolding within

on location. The common factors that we encounter

our existing projects in the US.

are the contract model, qualified labor, connectivity to the project site and the complete set of coordinated construction documents.

BDI was founded in 1992 with a turnkey approach to construction and project management. Since 2005, BDI

Q: What are the reasons behind the company’s investments

has played a major role in Mexican real estate, developing

in Yucatan and Veracruz?

residential, tourist and industrial projects

187

INSIGHT

TARGETED INDUSTRIAL DEVELOPMENTS IN THE BAJIO SALVADOR MAGAÑA CEO of PARQMEX Industrial Development

The steady development of the maquiladora industry in the

railway systems managed by Ferromex and Kansas City

north of the country has driven the necessity for industrial

Southern running from north to south and from east to west.”

facilities to meet these manufacturing needs. But according to 188

Salvador Magaña, CEO of PARQMEX Industrial Development,

These benefits have attracted both investors and industrial

the bulk of the demand has now shifted to the central region

space users looking for high-quality industrial spaces. When

of Mexico. “We cannot talk about the automotive industry

considering the Mexico City metropolitan market, to date,

without talking about the Bajio region, especially Guanajuato

approximately 7 million m2 of class-A industrial space exists

and San Luis Potosi,” he says.

in the area among a population of 22 million. In comparison, Chicago, the second-most important industrial market in the

Before 2009, the country focused on industrial developments

US, has 100 million m2 and a population of 10 million in the

in the north of the country to satisfy the needs of the US

metropolitan area. “There is an enormous disparity,” says

market. After the 2009 financial crisis, there was a shift in

Magaña. “With this in mind, we developed a business model

manufacturing activities all around the world and companies

targeted at addressing the most pressing needs in important

started to look toward the Bajio region. In the last three

industries like automotive, aerospace and e-commerce.”

years, three new OEMs have established in Guanajuato

PARQMEX’s strategy is based on modular developments of

within a 30-minute drive. “Honda and Mazda are already

between four and 10 industrial buildings, gated with control

manufacturing their vehicles and Toyota is expected to start

access and focused on providing service and quality at an

operations in 2019, so there is an enormous opportunity

affordable price. The developer’s first project will be its 20ha

to target these companies’ suppliers,” he says. “If we look

land parcel in Celaya that contains approximately 102,000m2

at San Luis Potosi, BMW just made important investment

of leasable space. “Although we have more projects at

announcements for two new plants by 2019. Suppliers finalize

different stages of development, this is our most advanced

their contracts approximately three years before they begin

venture,” says Magaña. With its limited space per project,

operations so many industrial space clients are looking for a

PARQMEX can define a specific time frame for the entire

potential location for their future investment right now.”

process from construction to 100 percent occupation of approximately five years.

PARQMEX is investment fund ALIGNMEX’s industrial subsidiary, with a focus on developing and managing

Magaña believes that PARQMEX’s biggest strength is its

industrial parks. “We decided to vertically integrate,

focused strategy in terms of geographic location and business

ALIGNMEX as our investment fund management holding

model. “Some developers buy and resell land. Others acquire

company and PARQMEX as a development subsidiary,”

old buildings and remodel them. Meanwhile, we have a clear

explains Magaña. “That way we can participate in the entire

strategy oriented to our modular developments and building

infrastructure development process, which translates into

new and current Class A industrial space,” he says. PARQMEX’s

a better alignment of interests with capital investors, and

geographic focus allows it to be close to its clients and to

optimizes cost and time variables to reflect higher profit

provide a timely response in case of any problem its tenants

margins.” As PARQMEX, the developer is now focused on

might face. Although there are murmurs of uncertainty due to

industrial projects with a localized strategy and presence

the US administration, Magaña is convinced PARQMEX’s bet

in central Mexico, the Bajio region and the Mexico City

on the Bajio and on Mexico will pay off. “There might be some

metropolitan area. “This geographic region offered clear

uncertainty but Mexico’s supply chain is so integrated into

advantages in terms of logistics, market demand, human

the global market that it will remain a strong manufacturing

capital and infrastructure,” says Magaña. “There are several

platform,” he says. “The peso’s depreciation will result

universities that focus on the main manufacturing sectors,

in savings for international players and as long as there is

and the entire area is interconnected by roads and two main

change, there is opportunity.”

VIEW FROM THE TOP

SPECULATIVE BUILDING FOR MORE SQUARE METERS, LESS TIME BENJAMÍN MIZRAHI Director General of Construye Industrial

Q: How would you evaluate Mexico’s industrial real estate

clients want someone to sit for hours with them to plan their

market?

manufacturing plant and understand their needs. We do not

A: Mexico has become an increasingly sophisticated

treat our customers as numbers in a spreadsheet as some

industrial real estate market where developers are constantly

large industrial developers do. Construye Industrial eliminates

differentiating themselves and competition goes beyond

any worries our tenants might have so they can focus on what

fighting price wars. NAFTA renegotiations will affect the

they do best. An Asian company arriving in Mexico for the first

market for industrial parks but I do not think we should lose

time will need an industrial real estate developer to help install

sleep over it. Industrial developers owe ourselves to our

its plants in an appropriate space. This is where Construye

tenants but our tenants owe themselves to their customers. I

Industrial steps in. Ninety percent of our customers grow with

would say that industrial properties in Mexico are much better

us. They acquire a new space in one of Construye Industrial’s

off than in the US. Mexico has incredible trade routes, state-

developments and acquire another when we expand into

of-the-art parks, high-quality construction, great labor and

another location. Being versatile, fast and thoughtful are the

top-quality executives while still having plenty of room for

key features that attract our tenants.

growth. The US industrial real estate market has not changed in 20 years while Mexico has progressed a great deal. Q: What strategy does Construye Industrial employ to navigate the market? A: We are specialized in the speculative building model. If we notice the market needs a space in a certain place, we

BTS and speculative building are two radically different kinds of business and each has its own market

will build it. In this model, the construction specifications are less strict, so it is possible to build more square meters

Q: How does Construye Industrial attract its customers

in less time. Building speculatively forces us to provide for

once the parks are built?

every possible need a tenant might have. Construye Industrial

A: We plan our parks consciously. When looking for a place

can offer space to virtually any company, regardless of what

to build an industrial development, we pay close attention

they do, where they come from or their size. The other

to several factors. These include proximity to areas of high

model used to develop industrial real estate –- build to suit

merchandise traffic and a multimodal platform, enough

(BTS) –- requires addressing the specific needs of the future

space, the presence of access routes and communication

tenant and building accordingly. This method takes longer

paths, the existence of a labor pool that can be employed

to build fewer square meters. BTS and speculative building

by future tenants and the availability of amenities for

are two radically different kinds of business and each has its

the employees of our tenants. Choosing locations where

own market. Construye Industrial’s expertise and success in

possible industrial clients will have a hard time finding

speculative building has taken our time and concentration

workers is a recipe for failure even if a park is close to

from working with BTS.

commercial routes and amenities. If tenants lack the necessary tools for productive operations, there will be

Q: What strategies help Construye Industrial outpace other

no demand for spaces there.

industrial developers in Mexico? A: Construye Industrial offers tenants the best price in the market without a doubt and a high level of flexibility that none

Construye Industrial is an industrial real estate development

of our competitors can offer. This flexibility comes from our

company that operates as the industrial division of Carrera

unique customer service. Our company has been labeled “the

Corp. It is a boutique developer that builds industrial parks

most boutique industrial developer.” Our clients and future

using the speculative building model

189

VIEW FROM THE TOP

CONFRONTING MEXICO’S ENERGY INFRASTRUCTURE CHALLENGES CARLOS OCHOA Partner at Holland & Knight

190

Q: What challenges are developers facing in constructing

for projects that were no longer developed, however for

new energy infrastructure?

matters of control and reports the national electric grid

A: Real estate, interconnections and obtaining PPAs are

is “virtually” busy.

the largest challenges developers are facing. real estate is a unique challenge in the Mexican market. The first

In this regard the role of the regulators, particularly

thing we have to do when a new developer enters the

CRE, will be of the upmost importance, since they will

market is explain the different types of real estate rights

have to terminate, as they are currently doing, permits

regimes in Mexico.

granted under the former regime that does not comply with the requisites stablished in the transitory articles

It is hard for foreign companies to understand how the

of the Electric Industry Law, which will result in the

Agrarian Law works and why it makes it so difficult to

decongestion of some areas of the national electric grid,

obtain land. About five to 10 years ago, there was a

giving opportunity to the development of new projects

misinterpretation of the Agrarian Law and banks would

in certain areas of Mexico. Now, with the current regime

automatically reject projects that touched upon this issue.

there will not be space for speculators, since guarantees

If agreements are well drafted from the beginning and the

must be filed for the interconnection.

process stablished within the Agrarian legal frame work is followed, then there should be no problems to secure

Q: Why has there not been any Fibra Es issued for energy

agrarian land for the development of these generation

infrastructure?

and transmission projects.

A: We do not have enough projects in Mexico to issue a Fibra E. There was an effort made for midstream pipelines,

It is hard for foreign companies to understand how the Agrarian Law works and why it makes it so difficult to obtain land

but it did not go through. The only projects that I can envision being part of a Fibra in the short term are those that have been built through the former system. The only players that could raise a real Fibra would be PEMEX, CFE or the major utilities with a long-term presence in Mexico. Q: How would you evaluate the development of social and environmental impact studies (EIA and EIS)? A: The sector is facing various problems when it comes to EIA and EIS but there are many companies that have been

Another thing that worries developers is that they do not

doing a great job. This was something that needed to be

have certainty on interconnection processes. In the past,

included in the Energy Reform. In terms of real estate, giving

these processes would be carried out through CFE but

back to the communities and environment is an important

now it must be done through CENACE. The problem was

factor in the development of infrastructure. In the oil and

that under the former system, this process had no cost,

gas sector it is a lot more noticeable than the power sector.

therefore many developers filed for their feasibility study, Because developers must now give royalties to the landowners, they feel that they are part of the project Holland & Knight is an international law firm specialized in

and that they have a say in the development of their

Mexico’s growing power and oil and gas industries. Its team

surroundings. What we have seen in the power sector is

has extensive experience in areas that include environmental

that now some land owners are asking to have the same

law, public bids and contracts, antitrust and project finance

agreements that exist within oil and gas.

VIEW FROM THE TOP

EXCELLENCE IN REPLICATING SUCCESS ALICIA BARNETCHE President of Kepler

Q: How does Kepler differentiate itself among an increasingly

is part of Kepler business strategy and staff training. We

competitive and International market in Mexico?

want to do things right from the outset, which is the basis

A: Due to our specialized work, over the course of our 42

for completing a project on time, on budget and of the

years we have always had international clients. The final

highest quality possible. Another important principle for

clients might be a federal institution, such as PEMEX or

us is teamwork. These are values that, when repeatedly

CFE, but we participate a great deal directly with the

practiced, save money, satisfy the client and create prestige.

private sector. We are internationally known in the steel, power generation, mining and petrochemical industries.

Q: What role do urban projects play within your business

Our clients may change but our policies and ethics remain

strategy?

the same.

A: As an industrial construction services company, urban projects are not Kepler’s core business. Having said this,

Q: What unique value does Kepler offer the Mexican

we can and have carried out these projects successfully

market?

when required by our clients. We have participated in

A: We are a basic-infrastructure, heavy construction

several hotels, an important international business center, a

company that responds to market requirements; that is to

shopping center, government offices, a resort development

say, we are a services construction company. Kepler was

and several other urban projects. Kepler is always open to

born in the steel industry, at a time when the main area of

building a wide range of projects.

opportunity was in the northern part of Mexico, specifically in the states of Coahuila and Nuevo Leon. Later, it played an

Q: What role does the energy sector play in your business

important part in the other big steel pillar that developed in

strategy?

Lazaro Cardenas. As the demands of the energy-generation

A: Modifications to the secondary energy laws under

sector began to grow, so did Kepler’s participation in it.

President Salinas in the early 1990s opened the market

One of our main added values as a Mexican construction

to private participation, national and/or international

company lies in the wide spectrum of services we offer.

owners. These modifications attracted international

From the very start of a project, we provide civil works,

participants, and the electricity sector experienced a

mechanical, erection and electrical services, as well as

significant growth in a relatively short period of time.

oversight and the most highly qualified labor. We can

The recent Energy Reform has presented interesting

contribute to a project all the way to its startup phase.

opportunities for participants of all kinds and I believe a

Another added value is the level of quality and safety we

market boom is just about to begin. Since the construction

offer to our clients and workers. Since 2002, Kepler’s entire

of the first privately-owned power-generation plant in

range of operations has been certified at the ISO 9001-

Mexico, Kepler has been able to offer construction of over

2015 standard. We also hold ASME certifications and we

30 power-generation plants, whether combined cycle,

work according to international standards in safety and

internal combustion or coal fuel. We have built facilities

environmental impact. Kepler is a socially responsible

with production of more than 12,000MW. Finally, the high

company. The fact that national and international clients

productivity levels we guarantee makes us one of the best

return for repeat projects is proof of a job well done.

options in Mexico.

Q: How do you guarantee that projects are completed on time, on budget and of high quality?

Kepler is a 100 percent Mexican company that began in the

A: There is a saying: “We are what we repeatedly do.” If

steel industry, developing national projects and gaining

this is true, excellence does not happen by chance but

international recognition for those of great complexity and

due to broad experience and a great deal of practice. This

scope

191

PLANT SPOTLIGHT

192

MX$600 million investment in the state of Hidalgo

STEEL PRODUCER INVESTED IN MEXICO Mexico is among the top 10 investment destinations in 2017, ranking eighth, ahead of France and Australia, according to a report by PwC. This leads us to believe that despite current global challenges such as exchange rate volatility and political and social instability, Mexico presents opportunities for investment in the construction, production and logistics sectors. This is thanks to a stable economy, significant trade-friendliness and quality human capital, among many other factors. Ten years ago, Gerdau Corsa entered the Mexican market with a long-term vision for its business. The company has certainty and confidence in the potential that the country has for the development of steel construction and envisions competitive opportunities for its entire supply chain. As proof of this, Gerdau Corsa recently made a significant private investment in the state of Hidalgo of US$600 million, completing the construction of a new structural steel structural plant in the year 2015, with an installed capacity of 700,000 tons of rolled products. With this investment, national production is strengthened and is able to satisfy the demand of the metallic construct market, which we estimate has a growth potential of five times the current consumption of steel. This now stands at 815,000 tons annually. We are providing civil construction and industry markets with more than 110 measures of steel beams, which are produced in a short time, and this facilitates their availability and provides multiple benefits to all players in the value chain. We are aware that the actions carried out by the company in relation to the environment will affect future generations, which is why we invest in clean technologies and water and air treatment systems. In our plants, an Environmental Management System is implemented, which oversees all processes from the reception of raw materials to the delivery of the final product, including the reuse of by-products. We are concerned about the entry of products imported from countries that adhere to different and lower environmental standards. Their processes contaminate not only their home country, but also the places where the material is exported, affecting the quality of the air and the oceans. We believe that equal environmental and economic standards must be demanded from importers to ensure a level playing field. Mexican steel is making a difference. National production gives way to technologies that result in innovative, high quality products, which are adapted to the needs required by a national and international market.

193

INSIGHT

MEETING THE NEEDS OF THE GROWING PHARMACEUTICAL INDUSTRY Miguel Suaste Director General of DINTELCO

194

Jorge Noveron Director of Business Development at DINTELCO

The pharmaceutical industry is one of the most highly

models of the structure and elements like air conditioners.

regulated because the slightest error can jeopardize

These technologies are important in creating accurate,

the health of the population. In effect, the design and

well-structured projects from the outset as changes later

creation of spaces dedicated to pharmaceutical activity

on can be more expensive, says Suaste.

must comply with a wide range of norms that specify everything from the air temperature to the type of paint

Along with compliance and project management,

on the walls. “Pharmaceutical industrial spaces differ

DINTELCO helps the pharmaceutical industry increase

greatly from traditional construction,” says Miguel Suaste,

sustainability practices. “In the planning phase, we find

Director General at DINTELCO. “The installation phase is

ways to optimize the entire lifecycle of a project including

particularly challenging because the space does not have

its maintenance and consumption of resources,” says

any windows and is effectively a completely sealed box to

Suaste. The company achieves this through several

avoid contamination and ensure sterilization.”

methods, including the implementation of water-treatment systems that can treat and reuse rainwater. These systems

DINTELCO decided to expand its focus from the design

have the additional benefit of helping companies reduce

of prefabricated pieces to pharmaceutical infrastructure

costs by being more efficient.

as a way to differentiate itself from the competition. “The market has an abundance of companies and we

Upon completion, the project often goes through a strict

differentiated ourselves by offering integrated solutions

verification phase that can take up to six months to

in a wide variety of specialties, including pharmaceutical

confirm compliance and accuracy. This is why the wise

spaces,” says Jorge Noveron, Director of Business

use of capital is vital for DINTELCO to develop successful

Development at DINTELCO.

projects. “Many companies tend to spend their down payments quickly and are left without cash flow,” says

The pharmaceutical industry in Mexico is the second-

Noveron. “Because of the long cycles involved in our

biggest market in Latin America and among the top 15 in

industry, we prefer to prioritize and use the earnings to

the world, according to KPMG, representing a large area of

reinvest in our projects. It gives our business model more

opportunity. But it is not an easy sector to enter in terms of

stability and long-term liquidity.”

construction as each aspect of the industrial space follows its own set of norms and standards. “We need to make

Its experience in project management and integrated

sure that we meet the exact specifications requested,” says

solutions has led prestigious groups such as GACM to seek

Suaste. “If a client asks for a space that is exactly 240cm

advice from DINTELCO. “Our track record is strong. We do

and we do not build as instructed, we could be fined for

not move a single rock until we have a master plan that

each additional cubic centimeter due to its impact on the

includes the final cost of the project,” says Noveron. “This

pressurized system.”

requires a substantial and intense dedication of time in the planning phase.” Over the last several years, DINTELCO

To ensure accuracy during construction, the company

has completed several projects, including eight executive

relies on communication tools and invests time in the

developments with a complete set of services.

planning phase. “We make sure that everyone on the team is well-informed about what needs to be achieved and is

The company sees increasing demand for its services in a

familiar with all the norms and regulations,” says Noveron.

wide range of sectors, including NAICM. “We want to help

The team continuously monitors the construction from

iconic projects such as the airport become more efficient,”

beginning to end and makes adjustments as necessary. It

says Suaste. “Our expertise can help GACM manage all of

relies on programs such as BIM and Autocad to create 3D

its project components through a single platform.”

INSIGHT

FOCUS ON QUALITY IN THE FACE OF LOW-COST COMPETITORS In a cyclical industry such as infrastructure, companies are under more and more pressure to remain competitive on prices. But Jesús Arredondo, Director General of construction company ARTRON, says it is necessary to find a balance between these low-cost products while still providing high quality. “Often, our biggest challenge is that big companies outsource the project managers,” he says. “The outsourcing

“

We have to knock on all doors and attract the attention of construction companies to show them that we are better than their regular providers”

companies usually will not hire a firm such as ours, but

Jesús Arredondo, Director General of ARTRON

instead, contract a lower-cost company.” Although he admits ARTRON’s services do not come cheaply, he maintains that this is a guarantee of the company’s quality.

fix it free of charge. “All these factors contribute to our

“We are a committed and responsible company that has

value proposition, which adheres to more of a long-term

civil insurance coverage of up to US$3 million, qualified and

vision,” he says.

certified personnel and the most innovative equipment,” he says.

Unfortunately, not all companies share this vision, with many having more of a focus on the short-term bottom line.

ARTRON was established 18 years ago by Arredondo as AT

Arredondo gives the example of a 10,000m flooring project

Servicios y Mantenimiento del Noreste after he worked as a

for Toyota, a project on which ARTRON recently bid. “Our

plant maintenance technician and realized that there was a

competitor, a Japanese firm, had a poor-quality product,

lack of related services in terms of quality and added value.

which made me think that the deal was ours,” he explains.

“ARTRON’s slogan is ‘innovating in the quality of service’

“But when the manager saw the invoices he gave the project

because we have redefined our clients’ ideas of quality,

to the other company. This shows that companies are not

based on their needs and on the failings of many other

prioritizing quality anymore.” This is how the company

construction companies,” he says. “Over the last 30 years,

realized that the only way to offer competitive prices

Mexico has experienced rapid growth in infrastructure,

without sacrificing quality was to become a producer.”

which outpaced all contractors, including myself. This is why my company started to generate a different culture

Last year, ARTRON established manufacturing operations

among our people. We not only provide quality, but also

in Monterrey. For 2020, the company’s target is

passion, and I try to foster that passion within my clients

Queretaro and from 2020 to 2022 it is planning to open

so they trust our company.”

an epoxy manufacturing division in Aguascalientes because many of the materials used to fabricate the resin

For ARTRON, the opportunities lie in the private sector

are produced there. “We are a very practical company,

rather than the public sector. Arredondo says that prior

consistently trying to streamline operations and remain

experiences with public-sector companies like PEMEX

competitive,” says Arredondo. “For example, when we were

and CFE have been largely negative. “Our target has

outsourcing the renting of equipment, our costs went up by

always been the private sector, which includes industrial

10 percent so we set up our own equipment rental company

parks and related maintenance services,” he says.

to cut this expense.” Right now, ARTRON buys epoxy from

“Public sector companies are extremely vulnerable to

Chicago, which is expensive so it is looking to set up the

governmental changes.”

facility in Aguascalientes as a way to reduce this cost.

He says ARTRON’s quality is what sets it apart from its

So far, ARTRON has financed its expansions through its own

competitors. “We have to knock on all doors and attract

funds and Arredondo does not want this to change in the

the attention of construction companies to show them

future. “We hope to keep growing with our own capital,”

that we are better than their regular providers,” he says.

he explains. “So far, we have not had to look for investors,

Although ARTRON’s services may come at a higher cost,

although several have offered to buy in. All the projects we

the company guarantees its service for a fixed period of

have planned for the next five years will be financed with

time, meaning if something fails or is not suitable, it will

our own funds.”

195

ROUNDTABLE

HOW WILL NAFTA RENEGOTIATIONS IMPACT THE INFRASTRUCTURE INDUSTRY?

US goods and services trade with Mexico totaled an estimated US$579.7 billion in 2016. But with the inauguration of Donald Trump as US president in 2017, the Mexican industrial sector looked ahead with uncertainty given the new president’s promises to renegotiate NAFTA. Mexico’s manufacturing boom seemed to be under threat, and sharing the concerns of this sector was the industrial real estate industry, the growth of which depends largely on manufacturing facilities. Mexico Infrastructure & Sustainability Review asked key actors in US-Mexico logistics about the implications of the renegotiation and their outlook for a new trade deal.

Some companies coming to Nuevo Laredo have placed approved projects on

196

standby while the talks take place. They are waiting for the new rules to be announced, which is understandable as they are thinking about their costs and how their operations could be affected by changes in the content of the treaty. But the market’s progress continues. I think these negotiations stimulated the market instead of harming it. Many European and Asian companies continue to

JAVIER SOLÍS Ministry of Economic Development for the city of Nuevo Laredo

be interested in investing in Mexico. With or without a wall, we continue working. With or without NAFTA, international trade will remain. If the US decides to pull out of NAFTA, all the WTO agreements would enter into force and the US would be harmed the most.

Existing companies with a history in Mexico have not been materially impacted by the new administration, especially in the last month or two when the rhetoric around the US-Mexico relations has been less of a focus. The first gauge of impact in any emerging market is in currency fluctuations, whereas in the investment community, the impact is not felt to the same degree. Obviously, we realize these fluctuations can affect our business, but in the long term, we remain positive about the outlook

ALFONSO MUNK Managing Director, Americas Chief Investment Officer of PGIM Real Estate

for Mexico. We have over 400 tenants leasing our buildings in Mexico and none have given us any indication that they plan to leave. Existing occupiers are extremely keen on Mexico, but we have noticed that companies who were considering expanding to Mexico are pausing their plans. This creates opportunities for us to potentially find investment targets at more attractive pricing.

In the retail market, there is still a great deal of space to grow in terms of GLA per capita, to introduce better products, more connectivity, and more specialization. We are also seeing a huge opportunity in the residential sector due to these demographic trends, so in result this is our second priority. Between 700,000 and 1 million new homes are being created each year and, especially because of the difficulties the sector has experienced there is still a lot of opportunity for capital

DIEGO DE LA MORA Vice President and Mexico Head of Barnhart Asset Management

deployment there. The other sector we are looking at is the industrial sector due to the country’s potential for growth in manufacturing and distribution centers, despite speculation over NAFTA renegotiations which have taken a more dovish turn since Trump’s inauguration.

Much of the new president’s rhetoric during the campaign process revolved around Mexico, with pledges including the renegotiation of – or an end to the US’ participation in – the NAFTA treaty. In the days immediately preceding the residential inauguration in January, the Mexican peso reached a record low of almost MX$22 against the dollar. But this is not a fair reflection on how the US-Mexico relationship will unfold. In the months following the election we have already witnessed the checks and balances in the US working as they should, which has restored a lot of investor confidence in Mexico. Both the judiciary and Congress have stepped in to

JUAN TORRES LANDA Partner at Hogan Lovells Mexico

curb some of the US president’s more controversial policies from becoming law, and as of late June 2017, the Mexican peso regained some strength, reaching highs around MX$18 to the dollar.

Mexico has become an increasingly sophisticated industrial real estate market

197

where developers are constantly differentiating themselves and competition goes beyond fighting price wars. NAFTA renegotiations will affect the market for industrial parks but I do not think we should lose sleep over it. Industrial developers owe ourselves to our tenants but our tenants owe themselves to their customers. I would say that industrial properties in Mexico are much better off than in the US. Mexico has incredible trade routes, state-of-the-art parks, highquality construction, great labor and top-quality executives while still having plenty of room for growth. The US industrial real estate market has not changed

BENJAMÍN MIZRAHI Director General of Construye Industrial

in 20 years while Mexico has progressed a great deal.

Our lessees are lobbying in the US for an appropriate renegotiation of NAFTA but are convinced that maquila operations will continue in Mexico because these practices are now an integral part of the country’s economy. Furthermore, ending these manufacturing practices would impact the US the most as over 80 percent of the components manufactured by our lessees require raw materials from the US. Limiting these companies would hurt their counterparts north of the border. In my opinion, it is impossible for companies operating in Mexico to move their manufacturing back to the US due to prohibitive costs. While NAFTA is not a minor problem, it not

ALBERTO CHRETIN Director General of Terrafina

will impact the sector as badly as some fear because the US government wants to increase its exports. A shaky relationship with the US, on the other hand, did impact the generation of new deals but even that impact was limited.

Since NAFTA is arguably the most important trade agreement Mexico holds, questions surrounded the future of US-Mexico trade and the markets became nervous. In January 2017, the value of the peso fell to MX$22 to the dollar and GDP was revised downward. Having said that, it now seems that the rhetoric and tone of the US government has improved. In that sense, for Mexico, there has been a partial recovery in confidence levels. The exchange rate has rebounded by almost 20 percent, trading at MX$18 to the dollar as of June 2017 and in addition there are now talks about opening up the NAFTA agreement to try to modernize it with a mutually beneficial arrangement. Now, the financial markets are much more stable and there is a new forecast for the Mexican economy.

LUIS GUTIÉRREZ Director General of Fibra Prologis

Torre Manacar, Mexico City

COMMERCIAL REAL ESTATE

Mexico’s commercial real estate boom helped boost the economy throughout 2016, but 2017 is sure to test its strength and endurance. Mexico City, once the country’s leader for office spaces, is now experiencing its lowest occupancy rates in the last 10 years. With many of the industry’s transactions carried out in US dollars, and with several interest rate hikes that pushed the central bank’s key rate to 7 percent in June 2017, the economic environment might place some pressure on the now-thriving sector. To guarantee sustainable growth, developers and the public sector must work together to foster urban development.

In this scenario, standalone projects appear outdated, and mixed-use developments are attracting the attention of many firms, as they reduce risk by combining shopping malls, offices and residential buildings in one place. Customers seek an enhanced experience that brings all these components together, thus their huge success. But, if not planned correctly, these could end up forming economic islands within cities. Finding the right place for every development is also a big challenge, including the intricate process of obtaining all the legal licenses and permits. To produce an accurate insight into the sector, this chapter provides an inside look at the segment through the eyes of the country’s most successful and innovative developers.

199

CHAPTER 8: COMMERCIAL REAL ESTATE 202

ANALYSIS: Developers Vs Neighbors: The Rising Importance of Social Impact Studies

204

VIEW FROM THE TOP: Gonzalo Robina, FUNO and AMEFIBRA

206

VIEW FROM THE TOP: Javier Sordo Madaleno de Haro, Grupo Sordo Madaleno

208

VIEW FROM THE TOP: Juan Bernardo García, Baker McKenzie

209

VIEW FROM THE TOP: Lyman Daniels, CBRE

210

VIEW FROM THE TOP: Elías Camhaji, ZKC

211

INSIGHT: Fernando Gutiérrez, Gaya

212

VIEW FROM THE TOP: Enrique Villanueva, Pulso Inmobiliario

214

VIEW FROM THE TOP: Israel Fortis, GreenBlue

215

VIEW FROM THE TOP: Eduardo Güemez, MRP

216

INSIGHT: Rodrigo Assam, GICSA

217

VIEW FROM THE TOP: Vicente Naves, Grupo Frel

218

VIEW FROM THE TOP: Jimmy Arakanji, Thor Urbana

219

VIEW FROM THE TOP: Jorge Ávalos, Fibra Mty

220

INSIGHT: Marco Garza, GM Capital

223

PROJECT SPOTLIGHT: Distrito Armida to Breathe New Life into Monterrey

224

VIEW FROM THE TOP: Victor Lachica, Cushman & Wakefield

225

VIEW FROM THE TOP: Pedro Azcué, JLL Mexico and JLL Latin America

226

INSIGHT: Rafael Villamar, Sánchez Devanny

227

INSIGHT: Eugenio González, Altea Desarrollos

228

VIEW FROM THE TOP: Elliott Bross, Planigrupo

229

VIEW FROM THE TOP: James Delano, ATCO Mexico

231

TECHNOLOGY SPOTLIGHT: Imperquimia Takes the Heat Out of Fire Hazards

232

ROUNDTABLE: How are Mixed-Use Developments Influencing the Infrastructure Industry?

201

ANALYSIS

DEVELOPERS VS NEIGHBORS: THE RISING IMPORTANCE OF SOCIAL IMPACT STUDIES Inflation, attracting tenants and land scarcity are common challenges commercial developers face when building new shopping malls in Mexico, but recently their headaches are coming from a difference source: neighboring committees.

202

The Energy Reform heightened the importance of the

THE TROUBLE WITH MALLS

environmental and social impact that infrastructure

In most cases, the determining factor for the success of any

development has on it surroundings. With the

type of commercial development is location, location, location.

Hydrocarbon Law and Electric Industry Law, the

As cities expand, land becomes scarcer and developers must

elaboration of Social Impact (EIS) and Environmental

collect their parcels over the course of several years to have

Impact Evaluations (EIE) was made mandatory in all

a plot large enough for development. For Grupo Sordo

energy projects. The law empowered citizens to take

Madaleno’s (GSM) Reforma Colón, it took the company three

charge on what is built and how it is constructed in their

years to fuse together 27 different properties totaling more

surroundings and forced the industry to place more

than 45,000m2 in Mexico City’s historic downtown and this

emphasis on not just how to be technically sustainable,

problem will only continue to grow.

but also financially, socially and environmentally. This has now spread to all types of infrastructure development

Land use regulations in cities have also become stricter

and communities are coming together to ensure that

due to high densities. To maintain control of urban sprawls,

constructions are for the good of everybody.

the Ministry of Urban Development and Housing (SEDUVI) developed various processes for companies wishing

By 2050, INEGI expects that 90 percent of the Mexican

to develop real estate projects. One of those processes

population will be living in cities. There will be a greater

demands commercial developers carry out Urban Impact

scarcity of land as the years go by, and it will be more

Evaluations for projects that exceed 5,000m2 and a second

expensive for developers to acquire. ICSC estimates that

evaluation must be done if the project is expanded over

by 2025 Mexico will have more than 107 million people

another 5,000m2. But changes in the Mexico City Human

living in urban areas, approximately 760 shopping centers

Settlements Law, Housing Law and new permits and licenses

and 23.3 million m 2 GLA leading to a ratio of 22m 2 of

have caused developers many headaches in 2017. “Permits

commercial space per 100 habitants. Although the

are the most difficult aspect of creating a new commercial

growing middle class and stable economy continues to

real estate development,” says Eduardo Güemez, CFO Of

demand more commercial space, land scarcity in these

Mexico Retail Properties (MRP).

urban areas is challenging the creativity of developers. Regardless of the type of real estate development being constructed, from malls to offices, developers must have all the necessary permits before breaking ground. In 2017,

PATIO TLALPAN

Chapultepec Uno, one of Reforma’s newest skyscrapers experienced a temporary decommissioning implemented

Patio Tlalpan is a power center located in Insurgentes

by authorities, and even though it only lasted 48 hours

Sur 4177, near the freeway to Cuernavaca. This mall

it still implies extra costs to the developers. “The closure

will have more than 38,583 m2 GLA, 65 commercial

was caused by a neighbor with enough influence to cause

spaces and is expected to have an area of influence

problems,” says Francisco Martín del Campo, Founder

of 309km2. The closest shopping centers total area

and Director General of Arquitectoma. “Normally, the

are Perisur and Galerias Coapa located 3km and 9km

authorities give a warning at least a week before closing

away, respectively. The project was expected to be

a project but in this case, it was carried out without the

completed by 2Q17 but due to various issues with

proper justification. Authorities often listen to influential

the surrounding communities, it has been pushed

people but projects can protect themselves by making

back to 4Q17. In a 500m radius around Patio Tlalpan

sure they are following all regulation and norms.”

there are more than 7,867 people, 2,630 homes and 252 businesses. The developer, MRP experienced

JUMPING THROUGH LEGAL HOOPS

many setbacks due to inconformity of neighbors

According to Güemez, the situation is often exacerbated

and the new government.

by lack of clarity regarding the role of the developer.

“In Mexico City, given its size and density, the permits required by the government must play a big role,” he

ARTZ PEDREGAL

says. “But unfortunately, developers are often faced with pressure and obligations that are not legally well-defined.” Before MRP purchased the terrain for its Patio Tlalpan

Artz is designed to be the heart of the south and

project, it was the first psychiatric hospital in Mexico,

the new Antara. This 50,500m 2 mixed-use project

the San Rafael Clinic, which holds historical value to the

is located in the heart of one of Mexico’s most

community. There was debate about whether developers

expensive housing areas in the south of Mexico,

should be allowed to construct there. With INAH or

Pedregal. Its dream-like location has access to

INBA involved, there were inevitable delays due to the

Periferico, surrounded by hundreds of potential

intricacies of developing on or near a historical landmark.

customers and passersby. It is located only 4km

On top of the various land and construction permits that

away from Perisur which is one of the most popular

developers have to have to build a commercial center.

and oldest malls in the south. In its 500m2 radius, it will impact more than 4,329 people, 1,449 homes,

Another issue developers face is the continuity across

and 212 businesses. For Grupo Sordo Madaleno,

different levels of government, that can often impose

the main challenge that it encountered was the

different requirements. “Having to make agreements

reception of the surrounding neighborhoods in

with different municipalities or government agencies can

terms of mobility and lack of infrastructure.

increase uncertainty in the project,” says Güemez. “If a developer has the right permits and is respecting the use of the land stated by the government, developments should

their house,” says Güemez. “It is important to consult

be respected.” Transparency plays a key role in ensuring

with neighbors and have as many people on board as

that the land is being used in the most efficient way

possible but these types of things could also open doors

possible to benefit the communities. These blurred lines

to excessive demands from the community.”

create room for interpretation and misconception, which is why it is important to improve license and permit processes. A common concern of neighborhoods is that the mega developments will monopolize the energy and water supply, withholding it from the residential areas. This was the case with GSM’s Artz project in the south of Mexico City. “Artz is a project that by nature transformed it into a controversial topic, not for what it represents but

ICSC estimates that by 2025 Mexico will have more than 107 million people living in urban areas and approximately 760 shopping centers

because of where it is located and because sometimes people are not well-informed about a project,” says

GOVERNMENT TAKING ACTION

Director of Architecture, Javier Sordo Madaleno de

But in the midst of the uncertainty, the government is

Haro. GSM invested more than MX$200 million (US$11

stepping in. Laboratorio para la Ciudad is an experimental

million) on public infrastructure around the commercial

division of the Government of Mexico City. The laboratory

development, including installing U-turns, bypasses

is a space where global specialists pose new ways of

and tunnels to ensure to the community that mobility

approaching issues relevant to the city, incubate pilot

would not be a problem. For Artz, GSM also allocated

projects and promote multidisciplinary meetings around

50 percent of the rentable space, which was more than

civic innovation and urban creativity. Through the

20,000m2, to green areas for the community.

Laboratorio, the Mexico City government has already carried out some interesting projects to bridge the gap

For both the Artz and Patio Tlalpan projects, the main

between developers and citizens. “The Cooperative Action

fear from neighbors was that it would add to the mobility

System (SAC) is a program in which a percentage of the

problems the delegations already experience. This is the

funds developers invest in the city are used for projects

most common worry whenever there is a new shopping

that benefit the surrounding communities,” explains

center because more people will be attracted to the

Gabriella Gómez-Mont, the Laboratory’s Director General.

area. This is why developers must adapt the surrounding

“There have also been public consultations regarding

infrastructure the best they can to ensure that the mall

the use of these funds, meaning the communities have

does not add to the problem. “The problems that arise

an input into the use of the money. Government, local

with neighborhoods is that everybody wants to have

communities and companies invested in the area can sit

a supermarket nearby but nobody wants it next to

side by side and make the decisions.”

203

VIEW FROM THE TOP

EXPANDING SOUTH TO MEET UNDERSERVED DEMAND GONZALO ROBINA Co-CEO of Fibra Uno (FUNO) and President of the Mexican Fibras Association (AMEFIBRA)

Q: What challenges have Fibras faced in 2017 and what

instruments. So far, the regulation remains as it is but some

has been done to overcome them?

points have been clarified and made more flexible.

A: This has been a challenging year, mainly due to three 204

macroeconomic factors: the increase in interest rates,

Q: How are Fibras changing in Mexico, compared to

the elevated US dollar-Mexican peso exchange rate and

similar financial mechanisms abroad?

higher inflation. Also, international investors withdrawing

A: US instruments date from the early 1970s, and like

from emerging markets due to perceived speculation

in Mexico, were originally diversified in several sectors.

produced a surplus of Fibra certificates, which lowered

The US instruments are specialized at the moment, which

their price.

I believe sets the trend for Mexico, as we have Fibras, such as Terrafina and Prologis, which are specifically

The restored confidence in emerging markets is an

designed for one industry. In the long term, instead of

opportunity, given the existing liquidity in international

one large, diversified Fibra, I think we will have different

markets. Portfolio managers are returning to emerging

small ones for specific sectors.Â FUNO has not done

markets. Fibras are appealing in this scenario because

this so far because we believe that our business is more

we are trading under the net value of our assets. For

profitable using the current strategy but as soon as we

example, if a company buys shares of FUNO at the

find specialization more advantageous, we will move

moment, it basically purchases real estate assets at a 25

toward it. The size of our company allows us to divide

percent discount.

into smaller Fibras that can thrive independently.

Regulations bind Fibras to invest at least 70% of their assets in real estate for rent, and 30% in other financial instruments

Q: What is the importance of the investment made by Afores in Fibras? A: Most Fibras have been anchored to an Afore, which for us represents the patrimonial investment of Mexican citizens. Afores, in return, find Fibras as a very useful vehicle to ensure their assets are invested in a very solid sector, with high capital returns, especially given that they often have the resources but lack a solid long-term

Q: What is your view of the regulatory changes recently

investment opportunity.

made to Fibras in Mexico? A: There have been several positive changes, characterized

Q: What do Fibras need to do to remain a competitive

by theÂ goodwillÂ of the governing institutions, that have

investment option for Afores given an open international

facilitated improvement. We have developed a recurring

market?

issuer program, which involves authorization for a

A: Since their creation, Fibras have been regulated by

certain volume of certificates, without them having to

two articles of the ISR Law. One says that their main

be processed at once, but gradually as a total allowance,

goal is to promote real estate investment in Mexico. It

providing greater market flexibility.

does not forbid investment abroad, but the incentive is to develop the national industry. Afores can buy shares of

Whether or not Fibras will be able to invest in projects with

any company but Fibras are mostly committed to Mexico,

returns obtained from sources other than leasing has been

regardless of whether or not it is possible to invest

an extensively discussed issue. At the moment, regulations

internationally. FUNO is committed to promoting the

bind Fibras to invest at least 70 percent of their assets

development of the industry in Mexico, and our capital

in real estate for rent, and 30 percent in other financial

will stay in the country.

205

Cuidad Mitikah, Mexico City, Fibra Uno

Q: What are your expectations for the Mitikah project?

A: Regarding other opportunities across different sectors,

A: Real estate projects have been focused mainly in

FUNO has a strong foothold in university projects. We

Polanco and Santa Fe, and the southern part of the

lease to the university operator, with the ultimate goal

city has been largely neglected.Â To address a real need,

of fostering educational development. We also have the

we are practically building a city, which will be FUNOâ&#x20AC;&#x2122;s

Puerta de Hierro Hospital in Guadalajara, which is externally

and the Helios CKDâ&#x20AC;&#x2122;s legacy. Mitikah has developed and

operated by the renter. To my knowledge, there are no

applied an integrated process involving the community,

plans yet to create a Fibra specifically for hospitals, but it is

the authorities and the neighbors. We take care to add

unquestionably a sector in which Fibras are growing rapidly.

value to the community, which is an approach that has taken a lot time and resources, but that we are glad to

I think 2018 will be a complicated year. There is a lot

have implemented.

of global tension rooted in international conflicts. Also, the elections in Mexico will increase speculation. But

The first few years were devoted to permits, licenses and

Fibra investments are planned for the long term, about

infrastructure matters, among other factors. Today, we are

20 to 50 years, so the possible volatility of the next

building about 4,000m2 to 5,000m2 of structure weekly,

year is something we are prepared for. Often, in these

and we also have made great progress in the foundations.

uncertain scenarios, the best opportunities arise. We

The first office building is already constructed up to the

must be prepared and maintain a certain liquidity to take

10th level. Regarding the retail component, we have pre-

advantage of them. In Fibra Uno we are convinced that

leased 50 percent of the area. For the residential tower,

Mexico is a very attractive place to continue investing. We

even though it is expected to be delivered in full by 2020,

will continue focused on generating the maximum amount

the sales have shown that it is already a huge success,

of value over time and building a world class real estate

which I believe is due to Mitikah being a unique and high-

company with the best property portfolio in Mexico.

quality project. We are entering an excellent market in a mature area with a good socioeconomic balance. Fibra Uno (FUNO) is the first and largest Fibra in Mexico.

Q: What are your expectations for Fibras in 2018,

FUNO focuses on generating sustainable value for investors

especially regarding the possibility of Fibras investing

through the operation, acquisition, sale, and development of

in sectors other than infrastructure?

real estate for commercial use

VIEW FROM THE TOP

PUSHING THE BOUNDARIES OF MEXICO CITY’S MIXED-USE DEVELOPMENTS JAVIER SORDO MADALENO DE HARO Architecture Director of Grupo Sordo Madaleno

206

Q: What types of projects does GSM want to develop in the

transparent. For Artz, we decided to allocate 50 percent of the

Mexican real-estate market and what challenges does it face?

profitable space, which totaled more than 20,000m2, to green

A: As time passes, GSM is concentrating its efforts more and

areas for the community. We have invested a great amount of

more on mixed-use developments. It is clear that standalone

money to develop supporting and public infrastructure around

projects, whether commercial or office developments, are not

our projects to increase quality of life.

working well in the market anymore. Consumers are looking for the experience created when all these components are

Q: What differentiates Artz from other commercial

brought together, which are what makes a project successful

developments in the south of Mexico City?

today. GSM combines housing, tourism, commercial, corporate

A: Artz Pedregal is a mixed-use project that will be like no

and cultural developments into one and that is where we see

other in Mexico. We are integrating luxury boutiques such

the biggest opportunity in the market.

as Louis Vuitton, Gucci and other luxury brands that could previously only be found in Palacio de Hierro. There will

Finding the perfect location is definitely one of the most

also be a cultural element integrated into the mall and four

difficult elements when constructing in urban settings. There

corporate towers. We believe that this will be the future of

are few AAA lots available but once the land is acquired the

malls. All these new elements that we are integrating will

next step is getting all the permits, land use and licenses in

surprise the market and it will be a pioneer in architecture,

order. This is a tedious and intricate process that involves

tenant mix and urbanization. We believe it will surpass the

many government agencies and can take up to two years

success Antara enjoyed when it was first developed in 2006.

but you must do it right. Q: How will Reforma Colón transform Mexico City’s Q: How is GSM integrating the Artz mall development into a

downtown area?

residential area as complex as Pedregal?

A: Reforma Colón is our largest and most complex project

A: Artz is a project that because of its nature became a

at the moment but it will have a tremendous impact on the

controversial topic, not for what it represents but because

urban development of the city. This project will regenerate

of where it is located and because sometimes people are not

downtown Mexico City, paving the way for similar projects

well-informed about a project. One of the biggest challenges

not only in Mexico but in all of Latin America. For the past

we faced was integrating it into the mobility system of the

three years, we have been working hard to fuse together 27

Periferico highway. We are investing more than MX$200

properties totaling more than 45,000m2, which is a close-to-

million (US$11 million) in public infrastructure around the

impossible task in Mexico’s saturated city center. We have

commercial development, including installing U-turns,

the opportunity to truly transform this part of Mexico City

bypasses and tunnels.

and bring it back to life. Concentrating cities in their center is more efficient in terms of investment and infrastructure,

We want to create projects that truly boost the quality of life

while creating microcities within the city makes for much more

of their surrounding areas. We always invest large amounts of

efficient use of space.

money in additional infrastructure that improves mobility and flow of traffic in the area. Apart from road infrastructure, we

Q: How is GSM able to fund multiple large projects that

also invest in the improvement and construction of the area’s

demand heavy investment?

entire water infrastructure system. Artz Pedregal will bring to

A: At GSM we are independent developers but at Sordo

life the southern area of Mexico City that had been forgotten

Madaleno Arquitectos (SMA) we also work as third-party

for many years in terms of new commercial and mixed-use

architects with other developers, such as Fibra Danhos and

real-estate developments. I think it is important that both

Fibra Uno, on projects such as Parque Toreo and Midtown

the developers and communities ensure communication is

Jalisco. Most of the projects that form part of GSM’s portfolio

Reforma Colón, Mexico City, Grupo Sordo Madaleno

207

are privately funded. We have our own private fund with

will raise the value of the surrounding 400ha drastically

some participation from international funds, but we prefer

and there will be updates in land use and even housing. I

to have control of most of the properties. We have had

dare say that in maybe 10 years, Mexico City’s center will

the opportunity to create a Fibra but our business model

be a completely different place.

is based on private equity. In 2016, GSM developed nine different projects, requiring larger amounts of capital. We

Q: What are the main factors that will continue to push the

are looking into the possibility of perhaps issuing a different

development of commercial real estate in Mexico?

financial instrument.

A: Location will always be one of the top factors in any realestate development. There are many developers that are

Q: Which cities have caught GSM’s eye for new developments

taking the initiative to create projects outside of cities due

in 2017-2018?

to the lack of land availability. The inertia driving the sector

A: We have worked in many cities across the country. A city

can at times cause developers to make the wrong decision

we believe has great potential is Leon, Guanajuato and we are

in order to simply place their money in a project. They go to

about to start constructing a mixed project (commercial and

areas that are sparsely populated when we should instead be

corporate) there. It is a city that has significant growth and

patient and wait for opportunities that are worthwhile.

has an attractive macroeconomic environment. Guadalajara is also a good market but has become slightly saturated in

E-commerce is a threat but I would not say that traditional

terms of commercial development. In 2017, we are designing

commerce will disappear. We just have to evolve with it.

five office towers as a third party. Although the market has an

Amazon is growing drastically but it is now also opening its

absorption rate of 30,000-40,000m2, more than 100,000m2

own physical stores. Companies have to adapt to changing

are currently under construction. Guadalajara is likely to start

trends and to the habits of the new generations, which is why

experiencing the challenge that Mexico City is dealing with

our shopping centers are now streets and cultural centers. We

regarding a surplus of offices.

do not want people to feel like they are entering a contained and traditional shopping mall when they enter Reforma

To ensure the wellbeing of the communities, we set

Colón or Artz. Another project that we will be developing is

in motion a System of Action by Cooperation, which

the Estado Azul in Napoles, which will become the Artz of

demonstrates the responsibility that we have as

Insurgentes Sur. In the future, the demands for outlets will

developers. This system is funded 100 percent by GSM

grow even more. We are working with Simon Property Group

and its purpose is to provide proper urban planning

of the US to create fashion outlets with the experience that

for the project’s surrounding areas, such as the Juarez

consumers want. We have ongoing projects in Guadalajara,

neighborhood. This will promote the development of more

the south of Mexico City, Cancun and Queretaro.

efficient transport, bike lanes and social infrastructure because all the money that we donate will be injected back into these 400ha. Reforma Colón represents a

Grupo Sordo Madaleno is a leading real estate development

very large investment in road infrastructure planning

company and architectural firm that specializes in luxury

and improvement to ensure that there are no mobility

commercial centers and mixed-use projects. Its newest

problems through Insurgentes and Reforma. This project

projects include Reforma Colón and Artz Pedregal

VIEW FROM THE TOP

ADAPTING THE LAW TO MIXED-USE TREND JUAN BERNARDO GARCĂ?A Lead Partner at Baker McKenzie

208

Q: How has the development of mixed-use real estate

A: There is a very real danger that these projects can be

progressed in Mexico?

halted. The environmental impact these types of projects

A: The prevalence of mixed-use real estate has increased

may have could be significant because the construction

dramatically. Ten years ago, there were few mixed-use

of greenfield projects typically generates high levels of

projects outside of Mexico City, but then they started

environmental impact to local flora and fauna, as well as

cropping up in places like Monterrey and Guadalajara. From

to neighboring properties. In a brownfield project, other

a legal perspective, the mixed-use buildings arrived before

risks crop up, such as preexisting environmental conditions,

the law was adapted to them in many cities. This means there

civil protection issues in case the demolition of the existing

was no legal structure in place, until recently. For many years,

buildings affects nearby infrastructure. In this way, the

lawyers had to adapt contracts to complement all the details

closing down of projects is a real danger that developers

that were not legally defined in the letter of the law. Now that

face. The equivalent to class action lawsuits are now allowed

the laws of many major cities have been updated, projects

under Mexican law in certain scenarios and, although they

can be carried out easily and with more legal certainty.

are uncommon at the moment, they may begin to increase in prevalence in the face of these large developments if not

Q: Now that the regulatory framework exists, what is the

accepted by the neighboring property owners.

main concern for developers? A: The first headache for developers is the zoning rules,

Q: What is your outlook for the real estate industry in 2018?

especially when several properties must be combined to

A: In mixed use, I think the industry should be optimistic. In

create a single project. In certain cases, the law treats the use

most major cities, the price of land is skyrocketing so mixed-

of land as separate parcels, but in certain cases it can be mixed

use buildings are the response to that. People do not want

or averaged. Of course, the utilization coefficient is another

to live hours from their offices, which pushes them to buy a

factor that must be carefully considered by developers.

unit in a mixed-use property. This allows more people to live in the heart of the city and, due to demand, this is something

In certain states, the law does not recognize a building

that will not change. The trend is good for both developers

that combines residential, commercial and retail. There are

and consumers because it offers a better quality of life.

certain requirements for each property type and when they are all combined, there are issues regarding project pricing.

The newly enacted federal Urban Development Law

Retail, for example, needs to have more parking spaces

provides that municipalities have to be more open as to

than residential developments so developers then need to

the zoning, maximum height, parking spaces, and mixed-

separate common areas and allocate a certain number to

use projects in a broader range of locations. I predict a

the residential portion and a larger portion to retail.

lot of litigation and amparos as a result of this change. But the fact that the federal government has acted this

Q: To what extent is there a danger that large scale

way means that it is responding to this new trend and the

mixed use projects surrounded by residential areas can

need for better developed space in urban settings. Now

be stopped for environmental, social and administrative

municipalities will have to adapt to that.

considerations? The challenge will be to harmonize the civil law, which regulates title and construction contracting, with Baker McKenzie is one of the worldâ&#x20AC;&#x2122;s best-known and most

administrative law, which regulates zoning and construction

respected law firms, representing more than 90 percent of

from an administrative perspective, and with environmental

Fortune 500 companies in jurisdictions around the world. It

law, which regulates the impact of these projects in nature

has more than 850 lawyers in Latin America

and communities.

VIEW FROM THE TOP

EVOLVING ALONGSIDE THE REAL ESTATE MARKET LYMAN DANIELS President of CBRE

Q: Which of your services are in the highest demand?

problem with supply or demand, although the supply side will

A: Services that directly support institutional investors

see a bigger surplus over the next few years as the demand

see the greatest demand. Mexico has changed from a real

side catches up to the new developments that are appearing.

estate industry based on private parties owning real estate;

Excluding any unforeseen circumstances, I do not predict that

there is now an exponentially greater number of Fibras and

demand will drop significantly over the next few years.

funds in this segmet. A public institution that owns real estate needs to be transparent, which is a requirement of

Q: What impact are millennials having on market trends?

shareholders. There can be no question as to the validity

A: Any company or professional that is ignoring or overlooking

of the information provided to these stakeholders so

millennials is being myopic because this generation will

the services we provide, such as validation of assets and

change the way we work. We tend to group technology and

facility property management, are a huge benefit for these

new forms of communication with millennials and this creates

institutions because it provides them transparency with their

a new approach to work. In our offices in Mexico City, we have

clients, tenants and investors. This is a trend that I believe

taken this into account. I have no assigned office or desk and

will continue to gain traction in real estate.

when I come to the office in the morning, I take my computer from a locker, log into a telephone at any desk in the office

Q: What are the biggest geographical trends for investors?

and work there. Technology and, by extension, millennials

A: This depends on the investment. Almost 90 percent of

are changing the workplace and we are also adopting this

overall institutional investment-grade office real estate is

approach with our clients. We are showing them innovative

located in Mexico City. But industrial real estate is spread

ways to work, using a higher degree of technology, which

across the country. In the past five years, industrial has

can offer higher returns. The people who are most closed off

boomed in the Bajio region, supported by the automotive

to embracing this are those who are furthest from this age

industry. There has been a lot of concern about the

group. But a company that understands how to think young

automotive industry in Mexico due to the political situation

will be able to adapt, whereas those that are less flexible will

in the US and the renegotiation of NAFTA. Although I think

take a little longer to get there.

there may be some impact, I am also skeptical about the extent to which this will impact Mexico. OEMs have spent

Q: What other commercial trends have you identified in

billions of dollars to build plants and infrastructure in the

the office market?

country and that is the kind of investment they cannot just

A: We have seen a surge in multiuse developments that

abandon. The industry will continue to have a presence but

incorporate not only office space but also a retail component

it will adjust to the current climate.

or a residential component. This is because people would rather eliminate time spent in traffic and this is only

Q: What are tenants looking for and what constitutes a better

intensified in a city that is as congested as Mexico City. These

product?

are more difficult to develop but if they are done correctly,

A: A big factor is location but not every location is adequate

they become iconic. This means that they become the center

for a given user. A financial institution in Mexico City should

of a community rather than just another office building or

be located on Reforma, whereas a law firm would prefer an

mall. The Soumaya museum is an example of this.

area that is more central to clients, like Lomas. Many corporate users also have their own building in Santa Fe. Those are all promising markets but each one has its own individual

CBRE is the global leader in consulting, commercial and real

characteristics that will drive that individual segment. We will

estate services. It strives to create thorough, accurate and

see more buildings for rent because many developers are

precise information on conditions and trends in the real estate

simultaneously racing to satisfy this huge demand. There is no

industry anywhere in the world

209

VIEW FROM THE TOP

FINANCE FACTORS IN REAL ESTATE DEVELOPMENT ELĂ?AS CAMHAJI Co-Managing Partner at ZKC

210

Q: Why did ZKC decide to focus on Mexico Cityâ&#x20AC;&#x2122;s commercial

percent. Developers must be careful because financing

market?

will become more expensive, as will the various financial

A: We have been in the market for 15 years and we have

instruments available for real estate. Mortgages have not been

worked on all types of developments, from tourism and retail

impacted thanks to the banks absorbing those hikes so far

to housing and mixed use. Since 2009, we have focused mainly

but ultimately, they will have to be passed on to the end user.

in Mexico City and something that we have learned is that real estate in Mexico is a local game. The more local markets you

Q: What are the real estate trends developers will follow in

know, the greater the competitive advantage you have. We

the coming years?

used to invest in secondary cities and tourism areas, where

A: We continue seeing a solid real estate segment and

some projects were successful and some were not, especially

with many flagship projects being developed. The trends

during the recession in the US. Tourism investments may enjoy

shaping the industry are verticalization, urbanization and

high returns but they are also the most volatile, especially

mixed use, as well as an increase in quality and square

when the economy slows down or there is a crisis. The

meters of new developments. There are some subsectors

commercial subsector presents an interesting challenge. The

that are doing better than others. There is an excess supply

average national GLA remains low in comparison to not only

of office space in Mexico with more than 3 million m2 under

the North American average, but also to that in Latin America.

construction. The demand has been solid but it may begin

This means that there are many opportunities to grow but the

to deaccelerate as a response to a more cautious private

cost of land is extremely high and building only commercial

and public sector. It is a subsector where companies must

developments is no longer viable. Mixed-use developments

be careful and be aware that the most highly leveraged

have become more popular as developers seek to get the

projects will be more challenging to complete. Once lease

highest returns from the land acquired. An increase in land

prices stabilize, it will continue being attractive thanks to

and commodity prices, along with the depreciation of the

the growing demographics that are driving demand. Bank

peso, has greatly impacted the overall price of construction.

loans and debt issuance will become more expensive in the next year. Companies will have to accept debt with higher

Q: What are the main factors that will determine the

rates. The decrease in VAT return application rates that

performance of Mexicoâ&#x20AC;&#x2122;s real estate sector?

prevailed in the last few years is no longer sustainable, so

A: This year, there will be two main factors that will impact the

VAT return applications will probably rise. There will also

Mexican real estate industry. One factor is the US presidential

likely be an increase in capitalization rates, which may force

election, which has created a great deal of volatility in the

some subsectors to reach double digits.

market and overall uncertainty in the industry. This caused, at least temporarily, a decrease in investment and a lower

Q: What types of problems can developers run into when

number of transactions in terms of sales and rents. Secondly,

constructing in urban spaces?

real estate is extremely vulnerable to rising interest rates. In

A: Most developments have a positive impact on their

2017, Banxico raised interest rates four times, taking them

surroundings. They bring diversity in services and space,

from 5.75 percent in December 2016 to 7 percent in June

along with capital gains to existing developments. There

2017. Analysts expect another hike, to end the year on 7.25

have been instances where neighbors try to gain personal benefits from the development of a real estate project, looking for legal mechanisms that could position entire

ZKC is a real estate investment fund focused on the acquisition,

communities against construction. These situations can

development, repositioning and rental of commercial, industrial

increase the level of legal uncertainty in a project. If there is

and mixed-use assets in the most important cities in Mexico. It

indirect or direct damage made to surrounding properties,

has more than 60 properties and over 190,000m2 GLA in Mexico

it is responsibility of the developer to repair the damage.

INSIGHT

THE MILLENNIAL REAL ESTATE CHALLENGE FERNANDO GUTIÉRREZ Director General of Gaya

The year 2017 was a volatile one due to global instability

cycles involved in mixed-use projects. “Each segment –

that created uncertainty in Mexico. But despite the

residential, commercial and office space – has a different

challenges, many continue to believe the Mexican market

financial rhythm and in mixed-use developments all

is full of opportunities that are complex in nature.

components need to work together,” he says. “Investors need to understand the dynamic and multicyclical

“Lack of investor confidence is one of the country’s

financial model involved in mixed-use developments.”

shortcomings but despite this context, the market is attracting investment thanks to the demand for new

In the last 40 years, the industry has been moving away

living opportunities by the expanding millennial market

from vertically structured offices to more horizontal

in Mexico,” says Fernando Gutiérrez, Director General of

and matrix-driven spaces and that change is exciting

preconstruction and construction-stage supervision and

to developers and architects. “In the future, offices will

control company Gaya.

become more open, multifunctional and focused on casual collaboration,” Gutiérrez says, adding that an

According to INEGI’s latest Intercensal Survey, of the 119.5

office space exhibits the theory and philosophy of a

million people living in Mexico, 7 percent are between

company. What was once an optional added value has

the ages of 15 and 29 and 27 percent are younger than

now become a requisite for success. This can also be seen

15. “We expect almost 40 million millennials to enter

in the increasing importance of sustainability, which has

the market in the coming years with needs that differ

become a basic element for any infrastructure project.

from those of previous generations,” says Gutiérrez. With 30 years’ experience in the industry, Gaya is

But Gutiérrez says millennials are pushing the boundaries

familiar with the changing demographics and trends

even further by demanding not only green buildings, but

within infrastructure development. He believes the most

buildings that promote healthy lifestyles for workers.

important thing to understand is that millennials seek

“LEED continues to be important but it is not as relevant

more than just traditional financial models when deciding

as it was, while wellness is increasing in importance,” he

on accommodation. Younger generations prefer to rent

says. “The body produces hormones depending on the

and seek sharing-economy models similar to Uber and

lifestyle, light and temperature it receives. Being inside

AirBnB over purchasing a home.

a building directly impacts our wellbeing depending on the qualities of the environment.”

Gaya foresees growth in the residential, office and commercial markets along with the mixed-use sector

The idea of a Wellness certification will push developers

and wants to understand what mixed use means to

to take these factors into consideration and contribute

millennials rather than imposing the requirements of

to improving the health of the people who live and work

previous generations. “The way people use infrastructure

in these structures. The certification focuses on small

is constantly changing and we must adapt aggressively

details such as the wattage and color of a lightbulb –

to ensure Mexico City is a futuristic and forward-looking

features that can have a massive influence on the body

city,” he says.

and the hormones it releases. But Gutiérrez says the process is not as cumbersome as it seems. “Wellness

Gaya has experience with Miyana and Antara, two

does not imply more expensive buildings but simply a

significant mixed-use projects in Mexico City. But

smarter use of resources,” he says. “Developers do not

Gutiérrez believes that the real challenge lies in

have to carry out lengthy research on the matter as the

adapting legislation to the changing use of land and

Wellness certification authorities have already collected

making sure investors understand the different financial

the information, making it even easier to implement.”

211

VIEW FROM THE TOP

BRINGING MEXICO CITY’S SOUTH BACK TO LIFE ENRIQUE VILLANUEVA Development Director of Pulso Inmobiliario

212

Q: How will mixed-use projects replace traditional

shape of the tower was designed to leave a large open

commercial centers in Mexico?

area in the middle as a plaza to be used by passersby and

A: Commercial shopping centers with the usual three

it will connect to the new roundabout the government is

anchor stores are on the way to extinction. In the US, this

building on Insurgentes.

is already happening and although in Mexico people still prefer them due to security reasons, it will not be long

Q: Why did Pulso Inmobiliario choose Insurgentes Sur as

before these kinds of developments begin disappearing.

the location for Torre Manacar?

Torre Manacar’s commercial center will be smaller but will

A: Apart from the technical and engineering challenges,

provide communities with something different. Stores

the concept of Torre Manacar was a challenge itself. It

and tenants have decided to place their flagships in Torre

will become the “Icon of the South” and we believe that

Manacar. For instance, Sports World will have more than

the Insurgentes Sur corridor, which runs from Viaducto to

3,500m of space, Cinemex has 13 Premium theaters and

UNAM, is a diamond in the rough. At the moment, prices

H&M occupies three floors. The development includes an

in the Reforma, Polanco and Santa Fe neighborhoods of

entire floor of only restaurants for all types of budgets and

Mexico City are extremely high. These neighborhoods also

tastes, which is important for the area. The project has

have many infrastructure and mobility problems. Insurgentes

a mega screen on the third floor that can be seen from

Sur has great potential to bring back corporates into the

all levels in the shopping area, and where we will project

southern part of the city. It has good infrastructure, public

events, adverts, promotions, videos and create a unique

transport, a good mix of land uses and demographics. A

environment in Mexico City. Mexico’s shopping centers will

successful project is not just about having a good space for

turn into lifestyle centers where people go to do more than

offices. It is also about having a blend of social classes so

just shop.

that a mixed-use project can actually make sense.

Our Torre Manacar project was designed by Teodoro

Our first development on Insurgentes Sur, City Center

González de León, one of Mexico’s most prestigious

on Insurgentes Sur, was our pilot project to measure the

architects. He told us that the area in which we are

potential of the area and it was a success. Cisco decided to

constructing Torre Manacar was once called Centro Urbano

move its corporate headquarters there and the remaining

Manacar, one of the first mixed-used projects in the early

spaces were leased before it was fully constructed. To

1960s. It had a tower of offices, a shopping center and a

realize the area’s full potential, we decided to create an even

huge movie theater with a backdrop created by the famous

bigger project. Pulso Inmobiliario wants to create iconic

painter Carlos Mérida, which will now be placed in our office

buildings that are unique to the surroundings. Sustainability

access lobby. The original size of the terrain was 5,030m2

is one of the biggest objectives for all our projects, as well

and we decided to purchase another 3,296m surrounding

as finding ways to exceed the expectations of our investors

the area to make the project larger and be able to develop

and of the future end-users of our developments.

on a complete block with access points from all four streets. With a height of 31 levels and a total land area of 8,328m2,

Q: What challenges did the company encounter during the

this project will bring this historic place back to life. The

construction of Torre Manacar and how does it differ from its previous projects? A: It took us approximately 12 months to excavate 12

Pulso Inmobiliario began operations in 2000 with the goal of

basement-level floors. More than 25,000 cargo trucks filled

developing projects of the highest quality, exclusively in premium

with dirt were used to complete the excavation, which,

locations. Over the last decade, Pulso has developed more than

if they were all lined up, would reach the distance from

350,000m2 of AAA offices and has 300,000m2 in the pipeline

Mexico City to Queretaro. The logistics of this process were

extremely intricate and required the coordination of many teams to ensure its efficiency. Eleven of these floors will

Torre Manacar, Mexico City, Pulso Inmobilario

be dedicated to parking and one to the food court and entertainment. One problem with constructing buildings on Reforma, for example New York Life and Mapfre, is that when excavating around 1.5m, water is typically struck. The terrain is so difficult that it is only possible to construct four to five floors below ground. The further south, the tougher the terrain, which made constructing Torre Manacar a lot easier. However, the process of excavation and cementing the foundations was much more complex. The commercial center is already 100 percent leased and opened to the public in July 2017, with two months still go before the corporate building is actually completed. Our strategy is to rent a large portion of the building to an

213

important corporate tenant and smaller spaces to other companies. Usually those companies that provide services to the corporate rent spaces within the same building. Pulso Inmobiliario also likes to have complete control of the real estate stages â&#x20AC;&#x201C; the negotiation and purchasing of the

in a highly dollarized industry. Investing in real estate is a good

land, permits, project and design management construction,

business because it is a safe investment, it is long-term and

commercialization and operation of the building. We also

yields high returns. Although real estate is risky at first, it is

have our own purchasing department, which allows us to

a noble business and we give work to thousands of Mexican

buy in bulk and to have greater negotiating power when it

families across the development and operation of our projects,

comes to things like elevators, steel, facades and cement.

thereby supporting the Mexican economy and the growth of our country.

Q: How has Pulso Inmobilarioâ&#x20AC;&#x2122;s financial strategy evolved through the years?

We are planning to construct another project in the

A: Banks prefer to provide loans when the developer is about

Insurgentes Sur corridor, which will be much larger than

to finish or has already finished construction, assuming

Manacar and will be a true mixed-use development. We

less risk. For the New York Life building, we first secured

want to continue building better projects that have a strong

a lease contract with New York Life to provide Santander

impact on the communities surrounding it. A common error

the guarantee they needed to give us the loan. Our latest

in Mexico is that projects are designed to meet only current

projects are now funded through three to four partners, which

needs and not the needs of the future. We must anticipate

are family businesses that have been investing with us for

how the city and society will evolve and what the market

years, while 40-60 percent of the investment comes through

will require in the future. We are also looking into creating

bank loans. We have developed a strong relationship with all

new financial structures to raise resources, whether that be

commercial banks in Mexico, making it a lot easier to obtain

through institutional or independent funds. This will happen

loans. We use two to three syndicate loans for each project.

in the future, but the rough start to 2017 pushed us to take a

The Breathless Riviera Cancun hotel we recently constructed

more cautious approach. We have not given up on the idea,

was in partnership with Sabadell, which was syndicated

but we are making sure we carry out the proper analysis

with Bancomext and BBVA Bancomer. This financial scheme

before we move forward.

allows us to develop or construct two hotels, two commercial centers and two corporate buildings at the same time.

