Mexico Infrastructure & Sustainability Review 2019 by Mexico Business Publishing

2019

“We believe public investment is the seed that will allow the country to attract domestic and foreign private investment; together we can build infrastructure projects” Andrés Manuel López Obrador, President-elect

2019

President Enrique Peña Nieto’s term wound down in 2018, after six years that greatly impacted the country’s infrastructure industry and sustainability drive. Peña Nieto was able to position Mexico’s thriving industrial, tourism and real-estate sectors globally while also successfully launching the construction of the New Mexico International Airport (NAIM). The country demonstrated its attractiveness to international investors not only for real-estate developments but for transport and social infrastructure through the stock market and the establishment of PPPs. As the year ends, Peña Nieto will hand over a stable economy with many challenges but even more opportunities to boost the country’s infrastructure competitiveness, one of the areas successor Andrés Manuel López Obrador has prioritized.

2017/18 also saw an abundance of uncertainty, with global trade friction rattling investors and the Mexican presidential election itself impacting project progress. Meanwhile, verticalization and transparency became the industry’s new buzzwords as cities began looking inward to accommodate not only growth but also the quality of life demands of citizens. With a new president waiting in the wings, Mexico Infrastructure & Sustainability Review 2019 looks at the accomplishments and setbacks of the past year as viewed through the lens of the industry’s top private and public stakeholders.

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TABLE OF CONTENTS

STATE OF THE INDUSTRY

STATES & MUNICIPALITIES

WATER & WASTE MANAGEMENT

URBAN PLANNING & MOBILITY

SMART CITIES & TECHNOLOGY

6 7

Supplement

ENGINEERING & CONSTRUCTION

RESIDENTIAL REAL ESTATE

COMMERCIAL REAL ESTATE

INDUSTRIAL PARKS & LOGISTICS

TRANSPORT INFRASTRUCTURE

ARCHITECTURE & DESIGN

FUNDING & INSTITUTIONAL INVESTORS

MATERIALS & INNOVATION

INDUSTRY OUTLOOK

THE NEXT SIX YEARS

View of Reforma Avenue, Mexico City

STATE OF THE INDUSTRY

2018 brought the winds of change and in transitioning to a new administration, the infrastructure industry will have to prepare for new players and rules but also for new opportunities. The Peña Nieto administration raced against the clock to accomplish as many NIP projects before December 2018. As Presidentelect Andrés Manuel López Obrador prepares to take office, there is still much uncertainty regarding his infrastructure ambitions.

The country continues to have a hefty US$544 billion infrastructure gap to bridge and the new administration will take on the responsibility of prioritizing and developing the necessary projects that will ultimately boost the economic development of the country, a theme that hampered the industry during the previous as investors and key entities took a wait-and-see approach.

This chapter opens Mexico Infrastructure & Sustainability Review by analyzing the state of the industry left by Peña Nieto to López Obrador. It gathers industry insights directly from the sector’s main public officials and private sector leaders to portray the most pressing needs, opportunities and challenges in the country’s infrastructure sector.

CHAPTER 1: STATE OF THE INDUSTRY 8

ANALYSIS: Year in Review

VIEW FROM THE TOP: Jorge Wolpert, CONAVI

VIEW FROM THE TOP: Eduardo Ramírez, CMIC

EXPERT OPINION: Reyes Juárez, FOA Consulting

INSIGHT: Ricardo Díaz de León, ProMéxico

VIEW FROM THE TOP: Roberto Martínez, OECD Center in Mexico for Latin America

INSIGHT: Ignacio García de Presno, KPMG

INSIGHT: Pablo Vaggione, UN-Habitat

| ANALYSIS

YEAR IN REVIEW 2018 marks the end of Enrique Peña Nieto’s administration and welcomes Andrés Manuel López Obrador’s team to Los Pinos. AMLO has already announced ambitious infrastructure projects but before beginning his National Development Plan, his team will analyze the conditions in which it receives the country

Uncertainty hovered over the Mexican economy in the latter

Guadalajara, which he says has focused on rehabilitating and

half of 2017 and through the first half of 2018, mainly due to

regenerating urban spaces. On the other hand, Queretaro is

the renegotiation of NAFTA, trade-related actions from north

an example of what not to do, as Ballesteros argues that it has

of the border and the Mexican presidential elections in July

grown with no planning. Mexico City, for all its recent advances,

that swept a populist into office. Despite the disconcerting

still requires the development of more urban infrastructure

conditions, the infrastructure industry continued to attract

with a growing demand for water and waste infrastructure

private investment although the country still faces an

and mobility options. Guadalajara, Jalisco, is also thriving

infrastructure spending gap estimated at US$544 billion.

with growing industrial and agroindustry development and

With budget austerity tying the government’s hands, it started

a flourishing real-estate sector leaning toward residential

exploring further options for PPPs, which could prove pivotal

housing. The municipality in the Guadalajara metropolitan

as President-elect Andrés Manuel López Obrador takes office

area with the most investment is Zapopan, concentrating the

at the end of 2018. AMLO, as the new president is known,

commercial and corporate real estate of the state’s growing

has already stated his desire to work closely with the private

“Mexican Silicon Valley.” Monterrey, the Sultan of the North,

sector to see through his ambitious development plans, all of

continues to attract industrial development on its peripheries

which bodes well for the sector.

and is developing symptoms similar to Mexico City when it comes to traffic congestion and basic services. The city is

At the city development level, a key word for the industry

expanding beyond its most developed and prosperous region,

throughout the past year was verticalization, a trend that

San Pedro Garza Garcia, to the downtown area in search of

became entrenched as the favored building option for

better mobility solutions for commuters. It is pushing for

cities, with new skyscrapers transforming skylines in major

higher densification, with a current population of approximate

metropolises and secondary cities taking their cue from their

4.7 million and a density of 108.3 hab/ha.

bigger counterparts. Transparency was also a buzzword, especially in the wake of the Sept. 19, 2017 earthquake that

The country’s emerging urban areas with the highest growth

shook the capital, Puebla and Morelos states, leaving a

rates between 2010-2015 are the Queretaro Metropolitan

devastating trail of fallen buildings that resulted in 370 deaths.

Area (2.8 percent), Puebla Metropolitan Area (1.6 percent) and Tijuana Metropolitan Area (1.1 percent). These cities are

TRANSFORMING CITIES

booming due to automotive and manufacturing industrial

Mexico’s cities are understanding that planning is key

development but share the same challenge related to urban

to regenerating areas that have been allowed to grow haphazardly, such as Mexico City. Rather than look to the outskirts – a past mistake that continues to haunt some of the country’s biggest metropolises – city governments and developers are embracing a more modern urban planning that emphasizes height and density. Gabriel Ballesteros, Partner at Ballesteros y Mureddu, says a strong urban development plan is the first step in reinvigorating cities while also helping authorities keep abreast of changes and predict new needs. “Urban development plans should estimate how many hectares cities need to regenerate, fill in and expand to better define the incentives and maintain balance. The outcome is a living, compact and working city.” Ballesteros gives two examples of cities achieving this balance, Mexico City being the best. “Mexico City, with all its problems, has done a great

MEXICO'S URBAN POPULATION BY SIZE CLASS OF BUDGET ADJUSTMENT PLAN (MX$ billion) URBAN SETTLEMENT (million) 125 1

100

1 4

15 15

1990

20 18

2018

17 20

2030

job in rescuing, regenerating and reconnecting public spaces,”

10 million or more

500,000 to 1 million

he says. “It has created the right amount of verticalization.” Another city working for connectivity and re-planning is

5 to 10 million 1 to 5 million

300,000 to 500,000 Below 300,000

Aguascalientes. Other cities Ballesteros highlights include

Source: UN World Urbanization Prospects 2018 Source: PEMEX

January

February

Private constructions

March

April

8.9

5.3

-2.9 -4.6

-3.5

-4.6

-7.3

-3.6

-8

-12

-11.1

-6

-5.6

-3

-9

6.5 -0.2

-6

12.8

11.1

1.3

6.2

4.4

2.5

5.7

7.5

9.5

10.7

GLOBAL LIGHT VEHICLE PRODUCTION CONSTRUCTION SECTOR PERFORMANCE IN 2018 15

May

June

July

Civil works Specialized construction projects

density. Each has a density between 77 and 96 hab/ha, and

August Source: CMIC

OHL Mexico, while 2017 featured these, as well as Mota-Engil

Source: Source: CAAM, JAMA, VDA, KAMA, SIAM, AMIA, cities ANFAC,are Automotive News, Data Center Ingenieria populations about to hit 2 million people. These Mexico and Techint

y Construccion.

looking to increase their infrastructure development to meet the demands of its citizens and not fall into the same mistakes

REAL ESTATE STAYS ACTIVE

as their megacity counterparts.