Our main goal is to continue building projects that impact society in a positive way. We want to create urban landmarks

Q: Why is there a lack of international players in Mexicoâ&#x20AC;&#x2122;s

in Mexico. For example, the Satelite Towers created by Luis

real estate market and what is your outlook for the sector

Barragan brought the northern part of the city to life. We need

in the coming years?

to continue creating these urban landmarks so that people

A: International players enter a market when local players

can relate to and feel they are part of an area. Our culture has

can no longer supply the market. Banks are not providing

the need to identify itself with its surroundings through private

companies with the desired interest rates and the exchange

or public infrastructure such as public squares, parks and all

rate deeply impacts negotiations and transactions, especially

types of urban projects.

VIEW FROM THE TOP

AWARENESS, LIQUIDITY OBSTACLES FOR SUSTAINABILITY ISRAEL FORTIS Director General of GreenBlue

214

Q: In which subsectors has GreenBlue seen the most

A: Companies mainly face two problems when talking

opportunity for growth?

about new technologies: knowledge and liquidity. In terms

A: Even though most new buildings in the commercial market

of knowledge, even today there are many companies with

begin with the target of obtaining LEED certifications, many

little awareness of the new solutions that are available

developers give up on the process because of the bigger

and that have already proven to be reliable. There are

investment high-efficiency solutions require. However, this is

also a great number of tech contractors with low-tech

not the case in the industrial market, which needs to reduce

profiles that offer â&#x20AC;&#x153;miracleâ&#x20AC;? solutions. These only generate

production costs year after year. This leads decision-makers to

more confusion among customers who do not have a

seek high-tech solutions not only because of sustainability but

proper engineering background. In terms of liquidity,

also because they know that these will allow them to maintain

companies want to move in a new direction and become

very competitive costs in the mid to long term. Thus, we

more sustainable because of the social importance and

have found greater opportunities in the industrial market for

financial benefits this involves. At this point it is difficult

implementing high-tech systems. In commercial buildings, we

to understand why many key decision-makers fail to

find better opportunities in the leasing subsector where the

implement efficient solutions in their projects. The answer

investor manages the building. IThe savings generated from

is simple: liquidity. Most of our customers understand the

a high-tech solution represent a cost benefit for investors.

ROI of the new solutions we provide but many also have concerns about the liquidity needed to implement them.

Q: How could buildings become more efficient and eco-

According to Schneider Electric, a commercial building

friendly?

emits on average 7.2 tons of CO2 a day and approximately 70 percent of energy consumption in buildings comes from lighting, ventilation and air conditioning. The order of

GreenBlue is a 100 percent Mexican company dedicated

energy-consumption impact in buildings is approximately

to integrating innovative and practical solutions in terms of

60 percent HVAC systems and 15-20 percent lighting,

energy saving and sustainability in the residential, commercial

while 20 percent is allocated to other systems, such as

and industrial sectors

escalators, elevators and plug devices.

VIEW FROM THE TOP

INTEGRATION FOR STRONGER INCOME FLOW EDUARDO GĂ&#x153;EMEZ CFO of Mexico Retail Properties (MRP)

Q: What is MRPâ&#x20AC;&#x2122;s strategy to develop various projects

government agencies can increase uncertainty in the

throughout the country simultaneously?

project.

A: The most important thing is to have the right suppliers. We prefer to have local suppliers in the majority of our

One of the most difficult tasks in a project is the

projects to achieve a faster response. Another important

construction of an underground parking lot. When digging

element is having a strong coordination team that can

underground, it is difficult to know what you might find.

monitor the various locations. For our developments to

Processes are not will defined or structured and often

be successful, we must have control of each development

differ with each project. These processes cannot be found

and budget through well-designed systems and

or carried out online, but there are smaller things such as

processes. Everything must be planned rather than left

land use revision that can be.

to chance. Q: How will changes in the Mexico City Constitution Q: Which types of commercial developments are

and Human Settlements Law impact developers such

receiving the best response from the market?

as MRP?

A: All types of developments have their virtues and their

A: Developers take on the risk of not knowing how these

challenges. From a financial point of view, a standalone

changes will impact the sector. These are changes that will

Walmart or Bodega Aurrera is low-risk, easy to construct,

create lagoons in the legal framework for the construction

has a long-term contract and is low maintenance because

of real estate. The problems that arise with neighborhoods

there is only one tenant. Big mixed-use projects have

is that everybody wants to have a supermarket nearby

many more complexities due to the large number of

but nobody wants it next to their house. It is important

tenants and space to maintain, drastically raising the

to consult with neighbors and have as many people on

risk profile. MRP prefers to have a balanced portfolio

board as possible but these types of things could also

but we always look for the quality of income. From an

open doors to excessive demands from the community.

institutional perspective, we seek income generation since investors want recurring income.

Municipalities have the responsibility of creating their own urban planning schematics and should make sure

Doing the project right leads to high quality income.

that the use of land is respected. If a developer has the

The best thing a developer can do is establish a good

right permits and is respecting the use of the land stated

relationship with its surroundings as a whole, including

by the government, developments should be respected.

neighbors and the environment. If a development is done

There are instances involving a valuable piece of land

right the first time, it will create a win-win situation for

where a residential tower could be built but authorities

all the players involved.

change the land use, automatically diminishing the value of the property. Both the public and private sector

Q: What are the most challenging aspects of developing

have committed mistakes but to prevent these types

commercial real estate in Mexico?

of situations, the legal framework must be clear and

A: Permits are the most difficult aspect of creating a

executed accordingly.

new commercial real estate development. In Mexico City for instance, given its size and density, the permits required by the government must play a big role. But

Mexico Retail Properties (MRP) focuses on investing in,

unfortunately, developers are often faced with pressure

developing and operating housing, commercial and mixed-use

and obligations that are not legally well-defined. Having

buildings. MRP has developed 72 shopping centers in 21 states,

to make agreements with different municipalities or

with more than 2 million m2 and has more than 2,700 tenants

215

INSIGHT

BETTING ON NEW HORIZONS OUTSIDE OF CDMX RODRIGO ASSAM Director of Financial Planning and Investor Relations for GICSA

216

Mexico City suffers from a severe lack of space and

that our centers do not become oversaturated with the same

oversaturation thanks to its estimated population of 9 million,

type of stores.” The company’s strategy motivates tenants

not to mention the millions living in the suburbs. Those that

to renew their contracts and to pay higher rent in return for

take a gamble outside of the megalopolis benefit from

the foot traffic. Assam also finds it essential to offer high-

unserved markets. “Many areas in Mexico have a population

quality gastronomical choices and entertainment options

with high purchasing power but a lack of entertainment

because food courts are changing into food halls that offer

and commercial offerings,” says Rodrigo Assam, Director

local options and food trucks.

of Financial Planning and Investor Relations for GICSA. “It is a major area of opportunity for us as we are the only ones

Along with its careful selection of tenants and high-quality

developing such innovative mixed-use developments outside

offers, Assam emphasizes the importance of a solid financial

of Mexico City.”

model. “We are reasonably conservative when it comes to the amount of debt we use as we mostly rely on private equity,”

The company has completed over 60 projects in Mexico and

he says. “Our limit is 40 percent of debt per project, which is

is a pioneer in the industry as the first to develop Class A and

quite reasonable in comparison to the rest of the industry.”

LEED-certified buildings in the country. It has a pipeline of

The company uses a model based on capital, debt, partners

17 projects, two in operation since December 2016: Forum

and investors that is adapted to the needs of each project.

Cuernavaca and Isla Vallarta. GICSA’s portfolio includes the

It is also contemplating the use of new tools available in

Explanada projects, a new concept for commercial centers

the market such as green bonds and becoming part of the

that focuses on social interaction and entertainment. GICSA

sustainability index. GICSA is listed on the stock exchange and

is in the process of developing this concept in five cities and

has placed two successful capital raisings.

has identified 10 other areas to expand into. Its first Explanada is expected to open in 1Q18.

In the context of an ever-transitioning market impacted by new trends and geopolitical factors, GICSA is not afraid to

GICSA’s focus on innovation and expansion has helped the

change its plans to mitigate risk. “We recently suspended a

company secure important partnerships with large companies

project on Reforma, and that surprised many considering its

that boost the success of its developments. “They see our

location,” says Assam. “But our studies show that Reforma

projects as opportunities for growth in Mexico,” says Assam.

is oversaturated.” GICSA is waiting for the current offer in

“We have already confirmed a presence for Liverpool in

the financial district to be absorbed by the market before

Queretaro and La Isla Merida.” GICSA is also catching the

reinitiating a project in the area.

attention of trendy international stores like H&M, which is significant considering that these are becoming just as

Assam expects GICSA’s strategy to triple the company’s size

important as traditional anchor stores like Palacio de Hierro

by 2020 in terms of square meters for rent and operating

and Liverpool. Commercial centers used to have to chase

income, with the goal of building 30 new commercial centers

these anchor stores but Assam says GICSA’s reputation and

by that year. “We are optimistic about our results as we grew

successful track record is leading to a reverse situation. Now,

17 percent in terms of EBITA in 1Q17 despite expectations

these brands are approaching the developer. Assam says the

of poor economic conditions,” he says. GICSA’s properties

company ensures the quality of its developments by using a

and sales estimates are above the country’s average and its

demanding tendering process to contract companies and by

shopping centers not only received 68 million visitors in 2016

adapting to the unique context of each location. “Companies

but also experienced a 13.4 percent increase in store sales.

trust our strategic selection of tenants,” he says. “All our

“This is a significant number for us because it shows tenants

tenants have to prove that they can attract visitors to our

that the visitors our commercial centers receive have an

commercial centers before they can pay rent. We make sure

increasing amount of purchasing power,” he says.

VIEW FROM THE TOP

DEVELOPER RAISES FIRST COMMERCIAL FIBRA VICENTE NAVES Deputy Director General of Grupo Frel

Q: The US experienced a boom in commercial centers that is

concept into two centers, Plaza Kukulkan and Via Paraiso.

now fading. How does Mexico’s growth in this sector differ?

The remodeling of Plaza Kukulkan should be finished by

A: In comparison to the US, Mexico has several advantages

4Q18 and Via Paraiso is an extension that we are adding

thanks to its demographic and cultural differences.

to the current Puerto Paraiso in Los Cabos by 4Q19. We

Shopping centers in the US are greatly affected by

want to eventually incorporate this concept into Fibra Shop,

e-commerce and online shopping. In Mexico, online

which we raised alongside Grupo CACEBA and Central de

payment services are not as big of a concern as there is a

Arquitectura. It will be the first Fibra specialized in shopping

general lack of trust of online payment methods. Also, a

centers and power centers, and we hope to use this platform

large amount of Mexico’s population is in the 18-35-year-

to expand to the rest of Latin America.

old bracket and will continue to be until 2030. This is good news as studies show that 35-year-old are often the

Q: What is your financial strategy for developing projects?

biggest consumers. Most of the US population is over 50,

A: Many of our projects are not commercial and do not fit

an age bracket that tends to consume less.

the requirements of Fibra Shop. In these cases, we often use capital from the group to develop mixed-use developments,

Mexico’s socio-economic situation and its culture are also

among other projects. We are exploring different financial

important factors. The US has an abundance of public spaces

strategies when it comes to equity and debt. The company

where families can spend time while Mexico has a very

is analyzing the possibility of inviting more funds and

limited quantity. Consequently, Mexican families often use

investors to participate and we are contemplating the use

shopping centers as a meeting point and recreational space.

of financial vehicles, such as CKDs and CerPIs. Our company

Safety is an issue as well because even if Mexico had more

is quite conservative when it comes to debt but we want

public spaces, families might not be willing to visit them due

to participate in the financial market more through bonds.

to the lack of security. They feel more secure spending the day in a shopping mall. Finally, the GLA per capita in the US

Q: How do you make sure your projects are completed on

is very high, whereas in Mexico it is much lower.

budget and on time? A: Our project management model is based on best practices

Q: How is Grupo Frel adapting to the new trends in

outlined by the Project Management Institute (PMI). To make

commercial spaces and what is its latest contribution to

sure projects are completed on time, developers need to

these trends?

invest up to three years in the planning phase. This is when

A: We are based in Mexico City while our projects are in

the budget is at risk of inflating. It can sometimes be years

Mexico, Acapulco, Cancun, Los Cabos and Queretaro.

before we get the land permits and conclude negotiations

Fibra Shop invests mainly in power centers, which are

with surrounding communities. At Frel, we developed our

built for convenience. People visit these spaces up to two

own project management process and policies called P3.

times a week because they are home to amenities such as

This stands for Professional Project Processes. Although

grocery stores and dry-cleaning facilities. When it comes to

following and implementing this process may not necessarily

shopping centers that are more focused on the experience

guarantee the desired end result, it certainly provides a

and entertainment, we are creating a new concept called

higher probability of achieving strong results.

Espacio Latino, with the idea of offering a space for Latin American designers and artists with the creation of different experiences that will happen in the mall. We want to enrich

Grupo Frel is a real estate developer that has a wide variety of

the experience of commercial spaces by incorporating Latin

projects in its portfolio, from commercial and mixed use to hotels.

culture into the design. This space can even be used to

The company is known for creating architectural icons in Mexico,

create fashion shows and concerts. We are incorporating this

with over 60 years of experience as a construction company

217

VIEW FROM THE TOP

LEVERAGING THE EXPERTISE OF AN INTERNATIONAL PARTNER JIMMY ARAKANJI Co-Founder and Co-CEO of Thor Urbana

218

Q: What is your analysis of the real estate industry and how

brands continue to enter the country every year looking

do you evaluate optimism in the sector?

to capitalize on Mexicoâ&#x20AC;&#x2122;s growing middle class, favorable

A: We continue to be very optimistic and bullish about the

demographics and expanding consumer credit. In terms of

potential of real state in Mexico in general. Obviously, certain

office space, there is much more supply than demand, with

sectors are more appealing to us than others and we see

many vacancies in the prime office sectors, and rents have

more growth potential in certain segments. But in general,

not achieved significant growth. This sector concerns us. We

we think the industry is going through an interesting time.

have been reluctant to invest in office space because we think

This has been developing since the opening of the capital

the speed at which space is being leased is not aligned with

markets in Mexico seven or eight years ago when the first

the speed of development. We do not see any opportunities

Fibra was created and the CKDs were launched. At this point,

for developing office space in Mexico City, Monterrey or

the real estate industry in Mexico underwent a complete

Guadalajara because those cities are oversupplied. Residential

transformation, from being a very family-dominated industry

is a very interesting sector with many subsectors, such as

to being a much more professional and institutional market.

multifamily. This sector is dynamic right now, driven by the desire of Millennials to change their lifestyles. They want

For the first time, people were able to understand exits

to be closer to work and to the city centers and amenities.

when it comes to real estate and they were able to access

Residential for rent is an interesting niche that we are looking

real estate assets through Fibras on the BMV, not necessarily

at right now and residential for sale also appeals to us. The

owning building blocks but owning shares in real estate

demand for residential in Mexico is still far from being met.

companies. This resulted in a great deal of liquidity, certainty

There are different socio-economic price points, but the

and transparency in the market. This happened alongside the

general demand will not be met for the next 10 years so

creation of the CKDs, which allowed Afores to invest in real

there is a lot of potential. Residential real estate in Mexico is

estate for the first time. At this point, there were hundreds of

underdeveloped and most of the current stock is obsolete

billions of pesos in pension funds that were not being invested

so we continue to see development potential going forward.

appropriately and were not producing returns. The creation of these instruments created the foundation for a new cycle of

Q: What do you require to reach your goals and continue

real estate development. We have seen in recent years a great

growing as a company?

deal of capital coming from abroad and looking to capitalize

A: Thor Urbana is a company that is really looking to push

on Mexicoâ&#x20AC;&#x2122;s real estate opportunities. This has translated into a

the boundaries and break paradigms. Our goal is not to

more world-class and up-to-date inventory of real estate, from

become a Mexican real estate company but to become

shopping malls to mixed use and residential developments.

a global player delivering a world-class project. We have a joint venture with Thor Equities, which is one of the

Q: In which sectors do you see most opportunities within real

leading real estate investors in the retail sector in the US

estate in Mexico right now?

and Europe. We are trying to leverage its expertise, global

A: Different sectors are at a different point in their cycle right

exposure and proximity to the most developed markets

now. We continue to be big believers in the retail sector and its

around the world to gain insights into new trends, new and

growth potential going forward. More and more international

revolutionary concepts and fresh ideas. There is a lot of information sharing that is helping set us apart from the competition. A new concept called The Lab was launched

Thor Urbana is a Mexican real estate development firm with

last year. It is in the development stage at the moment, but

a management team that collectively has over 120 years of

through this, we will be tracking local and up and coming

experience in the development of A+ real estate in Mexico, the

entrepreneurs and designers who have great ideas and

US, Latin America and Europe

want to try conceptual business models.

VIEW FROM THE TOP

PARTNERS, RISK MITIGATION KEYS TO 2020 VISION JORGE ÁVALOS CEO of Fibra Mty

Q: What is Fibra Mty’s investment profile and what is its

flows will be a challenge for Fibras in the next year. A challenge

strategy to maintain an accelerated growth rate through

for us will be to not focus on growth in terms of size. Instead,

2018?

we must focus on having satisfied tenants, efficient assets

A: Our profile for investments will not change in the next year.

and to predictable earnings. This will translate to guaranteed

We want to maintain our portfolio with a mix of 50 percent

contract renewals for us, even if a competitor has lower prices.

industrial and the other half in office developments. In terms of geographic diversification, we want to concentrate 50 percent

The Fibras that have a track record and have been in the

of our assets in Monterrey and the remainder throughout the

market longer are more worried about investing in technology.

rest of the country. Today our investments are distributed

In 2016, it took Fibra Mty a year to develop its enterprise

throughout nine cities and seven states. Our 2020 Vision

resource planning (ERP) model. We were the first to integrate

includes reaching more than MX$20 billion in assets by 2020

S4 Hana ERP, which is a vertical made specifically for real

and also defines the risks that we will incur depending on

estate. It allows us to have a more efficient reporting system

each tenant family. We do not participate with more than

and management of business intelligence. For example, in

15 percent in each subsector like automotive, technology,

2016, it took us two weeks to draft our financial earnings

logistics or aviation. This helps mitigate the cyclical risks of

report for the BMV and in 2017 with this new system, it took

each subsector and geographical area.

us only two hours.

Q: How will a larger participation of Afores in Fibras impact

Q: What new partnerships does Fibra Mty want to develop

the sector?

to strengthen its position in the market?

A: The participation of Afores will continue to boost Mexican

A: We are always on the lookout for new partners and investors

Fibras and a larger participation of Afores will benefit the

to participate in the Fibra. We have four development partners

CONSAR. So far, Afores have more than MX$27 billion to

that participate with certificates in the Fibra, one of which

invest in these types of assets. Vehicles that are already in

is our principal partner, Desarrollos Delta. We also have

the market and have participation from Afores will look to

developed a partnership with Grupo Valoran, which developed

find new investors to diversify their investor base. We see

WTC Industrial Park. We want to create partnerships with

Fibras moving into a structure of internalization, such as

developers that we know build quality developments so that

Fibra Inn. In 2017, we saw the first case where an externally

we can create long-lasting relationships.

managed Fibra took the decision to internalize itself, which is what Fibra Mty did when it first entered the market two

2018 will be a complicated year due to the volatility created

years ago. Fibras are looking to create vehicles where their

by the NAFTA negotiations, and while this goes unresolved

interest is aligned with those of investors and to maintain

we could see some hesitation from national and international

transparent corporate structures.

investors. Next year, presidential elections will also pose some difficulties. But I am very positive that Fibras will grow and

Q: What are the main challenges Fibras will face in 2018 and

the modifications that have been made to the regulatory

how is Fibra Mty mitigating those risks?

framework through AMEFI will help boost the sector’s

A: One of the main challenges is managing the volatility of

efficiency and results.

exchange rates, especially with dollar-denominated profits. One can have a surplus due to the revaluation of profits and large deficits from the subvaluation of profits. We have already

Fibra Mty has been in the market for two years and specializes

seen this happen in 2017. In 1Q17 we had a large revaluation of

in industrial and office assets in Monterrey. As of August 2017,

profits and in 2Q17 it was the opposite where we went from

it had a value of US$355 million, 42 properties and a GLA of

a surplus of MX$22 to MX$17 per dollar. The predictability of

494,240m2

219

INSIGHT

DESIGNING CITIES FOR PEOPLE MARCO GARZA Founding Partner at GM Capital

220

As commercial real estate evolves and more developers

malls and Garza believes that a more holistic approach

turn their attention to mixed-use spaces to maximize

is required. “Simply constructing shopping malls only

the potential of their square meters, citizens want more

creates walls and limits the opportunity to make the most

infrastructure that benefits the surrounding communities

of the available land,” he says. Mixed-use projects are

and increases their quality of life. Marco Garza, Founding

growing more popular among developers and add more

Partner of GM Capital, warns that developers must adapt

value than traditional shopping malls.

“the pedestrian culture” as a philosophy or risk going out of business.

With this in mind, GM Capital aims to help people make the most of their time by working, playing and living at

“Cities need to be designed for people, rather than vehicles,”

a stone’s throw through the funding and development of

he says. As priorities change, with new generations placing

three large mixed-use spaces in the next 20 years. Distrito

more value in efficiency, mobility and interconnectivity,

Armida in San Pedro Garza Garcia is not like any other

infrastructure must be customized to follow suit, just like

mixed-use project. The 600,000m 2 development will

in any other industry. “Real estate developers must adapt

integrate health, education, culture, housing, commercial,

quickly to the new generations and change their value

corporate and service all into one place. Importantly,

propositions or risk becoming obsolete.”

Garza says, it will reduce traffic and increase mobility, creating a more livable neighborhood.

For instance, there are 249 shopping centers in the metropolitan area of Monterrey, most of them

“We have to diversify, integrate the eight principles of

concentrated in the area of Valle in San Pedro Garza

urban development and stop encouraging the use of

Garcia, one of the most luxurious zip codes in the country.

cars,” he says. “Parking lots are the ultimate enemy of

By the end of 2018, it is estimated that there will be

mobility. In San Pedro Garza Garcia alone, there are more

at least 10 new shopping centers in the area. But what

than 123,000 people and 1.5 cars per person and the

differentiates one from the other?

creation of more parking spaces further encourages the use of vehicles.”

“Shopping malls can disappear,” Garza predicts. “What matters today and in the future, is the experience that

This saturation is exacerbated by the fact that more than

space provides. We are continuing to develop different

190,000 people commute through the municipality each

retail spaces that offer the same value proposition and

day. Garza believes that the first step to solving the area’s

the market is becoming saturated.”

mobility problems is to densify the area and create more housing that allows people to live closer to their places of

Around the world, former retail kings such as Neiman

work. For this reason, Distrito Armida will consist not only of

Marcus, Saks Fifth Avenue and Macy’s are being forced

commercial and hotel developments, but also housing units.

to close after failing to anticipate the needs of new generations. “It has come to a point where we are

“Many people that work in San Pedro Garza Garcia live in

discussing whether or not we reinvent Plaza Fiesta San

other housing developments with an average price tag of

Agustin, one of our biggest shopping malls in San Pedro

MX$2-4 million,” he says. “Typically, they cannot afford

Garza Garcia, for two reasons: we are not taking full

the high-priced homes, education and costs of living in

advantage of the land and it creates no experience.”

the neighborhood where they work.” Distrito Armida will contain three residential towers with 120 apartments in

As more people move into cities, developers will be

each at an average cost of MX$2.5-4.5 million, making

obligated to steer away from the traditional shopping

it one of the most affordable housing units in the area.

221

Magma Towers, Valle Oriente, Monterrey

But providing housing is not always enough to motivate

regeneration of the Valle Oriente financial district of San Pedro

people to move into an area. “In San Pedro Garza Garcia, the

Garza Garcia. Real estate developers, construction companies

schools are extremely expensive because tuition fees not only

and educational institutions joined this trust to raise money

cover the building costs but take into account the amenities

to regenerate parks, streets and other public areas. Its first

like courts, fields and auditoriums,” says Garza. Education is

project was to restore the Rufino Tamayo Park with a total

an important factor for families and GM Capital decided to

investment of MX$81 million.

dedicate a portion of its development exclusively to education. “People have the misconception that the public sector should The company plans to provide education, from kindergarten

carry out projects like this but ultimately the public sector

to high school, in the same district with a more accessible

simply manages the city, while the private sector has to

price tag. Garza explains that these schools will not

operate it,” says Garza. The trust will continue to work on a

incorporate the traditional facilities such as soccer fields or

six-year MX$500 million project to completely restore and

tennis courts, giving people a scaled-back alternative to those

regenerate the urban area of Valle Oriente, which will include

that already exist, without sacrificing quality. “By providing

a free public transportation system for the area.

them with cheaper living and education options, people will automatically move to San Pedro Garza Garcia and this will

And ultimately, the private sector will play a larger part in

instantly reduce mobility issues,” says Garza.

transforming Mexico’s cities into sustainable urban hubs in the future and real estate developers will have a key role. “We

Apart from Distrito Armida, GM Capital is laying the

spend more than 85 percent of our lives in three areas: our

foundations for two similar projects, another in Valle and one

place of work, our house and in our car,” says Garza. “We need

in the Escobedo neighborhood. With such a vested interest

to change our strategies completely and create spaces where

in Valle, GM Capital took a leadership role in creating the

our families can thrive and create a happier, more productive

Parque Rufino y Olga Tamayo Trust to undertake the urban

and inclusive society.”

PROJECT SPOTLIGHT

18,000m2 of net usable area

923m2

floors with 360Â° views

DISTRITO ARMIDA TO BREATHE NEW LIFE INTO MONTERREY As urbanization spreads and people in cities increasingly look for a better quality of life, mixed-use spaces are rapidly becoming the next big trend. Providing a space where citizens can live, work and play has become a must for many developers. GM Capital’s 600,000m2 Distrito Armida project in Monterrey fits the bill. The development, in the Valle Oriente neighborhood of the San Pedro Garza García commercial district, is expected to be carried out in five phases, with the first 111,000m2 already under construction. This stage will provide a 6,600m 2 commercial podium at the base with more than 40 retail locations, including restaurants, a gourmet market, a fitness center, a hotel and a cultural venue for exhibitions and art events. It will even incorporate a kindergarten. This phase will also see the construction of the first of GM Capital’s four office towers in Distrito Armida: the 20-storey Torre Malva. Torre Malva is designed to frame the urban complex and is already in the pre-sale phase. With more than 18,000m2 of office space for sale or rent, it will have a reception area with services and controlled access, security systems, more than 1,400 mixed underground parking spaces, a lunch room, meeting rooms, a daycare center, a play area and a terrace. To combine business with leisure, Distrito Armida will also contain an exhibition hall for institutional and business events, as well as entertainment activities. The development’s 8,500m2 AC Marriott hotel will have 168 rooms and first-class amenities. Distrito Armida will also incorporate a sizeable three-tower residential complex, designed by renowned firm The Jerde Partnership. Phase two, expected to begin construction in 3Q18 will include a second, 150-room hotel, the second 12,800m2 office tower and 1,000m2 of space intended for retail and services. During phase three, expected to begin in 2019, three new residential buildings will be constructed, each with more than 360 modern and comfortable apartments and 5,500m2 of exclusive commercial space will be added. Phase four will see the growth of the district with the third, 22,000m2 office tower and a 1,000m2 extension to the commercial area. The final phase is expected to consolidate the growth of Distrito Armida with the construction of a new 38,000m2 office tower as well as 2,000m2 commercial area that will be allocated to house the best brands and establishments in the area. The fourth and fifth phases are expected to be completed within a 10- to 15-year range.

223

VIEW FROM THE TOP

CHANGING LIFESTYLES DEMAND CHANGING REAL ESTATE VICTOR LACHICA President and CEO of Mexico and Central America at Cushman & Wakefield

224

Q: How is Cushman & Wakefield differentiating itself and

US compares to the rate at which we are developing.

how does it plan to position itself further in the market?

This also applies to Queretaro, Puebla, Guadalajara

A: We want to be seen as a one-stop shop in terms of

and Monterrey. All our main cities are booming and the

advice. Not only do we want to sell or lease spaces, but

country is urbanizing quickly, and I do not believe this

we want to serve as advisers regarding efficiency of

will stop in the next few years.

operations, streamlined interaction with other companies and improving client products. We are transparent

Q: How are your clients mitigating the risks associated

and honest and most people will see the value in our

with longer wait times between building and leasing?

service because we are experts in the field. Some of our

A: Some of our clients are developers that hire us to lease

competitors are exclusively transaction oriented while

their space and others are users or tenants seeking office

others are exclusively advisers. We want to bridge that

space. In terms of the developer, our recommendation

gap and offer the whole range of services.

is to be very aggressive regarding modernization and efficiency. In a market that is oversupplied, a building that

Q: What is your outlook for the Mexican commercial real

is competitive on price and technology will be the first to

estate market in the next two years?

be leased. An oversupply forces developers to become

A: In the short term, office, industrial and retail real

more competitive and offer clients greater content. In

estate will undergo a consolidation period, meaning

Mexico City, the typical office space absorption per year

there will be more caution over investments, portfolio

is around 350,000m 2 but in years of oversupply, this

consolidation and old properties will be sold in exchange

increases to around 500,000m 2. With 1.5 million m 2 of

for newer buildings. Clarity will be sought regarding the

office space under construction, this will only last around

new policies implemented by the US. That being said, the

two to three years. Office building leases are very much

industry is already taking advantage of several features.

dollarized and we believe this context can push dollar

The people who know the market will take advantage of

prices down between 10-15 percent in the next few years.

new entrants. For example, if one international fund wants to unload properties, a long-term investor in Mexico

Q: Where is the retail industry heading given the growth

will be able to acquire these for more favorable rates

in ecommerce trends?

than they would have in 2016. I see a lot of interesting

A: In Mexico City, we will see a trend in which people

movement in terms of more conservatism and more

will be more reluctant to move around, meaning that

aggression.

E-commerce will gain some momentum. There will be an increase in logistics and delivery transportation as a result.

During times of market uncertainty, two subsectors

We are around four or five years behind the US in terms of

emerge in the market: those that are easily scared and

technology and trends but last year in the US 46 percent

want to unload assets and those that see the opportunity

of consumption was ecommerce, which will gain greater

in buying these assets at reduced costs. Mexico has many

traction. Companies are following this trend and retail

more developments in percentage terms than most

spaces are becoming more compact, with warehouses

other countries. No country in Europe and no city in the

placed strategically around cities to cash in onE-commerce. Mexico City will become much more efficient, sustainable, enjoyable and hopefully more controlled in terms of crime

Cushman & Wakefield is a US commercial real estate company

rates. Vertical growth means crime is much easier to control

headquartered in Chicago. It is one of the worldâ&#x20AC;&#x2122;s largest

due to higher population density within an area. We will also

commercial real estate firms with annual revenue of US$5

see much more interactive retail spaces that will be used as

billion and more than 43,000 employees in 60 countries

entertainment or social areas rather than just shopping malls.

VIEW FROM THE TOP

THE DOLLAR-PESO BATTLE IN LEASING PEDRO AZCUĂ&#x2030; CEO at JLL Mexico and Chairman at JLL Latin America

Q: What major challenges are shaping the real estate

escalations do not reflect true cost of living increases. The

industry?

Consumer Price Index (CPI) does not entirely reflect the reality

A: Historically, financing has been one of the biggest challenges

of the cost of living increases from a developerâ&#x20AC;&#x2122;s point of view

developers have encountered. But due to the change in the

because the index measures a different basket of goods and

Mexican pension fund system (Afores), financing real estate

services to that of a typical developer. For example, when

projects has become easier. A huge amount of money is being

dollar-denominated materials such as steel rise, the index only

channeled through new types of financial vehicles for the

increases by a few points but developers might experience

development of both real estate and infrastructure projects.

a much greater cost impact than what the CPI reflects. By

These local funds are in most cases not dependent on what

signing long-term leases in pesos, companies are gambling

occurs in international markets, decreasing the dependency

because one party will end up with a better deal over time.

on foreign capital. There is a lack of IPOs in the BMV, which means there are limited options for Afores to invest in. This

Q: What is your outlook for the commercial real estate

has spurred the funds to seek investment alternatives like real

market in the next couple of years?

estate, which can provide the long-term returns they want. It

A: Although it falls under the real estate sector, one cannot

is possible that these funds will start looking at investment

generalize outcomes because this sector varies significantly

in foreign companies if there are no new locals to which they

depending on the region and product type, whether it

can allocate all their funds.

is office, industrial or retail. For instance, the country is experiencing a boom in the tourism sector, where there

Q: How will Fibras react to changing economic conditions

are many new hotels being built in Los Cabos and in the

within the Mexican market?

Riviera Maya while at the same time areas impacted by

A: A problem we are facing is the deterioration in the value of

security issues and concerns are far less dynamic. In real

Fibras. In some cases, their share prices have fallen significantly

estate, the quality of projects also matters greatly. There

in peso terms. Because of this, Fibras are less likely to raise

are many buildings in Mexico that have taken years to be

more equity because if they did, it would significantly dilute

leased, while others that are not even finished construction

the holdings of the original investors. It is likely that Fibras

fill up rapidly. Residential continues to do rather well and

may not be the most important buyers of properties in 2017

this demand will continue to increase. In cities, such as

because if they need to raise more equity their shareholders

Mexico City, it is always difficult to find attractive land and

will most likely want to hold off on new acquisitions until the

when water, energy and sewage problems are added, it

equity market recovers. However, Fibras will invest in new

makes it even more challenging to develop viable projects.

projects if they can raise the money through debt as long as

The industrial market might depend greatly on changes to

they do not decrease their equity. I am not convinced that in

NAFTA and US policies. Some projects will continue with

the near future we can count on Fibras to be the important

construction because they cater to internal demand but

providers of capital they were in the recent past.

others will hold off until there is less uncertainty in the political environment. Renegotiating NAFTA is a risk but it

Q: What are your clients most worried about when it comes

might also prove to be a great opportunity if the US decides

to new investments in Mexico?

to further look at North America as a competitive block.

A: Some companies that are looking to lease new facilities in Mexico are worried about signing contracts in dollars and the owners of the buildings are worried about signing long-

JLL helps companies negotiate better terms for leasing and

term leases in pesos. Signing long-term leases in pesos can

developers to create spaces that will be taken off the market

over time lower the real value of the property, especially if

quickly. Its strength comes from its diversified business

the peso continues to depreciate significantly and the lease

platform that specializes in property and project management

225

INSIGHT

DIVERSIFYING FROM INDUSTRIAL TO RETAIL RAFAEL VILLAMAR Real Estate, Infrastructure and Hospitality Partner of Sánchez Devanny

226

With large international retailers increasingly entering the

San Luis Potosi grew a great deal due to the industrial

Mexican market, the goalposts are shifting. These chains,

boom and it was hard hit by Ford’s 2017 announcement

such as H&M and Bed, Bath and Beyond, are demanding

that it would cancel plans to build a plant in the state.

large population centers, higher quality developments and a

Villamar says the sector’s contraction is due to doubts

dynamic mixture of stores within the complex, even welcoming

felt primarily within the automotive and maquiladora

competition in a bid to boost traffic. International companies

industries, which rely on US exports, and notes that 1Q17

are also now imposing punitive clauses in contracts stipulating

was especially sluggish.

that failure to meet certain conditions can result in penalties for the developers. But this was not always the case in Mexico.

Due to this slowdown, Sánchez Devanny is trying to increase its presence among developers in the retail

Sánchez Devanny, a pioneering law firm, was among the first

segment to begin working with institutional investors.

to negotiate one of these contracts for its clients. “These kinds

This is aided by the firm’s longstanding real-estate

of international demands and penalty fees previously did not

presence and the fact it has been involved in negotiations

exist,” says Rafael Villamar, Real Estate and Infrastructure

with over 350 companies, including GICSA, Prologis and

Partner at the firm. “Slowly, the industry has begun to accept

Fibra Uno, through its Parks Desarrolladora industrial park

this as standard and now as more retailers are entering, the

subsidiary. “Mexico is a country with a lot of potential for

road is easier to negotiate.”

retailers right now,” says Villamar. “E-commerce has not yet taken off thanks to poor logistics – we do not yet have

With over 20 years’ experience in the industry and offices

adequate regulations for our postal system and often

in three of the biggest real-estate hubs in the country –

packages do not arrive to the recipient.” Other factors

Mexico City, Queretaro and Monterrey – Sánchez Devanny

influencing this trend are limited internet access and the

has adapted to the changing needs of the market as trends

country’s large informal economy as only 44 percent of

have emerged. With the introduction of NAFTA and the

adults have a bank account, according to the World Bank.

maquiladora boom in the late 1990s, for instance, the firm identified the opportunity to expand into the industrial real-

Geographically, Villamar sees most potential in growing

estate sector. Sánchez Devanny quickly formed a specialized

hubs like Guadalajara, the Bajio region and the country’s

division and began to act as an intermediary between

central belt, where land value has increased by 400

developers and off-takers in industrial parks. Among the most

percent since 2012. “Mexico, Queretaro and Guadalajara

important deals the firm oversaw was a deal to sell 8.45 million

are the locations where we can see the most potential for

ft of FINSA assets to GE Capital Real Estate in what FINSA

development of mixed-use spaces,” he says. “This growth

itself describes as “the most significant real-estate transaction

rate means international institutional funds are looking to

in Latin America to that date.”

Mexico as a stable economy where profits can be made.

The opportunities for them are primarily found in mixedSince then, Villamar says the maquiladora golden age has

use, hospital and tourist developments.”

waned slightly, influenced by external socio-political factors and uncertainty surrounding the current US administration

The hospital development industry in Mexico fell flat

and possible renegotiation of NAFTA. “The Fibras in industrial

in 2008 as a result of the financial crisis, since it was

sectors are getting nervous because time is passing and

dependent on a great deal of US investment. Now with

portfolios are failing to grow,” he says. “Of course, there

its recovery, and the relatively flat nature of the industrial

are successful Fibras that specialize in industrial parks like

sector, Villamar predicts these strategic sectors and

Macquarie but others are not seeing as much movement in

locations will provide ample opportunities for foreign

the sector.”

investors seeking a safe investment opportunity.

INSIGHT

SATURATION DRIVES DEVELOPER TO LOOK FOR GREENER PASTURES EUGENIO GONZÁLEZ CEO of Altea Desarrollos

Metropolitan Monterrey has quickly become one of the

San Nicolas de los Garza neighborhood. This shopping center

country’s top areas for total number of commercial malls,

contains lower-budget stores like Forever 21, H&M, Bershka,

with a new construction seemingly around every corner. But

Pull and Bear, Liverpool and many others and González says

a failure to look outside traditional areas is driving up land

that, among this demographic, it would be difficult for more

prices and a great deal of purchasing power is being left

expensive stores such as Massimo Dutti to be successful.

on the table, according to Eugenio González, CEO of Altea

“The brands were skeptical at first and initially created much

Desarollos. “Certain areas of Monterrey’s real estate market are

smaller stores than they usually would have,” says González.

becoming saturated, following the paths of Guadalajara and

“When the mall opened, they realized that they should have

Mexico City,” he says. “The Valle and Cumbres neighborhoods

had more faith in this location.”

are oversaturated in terms of commercial real estate, but there are many regions that are areas of opportunity for developers

Altea Desarrollos took a leap of faith and is demonstrating

to take advantage of.”

that this model is profitable and even more attractive. “We expect to recover our investment for Paseo la Fe in seven

According to Colliers International’s 1H17 Commercial Market

to eight years, which is a healthy number, especially since

Overview, the metropolitan area of Monterrey has more

the competition developing projects in Valle will not see

than 266 shopping centers, with the vast majority in the

a return for 20 years,” he says. González explains that at

municipality of San Pedro Garza Garcia, which is home to

the moment, there is little competition in these areas and

the state’s most prosperous neighborhoods. With more than

that the challenge is in understanding the largest segments

67 shopping malls and seven more under construction in 2017,

of the country’s population. In lower-income communities,

the high demand for space has caused the prices of land in

the traditional outdoor markets are where most of the

Valle to increase more than 110 percent in the last three years,

commerce takes place. Families buy food, accessories,

also pushing up leasing prices. According to González, highly

clothing, electronics and more from these informal markets

saturated areas are becoming risky for commercial centers

but González believes that if they had a mall nearby, they

because they are starting to experience high tenant turnover.

would much rather spend their money there. “Many SMEs

“Competition is growing tougher and as a developer, it is clear

want to sell in a formal establishment but we need to

that when tenants are constantly leaving, there is something

make the prices accessible to them,” says González. He

going wrong,” he says.

adds that these informal sellers currently pay “rent” to a labor union in order to sell goods in these outdoor markets.

But Nuevo Leon is a large state and Monterrey’s metropolitan

“This means that labor unions may pose another challenge

area has many neighborhoods with high potential for

when constructing a large mall in these areas,” he says.

developers that are willing to look outside the traditional

Nevertheless, he is confident that if the correct path is

locations. “In terms of square meters of commercial area per

followed, problems can be averted.

capita, Mexico is approaching the same area as the US without the same purchasing power,” González says. Shopping centers

Altea Desarrollos has also had a project under construction in

continue to be concentrated in the country’s most affluent

Merida for a couple of years, but with the sudden real estate

areas while segments of the population with greater density

boom in the region, it decided to hold off its inauguration.

but with a lower income per capita are overlooked. “I believe

“There are many companies building in Merida and I prefer to

that these areas are not taken advantage of, not because

wait for the market to fully develop,” González says. “Merida

of insecurity or that they do not yield attractive returns but

is a market of 1 million inhabitants that has more shopping

because of social comfort,” he says. Paseo La Fe is one of

malls than Puebla.” In the meantime, Altea Desarrollos wants

Altea Desarrollo’s latest developments and it was designed

to keep building projects such as Paseo la Fe and bringing

to cater to the middle-income segment in the lesser-served

value to all cities across Mexico.

227

VIEW FROM THE TOP

CONSOLIDATING MARKETS FOR GROWTH ELLIOTT BROSS Director General of Planigrupo

228

Q: What were the main challenges Planigrupo faced when

A: Planigrupo caters to the largest segment of the country’s

switching from a private to a public company?

socio-economic pyramid, which is more than 80 percent of

A: In 2016, we completed the shift from being a private

the population. Our developments focus on B- and C markets

company to a listed company on the Mexican Stock Exchange

but we are currently developing a AAA project in Mexico City.

(BMV). Although there was a turbulent political and economic

Paseo Hipodoromo is located in front of the Chapultepec

environment, most of the Afores in Mexico invested with

Golf Club in Conscripto. This is within one of the wealthiest

us as part of that transaction. Not only have we met our

neighborhoods in Latin America called Lomas Hipodromo.

business plan’s expectations but our growth exceeded all

We are now among the developers in Mexico with the largest

goals and objectives. Our EBITDA and net operating income

number of rentable square meters in the country. We are

were positive due to the various shopping centers that we

currently the third largest in Latin America with more than

sublet and operate in our portfolio. Last year we inaugurated

800,000m2 and we would like to continue growing in the

Macroplaza in San Luis Potosi, Paseo Solidaridad in Hermosillo,

AAA segment.

Paseo Alcalde in Guadalajara and we are about to finish the construction of Urban Village and Paseo Hipodromo in

Q: To what extent will Mexico’s commercial boom create a

Monterrey.

surplus in the market in the coming years? A: Next year, experts speculate that there will be a surplus of

Q: What strategy does Planigrupo implement to ensure

offices in the market. Mexico is experiencing a boom in mixed-

the success of its developments in various regions of the

use development but the drive that creates these commercial

country?

spaces is the fact that there are offices above filled with potential customers. A decrease in occupation rates will definitely impact commercial spaces within these mixed-use

Planigrupo is a horizontally integrated infrastructure developer

projects. Mexico City represents 25 percent of the country’s

listed on the Bolsa Mexicana de Valores (BMV). It has five

GDP and eventually all of these spaces will be rented. Mexico

divisions: development, design, construction, commercialization

has approximately 3ft2 of retail space per capita in comparison

and property administration

to the US, which has 20ft2 per capita.

VIEW FROM THE TOP

THE VALUE IN REDUCING LOST TIME JAMES DELANO General Manager of ATCO Mexico

Q: What opportunities have you identified in Mexico?

together and operations can commence within one month.

A: ATCO is a company that can build a city due to all the

This solution can cut down on build times and therefore

infrastructure assets we can put together and the experience

save companies considerable time and money. We have also

we have in gas, water, energy generation and distribution

built gasoline stations and supermarkets, demonstrating our

and building infrastructure. The latter is a sector that is

flexibility and our ability to adapt to customer needs.

just beginning to develop in Mexico. ATCO has developed modular structures for worksites, especially in the Alberta oil

Q: How does your type of construction contribute to

sands, as first of all a place to work and then a place to live.

sustainability?

This is very important in Canada for developing industries

A: Our buildings have less waste because they are tailored

like oil and mining due to the remoteness of the locations.

more to the specific needs of each project. When building traditionally, waste can contribute around 30 percent to

In the last few years, ATCO has been working on workforce

sustainability since materials are not always pre-cut. In

housing camps, where we can house up to 35,000 people

a factory, everything is so pre-planned that waste is not

with all services included. It is almost a hotel in the

a problem. In terms of labor hours, our team is working

mountains, with all the necessary amenities. In 1960, when

specifically on certain parts of the project and there is no

building our modular structures business, ATCO was building

time wasted in pouring cement, meaning there is far less lost

hospitals, schools, hotels, homes and medical centers with

time. Especially for a commercial project, this is extremely

these modular structures. Each module is built in a factory-

valuable to the client because the operation can be started

controlled environment and can be assembled onsite very

much faster. The planning period and foundations would

quickly and accurately, causing less waste. It is interesting

take the same amount of time for each project. But with a

how people become accustomed to the materials they

prefabricated building, the construction is being built in the

live with. In Canada, where there is a great deal of wood,

factory simultaneously while the foundations are poured.

customers like their houses to be built from this material. In

This eliminates a great deal of lost time.

Mexico, the preferred material is cement. We can incorporate these elements into the design but the backbone of the

Q: In Mexico, how are you positioning yourself to become

building is a steel structure, which is strong and extremely

the partner of choice for developers?

convenient.

A: At the moment, we are at the beginning. We are defining the markets we will be looking at, and these will

Q: How would you evaluate the reception to these types of

be dependent on the markets we have experience working

structures in Mexico?

in and those in which we have found success in other parts

A: This is becoming more and more popular. This is a trend

of the world. Our focus in the last two years has been on the

we have seen previously in Canada and the US. The modular

projects for which we have won bids: the pipeline project

business is more accepted in the US than anywhere else due

with Altura Energy and PEMEXâ&#x20AC;&#x2122;s cogeneration plant. Those

to its practicality and durability and our buildings are often

projects have been a little slower to develop and we have

more sturdy than traditional buildings in Mexico.

been successful in finding other commercial projects. We are looking toward private infrastructure projects.

In Mexico, it is becoming more and more accepted, especially with the entry of international companies that are familiar with the benefits of the construction. ATCO can build

ATCO Mexico is part of the ATCO Group. With approximately

multistory hotels that do not have the slightest appearance

7,000 employees and assets of US$20 billion, ATCO is a

of being a modular building. Retail centers like 7-Elevens

diversified global corporation working in three sectors:

and Oxxos can be built by putting two or three modules

electricity, structures and logistics and pipelines and liquids

229

TECHNOLOGY SPOTLIGHT

13,000

people can fit inside the Metropolitan Auditorium

IMPERQUIMIA TAKES THE HEAT OUT OF FIRE HAZARDS One of the new icons of civil construction in Mexico is the new Metropolitan Auditorium, located in Ojo de Agua, State of Mexico. It was built across an area of 147,000m2 and can accommodate up to 13,000 people. The emblematic building required very specific quality and security controls, and IMPERQUIMIA, specialized in chemical solutions for construction, became an important strategic partner. To safeguard visitors, IMPERQUIMIA provided its water-based fire-protection system Fire Quim® for the columns and beams. The system gives the premises a three-hour window in the event of a fire, not only providing structural resistance, but also allowing vital security and evacuation time for the people that visit the auditorium. The technology used in IMPERQUIMIA’s formulation prevents peeling and smoke formation, eliminating the risks of intoxication in the disaster areas. Fire Quim® is a barrier against fire, which can be applied as a coating on metal structures. When exposed to the fire, this coating expands from 35 to 40 times its original thickness, twice as much as competing products. The coating gradually becomes an insulating foam that protects the metal substrate and prevents it from reaching its critical yield temperature (approximately 538°C), reducing the possibility of structural damage and collapse. A sublimating product, it absorbs an enormous amount of heat and provides real protection to the metallic substrate, preventing it from losing its mechanical properties due to high temperatures. The technology is completely flame retardant, withstands high temperatures on direct fire and is nonconductive, preventing the flames from spreading to other areas. Tests show the coating perfectly withstands four hours of exposure to direct heat, where the average temperature of the hot surface is 1,100°C. In this instance, the maximum temperature of the metal reaches 204°C. The technology was awarded the Underwriter Laboratories (UL) certificate for sustainability and the use of this product helps to add points for LEED certification. IMPERQUIMIA, a company with more than 50 years of experience in Mexico, is one of the most reliable suppliers in the construction industry. It has a vast portfolio of chemical products and solutions for any infrastructure project, including products that promote sustainability. It has the technical ability to customize solutions according to the client’s needs. All of the above gives IMPERQUIMIA unique qualities that makes it the perfect strategic partner for any great builder.

231

ROUNDTABLE

HOW ARE MIXEDUSE DEVELOPMENTS INFLUENCING THE INFRASTRUCTURE INDUSTRY?

The world is quickly becoming more urbanized. Today, 54 percent of the world’s population lives in cities and this is expected to increase to 66 percent by 2050. Previous government policies implemented in Mexico City promoted horizontal developments, which resulted in derelict and abandoned urban sprawls being created on the city’s outskirts that were largely cut off from amenities and entertainment facilities. Times are changing and people are abandoning traditional real estate spaces for convenience, and greater added value. This has caused a boom in mixeduse development, and Mexico Infrastructure & Sustainability Review asked the leaders how this trend will unfold.

We strive to identify cities that have the potential to benefit immensely from the projects 232

we develop. Many areas in Mexico have a population with high purchasing power but a lack of entertainment areas and commercial offer. It is a major area of opportunity for us as we are the only ones developing such innovative mixed-use developments outside of Mexico City. It is also much easier to develop large projects in smaller cities because Mexico City suffers from a lack of space, oversaturation and the area is also undergoing

RODRIGO ASSAM Director of Financial Planning and Investor Relations for GICSA

the political transition from a city to a state. The idea of anchor stores is changing. Now, stores like H&M are just as important as more traditional anchor stores such as Liverpool and Palacio de Hierro. In the past, commercial centers would have to chase anchor stores and now we are reversing this phenomenon thanks to our successful track record. It is also essential to offer high-quality gastronomical choices and entertainment options.

There are projects within the Territorial Development Program called Mi Barrio, which they seek to create and develop complete and autonomous urban units that include the specific elements of the different components of the city. This prevents a project from being incomplete because of lack of communication or social acceptance. The project consists of creating mixed neighborhoods with all kinds of economic levels and complementary uses of shops and offices. They are

LEOPOLDO ARNAIZ CEO of Arnaiz & Partners

designed for the informal population without access to state support and provide innovative social programs. We seek, therefore, to carry out social development in a modern and innovative urban setting and image. This is intended to set an example of what can be achieved in the growth of the city.

The designs of upcoming shopping centers are blurring the boundaries between commercial and public spaces. Streets are becoming an extension of shopping areas, creating a better experience for visitors, who can socialize and interact. I believe, rather than changing the concept of public spaces, we are bringing back the essence. The streets and public plazas are the true and original mixed-use spaces that meet multiple needs. Where we meet people, interact with the environment, where we

ANDRÉS GÓMEZ President and CEO of GVA

find local identity, where we should feel safe and in contact. We are trying to bring back those experiences. We are going against the grain by reducing the amount of commercial spaces our centers have because public spaces attract more visitors. Common areas promote inclusivity and a sense of community in neighborhoods because they do not require money or purchases to be made.

We are building open spaces and true mixed-use communities that are close to public transportation and employment centers. Mira is interested in making sure projects integrate communities and have a positive impact on society. Nuevo Polanco in Mexico City has already broken ground. The plans for Nuevo Polanco include three office buildings, retailers and restaurants on the ground floor and 400 condominiums. It will complement developments like Antara, Miyana and Plaza Carso. People who work in the area will have a quiet, quaint area for lunch and residents will have a variety of daily services and a family-oriented place to go.

JAVIER BARRIOS Founder and Director General of Mira Companies

At the moment, prices in the Reforma, Polanco and Santa Fe neighborhoods of Mexico 233

City are extremely high. These neighborhoods also have many infrastructure and mobility problems. Insurgentes Sur has great potential to bring back corporates into the southern part of the city. It has good infrastructure, public transport, a good mix of land uses and demographics. A successful project is not just about having a good space for offices. It is also about having a blend of social classes so that a mixed-use project can actually make sense. Commercial shopping centers with the usual three anchor stores are en route to extinction. In the US, this is already happening and although in Mexico people still prefer them due to security reasons, it will not be long before these

ENRIQUE VILLANUEVA Development Director of Pulso Inmobiliario

kinds of developments begin disappearing. The Torre Manacar commercial center will be smaller but will provide communities with something different.

Cities need to be designed for the people, rather than vehicles. Real estate developers must adapt quickly to the new generations and change their value propositions or risk becoming obsolete. Shopping malls can easily disappear. What matters today and in the future is the experience that space provides. We are continuing to develop different retail spaces that offer the same value proposition and the market is becoming saturated. Simply constructing shopping malls only creates walls and limits the opportunity to make the most of the available land. Our 600,000m2 Distrito Armida mixed-use project in San Pedro Garza Garcia,

MARCO GARZA Founding Partner at GM Capital

Monterrey will integrate health, education, culture, housing, commercial, corporate and service all into one place.

Mixed-use developments are band-aid solutions. The idea of mixed-used projects is to allow inhabitants to work, play and live in the same area. The real problem is that not all Mexicans have access to financing. These islands are not made for everybody but rather for certain segments of the population that can afford it. An example of how mixed-use can create islands is the municipality of Granada in Mexico City. Mixed-use projects Plaza Carso, Miyana and Antara were designed to integrate themselves into the community and improve the area. The community has grown exponentially thanks to these developments making it one of the most problematic areas in the city in terms of mobility. There are no new public transport links for all the people who must commute through that area and no MTS lines pass through it.

DAVID BALTAZAR Former President of Colegio de Urbanistas de MĂŠxico

Quiero Casa's Recinto Development, La Condesa, Mexico City

RESIDENTIAL REAL ESTATE

The housing market is getting back on its feet thanks to Mexico’s expanding upper-middle class. The new Housing Act was passed and it is expected to have a ripple effect on the industry, raising many questions for investors. The government is providing incentives for developers to create sustainable living quarters within cities but there are still many areas of opportunity for the development of social housing. Residential real estate developers face the challenge of understanding the population of the cities they work in. Furthermore, not all cities require the same kinds of projects, as some have greater demand for commercial and mixeduse spaces, especially large urban hubs.

This year’s edition finds companies and the government working to reduce Mexico’s housing gap. Both government and developers have a role to play, working together for the efficient integration of water, electricity, gas and lighting infrastructure, among other amenities. They must anticipate and meet the changing needs of the current generation and those to follow, laying the foundations so future problems can be avoided. This chapter gathers insights from the leading companies restoring Mexico’s housing sector and betting on the country’s growing economy to continue boosting the industry.

235

CHAPTER 9: RESIDENTIAL REAL ESTATE 238

ANALYSIS: How Mexico’s Housing Sector is Creating Islands

240

VIEW FROM THE TOP: Ignacio Bezares, Grupo Lar

243

PROJECT SPOTLIGHT: Luxury Development in State of Mexico for Greener Lifestyle

244

VIEW FROM THE TOP: Antonio Ruiz, Grupo IGS

245

INSIGHT: Javier Barrios, Mira Companies

246

VIEW FROM THE TOP: Eduardo Orozco, Greystar

248

VIEW FROM THE TOP: José Shabot, Quiero Casa

249

VIEW FROM THE TOP: Alejandro Ballesteros, Grupo Copri

250

VIEW FROM THE TOP: Carlos Rousseau, Orange Investments

251

INSIGHT: Alberto de la Garza Evia, IDEI

252

VIEW FROM THE TOP: Marcelo Rodríguez, Grupo Proyecta

254

INSIGHT: Antonio Elosúa, U-Calli

255

INSIGHT: Roberto Kelleher, Inmobilia

256

VIEW FROM THE TOP: Victor Legorreta, LEGORRETA

257

VIEW FROM THE TOP: Rogelio Zambrano, Carza

258

INSIGHT: Humberto Treviño, BECK Mexico

259

INSIGHT: Daniel Tovar, Grupo Acerta

260

ROUNDTABLE: How are Housing Developers Adapting to Younger Generations?

262

VIEW FROM THE TOP: Leopoldo Arnaiz, Arnaiz & Partners

263

INSIGHT: Xavier Valladares, ECOstudio XV

264

INSIGHT: Christopher Heard, Metropolitan Autonomous University (UAM)

265

VIEW FROM THE TOP: Alejandro Aguirre, Panel Rey

266

INSIGHT: Jaime Jiménez, TRANE Mexico

267

INSIGHT: Carmina Zamorano, Carnan Properties

237

ANALYSIS

HOW MEXICO’S HOUSING SECTOR IS CREATING ISLANDS Verticalization is the buzzword of the year among residential developers. But if the 2014 National Housing Plan created by SEDATU and CONAVI was meant to bring people back into the cities and contain urban sprawls, why are people continuing to move to travel an average of two hours to reach their job?

238

Mexico’s 10 largest cities are Mexico City, Ecatepec de Morelos,

For an Infonavit affiliate, the monthly payment would fall to

Guadalajara, Puebla, Cuidad Juarez, Tijuana, Leon, Zapopan,

MX$6,363.02 a month and a monthly income of MX$14,654.31

Monterrey and Ciudad Nezahualcoyotl. Eight of these cities

would be required to qualify for a loan for a MX$750,000

are the motors that drive Mexico’s economy and are home to

house. With a MX$1.02 million mortgage loan, a person

the country’s most important industries. Two are the result

could purchase a home of 46.3m2 or a 25m2 apartment in

of exponential growth, lack of space and rising home prices.

the central delegations in the city. This does not take into

Cuidad Nezahualcoyot and Ecatepec de Morelos have a

account the luxurious apartments in Miyana in Polanco or

combined population of more 2.8 million people and form

in Santa Fe, where apartments start at MX$8 million for a

part of the Valley of Mexico Metropolitan Area (ZMVM).

two-bedroom unit.

The urban sprawl surrounding Mexico City has grown so much

Another factor keeping people away from cities is a change

that it has eaten up various states and municipalities around it.

in demographics. “There are almost 50,000 people living in

The ZMVM includes 60 additional municipalities from the State

Mexico City who are getting married and 10,000 divorcing

of Hidalgo and the State of Mexico, which together have more

each year,” says José Shabot, Executive President of housing

than 20 million citizens. Of these, only approximately 9 million

developer Quiero Casa. “They need housing and when they

live in the actual city and the remaining 11 million live in the

cannot find affordable and decent housing, they move to the

60 other municipalities, such as Ecatepec and Nezahualcoyot.

outskirts, making the existing mobility problems a bigger

According to INEGI’s 2010 housing and population survey, of

challenge.”

every 100 Mexicans, 52 moved from Mexico City into the State of Mexico and in INEGI’s Intercensal Survey in 2015, more than

It is no wonder people are migrating to the State of Mexico.

545,284 migrated out Mexico City.

Ecatepec de Morelos has an average price of MX$7,413 per m2, which means a 60m2 apartment would cost only MX$444,780.

MONEY TALKS

While the cheapest apartment according to Quiero Casa in

According to INEGI’s National Occupation and Job Survey,

Mexico City has a price tag of MX$600,000, and the size

more than 24 million workers earn less than MX$5,000

and safety of the apartment is almost always compromised.

a month. Mexico’s minimum wage continues to be just

Ecatepec de Morelos and Cuidad Netzahualcoyotl also

MX$80.04 a day with exhausting working hours that are

happen to be some of the most dangerous areas not only in

among the highest in the world. With that in mind, Mexico City

the ZMVM but also in the entire country.

(MX$1.53 million) Queretaro (MX$1.45 million) and Morelos (MX$1.21 million) are the three states with the most expensive

OTHER CITIES MUST BE CHEAPER

average when it comes to housing prices. When compared

For five years in a row, Nuevo Leon continues to be the state

to the national average as of 2Q17 of MX$744,943, according

with the greatest level of housing development in the country,

to Federal Mortgage Society (SHF), the concept of bedroom

according to Realty World Mexico. Nuevo Leon developed

cities begins to make more sense.

more than 69,535 homes in 2016, followed by Jalisco with 55,945 and Quintana Roo with 32,440 homes. Prices in

Mexico City’s most attractive delegations are Alvaro Obregon,

Monterrey have also increased along with production. In

Cuajimalpa, Miguel Hidalgo, Benito Juarez and Cuauhtemoc,

the first quarter of 2017, the price of housing has increased

at an average price between MX$22,000-40,000 per m2, an

5.18 percent in comparison to 1Q16, with an average price of

86 percent increase from 2012-2017. By using CONDUSEF’s

MX$744,943, according to SHF. Monterrey was the city with

credit simulator, for a nonaffiliate of Infonavit, the lowest

the highest increase, with 5.83 percent in comparison to 4.50

monthly payment for a mortgage loan would be MX$8,630.85

percent in Mexico City and 4.34 percent in Guadalajara.

from Santander for a house of a value of MX$1.02 million. To qualify for the loan, the applicant needs a minimum income

Just like in Mexico City, Monterrey’s urban sprawl has caused

of MX$20,135.18 a month and after 15 years the total amount

municipalities to mix and now the most populated areas in

paid will be MX$1.9 million.

Nuevo Leon – Guadalupe, Apodaca, Santa Catarina, General

Zauzua and General Escobedo and Juarez – have turned into the Metropolitan Zone of Monterrey. The phenomenon repeats, with high housing prices and the need to commute for more than two hours to reach places of work. San Pedro Garza Garcia is the one of the most expensive cities in Mexico, with a price per square meter of MX$38,312.95. To live at a decent distance from their jobs, people would need to pay approximately MX$2.3 million for a 60m2 apartment. “Many people that work in San Pedro Garza Garcia live in other housing developments with an average price tag of MX$2-4 million,” says Marco Garza, Founding Partner at GM Capital. “Typically, they cannot afford the high-priced homes, education and costs of living in the neighborhood where they work.” People want to live closer to where they work and play, driving the construction of housing back into urban areas. 239

Developers in Monterrey also believe that mixed-use developments could be the cure to the city’s problem. As of 4Q16, there were 24 mixed-use developments, seven under construction, and it is projected that there will be Antara Mixed-Use Development, Mexico City

nine new projects in 2017. But with such exorbitant prices and the average income of Nuevo Leon being MX$7,962 a month in 1Q17, it is out of reach for most families. “The San Pedro Garza Garcia market is a little saturated and Monterrey has other submarkets that are gaining traction,”

The 2014-2018 National Housing Policy wants to bring people

says Carlos Rousseau, Senior Partner and Co-Founder of

back into the cities, but are the right mechanisms in place to

Orange Investments. “The more rural areas of Monterrey

ensure that the cities are inclusive? Mixed-use developments

are beginning to see further commercial developments,

are on the right track, but they are not affordable for the

mixed-use projects and shopping malls being built. I think

majority of the population. “The problem with sprawls appears

in the future, we will start to see a big movement toward

when it does not come from a natural process, but from a

Monterrey’s downtown.”

commercial condition artificially created by the government or developers, mainly due to economic efficiency motives

IS MIXED-USE REALLY THE CURE?

and speculation, even when there is no need for it,” says

Mexico’s cities are only beginning to build upward.

Gabriel Ballesteros, Partner at Ballesteros Mureddu. “If the

Verticalization is slowly taking over the housing sector,

expansion of the city does not come from a growing process

but of the 2,586,438 households in INEGI’s 2016 National

that respects the contiguity of the city, then it creates new

Housing Survey, only 818,661 (31 percent) live in an

spaces whose value will grow within the speculation process.”

apartment complex, and 1,725,214 (66.7 percent) live in an independent house in Mexico City. The number of people

Mexico City’s new Housing Law is a ray of hope for creating

living in an apartment increased 1.8 percent and the number

decent and inclusive living conditions within the city. It will

of people living in an independent house decreased 1.3

allow the use of government land to make more housing

percent from 2014-2016.

developments and has new codes that will grant developers new conditions and incentives. For instance, if developers are

Residential developers in Mexico believe it is a slow

building for Infonavit or Fovissste, they will be allowed to build

but sure transition. “By 2025, millennials will represent

more stories, further verticalizing the city. “Combining these

approximately 75 percent of the country’s workforce,” says

new policies will make land cheaper and in turn will create

Marcelo Rodriguez, Director General of Grupo Proyecta.

lower prices for the end consumer,” says Shabot. “This will

“Currently, there are more than 30 million millennials living

help provide apartments to not only middle class, but also

in Mexico between the ages of 21 and 34 who will be looking

to people who are below middle class. Our homes are within

to either rent or buy housing in the coming years.” New

the range of MX$600,000-2.5 million and our average price

generations want to live closer to their everyday activities,

is MX$1.5 million. But if land becomes cheaper, then we would

but the current housing and mortgage prices do not match

be able to lower the price at least by MX$100,000 in some

the salaries of recent graduates.

of our segments.”

VIEW FROM THE TOP

VENTURING INTO LOWER BUDGET MARKETS IGNACIO BEZARES Regional Director for Mexico and Peru of Grupo Lar

240

Q: How does Mexico fit into Grupo Larâ&#x20AC;&#x2122;s international

Q: What strategies are you implementing to develop

strategy?

affordable social infrastructure in well-connected and

A: Grupo Lar is a Spanish multinational present in seven

centric urban areas?

countries, and in Mexico since 2004. We are real estate

A: The general belief is that there is a need for apartments

developers and investors in different sectors and in Mexico

under MX$2 million in downtown Mexico City. But in my

we are focused on the niche of residential real estate with

opinion allocation of land for low-cost developments within

a maximum value of MX$4 million. The company also plans

the city would create an uneven development of the sector.

to venture into a lower price segment due to the high

Instead, the government should offer the possibility of living

demand in the State of Mexico and Mexico City. Mexico City

in the suburbs and being able to commute to the city in less

is our main niche at the moment. We are looking for well-

than 30 minutes. Instead of pushing to find space in the city,

connected areas in terms of public transport. For example,

public investment should be focused on improving transport

Azcapotzalco is a neighborhood that interests us and,

infrastructure. Mexico lacks policies that foster a transport

despite complicated soil conditions that can compromise

network that would allow families located outside the city to

the integrity of buildings taller than four stories, we believe

commute to work, schools and businesses efficiently.

it meets all our criteria and demand is growing quickly in the area.

I believe the issue is rooted in two main causes. First, there is a need to improve public transport infrastructure,

In Mexico City about 16,000 homes priced above MX$1 million can be sold annually

which demands higher budget allocations. Second, the

Q: What are the biggest challenges for real estate

Q: How do you collaborate with the public sector to

developments in Mexico?

guarantee investment in transport infrastructure when

A: Mexico is an atypical market compared to others

choosing where to develop a project?

we have worked in. For example, in Mexico City about

A: We collaborate by meeting all our lawful obligations.

16,000 residential units priced above MX$1 million can

For example, our last developments were projects of more

be sold annually. Given the cityâ&#x20AC;&#x2122;s population, this is very

than 2,000 residential units, which implies compliance with

low in comparison to similar markets. It is also atypical

environmental and urban impact standards, among others.

because of those 16,000 units, 10,000 will cost over

This demands a substantial tax payment. Also, investors

MX$4 million, which is unprecedentedly low in any capital

must donate 10 percent of the land value to the government.

city in Latin America. The supply of development units

These are the resources that I believe should be allocated to

below MX$2 million in the city is lower than that for units

infrastructure improvement in the surrounding areas. The

above MX$4 million. I believe the main challenge for the

problem is not a lack of resources but their mismanagement,

Mexican market is to implement incentives that allow

which often discourages investors.

government should reinvest the income generated by real estate developers to improve infrastructure for the surrounding areas. As it stands, the government often redistributes resources to other areas that are unrelated to the project that was tax burdened.

developers to supply housing under MX$4 million, which is a neglected segment in which there is huge demand.