Since 2016, the real-estate sector has kept the construction industry busy as private sector investment in the commercial,

CONSTRUCTION PERFORMANCE

residential and corporate segments boomed throughout

According to INEGI, activity of the construction sector from

Mexico’s developing cities. 2018 was a good year for housing

January to August 2018 rose 1.9 percent in comparison to

in the country as local governments embraced the 2014

the same period in 2017. This growth was fostered by strong

National Housing Plan. Real estate was the industry’s most

dynamics within the specialized works subsector (7.7 percent

active segment with a focus mostly on urban areas. The

growth), which included reconstruction efforts after the

National Housing Plan stipulates the construction of vertical

September earthquakes. The private sector construction

and more compact cities. With the 2016 amendment to the

subsector registered accumulated growth of 2.9 percent

Human Settlements Law, public entities received the basic

through the construction of commercial and industrial

norms and management tools to organize the development

real estate. The civil works subsector dropped 6.3 percent

of their territories and human settlements. The results

during this period due to a slowdown in transport and water

of these policy changes were felt in full in 2017 as local

infrastructure projects.

governments adopted these changes in policies and began modifying zoning permits to design more livable cities and

Overall, the 2018 forecast for construction GDP was for 1-2

bring people back into the city centers. The main trend

percent growth, according to CMIC. The sector’s activity

observed, particularly in urban areas, was the development of

in 2018 slowed, however, due to the election and resulting

multifamily rental housing. “There is a requirement for 40-60

change in government administration, project delays and

percent more houses because people are living alone or with

inflationary pressures on construction materials. “At the end

roommates,” says Eduardo Orozco, former Country Manager

of 2017, we expected the construction industry to remain

of Greystar. Although housing development increased, most of

steady, neither decrease nor increase. Nevertheless, the sector

the homes being constructed are within the middle-residential

experienced a 1.1 percent decrease in comparison to 2016. If

plus sectors, when the main housing deficit exists in the lower

the projects that are scheduled for this year are completed as

income segments. The highest demand in 2017 was in the State

planned, such as the Mexico-Toluca Interurban Train or Mexico

of Mexico, Jalisco, Nuevo Leon and Mexico City. “CONAVI is

City New Airport (NAIM) and housing subsidies continue,

also striving to promote social housing verticalization though

the sector could grow 1-3 percent in 2018. If this does not

subsidies for over 8,000 families that will buy apartments in

happen, we could see negative numbers once again,” says

city centers,” says Jorge Wolpert, Director General of CONAVI.

Alejandro Ruíz, Head of Construction at KPMG in Mexico. PPPs continue to play an increasing role, particularly in real estate

After housing, commercial real estate received the most

with the arrival of new domestic and international entities.

investment in 2018, especially in relation to mixed-use

In CIMIC’s 2018 Top 20 Construction Companies Ranking,

developments. Given land scarcity and changing consumer

Spanish companies OHL Mexico and Grupo ACS took the

trends, real-estate players are looking at these projects to

first two spots, followed by CICSA, IDEAL and Fibra Uno.

increase their returns and create a bigger impact on their

In 2012, Mexico’s Top 20 construction companies included

surroundings. Overall, 857,360 m2 were added to the national

three international firms: Grupo ACS, Grupo Aldesa and

inventory in 2017, mainly in the ZMVM, Bajio and northern

| ANALYSIS regions. The 2018 inventory is expected to reach 1.8 million

this will continue,” he says. As of October 2018, there were 11

m , 300,000m of which will be developed throughout

Fibras, two CerPIs, three Fibra E’s and 73 CKDs in the BMV.

2018, according to ADI, through projects such as Mitikah,

Mexico also welcomed its second stock market in 3Q17, the

Parque las Antenas, La Isla Merida, The Harbor Merida and

Bolsa Institucional de Valores (BIVA) to provide SMEs with

Explanada Puebla.

more access to the market and for Fibras to continue growing

their portofolios. The industrial sector, meanwhile, faced uncertainty as NAFTA

was renegotiated although the USMCA deal that replaces

KEY INFRASTRUCTURE PROJECTS

the previous FTA has somewhat settled the air. Although

Among the most representative of Peña Nieto’s projects,

the new deal must still be ratified by all three countries,

the two emblematic developments that will be inherited

industrial entities are turning their attention to logistics and

to the incoming administration are the Mexico-Toluca

warehouse development for e-commerce players. “There was

Interurban Train and NAIM, both still under construction.

a great deal of uncertainty related to NAFTA and the 2018

The Mexico-Toluca Interurban Train has been delayed due

presidential elections and nobody knew how the real-estate

to constant battles for rights of way in the La Marquesa-

market would perform. While uncertainty can lead investors

Observatorio segment, not only setting back deadlines

to postpone decisions, markets have behaved more or less

but also increasing construction costs. Work at NAIM is

the same as in 2017. Growth in consumer sales has decreased

advancing. The foundation for the terminal building is 65

slightly but demand for distribution centers is still highly

percent complete while airstrips 2 and 3 are 69 and 52

dynamic,” says Luis Gutiérrez, President Latin America of

percent finished, respectively. According to Mexico Evalúa,

Prologis.

both these projects have suffered time delays and cost overruns due to a need for more structured planning and

PRIVATE SECTOR BRIDGES BUDGET GAP

a requirement for longer tender assignation periods. As

Both public infrastructure investment and the number of

these projects go beyond the sexennial presidential term,

public works projects declined throughout 2018, as the

AMLO’s administration will receive them with an expected

outgoing government concentrated on placing all efforts on

completion date for the Mexico-Toluca Interurban Train in

its foremost priorities. Enter the private sector, which helped

2019 and a 2021 first-phase completion of NAIM, provided

cover the declining budget as the government pushed

the projects keep their original timelines.

for the development of more PPP projects. Peña Nieto’s administration embraced PPPs to bridge its financial gaps and

PLANNING, TRANSPARENCY

began exploring applications in different subsectors. During

After the 2017 incident related to the Cuernavaca Paso

2018, SCT, along with BANOBRAS, tendered maintenance,

Expressway, when a large sinkhole opened shortly after

operation and rehabilitation (MROs) projects for various roads

the official opening, and the September earthquake

throughout the country to ensure the quality and safety of

disaster, both public and private industry players have

the network. PPPs were also used to develop new ISSSTE and

an increased interest in transparency in infrastructure

IMSS hospitals and to address issues in the water and waste

and real estate development. During 2018, stricter

sector. According to the World Bank, in 2017, Mexico attracted

construction regulations and standards were enforced

its highest level of private investment in infrastructure in the

and developers found themselves in the spotlight to

last 25 years with US$8.6 billion and was one of the Top Five

ensure the development of safe and resilient buildings and

infrastructure investment destinations in Latin America. “Years

structures in Mexico. According to a consensus among

ago, approximately 5 percent of the GDP was destined to

Mexico Infrastructure & Sustainability Review interviewees,

infrastructure development. Right now, the government is only

the country’s Achilles’ heel for infrastructure development

investing 2.8 percent of GDP, which totals MX$625 billion for

continues to be long-term planning and transparency.

the construction of public infrastructure. Private works have

“The country desperately needs a long-term planning

increased in the last few years and it is predicted that MX$2

strategy. Government priorities mean an administration

billion will be invested by the end of 2018,” says Eduardo

generally creates projects for its own political term only,

Ramírez, National President of the Mexican Chamber of the

leaving the country with unfinished projects. Infrastructure

Construction Industry (CMIC).

gives a country credibility in terms of productivity and competitiveness,” says CMIC’s Ramírez. He adds that the

In terms of investment destinations, the infrastructure and real-

sector must work with public entities to create a long-

estate segments have grown more attractive to international

term infrastructure plan that not only incorporates the

and national investors, especially through the BMV and

country’s needs but that interconnects with the needs

investment coming in from Afores, according to Gutiérrez.

and duties of state and local governments. This would in

“New financial products such as CKDs, Fibras and CerPIs are

return ensure project continuity, financing and quality of

channeling Mexican savings to the construction sector and

projects developed.