Q: How do you manage your joint ventures and strategic

Also, the land available to develop projects in this price

alliances in Mexico?

range is almost nonexistent, given the high price of real

A: Grupo Lar has a strong culture of forming alliances in all

estate in the city.

the countries in which we work. Most of our projects abroad

241

Render of the Gym Building in Grupo Lar's Real de Monteza Development

have been developed with an industrial or financial partner,

longer. For this reason, we are not looking at CKDs at the

but in Mexico 100 percent of our current developments have

moment. We are considering other financial alternatives,

been entirely independent. We are open to having partners,

like raising corporate debt, to accelerate our investment

but we are working alone at the moment because we have

plans in the country for next year, given that our outlook

not ventured into new markets in which we would require

for Mexico is strong.

the expertise of an associate. Our focus remains the State of Mexico and Mexico City, where we have more than 14

Q: What is your most significant project in Mexico at the

years of experience.

moment? A: We have an available land portfolio that would allow

We want to gradually venture into projects below our

us to build 6,500 residential units. Our most important

usual price of MX$4 million. If we eventually begin

investment at the moment is developing 2,800 units in

projects under MX$1.5 million, then we would not have

Bosque Real, which is extremely interesting as we are

the required expertise and would need to enter a strategic

convinced that the new tunnel connecting it with Interlomas

alliance with a partner that could help us understand that

will lead to a significant increase in demand. We believe

specific market. Mixed-use projects, if developed by our

Bosque Real is the cityâ&#x20AC;&#x2122;s last oasis as there is no comparable

firm in the future, would also demand a partner, wherein

area given its connectivity.

we would use our expertise for the residential portion and our associates would be experts in other areas, like office

Our goal is to be a reference point when it comes to

spaces or shopping centers. We find that the current land

housing development by playing a meaningful role in the

opportunities favor these kinds of developments.

MX$4-8 million range. Also, in five yearsâ&#x20AC;&#x2122; time we want to have gained expertise in the MX$2-4 million segment.

Q: What strategies does Grupo Lar use to finance its

The opportunities we want to take advantage of remain

projects?

in the State of Mexico and Mexico City, as we have a deep

A: Grupo Lar Mexico works entirely with the resources

knowledge of this market.

generated by our projects, without requiring corporate or additional financial sources apart from project bank debt. We are aware that some companies raise capital through

Grupo Lar funds and manages commecial, residential,

CKDs to expand their operations. We think that is a good

industrial and corporate assets. Its strategy is based on risk

idea, but it takes about a year to complete this process and

diversification and development of competitive advantages

with the coming change in administration, it could be even

through international alliances

PROJECT SPOTLIGHT

242

LUXURY DEVELOPMENT IN STATE OF MEXICO FOR GREENER LIFESTYLE Just to the east of the hustle and bustle in Mexico City is the green respite of Bosque Real. The sprawling hills are dotted with trees. This is the location Grupo Lar has chosen for its latest Real de Monteza development. This will be an important residential project with a privileged location within Bosque Real Country Club, where safety, nature and quality of life are uniquely united. As the central feature of the project, the master plan considers the development of a quality Club House that spans more than 6,000m2. The interior has been designed to offer unparalleled comfort and excellent recreational facilities, and clients will be able to enjoy sports, social and recreational activities. The Club House will be surrounded by more than 2,000 2 . These homes luxury homes with a total area of 123,000m â&#x20AC;&#x2039;â&#x20AC;&#x2039;

will be high-rise towers that overlook the picturesque vistas and rolling hills of Bosque Real. The towers of the State of Mexico and Mexico City are just visible in the distance. More than 50 percent of the surface will be green and pedestrian areas. The master plan considers pedestrian walkways that place the Club House no more than a fiveminute walk from any of the towers or green areas. Real de Monteza will be divided into 19 lots, which will be developed in different stages for a perfect functionality and design in each of its spaces, generating an environment of harmony and comfort. Real de Monteza is a space that will give residents the unique opportunity to change their entire lifestyle and focus on growing personally, sharing the experience of living in a natural environment with family, friends and neighbors. Located in an area of the state with the greatest trajectory in terms of potential growth, Real de Monteza is not only a life experience, but an excellent investment in the short and medium term. The first two phases of Real de Monteza, both for investors and for end users, have been launched for sale.

243

VIEW FROM THE TOP

FUND MANAGER BANKS ON CKDs ANTONIO RUIZ CEO and Chairman of Grupo IGS

244

Q: How has Grupo IGS worked with Mexican pension funds

through tenders in which construction companies can

to construct social housing in Mexico?

participate. Depending on the type of development,

A: We have introduced three CKDs to the market so far, all in

different strategies are put in place. If the development is

the industrial and residential real-estate sectors. They used

industrial, Grupo IGS rents it to companies through long-

to be exclusively for investing in social-interest housing but

term leasing contracts and sells the portfolio after it has

since INFONAVIT and FOVISSSTE started raising credit limits

stabilized. If it is residential, the units will be sold by the

and financing properties of higher value, this has changed.

developer. When the houses are sold, Grupo IGS retains a

The ability of these institutions to finance costlier residences

portion of the paid price, the financing institution retains

is attractive because it has enabled PPPs. Now, these public-

another percentage to repay the bridge credit and the

housing finance institutions and private financial institutions

developer keeps the rest. This is a good business for

like COFINAVIT can jointly finance the same asset.

committed developers but those who fail to deliver end up losing everything because in such cases Grupo IGS

As a result of the FDI and jobs generated by NAFTA, there is now a residential deficit of between 6-8 million homes in Mexico

retains the rights to the land to ensure the investment. Q: What risks does Grupo IGS take on when acquiring new assets? A: Grupo IGS makes acquisitions only after proper analysis. We then place the asset in escrow and come to an agreement with the developer. The developer can start building the

Launching a CKD requires a solid and complete business

residential development with the money received as a bridge

plan along with the demonstration of the company’s

loan from financial institutions. When the house is sold, the

ability to invest and generate an adequate return. These

financing is obtained by the homeowner through INFONAVIT

instruments are difficult to launch because they are new,

or FOVISSSTE. Risk is distributed over time and to different

having been introduced in 2009, and the first CKD cycles

players. We assume the land risk, the developer the risk

remain incomplete. They require five years to invest and

related to the bridge credit and INFONAVIT and FOVISSTE

another five to disinvest so many organizations that

the house acquisition financing.

raised CKDs do not yet know whether they will return the expected yield. Grupo IGS has been able to offer Afores

Q: What are the main factors that have impacted the

the promised yields of around 16 to 20 percent annually

residential sector’s growth in Mexico?

through investing the resources rapidly and divesting,

A: The residential sector is doing well. As a result of the FDI

selling off the industrial portfolios and the houses.

and jobs generated by NAFTA, there is now a residential deficit of between 6-8 million homes in Mexico. A market

Q: What is Grupo IGS’ role in terms of fund management

with so much demand for housing prevents the creation of

and the building of these developments?

a residential bubble because there are enough resources

A: We do not build directly because it would entail

to finance projects and enough developers to build

a huge conflict of interest. We offer developments

homes. The sector is healthy because it demands highly transparent practices and great discipline in resource management as the resource for financing homes comes

Grupo IGS is a real estate fund manager and developer that

from both employer and employee. This is also the case

has successfully issued various CKDs for the development of

with bridge credit financing; this money belongs to the

social housing. In May 2017, it issued IGS3CK for MX$2.7 billion

people that deposited their savings with the financial

to develop its industrial and housing porfolios

institutions that provide bridge loans.

INSIGHT

USING INTERNATIONAL MIGHT TO CONQUER MARKET JAVIER BARRIOS Founder and Director General of Mira Companies

Mixed-use projects are the new trend in real estate but

Mira is about to call for the first tranche of capital since

companies attempting to break into the segment are

the CerPI was issued in September 2016. “We have chosen

running into financing hurdles. These kinds of developments

to work at a relatively slow pace because there is a lot of

normally require considerable investment and only large

money in the market right now,” says Barrios. “We believe

developers with critical mass can afford to enter this

some assets are overpriced and we are being patient so we

potentially lucrative market.

can find investments priced at the right risk-reward ratio for the CerPI.” These new investments will add to the company’s

Backed by two world-class real estate companies, Mexican

portfolio of projects in Mexico City, Monterrey, Cancun and

real estate developer Mira has attracted the funding to

Baja California Sur. Mira sees the development of mixed-use

issue the first CerPI since these financial vehicles were

projects as a way of providing communities a better quality

created in 2015. Black Creek Group, an American-based

of life and a place where people can spend more quality

real estate investment group, and Ivanhoé Cambridge, the

time with their loved ones. “We are building open spaces

real estate subsidiary of Caisse de Dépôt et Placement du

and true mixed-use communities that are close to public

Québec (CDPQ), are partners in Mira’s mixed-use projects.

transportation and employment centers,” says Barrios.

“Having Ivanhoé Cambridge backing us gives us a lot of credibility,” says Javier Barrios, Founder and Director

There are, however, several challenges to developing such

General of Mira. “With the CerPI, we were able to bring in

large mixed-use projects in terms of working with local

two Afores and one insurance company to co-invest with

communities and municipalities. “Mira is interested in

Ivanhoé Cambridge’s.”

making sure projects integrate communities and have a positive impact on society,” says Barrios. “But developers are

One of the advantages of CerPIs for both the investment

always the bad guys. Nobody wants any obstruction to their

manager and co-investors is the responsibility managers

property and much less a shopping center.” To tackle this

are given to make investment decisions in their areas

situation, Mira strives to foster proper communication with

of expertise, while removing that responsibility from

neighbors and communities. For Barrios, the more sensitive

Afore managers on multiple industries in which they

a developer is to the issues that stress the community, the

are not experts. “The CerPI gives us discretion over the

better the project design and results will be. This enables

investment because Afores no longer need to approve

developers to embrace these issues and resolve them.

these decisions beforehand,” Barrios says. “This takes away the responsibility of Afores to invest in sectors where they

Mira currently has six of these mixed-use communities

are not experts and passes the responsibility to managers.”

under development. Tres Santos in Baja California Sur is

Although Mira is not required to submit investment

giving the town of Todos Santos the first public pedestrian

proposals before technical committees for approval, it

access connecting the town to the water at Punta Lobos.

must report simultaneously to both Mexican Afores and

This project plans to bring in four more hotels and eventually

the foreign institutional investor Ivanhoé Cambridge.

some housing. Before Mira can start selling residential housing

Another particularity of CerPIs is that fund managers must

it needs to position the area as a renowned destination.

contribute at least 25 percent of the total funds raised

According to Barrios, Tres Santos requires more hotel brands

through this vehicle, and this is where Mira’s critical mass

to create traffic and to boost the project’s attractiveness.

and access to funding is key. “It will be hard to replicate

“Homebuyers need to see more established brands to gain a

this vehicle because of the high co-investment the manager

sense of investment security,” says Barrios. Mira is focused on

must contribute,” says Barrios. “The main reason we were

attracting more hotels and wants to close negotiations with

able to issue a CerPI is because Ivanhoé Cambridge is also

them by the end of 2017. To do so, the company wants the

owner of our management company.”

town of Todos Santos to be seen as an extension of Los Cabos.

245

VIEW FROM THE TOP

DEVELOPER POSITIONING FOR AFORE INVESTMENT EDUARDO OROZCO Managing Director Latin America of Greystar

246

Q: As a multifamily property developer and manager, what

Q: What are the challenges in Mexico Cityâ&#x20AC;&#x2122;s regulatory

market characteristics do you look for when deciding where

framework for developers?

to develop?

A: For the first time, the new Federal Housing Law includes

A: The ideal characteristics we look for are comparable around

rental properties as part of its scope. Previously, the focus

the world: we focus on large cities with rapid employment

of public policy was on the volume of people who could be

growth, a young population and a demographic shift. Many

placed in housing rather than on the quality of that housing.

cities are growing quickly and the infrastructure is falling

There are large regions on the outskirts of Mexico City that

behind, which creates a great number of challenges from an

resemble ghost cities because it makes no sense for anyone

urban standpoint. This results in challenges to quality of life.

to live there given the working demographics and geography.

We are interested in at least 12 major cities in Mexico that are highly concentrated in the services industry, which tends to

One of the most encouraging signs as developers and

attract the younger demographic and millennials.

operators is SHFâ&#x20AC;&#x2122;s strong program for providing financing for multifamily developments. Commercial banks are still

At the same time, we see a complex infrastructure

trying to understand the product in Mexico, whereas it is

situation. Take for example Santa Fe, where almost

well-established in countries like the US. Every institutional

200,000 people work every day but there are less than

investor has massive exposure to multifamily development,

15,000 residential units. Between 100,000-150,000 people

which are the second-biggest asset class owned by REITs after

come and go to Santa Fe through two points of access.

retail developments. From a local government perspective,

This opens an opportunity for our market to provide

there have been several changes introduced by Mexico Cityâ&#x20AC;&#x2122;s

really high-quality residential developments with many

new Constitution. We are concerned about the repercussions

amenities and a high level of services for a demographic

from the constitutional changes that make Mexico City a state

with a real housing need and a lifestyle problem.

rather than a special district. Traditionally, we have witnessed that decentralization is not very conducive to transparency or accountability. As an institutional investor that has been present in Mexico for five years, we are committed to the market and we want to participate as much as possible in

There is a requirement for 40-60% more houses because people are living alone or with roommates

the dialogue. Q: Why did Greystar choose a CKD over other financing instruments like CerPis? A: As an experienced asset manager, we are raising and deploying funds from various global investors, including

In a pattern similar to the US in the last five years, we are seeing

insurance companies, pension funds, sovereigns, endowments,

a new preference in Mexico for renting rather than owning.

institutions and family offices. When we first came to Mexico,

There is a much greater drive toward lifestyle and the 24-

we started by investing a dedicated account from a Canadian

hour city wherein people want to be closer to work and have

pension fund and we were successful in deploying that capital

more convenience. The population is more mobile and less

into some landmark projects in Guadalajara and the Mexico

willing to commit, there are more single-person households,

City areas of Periferico Sur and Bosque de las Lomas.

people delaying marriage and parenting and similar trends. As a result, for the same population, now there is a requirement

When looking at the asset class, it makes sense to have the

for 40-60 percent more houses because people are living

returns denominated in the same currency as the investment.

alone or with roommates rather than in large family units.

The rents in Mexico are and always will be in pesos because

AmĂŠricas Country, Guadalajara, Greystar

people are paid in this currency. When we grow in a new

residential were operating at a 96 percent rate. In the depths

country, we always try to find a balance of new investors,

of the crisis, our occupancy rates fell to 93 percent, while

and these tends to be local investors because they have a

office portfolios dropped to around 80 percent due to the

presence and know the market. For us, strategic partners like

different risk profiles.

Afores are the right move in the Mexican market. Q: What are the main challenges you encounter in attracting We chose CKDs over other types of instruments because

investors?

we knew Afores had never had access to these asset classes

A: We have had a lot of interest but the queries are more

because they had never been formally developed in Mexico.

about the asset class rather than about us as a manager.

We thought a CKD would bring in different kinds of investors

There is a preconception associated with renting that links it

so they could familiarize themselves with the asset classes

to instability, to the extent that in 80 percent of our meetings

and understand how we carry out our business as investor

we are asked about this. The difference comes in the sheer

manager, developer, and operator of core buildings. We

size and scale in which we are working because many of

also believe that CKDs are relatively simple instruments for

these ideas are related to informal apartment owners who

both investors and managers. Our plan going forward is

have all of their patrimony invested in the apartment and do

that once we are successful in deploying the capital from

not have the resources to screen those renting the property

the CKD we want to pursue other opportunities related to

or respond when the tenant is not paying.

these instruments so we have a long-term commitment to the market.

When operating 500 apartments, each individual unit is a tiny part of the overall cash flow, meaning that if one tenant

Q: How do you mitigate risks associated with a potential

is unable to pay or throws up legal issues, it will not affect our

housing market slowdown?

return. One of the most important things we do is to screen

A: In Mexico, our business plan is to build 10,000 units in the

those who will rent in our building and to do so, we examine

next five years. Right now, we are in the process of building

several different factors. We gauge the risk profile and, based

1,500 units and we want to speed that up considerably. To

on the outcome, we personalize the level of requirements,

achieve this, one of the most important questions is funding.

including security deposit, insurance policy, co-signee or

We believe the Afores have the opportunity through our CKD

letter of recommendation from the employer. In addition,

to gain access to an asset class they do not have to date.

since we control the operation of the asset with technology

Traditionally, the risk spectrum of the multifamily product has

and a team in the building, we have protocols to address all

been significantly lower than that of other asset classes in the

the potential operational challenges that come up. This is the

real estate world because housing is a basic need that is less

real value add of an experienced and institutional operator.

prone to the macroeconomic environment. From a market perspective, the last expense people will cut

Greystar provides world-class services in the multifamily real

out when the economy slows is rent, since a living space is a

estate business. Its innovative business model integrates the

basic need. When examining occupancy rates of our portfolio

management, development and investment disciplines of the

of 350,000 units during the crisis in 2008-2009, office and

multifamily industry on international, regional and local levels

247

VIEW FROM THE TOP

MAKING RESIDENTIAL MORE ACCESSIBLE JOSĂ&#x2030; SHABOT Executive President of Quiero Casa

248

Q: What are the main factors that have led the company to

will also allow government use of land to construct even

capture 12 percent of the Mexico City market as of 2017?

more housing developments, as well as the creation of new

A: High demand is among the factors. The second-largest

housing programs. The law also encourages neighborhoods

player in our area has only a 4 percent share. A reason why

within Mexico City to prioritize residential zoning when

we have been able to differentiate ourselves is that we invest

creating its codes. Besides the law, new codes were passed,

a great deal in developing alongside communities. A new

one of which grants developers the permission to build more

development should not impact neighboring complexes in

stories if they are building for Infonavit or Fovissste credit

a negative manner, especially when it comes to water and

holders. If our clients have access to these loans, we will now

energy supplies, as well as transportation and environment.

be able to construct taller buildings with more apartments.

Quiero Casa dedicates 2 percent of its construction budget

Combining these new policies will make land cheaper and

to improvements in the community and construction of new

in turn will create lower prices for the end consumer. This

social infrastructure surrounding our projects, such as parks

will help provide apartments to not only the middle class but

and sidewalks. Our goal is to create infrastructure that makes

also to people who are below middle class. Our homes are

communities more sustainable. This is something that allows

within the range of MX$600,000-2.5 million and our average

us to open developments in different parts of the city and with

price is MX$1.5 million. But if land becomes cheaper, then we

this strategy we sell 1,700 apartments every year in Mexico

would be able to lower the price at least by MX$100,000 in

City. The institutionalization of our business has also played

some segments. The cheapest apartment in Mexico City is

an important role in our growth, bolstered by our focus on

MX$600,000, but with greater land availability, we can lower

corporate governance, systems and processes.

that another 10 percent.

The cheapest apartment in Mexico City is MX$600,000 but with greater land availability, we can lower that 10%

Apart from facilitating development, new government codes stipulate that developers must now show their projects to their neighbors, who along with community groups will be part of the process to accept the construction of new developments in their communities. Despite the fact that some developers might think that it will be a large challenge to include communities in these processes, I think including communities will bring long-term sustainability to our projects. Q: How will the company continue to finance its growth

Q: What impact will the Mexico City Housing Law and Human

and develop more apartments in the coming years?

Settlements Law have on housing developments in the city?

A: We have enough equity resources to buy land and maintain

A: I actually think that it was great news for the industry

our size with the private funds we have structured. These

that a new Housing Law was passed. This was actually the

funds come from Mexican high-net worth individuals and

first housing law in the history of Mexico City. The new law

family offices. However, due to the expected growth of our

dictates that every citizen has the right to have a house. It

company and the opportunities we see in the market, we will need more resources. That is why we secured joint-venture agreements with institutional real estate private equity

Quiero Casa is a developer and construction company that has

funds in the last few years. In terms of debt, we have a close

been operating in Mexico since 2009. Quiero Casa strives to

relationship with 13 commercial banks that provide us with

build homes that offer the highest quality of life for Mexican

construction bridge loans. That is the only form of debt that

families at an affordable price

we use and we do not want new debt products.

VIEW FROM THE TOP

KING OF DEVELOPERS TAKES INVESTMENT DAY BY DAY ALEJANDRO BALLESTEROS Commercial Development and Marketing Director of Grupo Copri

Q: Why has Grupo Copri decided to invest MX$10 billion in

it just takes common sense to profile them. People continue

projects through 2020 in Mexico, given the uncertainty in

to look for nice neighborhoods that are close to their jobs and

the market?

to their recreational activities. Of course, they demand that

A: Residential, commercial and office developments are long-

technology is well integrated into their day-to-day activities,

term investments. One must make decisions one day at a

which is why we are incorporating it into our developments.

time, accelerating or slowing down the rhythm of investment

Companies must always be aware of emerging trends and be

depending on demand. We continue to invest and we believe

prepared to improve the quality of life of consumers.

in the success in both the country and the real estate sector. Nobody knows what interest rates or the exchange rate of the

Q: How has collaboration between the government entities

peso will be like in the next months or years, or the impact

and developers improved?

that market volatility will have on demand. These factors will

A: It is crucial that projects are developed in cooperation

impact the market, but it is the medium to long-term vision

with government authorities and through the ADI, we have

that allows us to continue our plans. Year by year, or quarter

been able to work more closely together. It is extremely

by quarter, we will make the adjustments necessary to balance

important that we as developers understand the problems

out the rise in commodity prices, the US dollar and interest

and demands of both the government and a project’s

rates. It is difficult to tell how much concrete or steel will cost,

neighbors. Grupo Copri’s philosophy is to be involved in

we can only predict. If the economy is healthy, some projects

developments that benefit the neighbors and that are in line

can be finished in four to five years, but in a slower economy

with the government’s growth plans. Projects must have a

they could take another two to three years to complete.

positive impact on the surrounding area and contribute to a better quality of life of its clients. We take advantage of

Q: What factors did you take into consideration when

the infrastructure that already exists and contribute to the

choosing projects?

improvements that are needed. All players must understand

A: The sector is aware that there is a residential deficit,

this because it is the only way in which we will create a win-

especially in areas such as Santa Fe, and that it has become

win situation for all involved.

complicated to find good land. Therefore, we will continue to develop well-located residential projects where we

Q: What states or cities have the highest investment potential

have been able to acquire land. There are many cities with

in the next two years?

big demand for commercial developments. Large urban

A: Queretaro without a doubt continues to grow, although

hubs such as Mexico City have land shortages, increasing

there is speculation that it will expand at a slower rate than in

the demand for mixed-use spaces that combine housing,

past years. Quintana Roo, Playa del Carmen and Cancun are

commercial and corporate developments. Mexico City also

also growing at a rapid pace. Competition is growing stronger

has a surplus of offices spaces for rent. However, there are

and new developers are entering the arena each year, which

many investors looking to make medium to long-term

is why we must continue to create sustainable developments

investments in office spaces. Of our three office projects,

that improve our client’s quality of life. Our next big projects

two will offer offices for sale.

are the Encinar and Sky Offices in Mexico City, Mision del Parque in Queretaro and Lunamar in Playa del Carmen.

Q: Rental housing is growing rapidly in Mexico. How will Grupo Copri adapt to the preferences of future generations? A: We are not in the rental housing business but we do

Grupo Copri is a 100 percent Mexican company, created in

recognize that it is a growing market. We are considering

1991. It is one of the most important developers and builders

selling parts of our residential projects to rental housing

in the national market for increasingly ambitious real estate

experts. Millennials are not so different from past generations;

projects

249

VIEW FROM THE TOP

DISRUPTORS COULD CAUSE PROPERTY BUBBLES, DEVELOPER WARNS CARLOS ROUSSEAU Senior Partner and Co-Founder of Orange Investments

250

Q: How would you evaluate the residential market in

Q: What needs to be done to curb this behavior and

Monterrey and what hurdles do you anticipate?

stabilize the market?

A: Monterrey is a large city with various submarkets.

A: First, it is necessary to invest responsibly. There are

Right now, we are working in San Pedro Garza Garcia,

seasoned investors who have a great deal of money but

which is the neighborhood with the highest income

do not spend unless they find the right project. But the

per capita in Monterrey, so this is where most high-end

system is designed to provide incentives based on speed,

projects are focused. That market is a little saturated

which is the real problem. CKD guidelines say the money

and Monterrey has other submarkets that are gaining

must be spent within three years or it will be removed.

traction. The more rural areas of Monterrey are beginning

This is not conducive to an environment of responsible

to see further commercial developments, mixed-use

investment. Having said that, I believe the country has many

projects and shopping malls being built. I think in the

opportunities. We are underdeveloped in many markets

future, we will start to see a big movement toward

and we need to understand that Mexico is not only Mexico

Monterreyâ&#x20AC;&#x2122;s downtown. The traffic in San Pedro Garza

City, Monterrey and Guadalajara. People are beginning

Garcia is becoming unmanageable and the millennial

to understand this, with developments springing up in

generation wants to live close to their places of work

alternative locations, such as the Bajio region, Puebla and

and entertainment. At Orange, we are working on a huge

Merida. But there are other markets, such as Tijuana, Cancun

project downtown that will have 12,000 units. This is more

and Aguascalientes, that are largely overlooked but have

of a middle-income development because that is where

a great deal of potential. And in certain mature markets

we feel our residential portfolio is lacking. All the projects

like Mexico City there is a need to provide alternative

carried out in San Pedro are carried out with a lot of

infrastructure like multifamily rather than providing more

equity as there are many wealthy people who develop or

of the same.

buy these units as an investment. The traffic situation in San Pedro is becoming untenable and, with the desire to

Q: What strategy is Orange Investments implementing to

live close to the centers, I predict future developments will

overcome challenges and continue expanding?

move away from traditional areas in Monterrey.

A: We have always tried to differentiate ourselves from others by investing a great deal in intelligence. We diversify

Q: What is your opinion about the various financing

our operations across the country and outside Mexico so

vehicles that are available on the market?

that we are not overly vulnerable to the cycles of one

A: There is a lot of money to invest in the infrastructure

market. We have in-depth data and comparisons of different

industry. This can be a cause for concern because there

markets, products and services all over Mexico, and this

are many people willing to spend a lot of money who are

gives us a good indication of where the main opportunities

not necessarily equipped with the market intelligence to

are. There are certain trends that Mexico is just starting to

carry the projects out successfully. Many markets have seen

see, like multifamily and for rent. Our strengths lie in this

these disruptive projects and this can also lead to bubbles

intelligence and in our creative culture, and when combined,

due to the sheer amount of funding available, especially

we can create great products.

from Afores. We want to expand quickly. We are in the process of raising a large fund and that will give us more traction and help make Orange Investments is a real estate developer that specializes

us more dynamic in Mexico. We see this as a race because

in business intelligence, consultancy and finance strategies. It

there are many players and often, the one that is first to

has completed several developments across Queretaro and

market comes out on top. We work with many international

Nuevo Leon

and local funds. Right now, we are raising our own fund.

INSIGHT

VERTICIAL HOUSING GAINS TRACTION Monterrey is one of Mexico’s largest cities, with a housing market that has two competing sides: horizontal and vertical. Each has its own challenges but Alberto de la Garza Evia, Executive President of the Administration Council of IDEI, says that not only is the vertical segment gaining traction but the trend will transform cities and ultimately save money. “Horizontal housing’s largest challenge, which benefits the vertical sector, is that the country is finally changing the way cities are built. By creating more compact cities we can save up to 70 percent in public infrastructure,” says de la Garza Evia. The two sectors that continue to prosper in Monterrey are the plus and the luxury residential developments. In 4Q15 to 4Q16 period, 37,646 homes were sold in the

“

Horizontal housing’s largest challenge, which benefits the vertical sector, is that the country is finally changing the way cities are built. By creating more compact cities we can save up to 70 percent in public infrastructure” Alberto de la Garza Evia, Executive President of the Administration Council of IDEI

metropolitan area of Monterrey, of which 34,436 were horizontal and 3,210 vertical homes. Monterrey has had

beginning of 2017, the company decided to sell it. “Our

the largest growth in value of m in middle-high vertical

original intention was to either keep the building within

housing, according to Tinsa’s Monterrey report.

our rental portfolio to become part of a Fibra or to create

our own Fibra. In the end, we decided that it was better National Housing Program 2014-2018, a government

for the company to integrate itself into an already existing

initiative to bring housing back to cities, and the sector’s

Fibra instead of entering a business area we are not

positive growth spurred IDEI to change Monterrey’s

overly familiar with,” says de la Garza Evia.

skyline with the tallest mixed-use construction in Mexico, which started construction in 2012. The 279.5m Torre Koi

De la Garza Evia believes that it is extremely important

overlooks Monterrey’s metropolitan area. Torre Koi’s 65

to take control of its finances in order to grow each year.

floors include 27 for offices and 37 for apartments.

“For each project, we assign a liquid amount of capital and credit from a bank. Each project is handled as if the

According to de la Garza Evia, one of the most challenging

company’s growth depended on it, which reduces risk

tasks was acquiring the more than 34,000m2 of land the

for each project. Many developers are tempted to take

project demanded. “Obtaining land is usually one of the

money from one project for another project that may be

most challenging phases of any project because not only

in trouble,” he says.

is land scarce, it also must have the appropriate land-use permits,” he says. It is also crucial that in buildings as

The company has been a pioneer in the Mexican real estate

tall as Torre Koi, architects work simultaneously with the

market, with most of its experience based in Nuevo Leon

engineers to ensure the aesthetics go hand-in-hand with

and Texas. One of its short-term goals is to start developing

efficiency, cost and time.

projects in other cities in Mexico and at the moment, the company is scouting locations. “We have our sights set on

That sometimes means looking abroad for help.

Guadalajara, Mexico City, Leon and Tijuana. Mexico City

“Coordination between contractors is an intricate task

is where we want to move next but we need to decide

and although we wish we could have involved only

how our business strategy is expected to unfold there.

Mexican companies in this project, the amount of

Mexico City has about 60 percent of the country’s shared

experience required was more than what the local market

capital,” he says. De la Garza Evia says that IDEI is also

could offer at the moment,” he says.

looking into evaluating the type of business model that would best suit its entry to these new markets. “So far, we

IDEI has developed several vertical housing developments

think that a partnership may be our best option because

in Monterrey, including Saqqara. Saqqara, a 38-floor

we can exchange best practices and be successful in each

housing tower, was completed in 2016 with an investment

new market we decide to enter. We look for three qualities

of more than MX$1.5 billion (US$82 million). But at the

in our partners: professionalism, experience and ethics.”

251

VIEW FROM THE TOP

PLANNED COMMUNITIES TO ATTRACT YOUNGER GENERATIONS MARCELO RODRÍGUEZ Director General of Grupo Proyecta

252

Q: What differentiates Grupo Proyecta from other companies

municipalities. This experience has allowed us to become

that offer the same products or services?

facilitators for companies that want to develop or construct

A: The difference is the high quality of the product we

housing by providing them with the basic services like water

deliver and the accessible prices we offer. We believe in

and electricity and by securing the permits needed for them

giving a life experience to all our clients. We offer a variety of

to construct.

parks for each of the residents’ needs, including parks with lakes, waterfalls, different areas for sports courts, as well as

Q: How has the company created strategic alliances with

water parks or pet parks. We create planned and purposeful

other housing developers and construction companies?

communities that are ready for investment, which is why we

A: We have clients that purchase one lot for residential

offer attractive payment plans. We always obtain the best

home construction, and others that purchase several to

capital gains from the real estate market.

secure midterm capital gains. There are local construction companies that build 10-15 homes and others like Ruba

Q: As land grows scarcer, how will Grupo Proyecta approach

and Urbana de México that build on a much larger scale.

land acquisition for its larger developments?

These companies purchase large territorial reserves they can

A: We decided that we had to have a team within the

develop in three to five years. Vertical housing developers

company dedicated full-time to purchasing land for projects

are also starting to look at us. Companies like Frondoso,

in different states such as Guerrero, Guanajuato, Yucatan

Metropolis, Baita and Arquitectoma are now developing

and Puebla. Because we create supporting infrastructure for

vertical housing within our projects and even though they

the developments, we have to work closely with the various

are targeting a different market niche, they still work with our

supervision to create communities. We have various strengths

from traditional schemes into more flexible credit plans. We

regarding the design of the masterplan and landscape, as

now have a partnership with BBVA Bancomer whereby the

well as the commercialization, management and operation

bank will provide our clients a preferential rate called Tasa

of the developments. This has caught the eye of companies

Lomas. Having this preferential rate could highly increase

that have large land reserves and they have begun to reach

sales at our developments and will continue helping the

out to us to propose joint-construction initiatives, which was

company finance its future projects through presales. We are

the case with our newest project in Merida.

also developing a product for new graduates above the age of 22. This product will have lower monthly fees and provide

Another project we are developing is a housing project over

a stepping stone to owning their first real-estate asset.

more than 210ha in Irapuato. This project will not only serve the market in Irapuato but is also designed to attract markets

Q: What were the defining factors in the companyâ&#x20AC;&#x2122;s decision

from Silao, Celaya, Salamanca and Leon. This is possible

to create Lomas de Angelopolis in Puebla?

thanks to the construction of various highways that link the

A: Grupo Proyecta began constructing in Puebla after

Bajio region. It is important that we diversify and adapt to

identifying the large area of opportunity in developing

local demand.

well-integrated residential projects with a good location and planned connecting infrastructure. The housing

Q: How does the group finance its projects and how has its

developments we are creating in Puebla prioritize green

strategy evolved to attract newer generations?

areas, as well as the development of commercial and social

A: The products we develop are all sold during the presale

infrastructure within the neighborhoods. As of June 2017,

period of the project and that income is reinvested in new

we have more than 25,000 homes within our developments.

developments. To this day, none of our developments have

We decided to look for the best players in the international

required bridge loans and no partner has had to invest further

market to help us create communities, not just housing

for the development of supporting infrastructure. We have

developments. We work with EDSA, Cal y Mayor, Michael

been successful with presales because potential buyers can

McKay, WATG, DTJ and Federico Bautista, which are the best

come and see the homes. Seeing the development firsthand

in their field and have many years of experience.

along with all the amenities that are included convinces them that it is the right investment to make. Grupo Proyecta strives to innovate the development of real

We have developed closer relationships with banking

estate projects for future generations. It has developed over

institutions to analyze various sales structures, such as trusts,

860ha and sold over 25,000 lots. One of its largest projects is

to offer new solutions to our clients. We want to move away

the renowned Lomas de Angelopolis, located in Puebla

Lomas de AngelĂłpolis, Puebla, Grupo Proyecta

253

EXPERT OPINION

SOCIETY TAKING BACK RESPONSIBILITY FOR CITIES

“ 254

What our cities need are plans. We have to take advantage of the little space that is left in urban areas by creating better infrastructure and densifying the area, and nobody knows how to do this better than the private sector. As long as the public and private sector continue to pass the buck, Mexico’s cities will continue to spiral out of control. But together, we can restore our cities and communities for future generations. In the case of Valle Oriente, the difference in comparison with other municipalities was staggering and eventually, even the government wanted to be involved. In 1993, the State of Nuevo Leon decided to create the Trust for the Realization of Road Works in the Zone of Valle Oriente and Adjacent Areas (FIDEVALLE) to fund not only the construction of the Loma Larga tunnel but also bypasses and other roads that would connect Valle to other municipalities.

Monterrey’s city center has become a neglected district filled with abandoned land and homes. But slightly to the

Halfway through the construction of the tunnel, the project

west, San Pedro Garza Garcia is emerging as one of the

was halted due to a lack of funding. Knowing the importance

most luxurious neighborhoods in Mexico, with the cost

of connecting Valle Oriente to the city’s center, the private

of A Class residential space coming in at US$24.08/m ,

sector stepped in once again to bridge the gap. With the

just behind that of Mexico City at US$26.15/m2. Within

project running a MX$80 million deficit, landowners divided

San Pedro, and just a 10-minute drive from the center’s

the amount among themselves by placing mortgages on

notorious Barrio Antiguo neighborhood, Valle Oriente can

their land using the Specific Improvement Tax. This provided

be found nestled on the south bank of the Santa Catarina

a capital gain on the properties and allowed owners to pay

River, setting the precedent for the private sector to carve

off their mortgages little by little. The neighbors continued to

exclusive and efficient neighborhoods out of the city and

collaborate on the improvement of the area, making it one of

juxtapose them against less exclusive areas.

the country’s best neighborhoods to live.

The Loma Larga tunnel acts as a border between old

The Valle Oriente example has now had a multiplying

and new: the historic center and San Pedro Garza Garcia.

effect within San Pedro and its surroundings and each day

High-rise buildings dominate the skyline and the buzz of

developers tear down ancient buildings, creating apartment

the financial district can be felt in the air. But it was not

complexes and with it raising land prices. The housing

always like that.

market has grown exponentially in the last few years and the

competition has become fiercer. Within Valle Oriente itself there used to be more than 200ha of land owned by hundreds of different

Since 1972, U-Calli not only saw the transformation of

stakeholders. These various owners, myself included,

Monterrey’s neighboring municipality, Valle Oriente but

decided to work together to create the first well-planned

played a major role in constructing it. U-Calli stands

district in Monterrey. Together we developed the region,

for “Urbanizadora Calli” – Calli meaning “the place

raising the value from US$250/m to more than US$2,500/

where one lives” in Nahuatl. We started out as a small

m2. We created the city’s blueprint, zoning specific areas

construction company, building small housing projects

for commercial, housing and corporate spaces.

in Santa Maria, one of the richest areas in Monterrey.

Based on the principles observed in the Valle Oriente When it comes to infrastructure, there is an ongoing debate

neighborhood, we decided to apply our urban planning

regarding who bears responsibility for developing it. Society

expertise and become a developer. Instead of waiting

tends to place all responsibility on the public sector but in

for the government to invest in the region’s growth, we

reality, the private sector could be more involved in developing

took the reins and were able to make a greater impact on

well-planned infrastructure for Mexico’s future cities.

Monterrey’s urban planning and development.

INSIGHT

SUPPORTING INFRASTRUCTURE TO IMPROVE PROJECT VIABILITY While many residential developers have their eyes fixed on the large urban centers like Mexico City, Guadalajara and Monterrey, Inmobilia prefers to focus on the lesserserved growing cities like Veracruz, Villahermosa, Merida, Campeche, Cancun and Tulum. “Our company is primarily focused on medium-sized cities with a population over 1 million,” says Roberto Kelleher, the company’s CEO. “We prefer these areas over Guadalajara, which has a great deal of competition.” The company has a large pipeline of projects for the coming 15 years. It is developing a 100ha project in Tulum, the design for which will be completely eco-sustainable.

“

Our company is primarily focused on medium-sized cities with a population over 1 million. We prefer these areas over Guadalajara, which has a great deal of competition” Roberto Kelleher, Director General of Inmobilia

The development includes a hotel, housing and a shopping center. In Cancun, Inmobilia has a large luxury residential

invest with us in infrastructure that can help both the city

complex called Novo Cancun, where it has already

and our projects.” In the past, he says Inmobilia has donated

completed the sale of SLS Cancun, a hotel and residential

land to the government to improve both the viability of

tower. It is about to start its second development of this

its projects and access routes. “Projects need to be in

kind in Cancun, while in Merida, its mixed-use development

an optimal location and we invest a great deal in road

Via Montejo is planned to include 1,100 apartments.

infrastructure,” he says.

Inmobilia strives to understand the population of the cities

Inmobilia not only cooperates with the public sector but

it develops projects in. In Tulum, 65 percent of its clients

also works a great deal with complementary companies

are foreign and the rest are national. Of the foreigners, 80

in the private sector. “Partners are important because

percent are Europeans. Playa del Carmen and Tulum tend

they complement our skills and abilities to make sure our

to attract more Europeans while Cancun is composed 60

projects are the best in the market,” he says. “As developers,

percent of nationals and 40 percent foreigners, mostly from

we specialize in vertical residences, luxury housing and

Canada and the US. On the other hand, half of Merida’s

creating communities. We fill in the gaps with strategic

market comes from other parts of the country, such as

alliances.” For example, when developing Via Montejo,

Monterrey and Mexico City. This flow of internal migration

Inmobilia felt Thor Urbana was the best choice with which

to Merida is made of people in search of a better quality of

to create not just a fashion mall but a lifestyle center. It

life, and this is a need Inmobilia is eager to meet.

also has an international partnership with Related Group in Miami, the biggest luxury housing group in the US and

Although developing in these smaller cities means Inmobilia

is using this expertise to create projects in Cancun, a city

comes across fewer problems related to land availability,

that is similar to Miami.

there are other considerations. “There is a scarcity of land in larger cities but an abundance in smaller towns,

Inmobilia executes a thorough socioeconomic study of the

and most often the terrain requires a heavy investment in

clients to understand them and their financial needs. Only

infrastructure,” he says. For instance, although Inmobilia’s

then does it create a credit plan through its alliance with

400ha Yucatan Country Club project was categorized as

Banorte. “The plan provides clients with a fixed-payment

the best residential project in Latin America, as a result of

scheme, for instance MX$30,000 on a monthly basis for 30

its complexity and size, the process was similar to building

years,” Kelleher explains. This payment scheme can work

a small city. “We needed to consider investment in lighting,

well for millennials, and he says the younger generation is

water-treatment plants and access,” he says.

one demographic the company is following closely. “Most millennials are not interested in buying houses. They are

This infrastructure gap normally requires a great deal

getting married later and thinking less about families,” he

of communication and cooperation with government

says. “This means that people up to 35 years old prefer

authorities. “We usually negotiate with governmental

to live in apartments that are 45m2. We are developing

authorities at the municipal, state and federal level to co-

innovative projects using these trends as a springboard.”

255

VIEW FROM THE TOP

GENTRIFICATION A CATALYST FOR NEW HOUSING TRENDS VICTOR LEGORRETA Managing and Design Director and Partner at LEGORRETA®

256

Q: What are the main architectural trends to incorporate

It must be said that sometimes it can take years to fully

sustainability into buildings?

recover the investment when incorporating these methods

A: Fifty percent of global energy consumed is by buildings and

and materials but this does not negate their importance. I am

25 percent by transportation so the way we plan cities and

very happy that younger generations especially are placing

construct buildings has an effect on 75 percent of total energy

more emphasis on sustainability and are willing to choose one

consumption. As architects and urban planners, we have a

property over another due to this factor. For designers and

great deal of responsibility in designing for the future and I see

for the developers that pay attention, this is a considerable

this as a big opportunity. The most in-demand designs will be

opportunity, not only for apartments but also for workplaces.

more eco-friendly and sustainable and now new materials and

People are really placing extra value on this.

elements will begin to be used in a much more creative way. In some ways, we will also go back to traditional architecture,

Immediately when incorporating these features, the

incorporating more natural light and cross-ventilation and

architecture begins merging with the culture and location of

using more locally sourced materials.

Mexico. The company is working on a Four Seasons hotel on the Pacific coast with Taller de Arquitectura Mauricio Rocha

Q: Why are you trying to achieve the Living Building standard

+ Gabriela Carrillo, and at the beginning the hotel wanted

with your Casa Encino project?

to adhere to a certain standard it incorporates globally.

A: The client was particularly interested in the standard and

Subsequently, the hotel carried out a study to determine what

wanted the building to blend in with the landscape since it is

holidaymakers valued and ultimately the results showed a

located in the middle of the woods. We explored a variety of

greater value placed on a reflection of the local culture within

options, including recovery of rainwater, installation of solar

the hotel’s architecture. Their customers want the Mexican

panels and use of natural materials and cross ventilation. The

experience when staying in a Mexican hotel. We are now

landscape is based on local vegetation so no additional water

working with two clients from the US and one from the UK

is required for the plants and an orchard is part of the property.

on building houses in Los Cabos, Baja California and all three

It made us think of solutions we had never considered before.

requested that Mexican culture be incorporated into their

This project also taught us that it is important to be flexible

dwellings from the outset, while remaining contemporary.

and not remain attached to a preconceived idea or way of working. With Encino, we examined the overhangs to evaluate

Q: This year, where are the key areas for real estate

how much they would have to be extended to offer protection

development in Mexico City?

and also considered how the architecture would look. These

A: We are beginning a project in Lindavista starting a large

decisions should not be looked at as a constraint but more

development in Satelite that will involve converting industrial

as an opportunity.

areas to residential. I think these are the areas that have a lot of opportunity as well as others in the north of the city around

Q: What is the main added value you can offer developers

the same area. The rapid gentrification of the Roma and

looking to work in residential real estate?

Condesa neighborhoods is now beginning to spread to Juarez

A: One benefit is lower maintenance due to our focus on

and Reforma in the north and Del Valle and Narvarte in the

eliminating waste and increasing sustainability in our buildings.

south. Development will largely be concentrated in the center of the city in these key areas. Previous government policy was horizontal development on the outskirts of the city, which was

LEGORRETA® is a Mexican architecture firm founded in 1965.

completely unsustainable, especially when considering today’s

During the 1960s and 1970s, LEGORRETA® was recognized for

changing demographic. Young people now want to live in the

iconic Mexican works, such as the Camino Real hotels in Mexico

same area where they work so neighborhoods can develop

City, Cancun and Ixtapa

organically, which is much more sustainable.

VIEW FROM THE TOP

PROVIDING QUALITY OF LIFE, NOT JUST APARTMENTS ROGELIO ZAMBRANO Director General of Carza

Q: What factors have fueled Carzaâ&#x20AC;&#x2122;s success in the housing

value we want to provide. We are working in the San Nicolas

market?

municipality in Monterrey, where we believe apartments will

A: We are a family-owned business with over 36 years of

greatly benefit the community.

experience in the industry and I think our success has been due not only to very good planning but more importantly, to

Q: How do you stress the advantages of vertical developments

good execution of those plans. It can also be attributed to a lot

over horizontal buildings to your clients?

of hard work and perseverance because we have undergone

A: Over 90 percent of people in Monterrey live in homes

very hard times. Plans do not always go accordingly but

rather than apartments because there is not yet enough of

because we have remained nimble, we have been able to

an offering for the latter. The buildings Carza proposes are not

react quickly to changes in the market. All our projects are

standard apartment buildings but are more family oriented

designed in such a way that they are executed to meet the

and community-focused. I think we can provide a better

current market needs, which has served us well.

product offering than a home, especially regarding location. The city continues to grow horizontally and construction

Q: What lessons have you learned from the challenges you

space is limited. Traffic is becoming an issue because of

have faced?

population density so a location close to office districts,

A: One lesson that has been clear is that constant contact

schools and hospitals can be invaluable to many clients.

with clients is essential. We need to always anticipate their needs and, in this case, we need to know what kind of houses people want to live in. We also have to take the market into consideration, which means being familiar with the financial constraints of our target demographic. Q: What are the emerging trends within the Monterrey market? A: We focus on the MX$1-5 million market, with the bulk being between MX$2 million and MX$3 million. Having said that, I foresee greater population density in the Monterrey market.

Carza focuses on the MX$1-5 million market, with the bulk being between MX$2-3 million

For a long time in Monterrey, there was a perception that people would dislike apartments but this no longer seems to

Q: What projects is Carza developing for 2017-2018?

be the case. I think we are seeing that residential buildings

A: We are executing Cantera right now and we just started

contribute a lot to the economy and to society because they

a new project called Living San Nicolas in the San Nicolas

allow us to make more efficient use of taxes by having all the

municipality. This development has around 720 apartments

necessary amenities within one community. Even though more

and is also a project where we are looking to create a

manpower would be required for these urban centers, they

community rather than just a housing development. We

would require less infrastructure. For example, although these

also have another project in the Huixquilucan municipality

areas may demand more teachers and police officers, they

in the State of Mexico.

would require fewer physical schools and police stations. This also contributes a great deal to community relations because it breeds tighter-knit communities. One of our upcoming

Carza is a leading Mexican developer that focuses on creating

projects is Cantera, which we believe is in a very good location

real estate that improves quality of life for its residents. It has

and that is extremely important because it contributes to a

developed more than 7.1 million m2 in residential developments,

greater quality of life for our clients. Quality of life is the added

136,000m2 in commercial and 7.1 million m2 in industrial

257

INSIGHT

INTEGRATION CHANGES RULES OF THE MARKET HUMBERTO TREVIÑO Director General of BECK Mexico

258

Today’s society is demanding ever more convenience and

When the tourism industry slowed, BECK found that urban

construction companies are no stranger to this trend. Twenty-

projects began to gain traction so it moved with its clients

four years ago, US construction company BECK merged

into major cities like Mexico City, Monterrey, Queretaro and

with an architecture firm from Dallas. With this transaction,

Guadalajara. Although these locations still enjoy a high degree

executives began to see the value in offering a service that

of dynamism, Treviño says that the trends are now shifting

was quite unique in the market: integration. “We are one of the

and that clients are looking to return to tourism. “Urban

few companies that offer both architecture and construction

construction will continue, at least in the next five years,”

services,” explains Humberto Treviño, BECK Mexico’s Director

he says. “But we will return to our original tourism markets

General. “We can serve as both the designers and the builders

due to the desire of several existing clients to develop major

of the projects.” This is something that few companies are

hotels and resorts.” This will create additional growth for the

doing well in the commercial market, so he believes the future

company, he says, rather than attention being taken away

opportunities with the integrated model are significant.

from urban bases.

But rather than competing with architecture firms, Treviño

BECK has seen a lot of success in its 105 years, but the

says that BECK respects the work that they do and highlights

relationships it cultivates with existing clients is key to its

that the services are completely different. “We do not

business strategy. Rather than working on one major project

compete with architecture firms in that we do not sell a

with a developer, Treviño says the company has a more long-

design,” he says. “We sell an integrated model that involves

term vision when it seeks partners. “We are a company that

the design and construction and this is where we are unique

stakes a great deal on our reputation,” he says. “While many

in the market.” This is a relatively new service in the market, he

construction companies fail to complete a project on time

says, but he anticipates a warm reception from developers and

or on budget, our company is built on following through on

institutional clients. “One of the advantages of our integrated

our promises.”

services is that a project becomes much more efficient under the collaboration model, with architects, contractors and

This is shown by some of the projects in which BECK is invited

technology experts working on it from the concept stage

to participate and the repeat clients that it attracts. Right

through to completion,” he points out. “It helps reduce the

now, the company is present across almost all infrastructure

overall schedule of the project and a more efficient project

segments, and in cities including Mexico City, Monterrey,

will inevitably create cost reduction.”

Toluca and Veracruz. With some of the largest construction projects in the country, BECK is building major mixed-

Reading the needs of the market is something that is inherent

use projects and large office buildings in Mexico City and

within the company. Although BECK was initially deeply

a large office building in the Santa Fe neighborhood, as

involved with the tourism sector, it gradually moved into

well as multiple shopping centers and high-end residential

almost every other type of development, constructing mixed-

developments. “We differentiate ourselves to make sure the

use, retail, office, residential hospitality, interiors and even

client comes back,” says Treviño. In this way, BECK’s target

higher education stadium projects. Treviño explains that this

audience is a little different than that of most companies

is due to BECK’s desire to create long-term relationships with

in that the construction company. “We serve sophisticated

its clients. “A few years ago, we did not carry out construction

clients who have the vision to demand something different,”

in cities, but rather built developments in coastal areas due

he says. This is a path that BECK is committed to, says Treviño,

to the strength of the hospitality and second-home sectors,”

and the future will entail strengthening these core markets

he says. BECK concentrated developments on the emerging

and fostering relationships with key clients. He believes that,

tourism hubs like Cancun, Puerto Vallarta and Loreto. “But

for these sophisticated clients, the integrated model BECK

the market changes and we follow our clients,” says Treviño.

offers is exactly what they need.

INSIGHT

TRUST ISSUES CREATE SETBACKS FOR NEW DEVELOPERS DANIEL TOVAR Director General LATAM of Grupo Acerta

One of the toughest challenges any new company faces

walking paths and entertainment spaces for children. Tovar

when launching its first project is finding capital. But with

expects Acerta to succeed as a first-time field developer

new sources of financing ranging from institutional investors

on the Altos project thanks to its ability to delegate, plan,

to crowdfunding, money is out there; the real question

commercialize and finance, and its knowledge of the law

for developers is how to get their hands on it. “The first

and due diligence. 259

project is always difficult and creating trust is decisive when searching for capital. Having a well-planned project is no

Infrastructure development is complex and requires many

longer enough,” says Daniel Tovar, Director General LATAM

years of experience and vast knowledge to meet the demand

of Grupo Acerta.

of Mexico’s market. National and international players of all sizes are entering the country’s residential market, drastically

With economic and political uncertainty in the air, 2017

increasing competition and boosting quality. “There are many

is projected to be a difficult year for Mexico’s housing

projects that are unsuccessful in Mexico but each country has

sector as interest rates are expected to continue to rise.

its areas of opportunities in infrastructure development,” says

But developers and financing institutions remain optimistic.

Tovar. “The Mexican infrastructure industry is often targeted

BBVA is planning to invest more than MX$67 billion in

by players from other sectors, where due to their lack of

mortgages, 15 percent more than in 2016, and developers

experience, they are unable to negotiate its nuances.”

are looking for more capital in the Mexican Stock Exchange (BMV) in the form of Fibras and CKDs.

Although a newcomer to project development, Tovar believes the company’s extensive experience in project management

The market appears to be growing and developers are

will stand it in good stead. He says developers need to

eager to build, but although the money is there, the Mexican

improve their project management and planning processes

construction industry seems to continue to struggle to

to ensure the success of projects and to attract the attention

access it. “Developers often start projects with their own

of investors. But large companies that have easy access to

capital, but if they do not have enough financial resources

capital are eyeing the housing industry. “The most important

committed to it, problems arise,” says Tovar. He explains

resource for infrastructure development is capital and when

that to obtain this capital, developers must prove their

companies get their hands on it, they sometimes create

capabilities, especially in the Mexican market. For this, he

projects carelessly,” he says. “They enter the housing industry,

says, hard numbers are needed. “Investors want developers

learning through trial-and-error and not fully understanding

with experience in Mexico, which presented a challenge for

the rules of the game.” He argues that, because infrastructure

Grupo Acerta even though we have infrastructure projects

is a long-term investment that requires substantial investment,

in various countries,” he says. “It is a matter of tenacity,

it is important to prevent as many mistakes as possible. “Unlike

perseverance and time. A developer must be willing to risk

other sectors, real estate largely overlooks market research

money too. This way investors can measure commitment

before creating a product,” says Tovar. “Companies must

to the project.”

first carry out the proper, in-depth studies before investing in a project. When mistakes are made in this sector, they are

Grupo Acerta is a company known for its project

expensive to correct.”

management expertise, but it has decided to branch out and has begun developing its first project, Altos, in Juriquilla,

But Tovar suggests that in the next few months, it is important

Queretaro. The project is a housing development with

to be cautious not only about costs, but in the speed and

lots allocated to green areas and commercial spaces. The

flexibility in which developers respond to the market. “As

366,000m2 development aims to build a community and

developers, its crucial to make the least investment possible

better quality of life for its residents, with recreational areas,

and secure the highest number of sales,” he says.

ROUNDTABLE

HOW ARE HOUSING DEVELOPERS ADAPTING TO YOUNGER GENERATIONS?

According to 2010 census figures, around 46 million people in Mexico are now aged between 15 and 34 years old, a demographic that is known as millennials. Making up 36 percent of the population, it is no surprise that housing developers are beginning to shift strategies to take this up and coming client into consideration. Housing needs of Millennials is significantly different to that of their parents’ generation, as they shun mortgages for housing.. The desire of Millennials for convenience and entertainment is driving new trends within the residential sector and developers are taking notice. Mexico Infrastructure & Sustainaibility Review asked the industry how they are staying ahead of these changing trends.

We are interested in at least 12 major cities in Mexico as they have a high concentration of services, which tends to attract the younger demographic and 260

Millennials. In much the same pattern we have seen in the US in the last five years, we are seeing a new preference in Mexico for renting rather than owning. There is a much greater drive toward lifestyle and the 24-hour city wherein people want to be closer to work and create more convenience. The population is more mobile

EDUARDO OROZCO Managing Director Latin America of Greystar

and less willing to commit, there are more single person households, with people delaying marriage and parenting. As a result, for the same population, now there is a requirement for 40-60 percent more houses because people are living alone or with roommates rather than in large family units.

By 2025, Millennials will represent approximately 75 percent of the country’s workforce. Currently, there are more than 30 million Millennials living in Mexico between the ages of 21 to 34 who will be looking to either rent or buy housing in the coming years. These millennials are 100 percent dependent on technology and prefer to have specialized products. We have been pushing for more interaction with our clients through social media in the last year and we discovered that 61 percent of the social media interactions

MARCELO RODRÍGUEZ Director General of Grupo Proyecta

regarding our Lomas de Angelopolis development is from millennials. They value a good location, excellent connectivity, sustainability, green areas and the integration of technology. For example, all the green areas and parks in our developments have free Wi-Fi. Cholula-Puebla has become a millennial hub thanks to the many universities and academic organizations that have formed throughout the years.

Despite the geopolitical context, the market is attracting investment thanks to the demand for new living opportunities that are being transformed by the expanding Millennial market. We expect almost 40 million Millennials to enter the market in the coming years with needs that differ from those of previous generations. We foresee growth in the residential, office and commercial markets along with the mixed-use sector. Gaya strives to understand what mixed use means for Millennials

FERNANDO GUTIÉRREZ Director General of Gaya

rather than impose on them the view of older generations. Overall, Mexico City has significant challenges but great advantages. The way people use infrastructure is constantly changing and we must generate aggressive change to ensure Mexico City is a futuristic and forward-looking city. We look forward to the entrance of multiple investment vehicles in the near future.

GVA is committed to understanding and meeting the needs of these newer generations. Millennials don’t want to be locked in an office and they seek through the use of technology new ways to work and interact. They are now freer to travel around the world and work from their computers. This means they are looking for accommodations that suit their lifestyles. We are transitioning toward this reality by taking a plunge into the concept of shared living spaces, an element of the sharing-economy trend driven by companies like Uber and AirBnB. It allows Millennials to rent spaces for days or weeks at a time without a contract or financial attachments. These accommodations also offer

ANDRÉS GÓMEZ President and CEO of GVA

common areas where they can socialize. Young people can save money by sharing and collaborating. They benefit from a sense of community that is not often offered by more traditional apartments. New generations yearn for zero-commitment lifestyles.

Monterrey is a large city with various submarkets. Right now, we are working in San Pedro Garza García, which is the neighborhood with the highest income per capita 261

in Monterrey, so this is where most high-end projects are currently focused. That market is a little saturated and Monterrey has other submarkets that are gaining traction. The more rural areas of Monterrey are beginning to see further commercial developments, mixed-use projects and shopping malls being built. I think in the future, we will start to see a big movement toward Monterrey’s downtown. The traffic in San Pedro Garza García is becoming unmanageable and the Millennial generation wants to live close to their places of work and entertainment.

CARLOS ROUSSEAU Senior Partner and Co-Founder of Orange Investments

Residential, commercial and office developments are long term investments. One must take decisions one day at a time, accelerating or slowing down the rhythm of investment depending on the current demand. We continue to invest and we believe in the success in both the country and the real estate sector. We are not in the rental housing business, but we do recognize that it is a growing market. We are considering in selling part of our residential projects to rental housing experts. Millennials are not so different from past generations; it just takes common sense to profile them. People continue to look for nice neighborhoods that are close to their jobs and to their recreational activities. Of course, they demand that technology is well integrated in to their day-to-day activities, which is why we are incorporating them into our developments. Companies must always be aware

ALEJANDRO BALLESTEROS Commercial Development and Marketing Director at Grupo Copri

of the incoming trends and be prepared to improve the quality of life of the consumers.

I am very enthusiastic about carrying out projects designed for the younger generation because it is developing a new way of life. This can be seen with car ownership and the new emphasis on Uber and shared economy. I cannot predict how this will trickle into housing but I feel that people now do not place so much importance on owning property. I think we are just seeing the beginnings of the shared economy because young people are focusing more and more on quality of life rather than on owning possessions. This will definitely affect our architecture. I think that developments of the future must be personalized because there are so many unique family structures now that one family has completely different needs from another.

VICTOR LEGORRETA Managing and Design Director and Partner at LEGORRETA®

VIEW FROM THE TOP

MASS SOCIAL HOUSING CAN PROVIDE SIZEABLE RETURNS LEOPOLDO ARNAIZ CEO of Arnaiz & Partners

262

Q: What role does Mexico play in Arnaiz & Partners’

This development will take place in several stages over five

international strategy?

to 10 years. We expect to start construction in one year and

A: In Mexico, we are launching a social housing project in

to finish the first stage in three years. Each home will have

Acapulco that is our most important in the country, although

an average cost of between MX$40,000 and MX$45,000.

we have developed several real estate projects in Mexico

The planning stage for the project has rather long due to

City. We have also dedicated many years to the aspects

administrative changes in the municipality and the impact of

of technology linked to cities and to urban planning. We

weather disasters in the area.

believe in the use of technology to facilitate the control of the city and the creation of information. Our goal is to achieve

Q: What strategies do you use to mitigate the risks of urban

citizen participation in the city and to incorporate technical

planning and social housing construction?

infrastructure to optimize the functionality of urban controls.

A: We always seek to ensure an adequate link between the location of employment and the urban core of the project, and

A city has hundreds of different components and urban

we ensure it is covered by all local services, such as schools

indicators. Understanding the globality of a city has become

and health centers, or general services such as universities and

a science that Arnaiz dominates. The challenge is to create

hospitals. We also consider safety and waste-management

projects that promote synchronicity between all elements and

services so that the projects truly become sustainable and

the players involved, including urban planners, administrators,

environmentally friendly developments.

developers and the end user. In Mexico, we also collaborate with the Federation of Municipalities to propose ideas and

Territorial planning should include a vision for the municipality

solutions in the topics of technology and city planning.

in 10, 15 and 20-year time frames. It is also necessary to ensure continuity of projects through a commitment to the

Q: What have been the main challenges you have faced with

authorities. It sounds difficult but it is possible and has been

the Acapulco project?

achieved in a short time in other cities around the world. For

A: Our project in Acapulco consists of 30,000 units that will

example, in China there are cities with more than 10 million

be inhabited by 120,000 people. We are practically building

inhabitants built in less than 15 years.

a city, which constitutes a new center for Acapulco, and we have to consider all kinds of elements, from amenities to

Q: The luxury home segment accounts for a great deal of the

the proximity to work centers. We will invest US$1.5 billion

residential investment in Mexico. Why are you choosing to

toward land purchase, planning and design, urbanization,

develop social housing?

implementation and commissioning of the necessary

A: Latin America needs to develop 60 million units of

equipment and the construction of housing. We were

affordable housing over the next 20 years to meet society’s

interested in the idea of developing a social housing project

demands. Many developers choose to focus on high-end or

in this municipality because it is recognized worldwide. Other

luxury homes, as 50 homes in this range can earn the same

cities of similar size in Mexico would not be so well-known

as 1,000 affordable homes. What we propose is to make large

and Acapulco has the advantage of offering added value to

social housing developments with several thousands of units,

our international portfolio.

which entails a fair return, in order to adequately satisfy this real demand for economic housing. Funding is also a challenge since more than 50 percent of the Latin American population

Arnaiz & Partners has over 37 years of experience executing

does not have access to credit because it is “informal.” This

complex urban projects along with the construction of

informality implies that many families cannot access housing,

residential, industrial and commercial developments around

although there are several support mechanisms and, above

the world

all, international financing for large projects.

INSIGHT

PROMOTING SUSTAINABILITY IN RESIDENTIAL DEVELOPMENTS XAVIER VALLADARES Associate Director of ECOstudio XV

The commercial sector has been extremely receptive to

Although the Energy Reform did not take into consideration

sustainability certifications and in raising the bar in terms

the residential sector, CONAVI, other government institutions

of energy efficiency standards, but the residential sector is

and international organizations have turned Mexico into a

another matter. Of the 3,979 LEED projects registered by

world reference in the assessment of sustainable housing. It

the USGBC in Mexico, only a fraction are fully residential

was the first to adapt a policy that uses the “whole house”

developments. With housing responsible for more than 17

National Appropriate Mitigation Action (NAMA) system for

percent of the energy consumption in Mexico, the segment

developing sustainable social housing and in 2012 INFONAVIT

must fully embrace sustainability policies, says Xavier

developed the Green Housing Evaluation System (Sisevive-

Valladares, Associate Director of ECOstudio XV.

Ecocasa) along with GIZ and the British Embassy in Mexico. This system enables an integrated and holistic approach to

For years, demand for sustainable developments has grown

the implementation of energy efficiency, energy conservation

stronger in the commercial sector, but has been lagging

and renewable technologies, assessing compliance toward

behind in the residential sector, with only premium housing

national standards, policies and how far the development

developments targeting a certification. “Commercial

performs from the baseline. It was adopted by the Federal

developments have adapted sustainability standards

Mortgage Society (SHF) for the Ecocasa program.

much more quickly in response to the strong demands of the international markets,” Valladares says. “The increase

This evaluation method uses two tools to measure the

in competitivity has driven the local market to adapt high

efficiency of a house: DEEVi and SAAVi. DEEVi, which

sustainability standards, whereas the residential sector has

was created by the Passivhouse Institut (PHI), calculates

not had such a push.”

the energy balance of a house. SAAVi was developed by CONAGUA, INFONAVIT and GIZ as a tool to estimate the

In 2015, Mexico’s commercial, residential and public

water savings per house and person. Although it has proven

sectors consumed more than 5,094PJ of energy, of

to be a great tool to measure the status of the sector, few

which the residential sector was the highest consumer

developers are actually using it. “SiSeViVe is not compulsory

with more than 755PJ. The residential sector consumed

and because of this, the sector has not adopted it. Only a few

around 52 percent of the total use of secondary energy

developers are using it as a tool to differentiate themselves

flows before 2015 and in order for the country to reduce

in the market,” says Valladares. What does not include any of

its energy consumption completely, controlling the total

the tools, but is fundamental for maximum optimization of

primary energy use (PEU) of the residential sector is

resources, is an integrated bioclimatic strategy, which should

critical. The need for more sustainability and energy-

be done during the design stage, ideally before starting to

efficiency policies for the residential sector is there, yet

use DEEVI. This study should assess the ideal orientation, the

the Energy Reform failed to include any policy instrument

adequate proportion and location of the windows, as well as

to regulate consumption in the sector. Because there is no

the size and location of sun-shading, to ensure that the houses

strong demand or incentive from either the market or the

can achieve comfort levels without the need for or minimum

government to adapt these measures, Mexico’s housing

use of heating or air conditioning.

developments, especially social housing, have advanced much more slowly. “There needs to be a push in terms of

Through the years, sustainability has become a buzzword

public policy,” says Valladares. “Making evaluations and

in the vocabulary of most sectors and the only true path to

the fulfillment of sustainable practices obligatory is the

differentiation is with a certification, says Valladares. But it

best way to push the industry to achieving the country’s

is not only an increase in certifications that will transform

goals. This is the only way to truly have an impact on the

Mexico’s homes but the adoption of green practices such as

country’s residential sector.”

bioclimatic passive design, ventilation and even positioning.

263

INSIGHT

ENERGY-EFFICIENT RESIDENCES: SUBSIDIZING INTELLIGENTLY CHRISTOPHER HEARD Lecturer and Researcher at the Metropolitan Autonomous University (UAM)

264

Industrial real estate developers have placed energy-efficiency

energy consumption and can be more comfortable for its

as a central part of the design, construction and operation of

inhabitants. But investing in these and other technologies

their projects and the trend is here to stay. But the residential

is economically unfeasible for developers unless they can

sector remains strongly underdeveloped in terms of energy-

take advantage of subsidies that make doing so attractive.

efficiency. As Christopher Heard, Lecturer and Researcher

“The main goal of real estate developers is to create returns

at the Autonomous University of Mexico (UAM), points out,

for their shareholders, so asking them to implement energy

“the implementation of energy-efficiency in residential real

efficiency at their own expense is not reasonable,” says Heard.

estate can strongly and positively impact households and the

He proposes the fostering of the implementation of these

country and improve householders’ quality of life, but there

technologies by subsidizing them, pointing out that such a

is little incentive for it.”

policy could result in tangible economic benefits for society, particularly in zones with 1F, 1E and even 1D tariffs.

This lack of incentive is largely due to subsidies that reduce residential energy tariffs. “Homeowners prefer to consume

Heard points out that the local small-scale photovoltaic (PV)

energy produced through renewable sources and reduce

generation plants can be beneficial in the housing sector since

their grid-energy consumption,” Heard says. “But this reduced

PV is the easiest technology to install and maintain while

consumption puts households on a subsidized tariff scheme

small-scale wind energy farms could be a good option for

where they pay less, inadvertently removing incentives for

rural areas. “Just as personal computers, smartphones and

energy-efficiency.” Although subsidies are beneficial for low-

other electronics become increasingly powerful and cheap

income sectors of society, they prevent the country from

on a daily basis, renewable technologies are becoming more

promoting energy-efficiency as the installation of renewables

affordable and efficient,” he says. For instance, PV modules

is financially inefficient for householders. Renewables-

can generate more energy at a lower price using the same

implementation programs like FIDE also make it harder to

surface area. Moreover, batteries designed to store energy

teach people about the advantages of energy efficiency.

are becoming more compact, cheaper and have increasingly longer lifecycles. For Heard, such technological advancements

To create incentives for energy efficiency, Heard says it is

make the use of renewable-energy technologies in the

important to increase regulations on the residential sector

residential real estate sector more viable without subsidies.

and to redirect subsidies to benefit society as a whole instead of focusing only on the individual, as the current scheme does.