VIEW FROM THE TOP |

SUBSIDIZED HOUSING PROVIDING RETURNS JORGE WOLPERT Director General of CONAVI

Q: What is your assessment of the national housing policy

INFONAVIT and FOVISSSTE and are the largest and most

and its impact on Mexicans’ ability to acquire homes?

overlooked segment in the country. The next social housing

A: I think we have made significant progress in managing

revolution represents the people who need a house and

incentives for social housing. We now have a progressive

have the human and constitutional right to it. These people

subsidy program whereby, for each MX$1 invested by

have the means and the need but lack access to credit. It

the government as a subsidy, MX$4-5 is returned to the

is our duty to make sure they get it, which is the legacy

economy. Our welfare policy applies to people who have

that I want to leave to Mexicans. By the end of 2018, we

a previous mortgage, helping the industry generate more

expect to have provided more than 5,000 subsidies under

supply and benefiting federal finances as it also represents

this model and while now it is a special program, we hope

an investment. Our main objective is to put the lowest

that it becomes a mainstay in the future.

income families at the center of housing policies. Q: What is CONAVI’s shared agenda with developers, In our 12 years of operation, subsidies have become more

constructors, development banks and other public

progressive. The New Housing Public Policy, implemented

institutions?

around five and a half years ago, differs from previous

A: I believe the development of the national housing policy

policies as it establishes a territorial view. A new ministry,

is a team effort. We are in constant communication with

SEDATU, was created for housing policy to follow an urban

housing developers, banks and financial institutions. This

development view. By evaluating the successes and failures

allowed us to provide larger loans, as the average price

of our past policies, we were able to focus on two aspects

of a social house varies from US$16,000-US$20,000. The

that have had very positive results. First, to make housing

banking system has become more involved in providing

solutions more environmentally friendly and sustainable.

credit to low-income and nonaffiliated families. We hope

Second, we have evaluated the quality of the spaces that

this collaboration will continue in the future to give more

social housing provides, so houses accompanied by a social

Mexicans the possibility to meet their housing needs.

incentive have at least two bedrooms, providing a better quality of life to residents. This has proven to be effective

Also, CONAVI maintains a daily dialogue with INFONAVIT

so we want to encourage bigger living spaces.

and holds a weekly meeting with FOVISSSTE, among other government institutions. I think we are all very well-coordinated

I think it is essential to design specialized programs

under SEDATU, which yields a robust general public housing

targeting the poorer part of our Mexican population to

policy. We work the closest with INFONAVIT, as we focus

give them the opportunity to buy a house or to build

our incentives on lower-income families. For example, in 2018

one on their own land. Also, we should enable their

we developed a program for the lower income INFONAVIT

ability to enhance and extend their existing homes. The

beneficiaries. Those people who earn less than 2.2 times the

self-production model implies self-construction with the

Unit of Measurement and Update (UMA) in Mexico cannot

guidance of experts helping users build their house on their

afford a house even with INFONAVIT’s credit and our subsidy,

own land. This subsidy model was put on the back burner,

so we increased it from MX$67,000 to MX$100,000. We will

as only 9-10 percent of our budget was allocated to it, but

also add about 12,000 subsidies a year to this program.

we decided to double it to 20 percent in 2017. The result has been amazing. There was substantial demand and an equivalent supply to ensure our subsidy was progressive.

National Housing Commission (CONAVI) is in charge of the implementation of the National Housing Law and coordinates

In 2018, we launched a different model to allow nonaffiliates

financing programs for housing subsidies. It aims to boost the

to buy a house. These people have no savings account in

development of sustainable social housing in Mexico

| VIEW FROM THE TOP

MSMEs PRIORITY FOR FUTURE DEVELOPMENT EDUARDO RAMÍREZ President of CMIC

Q: What is CMIC’s perspective of the construction industry

Government agencies are joining forces to develop this

in the years to come?

planning structure that will help improve the quality of the

A: CMIC represents over 12,000 construction companies of

transport infrastructure and connectivity of the country.

all sizes across Mexico in 44 delegations. Approximately 95

Companies need certainty that they will be able to grow in the

percent of the companies affiliated with CMIC are MSMEs.

future. These companies must be able to prepare themselves,

One of the main goals of the chamber is to provide these

obtain loans and innovate according to what will happen in the

companies with the tools necessary to develop and grow.

future. All construction companies that participate in public

Micro and small-sized businesses have more difficulty growing

works provide 0.2 percent of their profits for training, which

and expanding their reach than medium and large companies.

has permitted the creation of CMIC’s training institutes.

We offer constant training to these businesses. Most of these are also extremely interested in public works, but the sector

The chamber wants to invest as much as possible in

has shown more growth through private investment.

creating specialized training and teaching institutes for the industry. There needs to be more communication between

Years ago, approximately 5 percent of GDP was destined

the different agencies, meaning the water, housing, energy,

to infrastructure development. Today, the government is

telecommunications and road infrastructure need to work

only investing 2.8 percent of the GDP, which totals MX$625

more closely together. Today, there is no planning that

billion for the construction of public infrastructure. Private

aligns the goal of making the country more competitive

works have increased in the last few years and it is predicted

through infrastructure development.

that MX$2 billion will be invested by the end of 2018. Q: What impact will MSMEs have in bridging the country’s Q: What has been the main factor holding back the

infrastructure gap?

country’s construction sector?

A: We want to work closely with local governments to

A: It is very difficult for a country to develop sustainably

continue promoting the development of MSMEs in the

without implementing the proper planning. The country

construction sector. If these companies have more work,

desperately needs a long-term planning strategy.

they can spark a value chain that will not only increase

Government priorities mean an administration generally

the value of the industry but the economic power of that

creates projects for its own political term only, leaving

area. The construction industry creates more than 6 million

the country with unfinished projects. Infrastructure

direct and 2.8 million indirect jobs in Mexico. It is a strategic

gives a country credibility in terms of productivity and

sector for the country’s growth but planning continues to

competitiveness. CMIC believes that the country needs a

be a hindrance.

National Infrastructure Council composed of academics, public and private sector players. Within this council, there

Long-term planning will allow our MSMEs to truly develop

should be a planning institute with a certain amount of

to their full potential. For many years, some municipalities

autonomy in planning, not execution, of infrastructure

acquired huge debts and now the funds they have are

projects. Most of the planning required for an infrastructure

allocated to paying off those debts. There is now a financial

project should pass through this institute.

law that dictates the requisites a government must fulfill before obtaining credit. This will help organize the country’s finances. PPPs are also a ray of hope and will help bridge

Mexican Chamber of the Construction Industry (CMIC)

the country’s infrastructure financing gap. Mexico has

represents the interests of construction companies, offering

complex problems it needs to solve, such as corruption and

services to promote a highly competitive industry at the

insecurity, but there are many business owners and citizens

forefront of innovation

who are ready to put their best foot forward.

EXPERT OPINION |

UNLEASHING THE MEXICAN POWERHOUSE REYES JUÁREZ Director General and President of FOA Consulting

Mexico has always strived to be an economic powerhouse.

The government no longer has to do this on its own.

For years, its growth has been comparable to other

Infrastructure is a good business for investors and now

developing countries but it has faltered and its full potential

with a larger participation from Afores in the sector,

has yet to be unleashed. Mexico will be among the Top

the possibilities continue to grow. Pension funds feel

10 economic powerhouses in the years to come but how

comfortable with infrastructure as it matches their long-

can it achieve this with such low levels of infrastructure

term investment requirements. Project financing will always

development, ranking 62 of 137 in competitivity? The

be jeopardized by ejidos and rights of way but these

infrastructure that exists in Mexico does not match the

challenges only represent areas of growth for companies

potential power of the country.

to improve their communication channels with communities and involve society in projects.