There are several opportunities to supply residences with

“The social and fiscal benefits produced by regulations that

renewable energy on a large scale, but according to Heard

promote investments in technologies that make use of energy

“big industries producing all the energy far from cities will be

in the residential sector more efficient are far greater than

confronted by a new reality where locally generated energy

those created by individual subsidies on energy consumption.”

can be stored and managed for the benefit of residents.”

To boost energy-efficiency, these subsidies need not

He believes distributed generation, small-scale production

conflict with the implementation of renewable energies, but

and energy storage are emerging trends that will completely

complement them. To achieve these new policies, however,

change the paradigm of energy generation. These processes

political will is more important than an economic assessment

will not only make residences more energy-efficient by

as households will see their energy tariffs increased, which can

decreasing the base-loads of households, but also enable

cause turmoil. For residential real estate developers to profit

residents to have a better position when negotiating electrical

from energy-efficiency regulations, these must be intertwined

tariffs. “Mexico needs to be careful about the long-term

with appropriate subsidies that boost their implementation. A

energy structure it wants to have, and residential developers

house built with energy-efficiency in mind that, for example,

should take advantage of the possibilities that new regulations

has proper thermal management and insulation, has lower

can bring and properly manage them,” he says.

VIEW FROM THE TOP

PROMOTING THE CONSTRUCTION BENEFITS OF DRYWALL ALEJANDRO AGUIRRE Commercial Director of Panel Rey

Q: What are the main benefits of drywall in construction and

Q: How are you improving the services your company offers

how do you overcome the cultural resistance in Mexico?

to the infrastructure industry?

A: People in Latin America are not used to the drywall in

A: We will open a plant in Ciudad Juarez by the end of 2017

their home. The first thing many people do before purchasing

to better supply the western side of Mexico and the US. We

a home is knock on the wall to test out the sturdiness and

plan to build more plants and we are constantly evaluating

they are not used to hollow sounds on the walls. We focus on

locations that have potential.

teaching people the benefits of drywall in terms of insulation, construction speed, sound barrier and control and remodeling,

The drywall markets in the US and Mexico have different

taking it step by step. Our drywall is more competitive in

patterns. The US tends to promote more DIY projects and

comparison to traditional systems that require the use of

drywall is sold almost as commonly as tortillas are in Mexico.

additional insulation. The product may have a higher initial

Fortunately, our products are beginning to gain more

cost but it reaps many long-term benefits. Construction

acceptance in the market here. DIY television programs are

companies like the material because it helps them complete

starting to influence our country. Our participation in the

projects faster.

US market is still small but we are the leaders in Mexico and Latin America.

Our systems are ideal for areas prone to high temperatures and for cities in the desert, which tend to be quite cold in

Our building system provides a solution in the construction

the winter and hot in the summer. Families that live in these

industry through which companies can complete their

regions, such as Hermosillo and Monterrey, often find that

projects in less time and with higher quality than with regular

their homes register high temperatures in the evening. It

construction methods. By doing this, the return on investment

often takes hours for the temperature to cool down even

is obtained faster with our system, giving the clients the

with the use of air conditioners. On the other hand, our

opportunity to rent or sell the property quicker.

drywall can greatly reduce these costs by maintaining inner temperatures at a lower level. If the temperature outside

Our biggest successes have been with commercial

is 40°C, the inside of the house can retain its coolness for

projects but we are starting to grow in the residential

a long period of time with drywall. This can help improve

market, which has proven to be more difficult to enter

the quality of lives of many people in the region. The cost

due to our cultural background. That being said, that

of energy will continue to rise and people are looking for

is changing rapidly. Panel Rey’s goal is to increase its

ways to consume less.

participation in both North American countries and to expand into South America to boost the company’s

Q: What logistical challenges does your company face in

global share. Architects are an important entry point for

terms of distribution?

us. Building companies listen to what architects say and

A: Transportation is key to our business, and we believe

we meet often with them to highlight the benefits of

that Mexico and Latin America needs to invest in better

our products. We also listen to their needs and adapt

infrastructure to allow goods to move faster and cheaper. The

our products accordingly. This strengthens our areas of

railroad is definitely a solution, but not the only one. Ports

opportunities in the country.

and highways also need to be improved. We fulfill our final customers’ needs by having a full range of distributors so that the product can be delivered on time and in the quantities

Panel Rey, a Mexican company, specializes in integrated

needed by them. Our distributors play a key role in our

construction services and products in residential, institutional,

commercial strategy, and we work hand in hand with them

industrial and commercial. It offers specialized products such

to service the needs of construction companies anywhere.

as drywall, structural studs and tools

265

INSIGHT

SMART AIR CONDITIONING SOLUTIONS FOR SUSTAINABILITY, HEALTH

“

Our purification systems were created to meet increasing demands for clean indoor air, within living, working and commercial spaces, especially given the rising levels of urbanization”

266

Jaime Jiménez, Director General of TRANE Mexico

As a result, air purification has become an opportunity area in the real estate industry. “Our purification systems were created to meet increasing demands for clean indoor air, within living, working and commercial spaces, especially given the rising levels of urbanization,” says Jiménez. The benefits of clean air are priceless, according to OECD’s 2016 report on The Economic Consequences of Outdoor Air Pollution and World Bank’s 2016 The Cost of Air Pollution. They include the reduction of health expenditures and welfare costs and the promotion of labor productivity. Clean air also ultimately reduces the chance of premature death and highly enhances quality of life. Given the levels of air pollution in major Mexican cities like

Construction companies and developers are under more

Monterrey and Mexico City, it is little surprise that TRANE

pressure to create projects that can obtain gold, silver or

has seen such success in the country. For instance, Mexico

platinum LEED certification to attract international tenants.

City, the largest city in North America, is known to have

“Foreign investors are increasingly demanding strict ecological

among the worst air quality in the Western Hemisphere with

standards to lease and occupy buildings,” says Jaime Jiménez,

levels that are three to four times higher than New York, Los

Director General of heating, ventilation and air conditioning

Angeles or Buenos Aires, according to Lucas Davis, Faculty

(HVAC) company TRANE.

Director of the Energy Institute at Haas School of Business, Berkeley University, whose research focuses on the economic

Although Mexico is the country with the greatest level of

and business impacts of environmental policy. “Mexico

expected green commercial activity, only 35 percent of

became our most important market in Latin America after

Mexican building project activity was green in 2015, according

the political and economic crisis in Brazil, particularly in the

to Dodge Data & Analytics’ World Green Building Trends

residential segment,” says Jiménez. This, added to increasing

2016. The study additionally found that Mexico has one of the

urbanization, creates the perfect environment for TRANE’s

lowest expectations for new green institutional projects. Green

services.

retrofitting older residential buildings and the construction of ecological commercial buildings are noteworthy areas of

According to CONAVI data, 1,088,815 new mortgage

opportunity in Mexico considering the gap between supply

applications are expected to be made in 2017, the vast

and demand.

majority of which is concentrated in Mexico City and the State of Mexico (80,835 applications) Nuevo Leon (75,434) and

The rise of sustainability certification is equally promoting

Jalisco (58,246), totaling almost 20 percent of all demand.

a drive for technology that can harness green commercial activity. As a company that offers air conditioning

Nuevo Leon especially has a great deal of potential for TRANE.

solutions that optimize energy consumption, TRANE is

The World Health Organization (WHO) labeled Monterrey the

familiar with this demand from customers. Its products

most contaminated city in the country based on statistics

can reduce energy costs by 50 percent through an

from 2011. “Monterrey is the largest market for residential air

automated control system that delivers an exact amount

conditioning as its population has high purchasing power, it

of cooling or heating as needed.

is one of the most populated areas and it suffers from high temperatures,” says Jiménez.

In addition to energy efficiency, TRANE offers a better – and longer – quality of life. Around 16,798 deaths among Mexicans

Southern Mexico is also attractive because of the concentration

was attributed to ambient air pollution in 2012, the latest

of hotels and resorts under construction. “Tourism-oriented

available data according to WHO’s 2016 Ambient Air Pollution

real estate is one of the few industries to benefit from the

report. Pollution was the identified root cause of strokes, lung

depreciation of the Mexican peso,” he says. “This country has

cancer, acute lower respiratory infections, chronic obstructive

become a more inexpensive destination for foreign visitors,

pulmonary disease and ischemic heart diseases.

even those it lost when security issues were on the rise.”

INSIGHT

BROKER SEES UNTAPPED POTENTIAL IN INTERNATIONAL SEGMENT By keeping their eyes pinned to the domestic market, Mexico’s developers sometimes miss the opportunity to cater to another lucrative segment: the international set, says Carmina Zamorano, Director General of Carnan Properties. “Mexican developers often lose sight of just how attractive the Mexican market is for international investors,” she says. “The market must continue creating living experiences and not just homes to attract international players.” But over the last two years, Mexico’s residential sector has raised the bar in terms of the quality of its projects, which have begun to catch the eye of

“

The Mexican market is filled with opportunities but it is up to the sector to create housing that adds value for investors” Carmina Zamorano, Director General of Carnan Properties

international investors looking to buy assets in the country. Carnan Properties wants to encourage Mexican developers According to International Living, a print and digital publication

to venture into the US market and naturally, promote their

on retirement destinations, Mexico has occupied third place

Mexican developments simultaneously. “The world needs to

for the second consecutive year as the most attractive country

take a closer look at all the opportunities that Mexico has

for American retirees. The National Population Council

to offer,” she says. With interests in Mexico, the United Arab

(CONAPO) estimates there are more than 1 million US citizens

Emirates and the US, Carnan Properties is well-positioned

living in Mexico and each year, more are looking to retire in

to project the market’s behavior in the next few years. “The

Mexico’s cities and beach destinations.

real estate market in Miami has incredible opportunities but I believe that its growth will slow down in the next year,” says

Carnan Properties, a leading international home

Zamorano. “Properties are grossly overvalued in areas like

brokerage, has learned to take advantage of the interest

Phoenix, the Los Angeles metro area and Las Vegas, and we

from foreign investors and the advantages that volatile

want to wait for these regions to regain some strength.”

currency exchange rates offer. One of the company’s most successful projects in Mexico is the El Milagro housing

On the other hand, Texas is proving to be a bountiful

development, located in San Miguel de Allende. The well-

market and Carnan Properties has begun to sell its projects

known tourist destination is home to more than 30,000

before construction is complete. The company currently

US residents and the peso’s weakness against the dollar

has more than 4,800 units to sell in Miami and only 87 in

has increased the attractiveness of investing in real

Houston but Zamorano explains that inventory in Houston

estate there. “Investors who purchased these homes two

is sold almost instantly. “Developers that decide to invest

years ago already have a profit of more than 30 percent

in Houston have a great return on their investment,” she

because of the increase in the dollar to MX$18 from MX$15

says. The company currently has two projects under

in mid-2015,” says Zamorano. The strong dollar allowed

construction, Arabella and Marlow, which are located in

foreign investors to purchase homes in El Milagro at

downtown Houston with an estimated completion date

prices between US$80,000 and US$260,000, something

of October 2017. One of the characteristics that will make

unheard of in the US.

these projects successful is that developers are adapting to new generations and trends that will change the

This trend is unfolding across the country, and the high

concept of housing completely.

demand is incentivizing some developers to build higher quality, more innovative designs. Still, most have decided to

“I believe demand for gated communities will increase in

stay at home rather than take their ideas to what could be

the next few years and demand for high rises will wane,”

another lucrative venture: building abroad. Zamorano believes

she says. “Families are looking for more space and a garden

there should be more Mexican developers catering to the

where their children can play.” says Zamorano. Developers are

international field but she says those are few and far between.

bringing housing back into downtown areas and will continue

“Mexican developers have to be willing to take the risk and

building smaller apartments within walking distance of cultural

take advantage of new opportunities abroad,” she says. “The

forums and shopping areas, which are attractive for young

problem is that there is a secure market in Mexico and they

professionals and retired citizens. “The Mexican market is filled

are not interested in looking to new destinations since they

with opportunities but it is up to the sector to create housing

enjoy enough demand at home.”

that adds value for investors.”

267

Rosewood Mayakoba, Riviera Maya

TOURISM INFRASTRUCTURE

Mexicoâ&#x20AC;&#x2122;s dependence on the oil and gas sector has steered the economy for many years but the Energy Reform and low petroleum prices have the country looking at tourism to fill the coffers. Mexico ranked 22ndÂ out of 136 countries on the World Economic Forumâ&#x20AC;&#x2122;s Travel and Tourism Competitiveness Report 2017, with more than 32 million tourists having visited the country in 2017, generating spending of US$17.7 billion.

The tourism industry in the country is rapidly growing, having risen eight positions in competitiveness. Nevertheless, given its huge potential, if Mexico wants to boost those figures, it has to upgrade its tourism infrastructure, especially in luxury developments, which according to trends, are the key opportunity for the industry. Moreover, the government has to focus on increasing security in traditional tourist areas and on complying with international treaties for the environmental sustainability of tourism development.

Throughout this chapter, the largest tourism developers will allow a view into their realm to discuss the new tourism hubs, trends and the arising opportunities they have spotted with the support of the government in the last year.

269

CHAPTER 10: TOURISM INFRASTRUCTURE 272

ANALYSIS: Luxury in Favor as Tourism Booms

274

VIEW FROM THE TOP: Pablo Azcárraga, CNET

275

INSIGHT: Charles El Mann, Parks

276

INSIGHT: José Rivera, AM Resorts

277

VIEW FROM THE TOP: Pablo Azcárraga, Grupo Posadas

279

INSIGHT: Javier Arce, Hoteles City Express

280

VIEW FROM THE TOP: Gustavo Jiménez, Barceló Hotel Group

281

INSIGHT: Borja Escalada, RLH Properties

282

INSIGHT: Jorge Herrera, AMDETUR

283

INSIGHT: Henry González, EY

284

INSIGHT: Ricardo Montaudon, RCI

285

VIEW FROM THE TOP: Antonio Villarreal, Axioma

286

VIEW FROM THE TOP: John McCarthy, Leisure Partners

287

INSIGHT: Charles Azar, Ideurban

288

INSIGHT: Jean Pierre Juanchich, Crystal Lagoons

289

INSIGHT: Gustavo Alanís, CEMDA

291

PROJECT SPOTLIGHT: Ritz-Carlton to Sparkle in the Crown of Chapultepec Uno

292

ROUNDTABLE: What Are the Main Opportunities and Challenges in Mexico’s Tourism Development?

271

ANALYSIS

LUXURY IN FAVOR AS TOURISM BOOMS According to AMDETUR, luxury tourism is the country’s largest area of opportunity. In Mexico, luxury hotels represent 24 percent of the total number of existing hotel rooms and over 10,700 rooms are being developed, equal to more than 54 percent of total tourism construction In the last 10 years, the world’s middle class has grown

TAPPING INTO THE LUXURY SEGMENT

exponentially. In 2009, the global middle class was 1.8

One of the most effective methods of generating

billion. That number jumped to around 3.3 billion in

revenues is through luxury resorts. The Integral System of

2017, according to the Brookings Institute, a non-profit

Information on Tourism Markets (SIIMT) reported in 2014

public-policy organization based in Washington, DC.

that most hotel rooms in the country belonged to 4- and

The Institute estimates this figure will reach 4 billion by

5-Star brackets. In this context, “generating more income

2021 and 5 billion by 2027, representing 60 percent of

by room in luxury hotels is possible,” says Azcárraga.

the world’s population. With this increase in disposable income, the tourism industry is flourishing.

The luxury sector has the highest growth levels in the industry. “More and more international brands continue

272

Mexico’s privileged location next to the US, its rich heritage and

to enter the country every year looking to capitalize on

sunny climate has made the country a strong contender for

Mexico’s growing middle class, favorable demographics

global tourists in recent years. According to Pablo Azcárraga,

and expanding consumer credit,” says Jimmy Arakanji,

President of the National Tourism Business Council (CNET),

Co-Founder and Co-CEO of Thor Urbana, the developer

“the country has countless competitive advantages simply

behind the eagerly anticipated Ritz-Carlton hotel in

because of its location next to the world’s largest consumer

Mexico City. The number of 4- and 5-Star hotels in the

market, the US, and the continuous growth of its internal

country increased in 2017, according to The Forbes

market.” In 2016, Mexico received about 35 million tourists,

Travel Guide 2017 Star Award. The main players in the

an increase of 8.9 percent compared with 2015, according

luxury sector featured on this list are The Ritz-Carlton,

to SECTUR. Moreover, the country reached a historic peak in

Esperanza, An Auberge Resort, Rosewood Resorts,

tourism expenditure, with a 10.4 percent increment from 2015

The Resort at Pedregal, The Four Seasons Resorts and

to 2016 and revenue of US$19.57 billion.

Belmond Resorts. Marriot International announced in April 2017 that it would open 14 new luxury and business

54% of tourism construction in Mexico correponds to luxury developments, with over 10,700 rooms being developed

hotels in the following 12 months. Mexico is the company’s second most profitable country in Latin America and the Caribbean. The Mexican Council for Touristic Promotion (CPTM) considers, in its marketing intelligence plan, a premium segment of travelers earning over US$75,000 a year, setting the trend for choosing the most luxurious and exclusive hotels. The Premium Luxury market is growing, especially among US travelers that want to visit the

The burgeoning tourism landscape opens up space for hotel

beaches of Mexico. Customers increasingly seek to buy

chains to strengthen their position. According to the World

into a quality and exclusive experience at resorts with

Tourism Organization (WTO), France attracts the most tourists

golf courses, spas and water activities. In this scenario,

and the US generates the most income from the tourism

Jones Lang LaSalle Properties (JLL) finds that Los Cabos,

industry. Mexico occupies the eighth and 14th places for 2016,

Cancun, Riviera Maya and Riviera Nayarit are the main

respectively. As a result, hotel chains see great potential in

destinations for premium resorts in the country.

the country. Spanish tourism developer Barceló Hotel Group Mexico says the country plays a key role in its strategy. “Mexico

A GREATER MARKET CONSOLIDATION

is the most important country in our portfolio,” says Gustavo

Juan Carlos Reus Expansion Director Mexico and the

Jiménez, the group’s Director General. “Our hotels in Mexico

Caribbean of NH Hotel Group says the key to success

are responsible for the company’s largest growth, revenue

in meeting the increased market demand is simple:

and profit, with our five-hotel, 2,700-room Riviera Maya resort

economies of scale. Independent hotels make up for

being the biggest contributor.”

about 70 percent of the Mexican market. But they

lack the sales force and negotiation weight that larger

investors’ concerns. In the midst of the boost the tourism

hotel brands possess along with their wide network of

infrastructure development is experiencing, the focus

suppliers, which allow them to trade at very profitable

must also remain centered on promoting a sustainable

rates. This in turn is also perceived as more appealing for

growth.

investors. As a result, when it comes to luxury resorts, the most prestigious hotel chains tend to prevail and

“To drive investment, it is necessary to establish an

this is especially true of the luxury resorts built in beach

attractive institutional framework on issues such as

destinations like Cancun, Riviera Maya and Los Cabos.

regulation, security, environment, and fiscal policy,” says Enrique de la Madrid, Minister of Tourism. Likewise,

Nevertheless, the Small Luxury Hotels of the World

he suggests Mexican cultural and gastronomic wealth

(SHL) 2017 trends report finds that boutique hotels are

should be highlighted with complementary infrastructure

increasingly cropping up as an alternative to the more

thematic routes and water parks as a strategy to make

traditional brands, meeting the needs of a very specific

the country even more appealing to potential visitors.

market niche. Their perceived level of exclusivity, privacy and comfort attracts visitors who seek a selective lodging

But with challenges come opportunities. The luxury

in establishments with fewer rooms, and who are seen as

tourism segment has high barriers to entry that requires

more select. Mexico’s Pueblos Mágicos have also cashed

larger investments in order to ensure exclusivity. In

in on the boutique hotels boom, often combining spa

comparison to mid-market hotels, low barriers to entry

facilities with a rich cultural and gastronomic offering.

often increase the risk of developing in this segment and also tend to be more vulnerable to rate fluctuations in the

MARKET CHALLENGES

4- and 5-star market according to PwC. Land scarcity also

Despite the boom the Mexican tourism sector has

creates a strong barrier to entry for the luxury segment.

experienced, there are several challenges that may

“The luxury segment’s entry barrier is the fact that there

negatively affect the industry. On one hand, according

are only a few unique locations where such hotels can

to JLL’s 2017 Hotels Destination Report for Mexico, “while

be built,” says Borja Escalada, CEO at RLH Properties.

safety and security have become less of a concern in the last few years, security issues continue to challenge

Although the country has many beautiful destinations,

the country’s perception and place a damper on the

luxury hotels have more demanding requirements in

economy.” Moreover, “investors expressed that security

terms of location and space required. The more unique

issues remain a source of concern for investment.”

and prime the land is, the higher the price which can make it unfeasible for some developers and could have

The Mexican Association of Tourism Developers

much lower returns. The luxury segment will continue

(AMDETUR) says Mexico’s luxury tourism segment has

to grow in the upcoming years, attracting national and

experienced annual growth rates of 7 percent. But JLL’s

international players to compete for the country’s premier

most recent Latin America Hotel Investor Sentiment

locations. This creates many opportunities for success,

Survey suggests that the government could increase

but for companies to take advantage of this trend

its efforts for making the country safer to address

changes must first be made.

273

VIEW FROM THE TOP

TOURISM GAINS TRACTION DESPITE MACROECONOMIC HARDSHIPS PABLO AZCÁRRAGA President of the National Tourism Business Council (CNET)

274

Q: What role does tourism play in Mexico’s economic

Q: How is CNET joining forces to secure the sector’s

development?

future growth?

A: Mexican tourism follows a cyclical process. The 2008

A: For the first time, tourism executives have a seat on the

financial crisis had a significant negative impact on tourism

Business Advisory Board for Mexico’s Economic Growth

but in the last five consecutive years this sector has seen

at CNET. Because CNET is able to bring together all

double-digit growth, which has motivated the industry to

associations and chambers associated with the tourism

continue investing. Tourism revenue totaled much more

sector, it can represent the industry well. CNET is asking

than that of oil and gas exports in the last year and it

the government to develop an entity that will use public

was the only sector to register a surplus in 2016, which

funds to develop Mexico’s priority tourism destinations.

amounted to US$9.3 billion, while oil and gas saw a deficit

There must be more public investment in tourism to ensure

of US$12.8 billion. Although the results have been strong,

the competitiveness and sustainability of each destination.

we must continue to demand more, not least because of

Tourism is vulnerable and if we do not invest, it will lose

the number of jobs the sector creates. In contrast to other

all its competitive advantages. Without sustainable

industries, tourism will not be displaced by technologies

development, there will be even more problems that will

because the service cannot be substituted.

create bottlenecks for future growth.

Q: What does Mexico need to do to reach its tourism

Q: How could the regulatory framework and fiscal

potential?

incentives be improved to attract more investment?

A: The sector needs more investment either in infrastructure

A: There must be a change in the Fiscal Reform. We live

or image. It needs to diversify, attract new markets other

in a vicious cycle whereby, if a tourism destination is

than only the US and Canada and finally move away

successful, the municipality and state are allocated fewer

from its dependency on beach destinations. Although

resources to support the sector. The state and municipal

North America will continue to be the most important

governments suffer because the money collected in taxes

contributor to Mexico’s tourism development in the future,

is absorbed by the federal government and it leaves

we should complement this with higher market penetration

only a small proportion for the development of the area.

from other countries. Infrastructure is key. If we want to

This will only lead to problems since four to five days of

attract 50 million tourists per year, we have to invest in

the week, destinations are at full capacity. We need to

infrastructure since, with the existing framework, we do

develop a new fiscal incentive for tourism investment.

not have the capacity to receive or host more tourists. If we do not invest, our numbers will remain stagnant at 30

Q: What is the main factor that is holding back the

million foreign visitors for years to come. The lack of a large

Mexican tourism sector?

airport in Mexico has been an enormous bottleneck for the

A: Mexico is a difficult country to develop because it

industry. This is the price the country has paid for the lack

continues to be extremely bureaucratic and has too many

of political will. It often goes unmentioned but this lack

formalities. Often, federal government requisites are not

of airport capacity has impacted not only tourism, but all

aligned with those of the state and municipalities, which

Mexican industries.

results in a delay in investment due to a lack of continuity. But all in all, the future looks bright. We have a steady growth that will continue to motivate players to change the sector’s

The National Tourism Business Council (CNET) represents 96

business model and incorporate more efficient schemes that

percent of tourism activities in Mexico through 11 chambers of

will allow us to boost growth. The potential market is huge,

commerce. It looks after the interests of private companies and

with more than 200 million people traveling within the US,

contributes to the sustainable growth of the sector

while only around 20 million come to Mexico.

INSIGHT

VENTURING INTO TOURISM FOR DIVERSIFIED PORTFOLIO With Mexico’s tourism industry on the brink of a boom, Charles El Mann, Director General of Mexican developer Parks, believes that one thing is preventing its growth: the country’s stunted infrastructure development. “Cancun, for example, is the top tourist destination in the country because it has the second-most important airport, and it is building a fourth airstrip,” he says. “This is important because air routes work like roads to bring more tourists.” Parks has traditionally worked in commercial, mixed use and industrial development but began to venture into the tourism segment when it recognized the market’s potential. It is building 10 hotels: two Hiltons, a Marriott and two other projects in Cancun and Riviera Maya, and inaugurating a couple more. Parks mainly works

“

We must try to generate growth in tourist expenditure in the country, which depends on the sort of tourism we foster. But there are many market segments we are not reaching due to our lack of infrastructure” Charles El Mann, Director General of Parks

to develop hotels across a variety of chains, including Waldorf Astoria, Hilton All Inclusive, Marriott, J.W. Marriott,

“We are considering several financial alternatives to be

Aqua and Fiesta Americana. “We are targeting different

able to move forward with all our projects, as we believe

market segments through diversification,” says El Mann.

this is a great time for Mexico, given its macroeconomic indicators and the market’s performance.”

Parks has 4,800 operating rooms in 10 different states, each with a unique appeal. “Merida perfectly mixes tourism

El Mann believes tourism will continue to grow as long

and business,” he says. “Oaxaca, given its outdated

as the government guarantees security and certainty

infrastructure, receives few tourists despite its beautiful

to developers. One problem that could be addressed is

beaches. What we need is a development program in

that of community relations. “The biggest challenge is

these areas, like those that have been implemented in

to comply with all the regulations and to obtain all the

Cancun or Cabos.” As real estate developers, Parks is

required local, state and federal permits,” he says. “Also,

willing to invest in the country but El Mann stresses that

the land acquisition process has been difficult, given that

the industry needs adequate infrastructure.

we often build on ejido land, so we need to purchase the land and overhaul it.” This often requires negotiations with

There are many high-quality hotel chains establishing

the ejido leaders and the revision of historical land rights

operations in Mexico, so he sees the need to position

to avoid the risk of previous owners making future claims.

Parks with higher quality and better cost supply. “We must try to generate growth in tourism expenditure in

But although the developer is experiencing success in

the country, which depends on the sort of tourism we

tourism at the moment, he says Parks will not shut itself

foster,” he says. “But there are many market segments

off from other sectors with potential. “As a group, we are

we are not reaching due to our lack of infrastructure.”

experiencing significant growth, which I believe positions

An example he gives is Puerto Vallarta, which has not

us as the real estate company with the greatest presence

grown as it could because its airport is small given the

in different sectors,” he says. “Our biggest advantage is

potential demand. “I believe Mexico possesses the optimal

our level of diversification, which gives us great flexibility

market demand and a strategic geographic location to

to adapt to changing demand. Also, in the face of

exponentially and quickly grow in this sector, but it lacks

international competitors, our expertise and knowledge

the infrastructure,” he says.

of the local market is our added value.”

Despite infrastructure challenges, Parks chose to enter the tourism segment because it saw promise. In the

Parks is a real estate developer that seeks to innovate through

Riviera Maya, the developer has invested US$1 billion.

projects that add a high value to the real estate industry and which

“We are still estimating the returns, which depend on the

positively impact society. Its business units are construction,

credit mechanism we choose to use,” El Mann explains.

project management, marketing, project operation and sales

275

INSIGHT

RESORTS TO BREAK THE MOLD

“

Of the 2 million holidaymakers we serve, 1 million look for 5-star resorts and the other million for 4-star José Rivera, Vice President of Development of AM Resorts

to Rivera. This is “Ego Business,” he says. Fourteen years after opening its first resort in 2003 and with a total of 54 hotels in operation, AM Resorts knows the Mexican market inside and out. The company has created six very different brands of allinclusive resorts that serve each market niche. As an operator, AM Resorts operates third-party hotels, guiding them through the planning, development and operational phases of creating one of their six resorts. “We create partnerships with construction companies, architects, and developers to ensure the quality of the project,” says Rivera. In 2017, the company plans to sign off on the development of 12 to 14

276

Cheap or luxurious? This is the dilemma of Mexico’s tourism

more resorts but Mexico will maintain the focus with 35 resorts

sector. For most vacationers, the stereotype is cheap. For

in operation and five under development. With developers like

Mexico’s developers, the desire is luxury. For industry executive

AM banking on the country, Mexico’s tourism sector seems

Jose Rivera, the way to get there is knowledge. Know your

to be flourishing but there is a factor that continues to hold

market, he says. “It is incredibly difficult to create a new hotel

new investors back.

because it requires a high investment but the strongest tool a developer can have is the knowledge of exactly what market

The company has worked with the industry’s most important

it wants to serve and what it is demanding,” says Rivera, Vice

players and when asked about the biggest fear developers

President of Development of AM Resorts. Political, economic

have when building hotels, Rivera concludes that it is times

and social factors have increased skepticism within the market

and how they have changed. “Hotels are no longer what

but Mexico is breaking away from the stereotype of being

they used to be,” he says. “Travelers are looking for an

an affordable Spring Break destination to a luxurious, yet

experience and are demanding more space.” He says that 10

reasonably priced vacation spot.

years ago, hotels would have a small bathroom and a small pool with an island in the middle. But now, clients want a

Hotel chains and private investors from all over the world have

big, luxury bathroom with a bathtub and a pool as big as

set their sights on the country’s beaches over the past five

the hotel. Tourism also is changing completely. Technology

years, giving strength to Mexico’s tourism sector. One area

is intensifying competition, with new digital platforms and

that presents opportunity is the four-star segment. “Of the 2

companies such as Airbnb gaining larger market shares. As

million holidaymakers we serve, 1 million look for 5-star resorts

of Dec. 2016, the SECTUR estimates that there are roughly

and the other million for 4-star,” says Rivera. “That is where the

19,000 hotels in the country. The construction of new hotel

biggest opportunity for growth is in Mexico and that is where

rooms has increased 11.6 percent, to more than 736,512 in 2015

we want to develop.” Owners can be resistant to this change

from 651,160 in 2011. But of those 19,000, most are old hotels

until they learn of the benefits. “Owners want the prestige of a

that Rivera says will need to take the leap and adapt, or risk

5-star hotel, but as soon as they discover that 4-star hotels can

collapse. Now that competition is heating up, developers have

make more profit, they rapidly change their mind,” according

no excuse to rest on their laurels if they want to compete.

Secrets Hotel, Los Cabos, Pulso Inmobiliario

VIEW FROM THE TOP

SHIFT FOCUS TO BROADEN GROWTH PABLO AZCÁRRAGA Chairman of the Board at Grupo Posadas

Q: What are Mexico’s greatest areas of opportunity within

investments. Grupo Posadas later managed to sell these

the tourism sector?

businesses at 20 times the original EBIDTA, when in this

A: There are various indicators that demonstrate Mexico’s

sector deals are usually closed at eight to 10 times EBIDTA.

strong potential for growth. For one, 90 percent of leisure tourism is focused on beach destinations with a lack of

Q: Why has Grupo Posadas decided not to franchise its

focus on cultural, ecological or religious tourism. In Europe,

brands?

the main reason for travel is cultural, whereas Mexico has a

A: We do not franchise because there is no real need to

rich culture but the country does not take advantage of this.

do so. Our business model helps us to continue growing and to maintain optimal quality in our services and hotels.

Ninety percent of international visitors go to only four

Our success comes from having a balanced portfolio

destinations: Riviera Maya, Mexico City, Los Cabos and

between both leisure and business. Tourism is sensitive to

Vallarta. Mexico has a great deal of potential and has

the economic state of a country, but when one segment is

grown exponentially with more than 35 million international

underperforming, another complements it. Our large client

tourists, approximately 80 percent of whom enter by plane

and investor numbers help us to avoid allocating a large

from the US. These are strong numbers but the World

quantity of resources to materials. Instead, we can develop

Tourism Organization has projected that Mexico should be

our people, innovation and technology. Of the 40 hotels

attracting more than 50 million tourists by now. This can

we have under construction, 90 percent are third-party

be attributed to the fact that the country does not invest

properties. Our client network is satisfied and has enough

enough in promoting and advertising the treasures that

confidence in us to sign 20-year O&M contracts. Because

exist within the country. Mexico is much larger than most

we deliver results, most contracts are renewed. The fact that

people expect and the sector has great growth potential.

we are listed on the BMV allows us to keep our liabilities in bonds and to raise more money for new projects.

Q: How has Grupo Posadas positioned itself in the Mexican market and what are its expansion plans in Latin America?

Q: What is Grupo Posadas' growth strategy for the next

A: Grupo Posadas is the leading Mexican hotel developer

two to three years?

and the only one with a presence in Mexico as an operator.

A: The future is bright for Posadas. In 2016, we reported an

We are four times larger than our closest competitor and as

EBITDA growth of 21 percent in comparison to 2015. We

of 1Q17, we have 156 hotels with more than 25,000 rooms

have maintained our competitive advantage and remained

in operation as well as 40 new hotels under construction,

at the forefront of the industry for the last 15 years. We will

equating to almost 7,000 more rooms. We opened 13 hotels

open 18 hotels in 2017, some under the Fiesta Americana

in 2016, which is considerably more than our competitors,

brand, many under Fiesta Inn and a few attached to our

which tend to open one or two a year. City Express has 11,000

new brand, Gamma. Generating more income by room

rooms compared to our 25,000, and others have fewer. We

in luxury hotels is possible, but luxury hotels require

have many competitive advantages. There are more than 80

larger investments that do not necessarily translate into

million Mexicans traveling inside the country compared to

profitability. We prefer to grow all our brands rather than

the 35 million foreign visitors, so being a 100 percent Mexican

only create luxury resorts.

company with deep knowledge of the Mexican market adds to our success. Grupo Posadas’ diversified portfolio enables us to cater to each segment in Mexico.

Grupo Posadas is the largest Mexican hotel company and one of the largest in Latin America with over 25,000 hotel rooms in

We invested in South America 10 years ago, where we

the 152 hotels it owns, operates, manages or leases. It manages

purchased and developed many hotels, all with third-party

nine brands in both city and beach destinations

277

278

Hoteles City Express Hotel in Mexico City

INSIGHT

THE INGREDIENTS IN A RECIPE FOR SUCCESS JAVIER ARCE Chief Development Officer of Hoteles City Express

With the influx of tourism activities in Mexico, it becomes

others where it has become more difficult,” he says. “For

imperative for hotels to stand out from the crowd. Solid

instance, in Mexico City getting all the necessary permits

branding can be a major differentiator. Through its broad

can take up to six years.”

presence in 63 Mexican cities and three Latin American countries, City Express has built a loyal following, according

For any hotel developer, constructing hotels is just half

to Javier Arce, the hotel giant’s Development Director. “We

of the work. The other half is ensuring the building’s

want our clients to think that if they need to travel to any

profitability. For Arce, the key to profitability is in the

business city in Mexico they will surely find a City Express,”

building’s design and maintaining low operational costs.

he says. “With the exception of Guerrero and Morelos, we

“Every component of the building needs to be efficient,

are present in every state of the country.”

which keeps maintenance costs low,” he says. By following this strategy, City Express produces consistently strong

Proper growth planning and a focus on the business

balance sheets for its investors. According to the company’s

tourism market over the past 15 years have been factors in

latest financial statements, 2Q17 recorded revenues of

the brand’s rapid development. “As a company focused on

MX$609 million, a 22 percent increase on 2Q16.

the business traveler, we wanted to grow along the most important business routes in the country,” says Arce. “There

While there are several factors that add up to City Express’

are certain business routes that coincide with pleasure

success, there is one particular aspect in the business model

tourism. In these cases, affordable rates, combined with

that Arce identifies as key: sustainability. The company

our holistic approach to quality, have also made us a good

goes beyond a commitment to the environment and also

option for these tourists.”

touches upon preservation of culture and traditions as well as promoting active involvement with local communities.

The group now has 125 hotels operating and it is continuing

Its Biosphere Responsible Tourism Certification is evidence

to open units on average every 6.4 weeks. Arce says that

of this. “We have several LEED certifications as well as

this means the hotel chain is enjoying the most significant

Excellence in Design for Greater Efficiencies (EDGE)

growth in Mexico and Latin America. The first route the

certifications, but Biosphere is the only certification that

company opened in Mexico was the NAFTA corridor. This

is aimed exclusively at the tourism sector and City Express

paved the way for expansion into the automotive hub in the

is the only hotel chain that is in process of certifying all its

Bajio region and allowed the company to branch out further

sites,” says Arce.

into the oil and gas heartland on the Mexican Gulf coast. Several years later, City Express began to open new hotels

Obtaining certifications and being sustainable is easier said

along the Pacific Coast, this time aimed at the perishable

than done. For Arce, the hardest part is finding the correct

goods route instead of traditional manufacturing.

balance between natural resource preservation and guest comfort. “We can ask all our operators to be environmentally

According to Arce, the company’s hotel assembly-line

responsible but we cannot do it at the expense of our

approach has been key to the growth of the business.

clients’ comfort,” he says. City Express also makes sure its

But he also says certain factors hinder the company’s

suppliers are onboard with its sustainability targets. “All

growth. The first is land ownership and location, which

our suppliers need to comply with two conditions: the first

plays an important role in the hotel’s profitability, although,

is that their production processes cannot be polluting in

according to Arce, this can be solved. The second major

any way and the second is that at least 10 percent of the

challenge is related to permits and regulations, which is

materials they use must come from a recycled source,”

not as easily solved. “There are locations that incentivize

he says. “All our hotel furniture contains a certain ratio of

investment through expedition of permits but there are

recycled material.”

279

VIEW FROM THE TOP

SPANISH CHAIN LOOKS TO MEXICO GUSTAVO JIMÉNEZ Expansion and Urban Hotels Director at Barceló Hotel Group

Q: What is Mexico’s position within Barceló Hotel Group’s

policy, if we buy, lease or associate with somebody in a

business strategy?

hotel deal, this hotel must carry one of our brands, whether

A: Mexico is the most important country in our portfolio.

that be Allegro, Occidental, Barceló or Royal Hideaway. It

Although we have many more hotels in Spain, Barceló

must also be operated directly by Barceló Hotel Group; no

Hotel Group has almost 8,000 hotel rooms in Mexico

hotel operated under our brands is a franchise.

since the incorporation of the Barceló México Reforma 280

Hotel. Our hotels in Mexico are responsible for the

Q: What business model does Barceló Hotel Group follow

company’s largest growth, revenue and profit, with our

when building new developments?

five-hotel, 2,700-room Riviera Maya resort being the

A: Barceló mainly follows two different models. The first

biggest contributor.

entails associating with a fund and having it build a hotel for Barceló to operate. The second involves an investor

Having a presence in the country’s most important cities

offering to build a hotel and to lease it to Barceló Hotel

is integral to our strategy. The Barceló family’s business

Group. We would like to grow in terms of operating

plan dictated that we focus on US beaches until the end

contracts, leasing contracts and co-investment instead

of 2013 and then start focusing on city destinations.

of making so many new investments in terms of building

The growth Barceló Hotel Group has experienced on

new hotels. Part of the growth we experience in the short

the other side of the Atlantic has been more balanced

term will be by participating as a minority investor while

between beach and city destinations. Despite our growth

having operating contracts with investors.

in the urban segment in Latin American countries such as Guatemala, El Salvador and the Dominican Republic,

Q: What are Barceló Hotel Group’s key goals in the short

Mexico is the country where we are most interested.

term?

The city destinations we are targeting are Guadalajara,

A: We want to establish in the city of Campeche, where

Monterrey, Leon, Merida, Campeche city and some oil

we are building a new hotel. Barceló Hotel Group is

cities in the Gulf of Mexico, such as Coatzacoalcos.

currently exploring options for growth in Coatzacoalcos, Guadalajara, Leon and Monterrey. These are new projects

Q: How does Barceló Hotel Group optimize the operation

that will involve the entire construction and operating

of assets like Barceló México Reforma?

process. Depending on the type of destination and size

A: We have a large number of assets. Of the 250 hotels

of the project, some hotels will take longer to complete.

we operate in 21 countries around the world, about 50

Building a new 125-room business hotel like that in

belong to the Barceló family. On the contrary, the Mexican

Campeche can take 18 months while the Barceló 300-

hotel giant Grupo Posadas, with 150 hotels across all its

room project in Guadalajara can take up to three years.

brands, only owns about 10 of them. This means Barceló Hotel Group owns five times more hotels than its biggest

We also aspire to have 30 percent of the company’s

Mexican competitor. This provides several advantages,

commercial activities carried out electronically. Barceló

including greater profits because there is no need to pay

Hotel Group’s digital and e-commerce division has

for branding. In terms of hotel operations, as a company

already achieved 20 percent of the business brought in. We need to let our usual customers know that they can now find the Barceló experience they know and love

Barceló Hotel Group, the hotel division of the Barceló Group, is

in city destinations too. Barceló Hotel Group hopes the

the third-biggest chain in Spain. It has more than 230 4 and 5-star

Barceló México Reforma will be helpful in leveraging the

urban and holiday hotels and more than 50,000 rooms under

urban hotel services we develop and in boosting our

four brands: Royal Hideaway, Barceló, Occidental and Allegro

market share in this segment.

INSIGHT

BETTING ON MEXICO’S BEACHES TO ATTRACT US VISITORS BORJA ESCALADA CEO of RLH Properties

Although geopolitical uncertainty and exchange-rate volatility

Despite the opportunities, there are also challenges, some

have dominated the conversation in many of Mexico’s main

of which are also seen as an opportunity by Escalada. “The

markets, one sector that can boast rapid and impressive

luxury segment’s entry barrier is the fact that there are only

growth, and which seems to be relatively immune to all the

a few unique locations where such hotels can be built,” he

chatter, is tourism.

says. To expand its portfolio, RLH Properties is always looking for dedicated partners. The luxury segments require that

The three main holiday destinations for US tourists are

both the operator and the owner of a hotel understand that

Hawaii, the Caribbean and Mexico. Travel to Hawaii entails

the experience provided is key to the success of a contract,

at least five hours by plane and the Caribbean lacks proper

explains Escalada. “RLH Properties does not want to work

air travel connections. Mexico, however, barely requires 2.5

with operators that fail to provide the excellent experience

air travel hours on average to beach destinations like Los

we want to offer or with construction partners that do not

Cabos, Cancun or Puerto Vallarta. Borja Escalada, CEO of

offer compliance guarantees for financial and construction

RLH Properties, says this gives the US’ southern neighbor

delivery times.”

the edge. “Mexico’s proximity to the US, its culture, food and weather constitute ideal conditions for the country to be a

The company’s asset-management policy entails working

key player in tourism,” he says. “These characteristics make

closely with operators as these contracts are usually long-term

Mexico a preferred and realistic destination.” According to

and RLH Properties serves as an active investor. As is standard

INEGI data, tourism contributed 8.7 percent of Mexico’s GDP

in the industry, RLH Properties also keeps a CAPEX reserve

in 2015 and 10,700 hotel rooms in the country belonged to

for renovation and maintenance that depends on the hotels’

the luxury and ultra-luxury sectors in 2016, according to real

goals and amounts to a certain percentage of the hotel’s total

estate services firm JLL. “Most clients of luxury hotels are

revenue. Last year, the company completed a total renovation

foreigners, largely from North America,” says Escalada. More

of one of its most famous hotels, Four Seasons Mexico City.

than 35 million international tourists visited Mexico in 2016, 58

The positive results seen from investing in renovations has

percent of which were from the US, according to the Ministry

motivated the company to increase the funds invested in the

of Tourism. Given all these components, RLH Properties was

renovation of some of the other hotels in its portfolio.

motivated to focus on the acquisition and development of Mexico’s city and beach luxury-tourism sectors.

Since its debut in the BMV in November 2015, RLH Properties has gone from strength to strength, growing from MX$451

Although the market is full of opportunities, RLH

million to MX$9 billion, making it the second-largest hotel

Properties is selective about its investments and requires

company in terms of capital behind Mexican hotel group

that each hotel adheres to certain characteristics. “The

Grupo Posadas. The company also recently acquired OHL

locations we choose for our hotels must be special in

Mexico’s Mayakoba Resorts, which include four hotels and a

order to ensure a unique experience for our clients, so

golf course in Playa del Carmen. RLH Properties is building

that they remember it in the future,” he says. For RLH

the 108-room One&Only Mandarina hotel in Puerto Vallarta as

Properties to invest in a hotel, it must be located in a

part of a plan to accelerate profit generation for investors and

consolidated destination near an airport with high

shareholders, and the Rosewood Mandarina in Riviera Nayarit

passenger inflows and be eligible to be managed by

is currently under design. RLH Properties has identified an

renowned operators. The company invests in hotels that

ocean of opportunities in Mexico, including the creation of

are ready to build or already developed, handling design,

more hotels for the local market. “Banyan Tree Mayakoba

construction and operational risks. It does not invest in

has a relatively higher proportion of Mexican guests than

assets that have tenancy-related risks or that lack the

Rosewood Mayakoba,” says Escalada. “There is a lot of

environmental permits necessary to begin construction.

potential in the local market.”

281

INSIGHT

NEW LAW COULD HAMPER INDUSTRY DEVELOPMENT JORGE HERRERA President of the Mexican Association of Tourism Developers (AMDETUR)

The mesmerizing blue beaches and wide spectrum of

industry is hoping that the government can understand

restaurants, clubs and outdoor adventures that Riviera Maya

that there needs to be a balance between business needs

grants visitors is proof of the positive economic impact

and consumer demand.

tourism can have on a region. Tourists inevitably spend

282

money in local stores and restaurants during their visits, which

Along with these regulatory obstacles, the asymmetric

benefits the surrounding community. But growth could be

competition in Mexico’s tourism industry must also be

impeded by new laws in the pipeline, a potential contradiction

addressed as a way to ensure the growth of the industry.

to the administration’s objective to boost tourism in Mexico,

“Foreign companies tend to have access to cheaper credit

along with a marked disconnect across the country’s roads

with longer grace periods and lower interest rates,” he

and flight routes.

says. “Other countries such as the Dominican Republic offer discounts on rent and payment plans as a way to

“Developers are working toward setting new benchmarks

boost investment. Mexican companies do not receive

and improving the quality of the sector,” says Jorge Herrera,

enough benefits from the government and that puts them

President of AMDETUR. “Areas such as Los Cabos, Riviera

at a disadvantage in the market.” However, the market

Maya and the north of Cancun have been showing consistent

does have certain agencies like Bancomext that offer

signs of growth. But the tourism industry is particularly

attractive interest rates. Growth has also been promoted

concerned about the Consumer Protection Law that is

by the government through programs like Mejora Tu Hotel

currently under review by the authorities.”

(Improve Your Hotel), which has a designated budget of

“

The tourism industry is particularly concerned about the Consumer Protection Law that is currently under review by the authorities”

MX$60 million per hotel. Companies are able to request credit from FONATUR to invest in new hotels, expansion or remodeling. The creation of these financial tools, along with Fibras, help national companies compete more efficiently. But Herrera says that it does not compare to the benchmark set in other parts of the world. To help close these gaps, communication is key. Considering the regulations that are being created the sector must remain close to authorities and provide them the information

The law includes an increase in cancellation periods to 30

they need, he says. The improvement of connectivity in the

calendar days from five. The action allows consumers up

country can be an important area of opportunity as well.

to a 30-day cooling off period after signing any contract

“Developers need to consider connectivity around their

with entitlement to a full refund. The industry is worried

projects to avoid recreating a situation similar to other

about the impact it may have as similar regulations in

destinations in Mexico that greatly lack access to roads

other countries have failed, says Herrera, and this would

or flights,” he says. “Tourism companies refuse to invest in

put Mexico at a disadvantage when competing with

areas without flights and routes cannot be created in places

countries such as the US and Canada. Aside from the

without enough hotels.”

new law, the tourism sector must face the additional challenges that come along with a new requirement to

Despite the challenges, Mexico continues to stand out as

an attractive tourism location thanks to its culture, history

normally only applies double registrations to pawn

and geographical position. “Caribbean countries may have

shops,” says Herrera. “The recent change demotivates

beautiful beaches but the treatment visitors receive does not

investment.” According to AMDETUR, the tourism

compare to the welcome they get in Mexico,” Herrera says.

INSIGHT

GEOPOLITICS FORCING TOURISM DEVELOPERS TO ADAPT HENRY GONZÁLEZ Leader of Real Estate, Hospitality and Construction Mexico and Central America at EY

It is no secret that experts believe the Mexican tourism

shield the ZEEs from changes in the political environment,

sector will experience one of the highest growth rates of

so projects can fully develop,” says González.

any of the country’s industries through 2020 and with more than 35 million visitors in 2016, the demand for

Adaptability is a competitive advantage in the tourism

infrastructure will only continue to rise. But the geopolitical

sector, whether it is to the changing economic environment

and economic situation has made it more complicated to

or to the incoming millennials who will rule the market.

make decisions.

According to González, tourism experience-oriented developments are the best paid in Mexico and this trend

“The impact of an expensive dollar in the short term is

is being driven by the younger generations. “The industry

beneficial for the tourism sector but in the medium term,

is now focusing on creating developments that allow its

costs and inflation could catch up, making development

visitors to build an experience and an emotional attachment,

more complicated,” says Henry González, Leader of Real

as well as further embracing the sharing economy,” he says.

Estate, Hospitality and Construction Mexico and Central America at EY. The cost of construction has increased

But it is not just millennials changing the game for tourism

between 10 to 15 percent in 1Q17 and according to EY, in the

developers, as Mexico’s other shifting demographics will

short to medium term, dollar-peso fluctuation and inflation

also steer the direction of the industry. “In 10 years, 15

will cause the economy to deaccelerate and will reduce the

percent of the population will be senior citizens, which

inflow of investment.

leads to a countless number of opportunities to create and invest in developments that accommodate the elderly,”

As a precaution, the government has promoted the sector

says González.

extremely well and has created incentives for both foreign and Mexican firms. One of the most important upcoming

These opportunities, says González, may be the reason

projects that will most likely take off at the end of 2018 are

the tourism industry is becoming more active in the stock

the Special Economic Zones (ZEEs).

market. “CKDs have more strength than Fibras because the latter are limited to only rental properties,” says González.

There are four main zones: Oaxaca-Veracruz, Tabasco-

“CKDs are the best option for developing infrastructure

Campeche, Yucatan and Michoacan-Guerrero. The

projects.” These instruments have attracted both national

government will encourage the states and municipalities

and international funds, especially those from the US.

to participate by reducing income tax and VAT, as well as

But González cautions that although Mexico is attractive

offering support for lodging and payrolls. By providing

to investors, the fluctuating exchange rate and Trump’s

tax breaks and facilitating trade, the government

ambitious infrastructure program will pose a challenge and

looks to attract even more development to Mexico’s

increase competition. “This increase in competitiveness will

marginalized states, ultimately boosting the country’s

allow local players to play a bigger role in the industry.”

internal economy. “It will become a competition between the different zones and it is up to each municipality and

These local and international players are setting their sights

state to do its homework and promote collaboration,”

on investing and developing along the Mexican coasts.

says González.

“Puerto Peñasco, Los Cabos, Nuevo Vallarta, Huatulco and Puerto Escondido are attracting investment on the west

But one of the biggest hurdles that the government will

coast and in the south,” says González. “Isla Mujeres will

have to overcome to make these zones a success is to

experience the next boom due to its proximity to Cancun.”

ensure continuity across political administrations. “The

By reactivating the pacific coasts, the second-home market

government has to create the legal framework that will

will grow even more, he concludes.

283

INSIGHT

VETERANS MUST ADAPT QUICKLY TO DISRUPTION RICARDO MONTAUDON President and Executive Director for Latin America at RCI

284

As technology enables more and more disruptive

destinations might not be as obvious. For Montaudon,

companies to enter the market, veterans like RCI need to

the important thing is to select a destination that has

rapidly adapt to these changes, says Ricardo Montaudon,

an important inflow of visitors, so it can generate new

the timeshare company’s President and Executive Director

enrollments and exchanges. The other important factor

for Latin America. “Instead of acting as developers, these

to consider is related to the legal details surrounding

companies are becoming a distribution chain offering a

properties. “We can only affiliate developers and not

different experience from ours,” he says.

marketers, since the latter do not have any real rights over the development,” he says. “But the marketers

But he is not overly worried that these changes will

are a key component of the developer’s success.” Even

endanger traditional timeshare developers. “Disruptors

though the appearance of new players will not jeopardize

will keep coming but I believe that the market will also

RCI’s business, Montaudon says that the only way hotel

continue growing and changing,” he says. “Millennials may

developers will be able to compete effectively with

be millennials today, requiring alternative solutions that fit

disruptors is through the creation of new and unique

with their lifestyles, but in a few years, they will get married,

experiences. “It is a matter of having a product that people

have children and their needs will change.”

want to buy,” he says.

RCI offers an array of experiences that includes national

When it comes to offering one-of-a-kind experiences,

and international destinations, cruise and tour exchanges

Grupo Vidanta, RCI’s largest developer in Latin America,

through the use of an exchange program. The system

is taking the lead with a new project in Nuevo Vallarta.

depends on a fee paid by enrolled hotels, which covers

The project includes a theme park estimated to open in

inspections and marketing materials. Member hotels then

2018 and will feature the first ever Cirque du Soleil theme

pay RCI based on the number of visitors and sales made.

park. Choosing Nuevo Vallarta as a destination was no coincidence. In 2015, the city received over 2.5 million

However, for the exchange program to function,

tourists and this inflow is estimated to double in the next

Montaudon says that a number of factors must be

five to 10 years. Montaudon notes that these types of

taken into consideration, including the destination and

projects are key to ensure a flow of tourists. “We are seeing

the hotel development and quality. While it is easy to

a transformation. The beach is no longer the destination

select destinations such as Cancun or Los Cabos, other

but a complement.”

Palafitos Overwater Bungalows, Riviera Maya, RCI

VIEW FROM THE TOP

OVERCOMING PROJECT MANAGEMENT CHALLENGES ANTONIO VILLARREAL Director General of Axioma

Q: What areas of opportunity do you see for project

and others physically and sometimes they request to have

management in Mexico?

weekly or monthly meetings. We try to make sure issues

A: Mexico has yet to set a single term for the

are addressed right away and our clients appreciate this

responsibilities undertaken by a project manager. The

honesty and transparency.

name can vary among projects from construction administrator to project supervisor. Developers in the US

Axioma strives to use standards and processes to help

understand and widely use the term project manager

create better quality and more well-planned projects.

to describe the company that oversees the entire

We achieve this by not only training employees but our

development of a project, including its conception and

clients as well, which helps promote congruency across

financial aspects. Mexico still has several projects that

the different phases. Almost 90 percent of our business

are being built without project managers and the lack of

comes from recommendations. It is also important for

structure and methodology can make them more prone

companies to find their niche and to focus on that.

to delays or cancellation.

Expanding to other areas can be risky and raises the likelihood of failure. Throughout our 25 years in the

Q: What challenges must a project manager overcome?

market, we have never expanded out of our role as

A: Projects are much more complex than 20 years ago

project managers because we know it is what we do well.

when only four or five companies were involved. Now we need to consider sustainability, security and even

Q: What sectors do you prioritize?

landscape design, which can get complicated. This is

A: We work in a wide range of projects but our main

made additionally complex due to the fact our company

priority is tourism. In Los Cabos, there is a 17,000-room

helps clients develop quality projects from design to

project on the table. The sector is ideal for us because it

operation.

guarantees a minimum of three years of work, including one for planning and two for construction. Hotels

Sometimes the hardest part is assessing the client and

also have the benefit of not depending on investment

guiding them to fit their ideas within realistic time frames.

funds and this reduces the risk of project cancellation.

A client may approach us wanting to build a plaza in

Tourism requires a wide range of specialties because it

less than 12 months without understanding its costs

involves many details such as recreational activities and

or the projectâ&#x20AC;&#x2122;s complexity. On occasions we have had

communication and automation systems.

requests to turn in proposals within a day. We advise our clients about the importance of planning to avoid time

We have noticed that industrial demand is decreasing

and budget overruns. For this reason, we almost never

while residential is experiencing a boom. We participate in

work with the public sector because it only tends to seek

commercial and vertical housing. The boom may have started

basic supervision of the construction while we strive to

in Mexico City, Monterrey and Guadalajara but it is spreading

go above and beyond. Projects in remote areas such as

to other areas such as Queretaro and Tijuana. Axioma

Puerto PeĂąasco entail additional challenges. In Sonora,

is involved in commercial developments as well and just

the logistics can be more difficult and we have had to

contracted an 8,000m2 commercial development in Torreon.

bring in suppliers from Guadalajara. Q: How do you find a balance between meeting client

Axioma manages projects in every step of the development

needs and assuring timely and high-quality projects?

process from pre-construction to post-construction. The

A: We prioritize communication and adapt to the style of

company specializes in tourism real estate and has worked

our clients. Some prefer to receive documents digitally

with chains such as Hampton Inn, Holiday Inn and AM Resorts

285

VIEW FROM THE TOP

BOUTIQUE CONSULTANCY PROJECTS CONTINUED GROWTH JOHN MCCARTHY Founding Partner and Principal at Leisure Partners

Q: What is behind the tourism industry’s success in the

Peñasco, Sonora. We are practically creating an entirely

last few years?

new destination there. Leisure Partners is also looking into

A: Tourism in Mexico has become competitive in many ways.

building hotels in Huatulco, Oaxaca and Mexico City.

Areas like Cancun and Ixtapa, which were completely empty

286

not too long ago are now full of resorts. Few countries

Developers in this segment often make the mistake of

have invested as much in their tourism sectors as Mexico

duplicating the successful methods applied in one area

has over the last few decades. The country has a large

to another. For instance, Loreto in Baja California Sur is a

number of financial agencies such as Bancomext that help

beach destination that was originally designed to imitate

finance project development that would otherwise be

Los Cabos to the south. This was a mistake as Loreto lacks

deemed unfeasible by commercial banks. This institution

the same atmosphere and characteristics as Los Cabos.

has financed 50 to 60 percent of the hotels that are being

Emphasizing each destination’s unique tourist attractions

built in both coastal and city destinations in Mexico.

is important.

Many believe Mexico’s competitiveness is based solely on

Q: In what ways does your company collaborate with the

the depreciation of the peso but other factors play into the

public sector?

country’s success. First, Mexico’s geographical situation is

A: We have close ties with the government both directly and

helpful because it attracts visitors from the US and Canada

indirectly through finance schemes and permits. For example,

due to its proximity and sunny climate. Second, our current

Mexico’s National Trust Fund for Tourism Development and

administration has cleaned up Mexico’s image as an unsafe

Promotion (FONATUR) provided the land on which we are

country, encouraging the return of tourists in large numbers.

building a US$170 million project in Huatulco. We will be

We have a rich cultural heritage and attractive natural

able to bring back investment with the support of the public

reserves. Finally, the country’s massive population of over

sector. Working with the government provides us extra

120 million and the resulting internal tourism is a factor

security in the areas where we develop projects.

many overlook. This collaboration also effectively reduces risk for investors Q: What industry segments does Leisure Partners cover?

as the support of the government exponentially increases

A: We specialize in resorts but also cover other segments.

the probability and speed of ROI. Large projects such as

Leisure Partners is sure that traditionally strong cities such

Puerto Peñasco need the participation of the public sector

as Guadalajara, Monterrey and Mexico City will continue

to ensure smooth operations and long-term benefits for

thriving since many private equity funds are now deciding

investors, the area and the country.

to focus entirely on tourism real estate, which is less risky. Q: How does the company see its positioning in the tourism Leisure Partners is excited to revitalize what once was

industry in the years to come?

Mexico’s prime destination: Acapulco. We are working

A: We have a lot on our plate right now. Leisure Partners

to adapt the area to the current market needs. Another

takes pride in being a boutique consultancy that carefully

incredibly important project for our company is Puerto

selects projects and developments. Our biggest challenge at the moment is a completely new city we are building outside an old Mexican town. We cannot disclose the

Leisure Partners is a real estate consultancy focused specifically

location yet but the idea is to build the infrastructure

in hospitality. It provides integral solutions, including financial

from scratch and create a location with all the necessary

advisory, assistance in finding operators, debt restructuring,

amenities. We hope to have a river in the middle and a tram

asset management, brand and project marketing and sales

that connects the development to the nearby town.

INSIGHT

ZEEs HAVE POTENTIAL TO BOOST COUNTRY’S DEVELOPMENT CHARLES AZAR CFO of Ideurban

Mexico has been working nonstop for many years to whet

Streamlining the process for getting a project off the ground

investor appetite for developing the country’s southern

would go a long way to avoiding the setbacks that often

states, especially through tourism, yet they remain the most

plague developments. “For one project, a developer has to

impoverished and underdeveloped regions in the country.

go to more than 10 different governmental agencies and

Special Economic Zones (ZEEs) may be the answer but the

obtain various permits from each one. The system needs

government needs to step up its incentives to attract the

to be centralized.” Uncertainty is another issue with which

needed private investment, says Charles Azar, CFO of real

developers must contend. Many companies are not willing

estate developer Ideurban.

to take such a large risk of developing in an area where there is no clear market. “The goal is to create projects that

The private sector has been reluctant to construct new

will spur development in unexpected places,” says Azar.

tourism developments within these areas due to elevated

He says that developers turn down building in these areas

risk levels. It is the government’s responsibility to ensure

because market studies do not project high capital gains.

that all the right pieces are in place to convince investors

“But it is impossible to compare when there is no building

the time is now. “The government has to be the first to

like it in the surrounding area.”

be held responsible for the country’s development. It must make a plan along with the private sector and create a

Ideurban is known for stimulating urban development in

framework that will incentivize investment,” Azar says.

new areas. Iconic buildings in its portfolio include Mexico City’s St. Regis Hotel on Reforma Avenue and the towers of

With the creation of the ZEEs, the government’s goal is

the Residencial del Bosque in Polanco, which have sparked

to take advantage of the country’s strategic geographic

both economic and infrastructure development in those

position to create new possibilities for businesses and jobs

neighborhoods in the last decade, transforming them into

by incentivizing the development of real estate, transport

the most important business hubs in Mexico. “As a company,

and industrial infrastructure within the zones. One of the

we take the risk of creating projects in areas where nobody

ZEEs, which may be the most important, covers the Isthmus

else wants to. Our goal is to create iconic infrastructure that

de Tehuantepec, which passes through Mexico’s most

completely transforms the surrounding area and adds value

underdeveloped states: Chiapas, Oaxaca and Guerrero. Azar

to the terrain,” Azar says. Since Ideurban constructed the

believes the best way to start developing in these areas is

Residencial del Bosque, costs per square meter in that part

by constructing auto-sufficient cities, where citizens can

of the city have skyrocketed.

work and live. The government’s fiscal incentives will make investment more attractive to the private sector, with the

Reforma is a successful example of the government and

goal of bringing in new factories and companies to first

the private sector creating partnerships that are win-

boost business tourism and later bringing in leisure tourists.

win situations for both. Throughout the 2000s, the PRD administration changed the land-use permits to exempt

But there are challenges. The ever-changing economic and

developers from paying income tax for the following

political environment in Mexico, as well as the government’s

eight years after a project’s completion, boosting the

efforts to decrease its dependency on oil and gas, has

construction of skyscrapers. The new activity helped to

put tourism in the spotlight to help boost the economy.

alter Mexico’s skyline as more and more buildings went up.

The problem, as Azar sees it, is that too much is lacking

This boom not only created an important business hub but

in terms of infrastructure to realize tourism’s full potential.

also provided the government with a steady income. “Had

“The government has created great marketing and publicity

the government not done this, it would not now have the

campaigns to attract tourism but it does not have the right

income it receives from the collection of property tax on

infrastructure to accommodate the rising demand,” says Azar.

each construction,” says Azar.

287

INSIGHT

USING TECHNOLOGY TO BREAK PARADIGMS

“

We use our technology and artificial lagoons as an amenity that has the power to transform the value of an unwanted property” Jean Pierre Juanchich, Country Manager Mexico of Crystal Lagoons

become one of the most emblematic in the country,” he says. “It is still under approval but it will involve everything from hotels and offices to a commercial center.” When it comes to sectors, Crystal Lagoons does not prioritize a specific one. Rather, it always strives to identify areas where it can improve the quality of life, says Juanchich. Crystal Lagoons covers every segment from luxury developments to middle and low-income housing. It is also involved in primary and secondary housing projects and hotels. The company is currently collaborating with a hotel development that consists

288

Mexico’s tourism sector is booming and the number of visitors

of 1,800 rooms. It also has a project in Cabo San Lucas that

from North America is growing every year. But many of these

has one of the best golf courses in the world. “We greatly

visitors prefer to swim in swimming pools, rather than in the

augmented the value of the location with our technology

sea, according to Jean Pierre Juanchich, Country Manager

because it is not close to the beach,” Juanchich explains. “It

Mexico of Crystal Lagoons. This is just one of the reasons why

also transformed a male dominated activity – golf – into a

the company saw such potential for its product in Mexico.

family activity by offering a safe place where the entire family can have fun and enjoy recreational sports.” This is essentially

“We use our technology and artificial lagoons as an amenity

Crystal Lagoons’ mandate: to collaborate with developers and

that has the power to transform the value of an unwanted

construction companies to increase the value of their projects

property,” he says. “Our crystal lagoons allow hotels in the

with its technology. “Strategic alliances are important to us

area to meet these demands in a low cost, sustainable way.”

and we will continue to increase our presence in the market

The company’s technology requires the lagoons are filled only

through these relationships,” says Juanchich. The company

once because they are highly water-retentive, even in hot

recently signed a contract to install a lagoon in the Wynn Las

areas. The lagoons use 30 times less water than a golf course

Vegas hotel, making it the first hotel to establish a beach in

and 50 percent less water than a green space. In this way, it

the area. It is one of the ways Crystal Lagoons is innovating

can be far more economical for hotels to install a lagoon than

and generating increased demand for its product.

a swimming pool. Juanchich believes in creating a world full of water where Crystal Lagoons was founded in 2008 as a solution to a

everyone can enjoy the resource in a sustainable manner. And

property in Chile that was close to the sea, but bad weather

even with Mexico’s water shortage issues, Crystal Lagoons

conditions and rough waters made it dangerous to swim in.

is able to innovate to provide sustainable products. “When

The company’s, Fernando Fischmann, decided to bring the

it comes to our source of water, we analyze the location to

feeling of idyllic beach life to Chile by building an artificial

identify the nearest and most sustainable option,” Juanchich

lagoon to the property. But as the lagoon quickly became

explains. “We recently finished a project in Sharm El Sheikh,

dirty and full of bacteria in less than a week, he decided to

Egypt, which is essentially a desert location. We managed to

develop new technology. Now, the lagoon is crystal clear, has

install a 12.5Ha lagoon that is being used as a reverse osmosis

increased housing demand in the area and won a Guinness

plant for the surrounding community. It significantly improved

World Record for “World’s Largest Crystalline Lagoon.” In

the quality of life for its residents.”

Mexico, it is not just the typical beach resorts that Juanchich sees potential in. Growth in the Bajio region has also attracted

And Crystal Lagoons is not only relevant to the tourism sector,

the company’s attention. “Queretaro has a strong market and

it can also offer industrial solutions. Mining companies use its

we are working in the area with a project that is expected to

water-cooling technology to reduce their consumption and minimize contamination. Previously, they would collect cool water from the ocean and return it at a warmer temperature,

Crystal Lagoons is a Chilean developer of crystalline artificial

causing contamination. They can install a lagoon to collect

lagoons with more than 600 projects in 60 countries. It

cool water and use its technology to return water at the

currently has projects in Puebla, Queretaro, Baja California and

same temperature. “It is an inexpensive way to reduce energy

Quintana Roo

consumption and environmental impact,” he says.