The reasoning behind this chasm between economic growth and infrastructure is that Mexico has not established

But investors do not want to hear the announcement of

infrastructure as an implicit long-term policy. For centuries,

one or two projects. They want to see 100 or more new

the country has developed six-year infrastructure plans

projects in Mexico. It is only then that they can decide to set

that align with the presidential terms and not beyond. The

up offices in Mexico and make a long-term commitment to

complex nature of infrastructure makes it difficult for the

the country. Certainty and transparency among developers,

president who develops the plan to actually finish it in just

investors and society are key to boosting the infrastructure

six years. A good example of this is NAIM, which is a project

industry. If the country can ensure these two factors, it will

that no matter what, could not be finished in one term. The

not only open the market and bring in new players but these

country should remove this six-year restriction on planning

players will bring with them technology and innovation that

and look to the future. Projects should be prepared with

will ultimately transform the country. The industry knows

anticipation; they should be well thought-out and well-

what needs to happen to unleash its power but the private

crafted so they are attractive for any type of investment.

sector continues to be divided. The private sector must

Ultimately, it does not matter whether it is the public or

raise a unified voice to push the agenda for long-term

the private sector that carries out the project but that the

infrastructure planning in Mexico. If we organized ourselves

project is pertinent, solves a problem and adds value to

correctly, the government would pay more attention to the

the country.

changes that could help us advance as a society.

Infrastructure directly impacts the quality of life of its

Countries such as Australia and Colombia have created their

citizens. The Durango-Mazatlan highway was an incredibly

own independent entities to oversee infrastructure planning

difficult project to complete as it splits the Western Sierra

and align the needs and skills of the public and private

Madre into two. Nevertheless, the benefits outweighed

sectors. In Mexico, however, planning in Mexico continues

the challenges and once it was completed, it cut down

to be a duty that only the government can execute. The

transportation times from six to two hours. Interconnecting

country has taken steps to incorporate the private sector

two once-isolated areas not only cut down travel times,

into planning through PPPs and USPs in recent years.

it awoke activities that were dormant as a result of the

USPs were intended to be the private sector’s bridge for

isolation. The local economies grew and this was reflected

the country’s infrastructure gaps that were not included in

by the boom in real estate development in those areas. For

the government’s plans. In theory, it was a perfect match

the country to reach its full potential, it needs to realize that

but in practice it has yet to live up to expectations. USPs

infrastructure has the power to facilitate the development

should bring in innovative solutions to the market and

of activities that will boost the economic growth of the

create healthy competition among players to see who has

country. Its multiplier effect will benefit us all.

the best ideas and skills to develop them.

| INSIGHT

PPPs CARRYING WEIGHT OF INFRASTRUCTURE DEVELOPMENT RICARDO DÍAZ DE LEÓN 14

Infrastructure, Mining, Logistics and Tourism Coordinator of ProMéxico

In an industry as broad and far-reaching as infrastructure,

have debuted on the BMV. Financing instruments such as

neither the public nor the private sector can go it alone.

Fibras, CKDs and CERPIs have taken off, especially for real

Although the public sector should oversee projects and

estate projects. “New financial schemes allow the pursuit of

shoulder risk, the money needs to come from private

new infrastructure projects. Previously, funding was limited

companies, says Ricardo Díaz de León, Infrastructure,

to development banking,” Díaz de León says.

Mining, Logistics and Tourism Coordinator at ProMéxico. “For ProMéxico, it is crucial to attract companies and to

The benefits of greater financial options are reaped not

have them invest,” he says. “The private sector should carry

only at an industry level but nationally, according to Díaz de

the financial weight of infrastructure project development

León. “I think these vehicles give way to the development of

and integration, and PPPs enables them to do so.”

projects that were hindered before due to a lack of expertise or resources. This not only impacts the infrastructure sector

The Telecommunications Reform gave way to the first

but also benefits the entire economy.”

telecom PPP in México, a project worth US$7 billion. The Shared Network is an initiative to eliminate Mexico’s telecoms

ProMéxico plays a key role in the country’s economic

monopoly and generate competition in the country, allowing

development, with a mandate to spread information

more companies to enter and services to improve. Altan

about the country’s investment opportunities abroad.