INSIGHT

MORE ENVIRONMENTAL FOCUS MEANS GREATER PROFITS GUSTAVO ALANÍS President and Founder of the Centro Mexicano de Derecho Ambiental (CEMDA)

When it comes to environmental laws and regulations,

but after a series of studies, the organization concluded that

Mexico has a wide spectrum of tools on hand as well as

the area was not feasible because there was an ecological

environmental institutions. But the country still struggles

zoning program in place that does not permit projects of

with effective compliance and enforcement. The context puts

this nature and also because there is a natural protected area

one of Mexico’s most important sectors, tourism, at risk as

where the project was intended to be built. CEMDA helped

its natural resources are some of the greatest attractions for

point the developers to a new piece of land in the area that

national and international visitors.

will ultimately make the project more environmentally sound.

Gustavo Alanís, President and Founder of CEMDA, considers

The organization was also asked to oversee the construction

environmental compliance to be among the biggest

of a university in the area of Contadero, Cuajimalpa, a

challenges that Mexico faces. The country is a champion

neighborhood on the outskirts of Mexico City. A US$15

when it comes to environmental regulation but putting it into

million property had already been purchased but CEMDA

practice is another story, he says. “On the one hand, certain

found that the land could not acquire construction permits

developers are not doing enough to align their projects to

as it was in a conservation area. It also contained hazardous

the country’s environmental standards while on the other,

waste, which implied an additional cleanup cost. “The key

governmental authorities have a limited capacity to oversee

is to take preventive measures and ensure that a project

that each project is fully in compliance.” The context comes

meets the requirements of environmental legislation before

as no surprise considering that PROFEPA, the Attorney

purchasing land or starting construction to avoid conflict or

General for Environmental Protection, has only around 700

cancellation,” he says. “Meeting these standards is important

inspectors, which is a drop in the ocean. In comparison, the

as otherwise the credibility of the project is greatly affected.”

UK has around 10,600 inspectors despite being a fraction of Mexico’s size. “Budget cuts in the country are another issue,”

To remain competitive in the tourism sector, Alanís says

says Alanís. “Inspectors are not sufficiently rewarded nor do

Mexico needs to promote the respect of its legal framework

they have the access to the technical support they need to

through the environmental impact assessment process and

do their job properly.”

ecological zoning programs. “Limits are not being respected,” he says. “Some developers that have a permit to develop

Fortunately, a new generation of investors and developers

five rooms per hectare end up building five times above the

with a sustainable conscience are entering the country

limit without incurring a fine.” Environmental prioritization

and developing projects that increasingly respect the

is particularly important considering new markets such as

environment, primarily due to market demand for eco-

Cuba are attracting global attention. Alanís fears that if the

friendly tourism. Alanís highlights that citizens are much

country does not clean up its tourism development, it could

more vigilant toward the construction of projects. Thanks to

potentially eliminate itself from the competition, even if it

the internet and technology, information gets shared quickly

is one of the world’s most biodiverse countries. “We need

and people are quick to take legal action against projects

to ensure that tourism developers are behaving properly

that are not ecological and legally friendly.

because if beaches are dirty and polluted, the attraction for tourists is eradicated,” he says.

CEMDA, as an organization that uses the law to defend the environment and natural resources, offers advice and support

He stresses that the public, private and social sectors need

to different sectors of society that do want to comply with

to find middle ground to ensure the long-term growth of

the law and respect nature. It recently analyzed a residential

Mexico’s tourism sector. “Infrastructure companies should

project that was intended to be built in Valle de Bravo, State

continue developing projects but need to take into account

of Mexico. The developers had already purchased the land

the environmental considerations from the outset,” he says.

289

PROJECT SPOTLIGHT

153

deluxe suites with uninterrupted views of Chapultepec

290

RITZ-CARLTON TO SPARKLE IN THE CROWN OF CHAPULTEPEC UNO In 2014, ground was broken on a new project to add to the collection of skyscrapers on Mexico’s iconic Reforma avenue. Chapultepec Uno, upon completion, will sit at a height of 241m spread across a construction area of 1 million ft2 on 58 stories, and between the 35th and 47th floors will nestle one of the jewels at the top of its crown: the Ritz-Carlton hotel. With an investment of over US$100 million from Thor Urbana, the Mexican real estate investment and development arm of international firm Thor Equities, this will be the first RitzCarlton in Mexico City, the second in the country and only the eighth in Latin America. It will boast 153 deluxe suites and is scheduled to be inaugurated in 1H19. The hotel’s suites will boast uninterrupted views of Chapultepec Castle and its surrounding forest, one of the largest urban parks in the eastern hemisphere, spanning 678ha. Thor Urbana will work alongside fellow developers GSA Grupo Inmobiliario and Heldan Hotels & Resorts to create the hotel, while design development will be down to Taller G. Conceptual design will be carried out by KMD Architects. With the building boasting amenities like a spa, sky lounge, gym and helipad, the prestigious hotel brand will be a welcome addition. Mexico City is fast becoming one of the world’s business hubs, and Reforma Avenue plays the part of the city’s financial district. With the new trends for mixed-use developments, stays in the Ritz-Carlton will be ideal for busy visiting executives who will be located just a stone’s throw from work. With Chapultepec forest accessible by simply crossing the street, the hotel’s location will provide business travelers with the best of all worlds: business, leisure, luxury and accessibility. “With this hotel, we want to position ourselves as the reference hotel and leader in Mexico City’s luxury segment,” said Jaime Fasja, Thor Urbana’s CEO in an interview with El Financiero. “We believe it will be a unique hotel and it should become the preferred choice for the business and leisure traveler.” Thor Urbana has just over 1 million m2 under construction and has invested US$1.4 billion over the last five years. Although this project does not necessarily represent its biggest investment, it is an iconic project that Thor Urbana’s founders hope will position the company as one of the leading developers in Mexico’s luxury segment.

291

ROUNDTABLE

WHAT ARE THE MAIN OPPORTUNITIES AND CHALLENGES IN MEXICO’S TOURISM DEVELOPMENT?

Mexico is home to some of the purest virgin beaches and one of the oldest cultural heritages in the world. It is no wonder then that Mexico attracted 35 million international tourists in 2016, a 9 percent increase from the previous year. With its close proximity to the US and Canada, warm climate and low costs, Mexico is becoming more and more popular as a tourist destination. As a result, hotel developers and operators must constantly innovate to ensure they retain and increase their market share in an increasingly competitive market. Mexico Infrastructure & Sustainability Review asked the main players in the tourism industry about the main challenges the industry faces and how it overcomes them.

Leisure is part of IADG, a conglomerate that seeks to expand a hotel franchise into Central America and a part of Mexico. Being part of this group and partnering with Grupo Portales gives us the ability to develop our franchise. We have committed to 292

develop 10 hotels in Central America and part of the Yucatan Peninsula within the next five years. Expanding into a market where it is much less expensive to build is an exciting opportunity. A resort usually costs about US$100 million while the ones

JOHN MCCARTHY Founding Partner and Principal at Leisure Partners

planned in this project require between US$6-8 million each. The idea is to find local partners that are willing to provide land and equity. Most of the supplies will come from Mexico and we plan to use financial institutions like the World Bank as one of our capital sources. All these projects will be challenging but this market certainly presents many areas of opportunity.

Developers are working toward setting new benchmarks and improving the quality of the sector. Areas such as Los Cabos, Riviera Maya and the north of Cancun have been showing consistent signs of growth. But the tourism industry is particularly concerned about the Consumer Protection Law that is currently under review by the authorities. The law includes an increase in cancellation periods to 30 calendar days from five, which puts us at a disadvantage against direct competitors like

JORGE HERRERA President of AMDETUR

the US or Canada. The recent change demotivates investment. Developers need to consider connectivity around their projects to avoid recreating a situation similar to other destinations in México that greatly lack access to roads or flights. Tourism companies refuse to invest in areas without flights and routes cannot be created to places without enough hotels.

Mexico’s proximity to the US, its culture, food and weather constitute ideal conditions for the country to be a key player in tourism. These characteristics make Mexico a preferred and realistic destination. Most clients of luxury hotels are foreigners, largely from North America. Although the market is full of opportunities, the locations we choose for our hotels must be special in order to ensure a unique experience for our clients, so that they remember it in the

BORJA ESCALADA CEO of RLH Properties

future. The luxury segment’s entry barrier is the fact that there are only a few unique locations where such hotels can be built. Finding a good deal for our shareholders that fits our requirements is a challenge. There is talk about trade agreements with the US and currency rates but the most important issue for tourism is insecurity within Mexico.

In macroeconomic terms, Mexico is a noteworthy global player. The existence of clusters, special economic zones and a huge territory that prevents the saturation makes the country attractive for foreign investors. Companies like Honda, Toyota and Mazda that have established operations in the Bajio region require commercial services, including hotels – and many hotel chains have jumped on this opportunity. In Salamanca there are seven hotels located right next to Mazda’s assembly facility. In Celaya, nine hotels have been opened in the last two years. We want to establish in the city of Campeche, where we are building a new hotel. Barceló Hotel Group is currently exploring options for growth in Coatzacoalcos,

GUSTAVO JIMÉNEZ Director General of Barceló Hotel Group

Guadalajara, Leon and Monterrey. We also aspire to have 30 percent of the company’s commercial activities carried out electronically.

With the help of the government and private sector, tourism will continue blooming. In 2015 and 2016, the Riviera Maya and Cancun experienced historic occupation records and we expect this trend to continue in the coming years. Our 293

experience in the Caribbean has given us the confidence to expand our operations to Los Cabos, Baja California Sur, and Huatulco, Oaxaca, and we are working to venture to Nayarit Riviera and Nuevo Vallarta. Tourists that go to Los Cabos tend to have more resources than those going to Cancun or the Riviera Maya. They feel that Los Cabos is somewhat detached from the rest of the insecurity problems the rest of the country suffers. Also, Cancun’s airport has become a flying hub. It is just four hours away from the US and Canada and the city has economies of

SANTIAGO JUÁREZ Director of Corporate Banking for Real Estate and Hotels at Banco Sabadell

scale and infrastructure that do not exist in other Caribbean touristic destinations.

We find that the Bajio region is growing rapidly in Mexico and attracting the development of many projects. Queretaro has a strong market and we are working in the area with a project that is expected to become one of the most emblematic in the country. It is still under approval but it will involve everything from hotels and offices to a commercial center. From the central belt to Queretaro, there are many areas that are expected to face a great deal of migration. Our technology can create added value to developments being built from scratch as well as those that already exist. When it comes to sectors, we do not prioritize a specific one. We always strive to identify areas where we can improve the quality of life. Crystal Lagoons covers everything from luxurious developments to middle and low-income housing. We are

JEAN PIERRE JUANCHICH Country Manager Mexico of Crystal Lagoons

also involved in primary and secondary housing projects and hotels.

In 2016, Mexico received more than 35 million international visitors but it also received more than 80 million domestic tourists. These tourists complement each other since they travel at different times of the year to different destinations. Tourism will continue to grow in the years to come, generating more than US$19.5 billion in foreign revenues and an investment has had more than US$86 billion in the last five years. It is the industry that invests the most in Mexico. and we are constantly opening new hotels. Each of the hotels we construct requires at least US$50 million of investment. There is a curious disconnect between tourism and other industries in that a US$20 million investment in a project from any other industry is newsworthy, whereas in tourism that amount does not represent even one development. The tourism boom Mexico has experienced in the last five years has been healthy for the country’s economic development.

PABLO AZCÁRRAGA President of the National Touristic Business Council (CNET)

Bolsa Mexicana de Valores (BMV), Reforma Avenue

PROJECT FINANCE

One of the biggest challenges construction companies and developers face is making sure projects are completed on time and on budget. Reducing and evenly distributing the risks of these two factors are essential to guarantee financial support from investors and banks as well as the continuation of projects. Infrastructure is a highly competitive industry and companies must prove the value of their projects at a local and international level to attract capital.

On the bright side, emblematic projects in the country are showcasing Mexico’s ability to innovate. The use of green bonds by the new Mexico City International Airport is an example, having been recognized as the biggest debt issuance in the world in 2016. Mexico’s various budget cuts have additionally forced the government to explore new ways to finance the construction of the infrastructure the country requires through the release of new PPP projects.

This chapter gathers the country’s most experienced credit reference agencies, consultants and law firms to discuss the main challenges both national and international companies face in terms of project finance while addressing the key areas of opportunity in Mexico.

295

CHAPTER 11: PROJECT FINANCE 298

ANALYSIS: Mexico’s Role in the Green Bond Market

300

INSIGHT: Carlos Fiorillo, Fitch Ratings Mexico

302

VIEW FROM THE TOP: Alberto De La Parra, Jones Day

303

INSIGHT: Alberto Jones, Moody’s Investors Service

304

VIEW FROM THE TOP: Vicente Corta, White & Case

305

VIEW FROM THE TOP: Rodolfo Gómez, CIAPP

307

VIEW FROM THE TOP: Fernando Montes De Oca, HR Ratings

308

INSIGHT: Ignacio García de Presno, KPMG

309

INSIGHT: Eduardo De La Peña, Deloitte

310

ROUNDTABLE: What Best Practices Can Projects Use to Reduce Financial Risks?

312

VIEW FROM THE TOP: María Ariza, AMEXCAP

313

INSIGHT: Pablo Marti, Armour Secure

297

ANALYSIS

MEXICO’S ROLE IN THE GREEN BOND MARKET The rise of global warming is causing world leaders to prioritize sustainability. But New Climate Economy predicts an infrastructure need of US$93 trillion worldwide by 2030 to guarantee a low-carbon economy. Fortunately, new investment tools are being released in the market to fund sustainable projects Mexico has released a total of five green bonds worth

bond market saw its biggest jump between 2013 and

approximately US$6.7 billion through development bank

2014, climbing to US$36.6 billion from US$14.8 billion.

NAFIN, the Mexico City government and NAICM. The first

Bloomberg New Energy Finance expects the market to

green bond issued by NAICM in 2016 was emblematic

hit triple digits for the first time by the end of 2017, to

as it was also the first green bond to be issued for the

US$134.9 billion, a 36 percent increase from US$99.1

construction of an airport. Grupo Aeroportuario de la

billion raised in 2016. Of the 24 countries that have

Ciudad de México (GACM) issued a second bond in

issued green bonds, China leads the race as the largest

September 2017 worth US$4 billion that received the

issuer. In 2016, Chinese stakeholders issued 27 percent

participation of 750 investors from Asia, Europe, the US

of all green bonds globally. But Mexico is gaining on its

and Latin America.

competitors. The Climate Bonds Initiative recognized the NAICM megaproject for being the largest green bond

REGULATORY HURDLES TO OVERCOME

issuer as a nonfinancial corporation through its US$2

To further motivate the Mexican market to join the

billion issuance.

green bond movement, additional regulatory stability and assurance is required. Montes de Oca believes that

ANNUAL GREEN BOND ISSUANCE BY ISSUER / BOND TYPE

one of the main challenges is the lack of incentives.

160

the lack of projects and incentives to get them into the 134.9

140

bond nor established rules, which leaves regulation in the

hands of individual governments and local authorities.

50.0

Montes de Oca cites Germany as an example of a

36.6

Extrapolated ABS/MBS Municipal Project

successful green bond market as many investors have

14.8

Corporate Financial Goverment

2017

2016

2015

asset allocations and incentives are given to funds 2014

2013

2012

2011

2010

0.5 0.9 7.2 3.4 4.3 2009

public market are the biggest challenges the industry standardized as there is no global definition of a green

99.1

100

“The Mexican market is excited about green bonds but

will encounter,” he says. The market has not been

120

2008

298

According to United Nation’s Climate Action, the green

Sovereign Supranational

agencies

Source: Bloomberg New Energy Finance

that have set low allocations. China also established a Green Financial Bond Guideline in December 2015 through the People’s Bank of China for bonds issued by financial institutions and a Green Finance Task Force that provides recommendations on legal frameworks and fiscal incentives, among other details. “If these incentives are not set (in Mexico) it will be extremely difficult for investors because they also have their fiduciary duty to provide the best returns to their shareholders,” he says.

THE GREEN BOND LIMELIGHT SHINES IN MEXICO

“Once incentives are established the green bond market

Despite their growth, green bonds only represent 1

will boom.”

percent of the total bonds issued globally, according to Fitch Ratings. Considering its strong track record,

The Mexican Stock exchange (BMV) could play an

the market is an important area of opportunity for

important role in this as 40 percent of green bonds are

projects that seek to expand or further develop. “There

listed on the stock market, according to Mexico CO2, a

is a growing market for green bonds in Mexico,” says

business founded by the BMV in 2014. It says that the

Fernando Montes de Oca, CEO of HR Ratings. “Many

issuance of green bonds through the stock exchange

companies have been turning to them for their projects.”

contributes to the development of basic rules and new

bonds, one from NAFIN and another from the Mexico City government.

ANNUAL GLOBAL GREEN BOND ISSUANCE IN COMPARISON TO ISSUANCE IN MEXICO BETWEEN 2013 AND 2017 (US$ Millions) 140

BUILDING A GREENER FUTURE Even though green bonds in Mexico have some regulatory

Annual Global Green Bond Issuance Green Bond Issuance in Mexico

120

134,900

tools in sustainable finance. The BMV has two green

hurdles to overcome, companies continue to show 99,100

100

an opportunity to expand ambitious projects. “We are

promote the development of climate-friendly investments. There are many opportunities that will provide positive returns in the long term.” Rodrigo Assam, Director of Financial Planning and Investor Relations for GICSA, says the developer is “contemplating using various new

2013

2014

2015

2016

4,000

a global trend and investors are willing to pay more to

50,000

Risk at Afore Citibanamex. “Sustainable investments are

500

future,” says Aniceto Huertas, Director of Fundamental

36,600

participate in sustainable infrastructure projects in the

14,800

analyzing green bond opportunities and are eager to

7,610

support for green bonds in the country and view it as

2017

Sources: Bloomberg New Energy Finance, Plataforma Mexicana de Carbóno

299

tools available in the market, such as green bonds and must be green and companies are being required to meet

becoming part of the sustainability index.”

specific standards in their use of the resource. Montes de Green bond projects can be issued for everything from

Oca says that there are 100 different types of projects

light-rail extension projects to wind turbine manufacturing.

that can be catalogued for a green bond to combine the

Their potential is massive considering that the Climate

infrastructure Mexico needs with the stipulated regulation

Bonds Initiative found that there is a large amount of

in sustainable energy consumption.

bonds in the market that are being used to finance low carbon and climate resilient infrastructure yet they are

Mexico is at the head of the pack in its commitments

not being labelled as green. These climate-aligned bonds

to landmark international agreements on climate action

totaled US$694 billion in 2016 from 780 issuers around the

such as COP21 in Paris, which is aimed at curtailing global

world. According to the Initiative, only around 17 percent

temperature rises below 2°C this century. In this matter,

of climate-aligned bonds are labeled as green bonds.

the development of sustainable infrastructure is crucial as infrastructure is responsible for more than 60 percent of

ALIGNING INFRASTRUCTURE AND SUSTAINABLE

the world’s greenhouse gas (GHG) emissions, according

DEVELOPMENT

to New Climate Economy. The low interest rates available

Interest from the private sector should provide an extra

in the market and the development of technology make it

boost as the green bond market has traditionally been

an especially opportune moment to invest in sustainable

dominated by development banks. But interest is sure

infrastructure-led growth for a better future. “We believe

to progress in Mexico as regulation mandates that by

that one of the best alternatives to finance these changes is

2024, 35 percent of the country’s energy consumption

through the issuance of green bonds,” says Montes de Oca.

GREEN BONDS ISSUED ON BMV Name

Amount (US$)

Term

Interest Rate

Use of Resources

NAFIN Nov-5 -15

500 million

5 years

3.41%

Wind Energy

NAFIN Sep-1-16

106 million

7 years

6.05%

Wind Energy, Small-scale hydroelectric plants

GACM Sep-29-16

1 billion 1 billion

10 years 30 years

4.37% 5.60%

Sustainable Construction, renewable energy, water and waste

CDMX Dic-7-16

53 million

5 years

6.02%

Clean Transport, water and waste

GACM Sep-13-17

1 billion 3 billion

10 years 30 years

3.87% 5.5%

Sustainable construction

Source: BMV

INSIGHT

RATINGS AS A STEPPING STONE TO INCREASED FINANCING CARLOS FIORILLO Managing Director of Fitch Ratings Mexico

In August 2017, Fitch Ratings revised the outlooks on

gain global coverage but also local presence in key Latin

Mexico’s foreign and local currency long-term IDRs to

American markets.” “This means in Mexico, we want to

Stable from Negative, while affirming the IDRs at a rating

increase our presence among companies that can seek

of BBB+. But the agency’s long-term outlook for Mexico’s

local ratings or cross-border ratings.”

growth remains relatively positive, says Carlos Fiorillo, Managing Director of Fitch Ratings Mexico.

Infrastructure remains an opportunity not only for Mexico but across the region. “Infrastructure spending

300

“The main drivers of our change in outlook were the

should account for 5 percent of GDP annually and many

reduced downside risks to the country’s growth outlook

countries are far from reaching this objective,” Fiorillo

and expected stabilization of the public debt burden,” says

says. “As a result, there is a real need for financing

Fiorillo. Fitch believes that the risk of a disruptive scenario

vehicles for infrastructure investment.”

that undermines Mexico’s export competitiveness and hurts potential growth or jeopardizes overseas remittance

Infrastructure projects are divided by sector, which

flows is diminishing. But Fiorillo warns that the country’s

Fitch then divides into subsectors like toll roads, ports,

weaknesses must also be taken into account. “Mexico faces

airports, power plants and social projects. Normally,

limited fiscal flexibility to confront an unforeseen change

these projects seek financing from capital markets so it is

given its increased debt burden and modest fiscal buffers,”

Fitch’s responsibility to assign a rating to the debt those

he says. “We will continue to monitor fiscal developments

companies seek. “I do not believe there is one particularly

and implementation of structural reforms under the new

important project but in terms of our subsectors, we see

administration to assess Mexico’s growth and fiscal profiles.”

big demand for toll roads and transportation projects,”

“

Infrastructure spending should account for 5 percent of GDP annually and many countries are far from reaching this objective. As a result, there is a real need for financing vehicles for infrastructure investment”

says Fiorillo. “Obviously, in the energy and oil sector, we anticipate a lot of new projects entering the market since the CNH licensing rounds and PEMEX farm-outs have attracted a great deal of foreign investment.” He believes the financial vehicles available to fund projects are relatively sophisticated but are failing to take advantage of opportunities to access funds from capital markets. “These vehicles still lack participation from the capital market directly and that is where we see more infrastructure financing opportunities,” he says. “There are certain projects that can go directly to the capital markets and issue bonds locally and this could mean the projects will be developed faster.”

Mexico is a top market for Fitch, a leading Credit Ratings

Ratings are essentially a function of how CRAs measure

Agency (CRA) in Latin America with more than 20 years

and evaluate the risk a project may present. Of course,

in the Mexican market, one of its biggest in the region,

certain projects will present more risk than others.

alongside Brazil. The country’s investment is the second-

“Greenfield projects tend to have more risk related

best in Latin America after Chile but in terms of country

to permits, environmental studies and construction

size, Mexico’s potential is probably one of the best in the

development than others,” Fiorillo explains. “One way

region, Fiorillo says. “We have not only been trying to

to mitigate this risk is for the government to implement

301

View from Bridge over Circuito Interior, Mexico City

a strong legal framework and assure the private sector

ratings not only for the major companies but also for

that PPP projects are well-managed on the public side.”

medium-sized enterprises.” These midsized companies may be privately financed but their growth trajectory

The way to create stability, according to Fiorillo, could be

may involve accessing capital markets in the future, which

creating a National Infrastructure Agency, similar to the

is why seeking a rating from a CRA like Fitch would be

model in Colombia. In Mexico, infrastructure projects are

appealing to them.

assigned to the relevant ministry, he says. For example, a toll road project would be assigned to SCT and it would

Fiorillo emphasizes that a company does not necessarily

be the responsibility of the ministry to organize the

need to have access to capital markets to be rated by

PPP. But Fiorillo argues that the ministries have many

CRAs like Fitch. “There is a correlation because publicly-

other priorities and are not necessarily able to assign

listed companies must adhere to strict governance

the appropriate amount of time to these processes.

standards and this wealth of information makes it easier

“The creation of an agency with the exclusive mandate

for Fitch to apply a rating,” he says. The CRA’s next

of developing infrastructure projects would be useful in

challenge is to attract second-tier companies like family-

fomenting a forward-looking infrastructure plan that is

owned businesses. These companies require higher

not subject to governmental administrations,” he says.

standards of governance to list on a stock exchange but the transparency required by a credit rating could open

One thing the government is doing well is making efforts

the door for them.

to reassure investors with a strong macroeconomic framework and stable governmental policies, according

Moreover, a rating can also communicate to a third party

to Fiorillo. He believes that the central bank, Banxico,

how strong the company is as an investment and attract

and policymakers have been managing the context of

private capital, says Fiorillo. “When a company obtains

currency depreciation and inflationary pressures well. This

a rating, particularly a midsized company, this creates

stability needs to continue to keep attracting investors.

opportunities for the banking sector to offer alternative financing options,” he says. The company could then

“Transparency has always been a challenge for the Latin

qualify for an international rating, whereby Fitch compares

American region and from our point of view, ratings offer

the company on a global scale, opening more doors for

a good way to be more transparent to the market,” says

investor scope. A Mexican rating, says Fiorillo, can be a

Fiorillo. “We believe there is an advantage to accessing

stepping stone to a more global scope of financing options.

VIEW FROM THE TOP

LONG-TERM PLANNING FOR PROJECT SURETY ALBERTO DE LA PARRA Partner at Jones Day

Q: What measures can companies implement to protect

have been few unsolicited proposals and those have not

their projects against changes in political administrations?

worked as expected when the PPP law was amended. But

A: Investors must ensure that their concessions are

the government is now pursuing more PPPs for toll roads

respected, regardless of how elections unfold. The solid

and some electricity projects because these are the ones

legal framework in place helps to maintain the certainty

that are more attractive to the private sector, which means

of concessions. Most companies hold international bonds

the government can leverage itself more favorably.

or equity stakes, especially large developers. These types 302

of deals are protected by NAFTA, among many other

Q: In terms of developers or the government, who has

free trade agreements, which is why the Canadian and

responsibility for land rights?

Mexican governments have asked that Chapters 11 and

A: Land rights are always an issue and vary from project

19 of NAFTA be respected. These chapters regulate

to project. For instance, eminent domain provided for

foreign investment and the arbitration and dispute

hydrocarbon projects grants preference to the oil industry

resolution when investment is not respected in a country.

over any other activity. But acquisition of a plot of land is

Mexico is among the countries with the most free-trade

more an issue of negotiation with stakeholders. In transport

agreements in the world and Chapters 11 and 19 form a

and telecommunications projects, it is difficult because each

good framework for protecting investment in concessions.

piece of land must be negotiated separately. In the past, the government would expropriate the land or negotiate the

Commercial banks are giving shorter, 10-year financing while development banks offer 20year financing

right of way but now that responsibility across the entire project sits with the developer. If in the end there is no possibility of obtaining the right of way, the government can expropriate the rights of way, upon request from the developers. Q: What new projects will be tendered in 2017-2018?

Q: Why should there be more PPPs to develop infrastructure

A: The possibility of the high-voltage transmission

in Mexico?

lines being ready by the end of this year would be a

A: The more we create PPP schemes and the more pension

great triumph, and it could be under a PPP scheme or a

funds invest in the projects, the more guarantees the

service agreement contract with CFE. PPPs have gained

projects will have. We have not seen as many PPPs because

momentum not only because of budget constraints but

it is always more expensive for the government to finance

because the Energy Reform requires more activity in

a project through a PPP than through a budget. For the

infrastructure development. We have seen it with the

private sector, access to funds is more expensive than for

opening of the gasoline stations and retail sales in Mexico

the government. To finance a project using the private

by private entities. There are many projects in gasoline

sector or PPP, that financing will be charged at the higher

transportation and storage, which are not necessarily

private-sector rate so that the government is essentially

related to the government but that are being carried out by

paying more than it would for a fully-public project. There

the private sector. All of these are mostly financed through similar schemes, in which even commercial and Mexican development banks are interested. The difference is that

Jones Day is an international law firm that served as lead counsel

development banks have more appetite for long-term

for NAICMâ&#x20AC;&#x2122;s US$2 billion green bond issuance, winning Structure

financing than commercial banks. Commercial banks are

Finance and Securitization of the Year by IFLR. In 2016, it was also

giving shorter, 10-year financing while development banks

named Best Infrastructure Law Firm in Mexico by Latin Finance

offer 20-year financing.

INSIGHT

PROPER RISK ALLOCATION PROMOTES PPP SUCCESS Alberto Jones Director General of Moody’s Investors Service

Adrián Garza Vice President and Senior Analyst at Moody’s Investors Service

PPPs promote the development of infrastructure by evenly

economies like Mexico,” says Garza. “If companies issued

distributing risks and responsibilities but they are not as

bonds during a project’s construction phase when risks

commonly used as they could be, according to IADB’s

are being adequately managed within PPPs, that could

Infrascope 2017. Moody’s Investor Services offers risk-

help these companies receive the financing they need to

distribution assessments and performance diagnoses to

build the infrastructure.” Difficulties in obtaining rights of

ensure the success of PPPs.

way inhibit the amount of project bonds that exist in the market. Most bonds in the market are for infrastructure

Reducing and evenly distributing financial risks in PPP

that is already generating revenue, such as operating toll

projects is fundamental to ensure the completion of the

roads. In this sense, the lack of rights of way prevents new

project, but both parties tend to commit errors. “The usual

projects from receiving finance as it harms the ability to

mistakes private companies make in infrastructure PPPs are

produce project bonds.

trying to meet unrealistic deadlines that do not consider the project’s conditions and also, failing to prepare for

Between 1990 and 2016, 266 PPP projects have been awarded in Mexico

the worst,” says Alberto Jones, CEO of Moody’s Investors Service. “On the government’s side, the mistakes are designing unfeasible projects and over-pushing developers to deliver,” adds Adrián Garza, Vice President and Senior Analyst at Moody’s Investors Service. Moody’s Investor Services helps assess the operational and financial performances of both public and private parties in

PPP infrastructure projects in Mexico are not new. Between

PPP projects and the distribution of risks between players.

1990 and 2016, 266 PPP projects have been awarded by

These ratings help PPPs acquire financial products to

Mexico, according to IADB Infrascope 2017. The federal

develop the project at hand. There are, however, challenges

government strongly promotes PPPs, which are an explicit

to risk mitigation. “Freezing capital in an account during

objective of the federal government’s National Development

the construction period or the whole life of a project to

Plan 2012-2018. This policy is regulated through the Public

guarantee financial readiness is a common government

Private Partnerships Law that came into force in 2012

requirement that harms the viability of projects,” says Jones.

and implemented through the Program for Promotion of

“Incorporating international practices such as using rated

Public-Private Partnerships in Mexican States (PIAPPEM).

company bonds or letters of credit is easier for companies

An increasing number of market-oriented states are starting

and reduces financial risks.”

to adopt these mechanisms to build the infrastructure they require, according to IADB.

Garza adds that Mexico has many areas of opportunities when it comes to institutional strength and transparency

WEF Global Competitiveness Report 2016 ranks corruption

“but PPP’s have the advantage of clearly highlighting and

as the most problematic factor for doing business in Mexico.

isolating the financial and operational obligations that

The inadequate supply of infrastructure ranks seventh. An

governmental and private entities must honor.” These

increasing level of transparency in bids for projects and

obligations can be more efficiently allocated. Governments

the promotion of PPPs can tackle both elements. “Tenders

could, for example, help developers obtain the rights of way

are increasingly transparent, which makes investors feel

for projects because they are better positioned to do so.

safer about placing capital in the country and more certain

“Rights of way are significant challenges for construction

about how and when the awarded tenders are decided,”

companies and their sponsors, especially in emerging

says Jones.

303

VIEW FROM THE TOP

BALANCED RISK ALLOCATION TO BRING IN FDI VICENTE CORTA Partner at White & Case

304

Q: What areas within the infrastructure industry will attract

Q: Why are some infrastructure projects labeled as

the most FDI in 2017?

unviable for investors?

A: The uncertainty of Mexico’s economic and political

A: Risk allocation can be one of the most challenging tasks

environment has made investors more cautious about

in the project financing for Mexican infrastructure projects.

investing in Mexico. Nevertheless, I do not see any hesitation

There is a standard method of allocating risk in the market,

from funds or companies. There are issues and structures

but some projects require more creativity and negotiation

that they do not like and are concerned about, but the

than others, incrementing the duration of the project. If the

majority are dedicated to the Mexican market and are

financing of the project generates a vast amount of public

already aware of these factors. Most investors, domestic

debt and has exceeded the limit, it can create many legal

and foreign, find Mexico’s courts challenging and this

hurdles that have to be sorted out before financing can

creates anxiety within the sector. The government’s

proceed. The money for new infrastructure projects is out

proposed risk allocation is often unrealistic and generates

there, depending on the project, but sometimes finding the

additional costs that the public sector cannot absorb. If it

right structure is the challenge.

transfers more risk, of course the private sector will demand higher returns. Another challenge is the perception or the

Whenever there is an economic obstacle to a project, it

reality of corruption in the market. There are many issues

has to be acknowledged from the very start. Financing

that arise from a deficit in transparency. Regardless of

institutions like FONADIN can help with subordinate

these challenges, sophisticated and dedicated companies

capital if needed to generate the business case the

continue to find the Mexican market attractive.

project requires. But if it is not viable, then it is better for the public sector to take charge of the project or to

Q: What changes are necessary to make more projects

start from scratch instead of insisting on a progressing

available in Mexico?

with a project that has no market.

A: Although federal government resources are limited to some degree, SCT, CFE, PEMEX and CONAGUA have large

Q: How have investors responded to the financial vehicles

development budgets for new projects. These projects must

created to increase investment in infrastructure?

have project managers that are able to structure more efficient

A: These vehicles have increased investment in

processes. Infrastructure projects often involve both the local

infrastructure and will continue to attract new investment.

and federal governments and require the participation of

There are a variety of models and instruments that

public servants who often lack the experience necessary for

will facilitate the development and acquisition of

the project. This often causes more delays and additional costs.

infrastructure. They include tax benefits and breaks

There needs to be a standardized model put in place that will

that other markets present to investors. Although

help coordinate these multidisciplinary teams. For instance,

some vehicles, such as Fibras, have not have not been

when toll roads failed in 1995, the sector worked together to

as profitable as expected due to market volatility, they

create a new model that has reduced uncertainty and the

continue to attract attention.

risks related to the financing and construction phases of the project, in return lowering costs and expediting completion.

Fibra E is a complex structure that will take time to become a large source of funding going forward. It was created to encourage investment in the energy sector but

White & Case is a leading law firm with expertise in project

most of the assets that could be placed under a Fibra E

finance, securities and regulatory matters. The firm advised

are still under the domain of CFE or PEMEX. That is why

Atlán Redes during negotiations for the Shared Network

it is easier to use it for a toll road rather than a project in

project, the country’s first shared mobile network

the energy market.

VIEW FROM THE TOP

SOCIAL INFRASTRUCTURE ALIGNED TO PRIVATE-SECTOR BUSINESS MODELS RODOLFO GĂ&#x201C;MEZ Director General of the Applied Research Center for Public Policies (CIAPP)

Q: What are the advantages of participating in PPP

health industry. But when it comes to unsolicited proposals,

projects for social infrastructure such as hospitals?

these projects need to be more aligned to the business

A: Overall, PPP projects can be complex considering the

models of the private sector and avoid putting companies

number of contracts that are involved. The main challenge

at risk through use of a clear pipeline.

in these projects are related to culture, finance and risk management but the biggest one is time. This can be an

Q: What is CIAPPâ&#x20AC;&#x2122;s mandate and what is its role in the

enemy when it comes to PPP projects because governmental

infrastructure industry?

authorities have a short window in which to create and develop

A: CIAPP was founded to create a link between the private

programs. Projects that cannot be finished on time are often

and public sectors. Many of our partners have experience

forgotten and new authorities lose interest in promoting them.

with the private sector, while my expertise is more related

PPP projects need to have more realistic time and cost models

to the public sector, which creates a healthy balance. Our

to generate better infrastructure in the country.

six associates have come together to strengthen the link between these sectors and design PPP schemes that

We notice that there is a demand for both PPP projects

promote the development of the industry. This requires

related to mobility and social infrastructure. CIAPP has

collaboration with the public sector, which is complex,

participated in two highway maintenance and conservation

takes time and requires trust between key players. We

tenders released by SCT. The main difference between

also work on financial matters with certain municipalities

mobility and social infrastructure lies in the way projects

and federal authorities to strengthen their ability to design

are executed. In highway concessions, large construction

infrastructure.

companies tend to participate and these projects are often complex with clearly set standards. Hospitals are different because their PPP schemes align well with private-sector

The Applied Research Center for Public Policies (CIAPP)

business models. There are various and viable management

assists

strategies that can be used in hospitals. The model naturally

infrastructure projects, especially when using PPP schemes. Its

attracts service providers and the private sector to the

team has vast experience in project finance and PPPs

the

private

sector

the

legal

structuring

ABC Medical Center, Mexico City

305

306

La Venta Wind Farm, Oaxaca, CFE

VIEW FROM THE TOP

GREEN BONDS TO TRANSFORM FUTURE INFRASTRUCTURE FERNANDO MONTES DE OCA CEO of HR Ratings

Q: What impact are Fibras having on the infrastructure

bond will depend on the amount of CO2 savings that can

industry?

be obtained from the asset. The Mexican market is excited

A: We have seen an incredible boom in the creation of

about green bonds but the lack of projects and incentives to

Fibras. In the past 36 months, 10 new Fibras have entered

get them into the public market are the biggest challenges

the market and we rate nine out of those. The Fibras

the industry will encounter.

have become an extremely important segment in Mexico, attracting new investors but also requiring deep analyses.

Q: What is your outlook of the infrastructure industry for

Fibras will bring into the market new types of investor

2017-2018?

profiles that have experience with the particular risks of

A: In the upcoming year, there will be elections that will shift

these instruments.

the priorities of each state. The new infrastructure plans that are expected to be announced, such as in the State of

Q: How will green bonds impact the development of

Mexico, are not fully defined yet. New infrastructure projects

sustainable infrastructure?

will also depend greatly on the political parties that will

A: There is a growing market for green bonds in Mexico.

take charge.

Many companies have been turning to them as a source of financing. There are only three green bonds in Mexico at the

In the last 18-24 months, there have only been two to three

moment and these are targeting NAICM, NAFIN and Mexico

new projects announced, with most from previous market

City. There are 100 different types of projects that can be

issuances. The most important projects in the next few

catalogued for a green bond that combine the infrastructure

years are NAICM and the Mexico-Toluca Interurban Train,

Mexico needs with the country's target percentage of

but there have been various delays in both projects due to

national green energy consumption of 35 percent by 2024.

oil prices and a change in priorities.

We believe that one of the best alternatives to finance these changes is through the issuance of green bonds.

Even though there is hope for new projects to come, it is definitely not what we expected. A lack of federal

HR Ratings has the capacity to analyze and rate green

resources greatly impacted the development of

bonds. We are also part of the Climate Finance Advisory

infrastructure in the country and external conditions

Council in the BMV, where many pension funds and different

increased the effect even more. The main challenges that

market participants discuss various green alternatives and

we have seen, especially with toll roads, is that they are

how to boost the green bond market in Mexico.

based upon the capacity of each project to generate cash flow. The positive factors that keep us in infrastructure

Q: What is the main misconception the market has

are the announcement of new PPP projects, despite the

regarding green bonds?

fact that there were similar announcements made in the

A: There is a misunderstanding about our position in green

beginning of the administration that were not carried out.

bonds. Whenever we rate a specific issuance as a credit

These PPPs are being used not only to fill the country’s

rating agency, it involves the cash-flow generation of the

infrastructure gap, but to maintain and improve the

entity in order to cover financial obligations. green bond

existing infrastructure as well.

ratings tells the grade of “greenness” the bond will have, so if a company is issuing to investors or equity holders of the company, this does not fall under the remit of a green

HR Ratings is a top Latin American credit reference agency and

bond. However, if the debt acquired is for the construction

labelled as 10th globally. It is the first Latin American securities

of a hydroelectric plant to improve the sustainability of

rating agency to be certified by the European Securities and

a building, that project will qualify. The greenness of the

Markets Authority

307

INSIGHT

PPP OPPORTUNITIES FOR SOCIAL INFRASTRUCTURE

“

Working through the PPP model is an art because aligning the interests of both parties requires plenty of skill” Ignacio García de Presno, Lead Partner of Global Infrastructure and Projects Group at KPMG

According to García de Presno, Mexico has all the necessary components to launch strong projects in the market. But he says risks, costs and timeframes must be defined clearly and in advance by the government so companies can properly evaluate the projects. “Planning and evaluation are important for companies to develop an effective project,” says García de Presno, “For example, the likely barrier for OHL in the Mitla-Tehuantepec highway project was the failure to properly evaluate the road and changes in financial conditions caused by the 2008 crisis.” PPPs are increasingly used to fund and develop infrastructure

308

Mexico needs more hospitals, schools and water-

developments. “Many water projects laid out in the NIP

treatment plants, but building them at a time of low

were delayed or suspended, so they have become urgent

public expenditure is difficult. As budget cuts hinder

and present the greatest opportunities,” says García de

the government’s ability to develop these projects on its

Presno. Major cities, such as Mexico City, Monterrey and

own, Ignacio García de Presno, Lead Partner of Global

Guadalajara, already experience extreme water shortages, so

Infrastructure and Projects Group at KPMG believes PPP

huge investments are needed in water transportation, dams,

models are among the best options to satisfy the social

aqueducts and water treatment. “Most industrialized cities

infrastructure needs of the Mexican population.

are in the north and center of the country whereas most of the rainfall takes place in the southeast. The challenge is in

“Part of the money in PPP project comes from taxpayers,

transporting water to where the demand is,” he says.

so projects with strong social benefits must be prioritized,” he says. For a PPP project to succeed, the interests of the

NDP 2014-2018 includes the development of 84 water projects

involved private and public parties must be aligned. The

worth MX$417.8 billion throughout the country. The water

government is interested in social and political gains while

segment that shows the largest lag is wastewater treatment.

private companies look for profits but both parties must

According to CONAGUA, only 3,810hm3 of 7,230hm3, or 52.7

take a series of actions and be willing to compromise to

percent of municipal wastewater, was treated in Mexico in

ensure success. Finding this balance is a substantial part of

2015. Moreover, 2,220hm3 out of 6,770hm3, or 32.8 percent, of

KPMG’s role as adviser to PPP projects.

nonmunicipal wastewaters were treated in the same period, including that generated by industry. This means only 42.75

On one side, “the government must distribute project-

percent of all wastewater produced received treatment.

associated risks according to each party’s ability to handle them,” says García de Presno. “Transferring all the risk

Northern areas of the country will be more prone to drought

to the private sector will make a PPP project extremely

due to their arid climate. “Monterrey’s population is growing

expensive if not prevent its completion in cases where

and so are the industrial needs of automotive companies

companies default to protect themselves.” The public

installing facilities in the city,” García de Presno says.

sector also needs to make projects attractive to private

“The existing water and drainage supply will not be able

investment by initiating PPP proceedings, developing

to cope with the short and medium-term demand of the

studies and acquiring essential approval for components

city.” Therefore, he says both the government and private

like land and rights of way.

companies must have enough foresight when planning water projects in the area.

On the other side, private companies need to consider the social benefits of a project besides the economic

Creating a successful PPP is a balancing act, and KPMG

gains they will receive from it. “The financial benefits of

wants to continue playing the role of mediator between

health and water projects may not be as significant as

both parties as this model begins to really take off in

others, but their social benefit is great,” explains García

Mexico. “Working through the PPP model is an art because

de Presno. Companies also need to effectively assess the

aligning the interests of both parties requires a great deal

project viability and negotiate accordingly.

of skill,” says García de Presno.

INSIGHT

ZEEs A POSSIBLE GAME CHANGER FOR SOUTHERN DEVELOPMENT EDUARDO DE LA PEÑA Infrastructure and Capital Projects Partner at Deloitte

Over the years, the Mexican infrastructure industry has

different levels of government to cooperate throughout the

developed its own chicken-and-egg quandary with the

entire process and to gain the trust of international and

debate over whether development or investment should

national investors.

come first. To this day it remains unclear if it is the role of the government to build infrastructure that will attract

Mexico has a large infrastructure gap and ZEEs are only

investors or if private investment is needed from the

one idea the government has come up with to incentivize

outset. The development of Mexico’s Special Economic

development. But although there are more initiatives

Zones (ZEEs) have brought the dilemma into the limelight,

to promote the use of PPPs for the development of

especially since the country’s southern states have the most

infrastructure, many of these projects are not completed.

underdeveloped infrastructure in the country.

According to De la Peña, there are three things that need to happen to close the gap: the public sector must strengthen

“Whatever comes first, there has to be a mechanism in place

its capacities, the private sector must become more involved

that assures investors that the proper investment will be

and all projects must follow a national development strategy.

made in developing that zone’s infrastructure in the long term,” says Infrastructure and Capital Projects Partner at

The participation of the private sector in the industry has

Deloitte Eduardo De la Peña. But past experience means

been increasing throughout the years but in Mexico it does

investors have grown wary of these kinds of projects.

not participate as much as it could in comparison to other

De la Peña explains that there have been cases where

countries. Historically, the planning and structure of projects

investors would set up their companies and the supporting

were carried out by the government and funding would

infrastructure that was promised would never materialize.

come from the public purse but amid budget cutbacks,

“This assurance of investment can be done through a trust,

the authorities realized they had to create new ways to

a portion of the federal budget or a fund but there has to

finance the country’s development. “The private sector

be clear proof for investors to see,” he says.

grew accustomed to the government developing projects and creating tenders, where the former would assume little

As a strategy to boost investment in infrastructure

risk,” says De la Peña. “But now, the private sector must be

development, the government has decided to create ZEEs

more proactive in seeking projects that address real needs

in Mexico’s southern states. Many countries have developed

and fill the gap.” He suggests mechanisms like USP to boost

these zones but due to the lack of integrality of the projects,

development.

around half have been unsuccessful. “Globally, successful ZEEs are those that can effectively integrate themselves

As for the public sector, De la Peña believes that it must ramp

into the local economy,” De la Peña says. “The main

up its efforts. “This does not mean government agencies

challenge for a ZEE is to provide the private sector with

are doing a poor job but that they need to strengthen their

the right incentives to develop in a certain area with the

teams,” he says. “When there are federal budget cuts, one

hope that in years to come it will change the face of that

of the first reactions is to eliminate government jobs, but in

zone into a prosperous hub.”

infrastructure, a lack of manpower to plan, analyze and review projects may lead to bigger project deviations. In an effort to

To ensure that these zones are a success, the government

save pennies, the government may end up losing dollars. The

created the Federal Authority of the Special Economic

infrastructure planning units need to be stronger and able to

Zones (AFDZEE) to oversee their development. “AFDZEE

attract talent from the private sector.” The heart of Mexico’s

was created to serve as the regulator for the ZEEs, a

infrastructure is overseen by a relatively small team but it is

decentralized and independent entity with its own budget,”

important to invest in this asset so it can effectively identify

says de la Peña. But for it to work, it must convince the

valuable projects in Mexico.

309

ROUNDTABLE

WHAT BEST PRACTICES CAN PROJECTS USE TO REDUCE FINANCIAL RISKS?

One of the biggest challenges all developers and construction companies face is turning in projects on time and on budget. Companies need to prove project viability to investors, funds and banks as well as their ability to complete deadline goals. As Mexico continues to attract more international companies, competition in the market will become more challenging. To rise above competitors, companies in the sector need to incorporate international best practices into their financial models to prove their added value. Mexico Infrastructure & Sustainability Review asked a wide range of experts what they are doing to hold projects to high standards when making investment decisions.

Obtaining a loan for office spaces is difficult because there is no guarantee that it will work. It is not like a hotel where there is an operations contract or a shopping center where it has anchor stores to guarantee returns. Banks prefer to provide loans when the developer is about to finish or has already finished construction, 310

assuming less risk. For the New York Life building, we first secured a lease contract with New York Life to provide Santander the guarantee it needed to give us the loan.

ENRIQUE VILLANUEVA Development Director of Pulso Inmobiliario

Our latest projects are now funded through three to four partners, which are family businesses that have been investing with us for years, while 40-60 percent of the investment comes through bank loans. We have developed a strong relationship with all commercial banks in Mexico, making it a lot easier to obtain loans. We use two to three syndicate loans for each project.

Internal Rates of Return (IRR) make infrastructure projects particularly time sensitive, which underlines the need to develop projects that are planned well enough to receive funding. The private equity market prioritizes projects that can deploy capital quickly. Projects need to advance at a faster rate and with the support of the government to better take advantage of the assets that are being developed. Financial tools are important because they allow private capital

MARIA ARIZA Director General of AMEXCAP

institutions and investors to diversify their portfolios. Mexico has around 71 CKDs that are worth US$19 billion, of which 18 are focused on infrastructure and have a capital commitment of US$6.6 billion. Other new tools like CerPIs are public vehicles that follow high standards and international best practices, such as allowing project managers to be part of the decision-making process.

Infrastructure projects are the perfect match for pension funds. It is natural that Afores want to participate more in these types of projects. Afore XXI Banorte has put together one of the strongest investment teams in the country that focuses on alternative investments with sound corporate governance and processes. We have been putting together a benchmark portfolio that reflects our strengths. Managers have been more prompt to invest in real estate than infrastructure in general, possibly

JUAN MANUEL VALLE Director General of Afore XXI Banorte

because real estate projects are completed much more quickly. In infrastructure, there are projects with a longer â&#x20AC;&#x153;Jâ&#x20AC;? curve, where we have yet to see results, whereas in real estate, we are already receiving flows. As an example, we are a significant investor in Red Compartida, a project that will provide Mexico with over 90 percent of coverage in mobile and data service at speeds of 700MHz.

We have developed closer relationships with banking institutions to analyze various sales structures, such as trusts, to offer new solutions to our clients. We now have a partnership with BBVA Bancomer whereby the bank will provide our clients a preferential rate called Tasa Lomas. Having this preferential rate could highly increase sales at our developments and helps the company finance its future projects through presales. We are also developing a product for new graduates above the age of 22. This product will have lower monthly fees and provide a stepping stone to owning their first real-estate asset. The products we develop are all sold during the presale

MARCELO RODRÍGUEZ Director General of Grupo Proyecta

period of the project and that income is reinvested in new developments. To this day, none of our developments have required bridge loans and no partner has had to invest further for the development of supporting infrastructure.

If the project is only a few hours away by highway, we tend to build the project ourselves. Outside of Mexico City, we use local allies to facilitate access to water and electricity, among other factors. In Puebla, Grupo Proyecta helped us quickly schedule meetings with CFE to guarantee power in our projects. It makes the process 311

quicker and smoother. We also helped Proyecta by offering our expertise on vertical construction in Lomas de Angelopolis for its first vertical projects. It gave us a percentage of the value of the land and we found additional partners to finance the rest of the project, along with other financial tools like CKDs. We also have two JVs—one with Walton Street Capital and another with Prudential—that provide us enough capital to finance our projects. Walton Street Capital is known for not only

FRANCISCO MARTÍN DEL CAMPO Founder and Director General of Arquitectoma

financing projects but also developing.

All investors like to see predictability and that translates to contract structures that offer certainty in terms of the scope of activities to be performed and the risk allocation between the parties involved. The health sector and contracts with IMSS and ISSSTE are no exception to this. A clear division of responsibilities regarding the acquisition of land, permitting of that land all the way through to the operation of a hospital, for example, need to be defined from the outset. Today, we operate a PPP hospital in the municipality of Zumpango, State of Mexico. This is a 126-bed high-specialty hospital and we have been fortunate that our hospital performs on par with some of the best institutions in

JUAN LEAUTAUD Managing Director of BlackRock

the world. That is the mark of a truly successful PPP. The government provides the staff and we provide the facilities.

We use a financial model that consists of our own capital, debt, partners and investors from the stock exchange that changes for every project. Some require more assistance from our investors but we strive to finance most of our projects. We have a property in Coapa that we are developing, of which we own 75 percent through a combination of capital and debt. Our limit is 40 percent of debt per project, which is quite reasonable in comparison to the rest of the industry. When it comes to the stock exchange, our projects are an attractive alternative to Fibras. We have the benefit of being a fully integrated company as we have the capacity of managing and developing our own projects. This helps us retain more profit. Being part of the stock exchange is a big achievement for us as we have a unique business model; we have already successfully raised debt twice so the market recognizes our growth and innovation.

RODRIGO ASSAM Director of Financial Planning and Investor Relations for GICSA

VIEW FROM THE TOP

PROMOTING THE GROWTH OF MLPS MARÍA ARIZA Director General of AMEXCAP

312

Q: How does the private equity market prioritize projects

members have raised approximately US$51 billion since

in the infrastructure industry?

its creation in 2003. It has around 31 members in the

A: Internal Rates of Return (IRR) make infrastructure

infrastructure and energy industry alone that have raised

projects particularly time sensitive, which underlines the

more than US$15 billion. When it comes to dry power—

need to develop projects that are planned well enough

cash reserves kept on hand by companies—AMEXCAP

to receive funding. The private equity market prioritizes

members have over US$8 billion. These numbers do

projects that can deploy capital quickly. Projects need

not reflect the amount of capital raised in 2017, which

to advance at a faster rate and with the support of the

is significant because we raise between US$5-7 billion

government to better take advantage of the assets that

per year. Of the capital raised for infrastructure and

are being developed. Structured, long-term projects

energy, 48 percent has been deployed into oil and gas

would help unlock the potential of private capital in

investments, 34 percent into industrial and 5 percent to

Mexico.

healthcare.

Mexico has 71 CKDs that are worth US$19 billion, of which 18 are focused on infrastructure and have a commitment of US$6.6 billion

Q: How are financial vehicles penetrating the country and the infrastructure industry? A: Financial tools are important because they allow private capital institutions and investors to diversify their portfolios. Mexico has around 71 CKDs that are worth US$19 billion, of which 18 are focused on infrastructure and have a capital commitment of US$6.6 billion. Other new tools like CerPIs are public vehicles that follow

In this matter, AMEXCAP strives to connect projects

high standards and international best practices, such as

with not only Mexican investors but also institutional

allowing project managers to be part of the decision-

players abroad. We collaborate with SCT to make sure

making process. We only have one CerPI in the market

projects are well-planned and ready to receive these

as they are a relatively new tool but we expect several

significant investments. AMEXCAP recently traveled to

more to be raised by the end of 2017.

Australia and found that large infrastructure investors are interested in the Mexican landscape. The idea we have

Fibra E is another vehicle that focuses on energy and

with this initiative is to bring Mexico closer to private

infrastructure assets. PINFRA acquired one for its

equity investors and vehicles locally and internationally.

construction, operation and maintenance of the Mexico-

AMEXCAP is an important link between capital and

Toluca highway. We predicte that several more should

projects. The trick is to properly combine these

be released in the next several months, including by

opportunities with the right partners at the right time.

companies such as PEMEX.

We are a private equity association in Mexico with

To further diversify the tools in the market, AMEXCAP

members that include over 170 funds. The association’s

is promoting the creation of more Master Limited Partnerships (MLPs) as Mexico only has one. This vehicle facilitates capital transactions with foreign investors and

AMEXCAP is a nonprofit organization that strives to strengthen

helps companies reduce the need to travel abroad. The

the development of the private capital and venture capital

vehicle is used frequently around the world and we are

industry. It currently represents 170 firms that focus on growth

collaborating with the Ministry of Finance to accelerate

capital, venture capital, real estate, infrastructure and energy

its growth in Mexico.

INSIGHT

AN INVESTMENT IN INSURANCE EDUCATION PABLO MARTI Sales and New Business Director of Armour Secure

Property insurance has yet to gain a proper foothold

Marti. But with land ownership comes another unique

in Mexico. Although the country’s real estate industry

challenge for Mexican real estate and infrastructure

has grown exponentially in the last few years, less than

developers. “Most of the claims we receive come from

2 percent of related transactions have title insurance in

transactions involving ejidos,” he says. “To purchase land

comparison with the US, where 98 percent of properties

from an ejido, there are many processes that must be

are bought with this failsafe. For the title insurance segment

followed. For instance, all information regarding these

to grow in Mexico, the real estate sector must understand

deals must now be published publicly.” 313

why all transactions should have insurance. Title insurance policies are contracts of indemnity that guarantee the

Protection against these issues has a high value that Marti

purchaser’s and the seller’s ownership rights throughout a

believes companies are overlooking. “Today, we provide

real estate transaction. The use of an escrow provides the

the largest number of title insurance policies within the

buyer security when the seller is unknown, and protects

residential sector but in monetary terms, commercial and

middlemen, such as brokers.

industrial developments generate higher returns for the company,” says Marti.

In Mexico, there are only three title insurance providers. Pablo Marti, New Business and Sales Director of Armour Secure, has been working alongside Mexican real estate developers and investors to ensure their ownership rights, backed by Lloyd’s of London reinsurance. He says real estate transactions in Mexico, whether they are commercial or residential, are extremely complicated, due to the unique challenges posed by the country’s developing infrastructure and lack of legislative clarity. “Corruption and lack of formality within the public registry system increases transaction risk,” he says.

Although the country’s real estate industry has grown, less than 2 percent of related transactions have title insurance

When searching for the ownership history of a property,

This approach is set to become more and more ingrained

there could be various owners who may have inherited

in the Mexican infrastructure sector as Afores and

the property or who may have sold the property without

international funds boost their investment in real estate

any record of the transaction, which complicates the land

developments and look for ways to ensure the safety of

acquisition process for the developer. Armour Secure

their affiliates’ pensions. “Although Afores have not yet

insures against risks such as forged or revoked documents

made title insurance a requisite, they feel more comfortable

and gaps within the chain of custody.

participating in transactions that do have a policy because then the money of the affiliates is guaranteed if something

These insurance products were introduced into the

goes wrong,” says Marti. Fibras and CKDs are also

Mexican market through the residential sector with US

purchasing these types of insurance policies but there is

citizens who purchased second homes in the country.

still ample room for growth for Armour Control. “We are

Today, Armour Secure continues to cater to the needs

insuring approximately US$5 billion a year in Mexico but

of foreign investors in Mexico and does not have many

the market could be a lot bigger. If we had the residential

Mexican clients. “In residential, our activity is in Los Cabos,

market, it would be multiplied by 100,” says Marti. Armour

the Tijuana-Ensenada Corridor, San Miguel de Allende,

Secure has 98 percent of the title insurance market in

Puerto Vallarta and the Riviera Maya, which are all tourist

Mexico but Marti believes that this is only a drop in the

sites where US citizens purchase second homes,” says

ocean compared to the country's true potential.

ARTZ Development, Mexico City

FUNDING & INSTITUTIONAL INVESTORS

Infrastructure projects require significant investments from commercial banks, capital markets and other institutional players. The creation of financial instruments such as Fibras, CDKs, and CerPIs has increased the appetite of Mexican pension fund, and investment in infrastructure, a typically stable, long-term return, is an ideal match for them. This scenario is leading investors to seek the predictability of contract structures for certainty and risk management on infrastructure development. Despite the significant infrastructure gap in the country, state governments are finding success in attracting private capital, resulting in a growing number of projects.

Optimism permeates the future of infrastructure in Mexico, as the divide between economic output and existing infrastructure sets up private capital to finance development, which opens space for private investors to participate. According to those in the financial sector, the money to fill Mexicoâ&#x20AC;&#x2122;s infrastructure gap is available. This chapter will address the question: is there a lack of investment or a lack of projects? The experts in financing projects will share their experiences in Mexicoâ&#x20AC;&#x2122;s development and the challenges that will arise in the coming years as the country moves to build its infrastructure competitiveness.

315

CHAPTER 12: FUNDING & INSTITUTIONAL INVESTORS 318

ANALYSIS: Financing Instruments: The Infrastructure Cash Cow

320

VIEW FROM THE TOP: Juan Manuel Valle, Afore XXI Banorte

322

VIEW FROM THE TOP: Raúl Martínez-Ostos, Grupo Financiero Barclays México

323

VIEW FROM THE TOP: Aniceto Huertas, Afore Citibanamex

324

INFOGRAPHIC: Pension Funds to the Rescue

326

INSIGHT: Santiago Juárez, Sabadell Global Corporate Banking

327

VIEW FROM THE TOP: Carlos Rojo, Grupo Financiero Interacciones

328

VIEW FROM THE TOP: Juan Leautaud, BlackRock

329

VIEW FROM THE TOP: Ernesto González, MIRA

330

VIEW FROM THE TOP: Santiago Ortiz, GBM Infraestructura

331

VIEW FROM THE TOP: Mario Budebo, EXI

Luis Villalobos, EXI

332

VIEW FROM THE TOP: Alfonso Munk, PGIM Real Estate

333

VIEW FROM THE TOP: Gerald Ricker, Reichmann International

334

INSIGHT: Roberto Ordorica, Alignmex

336

VIEW FROM THE TOP: Luis Quintero, HR Ratings

337

VIEW FROM THE TOP: Richard Schneider, Swiss Re

338

VIEW FROM THE TOP: Diego De La Mora, Barnhart Asset Management

340

ROUNDTABLE: Is There a Lack of Projects or a Lack of Funding?

317

ANALYSIS

FINANCING INSTRUMENTS: THE INFRASTRUCTURE CASH COW Fibras, CKDs and CerPIs are becoming ever more popular as a vehicle for Afores to invest in the infrastructure industry, since long-term, stable returns are an ideal match for pension funds. But how are these vehicles really impacting infrastrcuture development in Mexico?

318

Faced with a with a cash crunch, the government is casting

“However, the government can increase the involvement of

a wider net to meet its budget shortfall to fund Mexico’s

the private sector in filling this gap, whether it is through PPPs

much-needed infrastructure projects. SCT’s 2017 proposed

or USPs.” Although SHCP has another package of 18 PPPs

budget of MX$84.6 billion is more than MX$20.6 billion less

for 2018 worth over MX$36.4 billion to help accomplish as

than the year before. SCT will have to do the best with what

many commitments and strategic projects as possible, there

it has to complete as many NIP commitments as possible

will not be many new projects, just like in 2017. “Even though

by the end of 2018. Funding has always been the Achilles’

there is hope for new projects to come, it is definitely not

heel of infrastructure development, and with the possibility

what we expected,” says Montes de Oca. “A lack of federal

that a great chunk of the budget will go to repair and

resources greatly impacted the development of infrastructure

restore infrastructure destroyed by the two earthquakes in

in the country and external conditions increased the effect

September 2017, the government will have to get creative to

even more.” But PPPs are not a magic pill. “We need more

fund everything else. When looking for alternative sources

infrastructure but not all of it can be built through PPPs,

of funding, SCT and the federal government decided that

as the private sector assumes most of the risk,” says Diana

their experience in PPPs would help bridge the gap, while

Munozcaño, Chief Investment Officer of Grupo Indi. “We try

sharing both costs and risks with the private sector. In March,

to work through unsolicited proposals (USP), which we think

SHCP announced 18 new PPP projects with a total investment

is an interesting way of collaborating with the public sector,

of more than MX$22 billion for hospital and road projects.

even though this tool requires a high level of investment that

Of these, four were road conservation and maintenance

may hinder its application.”

projects where winning companies would have to guarantee the preservation of the Saltillo-Monterrey-Nuevo Laredo,

THE STOCK MARKET

Matehuala-Saltillo, Piramides-Tulancingo-Pachuca and

Experts agree that improving project finance structures is

Texcoco-Zacatepec highways for 10 years. “These PPPs are

only half the battle. The government needs to come up with

being used not only to fill the country’s infrastructure gap,

more options to obtain money to pay for all these projects.

but to maintain and improve the existing infrastructure as

BMV became the new ATM machine and Afores the new

well,” says Fernando Montes de Oca, CEO of HR Ratings.

bank teller for the government to get funds for its projects.

FIBRAS IN BMV Ticker Symbol

Name

Company

Afore Participation

Total

Percentage of Total

DANHOS

Fibra Danhos

Grupo Dahnos

3.9

7.4

52.9

FIBRAHD

Fibra HD

Grupo Lomelin

1.8

1.4

128.8

FIBRAMQ

Fibra Macquarie Mexico

Macquarie Infrastructure & Real Assets

1.8

17.4

10.4

FIBRAPL

Fibra Prologis

Prologis

4.3

10.5

41.3

FIHO

Fibra Hotel

3.97

7.5

53.5

FINN

Fibra Inn

Grupo Hotelero Prisma

2.8

3.7

73.9 N/A

FMTY

Fibra Mty

N/A

FNOVA

Fibra Nova

Grupo Bafar

N/A

FPLUS

Fibra Plus

Nemesis Capital

1.1

1.6

69.3

FSHOP

Fibra Shop

Grupo Frel, Grupo CACEBA, Central de Arquitectura

1.3

3.8

57.4

FUNO

Fibra Uno

13.9

73.5

17.9

TERRA

Fibra Terra

Terrafina

10.3

18.8

54.8

FVIA

Fibra Via

Pinfra

7.4

10.2

72.2

55.6

161.5

34.4

Source: BMV, CONSAR

Afores, the Mexican pension funds, began taking matters

AFORES' INVESTMENT IN INFRASTRUCTURE

into their own hands and are becoming more involved in

Structured Instruments MX$196.99 billion

financing the construction of Mexico’s backbone. As of mid2017, Afores manage more than MX$3.02 trillion, representing approximately 15 percent of the country’s GDP. So far, they have invested more than MX$310.7 billion in infrastructure projects. In total, Afores have invested more than MX$196.9 billion in structured instruments, which includes Fibras, CKDs, CerPIs and Fibra Es. Of this investment, 35.5 percent (MX$52.12

Afores manage

MX$3.02 trillion which is equivalent to 15% GDP

million) is invested in infrastructure and energy projects and

Real estate 0

27.3% 30

MX$55.6 billion 12 Fibras

1 Fibra E

MX$146.9 billion 73 CKDs 1 CerPI

27.3 percent (MX$40.06 million) in real estate. Through these instruments, they have been able to invest more than MX$58.5 billion in road infrastructure, financing the construction and

35.5% Infrastructure and Energy

Source: CONSAR

maintenance of more than 6,400km of roads according to CONSAR. In the 73 CKDs and one CerPI in which Afores have

hand want to have the ability to invest in more than just offices

participated, they have invested more than MX$146.9 billion,

or commercial spaces for rent. “Fibras will be allowed to invest

making them one of the preferred investment vehicles. “CKDs

in other instruments that do not necessarily represent real

are a perfect vehicle to capture long-term capital and deploy

estate assets that generate flows from rents,” says Jorge

it in Mexican energy and infrastructure projects because of

Avalos, CFO of Fibra Mty. “Articles 118 and 119 of the ISR Law

their lifespans,” says Santiago Ortiz, Director General of GBM

stipulate that we can only invest in real estate assets that will

Infraestructura. “Their useful life generally lasts between

lead to generation of profit through leasing and that we can

20-30 years and only Afores can engage in such long-term

invest a maximum of 30 percent in government issuances

capital investments.” As of October 2017, only one CerPI has

such as CETES.” In 2017, various regulatory changes regarding

been issued on the BMV. The first CerPI issued was by Mira

Fibra investments were made, which included giving Fibras

Companies, a mixed-use real estate developer along with

the ability to repurchase their own tittles.

Canadian pension funds, Black Creek Group and Ivanhoé Cambridge. “It will be hard to replicate this vehicle because

THE MONEY TREE

of the high co-investment the manager must contribute,”

Structured instruments have become a kind of money tree

says Javier Barrios, Director General of Mira Companies. “The

for the industry, but with such fast growth, there could be

main reason we were able to issue a CerPI is because Ivanhoé

consequences to the participation of pension funds in these

Cambridge is also owner of our management company.”

projects and in the popularity of the instruments. “Although the Mexican market has capacity for more Fibras, there has

THE FIBRA ROUTE

been a great deal of consolidation among the Fibras,” says

Fibras have also caught the eye of Afores in the last few years

Montes de Oca. “These instruments grew rapidly through

thanks to the steady returns generated. “We have seen an

equity and debt issuances in the BMV but the uncertainty in

incredible boom in the creation of Fibra,” says Montes de

the market has considerably slowed down the Fibras’ growth

Oca. “In the last 36 months, 10 new Fibras have entered the

rates.” It is expected that there could be up to 20 Fibras in the

market and we rate nine out of those 10. Fibras will bring

market by 2020, but to continue seeing the solid returns they

into the market new types of investor profiles that have

have had, they would have to consolidate and the regulatory

experience with the particular risks of these instruments.”

framework would need to be expanded to invest in other types

Afores have been involved in 12 Fibras and 1 Fibra E with a total

of assets. When it comes to the participation of Afores, the

of MX$55.6 billion representing 34.4 percent of the amount

real estate sector in Mexico’s largest cities have experienced

issued for the Fibras. Most of these Fibras concentrate on

such a large boom, that in some areas there are surpluses of

commercial, office and mixed-use real estate developments

assets. In Monterrey for instance, in the last few years there

and a few on industrial and tourism properties. There has also

have been so many new office and commercial spaces being

only been one Fibra E issued in the market by PINFRA for

created that there are numerous empty buildings. “There is

a road infrastructure project. “Fibra Es are starting to gain

a lot of money to invest in the infrastructure industry,” says

market traction,” says Ortiz. “Investors like holding onto

Carlos Rousseau, Senior Partner and Co-Founder of Orange

material and operating assets and Fibra Es are an asset to

Investments. “This can be a cause for concern because there

which institutional investors can hold on once the project’s

are many people willing to spend a lot of money who are not

construction phase is over.” Fibra Es have potential to boost

necessarily equipped with the market intelligence to carry

road and energy infrastructure in the future but because

out the projects successfully. Many markets have seen these

it is a new instrument, the industry is still adjusting to the

disruptive projects and this can also lead to bubbles due to

requirements and regulatory framework. Fibras on the other

the sheer amount of funding available, especially from Afores.”

319

VIEW FROM THE TOP

CHANGE IN AFORE RULES TO BOOST INFRASTRUCTURE INVESTMENT JUAN MANUEL VALLE Director General of Afore XXI Banorte

320

Q: How attractive are infrastructure and real estate for

A: We are active investors in all the projects in which

Afores, especially with the emergence of new investment

we are involved. It usually takes six months from the

vehicles?

first proposal to the time we authorize the investment.

A: Infrastructure projects are the perfect match for pension

Our investment team analyzes each project and once

funds. It is natural that Afores want to participate more in

it has a strong case, it is then presented to an internal

these types of projects. Afore XXI Banorte has put together

committee. Several lawyers and I participate in this

one of the strongest investment teams in the country that

internal committee, which is where we submit the project

focuses on alternative investments with sound corporate

as an internal discussion to prepare for presentation to

governance and processes. We have been putting together

the Investment Committee. In 2016, we approved one of

a benchmark portfolio that reflects our strengths.

every three projects that we received.

Afore XXI Banorte has committed more than MX$60 billion for investment in CKDs, of which MX$17 billion are invested in infrastructure

Q: How does the Afore prefer to participate when it comes to large infrastructure projects? A: For large projects, we work with the strongest players in the international markets such as Caisse de dépôt et placement du Québec (CDPQ), BlackRock and Riverstone. A good example is the Zama well that recently struck significant oil in shallow waters off the coast of Tabasco and is the first successful exploratory well found in the fields auctioned in the bidding rounds. Afore XXI Banorte

As of August 2017, we have committed more than MX$60

owns almost 5 percent of that project through two different

billion for investment in CKDs, of which approximately

vehicles issued by Riverstone and BlackRock. We are

MX$17 billion are invested in infrastructure (28 percent)

indirectly investing in this project because both companies

and MX$16.3 in real estate (27 percent). Afore XXI Banorte

approached us to invest in their CKDs.

has been involved in various successful real estate projects and is investing in new projects in Mexico. Among these is a

In the largest CKD that we have, Infraestructura Mexico,

major project that could change the footprint of downtown

we had originally planned to invest independently. But

Mexico City and this could be announced soon and could

we partnered with CDPQ and the idea of this CKD was

modify our investment figures.

that for any investment that CDPQ found interesting, we would invest at the same level, ensuring that neither

Managers have been more prompt to invest in real estate

would have the majority share. The company that would

than infrastructure in general, possibly because real estate

be operating the project would have to have 51 percent

projects are completed much more quickly. In infrastructure,

of the entire investment. This provides the incentive to

there are projects with a longer “J” curve, where we have

have good administrators and operators for the project,

yet to see results, whereas in real estate, we are already

as well as institutional investors that are there for the long

receiving flows. As an example, we are a significant investor

term. We have been working with funds that have been in

in the Red Compartida project, which will provide Mexico

the market longer than we have and we receive feedback

with over 90 percent of coverage in mobile and data service

from them to adopt best practices. Our teams also go

at speeds of 700MHz throughout Mexico.

abroad and receive training from these large international pension funds. We believe that our approach to creating

Q: How does Afore XXI Banorte approve an investment in

partnerships with other funds and international players

an infrastructure project?

helps improve the success of our investments.

Reforma Colón, Mexico City, Grupo Sordo Madaleno

Q: How could Afores help bridge the financial gap in

A: We analyzed the pros and cons of CerPIs against CKDs.

the infrastructure industry and attract investment from

In a CerPI, we do not have the option to decide where it will

international funds?

be invested. If we were to invest in that vehicle, it would be

A: There are many funds interested in investing in sectors

much easier with managers who have proven their capacity.

such as toll roads, ports, housing, commercial, energy or

For instance, we would consider partnering in a highway

renewables, but they do not feel comfortable doing it on

CerPI with a company that has been successful through a

their own. We want to make them feel comfortable partnering

CKD in acquiring and managing highways. If RLH Properties

with us. When they see that Mexico’s largest pension fund

for instance had issued a CerPI with the experience that

is involved they tend to feel better about investing. Now

it has, we would have invested because of the company’s

that the regulation will change and Afores will be allowed to

experience. We are already own a 35 percent participation

invest 100 percent of a CKD and no longer be limited to 35

in RLH Properties through various projects.

percent, our experience tells us that it is better to co-invest with international funds. The previous regulatory framework

Q: What opportunities do you see in Afores investing in

limited the ownership of a vehicle by an Afore to a maximum

Special Purpose Acquisition Companies (SPAC)?

percentage, so the general partners had to collaborate with

A: For new instruments such as the CerPI or SPAC, it all

at least three Afores to raise a successful CKD. Although we

depends on who is behind the projects. Riverstone and the

will now be able to invest 100 percent, we will not do so and

former YPF management team are behind the first SPAC,

instead invest with dedicated international funds such as

and they are great managers with strong track records.

Temasek, CDPQ and PSP, among others. For future projects,

The energy sector has large oil companies, but there are

we want to partner with large funds as co-investors.

also small ones. There is an opportunity to consolidate a company that may never play with their larger counterparts,

Q: How will these changes to the regulatory framework affect

but provide economies of scale. In terms of SPAC, managers

the country’s ability to invest in projects?

have to bring the project to us, similar to a CKD but on

A: This will be a positive change. For the largest Afores and

an international scale. If we decide to invest in a project

projects, the way things are set up today limits the capacity for

and the process is finalized, our managers will remove the

doing things quickly. If four Afores sit at a table with investors

SPAC and enlist the company. If we decide not to invest,

to finalize a proposal, everybody wants something different.

we receive our original commitment. The operational costs

The current regulatory framework limits the flexibility of

are all assumed by the sponsors. Afores are relatively new

investors and large projects require great amounts of funding.

in Mexico, having been in the market for only 20 years. For

The changes will make it easier for fund managers to raise

many years Afores were only allowed to trade bonds but

money. Some managers have told us that there is so much

since the regulatory framework changed, they have been

interest that they could raise the resources abroad. The best

the driving force of these new instruments.

opportunities for us are in Mexico but investing in the BMV is complicated for us because we are too large. Afore XXI Banorte is the largest pension fund manager in

Q: To what extent are Afores ready to boost investment and

Mexico and the fourth-largest in Latin America. It manages

what needs to be done to make them feel comfortable using

more than MX$660 billion in 16 different Siefores, representing

this new financial instrument?

23 percent of the market

321

VIEW FROM THE TOP

BANKING ON A STRATEGY OF LONG-TERM UNDERSTANDING RAÚL MARTÍNEZ-OSTOS Chairman of the Board and Director General of Grupo Financiero Barclays México

322

Q: How is Mexico positioned in Barclays’ global strategy?

are investing in infrastructure and energy in Mexico, although

A: Historically, investment banks tend to place Mexico within

it is not circumscribed in NAFTA. The most important CKD,

their Latin America strategy, but for Barclays it made more

which is estimated to total between US$2.5 and US$3 billion,

sense to include Mexico on the North American map due to

is made up of Afores and the Canadian Pension Fund, which

the complements of the economies. We believe that, with

is unrelated to NAFTA; it is related to the bilateral relationship

or without NAFTA, Mexico’s business world will intertwine

between Mexico and Canada. NAFTA has been a cornerstone

with North America, given the synergies between the three

of the trilateral relationship but the economies are so close and

economies. We are the most active bank in the issuance

complementary that the relationship will continue regardless

of CKDs and we issued the first CerPI. We are also strong

of what happens with NAFTA. One positive achievement for

participants in government and private debt issuance. It

Mexico is that it has signed bilateral agreements with different

is important that we send the message that Barclays is a

countries beyond NAFTA, which solidifies Mexico’s position.

strong bank, committed to Mexico. Bank strategies tend to

We will continue to be one of the US and Canada’s most

be defined for the short-term, but Barclays’ strategy is based

important economic partners, but at the same time we will

on understanding a country in the medium and long term. We

continue to be very important trading partners for other

understand that Mexico will experience episodes of volatility

countries.

and that there will be bumps along the way, but in terms of reforms and new initiatives the country is doing what needs to

Q: What opportunities and challenges might arise for

be done, and there is a solid platform to build and strengthen

financial institutions following the NAFTA renegotiation?

our markets and investment banking strategy. Moreover,

A: NAFTA will bring stability to the region and if the result is

Barclays is one of the leading international investment banks

positive the economic ties in the region will be reinforced. For

with capital committed to our Mexican subsidiary, which is a

the financial sector, having clarity is important for generating

growing trend that is expected to continue.

more investment. There are many aspects that go beyond a mere business perspective but which will play a central role

The most important CKD is estimated to total between US$2.5-US$3 billion and is made up of Afores and the Canadian Pension Fund

in the renegotiation. Factors such as financial security, money laundering or areas where cooperation is needed will end up benefiting both countries. Between the financial entities of the three countries, we can work together to ensure the safety of our nationals and the integrity and stability of the financial sector of the three countries. Q: What challenges does Barclays perceive that could hinder

Q: Beyond NAFTA, what is Mexico’s value proposition

investment in the country?

to the world?

A: Instability could play an important role. Regardless of

A: Mexico has achieved a lot thanks to NAFTA, but also

the results of the Mexican elections of 2018, it is essential to

thanks to the bilateral and trilateral relationships of the

maintain the basic principles of responsible macroeconomic

North American bloc. For example, Canadian pension funds

management and to foster an environment of clarity, certainty and transparency. Investment in Mexico has not only increased but also strengthened. In moments of strong volatility, foreign

Grupo Financiero Barclays México is a subsidiary of Barclays

ownership of government bonds did not fall. These examples

PLC. Its investment banking arm provides financial advisory,

that reflect the mid-term focus of investment, which has

capital raising, financing and risk management to corporations,

grown despite the fact that there are many tasks that need to

government and financial institutions

be tackled in terms of security, corruption and the rule of law.

VIEW FROM THE TOP

YOUNG AFFILIATE BASE SPURS LONG-TERM INVESTMENT ANICETO HUERTAS Director of Fundamental Risk at Afore Citibanamex

Q: What role do Afores play in bridging Mexico’s

Q: What are the main differences between CKDs over Fibra

infrastructure gap and what sectors are the most attractive

E and CerPIs?

for investment?

A: The current regulation limits Afore’s investments in

A: The infrastructure sector is key for Afores. On average,

private infrastructure projects to CKDs, CerPIs or Fibra

the affiliates of Mexican Afores are in their early 40s,

E. Fibras pertain to projects that are already in operation,

meaning that they will keep saving for more than 20 years.

generating a stable cash flow. CKDs and CerPIs are similar

Our objective is to increase our exposure to long-term

in the sense that they are optimal for the development of

assets that provide stable cash flows. One of the most

new projects. The main difference between a CKD and a

advantageous features about infrastructure investments

CerPI is that CerPIs require a 30 percent co-investment

is that they are normally linked to inflation, meaning that

from the sponsor or a national or international co-investor.

employee pensions are better protected against spikes

Governance also changes between CKDs and CerPIs since

in inflation. With a track record below 10 years, CKDs in

Afores have more direct participation in the former whereas

Mexico are a relatively new asset class that has become a

CerPIs rely more on the credentials and experience of the

priority in our investment portfolio. Afore Citibanamex is

co-investor. As of June 2017, there has only been one CerPI

the largest Afore, measured in number of affiliates, and the

issued in the market, where the co-investor was Ivanhoé

most active in the alternative investment field in Mexico.

Cambridge, a subsidiary of CDPQ focused on the real estate

Due to existing regulations, all investments we carry out in

sector. In 2016, Fibra Via was the first Fibra E issued in

private infrastructure are through CKDs. At the moment,

the market, designed to hold stabilized assets. Its main

there are fewer than 10 infrastructure CKD managers in

asset is the Mexico-Toluca toll road, which provides a long-

the country and we proactively invest and work with most

term and relatively predictable cash flow to its investors.

of them. For instance, in 2015 we structured a vehicle

Through Fibra E, Afore investments are not subject to taxes,

together with Canadian pension fund Caisse de Dépôt et

meaning that all the income generated by the operation of

Placement du Québec (CDPQ) in order to better access

the investment flows directly to the Afore’s affiliates.

more opportunities in the infrastructure field. Q: How will financial tools be used in 2018 and what Q: What subsectors within the infrastructure industry are

characteristics does Afore Citibanamex look for when

attractive for investment?

choosing managers?

We are actively pursuing opportunities in virtually every

A: 2015 and 2016 saw the greatest number of CKD

type of infrastructure class: transport (roads, rail, ports and

issuances in Mexico, especially in the real estate and

airports), energy and power (oil and gas, upstream, midstream,

infrastructure sectors. We have seen few Fibra Es in the

downstream and clean energy) and social infrastructure, such

market because they require a consolidated portfolio of

as health and education. In the renewable-energy sector, last

large assets. It takes time to optimize the structure and

year’s clean-energy auctions were a success. Actually, Mexico

make it appealing for investors. In 2Q17, we expect to

now has one of the lowest clean energy prices in the world,

see much more activity in the Fibra E pipeline. Afore

which is excellent for the country’s economic development.

Citibanamex seeks managers with ample experience, a

Mexico has been able to provide a stable regulatory framework

positive track record and credentials.

and long-term PPPs of up to 20 years, which has attracted many international investors. If the country has foreign investors placing their money in these long-term projects, it

Afore Citibanamex is Mexico’s largest pension fund in terms

is a show of faith in the country’s future development. We

of affiliates and the most active pension fund in infrastructure

invested in projects in the first and second auctions and we

development. It has been involved in financing educational

will continue allocating investment in auctions to come.

infrastructure and road infrastructure development

323

INFOGRAPHIC

PENSION FUNDS TO THE RESCUE As the Federal budget for infrastructure development

with new instruments such as Fibras and Fibra Es, they

shrinks, the sector is looking to the BMV to obtain money

will become more active in years to come. In September

for its projects. Structured vehicles such as CKDs and

2017, CONSAR announced that the limit Afores can invest

CerPIs are gaining popularity among developers and

in a Fibra or CKD in a single issuance will be increased

funds that can now access funds from Afores, to bridge

from 35 percent to 100 percent, which will provide

the country’s infrastructure gap, whether in public

Afores with more flexibility to invest in bigger projects

infrastructure or real estate. Throughout the years,

in the future. But with more flexibility to invest, which

regulatory framework for Afores has allowed them to

subsectors within the infrastructure industry are most

invest more and more in the infrastructure industry, and

attractive to Afores?

,2 17

399

Name Ticker Maximum amount Maximum amount Maximum amount Maximum amount

EXICK E XI 2,255 CKD Infrastructure 1,289

2,73 7 2,503

I2 Prome

DCK

rie

cap

INFRACK16

ICUA

cqu a

CIC

FIM

3,5

CB 3,7 55

K IC BM

3,4 15

M GB

RC O

55 0 6,

9, 00

0 0

12 ast E fr R U 13 KD In T C 14 C U TR 15 RACK S A 16 INF R F IN 17 5

c ru

10 ,0

U A

K GB M I2 ES CK

7 8

RC O

tone

41 N/A N/A N/A

MM2

FI acquarie M

cas

L ITA P A 5 C 1 ATE V I 2 R P

IVCK DA

meri

yA over Disc

billion has been invested by Afores through 74 emissions of CKDs and CerPIs

4,422 0 4,50

1CK AA

ericas

MX$146.9

3,900

4,082

NEXX6C

ry Am

ve Disco

FFLA2CK

PMIC LATAM Nexxus

Ide

Marhnos 1,0 XI 16 E EXICK

uth

ati n

MHNOSCK

AG K CC K 2, ern Cr 68 L IVCK F ee Cro 2, 1 I k 7 s VC s 6 P FLA3 K 2,8 4 SC MI C A 8 K braa CL GC 0 2,8 j K AT 80 AB AM PMIC 2,9 J C K 15 LATA 00 -2 M FFLA 3,04 7 PMIC LA 1CK TAM 3,28 FFLA1CK 2 3,282 PMIC LATAM FFLA4CK 3,900

PMCP

NE PE LI PI

DATPCK Atlas Discover STEPCC 16 Stepston ST e STEEPCC16-4 PCC S teps 16-2 Ste tone ps

PB FF1C

at in

ga te

on Ac

rth

Abraaj ABJCK 15 106 615 INCK Latin Idea LAT 950 SCK 0 DALU 1,00 Capital K 1 LA3C Dalus 1,16 FF 17 TAM XCK 1,4 IC LA ME D 30 PM 1,5 A MXCK F 0 ery cov MI XCK ,00 Dis 2 7 x tlas EM 03 me K 2, A C 1 Wa X ON EM 63 2, CK AC T DA K XC

ap ridg it e B BCCK al la

er ov sc

s xu ex

S SBCC K ai

s la At

ACO AC N

ai IA a Ca

324

K IIC te PE ga G h

N rt No

INE

PIPEL

PIPELIN

MX$3.02 trillion

tal

AL AlsiSs ISCK F und s IN D Ca CK pi

Ind igo

ALTU ALTUMMCK C

apital

CSMRTCK Credit Suisse

NXCERPI Nexxus Capital

WHICH AFORE INVESTS IN STRUCTURED INSTRUMENTS THE MOST? Azteca

which is equivalent to 15% of Mexico's GDP is managed by Afores

dit

C re

10 Inbursa

ES TA TE RE AL

EX I

n to

al W

0 00 6,

2 2 1 0

CC F1

a br

0 7,

6 K1

4,00 0

Invercap

9 8, 50 0

Coppel

iss

it S u

C S2

NGC

CS C

FICK

Nort

Cr ed

hgat e

Promec CK

ecap

PMCAP

3,500

GBM PMCPCK Prom

GBMECK

1,300

2,503

isse

DE BT

12, 75 0

12,7 50

Banamex

00 00 5,0

5,0

3,300

• MX$40.06 million in real estate

3,095

3,046

Metlife

PensionISSSTE

API MIR

4,00

• MX$52.12 million in infrastructure and energy projects

SC NW

70 4,3

AFORES INVESTED

A NS

on alt -W

MXCK WS K

AMBC VTX2CK

IRA

Principal

lton

Prolog

Profuturo

Vertex

FINSACK FINSA IGS3CK IGS PLAN ICK3 Planig AR ru

2,705 2,700

513 N/A

SURA

XXI-Banorte

general

l tia -2 en 13 K ud a Pr TC th R Ar A K 15 2C I SCK 27 PLA IG ha H4 1,5 Art RT A CK 13 4 K 88 5 IGS R TC GS70 5 AR K I Vertex 57 3 55 GSC I ERTXCK V

2475 2,44 0 2,10 0 2,0 T po GA HACK 1,7 00 V 9 A A rtha S 5 1, CK 1,5 671 A IRENCK G 30 ava RT ART Ca H4 A pit ArthaH5CK CK ART al LIG CI 15 NM HA -2 3C EX G CK K A Gr REYCK rth eys tar a A C Ca A pi rth R CA ZA ta a lI V RZA V EXC ex Ca K pit TU al ThorCK P R Ur ba A QM lig na nm XC K ex

CK los TA ol EL rr

a D sa De CK rban TU r U

l CK d G a

A ist K Am DC AN

GR e d n B Gra OCK ell OD O'Don

E IP

0 10 20 30 40 50 60 70

Variable return International equity Goods National private debt Structured Instruments Fibras International debt Government value

Sources: CONSAR, BMV, 414 Capital Inc

325

INSIGHT

OPPORTUNITIES FOR TOURISM DEVELOPMENTS REMAIN ATTRACTIVE SANTIAGO JUÁREZ Former Director of Corporate Banking for Real Estate and Hotels at Sabadell Global Corporate Banking

326

A challenge that is often cited by developers is access to

While it is true that in Mexico, Cancun and the Riviera Maya

financing, especially given the high investment required for

have been Banco Sabadell’s natural niches, Juárez is confident

a tourist resort. But, according to Santiago Juárez, Former

that the bank’s expertise has given it enough momentum to

Director of Corporate Banking for Real Estate and Hotels at

expand its horizons and venture into other cities that are also

Banco Sabadell, Mexico has developed an attractive financing

experiencing considerable growth in tourism. “Our experience

ecosystem for tourism real estate whereby development and

in the Caribbean has given us the confidence to expand our

private banks collaborate to support this segment. “The offer

operations to Los Cabos, Baja California Sur, and Huatulco,

of financial services has grown a lot in the last couple of years, which reduces costs for developers,” he says. The growth of tourism real estate will continue to create a series of opportunities for national and international institutions to offer those financial services that developers need. “More than competition, we feel that there is a market in which all banks can participate,” says Juárez. “If we collaborate, we can find the best deals for our clients.” In the tourism real estate segment, Banco Sabadell operates through its two financing divisions, banking and Multi-

“

Oaxaca, and we are working to venture into Riviera Nayarit and Nuevo Vallarta on the Pacific coast,” he says.

We feel that there is a market for all banks to participate. If we collaborate we can find the best deals for our clients”

In Los Cabos, Juárez says that there is a significant investment

Purpose Financial Society (SOFOM). Nationality is no longer

boom, particularly after Hurricane Odile hammered the

an obstacle to doing business and risk-sharing in Mexico, so

peninsula in 2014. “This investment wave was fostered by the

Banco Sabadell has an important relationship with all the

government and the private reinvestment that had to be made

banks in the sector. “An average hotel financing product

to renovate hotels,” he says. “This catalyzed the growth of

accounts for more than US$50 million, so it is really hard to

Los Cabos in an unprecedented way.” The investment directly

see a bank taking on the entire risk on its own,” he says.

coincided with a rise in disposable income and this area is now the preferred destination for affluent guests. “Tourists that go

The bank takes advantage of its experience in Caribbean

to Los Cabos tend to have more resources than those going

tourism and its understanding of hotel operations to thrive

to Cancun or the Riviera Maya,” Juárez says. “They feel that

in the Riviera Maya. There are 31,662 hotel rooms in Cancun

Los Cabos is somewhat detached from the security problems

alone, according to the Ministry of Tourism (SECTUR). This

the rest of the country suffers.”

number is expected to increase by at least 50 percent by 2020 and Banco Sabadell wants to both support this growth

While the industry has grown by leaps and bounds in

and take advantage of it.

the last couple of years, Juárez is certain that there is still considerable room for growth, particularly in the niche of hotel

“In 2015 and 2016, the Riviera Maya and Cancun experienced

development. In the US, about 70 percent of hotel keys belong

historic occupation records and we expect this trend to

to large hotel chains, but in Mexico less than 30 percent of

continue in the coming years,” says Juárez. “With the help

hotel keys belong to these large chains. This is why Sabadell

of the government and private sector, tourism will continue

sees so much opportunity in large developments. “Although

booming.” According to SECTUR data, in 2015 and 2016,

independently-owned hotels always offer an interesting value

Cancun and the Riviera Maya experienced occupancy rates

proposition in terms of originality and diversity, hotel chains

of 70 percent on average, a percentage that Juárez say is

offer a higher degree of sophistication and institutionalism

rarely seen in other parts of the world.

that attracts tourism on a larger scale,” says Juárez.

VIEW FROM THE TOP

PROVIDING RESPONSIBILITY TO INVESTORS, COMMITMENT TO COUNTRY CARLOS ROJO Director General of Grupo Financiero Interacciones

Q: Banco Interacciones registered double-digit growth in

alongside our clients, ensuring the project is logical and that

2016. What were the contributing factors?

the cost expected by the client is in line with our estimates.

A: 2016 was a spectacular year for Banco Interacciones. We

If the cost the client is proposing is much higher than our

experienced an 18.24 percent increase in our credit portfolio,

estimates, we will not participate. We also have a specialized

our return on equity was 17.52 percent and our utilities grew

team of lawyers that focuses on understanding the local laws

14 percent. Within our portfolio, infrastructure grew 40

and the way states operate. When we are structuring a credit,

percent and our new leasing service grew 60 percent. We

we isolate the capacity that our client has to repay the loan.

did all this while also reducing our past-due loan portfolio,

Typically, our clients pay us through a federal trust, where

which concluded the year at 0.05 percent, one of the lowest

the federal government deposits these resources and then

percentages registered in the world. Among the factors

the credit is paid. Once the payment has been covered, the

that favored Banco Interacciones’ growth during 2016 is the

remainder of the credit is delivered to the state authorities.

Fiscal Discipline Law, which was set in motion during the first months of the year. It forces states and municipalities to have

Q: How do you expect FDI to behave during 2017, particularly

more transparency regarding the use of public resources. The

in terms of infrastructure?

law also stipulates that states can acquire debt for productive

A: The truth is that at the end of 2016 and the beginning

investment, which is 90 percent infrastructure, a niche that

of 2017 the movement we have seen in the exchange rate

Banco Interacciones knows very well. The fact that states

has translated into competitiveness. We believe that we will

are becoming more transparent in the way they present

continue to see relevant investment in the country that will

information makes our analytical process for determining

translate into growth for Banco Interacciones. The northern

risk much easier.

states of the country have a significant dependence on maquila manufacturing and the US. Even though many

Q: How does Banco Interacciones reconcile the high state

people believe that investment will be curtailed due to the

indebtedness with the bank’s participation in infrastructure

new US political administration, this is not necessarily the

projects?

case. Many of the central states, on the other hand, have

A: One of the most common misconceptions is that the states

growth percentages above the national average and their

are overindebted. However, Mexican state indebtedness

investment agenda has not been affected. In the south,

only represents 2.9 percent of the country’s GDP. In similar

we perceive that the Special Economic Zones (ZEEs) will

economies, this level ranges between 6 and 12 percent. In

be an important engine for investment engine, providing

more developed economies, the level rises to 24 percent of

the necessary tools to give these states an industrial

GDP. In Mexico, states have been plagued by cases of corrupt

component. The ZEEs are expected to generate significant

administrations, but the authorities have begun taking the

fiscal benefits, such as income tax exemptions for the

necessary actions to avoid this from happening again. At

first 10 years, and later to lead to progressive growth.

Banco Interacciones we do not provide loans to governors

These incentives alone make the ZEEs competitive when

or mayors. We finance infrastructure projects and we focus

compared with other ZEEs around the world. This scheme

on the financial and technical viability of the project. As

is also prompting states to invest in basic infrastructure to

of today, every infrastructure project we have financed is

compete for the investment that is coming.

already concluded and operating. Q: What factors do you take into consideration when

Grupo Financiero Interacciones is the only financial institution

analyzing a project’s social, technical and financial feasibility?

specialized in providing personalized and comprehensive

A: We have such a level of specialization that we have a team

financial services to the three levels of government, as well as

of civil engineers that analyzes the project’s technical viability

to private companies and individuals

327

VIEW FROM THE TOP

CONDITIONS BODE WELL FOR INFRASTRUCTURE DEVELOPMENT JUAN LEAUTAUD Managing Director of BlackRock

Q: What progress has been made to bridge the

areas. Both these projects have been carried out with

infrastructure gap and what projects are the most critical

complete transparency and are a reflection of the fact

for the country?

that state-level participation is increasingly significant. I

A: I am optimistic about the future of infrastructure in

am optimistic that other states will follow suit in building

Mexico for a number of reasons. Although we continue

up an infrastructure pipeline.

to have this gap between our current economic output

328

and our existing infrastructure, there are a number of

Q: What are investors most worried about when investing

elements that bode well for infrastructure development.

in new projects?

Public finances are pressured because of the international

A: All investors like to see predictability and that

context, the drop in oil prices and the current state of

translates to contract structures that offer certainty in

Mexican finances. That scenario creates an environment

terms of the scope of activities to be performed and

in which private capital is welcome in infrastructure

the risk allocation between the parties involved. The

development. There is a need for private capital to play

health sector and contracts with IMSS and ISSSTE are

a role and a wide range of opportunities to address that

no exception to this. A clear division of responsibilities

necessity.

regarding the acquisition of land, permitting of that land all the way through to the operation of a hospital, for

Another reason for optimism is that infrastructure

example, need to be defined from the outset.

projects are always slow to come to fruition. Assembling a bankable project takes time. In my view, the government

Q: What is holding back USPs and how can BlackRock

has made tremendous strides in identifying and pushing

help the players looking to make it happen?

forward a number of projects, whether those are PPPs

A: The Tijuana bypass undertaken by BlackRock was

in the health sector, highway projects released by SCT

carried out through the USP framework. We presented

or state-level projects focused on water and social

different options to the state government and began

infrastructure. Although there is a significant gap, there

working in partnership with it to find the necessary

is now a growing number of identifiable projects.

structure to make it happen. The government understood the need for this road, launched the bid in accordance

The third reason is the progress on the part of state

with the regulatory framework and BlackRock presented

governments in terms of bringing in private capital to

the winning proposal. This is a good example of a system

address infrastructure needs. Baja California has released

that is working and we are now working on a second USP,

a PPP project for a desalination plant in Rosarito that

which is a federal project.

will provide water for the city of Tijuana at 4.4m 3/s. This is a US$700 million project that is already in the

Q: In which sector do you see the greatest potential for

contracting stages and tremendously significant to the

Mexican infrastructure?

state. The state is also tendering a 4.5km bypass for the

A: We have a robust pipeline of investment opportunities

city of Tijuana valued at MX$1.5 billion that will improve

spanning energy, midstream oil and gas, transportation,

the connectivity within the city and the surrounding

water and power so it is difficult to choose a sector I believe will be the most profitable. We are confident that we can continue to diversify and invest our clientsâ&#x20AC;&#x2122; funds

risk

effectively. In 2017 and 2018, BlackRock will come to the

management as well as advisory services in more than 30

end of its investment funds and we will consider raising

countries. It has participated in various road, health and

Fund Three in the near to mid term. Through this, we will

penitentiary infrastructure projects in Mexico

continue our trajectory in developing our pipeline.

BlackRock

global

leader

investment

and

VIEW FROM THE TOP

BETTING ON MEXICO’S TELECOMS ERNESTO GONZÁLEZ Managing Director of Macquarie Infrastructure and Real Assets (MIRA)

Q: Which of these infrastructure sectors do you think will

Q: What challenges have you faced when participating in

be the most successful?

PPP concessions in Mexico?

A: We are very bullish on Mexican infrastructure. We

A: The Ministry of Finance’s recently announced program

have been here for quite some time and have a relatively

of 13 PPP projects was fairly well-structured. The projects

large team with a lot of on-the-ground experience. When

were geared toward i construction companies. Most of the

examining Mexico’s demographics and fundamentals, they

contracts were refurbishment or construction contracts

are very promising. This is also illustrated by the arrival of

rather than investment opportunities. The problem is that

various companies to the country in recent years. We define

some of these projects are simply too small for us.

infrastructure as investments that require large CAPEX expenditures and which we can contract on a long-term

I think one of the challenges with any type of project is

basis, allowing us to use project finance.

matching the national need with local and state regulation and local and state interests. The program the Ministry of Finance

We focus on energy, both conventional and renewable, and

released was fairly synchronized with some buy-in at each

we are also focused on transportation – more specifically,

level, and this is why the projects worked well. On the other

roads and ports. In the midstream sector, we are primarily

hand, some USPs today take time because they work from the

focused on greenfield liquid storage. Finally, the telecoms

bottom up and can be much more complex than PPP projects.

sector is a promising because there continues to be a

Having said this, the USP scheme is one we really like and I

significant lag in this kind of infrastructure in Mexico,

believe it is an option we could pursue in the future. We are in

compared to countries like the US. Within each of those, we

discussions with a couple of construction companies that we

serve niche areas. For example, in power generation, we are

are interested in working with on these kinds of proposals. In

not looking at any of the auctions since we find them to be

this area, the education sector interests us.

overly competitive. We are trying to find angles in which we can build a relationship or solve a client’s specific problem.

Q: What is your outlook for the change of administration in 2018?

Q: How would you evaluate the Telecommunications Reform

A: We have the benefit of working in infrastructure and

and how did this impact your decision to invest in this

by definition, these are very long projects. When we look

sector?

at investing in a project, of course the overall political

A: We invested in the telecoms sector back in 2014. We

landscape matters but ultimately, we are investing in

started with a cluster of fewer than 200 towers, and we

projects where we feel we have identified a fundamental

now have 1,700. At that time, when we looked at the

need that must be met. If there is a real need for an

market dynamics, we saw a very low penetration of towers

infrastructure project, it should be impervious to changes

throughout the country and many users per tower compared

in political administrations. We focus on the fundamentals

to developed markets. The Telecommunications Reform has

rather than the political landscape. Although political

had a favorable impact in that there was a bidding process

factors do not drive the investment decision, they will

for the Red Compartida. This program is expected to deploy

influence the discount rate or risk factor of the project and

a vast national network to expand coverage to end users

will impact the ability to secure third-party financing.

and we are part of the backbone of this goal. Mexico Tower Partners has developed greatly from this, but we continue to see a lag in the penetration of cell phones and data usage

Macquarie Infrastructure and Real Assets (MIRA) is the world’s

per customer in Mexico compared to what we have seen in

largest infrastructure asset manager with growing portfolios in

locations like the US and Europe. This is why we continue

real estate, agriculture and energy. It has been investing in and

to be very bullish about telecommunications infrastructure.

managing infrastructure for more than 20 years

329

VIEW FROM THE TOP

INFRASTRUCTURE DEVELOPMENT RELIES ON NEW FINANCIAL VEHICLES SANTIAGO ORTIZ Director General at GBM Infraestructura

330

Q: Why is using CKDs an efficient method to finance

A: We address both greenfield and brownfield projects. By

infrastructure development and how is GBM Infaestructura

the end of 2017, 85 percent of our portfolio’s value will be

using them?

bolstered by GBM Infraestructura’s existing toll-road and

A: In 2016, GBM Infraestructura raised its second fund

water concessions. There are more opportunities for risk-

totaling MX$10.5 billion, where it issued MX$9 billion

adjusted returns in new projects than in mature projects

through the BMV and raised the equivalent of 20 percent

because of the capital amount coming from institutional

of the total fund itself. CKDs are a perfect vehicle to attract

investors such as private equity funds, whereas foreign

long-term capital and deploy it in Mexican energy and

pension funds prefer to place capital in mature assets.

infrastructure projects because of their lifespans. Their

The issue is getting the returns that we need from mature

useful life generally lasts between 20-30 years and only

projects while continuing to work on new ones.

Afores can engage in such long-term capital investments. Pension funds are withdrawn upon retirement, which allows

Q: Which subsector provides the highest ROI to GBM

Afores a long-term investment window. Despite Afores’

Infraestructura’s investors?

allocation in alternative investments being small compared

A: GBM Infraestructura works mainly in water, energy and

to countries with more developed private equity, most of

toll roads. In the company’s first fund water projects were

GBM Infraestructura’s money comes from these institutional

a great value creator. With the second fund, a substantial

investors.

part of the pipeline seems to be geared toward energy projects as a consequence of the Energy Reform, especially

Q: To what extent will GBM Infraestructura start using new

in midstream electrical power developments. The toll-roads

financial vehicles?

sector is experiencing less movement. GBM Infraestructura

A: We want to start using CerPIs because there are

is very selective about the projects we consider because

notorious benefits in regulatory compliance and associated

we want the second fund to replicate the success of the

costs. GBM Infraestructura sees CerPIs as another version of

first fund. As a country, we must enforce a rule of law that

CKDs because they are very similar. Both are listed vehicles

ensures the legal framework for concessions to attract

and both entail definite fiscal advantages, especially for

foreign private equity. Also, projects must have firm

Afores. However, CerPIs’ compliance requirements are

concession titles, be financially feasible, produce stable

similar to that of a credit vehicle in the US. Moreover, Fibra

long-term returns, require high initial capital expenditures

Es are starting to gain market traction. Investors like holding

and be protected against inflation. GBM Infraestructura

onto material and operating assets, and Fibra Es are an

looks for specific characteristics in revenue streams that

asset to which institutional investors can hold on once the

give investors a natural hedge in volatile markets.

project’s construction phase is over. CKDs and Fibra Es are complementary; GBM Infraestructura expects to use Fibra

Q: What challenges impact toll-road projects the most?

Es in the near future for CKD divestment purposes.

A: In greenfield toll-road projects the key issue is in obtaining rights of way for developers to build the project within the

Q: What kinds of projects does GBM Infraestructura

expected timeline since delays in construction mean higher

focus on?

costs. New projects from tender guidelines usually have funds destined for rights of way but as the project is developed, some price negotiations can surpass the project’s planned

GBM Infraestructura is part of GBM Group, which has been in

budget because the last parcels to be liberated are always

the market for more than 30 years. GBM Infraestructura has

the most expensive. Contingency for these projects can cause

a proven ability to begin, analyze, structure, negotiate, invest,

overruns on the planned costs of between 10 and 15 percent

track and exit infrastructure opportunities through CKDs

due to unplanned but necessary work and rights of way.

VIEW FROM THE TOP

REDUCING RISKS THROUGH LONGTERM INVESTMENTS

Mario Budebo Partner and Director General of Business Development at EXI

Luis Villalobos Partner and Director of Business Development at EXI

Q: What are the main areas of opportunity in the energy and

Our third strategy is to choose projects based on their

infrastructure industries?

growth potential. For example, we consider to the

MB: Demand in the market tends to fluctuate. A couple of

Mayakan gas pipeline that passes through Campeche and

years ago we saw a bigger boom from the infrastructure

Yucatan to be visionary, as it passes through several states

sector but regulatory changes are causing the market

and can expand into other businesses. Its infrastructure

to experience a higher percentage of projects related to

and location could be used to transport other liquids

energy, such as electricity and oil and gas. When we raised

or products. Additionally, we choose to mitigate risks

our first fund, infrastructure was more in demand and we

by creating our own platform of projects instead of

directed more capital to this industry. Now that energy

depending on the release of viable projects. Investors

has a better outlook, we are prioritizing this sector for the

are fond of this strategy because it allows the company

capital raised by the second fund. Water projects are of

to identify and develop new areas of opportunity faster

interest to us too because these tend to be built in areas

and in a more financially stable manner.

with high rates of growth and the country’s demand for potable water is increasing. We have the advantage of having a team that understands the energy and infrastructure sectors in Mexico and internationally. But as a Mexican fund we are forced to diversify through industries and not regionally. We do not invest in projects outside of Mexico. When it comes to tenders, we see them as an exception and not a preference.

Water projects are interesting to EXI because they tend to be built in areas with high growth rates and the country’s demand for potable water is increasing

We prefer to find partners and project managers to create and develop new areas of opportunity. We collaborate with

Q: How do you mitigate the risks related to highway projects

a wide range of companies from large AAA companies to

in more remote areas?

the public sector. Overall, the results of our investments

LV: We rely on three project development models. One

have surpassed our expectations and our shareholders are

is completely built by the government, another built,

reaping the benefits. Our second CKD benefited from our

operated and maintained by the private sector through

track record and easily attracted capital.

the provision of services paid by authorities and the last model requires the private sector to assume the entire

Q: What strategies help guarantee shareholder dividends

risk of the project. We select the model based on demand,

from your investments?

fees and risk. We are not keen to invest in projects with a

LV: To guarantee dividends we use several strategies. First

high percentage of merchant risk. The government can

of all, we make sure to have a portfolio with a healthy mix of

also intervene by reducing security issues that we cannot

greenfield and brownfield projects in a wide variety of sectors.

control. An alternative way to mitigate risk is through

We ensure a constant flow of capital by having projects

long-term PPPs but to win these tenders we would have

already in operation while we wait for those in construction

to drop prices to a level that is no longer viable.

to be completed. We strive to select projects in states that have elevated growth rates, political stability and security in comparison to the rest of the country. The company also

Fomento a la Energía e Infraestructura de México (EXI) is an

mitigates risk by having a strategic group of partners. We do

investment vehicle in Mexico, operated by Mexico Infrastructure

not favor certain companies over others and always select

Partners (MIP), with the objective of developing and financing

projects that have a solid financial structure.

energy and infrastructure projects

331

VIEW FROM THE TOP

INTERNATIONAL INVESTOR IN MEXICO FOR THE LONG HAUL ALFONSO MUNK Managing Director, Americas Chief Investment Officer of PGIM Real Estate

Q: What importance does PGIM Real Estate see in Mexico and

also drives more demand for shopping and retail centers,

what is its importance in your global portfolio?

where we also invest. While our holdings in Mexico constantly

A: PGIM is the investment management arm of Prudential

fluctuate, we always have a considerable stake in the market

Financial, which is a large public financial services company

here, and even with the concern about US trade and NAFTA,

headquartered in the US. In Mexico, Prudential has a number

we still believe in the long-term investment viability in Mexico.

of businesses, including a life insurance business, which

332

constitutes a small part of what we do in the country. The

Q: The PruMex IV CKD will allow PGIM Real Estate to

largest of Prudentialâ&#x20AC;&#x2122;s businesses in Mexico is PGIM Real

expand into multifamily-for-sale, residential and mixed

Estate, which is the real estate investment arm of the company.

use. Why do you see so much potential in these areas?

We are the largest and longest tenured international real

A: PruMex IV is the fourth fund we have raised in Mexico

estate manager in Mexico, having established our operations

and it is not the first time we have invested in those

in 1999. At that point, we began specifically investing in real

sectors. It is a continuation of the 17 years we have spent

estate in Mexico at a time when few international companies

investing in Mexico. PGIM Real Estate was a pioneer in

were doing so. We have a wide portfolio of assets totaling

bringing multifamily-for-rent to the Mexican market.

more than US$3 billion, mainly concentrated in the industrial

Previously, people tended to buy single-building units or

sector. We are the external advisor of a publicly traded Fibra

condominiums and rent them but nobody had full buildings

called Terrafina, whose portfolio includes warehouses for

dedicated to rental. In 2008, we developed a portfolio of six

logistics and manufacturing, and is one of the largest owners

assets consisting of 3,500 units for this purpose. This was a

of industrial assets in Mexico. Many of our tenants are US

successful endeavor and we then opted to sell these assets.

companies exporting manufactured goods. Our tenants

We feel industrial is the core of Mexico and the main driver

include GM, Honeywell, Zodiac, Goodyear, Continental and

of other real estate sectors. Residential, both for-rent and

Cessna, among many others.

multifamily, has been a very successful part of our business. Now, Mexican culture is becoming more aligned with that of

While the main pillar of our business is industrial, we have

the US so people are beginning to favor renting apartments

expanded to other sectors within real estate over the years,

over buying. Compounded by the younger population that

such as for-rent residential and retail, where fundamentals have

is no longer interested in purchasing property, we are seeing

improved due to a growing middle class. The manufacturing

strong demand for these types of properties.

sector has increasingly brought formal employment to the country. Twenty years ago, one in 10 people was formally

Q: What are you doing to raise sector confidence and

employed; 10 years ago, this increased to one in eight and

how do you plan to continue raising capital from Mexican

now it is one in three people. This increase in formalized

institutional investors?

employment provides people access to the government

A: Mexico has been a particularly difficult market in which

housing fund, allowing them to obtain a mortgage and buy

to raise money. I believe the fact we were able to raise

a residence. This disposable capital drives the residential

MX$4.422 billion for our PruMex IV CKD means Mexican

segment and PGIM Real Estate is a large investor in this

Afores are starting to see the value of investing money

segment in Mexico. The increased access to consumer credit

with an established, household name. Our parent company and PGIM Real Estate are viewed as extremely strong and stable, and we are doing things the right way with our

PGIM Real Estate is the real estate investment arm of PGIM,

investors at the forefront of our decisions. As a principle,

the global investment management business of Prudential

we never blur the lines or do business in a way that our

Financial. PGIM Real Estateâ&#x20AC;&#x2122;s team helps its clients evaluate its

actions could be ethically questioned. I think this is what

real estate equity, debt, and securities investment strategies

has kept us in the market for 17 years.

VIEW FROM THE TOP

HITTING HOME RUNS ON REFORMA GERALD RICKER Director General of Reichmann International

Q: What is the advantage of investing in central, business-

occupancy rate in Torre Mayor, we took a securitized loan

oriented areas and what is your strategic approach to

on Wall Street and acquired partners to recoup the capital.

development?

We are also the manager for all our projects and design the

A: The heart of any city is in its central business district.

projects ourselves. It is a lot of work but we prefer to deal

People do not remember cities by their malls or suburban

with the headaches up front. The hard work is paying off as

areas but by their skylines and downtown areas. We entered

80 percent of the office-end commercial spaces within Torre

Mexico after the 1985 earthquake. The city wanted to keep

Diana were preleased before construction was finished.

up with international trends and fix the damage created by the natural disaster and asked Paul Reichmann to be part

Q: What trends do you foresee in Mexico Cityâ&#x20AC;&#x2122;s office spaces?

of the revitalization in the early 1990s. Our most famous

A: The country has a growing middle class, which is going to

project is Torre Mayor.

increase the demand for services such as telecommunications and transportation. All these service companies will require

In terms of our next projects, we are considering parcels

strategically placed offices to be able to meet these demands.

of land on Reforma. Over the last couple of years, the area

There are probably 10 million m2 of houses in Mexico that

has widened by several blocks. Torre Diana is an example

have been readjusted to work as offices. But a lot of these

of this growth as it is not directly on the main avenue.

are occupied by small companies that sooner or later will

Reichmann only develops strategically located Class A

need bigger spaces.

and Class A+ buildings to build up a portfolio of the most productive and efficient buildings in the country. To do so,

10 million m2 of houses in Mexico have been readjusted to work as offices

we provide the best operating systems in terms of elevators, telecommunications and more. We are long-term developers that strategically invest in buildings that can meet the needs of our clients and make sure that our investors make a solid profit in our developments. We prefer to have fewer more strategic projects than to juggle the management of several projects as this jeopardizes the quality of the developments.

People tend to classify all new building as Class A but the

This strategy helps us secure big leases such as ATT, Deloitte

definition takes into account a lot more, such as parking,

and AON that sign contracts for up to 15 years.

management and operating costs. The market is being saturated by taller towers that end up taking longer to build

Q: What financial model do you use when developing your

and offer fewer square meters of available space. For example,

projects?

one of our neighboring towers in Torre Mayor took nine years

A: We generally use a 50/50 combination of debt and equity.

to build and has less than a third of its tower leased. On the

In the US, it is normal to have between 80-95 percent debt

other hand, Torre Diana took three and a half years to build

balance in projects but given that Mexico is more volatile and

and is 95 percent occupied. Torre Diana also has 64,000m2

at risk of exchange rates we avoid overleveraging. Instead we

of rentable space while the average project in the market

choose to fund projects with our own capital or with partners.

has 35,000m2.

We have solid lenders such as Metlife, Prudential or major banks such as Scotiabank and HSBC that provide construction loans. We built Torre Mayor with Paul Reichmannâ&#x20AC;&#x2122;s capital,

Reichmann International operates as a real estate holding

at a cost of almost US$300 million. He was a risk-taker with

company that owns properties in Canada, the US, the UK

a vision and took advantage of the opportunity to increase

and Mexico. It financed and developed some of the most

the value of the area. By the time we achieved a 50 percent

emblematic projects such as Torre Mayor and Torre Diana

333

INSIGHT

IN SOME SEGMENTS, SPECIALIZATION BEATS DIVERSIFICATION ROBERTO ORDORICA Director General of ALIGNMEX

Property developers often believe diversification is the key

ALIGNMEX’s investor-first policy also plays a role in the

to success because it allows them to guard against market

sectors the company works in. Traditionally in a CKD, the

instability. Not so, says Roberto Ordorica, Director General

fund manager decides where the money is invested but

of ALIGNMEX, a Mexican real estate fund manager that

Ordorica is adamant that the Afore should have more choice

specializes only in multifamily rental and industrial real estate

in where its money goes, which is why ALIGNMEX chooses

and only in specific regions of the country.

to only work within two sectors. “We believe that when a company specializes in one or two areas, it gets better at it,”

334

“We like to invest in sectors we understand well so that we

he says. “One fund with a hotel in Los Cabos, a residential

can forecast our CAPEX needs for the long term,” he says.

development in Monterrey and an industrial park in the Bajio

“In terms of revenue, margins on industrial and multifamily

is not going to be able to do industrial as well as we do.” This

developments are among the highest and least volatile.”

strategy helps ALIGNMEX create more value, Ordorica says.

ALIGNMEX develops industrial parks through its Parqmex

Its local presence and global mindset is another value-add,

subsidiary and multifamily through SíRenta. In multifamily,

says Ordorica. The company partners with Pritzker Realty

ALIGNMEX saw a market opportunity because few institutional

Group, a Chicago-based real estate investment group with

investors in Mexico focus on this segment. This means that

over 90 years of experience working all over the world.

quality family properties are hard to come by and are often

Penny Pritzker, the company’s Founder and Chairwoman and

old or built in units. “To attract the attention of Afores, we

the former US Secretary of Commerce, is also a registered

needed to focus on quality real estate, which was lacking in

ALIGNMEX partner. “This is extremely important because she

Mexico,” says Ordorica. “This means that we had to develop

can provide extensive global knowledge and ALIGNMEX can

the property instead of simply going out and buying it.”

apply that locally.”

The fund manager raised its first CKD in May 2016, valued at

But while ALIGNMEX partners with Pritzker Realty Group,

MX$2 billion. It was also the first CKD in the Mexican market

Ordorica stresses that his company has made it a policy not to

to specialize in for-rent properties and the company’s goal

enter into joint ventures and instead operates as a vertically-

is to follow the same path with a Fibra in the next few years.

integrated company. “We take care of the entire chain of

“Our business plan has placed us in a position whereby we can

requirements, from sourcing land, purchasing, developing and

develop 500-1,000 units annually, with the first coming online

operating the buildings,” he says. “With JVs, it is very easy to

in August 2018,” says Ordorica. “After that point, we expect

experience cost overruns. We mitigate that risk by taking 100

to have a new building coming online every three months or

percent responsibility for our expenses.” ALIGNMEX does not

so. When we reach around 3,000 units, we will have the size

depend on any JV partner to provide its pipeline, meaning it

to carry out a public listing and raise the first for-rent Fibra.”

has much more control over operations and timelines. “This model is also beneficial for the end-user since it is in our

But he stresses that these plans are not set in stone.

best interests to build a quality development that will reduce

Rather, ALIGNMEX’s policy is to do what is best for

maintenance costs over the building’s lifecycle,” says Ordorica.

the investor. “Our number one priority as a fiduciary is to provide the best alternative and execution for our

ALIGNMEX chose to participate in the for-rent segment

investors,” he says. If that means that ALIGNMEX reaches

because it was so complementary to its other sector of

its goal of 3,000 housing units and attracts the attention

choice – industrial. The fund formed subsidiary PARQMEX in

of a large company that wants to buy the project, the

May 2015 with a “strategy to focus on markets that have high

company would be willing to sell instead of raising a Fibra

barriers to entry, proximity to a large demographic base and/

– provided it is in the best interest of investors.

or access to major distribution hubs.”

CONAVI Housing Unit,

While multifamily is peso-denominated, industrial

segment is already very much a reality. It simply has yet to

development is often dollar-denominated, meaning exchange-

be institutionalized. “The difference between our company

rate fluctuations have little effect on ALIGNMEX’s business

and others is that we are extremely well-capitalized,” he says.

model. Moreover, both sectors are engines of economic

“Even when we raised the CKD, we did not really require

growth, with industrial plugging into the manufacturing

the capital but it allowed us the opportunity to grow in a

hubs created by the automotive and aerospace industries

faster way.” Regardless, he says that ALIGNMEX would have

and multifamily focusing on consumption, labor growth and

invested in multifamily with or without the aid of the financial

other economic drivers.

tool. In fact, the company carried out its first three projects using 100 percent equity but now the use of leverage and

Although many believe the best way to capitalize on

financing allows it to see the results more quickly.

consumption is through the retail segment, Ordorica disagrees. “In the Amazon era of increased e-commerce, we

In a country where 30 percent of the population

find it more dynamic to be present in distribution,” he says.

rents, Ordorica does not see multifamily decreasing

“I would rather own Liverpool’s distribution center rather

in importance anytime soon. But the opportunity still

than build a shopping center with Liverpool as a tenant.” As

remains to formalize this experience since the majority still

long-term investors, ALIGNMEX focuses on long-term trends

rents from an individual. He believes the issues that often

and Ordorica predicts that those trends favor industrial over

arise in these situations and the lack of complementary

retail. He admits that in industrial, a company can go from

services will eventually drive tenants into the arms of

100 percent occupancy to 0 percent with the loss of just

more institutional rental agents like ALIGNMEX.

one client but he maintains that this sector is much more predictable nonetheless. This occupancy issue in industrial

Fortunately, the government is also starting to recognize

is diametrically opposed to the situation in multifamily for-

the significance of this market segment, which is largely

rent. Ordorica uses the example of an office building or a

countering the reluctance of commercial banks to finance

shopping center, where a tenant leaves and the amount of

these projects. “The banking system in Mexico has little

CAPEX required to compensate is significant, especially

experience in underwriting the for-rent segment so it

since office buildings often require a complete refurbishment

does not have information on CAPEX, default rate, re-rent

when a new client moves in. “Multifamily is much more

timeframe or other important variables,” says Ordorica.

fragmented and if a tenant leaves, this equates to 120m2 or

“The Mexican government has now recognized that for-

less,” he says. “The amount of CAPEX required in these other

rent is something the country needs.” The Federal Mortgage

property types is much more significant and complex than

Society (SHF), Infonavit and Fovissste are all now starting

that required in multifamily and even in industrial.”

to provide the first financing and loan tools that allow development in the same way as in many other parts of the

Even though the multifamily sector has not yet gained

world. “Ultimately, we all need a place to live,” says Ordorica.

traction among fund developers, Ordorica dismisses the

“This is a basic requirement and now the government is

notion that ALIGNMEX is a pioneer and stresses that the

starting to recognize the opportunities here.”

335

VIEW FROM THE TOP

MARKET STABILITY DERIVED FROM FIBRAS LUIS QUINTERO Executive Director of HR Ratings

Q: What role do ratings companies play in the market?

The Fibra market is currently much calmer in terms of

A: HR Ratingsâ&#x20AC;&#x2122; values dictate that its ratings should be as clear

acquisitions, which is why we believe that Fibras will begin

and transparent as possible to clients and issuers. We always

to gain larger market share.

try to be as detailed as possible about what we can offer to

336

clients since investors read our reports and seek our analysis

Q: What challenges are issuers facing to improve their ratings

to decide whether certain investments should be made. We

and what can they do to close these gaps?

have detailed analyses in which we include the profile of the

A: When it comes to Fibras, in this period of economic

company, industry, operation and background to understand

volatility, we will continue to assess the cash-flow generation

where they come from and how they operate. Our ratings are

of the companies to evaluate their payment capacity. When

based on qualitative analyses that include business strategy,

it comes to cash-flow generation, this is dependent on the

corporate governance and executive management, among

occupancy rate, the rollover of lease agreements and the

other factors. HR Ratings complements this information with

renewal of rents at a new rate, whether it is in dollars or

quantitative analyses that incorporates financial projections

pesos. Industrial and office buildings are more related to

based on what the company has shared with us. Our objective

dollars, while commercial is seen more in terms of pesos. In

is to provide a thorough analysis of the company and to gauge

this case, we try to ensure Fibras are aligned in terms of the

where it will be positioned in the future considering its current

rent charged and the revenue generated in local currency.

trajectory. Investors appreciate this information because it gives them an alternative way to visualize the company. This

Based on the Fibrasâ&#x20AC;&#x2122; cash-flow generation, we assess their

is part of our core mission in terms of being transparent and

capacity to meet their financial obligations in the short term

providing as much as detail as possible.

by their Debt-Service Coverage Ratios (DSCR), while in the long term we focus on years of payment. Real estate is a long-

Q: What are the biggest advantages the real estate

term investment and we welcome Fibras and real estate assets

market should consider when it comes to Fibras?

whose business strategies seek financial longevity.

A: Many construction companies and developers struggle with the noncore areas of their business, such as the

Real estate assets tend to be relatively stable under

operation and management of projects. Fibras are a

economic recession and periods of volatility. They are not

useful channel for them, in the sense that developers

as volatile as investment assets within other industries

can use them to allocate their assets more quickly than

and we will continue to evaluate the strength of this

with a participation obtained through CFBIs. Developers

sector. Although we have experienced a certain degree

normally place an asset within the Fibra and gain access

of volatility in 2016, revenues have remained stable for

to certain liquidity that they use to develop additional

most Fibras. Some Fibras have even gone as far as to

assets that meet the needs of the Mexican market, such

raise a CKD to develop property. Also, we have seen

as office, commercial and retail development. Real estate

new issuances in the last year from Fibra Uno, Fibra Inn

has greatly benefited from these tools as many old

and Fibra Danhos, which speaks to the marketâ&#x20AC;&#x2122;s interest

buildings have been replaced under a more professional

in this sector. Fibras are starting to focus on the debt

administration, allowing developers to keep on building.

market as an opportunity to rebalance their debt structure with longer terms, aligned with assets that last 20 to 30 years. We really expect Fibras to continue heading in this

HR Ratings is the No. 1 Latin American credit reference agency

direction. In the next two to three years, we can expect

and is 10th globally, according to the US Securities and Exchange

more participation in the debt market in terms of debt

Commission. It is the first Latin American securities rating agency

issuances. There are only four Fibras that participate in

to be certified by the European Securities and Markets Authority

Mexico but we will continue to see that number grow.

VIEW FROM THE TOP

RISKS SPUR REINSURANCE MARKET RICHARD SCHNEIDER Director General of Swiss Re

Q: How would you rate Mexico’s reinsurance culture?

product we offer is for the construction of new power plants.

A: Mexico is a seismic country between two oceans, which

Because projects in the energy sector are often complex

increases risks of flooding, hurricanes and earthquakes and

and they need to begin operation on a scheduled date, this

everyone in the value chain understands this. Considering

insurance is essential for developers who have to start paying

that the technology used in the renewable-energy sector is

for the acquired debt. We analyse the specific construction

newer compared to more traditional generation technologies,

project, define terms and conditions and together with our

it is in a company’s best interest to insure projects against

clients reinsure it so they can offer an insurance product.

any potential catastrophe or technical failure. In Mexico projects are insured mostly because property owners and

One innovative product we have started to offer, and that

investors request it, which makes the market similar to any

we are pushing for implementation in Mexico, is parametric

country where Swiss Re operates and where the insurance

coverage. Parametric coverage takes on the risk of reduced

culture may be more developed. So far, we have not found

production resulting from a lack of resources. Take a

any distinction between the reinsurance cultures of national

wind park, for example, for which a study indicates the

and international companies.

expected amount of wind. If weather conditions do not meet expectations and less energy is produced as a result,

Swiss Re supports insurance companies that take on large,

we cover the gap to allow the company to meet its energy

specific and complex risks as well as risks related to natural

production commitments. This insurance product has been

catastrophes. Swiss Re has a very well diversified worldwide

adopted by some power companies in the US because they

book of businesses. We reinsure all types of risk across all

realize the need for it. Parametric coverage can be adapted

continents. This diversification enables us to reinsure our

to the type of plant, so it can cover water, sun and wind; it

clients—the insurance companies—at a lower capital cost

just needs to be adapted accordingly.

than other local and less-diversified companies could. Q: How do you expect the reinsurance market for the Q: What kind of reinsurance services do you offer in Mexico?

energy sector to evolve in Mexico?

A: As reinsurers, our purpose is two-fold. Firstly, we

A: In general, our expectations in terms of investments to

reinsure our client’s risks, which allows our clients to write

be made because of the Energy Reform have not been

more insurance business without having to increase their

met. This is mainly due to the high expectations that the

capital base. Secondly, we provide them with knowledge,

government set out, as well as to external factors such as

expertise and experience. Insurance companies contact

oil price, devaluation, security and so on. This does not

us with questions and given that our underwriters know

mean that the results have been negative. On the contrary,

every segment of an energy project’s value chain, from

the market has been growing and we are expanding our

the construction of a new power plant to its day-to-day

activities in the country. Government institutions, as well

operation, they visualize what risks are present and help

as every other player in the market, have a lot to learn

the insurance company provide the best coverage option

and it will take time for the Energy Reform to show its full

for its client.

potential. Swiss Re will be present in Mexico when that happens. We are here for the long term.

Swiss Re offers the traditional types of coverage as well as newly developed, more innovative insurance policies. Traditional coverage insures the assets of an insurer. If, for

Swiss Re is a leading wholesale provider of reinsurance,

example, a natural catastrophe forces an insurer to pay for

insurance and other insurance-based forms of risk transfer.

lost assets, such as windmills or solar panels, we support

Founded in Switzerland in 1863, Swiss Re serves clients

our client in paying the loss. Another common reinsurance

through a network of around 80 offices globally

337

VIEW FROM THE TOP

CANADIAN EQUITY FUND ACTS AS BRIDGE IN MEXICAN MARKET DIEGO DE LA MORA Vice President and Mexico Head of Barnhart Asset Management

338

Q: What is your role within the Mexican real estate

private wealth, however the tide is beginning to turn and

industry?

the market is poised to become more institutionalized.

A: Barnhart is a private equity fund manager focused on

Herein lies the opportunity. Nimble investors able to

allocating global institutional capital across the Mexican

identify and partner with institutional-grade local

real estate market. Developers in Mexico are highly

developers will not only be better positioned to attract

fragmented and localized and as a consequence, lack the

domestic institutional capital but will also be front-

exposure to the foreign institutional capital we can offer.

runners in sourcing foreign capital eager to tap into the

Thus, our role is to act as a bridge to help institutionalize

Mexican market. The reality is that Canadian institutional

the domestic market, all the while creating value for our

investors are all enticed by the opportunities presented

investors and ultimately benefiting all parties involved.

by the emerging middle class in Mexico. Their concern,

Our focus at the moment is on the retail segment. However

however, remains in mitigating the risks associated with

we are in the process of forging strategic alliances with

investing in a developing economy.

residential and industrial developers alike as we look to widen our investment scope and diversify our portfolio

Q: How can Mexicoâ&#x20AC;&#x2122;s investment vehicles such as Fibras,

across the numerous real estate asset classes in Mexico

CKDs and CerPis be developed and improved?

that are poised for growth.

A: The Mexican financial market has made significant strides in the past 10 years. Being a developing market, there are numerous areas that can be improved on the legislative and regulatory front. The introduction of CKDs

Between 700,000 and 1 million new homes are being created each year

in 2009 gave pension funds the opportunity to invest in areas which previously were not permitted. In my view, it is a matter of experience. When considering regulation from the outset, the role of the pension plans within the CKD committees has changed a great deal. In the future, there should be a little more regulation and specialization

Q: What are the primary differences you have found

in the market. Some CKDs are multisectorial and I believe

between working in Mexico and working in Canada?

the trend will be to specialize more in one area because

A: First and foremost, the real estate and capital markets

the different sectors within real estate require different

in Canada are significantly more mature in comparison to

expertise and capabilities. Few CKD managers have this

Mexicoâ&#x20AC;&#x2122;s. Canadian pension plans are considered the most

full spectrum internally.

sophisticated in the world and continue to be a significant source of funding for real estate developments across

The same thing is happening with Fibras. The first to

Canada. Mexico, on the other hand, has just begun to

be issued had no regulation that specified how to avoid

allocate institutional capital to real estate via the creation

conflict of interest between the development arm of

of CKDs, which first made their appearance in 2009. Real

a given group and a Fibra. The assets were therefore

estate in Mexico is still primarily held in the hands of

being sold internally. The market and regulators have now realized that this is an issue and action has been taken to remedy these aspects. Nevertheless, Fibras are

Barnhart Asset Management is a private equity firm focused

an attractive vehicle for investors and will promote the

on real estate with headquarters in Toronto. It creates value

countryâ&#x20AC;&#x2122;s growth. Fibras are now making the market more

for its institutional and high-net worth investors through active

competitive and all that is left is for the market to become

development and management of high-quality real estate

more specialized and more tightly regulated.

339

Lomas de AngelĂłpolis, Puebla, Grupo Proyecta

Q: What subsectors do you think are most attractive

distribution centers, despite speculation over NAFTA

right now for foreign investors in the Mexican real estate

renegotiations, which have taken a more dovish turn

industry?

since Trumpâ&#x20AC;&#x2122;s inauguration. In the future, I also see some

A: Our investment thesis when analyzing the various real

opportunities in the rental residential sector especially in

estate subsectors strongly hinges on macroeconomic

secondary cities across Mexico.

factors. Right now, the prominent trend in Mexico is the emerging middle class. As of 2010, 42 million individuals

Q: How are you entering the residential real estate

comprised the middle class, forming the largest in Latin

market and what are the main considerations?

America. This number will grow by between 50-55

A: Barnhart is a young company, starting in 2013 in Mexico

percent in the next 20 years. This growth will translate

with the view to work in Latin America. Everything that

into an increase in consumer spending and household

we have done so far has been exclusively in the retail

formation directly benefiting the retail, residential and

sector. Our retail portfolio has grown due to the range of

industrial segments of the market.

opportunities in the sector. In the last 18 months, we have begun looking for residential and industrial JV partners. In

In the retail market, there is a great deal of space to grow

residential, we look for regional players within the fastest

in terms of GLA per capita, to introduce better products,

growing cities in Mexico working in high-rise or single-

more connectivity, and more specialization. We are also

home units. It is important to note that the largest 16

seeing a huge opportunity in the residential sector due to

cities in Mexico will represent 50 percent of the growth

these demographic trends, so as a result this is our second

created by the emergence of the middle class. These cities

priority. Between 700,000 and 1 million new homes are

will double their combined GDP by 2025. It is my view

being created each year and, especially because of the

that metro migration will continue to shape the Mexican

difficulties the sector has experienced, there is still a lot

residential market and its demand for housing. Finally, an

of opportunity for capital deployment there. The other

important prerequisite we have as well when selecting a

sector we are looking at is the industrial sector due to

potential JV partner is seeking a group that has a strong

the countryâ&#x20AC;&#x2122;s potential for growth in manufacturing and

local presence and some institutional background.

ROUNDTABLE

IS THERE A LACK OF PROJECTS OR A LACK OF FUNDING?

Fund managers often complain about the lack of viable infrastructure projects in which to invest in Mexico. But the PPP and USP mechanisms have allowed the government to tender more civil works projects, mainly for the road, hospitals and education sectors. With new projects slowly but surely becoming available, developers are voicing concern about a lack of funding that would enable them to use their expertise to bridge Mexico’s infrastructure gap. In light of the undeniable gap in development, Mexico Infrastructure & Sustainability Review asked industry leaders what was the root cause of the country’s underdeveloped infrastructure.

Before institutional investors, projects were funded by whoever would undertake the project, which was not the best scheme. The issue is not that there is not enough money but that managers and developers need to work closer together to complete projects. Nor is there a lack of projects. Projects just need to be put together in a way that they provide certainty to institutional investors that have

340

a fiduciary responsibility to more than 10 million workers. For many years, these

JUAN MANUEL VALLE Director General of Afore XXI Banorte

projects were put together and funded by the government but now there are many more opportunities for the Mexican market to grow.

Neither is true. Rather, I believe there is a lack of continuity, and we have not yet managed to accomplish a long-term vision across different governmental administrations in Mexico. In the end, we have projects on hold for several years until somebody restarts work on them. This system could be optimized to boost the development of infrastructure. At the moment, I do not perceive a lack of financing but that has certainly been the case in the past. Another issue is that there are many

DIANA MUÑOZCANO

projects but a shortage of expert professionals to make them viable.

Vice President of Grupo Indi

I do not believe anyone will say that the problem is a lack of funding because Mexico is an attractive market and capital wants to come here for the variety of reasons we discussed. Contrary to popular belief, I do not believe there is a lack of projects. Capital moves faster than projects. In my mind, I do not think there is a mismatch between the two. There is great appetite to enter Mexico and I think we have a large and growing pipeline of infrastructure investment opportunities

JUAN LEAUTAUD Managing Director of BlackRock

to satiate that appetite. It is a wheel that turns faster than it did five years ago and hopefully it will continue turning even faster. I think this education is part of Mexico’s path to growth.

Mexico is growing and we need the infrastructure supply to be ahead of the demand, which unfortunately does not always happen. Most of the time this is due to a lack of funding or the short-term vision of the people who make these decisions. Infrastructure requires long-term planning and prioritization of the necessary projects. The engineering of these high-impact projects must be carefully planned and researched to reduce the margin for error but ultimately none of that matters unless the rights of way are liberated and both the social and environmental impact studies are done properly. These are the reasons why

JORGE TORRUCO Construction Director of Omega

most projects are often not completed on time or on budget.

The needs are huge, funding is there and there are good managers but there needs to be more cooperation between managers, investors and the government to create even better opportunities. We are investing heavily in systems and processes to do so. Working with international funds also allows us to better structure projects and to learn from their best practices. Innovation within the

341

market is important, in particular with PPP schemes. For instance, the Red Compartida for is the first of its kind in the world and is an example to follow within the sector. This infrastructure initiative can be replicated in other sectors and has the potential to create many opportunities for future development.

ANICETO HUERTAS Director of Fundamental Risk at Afore Citibanamex

As is usually the case, the answer is somewhere in the middle. This must be examined through the lens of personal interest, whereby developers want really cheap capital and this is scarce when projects are risky. On the flip side, when projects are less risky, cheap capital is abundant, which can be seen in the renewable energy auctions. Most investors view these projects as very low risk given the duration and currency of the contract. I think there is more of a lack of projects than there is a lack of funding. Any project that is tendered and has a strong structure around it has easily found a great deal of capital. I would use the Red Compartida as a good example of that because it is a project with various risks but it had good political support, a transparent bidding process and the concession agreement was clear.

ERNESTO GONZÁLEZ Managing Director of Macquarie Infrastructure and Real Assets (MIRA)

The positive factors that keep us in infrastructure are the announcement of new PPP projects, despite the fact that there were similar announcements made in the beginning of the administration that were not carried out. These PPPs are being used not only to fill the country’s infrastructure gap, but to maintain and improve the existing infrastructure as well. However, the government can increase the involvement of the private sector in filling this gap, whether it is through PPPs or USPs. The Monterrey- Nuevo Laredo highway is Pinfra’s first USP and more may arise in the future. HR Ratings becomes involved in these projects whenever the company wants to enter the stock market or if the government needs a public financial analysis. We work with companies that are trying to issue debt.

FERNANDO MONTES DE OCA CEO of HR Ratings

Render of NAICM Interior

NAICM

Mexico’s gate to the rest of the world. One of the country’s most intricate infrastructure projects. An international hub and a global logistics platform. The second-biggest airport worldwide. These terms have all been used to describe the eagerly awaited NAICM project. This is a mega infrastructure project with a price tag of MX$186 billion that is to take Mexico’s infrastructure to another level of development.

But NAICM also comes with its challenges. World-class engineering is required to construct atop a complex soil composed of 80 percent water and 20 percent clay. It remains to be seen whether the project can come in on budget and on time by October 2020. And can the project really be a 100 percent sustainable airport that is worthy of receiving the LEED Platinum certification? This project is seen widely as a measuring gauge of how far the country has come in terms of accountability and transparency.

The task is not an easy one and this chapter collects the insights of many of the most important players involved to present an accurate perspective on the progress made to date, the current state of NAICM and the biggest challenges in the years to come.

343

CHAPTER 13: NAICM 346

ANALYSIS: On Track: NAICM So Far

348

VIEW FROM THE TOP: Federico Patiño, GACM

350

VIEW FROM THE TOP: Héctor Ovalle, COCONAL

350

BOX: Displacement Cures NAICM Headache

351

INSIGHT: Jorge Torruco, Grupo Omega

352

VIEW FROM THE TOP: Maxime Sion, Grupo TADCO and TASANA Consortium

354

VIEW FROM THE TOP: Fernando Romero, FR-EE

356

INSIGHT: Reyes Juárez, FOA and FIDIC

354

VIEW FROM THE TOP: Nicolás Morris, Ayesa

358

VIEW FROM THE TOP: Diana Muñozcano, Grupo Indi

359

VIEW FROM THE TOP: Alberto De La Parra, Jones Day

359

BOX: A Firm at the Forefront of NAICM Financing

360

VIEW FROM THE TOP: Guillermo Ortiz, Consorcio IUYET

361

BOX: A Look at the Mexico City-Toluca Interurban Train

362

VIEW FROM THE TOP: Elbson Quadros, SITA

Alex Covarrubias, SITA

Uriel Torres, SITA

364

ROUNDTABLE: What Are the Challenges and Best Practices NAICM Can Offer the Industry?

345

ANALYSIS

ON TRACK: NAICM SO FAR Expected to be finished by October 2020, NAICM is a mega infrastructure project involving national and international players. A 100 percent sustainable development, it is being built on unique soil conditions and is a mixture of the best engineering and design, with an eye to becoming Mexico’s gateway to the world The NAICM project is Mexico’s ambitious replacement for

in infrastructure in the country and boosting the economy.

its saturated main air terminal, Mexico City International

According to Federico Patiño, Director General of GACM, the

Airport (AICM). When operations take off in 2020, the

project is on schedule: 2014 and 2015 were devoted to planning,

new airport will accommodate 70 million passengers per

2016 and 2017 were for awarding the top tenders, the design

year, a number that will grow to 125 million passengers per

and the start of construction, and the coming years, the most

year when the second phase is completed. The final tab for

construction-intensive, will be for consolidating the project.

NAICM is expected to tally MX$186 billion (US$10 billion).

THE STORY SO FAR

346

On its webpage, GACM says that NAICM will be the first hub

The process has moved into the construction stage, in part

in Latin America to concentrate all operations in a single

due to the presence of a prestigious team of experts in the

airport, thus providing greater efficiency and coverage of top

design and planning stages. Arup developed the master

domestic and international routes. It is expected to be a global

plan and the project was designed by Fosters + Partners

logistics platform, as cargo facilities will triple, increasing freight

in collaboration with FR-EE, as the master architects.

traffic. Furthermore, it is expected to improve connectivity

Parsons is the project manager, NACO the master civil

and lower transportation costs, fostering a greater investment

engineer, Landrum and Brown participated in the planning,

TIMELINE OF TENDERS AND WINNERS' LEVEL OF INVESTMENT (MX$ MIllions) Dec 14

Levelling and Cleaning Nov 27

Oct 9

April 30

COCONAL

1,762,803

Temporary Rainwater Drainage

Calzada Construcciones, Construcciones y Dragados del Sureste

GACM Campsite

Grupo Oro

112,046

July 17

233,471

Dec 11

Feb 27

Control Tower

Feb 13

As of October 2017, MX$135 billion have been awarded through 292 contract procedures and 197 suppliers Oct 10

Runway 2

Dec 2

2014 2015 December 2014 Gexiq received the first construction contract worth MX$40 million for NAICM to remove 441 buried steel tubes in the land Source: GACM

Runway 3

Sep 16

Dec 20

GAMI

COCONAL and VISE

664,096

Foundation Slab for Terminal Building Jan 12

ICA, IDISA, Construcciones y Trituraciones,

Foundation Slab for Transportation Center

7,926,300

CICSA, GIA+A, Prodemex, La Peninsular

2016 October 2015 NAICM received a revolving credit line from 13 global banks worth US$3 billion

Foundation Piles

7,359,205

2017 December 2015 COCONAL received the contract to level and clean the land for the airport for MX$1.8 billion

September 2016 NAICM became the first Mexican and Latin American entity to emit green instruments in the international market through its emission of US$2 billion green bonds

Boston Consulting Group developed the business plan, and

future. Its level of sustainability means it is a contender for

MITRE provided strategic support with the main feasibility

the LEED Platinum certification, due to its neutral carbon

studies. Ayesa is among the companies participating in the

print and efficient use of resources. According to plans,

consortium that won the technical supervision contract for

it will reuse 70 percent of its consumed water through its

the project. “One of the biggest challenges is to coordinate

24 water-treatment plants, 50 percent of the construction

the technical and administrative relationships between

materials and 75 percent of the generated waste materials.

each of the contracts,” says Nicolás Morris, the company’s A PPP financing scheme was implemented to guarantee

Regional Director for Mexico, Peru and Colombia.

a minimal impact on public finances without undermining The preliminary construction work included 61,000km of

the resources for operations and maintenance of the

drainage for runways 2 and 3. There was also the construction

current airport, while also bolstering transparency. The

of on-site offices, three water-pumping plants, site leveling,

first phase used revolving credit facilities up to a value

debris removal and the construction of 48km of internal

of US$3 billion, while the second will have a long-term

access roads. According to GACM, the preliminary works

financing strategy through the issuance of green bonds

are completed and 65 percent of the project resources have

for up to US$6 billion.

been committed. As for the work in progress, this is mainly focused on the construction of the electrical substation, the

According to GACM, the excess cash flows generated

laying of runways 2 and 3, the foundations for the passenger

by NAICM and AICM are enough to repay the debt and

terminal and the air traffic control tower.

recover the government’s investment. NAICM is expected to be Mexico’s gateway to the world. Finishing on time

SUSTAINABILITY, TRANSPARENCY

and on budget will be challenges, given the complexity

NAICM has been conceived to be a reference point in the

of the development. If all goes well, the first plane should

way major infrastructure projects will be developed in the

take off in October 2020.

Aldesa, Jaguar Ingenieros

March 20

1,242,171

Terminal Building for Passengers

CTVM

84,828

Oct 20

Dec 30

El Cajón, Controladora de Operaciones de Infraestructura

SACYR, EPCOOR

7,555,647

US$10 billion

Aug 22

is the estimated investment the project expects according to Proyectos Mexico (MX$ 186 billion) 1,399,983

Aug 22

Oct 14

Dec 6

2018 September 2016 The winning consortiums for runway 2 and 3 were announced

2019 January 2017 ICA and Carso won the contract to build the terminal building for NAICM worth over MX$84 billion

2020 February 2017 SCT released a package of 20 tenders for NAICM with a value of MX$35 billion

September 2017 NAICM emitted US$4 billion of green bonds in the international market

September 2017 Studies for the express train connecting NAICM to Mexico City worth MX$74 billion were given to ISSA

347

VIEW FROM THE TOP

NEW AIRPORT PROGRESSING ACCORDING TO PLAN FEDERICO PATIÑO Director General of GACM

348

Q: What progress has been made on NAICM’s development?

A: During 2015, we focused on the design and planning of

A: The project was announced in September 2014 by

the project. Part of this was the design of the master plan.

President Peña Nieto. Since then, GACM has hired the best

It involved the active participation of all the parties involved

team worldwide. We have the world’s best consultants,

in the project, and balancing their needs. We held over

Parsons as our Project Manager, the best architect in the

230 meetings with regulatory and international agencies,

world, Norman Foster in partnership with FR-EE Fernando

national and international airlines, government agencies

Romero, Dutch engineering firm NACO and Arup, which is

and service providers, to hear their needs and concerns and

responsible for the master plan. In that regard, 2014 and

take them into account in the design of the master plan.

2015 were years dedicated to planning and carrying out the required tests. Several studies were carried out even

The biggest challenge for me is to prove that Mexico can

before this point. An airport is a project that involves

carry out projects of this magnitude in a transparent and

complex logistical development and demands a high level

honest way. GACM endeavors to become a reference for

of sophistication.

projects of this scale. Also, we want to complete the project on time and within budget, especially given its level of

We then focused on the design, always keeping various

complexity. This project involves a series of contingencies

questions in mind: What sort of airport do we want, a

and uncertainties, and we constantly encounter surprises

regional or an international hub? What was the desired

that we must solve. The possibility of making a mistake

capacity and the expected growth? This was necessary to

with decisions is always present, so we try to have the best

plan the size of the project according to passenger and

counseling possible. It is also paramount to have a sense of

airline growth trends. The project was designed to meet

urgency because often we do not have much time to react

the country’s needs, so that it could serve as the gateway

to certain situations.

from Mexico to the world. Starting in 2016, the construction began with preliminary projects for site preparation, such as

Q: What strategies are being implemented by the different

the 33km perimeter fence, access roads, construction of the

companies involved to optimize processes and the areas

on-site offices, the removal of debris, the temporary sewage

where cost overruns are arising?

and ground leveling. All those projects are now completed.

A: Only 6 percent of the megaprojects constructed

In the same year, we tendered around 65 percent of the

around the world are finished on time and within budget.

project’s value, awarding runways 2 and 3, the foundation

We are one of the first projects in Mexico and the first of

piles and the electrical substation, among others.

its kind to use BIM (Building Information Modeling). This methodology helps us use intelligent, connected workflows

In 2017, we started the construction of the terminal

to help improve predictability and productivity. We also

foundations, the control tower and runways 2, 3 and 6. The

work closely with the project manager, contractors and

runways are being built simultaneously, starting with 2, 3

supervision entities to develop management strategies.

and 6 in the first phase and 1, 4 and 5 in the second. This year we started to see the project take shape in a tangible

NAICM is also a self-financing project. Recently, we issued

way. We have 7,000 trucks moving material every day and

green bonds for up to US$4 billion, which gives us a total

40,000 people working on the project. By next year, we

financing of US$6 billion. The financing scheme is backed

expect to have generated 160,000 direct and indirect jobs.

by the current airport’s excess cash flows and eventually by the new airport. Fortunately, the financing scheme is

Q: What challenges has GACM faced in the initial

based on the TUA that is charged to most passengers, and

construction phase and in the creation of the masterplan

is charged in dollars. This protects the private financing

for tenders and construction?

from the peso’s devaluation and volatility in the markets.

NAICM Perimeter

Q: What are the expectations for NAICM for the end of

I would avoid the excessive use of cars and instead have

2017 and into 2018?

a great number of bicycle paths. I would also like to see

A: 2017 was the year for big tenders and the beginning

a lot of technology and many universities to build a city

of construction. By the end of 2017, we will have already

of knowledge, as well as a place in which people can live

tendered around 85 percent of the project’s value with

where they work and in which they will find everything they

our most important projects awarded. These include the

need. This would be a happy city that can regain the style

passenger terminal building, the air traffic control tower,

of the typical Mexican neighborhood, similar to La Condesa

runways 2, 3 and 6, the electrical substation and the ground

or La Roma. With the AICM land, we have the ideal place

transportation center, among others. The next two years

to achieve this goal, but we must come up with something

will see the development’s consolidation as we will really

completely out of the box, involving lateral thinking instead

be constructing these projects simultaneously. We will see

of duplication and making more of the same. We have a

harmony among the people, ground and machinery. These

great opportunity here to build a masterpiece like we

years will be the most construction-intensive so NAICM can

expect NAICM will be, but also an extraordinarily cultural

finish the project by 2020.

space for our citizens.

GACM is the owner of AICM and the concessionaire

Q: How are GACM and SCT ensuring the continuity of

of NAICM. Once we inaugurate NAICM we will have to close

NAICM’s development beyond the presidential elections

AICM, which is 770ha. After constructing NAICM, GACM

in 2018?

will be its operator. In the meantime, we are carrying out

A: Funding is guaranteed by the placement of green bonds

the required tests, in collaboration with the Mexico City

for US$6 billion. The contracts for the tenders are signed

government, to determine what we will do with AICM’s land.

and construction is underway and advancing very quickly. We have contractual obligations with the bondholders and

Q: What do you believe is the best future use for the AICM

the contractors working on the construction of the new

territory?

airport. Canceling the project would be a waste of money

A: I believe this land comprises a territorial reserve that is

and it would imply the loss of thousands of jobs, sending

unavailable elsewhere in the State of Mexico; it is twice as

the wrong message to the capital markets about Mexico’s

big as Central Park. We cannot make a mistake, as we owe

obligations.

it to future generations to put the area to best use. In my personal opinion, we must consider the best practices of other countries when closing an airport and opening a new one. I

GACM is the group that oversees the operation of AICM and the

find this a marvelous opportunity to build a smart and modern

construction of NAICM. It is a government dependency and is

city that is environmentally friendly and that is directed to the

charged with ensuring tenders for the new airport are carried out

potential middle class and to younger people.

with speed and transparency

349

VIEW FROM THE TOP

RUNWAY 2 WINNER BIDDING FOR MORE TENDERS HÉCTOR OVALLE President of COCONAL

350

Q: What strategies are you implementing to deliver NAICM’s

Q: What financial strategies are you using to finance the

second runway on time?

project?

A: We are focusing on initial comprehensive strategic

A: Our credit strategy involves working with three

planning. For example, before we started bidding, we

commercial banks. We are billing MX$500 million monthly

carried out a market study to understand where the

and we have also financed a total of approximately MX$1.5

required materials were most abundant and bought four

billion. Banorte, Banamex and Santander all provided

materials banks. We have worked in AICM for many years,

special credit lines for the project. We also monetized a

so we know how vital the materials are, as they account

portion of our investment portfolio. Our liquidity today is

for about 50-70 percent of the construction’s total value.

limited, which is unusual for us. But we are not concerned

We have made significant advances due to our strategic

because once the airport is finished and we begin to

planning, and we already have everything in place to ensure

reap the financial returns, our margins will be restored

completion of the runway by November 2018. As we speak,

to full health.

2.5km out of the 5km runway is preloaded. In short, our strategy is basically to negotiate, plan, work with qualified

Q: Where do you expect the construction for the second

personnel and exploit our own quarries. We have already

NAICM’s runway will lead the company?

signed a contract with CEMEX for the cement, as well as

A: Our goal is to win the construction for Runway 6, which

with our paving provider, so when it is time to carry out the

is under military control. Also, we want to take part in

work, we have all the components in place to allow us to

the bidding rounds for several of NAICM’s commercial

complete our part of the project on time and on budget.

platforms. This part of the project will be tendered soon. Likewise, other constructions for airport access and part of the underground drainage system remain available. The

COCONAL develops infrastructure projects with a focus

whole project implies the development of 10km of road

on timeliness and cost-effectiveness. Its services include

infrastructure in order to guarantee end users that the new

constructing,

location will be easily accessible. COCONAL wants to take

concessions,

infrastructure

operation

rehabilitation and transport of related machinery

DISPLACEMENT CURES NAICM HEADACHE

and

part in this as well.

Composed of 80 percent water and 20 percent clay, the soil of Texcoco Lake demands sophisticated engineering and architectural techniques to guarantee the airport will not sink over time. Accordingly, the runways will be constructed following the Archimedes Principle so they float and prevent compression of the soil. Likewise, a preload construction technique will be implemented to allow water to exit and thus increase the consolidation of the soil and enhance its load capacity enough to prevent substantial movements. The area also required a significant effort for cleaning and leveling, as it was abandoned land where much of the debris from the 1985 earthquake ended up. COCONAL was the awarded contractor for this endeavor, a tender that cost almost MX$1.8 billion. Tender packages for Runways 2 and 3 include the preload and geotechnical instrumentation systems, the infrastructure, the pavement structure and visual aids. There must be geotechnics monitoring to evaluate the vertical settlement of the soil and its horizontal displacement. Airstrips 2 and 3 are currently a work-in-progress, but on completion they will measure 5km long by 60m wide.

INSIGHT

EXPERIENCE AND FINANCIAL CAPACITY DETERMINE SUCCESS JORGE TORRUCO Construction Director of Grupo Omega

PPP projects have long been a way for the public sector to

had the advantage of familiarity with the land and its unique

mitigate risk by tendering projects to its private counterpart.

characteristics,” he says. “The subsoil in Mexico City is difficult

But the private sphere is no longer as willing to gamble on

to build on and Lake Texcoco poses a real challenge to all

these projects and is taking out its own insurance in the form

construction companies participating in the project.” During

of consortiums. These alliances provide many benefits for

the first phases of the tender, the consortium cleared the

bidders, especially for megaprojects like NAICM, because they

debris, trash and other elements that would pose a challenge

allow smaller companies to compete with more experience

to the construction of the two runways and terminal building.

and less risk allocation, according to Jorge Torruco,

“We removed more than 3 million m3 of material, transported

Construction Director of Grupo Omega. This means that the

it to banks authorized by various governmental agencies

market is no longer dominated by international construction

and then replaced it with materials such as tezontle, a highly

giants and as a result, smaller, national companies can grab

oxidized volcanic rock,” he says.

hold of their market share even without the cash flow of the majors. “Experience and financial viability are the two main characteristics construction companies must have to successfully win a tender for NAICM,” says Torruco. With both aspects provided by a consortium, in addition to better risk mitigation, this option becomes a beneficial solution for midsized companies. Since Grupo Omega was founded in 1982, the group has

2,000 trucks moved more than 3 million m3 of material from NAICM into authorized banks

gained experience in developing and constructing projects such as highways, hydroelectric plants and MTS throughout

One of the main challenges Omega and the consortium

the entire country. The group’s vast knowledge of the industry,

faced was transporting the debris. Although the NAICM plot

strong alliances with other construction companies and ability

measures 4,430ha, the roads that existed were crude and

to efficiently manage projects motivated it to take on the

difficult to navigate. “While we were working, there were other

challenge of participating in NAICM. The construction of the

consortiums working on leveling the terrain, preparing the

new airport began with the first tender package, labeled

water infrastructure and other preconstruction work,” says

“Leveling of the Terrain,” which contained three tenders.

Torruco. “The primary paths were saturated with thousands of

One was launched for the clearing of the debris and land

trucks belonging to different participants. Omega alone had

preparation for the project’s foundations on Lake Texcoco.

more than 2,000 trucks working on our tender.”

After a rigorous tendering process, Grupo Omega, along with Calzada Construcciones (Calco) and Construcciones y

Another challenge was finding ways to work with labor unions,

Dragados del Sureste (Cydssa) were awarded the bid.

which also tend to be a different animal in Mexico. “Working with construction labor unions is a challenge in itself because

This consortium was different to the others in that it was

they do not follow a defined legal structure,” Torruco says.

one of the first where all three members were 100 percent

“Instead their work is based on trust and how close they are

Mexican companies. “Although all consortiums were required

with the company.” Mexico’s construction sector is composed

to incorporate Mexican components, the level of experience

of various unions, such as the Mexican Workers’ Confederation

needed to complete the project traditionally calls for a

(CTM), that have a great impact on infrastructure projects.

consortium with international companies,” says Torruco. This

Torruco says it is essential to know how to create long-lasting

tender, however, required experts with years of experience

relationships with unions since they have the power to provide

working on Mexico’s terrain in particular. “Mexican companies

unfavorable pricing or working conditions.

351

VIEW FROM THE TOP

DUTCH-MEXICAN CONSORTIUM COMBINES INTERNATIONAL, LOCAL EXPERIENCE MAXIME SION Director of Operations at Grupo TADCO and General Coordinator at TASANA Consortium

352

Q: What are the main areas in which TASANA is focusing

with the exception of the terminal, air traffic control tower

for NAICM?

and control center. Our design is planned around the

A: The consortium was formed in 2014 in response to

several teams involved and includes runways, taxiways,

the bidding for the NAICM tenders. At the beginning,

aprons, AGL, navigation systems, administration and

we carried out important tasks distributed according to

maintenance buildings, aircraft rescue and firefighting

the capacities and expertise of each partner. Depending

facilities, fuel farms and all related utilities and roads. The

on those tasks, the Netherlands Airport Consultants

most challenging part was perhaps the commercial apron

(NACO) defined the conceptual part and translated it

due to all the interactions with the terminal building with

into a preliminary project or a design-level development

regard to the soil conditions. Other challenges, due to the

that Sacmag, as a company that is very experienced in

soil conditions are the runways and tunnels for internal

engineering in Mexico, transformed into construction-

communications to ensure vehicles do not interfere with

level development.

an airplane’s path. The technical aspects of the design were also highly detailed, given the level of specificity

Since the beginning, we have been a 50-person team in

they required.

the main office with other staff working from different locations. Today, we have other associates overseeing

Q: What challenges have you faced while working

technical aspects. For example, Sacmag still has about

together as a consortium?

100 employees working from its office in Del Valle, Mexico

A: Dutch and Mexican cultural differences represented

City, and NACO has approximately 50 people in the

a challenge at the beginning but we all learned how to

Netherlands. Each company has had its team involved

work together. We have a coordinating team comprised

at different stages of the project.

of about three people per company, which reaches consensus and then works independently with its own

Since the beginning, TASANA has been a 50-person team in the main office with other staff working from different locations

teams. This is the filter we have implemented for all the information to be properly communicated to the teams and the client. Also, we defined goals and duties at the outset to clarify which area is responsible for every task and implemented a specific time frame. We have been very strict with our planning and its corresponding deadlines, which we established before starting the project, and I believe this has been key to its success.

We are mainly in charge of the design. The companies working on NAICM are functioning as a complex chain

Q: What areas of opportunity have you found in NAICM’s

in which Arup defined the masterplan and the master

tender process?

architect and master civil engineer worked on the

A: An area of opportunity that I perceive two years later refers

designs. Based on this information, we developed most

to the fact that we were hired to work with certain concepts,

of what can be seen on NAICM’s current design plans,

including airstrips, platforms, electrical systems and so on. But afterward, we found that many of these are interlinked with other components. For example, it would be impossible

TASANA is a consortium formed by two Mexican companies –

to complete a tender for the runway without considering its

TADCO Group and Sacmag Group – as well as the Netherlands

sewage system. We had to integrate these concepts into our

Airport Consultants (NACO). It was formed specifically to work

tenders, which took a lot of time. We could have avoided this

on the NAICM project

delay by better defining the packages beforehand. I think

the tender process has been transparent and well prioritized, but the number of companies bidding has undermined the possibility of speeding it up.

THE WINNING TENDER FOR THE NAICM EXECUTIVE PROJECT 2015 • Tender Description: Executive Project for runways, platforms, navigation aids and other installations

Q: What is the current status of TASANA’s work on NAICM? A: We have delivered the designs but are still revising some of the packages that will be tendered next year. We are prioritizing according to deadlines. We are also participating in accompanying services, supporting construction processes by clarifying matters of design. These are our main duties in the current phase.

• Price tag: MX$1.3 billion • Notification of the Decision: January 13, 2015 • Independent Social Witness: Academia de Ingeniería • TASANA was the lowest bidder (28% of the highest offer) • The Netherlands Airport Consultants have worked in 550 airports in more than 100 countries Source: SCT, Milenio

I believe NAICM is advancing well. Airstrips were the main concern from the beginning, given that the construction

plan did not consider certain aspects, so we have had to

logistics for working on Texcoco soil are complicated, but

constantly adjust throughout the different phases. The

I perceive a steady improvement in clarifying the whole

year we have been collaborating together on NAICM has

process. We decided to use vertical drains combined with

led to the creation of an improved masterplan.

a preload construction, which allows water to exit and increases the consolidation of the soil under the weight

Q: Would TASANA like to bid for another NAICM tender?

of the preload material. Thus, the pre-consolidation of

A: We would like to continue bidding and collaborating

the terrain through preload, in a soil mostly composed

in NAICM, but we still have a valid contract for

of clay, enhanced its load capacity enough to prevent

accompanying services until 2019, which will probably

substantial movement of the soil.

extend beyond. I believe it is better for us to focus on our current responsibilities. If in the future other design

Q: What is the added value that TASANA was able to

issues arise, we would be glad to collaborate. Also, we

provide to NAICM?

will continue to work as the TASANA consortium in any

A: I believe we have a very important player in airport

endeavor we pursue in NAICM.

construction, NACO, which has impressive experience as well as local knowledge, which allowed us to prepare

Q: What projects are TADCO, as an individual group,

the most cost-effective proposal. Also, while we did not

planning to pursue in the near future?

submit the cheapest proposal, ours was cost-effective.

A: TADCO designed the INE building. Previously, we were

I believe those were the most important factors that

working on the rehabilitation of prisons in Mexico. We are

convinced the authorities to choose our project. Also,

also considering exporting TASANA to work in other port

we are always seeking to innovate and remain as current

projects in Latin America, as Sacmag and TADCO have the

as possible. We focused on integrating the whole design.

regional experience, and NACO has the technical expertise. So,

Arup delivered the masterplan in September 2014 but this

we will seek to bid for other airport tenders in South America.

353

VIEW FROM THE TOP

DESIGNING MEXICO’S GATEWAY TO THE WORLD FERNANDO ROMERO Founder of FR-EE

Q: What is FR-EE’s key differentiator from other successful

heritage in Mexico. Through this, we were able to connect

architectural firms?

with a context that combined the global with the local.

A: We firmly believe that architecture is an opportunity

354

to mark a specific historical moment and boost the

Mexico is one of the richest countries in terms of natural

development of a given context. Every context has

resources, and one of the most visited countries in the

information that can be translated to improve the economic

world. I firmly believe it has all the elements, including the

development of a certain area, and that also is as an

cultural heritage, to create amazing architecture. But we

opportunity to portray the development of the technology

have not placed a higher value on the context and that

of a civilization. We incorporate that knowledge into our

must be our main goal, especially in this interconnected

designs, which is our main differentiator.

globalized world with a melting pot of cultural identity. We must also ask ourselves how we can use the existing

Q: What role do architects play in defining the future of

technologies to enrich this culture by connecting and

Mexico’s infrastructure?

understanding its information.

A: About 99 percent of infrastructure has been designed by engineers, who solve quantitative problems based on

Q: What do you think about architects creating alliances

numbers. I think that architecture is an amazing opportunity

with other clusters to work on NAICM?

to go beyond the quantitative aspects of problems and

A: I think collaborations have long been present in

find the symbolic potential of every project. This means

architectural history. For example, the Centre Pompidou

that infrastructure is a great chance to portray the identity

in Paris was built through collaboration and became an

of a country. We do not want to merely solve numeric

icon. To me, it was a blessing to be able to collaborate with

problems. As architects, we are interested in answering

Norman Foster, probably the most admired architect in the

fundamental problems from a perspective that will enrich

world today, who has a remarkable knowledge regarding

people’s quality of life, while boosting social and economic

the design of airports. It was extraordinary to see our ideas

development.

converge in developing NAICM’s masterplan. Norman was very open and sensitive to our vision of the project. Also,

NAICM comprises more than 1 million m2 of total construction, including a ground transportation center and the control tower

his capacity to build the argument and stress the ideas was paramount when selling our design. The competition was exceptionally strong, but we are convinced we developed the most coherent and beautiful solution, which is why we were awarded the project. Q: What are the main challenges you encountered while designing NAICM? A: NAICM is a complex project given the number of flows

Q: How do you think architecture has changed in Mexico

that will happen within its structure: of people, goods,

during the last couple of years?

luggage, systems, employees, agencies and so on. Its

A: We come from a very strong modern movement.

scale is extraordinary, as it comprises more than 1 million

Modernity carries the post-war conscience of constructing

m2 of total construction, including a ground transportation

buildings with the capacity to be easily reproduced.

center and the control tower. In terms of technical aspects,

Post-modern architects have been educated through

to build it on soil that was once a lake and thus has a huge

the suffering of several economic crises, and I think the

compression capacity makes the project as complicated as

experiences of the 1940s and 1950s have given us a strong

building on the ocean. The technical aspects can be solved

Render of the Completed NAICM Airport

355

with technology. We scanned the area and realized that

seismic area, it is important to incorporate earthquake-

the underground soil is changing in depth, so we needed

resistant technologies into the structure.

to come up with a structure that could float. We followed the principle of compensation, which enabled us to plan

Q: What are the most important aspects of creating a truly

floating foundations for the airport. This is important

sustainable masterplan for cities in Mexico?

because the terminal has to work harmoniously within

A: I think the world is changing very quickly. In the next few

the masterplan and the runways need to move with the

decades, we will be confronted with realities that today

compression capacity of the soil.

appear as science fiction. Our cities come from medieval schemes that have evolved through migration and yet

I believe the NAICM project is the best investment for the

remain somehow disconnected from the current reality.

future development of the economy and tourism of the

If we are at a time when civilization is exploring how to

country. FR-EE saw the competition as an opportunity

live on Mars, the question is how can we try to use the

to design a building that solved numeric problems but to

same intelligence and resources to think about the cities

also design the gate of Mexico, which has the potential of

of the future. An important segment of the population will

connecting our history with modern architecture to project

reside in urban areas in the near future, so I am particularly

to the rest of the world. We seek to use architectural design

fascinated by how these metropolises can be planned with

to create the first experience many will have in the country.

new notions that incorporate the fast-changing features of the world, new technologies and new communication

Q: What strategies have been implemented to guarantee

systems. Cities of the future will have to question how

the safety of the airport in case of an earthquake or

we live today. We need to start inventing notions of new

another natural phenomenon?

urbanism, to develop a post-modern utopian model and

A: The structure is designed to last 1,400 years and to resist

innovate to create sustainable growth for our planet,

earthquakes. Given that it is horizontally designed, I believe

through cities that have a coherent relationship with the

it is seismic immune. The challenge is more geared toward

environment.

other issues, like the dimension of the structure versus how comfortable it is for a passenger to walk its distance; the international standards for other risk situations, like fires

FR-EE is a global architecture and industrial design firm founded

and other incidents.Â NAICMÂ is the biggest airport in the

by Fernando Romero. Its commitment to translating historic,

Americas, and after Istanbulâ&#x20AC;&#x2122;s, the biggest one in the world

social and environmental contexts into contemporary urban

in terms of square meters. Given its location in a highly

destinations has generated impact in cities and communities

INSIGHT

LOOKING BACK TO PREVENT AIRPORT SATURATION REYES JUÁREZ President and Director General of FOA and Board Member at FIDIC

The air transportation needs of the Valley of Mexico have

for victims of the catastrophe, he says. This forced AICM’s

overcome AICM’s capacity. In an airport where delayed

developers to fit the original plans into a smaller piece of land

flights are common, the problem is only getting worse as

and limited its potential capacity. “If the original plan had

air traffic grows. As Reyes Juárez, President and Director

been respected, AICM would face fewer problems in meeting

General of NAICM project manager FOA puts it, “the older

the city’s demands,” says Juárez. But it is not only saturation

airport’s saturation is no longer manageable as passenger

issues that FOA must consider; the firm faces a series of

and flight volumes have grown drastically.”

challenges as part of NAICM’s PMO. “To achieve NAICM’s construction’s approval, the Law of Public Works had to be

356

AICM’s field saturation was officially recognized through a

changed since it was not designed with the administration

memo published in September 2014 in the Official Journal of

of such a huge project in mind,” says Juárez. FOA must also

the Federation. Still, between 2015 and 2016, total passenger

manage the millions of decisions made on size and priority

volumes rose 8.5 percent and flight operations climbed 5

and the number of contracts on the project. Authorities seek

percent. Some measures, like reducing AICM’s traffic, have

concessions with the least number of contracts to mitigate

been put in place to boost the airport’s efficiency. Small and

the coordination required and to promote the project’s

official planes have also been diverted to other airports in

continuity between administrations.

the Metropolitan Airport System, especially Toluca. But these measures have not stalled AICM’s overcapacity problems.

Several tools are being used to help ensure that GACM and NAICM’s PMO finish the project on time and on budget.

Since the 2014 memo was published, NAICM has become

Primavera is a software that organizes the project’s many

a top national priority and it cannot start operating soon

details, ACCONEX manages the documents the project

enough. “NAICM’s size and its ability to cope with large

requires and PGPI-Risk, developed by FOA, helps the

passenger flows and a higher number of flight operations can

company register and control risks by organizing them

turn Mexico into a key logistical hub in America,” says Juárez.

according to urgency. “This software is updated daily by

As part of NAICM’s Project Management Office (PMO), FOA

onsite workers, which helps FOA keep track of changes

maintains direct communication with GACM and provides

and daily matters ranging from weather to community

final instructions to contractors while supporting the

discussion and possible risks,” says Juárez. Constantly

project’s administration through its engineering subsidiaries.

updating information and properly organizing data

The firm manages part of the new airport’s risk using its

are essential to prevent risks from becoming serious

experience in end-to-end project management. In the case

problems, to guarantee timely completion and to

of this particularly important project, addressing the issues

facilitate accountability whenever an issue arises. “It

that led to AICM being overwhelmed and implementing

is much cheaper to invest in well-designed plans and

technological solutions accordingly is necessary so that the

risk mitigation tools than cleaning up a problem after it

same mistakes are not made.

occurs,” says Juárez.

Over time, several issues have reduced the older airport’s

The construction of NAICM is essential to the country’s

capacity to cope with the increasing number of flight

development. He says the inclusion of both international

operations. “AICM was originally planned to have two runways

and national firms in such a complex project ensures

well separated from each other, but they ended up being

the application of international best practices while also

built far too close to one another to run simultaneously,”

showcasing Mexican talent. “Mexican companies taking

Juárez says. After the devastating earthquake of 1985 that

part in NAICM will be able to more efficiently compete

leveled parts of Mexico City, the government had to use

internationally and more easily join mega infrastructure

some land originally destined for the airport to build homes

projects around the world,” he says.

VIEW FROM THE TOP

CORRECT OVERSIGHT KEY TO ELIMINATING OVERRUNS NICOLÁS MORRIS Regional Director for Mexico, Peru and Colombia of Ayesa

Q: What added value is Ayesa contributing to the

technical and administrative relationships between each

technical supervision of NAICM?

of the contracts.

A: It is a huge technical challenge, especially given the terrain on which it its being developed. The project is

Q: How is Ayesa’s performance in the project evaluated

moving along according to schedule. We are extremely

and what hurdles does the project face to meet its 2020

excited about the project, especially since it is something

completion target?

the country desperately needs. The fact that the

A: GACM is the player that evaluates the performance

government is placing emphasis on the sustainability of

of the consortium. In an effort to increase oversight, we

the projects sets the example for the rest of the country.

also have a resident for the Supervision Contract, and

About 95 percent of the people that work in Ayesa

this person is in charge of verifying that we are doing

Mexico are Mexican and the added value that we bring

our work correctly. For the project to be completed

to the industry is a world-class engineering approach with

by 2020, there has to be an effective communication

a strong sensibility of local needs.

channel across all parties involved as well as across all the different facets of the project. The companies involved

Q: What are the day-to-day activities Ayesa carries out

must also provide an excellent technical performance

in NAICM and what are the main challenges the company

in order to reduce or even eliminate the risk of delays.

has encountered in the technical supervision of the

Quality control is key to maintaining the project’s flow

construction of the terminal building?

and to avoid delays and time and cost overruns due to

Ayesa is the project’s supervisor, along with Cal y

construction errors.

Mayor, AECOM and Ineco. This consortium supervises the work performed by several contractors throughout the different stages of the project. NAICM is a huge

AYESA delivers computer systems to manage public finances,

project, with one group of contractors for each individual

health and education, among others. It designs infrastructure,

segment, such as the runways, terminal buildings and

provides aircraft manufacturing, engineering and works in oil

control tower. The main challenge is to coordinate the

and gas, chemistry, biotechnology and mining

357

VIEW FROM THE TOP

INFRASTRUCTURE CANNOT REST SOLELY ON PPP SCHEME DIANA MUÑOZCANO Chief Investment Officer of Grupo Indi

Q: What impact have public tenders and schemes like PPPs

decelerates. It is a sector that we know well, being the first

had on infrastructure development?

we entered as investors, and we will continue to foster

A: Infrastructure is a sector with slow mobility that requires

the industry given its constant growth. Also, the maritime

patience and preparation. I believe that its processes

industry promises to gain strength.

have consistently improved, as PPPs have allowed a

358

professionalization that goes beyond engineering, to a more

Q: What have been Grupo Indi’s most challenging projects

stable financial flow that facilitates comprehensive strategic

in 2017?

planning for the long term. Regarding the tenders, we are

A: Our most challenging project is NAICM. Also, the Circuito

still trying different models to adapt to different times and

Interior is an interesting and complex project as it is a PPP

contexts. There is no ideal scheme.

for the first underground road in the country, built under Mexico City. It was essential that we planned the logistics

We need more infrastructure but not all of it can be built

well for the construction stage to ensure the least possible

through PPPs, as the private sector assumes most of the

disruption of the daily dynamics of the area. For this project,

risk. We try to work through unsolicited proposals (USP),

we collaborated with La Peninsular and IDINSA. We believe

which we think is an interesting way of collaborating with

that partners multiply the value that we can add to our

the public sector, even though this tool requires a high level

projects, so we are willing to associate with firms that can

of investment that may hinder its application. It would be

complement our knowledge, expertise and with which we

very interesting to see more USPs at the state level, as local

can build a relationship based on trust.

construction firms often have a more in-depth knowledge of their market needs.

Q: How do you view your experience working at NAICM? A: In this project we have found three main challenges given

Grupo Indi’s main projects in Mexico include a mega container terminal in Michoacan and the second floor of Periferico in Mexico City

the number of players involved. First, the interoperability of all the tenders must be harmonized, as there are many local and international players involved. Second, the technical challenges are vast, given the unique and complicated soil conditions that required specific materials and engineering. Texcoco’s ground has been challenging. Third, we were responsible for taking the project to trial phase, which took us longer than expected but allowed

Q: What strategies does Grupo Indi implement to minimize

us to test the viability of the project. We have managed to

project risk?

optimize our time-efficiency and make up for the delays.

A: I believe that a key component of our success is that we

Our goal is to continue our participation in NAICM and I

have ventured into projects as investors and not only limited

believe we can contribute most to the foundations.

our participation to construction. We are also exploring diversification by venturing into real estate. We also have

Q: What imprint do you want to leave on the Mexican

tourism as a second option when the infrastructure industry

infrastructure industry? A: We want to be among the top construction firms in the country and to remain present and relevant for a long time.

Grupo Indi has 40 years’ experience in the market,

Also, we aim to foster development through quality projects,

developing projects for the public and private sectors. It

both as investors and constructors. We have been dabbling in

is divided into four business units: building, infrastructure,

energy-waste management for a year. It is a slow process but

services and WeIndi

we are excited to participate more in clean-energy initiatives.

VIEW FROM THE TOP

CHALLENGES AND OPPORTUNITIES IN NEW AIRPORT ALBERTO DE LA PARRA Partner at Jones Day

Q: What were the most challenging elements Jones Day

A: We are extremely excited about the new gasoline

faced when closing the various NAICM deals?

transportation projects, as well as the high-voltage

A: Each deal was complex in its own way. For instance,

transmission lines. In toll roads, FONADIN has a large

with renewable-energy deals, the balance in off-taker

portfolio that requires modernization but private

profiles is important because the full financial risk is based

investment will be necessary. We might see toll road

on their strength. With the old self-consumption permits,

projects from FONADIN by the end of 2017. There are

PPAs were formed based on the financial strength of each

still many projects that need to be financed and these

of the off-takers, meaning that the banks would review

will probably be done through PPPs. The most important

the balance sheet of the off-takers and the termination

factor is that all of these facilities are completed at the

rights outlined in the PPA. Since the revenues from the

same time because we do not want to be in a position

repayment of the financing come from the PPAs, they

where the government is paying for facilities that are not

require strong termination rights and penalties. With the

yet complete and therefore cannot be used.

new system, we have an energy market and guidelines for compensation with a different risk factor. The most complex issue is how the banks will assess that risk. The airport bonds provide great certainty to the market

A FIRM AT THE FOREFRONT OF NAICM FINANCING

due to the fact that all the revenue comes from TUA directly from the airlines into a trust, which is the source

Latin Finance’s Annual Project and Infrastructure

of payment for financing. There is no way for the airport

Finance Awards 2017 recognized two deals overseen

to misappropriate those funds. Terminal 2 of AICM was

by Jones Day. Firstly, the Best Airport Financing and

financed the same way and this method guarantees the

Best Transport Financing Award for the counseling

financing banks are repaid.

the firm provided for NAICM through GACM. The firm helped the airport obtain an initial two-tranche 10-

Q: What advances have there been in interconnecting NAICM

and 30-year 144A and Regulation S bond offerings

to the rest of the country and how viable are these projects?

for $2 billion, which was the biggest initial offering

A: GACM, along with the federal and Mexico City

ever made for an airport transaction. The transaction

governments, have worked arduously to create viable

obtained Baa1, BBB+, and GB1 from Moody’s, S&P

proposals to interconnect NAICM with the rest of the country.

and Fitch. Likewise, the firm carried out several other

There are various projects in the pipeline, including highways

winning deals for the Mexico City Airport Trust. Also,

and metro line extensions, as well as the express train that

the firm was ranked #1 in BTI’s Client Service Ranking

will run from Metro Observatorio to NAICM. That is a project

for 2017. Since it was established 16 years ago, Jones

that will belong to the Mexico City government and not the

Day has occupied the first place nine times. This year

federal government or NAICM. In the end, it will come down

it managed to become the only firm that has ever

to the viability of the project and whether or not the costs

achieved a “Best of Best” status in the 17 categories

will require government subsidies. At this point, there is no

that compose the BTI survey for superior client service.

way for the government to subsidize the amount required. The Mexico-Toluca Interurban Train is a great project but requires a significant subsidy from the government.

Jones Day is an international law firm that served as lead counsel for NAICM’s US$2 billion green bond issuance, winning Structure

Q: Apart from NAICM, what other types of projects would

Finance and Securitization of the Year by IFLR. In 2016, it was also

Jones Day like to participate in over the coming years?

named Best Infrastructure Law Firm in Mexico by Latin Finance

359

VIEW FROM THE TOP

BIM TO INCREASE ACCURACY IN NEW AIRPORT GUILLERMO ORTIZ CEO of Consorcio IUYET

360

Q: What role did Consorcio IUYET play in the development

into its projects. These technologies allow us to obtain

of NAICM?

detailed and accurate data in a fraction of the time

A: Before participating in NAICM, Consorcio IUYET had been

compared to traditional methods. HDS™ is performed

involved with CONAGUA in various projects, one of which

with a 3D scanner that collects topographical data in

was the hydraulic project for Lake Texcoco, where NAICM is

high definition that can be used for large infrastructure

being constructed. We carried out various studies and were

projects like bridges or buildings. BIM is the construction

responsible for monitoring its subsidence. We participated in

of a project in a virtual environment with real information.

NAICM through the geomatics studies tender, which included

This methodology makes it possible to analyze the building

the entire land for the construction of platforms, runways,

or infrastructure to find impediments and to solve problems

roads and terminal buildings. The terrain on which the airport

before its physical construction. BIM allows companies to

is located is incredibly unstable. We had to find a solution

save money by modeling the design, the construction and

to ensure that the control points were reliable enough to

even the maintenance stages of a project.

provide a stable reference network for the project. Because of NAICM’s unique terrain and its size of 5,000ha, the use

There is still a low acceptance of new technology because

of traditional methods to collect data would have taken

in many cases companies do not know it exists, what it

us a year to finish. Our technology allowed us to do it in

does or how it is used and so they are skeptical of the

just four months. Apart from our technologies, our years of

outcome. We believe it is vital to comply with the standards

experience of working on Lake Texcoco made the task easier.

and specifications of the industry when using these technologies, especially because its uncommon in Mexico.

We are automating processes. With normal data gathering, a

We are the first company in the world to obtain an ISO

company could retrieve 400 points per day. Our technology

9001:2015 certification in High Definition Surveying (HDS™).

captures more than 1 million points per second. We can

All our drones and pilots are authorized and possess a

collect more data at a better price, making our technology

license from the General Direction of Civil Aeronautics

far more competitive than any other in the market. Because

(DGAC). The Public Works Law will be reformed to integrate

we are automating these studies, we also require fewer

BIM into its requirements. All large projects will be modeled

personnel. Instead of having to use many trucks filled with

in BIM. The private sector agrees with this change as long

equipment and twice as many employees, we can do it

as it is adapted to the Mexican market. While building

with one truck and fewer people, which also favors the

in Mexico, international companies tend to stick to their

environment, a great variable in sustainable developments.

home country’s norms and ignore Mexican normative and

We can use our technology in any phase of a project and

construction methodologies.

have a great impact on the overall results. Q: What other tenders does IUYET want to be involved Q: What technologies is Consorcio IUYET using to increase

in within NAICM?

the accuracy of the project?

A: Consorcio IUYET would also like to participate in the

A: Consorcio IUYET integrates High Definition Surveying

maintenance and monitoring of NAICM. We are constantly

(HDS™), Building Information Modeling (BIM) and drones

researching technological innovations from around the world to apply them in Mexican projects. An airport can never suspend operations completely, not even to provide

Consorcio IUYET is a Mexican company that offers services

maintenance. We must look for nondisruptive technological

related to civil engineering. The company, with 40 years of

alternatives to ensure the continuous and optimal operation

experience, specializes in project management, construction

of the airport. Our task is to contribute to finding these

supervision, BIM and engineering projects

alternatives and to put them into practice.

A LOOK AT THE MEXICO CITYTOLUCA INTERURBAN TRAIN

The Mexico City-Toluca Interurban train was announced on 2012 by President Enrique Peña Nieto but took until 2014 for its construction to begin. It is scheduled to begin operations in 2018. The Toluca Valley and the West area of Mexico City will be connected by this modern transportation system, the first in its kind in the Latin American region. The project will be 58 km long, of which 4.7km will be a tunnel. It will have six stations, consisting of two terminals (Observatorio and Zinacantepec) and four stations in between (Pino Suárez, Tecnológico, Lerma, and Santa Fe). The system will integrate 30 trains, each with five wagons that will run at a speed of 160km/h, transporting approximately 230 passengers a day, according to data released by the Ministry of Communications and Transport (SCT). The project will contribute to multiple benefits for users, the surrounding communities, and the environment. The most significant ones, according to SCT, comprise a C02 emissions decrease of 27,827 tons per year, which equals 225ha of forest land. Likewise, the expected decline of car usage on the Mexico-Toluca Freeway will avoid an estimated 400 road accidents per year. Moreover, commute times from one terminal to another will be reduced in 39 minutes by travel, implying a more efficient passenger mobility for 3.5 million people through a direct service. Also, the time saved in commuting translates to MX$4.4 billion a year and a decrease in car-operation expenses of MX$1.8 billion. Also, the construction phase of the project will benefit the economy through the generation of 15,000 direct and 35,000 indirect posts of employment. The complexity of this project requires is such that the smallest mistake can cost the planners dearly in terms of money and time. This is why it was so important to accurately map the project, and the BIM portion of Section III was carried out by IUYET. In this way, the company can clearly show how the project will turn out, which is especially important in this project due to its complexity, crossing ravines, roads and traffic, while adhering to strict protocols.

VIEW FROM THE TOP

END-TO-END INFORMATION TECHNOLOGY TO IMPROVE PASSENGER EXPERIENCE

Elbson Quadros Vice President for Latin America Airports of SITA

362

Alex Covarrubias Vice President for Airport Business in Latin America of Airports at SITA

Uriel Torres Commercial and Corporate Relations Director for Airports at SITA

Q: What differentiates SITA from other IT companies?

ensures flights take off and land on time. A new area involves

AC: SITA belongs to the airline community. This gives us

the personalized services airports provide to passengers.

a unique understanding of these companies’ business

Many people want to use mobile technology to have greater

processes and how to improve efficiency. Our goal is

control of their trip, so we inform passengers of the status

to work with different organizations to define industry

of their flight and the location of their luggage. These perks

standards.

improve the passenger experience.

EQ: We are passionate about the industry. We work closely

AC: Airport technology efficiency focuses on how passengers

with airlines, airports and governments and are helping

and luggage are managed. Using technology at the core

them improve their processes. All our efforts aim to help

of these processes can generate revenue for airports and

generate success and to make passengers happy. What

reduce costs for passengers, which can in turn make airports

differentiates us is our extensive experience and familiarity

more competitive. Since NAICM aims to become a hub for

with all players in the sector, which permits us to pinpoint

the region, it could greatly benefit from incorporating this

their needs and create solutions for them.

technology to be efficient and competitive.

Q: How do you envision the airport of the future and what

UT: Infrastructure constitutes a significant part of any

role will technology play in its development?

country’s GDP. This airport is going to be the second largest

EQ: An airport is all about passenger experience. SITA

in the world, so its construction will boost the economy.

aims to make the passenger’s trip as pleasant as possible,

Also, its location in the middle of the Americas makes it an

which involves a significant amount of technology and

excellent entry point to Latin America from Europe and Asia

services. For passengers, the check-in process, baggage

and vice versa.

documentation and security checks are the most stressful parts of traveling. To make their journey more

Q: In which areas can SITA support NAICM’s construction?

straightforward we have created automated services to

EQ: NAICM will need to develop a comprehensive road map

eliminate the long periods of time spent standing in lines.

for its construction to become a gateway to Mexico City. We

We have innovated in self-service technology for many

already provide services for AICM, the Cancun International

years and are now incorporating kiosks for automated

Airport (AIC) and all airlines operating in Mexico so we are

immigration, check-in and luggage drop.

well-informed about the sector’s needs. We are preparing to participate in the airport’s technology bids because we want

There are many steps that travelers never see, such as

to bring the same improved technologies to NAICM.

managing many different processes simultaneously, including flight operations, catering, maintenance and

UT: SITA analyzes different technologies and passenger needs

clearing. This area, called airport management technologies,

to streamline trips through airport infrastructure. We are wellacquainted with the processes involved and study how to improve them for various passenger profiles. We would like

Airports at Société Internationale de Télécommunications

our role to be ensuring that technology is in place and fully

Aéronautiques (SITA) is an international IT company focused on

integrated. Our goal also is to provide our expertise in master

providing practical solutions for air navigation and traffic services,

systems integration and to support operators as they move

commercial airport management and luggage processing

from the old airport to the new location. SITA is also focused

on sustainability, so we can help the airport acquire LEED and other certifications. AC: Technology is often installed after the construction of an airport but it should be incorporated much earlier in the process. The earlier that technology is incorporated into the design the better for the airport’s long-term prospects. Having a single integrated program managing all technological aspects of construction from the very start is important. Internally, we have prepared strategies to support NAICM’s construction and our team is excited to be able to participate in the tenders of this project. Airports last for decades so it is necessary to incorporate sufficient flexibility into their design to adapt to future needs. Q: What impact will NAICM have on its neighbors and how could SITA support a streamlined incorporation of technology in the area? UT: NAICM will impact the entire city but the area surrounding the airport will feel this impact the most. We are preparing to offer NAICM a service that can integrate all the technological needs of the airport, the surrounding area and the transport system linking the airport with all neighboring streets. We call this the “Aerotropolis.” Businesses located around the airport will provide services so we are studying how to develop IT systems to serve this part of society. AC: Creating an Aerotropolis around the airport will increase commercial revenue both for the airport and the surrounding area, provided it caters to users’ needs. But technology changes each year so our challenge is to develop a product for the area surrounding NAICM that can sustain the evolution of technology throughout its lifetime and still be modern when the processes are operational in 2020. Q: Which airports are incorporating this end-to-end service and how do you foresee its incorporation into NAICM? AC: NAICM’s team is incorporating recommendations from industry experts and working with the International Air Transport Association (IATA) to get input from airlines on improving passenger processing. SITA works with all Mexican airlines, mapping their needs within this collaborative environment to ensure we implement the right processes and systems. We are also working with Jet Blue and Miami International Airport to implement biometrics technology. Its installation requires a collaborative effort between airports, airlines and government entities. IATA has been closely advising airports about the implementation of processes and technology and SITA has held workshops with airlines for the last three years, preparing them for the introduction of technologies like self-tagging facilities.

ROUNDTABLE

WHAT ARE THE CHALLENGES AND BEST PRACTICES NAICM CAN OFFER THE INDUSTRY?

NAICM is seen as a model of best practices and sustainability. The airport plans to be the first in the world to obtain the LEED Platinum v4 certification and all contractors and suppliers for the project must meet strict standards to ensure NAICM sets a precedent of sustainability and best practices in the industry. But it is not just environmentally friendliness GACM is focusing on. Transparency has been demanded across the tendering phase, cutting edge technology has been adopted and financing has gone smoothly. Mexico Infrastructure & Sustainability Review asked the companies involved what has been done well, what can be improved, and what other projects can learn from NAICM.

From the architectural point of view, designing buildings that are environmentally responsible makes a lot of sense. From the political perspective, it was a priority to have a project that was the most important infrastructure development of the administration, and also addressed the sustainability agenda. For these reasons, we proposed the first LEED Platinum airport, challenging different aspects, including conception, design, development and construction. The pollution issue was a challenge, given that it comes

364

FERNANDO ROMERO Founder of FR-EE

from the airplanes. We did not want the building breathing from the faĂ§ade, but rather from the roof. We have 21 mega columns through which the building can breathe, by bring it fresh air from the roof and injecting it inside. Also, another challenge was how to divert the sun in order to capture the natural light required for energetic consumption and reflect the heat in order to reduce the usage of cooling systems.

As part of the Project Management Office (PMO), our role, among others, is managing the projectâ&#x20AC;&#x2122;s risk. Our ability to intervene consists of directly communicating with the executives at GACM who are responsible for providing final instructions to contractors. We also support the administration of the project through one of our engineering subsidiaries. It is a way to always have people onsite who can follow up on the details of the project. We represent local talent and help our Prime Contract,

REYES JUAREZ Chairman and CEO of FOA Consultores

Parsons, an international firm, adapt to the context in Mexico. Few countries have the opportunity to build an airport with such large passenger flow, both nationally and internationally. The airport will turn Mexico into an important logistics hub within the Americas.

One of the challenges in infrastructure, like in every industry, is transparency. But I have been working on several projects lately that have worked very hard to avoid potential corruption, the NAICM project being one of them. The whole tendering process and Request for Proposals (RFP) has been completely straightforward. The best proposal is awarded the project. This happened to us because we had no contacts within the project and we competed against companies from the US,

ALICIA SILVA Founder and Director General of Revitaliza Consultores

Germany and other countries but because we presented the best proposal, we were awarded the contract. This brings hope because it means the only requirement is good work. Mexico is now realizing that a straightforward process is the best way to incentivize the economy and attract the attention of the markets.

Each NAICM deal was complex in its own way. For instance, with renewable-energy deals, the balance in off-taker profiles is important because the full financial risk is based on their strength. With the old self-consumption permits, PPAs were formed with each of the off-takers, meaning that the banks would review the balance sheet of the off-takers and the termination rights outlined in the PPA. Since the revenues from the repayment of the financing come from the PPAs, they require strong termination rights and penalties. With the new system, we have an energy market and guidelines for compensation with a different risk factor. The most complex issue is how the banks will assess that risk. The airport provides great rates for its bonds because all the revenue

ALBERTO DE LA PARRA Partner at Jones Day

that comes from TUA goes directly from the airlines into a trust. There is no way for the airport to misappropriate those funds.

We participate in the NAICM green bond with NAFIN. The green bond dynamic is something that will grow over the near future globally because investors are now increasingly conscious of investing in securities and assets that include social and environmental responsibility components. It is complex because the investor is still not reaping the benefits of being green because it does not yet necessarily offer lower prices. But I believe the green component will become more relevant and even if it does not affect price directly, it will be opening a broader scope of alternatives from the investor side.

365

CARLOS FIORILLO Managing Director of Fitch Ratings Mexico

Educating the sector has always been a challenge for us, especially when approaching public officials. The public sector has a low acceptance of new technology because it is not sure what that technology does or why it is used. For example, in NAICM, the government urgently needed various geological studies. To retrieve that information, we had to integrate new technologies. But because the government did not understand the technology, it automatically discarded it. We had to personally explain to the government entities what the technology did, how it was used and the advantages it had in comparison to traditional methods.

GUILLERMO ORTIZ Director General of Consorcio IUYET

MABASA does not work directly with the public sector, but it creates partnerships with winning bidders in projects such as NAICM. For this project, MABASA created alliances with Kingspan and other companies to supply the winning consortium constructing the terminal building with at least 3,000m2 of the airportâ&#x20AC;&#x2122;s. Also, since sustainability is an important element in this project, MABASA must ensure all its insulated panel and steel roofing products meet the requirements that help our partners achieve LEED certification. MABASA has experience working on several LEED projects and our partnership with Kingspan helps us offer better products to our clients.

VANESSA BAUTISTA Administrative Manager at MABASA Soluciones Constructivas de Acero

366

Customs at Puerto Interior, Guanajuato

BUILDING THE FUTURE

To bridge Mexicoâ&#x20AC;&#x2122;s vast infrastructure gap, there must be innovation within the market. As new technological advances are discovered, processes become smoother and infrastructure more resilient. Companies from all sectors must work together to transform Mexicoâ&#x20AC;&#x2122;s cities into effective, sustainable economic hubs that will boost the overall development and competitiveness of the country. Likewise, the increase in energy prices has made people grow conscious of their consumption, creating the need for sustainable solutions. Subsequently, the number of certified green buildings has experienced an exponential increase, as more developers target LEED certification.

Mexico has the capabilities and resources to become a sustainability champion, not just for energy efficiency with projects like Net Zero buildings, but also for its bet on achieving an infrastructure development that advances demand growth for future generations. This chapter highlights the companies that are pushing for innovation and paving the way for the industry to create a sustainable country. Experts will present their outlook for the industry, including the challenges and opportunities to come and how to prepare for the post-PeĂąa Nieto landscape.

367

CHAPTER 14: BUILDING THE FUTURE 370

INSIGHT: Juan Torres Landa, Hogan Lovells Mexico

371

INSIGHT: Luis Vega, SUMe

372

VIEW FROM THE TOP: César Treviño, BEA

373

INSIGHT: Alicia Silva, Revitaliza Consultores

374

INSIGHT: Enrique Toscano, Reto

375

INSIGHT: Marco Vidali, Rizoma

Pablo Lezama, Rizoma 376

VIEW FROM THE TOP: Manuel Montoya, Crestron

377

VIEW FROM THE TOP: Santiago Echeveste, Johnson Controls

379

VIEW FROM THE TOP: Alexis Behaghel, CIMESA

380

INSIGHT: Gabriel Santana, ITISA Prefabricados

381

VIEW FROM THE TOP: Miguel Ángel Bazúa, Imperquimia

382

INSIGHT: Jorge Barba y Sánchez, Grupo Baysa

383

VIEW FROM THE TOP: Isaac Askenazi, Mármoles Arca

384

VIEW FROM THE TOP: Luis Adame, General Cable

385

INSIGHT: Luis Inman, Jumbo

386

ROUNDTABLE: How Will the Industry Be Impacted by the 2018 Presidential Elections?

369

INSIGHT

NO NEED FOR PANIC OVER NAFTA RENEGOTIATION JUAN TORRES LANDA Partner at Hogan Lovells Mexico

The North American Free Trade Agreement (NAFTA) was the

have stepped in to curb some of the US president’s more

primary reason for the boom in Mexico’s maquiladora industry.

controversial policies from becoming law, and as of late June

Since the agreement was ratified in January 1994, automotive

2017, the Mexican peso regained some strength, reaching

and aerospace manufacturers have found a home in Mexico’s

highs around MX$18 to the dollar.

Bajio region. Incentivized by the country’s proximity to the

370

US, low costs and experienced labor, more and more OEMs

This is aided by the dissent from Donald Trump’s own party.

including Volkswagen, Audi, Ford, GM, Mazda, Honda, Toyota

Republicans are traditionally defenders of free trade and

and Kia have set up manufacturing plants in the key states of

Torres Landa believes there will be a great deal of resistance to

Puebla, Nuevo León, Aguascalientes, Guanajuato, Querétaro

any attempt to withdraw from NAFTA. The agreement greatly

and San Luis Potosí. The states have been rewarded by

benefits the agricultural business in the US Midwest as Mexico

double-digit growth.

is the third-largest consumer of US corn, soy, pork, dairy and beef products, an export market worth US$18 billion alone

But with the inauguration of US President Donald Trump in

in 2016. “This market cannot be replaced for the US because

January 2017, doubts began to surface about the future of

the US producers are able to export them by land, which is

industrial development. Much of the new president’s rhetoric

relatively easy,” explains Torres Landa. Mexico is the US’ third-

during the campaign process revolved around Mexico, with

largest trading partner, with US exports to Mexico totaling

pledges that included the construction of a wall to keep

US$262 billion in 2016 and supporting an estimated 1.2 million

out immigrants and the renegotiation of –- or an end to the

jobs in 2015, according to the US Trade Representative.

US’ participation in –- the NAFTA treaty. As a result, in the days immediately preceding the presidential inauguration in

The mounting evidence of the relative unpopularity of the

January, the Mexican peso reached a record low of almost

president’s Mexico-related policies within his own party

MX$22 against the dollar.

spurs Torres Landa’s confidence in the state of the industrial sector in Mexico, which has largely been buoyed by NAFTA

This, says Juan Francisco Torres Landa, Partner at global

and the country’s proximity to the US. More than this, one

law firm Hogan Lovells, is not a fair reflection on how the

condition of the renegotiation of NAFTA is that all three

US-Mexico relationship will unfold. Torres Landa has more

countries must agree on the terms – if there is even one hold-

than three decades of experience practicing corporate law in

out, the agreement will not pass. “It is highly unlikely that US

Mexico. The majority of his career was spent at 65-year-old

legislators will allow the complete revocation of NAFTA so

local legacy firm Barrera, Siqueiros y Torres Landa (BSTL)

either the agreement will be favorable to all parties or it will

until it merged with Hogan Lovells in 2014, meaning he has

remain as it is currently,” he says.

extensive corporate experience on both sides of the border. Torres Landa’s article The Changing Times: Foreign Investment

But the renegotiation of NAFTA can be seen as a positive

in Mexico was published in the New York University Journal

development, says Torres Landa. “Ultimately, the agreement

of International Law and Politics and has since been cited in

is 23 years old and there are now a lot of new trends that

various publications in relation to NAFTA.

were not accounted for in the previous agreement, such as e-commerce,” he says. There is a specific need for negotiation,

“We are very bullish that hard facts and sound economic

even for Mexico, especially in light of the newly opened energy

policies will outweigh any negative perceptions of the

sector. “The current NAFTA agreement eliminated energy

industry,” he says. “In the months following the election we

due to the constitutional restrictions in place in Mexico,” he

have already witnessed the checks and balances in the US

explains. “Now the market is open to private investment, the

working as they should, which has restored a lot of investor

inclusion of this industry could be extremely beneficial for

confidence in Mexico.” Both the judiciary and Congress

all parties.”

INSIGHT

LOWERING ENTRY BARRIERS FOR GREEN CERTIFICATIONS LUIS VEGA President of Sustentabilidad Para México (SUMe)

Sustainability is no longer just a buzzword in the infrastructure

projects sustainably in a more efficient manner through the

industry as more and more developers are realizing it can offer

use of software, prior to even breaking ground.

tangible energy, water and cost savings on a project. In Mexico, it is taking a little longer but these trends are starting to creep

There are still challenges to be overcome in promoting green

in. The country was ranked 47 out of 65 in RobecoSAM’s 2017

building and sustainability within the Mexican infrastructure

Country Sustainability Ranking and 67 out of 180 in Yale

industry, both in the public and private sectors. The most

University’s 2016 Environmental Performance Index. In both

important one, according to WGBT 2016, is high initial outlay,

cases, Mexico was overtaken by countries moving at a faster

the second being lack of public awareness and third the

pace in sustainability. There has been improvement but there

lack of government support or incentives. To combat high

is still plenty to do.

initial costs, the company helps investors achieve returns on investment in sustainability by helping them create new

To truly adopt sustainability, the country must change its

strategies, providing education on sustainability and reaping

mindset in relation to what the word means, according to

the benefits of those results. This can include greater market

Luis Vega, president of private sustainability certification

share due to customers looking for green alternatives and cost

association Sustentabilidad para México (SUMe).

efficiency. SUMe provides strategies for a range of different

“Sustainability is not about saving water or energy, it is

areas including energy saving, waste management and

the cultural process of defining how people want to live

logistics. Forty-five percent of its associates are assigned to

in the future and the kind of world they want to leave for

sustainability advising, certification and education, 25 percent

their children,” he says. SUMe is dedicated exclusively to

to materials and 30 percent to areas related to construction.

the Mexican market and offers a variety of green building certifications and education in sustainability to its member organizations. “There are 275 certified projects in our portfolio and about 947 in the process of being certified,” says Vega. “This is only the beginning: every new building can look better, use recyclable construction materials and be much more energy-efficient.” World Green Building Trends 2016 SmartMarket Report (WGBT 2016) estimates that 65 percent of construction activity in

There are 275 certified projects in SUMe's portfolio and 947 in the process of being certified

Mexico is conventional while only 35 percent is green. But Mexico is the global leader in terms of expected growth of

In terms of government support for these sustainability

green activity in the commercial sector according to this

initiatives, Vega says that “the government is involved in

report. This will require green certifications. Vega believes this

regulating and certifying sustainable business processes,

increased focus on sustainability will also increase demand for

specifically BIM.” This software is compulsory when building

cutting-edge technologies like Building Information Modeling

IMSS projects, for example. Moreover, there are laws in force

(BIM). “BIM processes and wellbeing of personnel will be the

that aim to promote sustainability like the General Law on

main focus for companies in the coming years,” says Vega.

Climate Change or General Law for the Prevention and Integral

“Having a better development built with better materials that

Management of Waste, as well as several regulations drafted

adopts a culture of sustainability is possible and it does not

by SEMARNAT. “If SUMe manages to engage the government

need to push up prices.” BIM helps construction companies

in processes, if norms and certifications become mandatory

simulate the construction of their developments so they can

and if these norms are applied seriously, sustainability will be

better allocate their resources, troubleshoot and develop their

improved,” says Vega.

371

VIEW FROM THE TOP

MEXICO’S DEVELOPING GREEN SKYLINE CÉSAR TREVIÑO CEO and Founder of Bioconstrucción y Energía Alternativa (BEA)

372

Q: What is your perspective of the industry in Mexico and

A: Land use is a controversial topic and there are various

how much are developers adopting LEED certifications?

prerequisites for environmental stewardship of the

A: There is a lot of interest in sustainable construction in

location. That also goes hand in hand with regulations for

Mexico and this has been the case for the last eight to 10

land use in terms of density, verticality, access to transport

years, with an ever-increasing appetite for green building.

and the amenities provided within the complex. This

We can see a very competitive market emerging for these

space can be greener in the sense that open spaces can

types of developments. Within this market, developers must

be supplied, land can be reclaimed and the area can be

constantly offer more innovative products. The first LEED

used efficiently. Urban planning and mobility are also links

buildings were certified as a result of the developers’ own

in this chain. There are few institutions financing urban

commitment to environmental stewardship. Objectives and

mobility projects compared to the numbers working on

priorities have changed dramatically in the last few years

transport and residential real estate.

and the trend moves towards a wider range of stakeholders that are interested in green buildings.

Q: How is LEED expanding its requirements to demand more from developers in terms of sustainability?

The fact that one-third of new buildings are aiming for

A: LEED and other international certifications are

the LEED certification is an indicator of the interest in

incorporating broader elements into sustainable cities. LEED

sustainability. Ultimately, LEED certifications help a

is now focusing on a rating system that addresses groups of

company’s image but the main benefit is that there are

buildings instead of individual buildings, but on a wider range.

tangible cost savings over the building’s lifetime. I am

In October 2016, it was announced that LEED for cities would

confident that the critical mass of real-estate projects

be the organization’s priority, along with an increased focus

in Mexico will place increasingly more importance on

on green retrofits on existing buildings. BEA’s headquarters in

sustainability. It is promising that new buildings are

Monterrey were the first building in Latin America to achieve

adopting these kinds of certifications, but the true

LEED Platinum status upon being built in 2011. Not only that,

potential for market transformation will come when

we were re-certified under the LEED v4 program in 2015

existing buildings seek to become more sustainable. One

and became the fifth building globally to obtain this LEED

of the main elements of sustainable construction is now

version’s Platinum level, meaning our headquarters was the

looking at the bigger picture. At the beginning of the

first building in Mexico and Latin America to obtain a double

project, the building’s lifecycle as well as the construction

LEED Platinum certification. We were also in charge of the

materials and processes used must be examined to gauge

LEED certification process for the HSBC tower in Mexico City,

the level of emissions the building will release over the

which went on to become the first new building to earn a

years. The challenge is in forward thinking, which affects

LEED Gold certification in Latin America.

all design aspects. We need to shift paradigms to obtain better results.

Every project registered with the LEED program includes access to the LEED Arc platform. This program can measure

Q: To what extent is the land’s use taken into account for

a building’s real-time performance and if the operators do

LEED certifications?

not continually adhere to the standards required to be certified as Platinum, they can wake up one morning and have their ratings dropped. Arc Platform is connected to the

BEA is a Mexican professional services company that focuses

Building Management System (BMS) so the data is taken

on helping developers achieve sustainability certifications. The

directly from the building’s monitoring and control systems.

company has been awarded USGBC’s LEED Proven Provider

This tool simplifies the recertification process, which was

recognition for its success in achieving certifications

previously more difficult, demanding and costly.

INSIGHT

MEXICO TO LEAD IN SUSTAINABILITY AND INFRASTRUCTURE ALICIA SILVA Founder and Director General of Revitaliza Consultores

Mexico may not be the first country that comes to mind

WGBT16. But there are challenges that must be faced in the

when listing the greenest countries on the planet or even in

infrastructure and real estate industry. Among them, Revitaliza

Latin America. But it could become a sustainability champion

Consultores underlines transparency and specialized training.

because of the exponential increase in the number of certified

“There are several projects that are implementing stringent

green buildings the country has seen in recent years. Revitaliza

measures to avoid corruption, including NAICM,” says Silva. “In

Consultores wants to continue contributing to this trend

this project, the tendering and Request for Proposals (RFP)

by helping clients obtain LEED and other certifications. “In

processes were completely straightforward.” On training

2011, there were only 11 LEED-certified buildings in Mexico

and education, Revitaliza Consultores has noticed a lack of

and now there are more than 700, which is a considerable

education and skills among some employees. To overcome

improvement,” says Alicia Silva, Founder and Director General

this, the company imports appropriate personnel that can

of the green consulting firm.

train Mexican workers to develop the skills that are necessary for commercial green activities. Silva says doing so enables

There are several factors that promote the adoption of

these capabilities to stay in the country and to improve

sustainable practices in Mexico. According to Dodge Data

domestic competitiveness.

& Analytics’ World Green Building Trends 2016 Report (WGBT16), the positive impact that green policies have on

Silva explains that tourism was one of the sectors initially

business is the most important. Silva points to the country’s

reluctant to adopt LEED certifications because of regulatory

several international commitments to sustainability, with

restrictions, but developers are starting to implement

COP21 and COP22 being the most recent and important,

sustainability programs in their projects. A proposal for 150

as a foundation for the adoption of sustainable practices in

hotels in the portfolio of a major hotel chain in Mexico was

construction and other sectors. To meet these commitments,

recently submitted to Revitaliza Consultores. For Silva, this

Silva proposes that the country raise the bar on standards.

demonstrates that the industry is addressing sustainability

“Mexico and Latin America in general are ready to compete

not as an add-on but as a centerpiece of business. “A great

in markets with higher sustainability standards,” she says. To

paradigm change had to take place, it was a case of learning

this end, Revitaliza Consultores offers a series of consulting

from the experience of others before investing,” she says. “The

services on sustainability and energy efficiency to help its

LEED certification has already been available for over 10 years

clients achieve certifications that include LEED, LEED for

and we are seeing increasing numbers of Mexican companies

Homes, EDGE and WELL.

that are ready for it, and that the number of certified buildings has grown exponentially.”

The company is working on several key projects, such as the commissioning of NAICM and airports in Cancun and

There are new sustainability certifications, such as Net Zero

Colombia, the certification of several IMSS hospitals in Sonora

Energy Building (NZEB) and Living Building Challenge (LBC),

and the Bajio region and a cooperation with tequila company

yet Silva believes their adoption is unlikely in the immediate

José Cuervo toward a Sustainable Sites certification related

term. “Those new standards are so ambitious that LEED

to onsite infrastructure management. Silva says Revitaliza’s

now seems almost easy to obtain,” she says. Both NZEB

certification efforts on the José Cuervo project were

and Living Building are sustainability certifications created

complemented by the Parksmart certification the project

by the International Living Future Institute. NZEB focuses on

received, which is related to how parking is handled. As part

buildings obtaining energy from renewable sources installed

of its recertification portfolio, the company is applying the Arc

on-site and LBC focuses on every aspect of sustainability,

data management platform in Torre Mayor, which helps the

ranging from net-zero energy and water to health, aesthetics

building achieve a higher LEED score. Mexico leads the world

and equity. The main problem with these certifications is not

in terms of expected commercial green activity, according to

the absence of technology but the slower ROI.

373

INSIGHT

SATISFYING THE NEED FOR INTEGRATED TECHNOLOGY SYSTEMS ENRIQUE TOSCANO Director General of Reto

City landscapes are evolving at a faster rate than ever

technology,” says Toscano. “Unfortunately, the majority of

before. As space becomes increasingly scarce and the

our products are foreign because few national companies

country’s urbanization continues unfettered, developers

can provide international standards.”

are focusing on vertical developments to meet the demands of businesses. As more towers rise from the ground,

To overcome the lack of national manufacturers, Reto is

telecommunications and data management companies like

taking on the challenge of creating its own line of products.

Reto are increasingly pressed to deliver services sooner,

“Our group has experience manufacturing products but

rather than later.

that part of the company broke away from us,” Toscano says. “We then decided to start manufacturing products

374

“Large companies often require us to update their IT

again after one of our suppliers stopped providing

systems or install completely new ones in less than 24

automated products, also known as smart products.” Reto’s

hours,” says Enrique Toscano, Director General of Reto.

new products are still in the initial phase of production.

“We helped one company transfer and install systems to

The company has developed the technology and is

their new headquarters. These types of projects can be

working on making them more visually aesthetic before

a challenge due to the technical and engineering details

commercialization. “It is a highly ambitious project but we

involved.”

expect the market to receive it well. It will be highly costcompetitive.”

To s c a n o

emphasizes

the

uniqueness

the

telecommunications supply sector, because clients rarely

The company’s goal is to use its new line to facilitate the

come to them with the specific solutions they need. “We

central control and management of a group of products. For

have to analyze the requirements of each company and

example, having a master switch that can be programmed

design the structure,” he says. Reto began as a distributor

to adapt illumination curtains to the amount of natural light

of electric products and expanded its services according to

in a room. Or parking lots that can automatically turn off

client demand. It now provides complex telecommunications

overhead lights when there is a lack of movement.

and data management solutions that include the installment of new infrastructure.

Promoting the development of new technology is also important because products need to adapt to the changes

With 28 years of service under its belt, Reto can provide

in the use of office and commercial spaces. “Companies

integrated telecommunications services to a wide range of

are beginning to see the phenomenon of home office

industries, both in the public and private sectors. “We work

more often and this implies a change in occupancy,” says

at a national level and collaborate with large companies that

Toscano. “Offices no longer need to have the lights on at

have several offices throughout the country, and also with

a constant rate and this is where the use of automated

smaller businesses.” The task can be difficult because the

technology can help reduce costs.”

amount of information that each company handles needs to be considered when creating a management structure.

Toscano says Reto helps clients adapt to new trends that may not be common in Mexico yet but are bound to emerge,

Reto offers an added value to the market by making sure

such as e-commerce. “Our team has a responsibility to guide

the quality of its engineering expertise and solutions are

clients through state-of-the-art technology,” he says. “It can

above market standards, Toscano says. The company

be hard to convince them to invest in products like security

supplies carefully selected premium products, although this

software that can protect the integrity of operations. But as

also means that domestic companies are often left out. “We

the rate of security incidents rises, we see that companies

search for manufacturers that are a point of reference in

are giving this area a higher priority than before.

INSIGHT

EMBRACING THE BIM REVOLUTION

Marco Vidali Managing Partner of Rizoma

Pablo Lezama Innovation and Development Manager of Rizoma

Building Information Modeling (BIM) is a growing trend in the

encourage data sharing between different work teams, a

infrastructure industry to lower costs and increase accuracy.

concept that has also made some people cool to the tech.

Pablo Lezama, Innovation and Development Manager of

“This tool has also made people uncomfortable because

Rizoma, says the challenge is knowing how to successfully

it promotes transparency. All parties involved can see the

adapt it to each project and to form a highly specialized team

information and status of the project in real time, with no

that knows how to get the best out of the software. “BIM

filters.”

is not just a software but an entire methodology,” he says, adding that there are more companies in the market that

Because BIM is a new technology, millennials and younger

are using BIM, but are not true experts of the tool. “Many

generations are more open to integrating it into their projects.

of these companies are using the software in its standard

The technology has permeated younger generations, more

mode. To truly optimize BIM, one has to add more functions

so due to a norm that has been published to encourage the

and program it to fit the precise needs of each project. The

use of BIM and universities that offer degrees in a related

software is only 20 percent of the project; the rest lies with

field are actively promoting its use. “Graduates have a new

the experts who handle it.”

mentality when it comes to technology and they are more willing to adapt BIM into their projects,” says Vidali. Despite

Latin American countries, including Mexico, have a history of

hesitance, the public sector is even beginning to integrate

being resistant to change and technology. According to Marco

it into its projects. IMSS has even made BIM mandatory in

Vidali, the engineering solutions firm’s Managing Director, they

certain projects to detect interference and GACM also made

are resistant to technology because they think it entails an

it a requirement for the construction of NAICM. But working

additional cost for their projects. Fortunately, there are many

with the public sector can be demanding and Vidali says it is

companies that are beginning to realize that projects that

not without issues. “The public sector made BIM mandatory,

use BIM from the outset have a better chance of pre-empting

but the construction company, designer and project manager

problems, drastically reducing cost and time overruns. “Most

did not want it and looked at it as an extra cost,” he says. “The

projects experience a 40 percent cost overrun and they are

lack of consensus between teams made the project a lot more

almost never finished on time,” Vidali says. “Although it is

difficult to complete.”

more difficult to measure the impact of BIM, there are fewer surprises during the project, which results in the optimization

In Mexico, the private sector has been embracing this tool

of resources.”

the most. Developers and architects are working together along with the government to make this mandatory for all

Apart from overruns, the Mexican market’s reticence to adopt

PPP projects, just like in the UK. This is now becoming the

these technologies can also be traced to labor costs that are

norm and Lezama believes that BIM is here to stay. “We must

much lower than in other countries. “Instead of buying a new

stop teaching it as just another software, but rather as a tool

machine for a construction site, a developer can hire more than

that has a huge impact on the various phases of a project,”

100 people at the same price,” says Vidali. He adds that the

he says. Rizoma decided that it was important to change the

generation gap can also play a role as older generations may

sector’s perspective of BIM as just a software. “We combined

sometimes struggle to see the added value BIM technology

BIM with preconstruction services such as the management,

provides. “BIM requires teamwork and collaboration, which

planning and costing of the project,” Lezama says. “This made

can sometimes be difficult for old-school industry players,”

our results more measurable for the clients.” The company

Vidali says. “In Mexico, everybody wants to have individual

believes that because BIM is a relatively new technology, the

information because there is a lack of trust in shared data

learning curve is much steeper and it is important to frame

and we do not have a culture of working together to reach

the benefits in a way the industry can grasp to convince

better results.” These tools help increase transparency and

developers to try new things.

375

VIEW FROM THE TOP

GIVING PREMIUM PROJECTS THE ‘WOW’ FACTOR MANUEL MONTOYA Director General of Crestron

376

Q: How does Mexico fit into the company’s international

are already using our technology. Our goal is to provide

business strategy?

solutions for rooms and conference spaces within hotels.

A: In Mexico, the company focuses on corporate solutions,

Crestron dominates conference and exposition centers

followed by education and residential. We are entering the

and can easily provide lighting and registration systems,

hotel industry and recently finished a flagship development

among other elements. Our real challenge is winning entry

in Los Cabos for a new luxury resort. Our products are in

to the premium-hotel segment because end-users in the

over 300 of the project’s units. We also participated in the

segment are particularly demanding. Clients in five-star

biggest new financial corporate building providing solutions

hotels tend to already have high technology in their homes

for more than 400 meeting rooms. We are proud of the

and everyday life. This makes providing the “wow” factor

fact that the majority of our products are manufactured

more difficult. But, we are ready to take on the challenge

in Guadalajara. Geographically, we prioritize Mexico City,

as many premium hotel users use Crestron in their home.

Guadalajara and Monterrey, areas in which end users and

The company covers a large percentage of the residential

corporations are concentrated. But, we do have projects

market. It helps us understand our clients well and their

outside of these cities, including Guanajuato, a hub for the

expectations.

automotive industry. Our Mexican office is responsible for Mexico, Central and South America.

We offer basic services such as access cards that can detect the user and offer a welcome statement upon opening the

Q: What makes Crestron stand out among its peers?

door. In terms of innovation, for the Windsor Hotel in Las

A: Crestron automates and integrates all types of

Vegas, we installed a voice-recognition system in each

technology through specialized control systems that use a

room. With this system, users can use their voice to adjust

wide range of audiovisual tools. It focuses on the premium

lighting and turn off the television, among other actions. In

and AAA market. We have a reputation for being pioneers

the hotel industry, we push ourselves to continue surprising

in automated systems. We strive to predict new trends

clients with new automation systems and tools that provide

and the needs of the incoming generation. For example,

greater comfort during their vacation experience.

we created a unique “all-in-one” system for corporate buildings that has a speaker, microphone and wireless video

Q: How do you secure contracts with international

transmitter that can connect to a wide variety of devices

companies and demanding clients?

and soft-codecs. We even provide software to international

A: Our portfolio includes clients such as Coca-Cola,

corporations called Crestron Fusion that allows people

Facebook, Uber and American Express. At a more local

to use their phone to reserve meeting rooms in different

level, we serve national companies such as CEMEX and

countries. Our solutions help save money and time.

PEMEX. Crestron also collaborates with universities, including UNAM, Ibero, ITESM and BUAP among others.

Q: What are the main areas of opportunity Crestron has

In the residential sector, many of our clients grew up with

identified in Mexico’s hotel industry?

Crestron technology and use it in their homes when they

A: We are prioritizing the hotel industry, which we consider

have a family. They understand the quality of our products

a main area of opportunity. Several hotels in the country

and their ability to extend the signal of any space and to integrate systems. We use global contracts to acquire exclusivity with companies like Microsoft. Any time these

Crestron is a leading provider of automation and control solutions

companies open a new office they take our technology with

for offices, homes, schools, hotels and more. Its technology

them. Crestron’s Mexican office focuses on reaching out

integrates systems such as lighting, shading, IT and security to

to national companies or corporations like Pepsi Co that

allow the control of entire environments with the push of a button

manage their offices regionally and not on a global scale.

VIEW FROM THE TOP

REFRESHING THE MARKET THROUGH MERGERS SANTIAGO ECHEVESTE Vice President and General Manager, Contracting, Systems and Refrigeration, Building Technologies and Solutions of Johnson Controls

Q: What is Johnson Controls’ reasoning behind the merger

of our solutions, we create ROI analyses that demonstrate

with Tyco and what challenges will it have to overcome in

how they could reduce operational costs drastically. Mexico

the next year?

does not have strong regulations when it comes to energy

A: Growth. Together, Johnson Controls and Tyco will create a

efficiency. We must first show our customers that there is a

stronger company that will be better positioned for success in

strong ROI. The second most difficult part is that one may

the future. The merger will connect comprehensive portfolios

need to approach them with a financial proposal. We work

of controls, HVAC, fire and security and energy systems to

closely with the Energy Saving Trust (FIDE) to get funding

advance unique capabilities in technology and application

for our customers.

expertise, including design, installation and value-added services. Johnson Controls and Tyco have complementary branch networks and access to independent channels for global growth, which will help enhance revenue and earnings growth opportunities. The immediate challenge we face will be to make sure we optimize our combined offerings quickly so that customers can take advantage of our newly expanded portfolio. As two very large companies with thousands of products and offerings, it is our top priority to make it easy for our customers to continue doing business with us.

Inverters are also gaining a large market share, especially in residential, as they are quieter and have lower operational costs

Q: Why have sustainability and energy efficiency become

We are seeing an increase in demand for magnetic chillers, as

more than just passing trends in Mexico?

well as for our division of retrofits. This division visits clients

A: People have become more conscious about their energy

with 15-20-year-old buildings and proposes new technology

consumption due to the increase in energy prices. New

that could make their operations more efficient. As a company,

commercial developments are looking to achieve LEED

we have decided to make a conscious choice to no longer

certification, not just for energy efficiency, but because they

offer R-22 refrigerant in the Mexican market. Instead, we now

want to achieve the complete circle of sustainability. At the

are offering more environmentally friendly solutions. Inverters

moment, we are working on the very first “Net Zero” building in

are also gaining a large market share, especially in residential.

Mexico. Net Zero buildings are constructions that have a zero-

In contrast to traditional systems, inverters are quieter, have

net energy consumption. It is a significant upcoming trend

lower operational costs and are far more efficient. As for

in the industry. We have joined a consortium of companies,

commercial, Variable Refrigerant Flow (VRF) is becoming

bringing together the expertise of different sectors to be the

more common between developers, decreasing the use

first to construct a development of this type. Although the

of chillers. Buildings Controls is the foundation of Johnson

construction will have an ecological design and will not use

Controls. This is the ability of a building operator to control the

heating and cooling, we are in charge of creating and installing

building’s settings from lighting, to air conditioning to access

the entire control system that will help coordinate the many

on one platform increases efficiency, reducing operating costs

other technologies in the building.

and creating healthy environments that promote productivity.

Q: How does Johnson Controls illustrate the added value of its solutions and which products have the largest

Johnson Controls is a multinational leader in HVAC and air

market share?

system products that focuses on innovation and boosting the

A: We accompany our clients through the entire lifecycle of

efficiency of buildings. It has vast experience working in the

a construction. In order for our clients to see the added value

commercial and health sectors

377

VIEW FROM THE TOP

SECURING THE COUNTRY’S UNDERGROUND DEVELOPMENTS ALEXIS BEHAGHEL Director General at CIMESA

Q: What can clients expect from CIMESA regarding

deepest in the city, and we are preparing the next one, which

construction in Mexico City?

will reach a depth of 70m.

A: We try to provide our clients with solutions that can solve one of the principal difficulties of a construction

Q: In what sector is CIMESA focused for the short-term?

project: the soil. The structural technique is a component

A: Right now, our main business is localized in Mexico City

that is easily manageable, as it depends on the

where the real estate market is very dynamic and ground

contractors and the materials, among other parameters

conditions complicated. Reforma Avenue is a good

that are established beforehand and controlled, and

example of this dynamism in the city, where we were part

so are rarely surprising. Conversely, soil conditions

of iconic projects like Torre Reforma, Torre Bancomer,

are usually different for each development and it can

the St. Regis hotel and Torre Diana, among others. This

be difficult for developers to predict their behaviours.

avenue remains very important for our group, and clearly

Mexico City has great variety in terms of problems related

real estate development is the strongest sector for us.

to the soil and foundations, especially in the presence of earthquakes, sinkholes, and other phenomena. We

Essentially, we go where our clients are. We have no

offer turnkey services by adjusting to our client’s needs,

preference for working in a specific area; we only care

whether they be security, time, quality or budget. CIMESA

that we can add value to projects in terms of organization,

has been in the country for 50 years and our network of

technical difficulties or any specific need that our client

clients and our personnel are almost 100 percent Mexican.

can express. We have projects in many parts of the city,

We have about 800 direct Mexican employees and our

from Tlalpan in the south to Tlalnepantla in the north,

Mexican identity is paramount to our success.

NAICM in the east to Santa Fe in the west. Each part of the city and each different project requires a specific

Q: What strategies do you implement to guarantee

technical solution. We try to come up with the most

public projects come in on time and on budget?

appropriate, in accordance with our clients’ needs. An

A: Regardless of the project, for it to happen on time and

example is a car park of 16 underground levels that we

budget we must focus on the strategic job scheduling.

are constructing in Insurgentes Avenue. In this project,

If project management is not meticulously considered,

we utilized the “top down” solution, which allowed us to

it will be very hard to comply with the agreement. We

excavate the 50m depth needed for this project.

always try to implement solid planning and engineering before starting a project, so we avoid small setbacks

We are open to working everywhere but Mexico City is

that can potentially delay the whole project. Thinking

always a challenge for us given the soil and earthquake issues

before acting will be the success key, regardless the kind

and the important project developments in terms of building

of project.

height. Accordingly, it has very specific requirements for foundations, which is an area in which CIMESA adds value.

Q: What is your most emblematic project?

But we also have projects in Tampico, Cancun, Tijuana, Baja

A: Every project is interesting because each one represents

California. We also want to develop our expertise in maritime

a new challenge, especially when it comes to foundations,

structures, in areas such as Veracruz.

which is our area of expertise. The soil in Mexico City is always challenging and it is usually hard to predict how it will behave. We are proud to participate in main of the major projects in

Cimentaciones Mexicanas (CIMESA) is a construction and

Mexico City and a lot of them break the precedent record in

engineering company with more than 50 years in Mexico. Its

terms of size, depth or technical difficulties. For instance, we

main focus is the construction of underground structures,

just laid foundations for a tower at 65m depth, which was the

cementing and civil works, port structures and industrial works

379

INSIGHT

THE MIDDLE POINT BETWEEN TRADITIONAL AND FLEXIBLE GABRIEL SANTANA Commercial Director of ITISA Prefabricados

Reducing labor costs and building times are common goals

infrastructure sector, ITISA develops concrete beams and

in the global infrastructure industry. Modular building can be

pillars that can support the weight of a vehicular bridge, like

an important step to achieving this goal but Mexico’s low

the second floor of the Anillo Periférico road in Mexico City.

labor costs and the trend toward vertical developments

In the commercial sector, ITISA specializes in strong, heavy

discourage its use, says Gabriel Santana, Commercial Director

concrete for commercial centers. These are built on relatively

of prefabricate company ITISA Prefabricados, which offers a

small lots and require several underground parking lots to

middle ground with precast, prestressed concrete.

achieve a compensation system that prevents expansive clay from damaging the mall structure while also supporting the

“Labor in Mexico is inexpensive so traditional building systems 380

weight of large stores.

are commonplace and there are few incentives to restructure toward buildings using modular systems,” says Santana. The

In the social sector, ITISA offers solutions for building resistant

minimum legal wage for a construction worker in 2016 in

hospitals and schools, which alongside other Type A structures

Mexico was MX$106.49 (US$5.86) per day, while in the US

require more resistance to earthquakes to, firstly prevent

in the same year the average hourly wage for a construction

collapses of crowded buildings, and secondly, ensure victims

worker was US$16.07. These extreme differences in costs

of an earthquake can receive medical attention in a safe area.

mean companies lack the incentive to invest in modular

“All infrastructure segments in Mexico are largely influenced

building systems.

by prestressed and precast concrete,” says Santana.

“Building horizontal housing developments on the outskirts

The use of precast concrete, however, is largely dependent

of cities is no longer profitable because it requires investing in

on the customer’s time constraints and a willingness to

service provisions and people dislike having to commute for

invest a little more than in traditional materials. “This kind

several hours to and from work,” he says. Single-story social

of concrete is suitable for building urgent infrastructure

interest houses can be easily built with modules off-site and

because it is easy and fast to create,” says Santana.

then assembled on-site, but the vertical building trend moves

Commercial centers, for example, are more prone to using

away from this kind of development. Moreover, it is difficult

precast, prestressed concrete because developers in this

to design and build housing facilities en masse because some

sector look to obtain yields from their investments in the

cities like Mexico City are made up of three seismic zones with

short term and thus invest more money in these kinds of

distinct needs and specifications for earthquake resistance,

solutions. In nonurgent buildings like hospitals, developers

making it costlier and difficult to build modules for each zone.

usually prefer to stick to traditional concrete-pouring and deliver the finished construction a little later rather

These problems are familiar to ITISA Prefabricados, a company

than investing more for fast completion. “This material is

that provides a middle point between modular building

generally more sought after in government projects where

and traditional concrete-pouring methods. ITISA produces

there are tight constraints on production times,” says

various kinds of precast and prestressed concrete for diverse

Santana.

purposes in the industrial, vertical and horizontal housing, commercial, transportation and social sectors. According to

Building modular systems is challenging in Mexico but the

Santana, “the company has built modules before with some

use of precast, prestressed concrete in the infrastructure

success but migrating to industrialized building models does

industry is also latent. “Property developers make huge

not make much sense for ITISA.” Although Mexico’s building

investments and want to see quality buildings delivered

industry remains resistant to moving away from traditional

on time and within budget as part of their return on

construction methods, ITISA develops solutions in precast and

investment,” says Santana. “This is something they can

prestressed concrete for other sectors. In the transportation

achieve with precast concrete.”

VIEW FROM THE TOP

INNOVATION ACROSS ALL INFRASTRUCTURE SEGMENTS MIGUEL ÁNGEL BAZÚA Director General of Imperquimia

Q: What are the areas of opportunity that influenced the

opportunity for Mexico is to invest in local petrochemical

entry of Imperquimia into Mexico?

manufacturing so it can get to the same level of other oil-

A: We have been present in the Mexican infrastructure sector

producing countries. Imperquimia is based on innovation

for 50 years and this includes roads, railroads, Mexico City

and in terms of waterproofing; we were one of the pioneers

Metro and regional airports. Now, we are involved with one

of the segment. We established the first production line

of Mexico’s biggest projects – NAICM. This project will cost

of prefabricates systems used for waterproofing in Mexico

over US$13 billion, which is an unprecedented investment

and furthermore, we were responsible for introducing

in infrastructure over the last few decades, making NAICM

acrylic systems globally. We then developed a method to

the largest venture in the Americas. The biggest challenge

manufacture these products in an international scale. One

for the project’s proper development is the soil. Its salinity

of our most important differentiators has always been our

is four to five times greater than that of the Dead Sea. It is

ability to provide our customers with an agile response to

a very corrosive environment so it is essential to protect

their needs based on tailor-made quality solutions.

the infrastructure from the groundwater. We have the technology to do this with a low carbon footprint, so we

Q: To what extent do you want to create new technologies

are in an excellent situation to compete.

for the infrastructure industry? A: We have been investing around 1 percent of our income

One of the most interesting and important projects this

in R&D, but we spend at least 10 percent of our time on

administration will carry out is the Mexico-Toluca Interurban

it. Our technology provision is evolving and the industry

Train. The biggest challenge for this project is the size of the

adapts new skills constantly. When a certain amount of

tunnels, since they are extremely large. Therefore, the speed

GDP per capita is reached, new technologies tend to enter

at which the construction must be carried out is crucial and

the market. Although we have a wide portfolio of products,

requires prefabricated components to be manufactured

only a few lines are a significant proportion of our income.

very quickly. We competed with international companies

These are cement and concrete waterproofing products. In

and managed to develop a way in which to speed up the

waterproofing, the world is moving toward more and more

manufacture of these pieces.

sophisticated systems and Mexico is not the exception. When the economic indicators move up in Mexico, there will be a

Another project that presents a significant challenge is

greater penetration of the products we already developed.

Mexico City’s Metro System. The city was constructed over a lake so naturally, water can seep into the tunnels. It is vital for

Q: How can Imperquimia offer its products to the ports?

this project not only to protect the whole construction but

A: Ports must withstand a great deal of time and stay in

also to be able to propose a solution that levels the tracks.

good condition. Our line of cement and concrete products

We have been carrying out this task by using our new line of

can help the structures withstand the pressures caused

products with cutting edge technology. There are very tight

by saltwater and other corrosive substances. Ports also

deadlines to finish this work and it must be done overnight

have a lot of additional infrastructure, so we can help

while the train is not operating.

protect steel structures and other buildings, such as educational and health infrastructure.

Q: How did Imperquimia become such an important part of the sector? A: This industry is strongly reliant on petrochemicals. Around

Imperquimia is a 100 percent Mexican company founded in

4-5 percent of the GDP of oil-producing economies comes

1967 that offers the construction market products of the highest

from petrochemicals and in Mexico this is about 1 percent.

quality divided into five lines: waterproofing, paints and enamels,

Sadly, we have not been able to close this gap yet. The big

special coatings, concrete products and elastic sealants

381

INSIGHT

STEEL STRUCTURES FOR SKY-HIGH DEVELOPMENTS JORGE BARBA Y SÁNCHEZ Director General of Grupo Baysa

M ex i co h a s a l o n g - h e l d t ra d i t i o n o f b u i l d i n g

lofts that will have some of the best views of the city’s

developments with concrete due to the material’s low

landmark Chapultepec Park.

cost and resilience. Cast-in-place reinforced concrete can

382

withstand over 200mph winds and has extremely high

Whether working with steel or concrete, all constructors

resistance to explosion or impact. But as commercial and

face challenges, not least of which is accommodating

residential developers look to reduce their environmental

local residents. “We have many restrictions in terms

footprint while still building ever taller and more complex

of working hours due to the neighbors,” he says. “This

structures, steel is becoming the new darling of the

means that we have to have everything prepared so that

industry.

the workers can begin working at 9am and we must also limit the days we can work.”

With the construction boom in Mexico City, Jorge Barba y Sánchez, Director General of Grupo Baysa, expects an

To work as fast and efficiently as possible given the time

increase in the prevalence of steel structures for 2017-

constraints, the company, founded 30 years ago, has

2018. “Approximately 25 percent of the Mexican market

integrated the Tekla Building Information Modeling (BIM)

uses steel structures today but that percentage is growing

software to help plan projects before construction actually

rapidly as the industry continues to evolve,” he says.

starts. This ensures greater accuracy and more coherent oversight of the project, which is especially important

There are many reasons for the switch. Using steel means

considering the scale of these projects. Ruben Dario 225,

buildings are much lighter in comparison to concrete

for example, will require approximately 8,000 tons of steel.

buildings, which equates to smaller foundations. In addition, fewer workers are required to carry out

The development also will go a long way to helping Grupo

construction, although they must be specialized. “Using

Baysa reach its 2017 goal of installing 30,000 tons of

steel instead of concrete makes the project much simpler

steel. “Previously, we have installed 20,000 tons a year

and developers can create more slender structures,”

and this increase demonstrates the growing popularity of

says Barba y Sánchez. “When it comes to the price, steel

steel as a construction material,” says Barba y Sánchez.

structures are slightly more expensive than other building

“To keep up with this demand, our factory located in

options at the outset. But because they can be assembled

Lerma, State of Mexico, supplies us with the necessary

much faster and provide developers with more square

materials.” The Lerma plant has an installed capacity of

meters to sell, it can easily become a cheaper option in

2,300 tons per month.

the medium term. Grupo Baysa is also hoping to participate in the Grupo Baysa, a 100 percent Mexican company and a

construction of NAICM. The Terminal 1 building will require

leader in the steel industry, is working with Abilia and

such a large quantity of steel that the company cannot

Grupo Sordo Madaleno to construct one of Mexico City’s

supply it alone, says Barba y Sánchez. There would have

most luxurious housing developments: Ruben Dario 225.

to be a consortium of steel companies working to supply

Located on one of Mexico’s most expensive streets in

the sheer volume of materials necessary and Baysa is

Polanco, this housing development will consist of three

eager to offer its expertise to the tender winners. “We

towers containing more than 122 apartments ranging

want to continue participating in iconic projects in the

from 250m 2 to 500m 2. Barba y Sánchez explains that

years to come,” says Barba y Sánchez. “If we continue

two of these towers will be connected at the 17th floor,

developing projects such as Ruben Dario 225 and we

increasing the complexity of the steel structure. One

have the opportunity to participate in the construction

tower is taller than the other to create penthouses and

of Terminal 1, we will certainly surpass our yearly goal.”

VIEW FROM THE TOP

ACCESORIZING SPACES: THE NEW CONSTRUCTION MATERIALS’ SHOPPING EXPERIENCE ISAAC ASKENAZI Sales Director of Mármoles Arca

Q: How has the construction explosion impacted the

Design Center Toreo, our new 6,000m2 showroom, displays

marble and luxury finishes sector in Mexico?

over 250 products including rare dark-room translucent

A: Natural stones were not commonly used much outside of

stones. We want to promote artistic and cultural events in

bathrooms and entrance floors. But since the construction

these showrooms as part of our shopping experience. To easily

industry has steadily grown, using marble in a complete

address architects’ needs, Mármoles Arca created a color

house or building is not uncommon. The selection of

chart that contrasts various marbles instead of paint colors

natural stones used to be narrow but as the construction

and a software that helps clients visualize their projects. We

industry grew, Mármoles Arca grew with it. We now stock

add value through unique shopping experiences, decorative

an immense variety in stones and finishes from all over

finishes and a diverse offering of unique stones to differentiate

the world. Ninety percent of our natural-stone catalogue is

ourselves. This helps us gain the momentum we need to thrive

imported, amounting to 200 containers monthly, from over

in our markets.

25 countries including Italy, Brazil and China; the remaining

Mármoles Arca has sold more than 20 million m2 of natural stone

10 percent is Mexican. Fifteen years after being founded, Mármoles Arca has sold more than 20 million m2 of natural stone and created the most developed commercial infrastructure in this sector. We have set a benchmark in Mexican construction, an industry that employed almost 600,000 people and had a production value of about MX$35 billion as of May 2017, according to INEGI. Working and understanding architects has enabled us to introduce new products into

Q: What products and services does Mármoles Arca offer to

the Mexican market, enter new markets throughout the

the Mexican market?

country and start exporting. Hotel and residential sectors

A: Mármoles Arca focuses on design, selling and

are the most important for us as they acquire most of our

sometimes cutting the materials depending on the

marbles and woods through our store, The Woodshop.

customer’s needs. Our company has two main divisions:

Office buildings also use these products but usually in

projects and retail. In projects, we assess what architects

small amounts.

want in their developments to procure products, ideas and finishes they need. If a hotel project requests

Q: What is unique about the company’s business strategy

40,000m2 of marble, Mármoles Arca delivers the order

and what has made the company so successful?

cut in the shape and size the hotel requires so that the

A: We face an inflection point – it is time to change the

installer only needs to place the product where needed.

experience of buying construction materials. Natural

This is more cost-efficient than selling stone panels as

stone is a commodity and although Mármoles Arca offers

it reduces product waste. Remaining close to architects

a higher quality of stones than our competitors, that is

and developers enables us to deliver adequate solutions

no longer enough. We are innovating in the market by

for major developments.

creating a shopping experience. Our company has moved away from dusty warehouses that doubled as stores. We have showrooms and design centers where between 80

Mármoles Arca is a 100 percent Mexican company that

and 90 different stones are on display. Mármoles Arca has

focuses on selling natural stones, especially in the tourism

successfully turned its marble stores into boutiques and

and residential real estate sectors, with over 20 million square

construction materials into accessories.

meters of natural stones sold

383

VIEW FROM THE TOP

INCREASED SAFETY, REDUCED COSTS LUIS ADAME Commercial Director of General Cable

384

Q: What role does Mexico play within your global business

Q: How do your solutions help companies stay within

strategy?

budget?

A: For General Cable, Mexico is a strategic market because

A: We employ internal vertical integration with very specific

in terms of market size it is the second-biggest in Latin

products. One of our most important brands is the Stabiloy,

America. We see big opportunities in mining, oil and gas

which is a special aluminum cable that allow developers

and infrastructure. Within the latter, the main opportunities

to save money. General Cable has both manufacturing

for us are in railroads, mainly in metro projects. General Cable

plants and distribution centers in Mexico. At our factory

can work across a range of areas, such as signaling, power

in Tlaxcala we produce low, high and medium-voltage

and telecommunications. We also see big opportunities in

telecommunications cable. As a global company, we have

ports and airports.

factories in the US and Latin America, and we have developed our technology to European and US standards. Almost 100

GenFire Cables can withstand temperatures up to 900Â°C for around three hours

percent of our manufacturing in Mexico supplies the country but we do import products for niche markets. For key clients like PEMEX, having a local manufacturer is key so we keep a high level of inventory to service the industry well. Q: How do you define which products you would like

Q: What projects in Mexico highlight your brand and what

to be part of?

opportunities would General Cable like to participate in?

A: It depends what we can bring to the project. We have

A: NAICM is one of the projects everyone is talking about

a special product called GenFire, which is a fire-resistant

and the Mexico-Toluca Interurban Train is attracting a great

cable that is extremely useful for installation in tunnels

deal of attention. We are also contributing to the new

or refineries. The technology is developed with some of

metro system in Guadalajara. The airport is an emblematic

our compounds and can withstand temperatures up to

project for the country and we feel like it would be a good

900Â°C for around three hours. Those cables can ensure

project to show our brand positioning. In terms of railroad

emergency lights and ventilation systems continue

projects, we have a large market share in this area in Europe

to work in the case of an emergency and the risk of

so we have specialized projects for signaling, controlling

explosion or fire is greatly mitigated. The cables also emit

and electrification. We increasingly see PPP projects as

no black smoke and there are no chloric acid emissions,

opportunities because we normally work with private

which is not a standard in Mexico, but one that is set

investors from overseas on projects in Europe or Brazil. In

internationally. Another of our technologies is E3X, which

many cases, we already have some kind of contact with them

is used by CFE for overhead lines. This is a cable that

and we like the fact that they bring new technologies and

transmits equal levels of power but dissipates much less

new specifications for products. Every country has its own

energy. In these specific types of projects, we know we

way of working and typically it is difficult to raise the bar. But

can contribute a product that will increase safety and

when international companies enter the arena it is beneficial

ultimately reduce costs, so we tend to target projects

as this organically raises standards within the industry.

where we can bring an added value that our competitors may not be able to. We are committed to low costs because we understand the competitiveness of certain

General Cable has been an industry leader and innovator for 170

industries. We develop compounds and certain metals to

years. Today, it is one of the largest wire and cable manufacturers

allow our clients to keep costs low. For General Cable,

in the world. It provides products and technologies for building,

safety is key and our products are high quality and offer

maintaining and advancing power and information infrastructures

a long lifespan.

INSIGHT

HIGH-TECH FUTURE FOR PLAYGROUNDS Children come in all ages. Even adults sometimes need to let loose their inner child. This reality creates an innovative opportunity for commercial developments to attract clients by appealing to families and adults alike, says Luis Inman, Director General of Jumbo, which develops interactive playgrounds that combine the traditional essence of parks with a modern technological twist. “Jumbo uses innovative playgrounds to help commercial centers, hotels and municipalities boost their ability to attract visitors,” says Luis Inman, Director General of Jumbo. “Our products are for children of all ages.”

“

Clean areas with playgrounds that offer spaces for recreational activities can quickly become meeting points for friends and families” Luis Inman, Director General of Jumbo

The 42-year-old family-run company started its business

Along with offering interactive technology, the company

serving the residential sector with playsets for households.

strives to be socially responsible. “We truly enjoy working

But, as houses became smaller, the company adapted to

with municipalities to create parks in marginalized areas.

the market by opening up to the public sector. “We provide

Some of these areas are inhabited by children who have never

services to municipalities by collaborating with construction

seen a slide or a swing before.” The company’s showroom

companies,” says Inman. The transition was hard in the

displays all its products and simultaneously serves as a giant

beginning because the company had to adjust to the long

playground, where schools and youth organizations are

bureaucratic processes within municipalities and establish

invited for recreational days. Jumbo is taking these steps to

relationships with the relevant companies. Jumbo also

help eliminate violence and crime from the most economically

had to battle the influx of low-cost, poor-quality Chinese

unstable municipalities. “Clean areas with playgrounds that

products infiltrating the market. Fortunately, Inman says,

offer spaces for recreational activities can quickly become

the public quickly realized that the durability and quality of

meeting points for friends and families,” says Inman. “This

Chinese playsets did not compare to those made locally. The

can help reduce the frequency of illegal activities.” However,

company is well-known to the public sector but faces a long

the private sector and the public sector often overlook the

list of requirements and lack of clarity in terms of payment

importance of creating public spaces in their developments.

schedules. To mitigate the risks and diversify its portfolio, the company is starting to enter the private sector. “We can offer

Along with being socially responsible, Jumbo strives to be

solutions to a wide range of projects,” Inman says. “Families,

sustainable. Its manufacturing plant in Puebla runs on solar

particularly mothers, are more likely to buy a house or go

power and does not emit waste. Even dust is reused. The plant

shopping in places that have playgrounds. It can increase

manufactures 80 percent of its products and imports the rest

sales and profits. We can even make hotel lobbies more

from the US or Europe as needed. Jumbo has branches across

attractive. Our only limit is our imagination.” The company

the country and its business relies on two basic elements:

already collaborated with a commercial center in Saltillo and

distributors and company-owned stores in cities like Merida,

successfully integrated a playground.

Cuernavaca and Queretaro.

Miyana, Mexico City, GAYA

385

ROUNDTABLE

HOW WILL THE INDUSTRY BE IMPACTED BY THE 2018 PRESIDENTIAL ELECTIONS?

The 2018 presidential elections are fast approaching. Even amid budget cuts within infrastructure, the current administration has prioritized the development of vital projects for Mexico, such as NAICM and the Mexico-Toluca Interurban Train. But against the backdrop of the shock results witnessed in the US presidential election, the Mexican infrastructure sector is feeling uneasy about the prospect of a radical president who will move the industry’s goalposts. The industry depends on business-friendly policies and federal budgetary strategies that promote PPPs for private sector participation. Mexico Infrastructure & Sustainability Review asked leaders about their outlook on the results of the election.

I think the second half of 2017 and the first half of 2018 will see some increase in federal budgets for infrastructure projects. Conversely, the second half of 2018 and the first of 2019 will be troublesome. During this period, the current president will leave office and the next one will enter. Projects that are already under construction will be given guarantees of continuity but new projects will be scarce. Anticipating that, O-tek is focusing on client diversification by 386

IRAM GONZÁLEZ Director General of O-tek Mexico

increasing its participation in the private market, in industrial parks and real estate developments. However, because of the line of business in which O-tek thrives, this will only help us get by. O-tek is interested in selling pipes by the kilometer rather than by the meter.

We feel comfortable there will be a smooth transition regardless of whoever comes to power. There are new options where third parties develop projects, the private sector absorbs most risk and public expenditure is kept to a minimum while the projects produce clean energy at competitive prices. It would be unlikely for new administrations to effect changes that could damage these options. GBM Infraestructura is prudent about the volatility stemming from the upcoming

SANTIAGO ORTIZ Director General of GBM Infraestructura

Mexican elections and the volatility we experienced throughout 2017. GBM Infraestructura is very conservative about where it identifies value and deploys capital.

Mexico has a large infrastructure gap and I believe that whoever runs in the next election will have to address the solutions to bridge it. We will see a different process. We are more democratic in the way we access information and the population is better informed. It will be more difficult for a candidate to promise that they will build an exaggerated number of hospitals without saying how. Access to information allows the population to easily discern whether or not

NICOLÁS MORRIS Regional Director for Mexico, Peru and Colombia of Ayesa

proposals are viable. Candidates are in for a challenge in the next elections.

The government certainly provides a great deal of the infrastructure projects and it has slowed down a little recently with the upcoming elections and other political factors. However, it is time to start finding a real solution to infrastructure and the private sector should not necessarily be relying on the government for their entire pipelines. Not every project is a social-interest project, and these are the ones that should be tendered by the government. Another area of opportunity for foreign direct investment is in infrastructure for growth, such as fast-food chains, gasoline stations and small supermarkets. The government is not the player investing in these projects. When the projects generated by the Energy Reform start to take off, they

JAMES DELANO Vice President, Structures and Logistics of ATCO Mexico

will begin to move more and more away from cities. There is so much free space and the reform is a great way of generating jobs in nonurbanized areas.

An important factor that will impact real estate development are Mexicoâ&#x20AC;&#x2122;s upcoming elections. The first indicator will be the results of the State of Mexicoâ&#x20AC;&#x2122;s elections and then the presidential election in 2018. Foreign investors are more worried about these results than national investors. Another factor that can impact growth and investment is the social aspect. In the last months, there has been a great amount of social discontent surrounding corruption and security issues. But this situation may severely impact the both the external and internal conception of the country and investment in a long-term industry like real estate.

ELIAS CAMHAJI Co-Managing Partner of ZKC

I do not predict changing administrations to endanger infrastructure development, particularly in energy. The Energy Reform is a constitutional reform. In order to abrogate this reform, a qualified majority of the federal congress (senate and house of representatives), as well as the acceptance of majority of the State legislatures shall be needed, which considering the current political map and the preliminary polls for the presidential election, is a very unlikely scenario given that we will not be having a hegemonic party. I believe that it will stay as it is for the moment. However, there are some executive order that can be enacted by the new President that could

CARLOS OCHOA Partner at Holland & Knight

affect the development of these sector in Mexico.

Investors must ensure that their concessions are respected, regardless of how elections unfold. The solid legal framework in place helps to maintain the certainty of concessions. Most companies hold international bonds or equity stakes, especially large developers. These types of deals are protected by NAFTA, among many other free trade agreements, which is why the Canadian and Mexican governments have asked that Chapters 11 and 19 of NAFTA be respected. These chapters regulate foreign investment and the arbitration and dispute resolution when investment is not respected in a country. Mexico is among the countries with the most freetrade agreements in the world and Chapters 11 and19 forms a good framework for protecting investment in concessions.

ALBERTO DE LA PARRA Partner at Jones Day

387

ACRONYMS AFDZEE

Federal Authority for Special Economic

Afores

Mexican Pension Funds

AICM

Mexico City International Airport

AMEFI

INEGI

National Institute of Statistics and

INFONAVIT

Institue for the National Housing Fund

Mexican Fibra Association

IoT

Internet of Things

BMV

Mexican Stock Exchange

ISSSTE

State’s Employees’ Social Security and

BOT

Build, Operate, Transfer

CAPUFE

Federal Road and Bridges

CBFI

Real Estate Stock Certificates

CEPAL

Economic Commission for Latin America

LFZEE

Federal Law for Special Economic Zones

and the Caribbean

MLP

Master Limited Partnerships

CERPI

Investment Project Stock Certificates

MTS

Mass Transportation System

CETRAM

Mexico City’s Modal Transfer Centers

NAICM

New Mexico City Airport

CFE

Federal Energy Commission

NIP

National Infrastructure Program

CIEN

Certificate for National Educational

NOM

Mexican Official Norm

Infrastructure

OECD

Organization for Economic Cooperation

CMIC

Mexican Chamber of the Construction Industry

PMO

Project Management Officer

CNBV

National Banking and Stock Commission

PPP

Public Private Partnership

Compranet

Mexico’s electronic procurement system

R&D

Research & Development

CONACYT

National Council of Science and

ROI

Retun On Investment

Technology

ROW

Right of Way

CONAGUA

National Water Commission

SAT

Revenue Service

CONAVI

National Housing Commission

SCT

Ministry of Communications and

CONSAR

National Commission for the Retirement

COPARMEX

Mexican Employers’ Association

DBO

Design, Build, Operate

Ejido

Area of communal land

EPC

Engineering, Procurement and

Zones

Savings System

Geography for Workers

Social Services Institute ITESM

Monterrey Institute of Technology and Higher Education

and Development

Transport SEDATU

Minsitry of Agricultural, Urban and Territorial Development

SEDUVI

Ministri of Urban and Housing Development

SEMARNAT

Construction

Ministry of the Environment and Natural Resources

Fibra

Mexican Real Estate Investment Trust

SHCP

Ministry of Finance and Public Credit

Fibra E

Mexican Real Estate Investment Trust for

SHF

Federal Mortage Society

the Energy and Infrastructure Sectors

SME

Small and Medium Enterprises

GACM

Grupo Aeroportuario de la Cuidad de

UNAM

National Autonomous University of

GLA

Gross Leasable Area

USP

Unsolicited Proposals

IFT

Federal Telecommunications Institute

WEF

World Economic Forum

IMSS

Mexican Institute of Social Security

WTP

Water treatment plants

IMTA

Mexican Water Technology Institute

WWTP

Wastewater-treatment plants

INAH

National Institute of Anthropology and

ZEE

Special Economic Zones

History

ZMVM

Valley of Mexico Metropolitan Area

Mexico

INDEX A-G AECOM 150, 357

Cushman & Wakefield 174, 224

Aeropuertos del Sureste (ASUR) 60-61, 81, 84-85, 86-87,

Danfoss Mexico 132, 134-135

137

Deloitte 309, 333

Afore XXI Banorte 255, 310-311, 320-321, 324-325, 340,

DINTELCO 194

350

ECOstudio XV 263

ALIGNMEX 188, 324-325, 334-335

El Colegio de Urbanistas de México 38-39, 45, 232-233

Alliance Corporation 139

EY 283

Altea Desarollos 227

Fibra Mty 219, 318-319

AM Resorts 276

Fibra Prologis 174, 176-177, 196-197, 204-205, 226, 318-

API Campeche 75

319, 324-325

APM Terminals 70-71, 74

Fibra Uno 19, 129, 156-157, 204-205, 206-207, 226, 318-319,

Armour Secure 313

324-325, 336

Arnaiz & Partners 232, 262

Fitch Ratings Mexico 298-299, 300-301, 359, 364-365

Arquitectoma 41, 202-203, 252-253, 310-311

FOA 148, 356, 364-365

ARTRON 195

Fomento a la Energía e Infraestructura de México

Aeropuertos y Servicios Auxiliares (ASA) 60-62, 82-83,

(EXI) 88-89, 331

84-85, 86-87

FONADIN 68, 71, 103, 304, 359

ATCO Mexico 229, 386-387

FR-EE 346-347, 348-349, 354-355, 364-365

Autonomous Metropolitan University of Mexico

Fypasa 108

(UAM) 264

Grupo Aeroportuario del Pacifico (GAP) 80, 84-85, 86-87,

AutoTraffic 49, 88-89

137

Avantec 137

GAYA 211, 260-261

Axioma 285

GBM Infraestructura 318-319, 324-325, 330, 386-387

Ayesa 166, 346-347, 357, 386-387

GDI 129, 161

Baker McKenzie 208

General Cable 384

Bancomext 18, 19, 22, 27, 212-213, 282, 286

Gerdau Corsa 159, 192-193

Banobras 18, 19, 48, 67, 69, 134-135

GGD Bandas 169

Barceló Hotel Group 272-273, 282, 292-293

GICSA 216, 226, 232-233, 298-299, 310-311

Barnhart Asset Management 196-197, 338-339

GM Capital 38-39, 220-221, 222-223, 232-233

BDI 187

Green Blue 214

Beck Mexico 258

Greystar 246-247, 260-261, 324-325

Bioconstrucción y Energia Alternativa (BEA) 372

Grimaldi 164

BKT Bicipublica 50

Grupo Acerta 259

BlackRock 310-311, 320-321, 328, 340-341

Grupo Aeroportuario de la Ciudad de México (GACM) 10-

Bovis 162

11, 22, 60-61, 64-65, 84-85, 86-87, 114, 148-149, 194, 298-299,

CAABSA Infraestructura 60-61, 153

346-347, 348-349, 356, 357, 359, 364-365, 375

Caminos y Puentes Federales (CAPUFE) 67, 69, 134-135,

Grupo Baysa 382

138

Grupo BMV 19, 81, 94-95, 218, 219, 225, 228, 259, 277,

Carnan Properties 267

280-281, 298-299, 307, 318-319, 321, 324-325, 330

Carrier Mexico 133

Grupo Copri 249, 260-261

Carza 257, 324-325

Grupo Droppin 143

CBRE 174, 209

Grupo Financiero Barclays Mexico 322

Centro de Investigación en Políticas Públicas (CIAPP) 305

Grupo Financiero Interacciones 327

Cimentaciones Mexicanas (CIMESA) 378

Grupo Frel 217, 318-319

Citelum Group 131

Grupo GP 160

Citibanamex Afore 122-123, 298-299, 323, 340-341

Grupo IGS 244

Clear Channel 51

Grupo Indi 26-27, 148, 318-319, 340-341, 358

CMIC 14-15, 66, 150, 156-157

Grupo Lar 240-241, 243-243

COCONAL 72-73, 151, 169, 346-347, 350

Grupo Posadas 277, 280, 281

Consorcio IUYET 165, 358, 359, 364-365

Grupo Proyecta 41, 238-239, 252-253, 260-261, 310-311

Construye Industrial 189, 196-197

Grupo Sordo Madaleno (GSM) 142, 202-203, 206-207,

Crestron 376

382

Crystal Lagoons 288, 292-293

GVA 32-33, 37, 38-39, 232-233, 260-261

INDEX G-T Hill International 67, 88-89

326

Hogan Lovells Mexico 174, 178, 196-197, 370

Mira Companies 232-233, 245, 318-319

Holland & Knight 190, 386-387

Moody’s Investor Services 88-89, 303, 359

Hoteles City 279

Motion Corp 114

HR Ratings 298-299, 307, 318-319, 336, 340-341

National Association of Water and Sanitation Companies

IBI Group 34, 134-135

(ANEAS) 94, 101

Ideurban 287

National Housing Comission (CONAVI) 12-13, 100, 238-

Idom 35

239, 263, 266

Imperquimia 230-231, 381

National Tourism Business Council (CNET) 272, 274,

Iñaki Echeverria 36

292-293

Inbode 110-111

Nokia 122-123, 126, 134-135, 141

INCA Ingenieria, Control y Administración 68, 88-89

Nuevo Laredo Ministry of Economic Development 26

Inmobilia 255

Omega 153, 154, 340-341, 351

Internacional de Inversiones (IDEI) 251

Oracle 124-125, 134-135

Interpuerto Mty 184

Orange Investments 238-239, 250, 260-261

ITISA Prefabricados 149, 380

O-tek 112, 386-387

JA Group 88-89, 185

Owens Corning 168

JLL 163, 225, 272-273, 281

Panel Rey 265

Johnson Controls 377

Parks 226, 275

Jones Day 302, 359, 364-365, 386-387

PARQMEX Industrial Development 188, 334-335

Jumbo 385

PGIM Real Estate 179, 196-197, 324-325, 332

Kansas City Southern Mexico (KCSM) 26, 74, 77, 182-183,

Planigrupo 228, 324-325

184, 188

Plastimadera 52

Kepler 191

Proméxico 22, 180

KPMG 194, 308

PTV América Latina 32-33, 128, 134-135

Laboratorio para la Ciudad 44, 134-135, 202-203

Pulso Inmobiliario 212-213, 232-233, 310-311

LEGORRETA® 256, 260-261

PwC 8-11, 23, 32-33, 60-61, 66, 98-99, 148, 192-193

Leisure Partners 286, 292-293

Quiero Casa 38-39, 238-239, 248

Logistik Parque Industrial 62-63, 181, 182-183

RCI 284

MABASA 26-27, 167

Reichmann International 333

Macquarie Infrastructure and Real Assets México

Reto 374

(MIRA) 226, 318-319, 324-325, 329, 340-341

Revitaliza Consultores 27, 364-365, 373

Marhnos 152, 324-325

Rizoma 375

Mármoles Arca 383

RLH Properties 281, 292-293, 320-321

MARQ 155

Rotoplas 8-11, 109

Mexican Association of Industrial Parks (AMPIP) 175

Sabadell Global Corporate Banking 292-293, 326, 212-213

Mexican Association of Private Equity (AMEXCAP) 310-

Sacyr 64-65, 346-347

311, 312

Sánchez Devanny 226

Mexican Association of Tourism (AMDETUR) 272-273,

Serrano Monjaraz Arquitectos 40

282, 292-293

Siemens Mexico and Central America 127

Mexican Center of Environmental Law (CEMDA) 289

SITA 362-363

Mexico City Institute for Construction Safety (ISCDF) 24,

Smartnett Carrier 122-123, 140

149

Social Security Institute for State Workers (ISSSTE) 16,

Mexico City Ministry of Mobility (SEMOVI) 25, 32-33,

35, 36, 152, 310-311, 324-325, 328

38-39, 128

Suez Mexico 94-95, 107

Mexico City Water Systems (SACMEX) 96-97, 98-99,

Sustentabilidad en Energía y Medio Ambiente

110-111, 112

(SUEMA) 94-95, 106-107, 115, 116-117

Mexico Retail Properties (MRP) 202-203, 215, 324-325

Sustentabilidad Para Mexico (SUMe) 371

Meypar 129, 134-135

Swiss Re 149, 337

Ministry of Communications and Transport (SCT) 8-11, 17,

TASANA 352-353

26, 34, 46-47, 53, 60-61, 62-63, 69, 71, 78-79, 86-87, 122-

Techint Engineering and Construction 158

123, 128, 134-135, 138, 148, 155, 163, 300-301, 304, 305, 312,

Tecnopeaje 69, 88-89

318-319, 328, 346-347, 348-349, 352-353, 361

Terrafina 179, 196-197, 204-205, 318-319, 332

Ministry of Tourism (SECTUR) 17, 82-83, 272-273, 276,

Thales México 138

INDEX T-Z Thor Urbana 174, 218, 255, 272-273, 290-291, 324-325

(SADM) 100

TICSA 103, 106-107, 94-95

WG Fuentes 142

TRANE 266

White & Case 304

U-Calli 254

World Bank Group 8-11, 48, 62-63, 122-123, 226, 266, 292-

UltraTelecom 141

293

UNAM 94-95, 106-107, 113

WRI Mexico 38-39, 43, 168

Underterra 53

WTC 60-61, 77, 180, 219

Vertiv 136

ZKC 210, 386-387

Water and Wastewater Services of Monterrey

PROJECT SPOTLIGHTS 72-73

COCONAL: The Road Now Taken

222-223 GM CAPITAL: Distrito Armida to Breathe New Life Into Monterrey 242-243 GRUPO LAR: Luxury Development in State of Mexico for Greener Lifestyle 290-291 Ritz-Carlton to Sparkle in the Crown of Chapultepec Uno

PLANT SPOTLIGHT 182-183 LOGISTIK INDUSTRIAL PARK: A Home Away From Home 192-193 GERDAU CORSA: Steel Producer Invested in Mexico

TECHNOLOGY SPOTLIGHT 20-21

The Mexico Projects Hub

116-117

Paving the Way Toward a Circular Economy

230-231 IMPERQUIMIA: Imperquimia Takes the Heat out of Fire Hazards

ADVERTISING 6 SCT

200

Reichmann International

214

Johnson Controls

Grupo Proyecta

50 AutoTraffic

228 ATCO

58 COCONAL

236 Greystar

100 O-tek

270 Inmobiliare

104-105 FYPASA

296 CMIC

111 Inbode

378

120 Netbrains

316 Bancomext

146

344 Sacyr

Gerdau Corsa

WRI México

155 GDI

353 TASANA

163 Mabasa

357 Grimaldi

169 Murgía

361

172 AMPIP

363 Imperquimia

Consorcio IUYET

INFOGRAPHICS AND MAPS 46-47

Unclogging Mexico's Mobility Arteries

98-99

62-63

Improving Mexico's Logistics

156-157 The Legacy of Mexico's Construction Giants

78-79

National Railroad System

324-325 Pension Funds to the Rescue

84-87

National Airport System

Mexico's Water Conundrum

PHOTO CREDITS Cover Arquitectoma

80 GAP

Inner front cover

82 ASA

FR-EE, GACM

Latino Seguros

86 GACM

12 CONAVI

87 GACM

13 CONAVI

INCA, Technopeaje, MBP

14 CMIC

Moody's Investor Services, MBP, AutoTraffic, MBP

Grupo Hermes Infraestructura

90 Aqualia

Ailette Córdova

92 MBP

16 MBP

96 SACMEX

17 SECTUR

97 CONAGUA

18 MBP

101 ANEAS

102 TICSA

Grupo BMV

21 Banobras

103 MBP

22 MBP

106

MBP, MBP, MBP

23 MBP

107

Suez Mexico

24 MBP

108 MBP

25 SEMOVI

110

26 MBP

112 O-tek

MBP,MBP, Revitaliza Consultores

113 MBP

Ailette Córdova

114

MBP, MBP

Vertical and Motion Corp

33 MBP

115 MBP

34 MBP

118 Autodesk

35 IDOM

123 Autodesk

124 Oracle

Iñaki Echeverria

37 GVA

125 Oracle

SEMOVI, GVA, Quiero Casa

126 Nokia

GM Capital, WRI Mexico, AutoTraffic, MBP

127 Siemens

40 MBP

128

41 MBP

129 Meypar

María Dolores Robles Martínez

130

Ailette Córdova

WRI Mexico

133

Citelum Group

Laboratorio para la Ciudad

132 Danfoss

PTV América Latina

45 MBP

131

Carrier Mexico

48 MBP

134

Oracle, Nokia, Laboratorio para la Ciudad

49 AutoTraffic

135

PTV Group,Danfoss, MBP, Meypar

BKT bicipublica

136 MBP

Clear Channel

137 MBP

52 Plastimadera

138

53 MBP

139 MBP

54 MBP

140

56 GAP

141 MBP

64 MBP

143 MBP

65 Sacyr

144

María Dolores Robles Martínez

66 PwC

149

MBP, MBP, MBP

67 MBP

150 MBP

68 MBP

151 COCONAL

66 INCA

152

69 Tecnopeaje

153 MBP

154 MBP

Grupo Hermes Infraestructura

Thales Mexico MBP, MBP

MBP, MBP

71 CAPUFE

158 MBP

APM Terminals

159

Gerdau Corsa

API Campeche

160

Grupo GP

76 KCSM

161 GDI

77 MBP

162 Bovis

163 JLL

239

164 MBP

240 MBP

165 MBP

241

Grupo Lar

166 MBP

243

Grupo IGS

167 MBP

245 MBP

168

246 MBP

Owens Corning

Grupo Sordo Madaleno

169 MBP

247 Greystar

170

Fibra Prologis

248

Quiero Casa

175 MBP

249

Grupo Copri

176

Fibra Prologis

250

Orange Investments

177

Fibra Prologis

252

Grupo Proyecta

178 MBP

253

Grupo Proyecta

179 MBP

256 LEGORRETA

180 WTC

257 MBP

181

Logistik Park

258

184

Interpuerto Monterrey

259 MBP

BECK Mexico

185 MBP

260

MBP, Grupo Proyecta, Gaya

186 AMPIP

261

GVA, Orange Investments, Grupo Copri,

187

LEGORRETA

BDI Corp

188 MBP

262 MBP

189 MBP

263 MBP

190 MBP

264 UAM

191 Kepler

265 MBP

194 DINTELCO

268

196

MBP, PGIM, Banhart

274 CNET

197

MBP, MBP, Fibra Prologis, Terrafina

276

Pulso Inmobiliario

198

Pulso Inmobiliario

277

Grupo Posadas

204 MBP

278

Hoteles City

205 FUNO

279

Hoteles City

206 GSM

280

Barceló Hotel Group

207 GSM

281 MBP

208

282 MBP

Baker McKenzie

RLH Properties

209 MBP

283 MBP

210 MBP

284 RCI

211 Gaya

285 MBP

212 MBP

286 MBP

213

Pulso Inmobiliario

287 MBP

214

Green Blue

289 MBP

215 MRP

292

MBP, MBP, MBP

216 GICSA

293

Barceló Hotel Group, MBP, Crystal Lagoons, CNET

217 MBP

294

Ailette Córdova

218 MBP

300 MBP

219

Fibra Mty

301

Ailette Córdova

220

GM Capital

302

Jones Day

221

GM Capital

303

Moody´s Investor Service

224

Cushman & Wakefield

304 MBP

225 JLL

305

226

306 CFE

Sánchez Devanny

MBP, ABC Medical Center

227 MBP

307 MBP

228 Planigrupo

309 MBP

229

ATCO Mexico

310

Pulso Inmobiliario, AMEXCAP, MBP

232

GICSA, MBP, GVA

311

Grupo Proyecta, MBP, MBP, GICSA

233

MBP, MBP, GM Capital, MBP

312 AMEXCAP

234

Quiero Casa

313 MBP

PHOTO CREDITS 314 GSM

356 MBP

320 MBP

357 MBP

321 GSM

358 MBP

322 MBP

359

323

360 MBP

Afore Citibanamex

Jones Day

326 MBP

362 SITA

327 MBP

364

MBP, MBP, Revitaliza Consultores

328 MBP

365

Jones Day, MBP, MBP, MBP

329 MBP

366

Guanajuato Puerto Interior

330 MBP

370 MBP

331

371 MBP

PGIM Real Estate

332 MBP

372 BEA

333 MBP

373

334 MBP

374 MBP

335 CONAVI

375

336

376 MBP

HR Ratings

Revitaliza Consultores MBP, MBP

337 MBP

377

Johnson Controls

338

Barnhart Asset Management

378 MBP

339

Grupo Proyecta

379 MBP

340

MBP, MBP, MBP

380 MBP

341

MBP, Afore Citibanamex, MBP, HR ratings

381 Imperquimia

342 GACM

382 MBP

348 GACM

383

Mรกrmoles Arca

349 GACM

384

General Cable

350 COCONAL

385 GAYA

351 MBP

386

O-tek, MBP, MBP

352 MBP

387

ATCO Mexico, MBP, MBP, Jones Day

354 MBP

Inner front cover

FR-EE, GACM

355 GACM

Inner back cover

GSM

Mexico Infrastructure & Sustainability Review 2018

Articles inside

DUTCH-MEXICAN CONSORTIUM COMBINES INTERNATIONAL, LOCAL EXPERIENCE

DESIGNING Mexico’S GATEWAY TO THE WORLD

NEW AIRPORT PROGRESSING ACCORDING TO PLAN

change in afore rules to boost infrastructure investment

Tourism GAINS TRACTION despite macroeconomic hardships

DEVELOPER POSITIONING FOR AFORE INVESTMENT

PUSHING THE BOUNDARIES OF MEXICO CITY’S MIXED-USE DEVELOPMENTS

EXPANDING SOUTH TO MEET UNDERSERVED DEMAND

GROWING E-COMMERCE TO BOOST INDUSTRIAL DEMAND

Single-Company Management Boosts Project Efficiency

overcoming challenges with the interurban train

NAICM WINNER TARGETING OTHER EMBLEMATIC PROJECTS

BIODIGESTERS TO REDUCE TREATMENT COSTS

greater decentralization needed for adequate water infrastructure

BAjio, northern region offer opportunities for rail infrastructure

Building and maintaining roads to efficiency

STRATEGIC ALLIANCES AT THE FOREFRONT OF INFRASTRUCTURE

TAPPING BMV TO FINANCE INFRASTRUCTURE DEVELOPMENT

STEPS TO A SUSTAINABLE AND INCLUSIVE CONSTRUCTION SECTOR

NEW SCHEME TO BOOST ACCESS TO HOUSING