Redes was awarded the 20-year concession to build and

“We are prioritizing the regions that have shown more

operate the 700MHz band, while both Telefonica and AT&T

appetite for construction and infrastructure development

secured control of the 2.5GHz band. “The Shared Network

in our country,” Díaz de León says. China and other Asian

is not a finite project. It is the base to develop and integrate

countries constitute a key region for ProMéxico’s outreach

other services into society,” Díaz de León says.

efforts. “The Asian market is playing a preponderant role as these countries are looking at the opportunities that

Prior to 2012, the industry had no legal framework for PPPs

Mexico has to offer.”

and before 2017 there was no way of knowing about PPPs prior to their publishing. But in 2017, Bancomext launched

Díaz de León adds that one problem is that foreign investors

the Mexican Projects Platform to catalog the projects to

often do not know where to start looking. To address this

be developed under a PPP scheme. “This platform is a key

issue, ProMéxico has promotional agreements with other

tool for ProMéxico to better promote investment in public

public and private entities such as FONATUR to seek

infrastructure abroad,” explains Díaz de León.

investors for the tourism sector. The tourism promotion fund developed a specialized platform to showcase the

Despite the improvement that PPPs and new financial vehicles

land available. “We often have foreign executives who want

have seen in increasing private investment and participation

to venture into the Mexican hospitality sector. Given the

in infrastructure projects, he believes there is still a great deal

growth of the tourism sector, their investment allows the

of opportunity. “Unsolicited proposals are an example of a

development of niche infrastructure, for example in medical

mechanism contemplated in the law that has not yet not being

tourism,” he says.

fully capitalized on,” he says. “This is a key area of opportunity as companies are better positioned to detect needs and

As for the impact the new administration will have on the

document them, saving the government the time and costs

infrastructure promotion equation, Díaz de León says the

of the initial phase of mapping infrastructure demand.”

country must wait to see how events unfold. “The newlyelected president has spoken about infrastructure projects,

As Mexico’s project financing portfolio adapts more

which is a good because it means that infrastructure is a

sophisticated mechanisms, some of the most attractive

priority,” he says.

VIEW FROM THE TOP |

ZEEs COULD HELP BRIDGE GAP BETWEEN ‘TWO MEXICOS’ ROBERTO MARTÍNEZ Head of the OECD Center in Mexico for Latin America

Q: What is the OECD’s view of the presidential election

The OECD has insisted on structural reforms that will

in Mexico and the impact on infrastructure development?

generate better regulatory and competitive conditions.

A: Presidential elections tend to pause decision-making

The ZEEs program or the already announced infrastructure

and public expenditure on large infrastructure projects.

programs of the incoming federal administration must

Although financial and political analysts cannot forecast

create favorable conditions to attract investment in

the economic conditions for the year, what we do know

lower-income regions of Mexico. This implies a long-

is that there are immense projects that are under way

term commitment and requires coordination between

and that require certainty regardless of the change of

Mexico’s industries. In particular, logistics infrastructure

administration.

will play a vital role in the development of these zones and it cannot operate well if security is not ensured. The

The OECD has released three reports for the development

OECD recommends not only the improvement of logistics

of NAIM with support from GACM to strategically analyze

infrastructure but also the

the governance aspects of this project. We advise the

infrastructure, which means that the government must

governance of such an immense project where risks must

have a greater fiscal capacity.

development of energy

be mitigated to ensure transparency with reference to best international practices. We analyzed GACM’s decision-

Q: How can Mexico improve its fiscal capacity to fund much

making processes and organizational structure and made

needed infrastructure projects?

recommendations to make sure the federal government

A: At one point, 11 percent of Mexico’s GDP came from tax

supported GACM with a highly specialized team. Because

collection, which was one of the lowest levels in the OECD.

GACM is a public company, it should be autonomous when

There has been an improvement in how much the country

it comes to making technical and managerial decisions.

is collecting, which was 17 percent of GDP in 2016, but the

GACM has complied with the OECD’s recommendations

country undeniably still needs to improve tax collection. The

and we are pleased that it has integrated most of our

return on investment in infrastructure is high because not

recommendations.

only does it create jobs, it has a pull effect on the supply chain the private sector creates. In our recent report,

Q: What are the main factors holding back Mexico’s

Getting it Right, we provided all presidential candidates

economic growth and what should be done to boost

with recommendations for the next six years.

development? A: It is unacceptable that there is growing inequality across

Mexico is among the Top 20 largest economies in the world.

the different regions in Mexico. There is always talk about

To become a leading economy, Mexico’s growth must be

the Two Mexicos, which have been studied by McKinsey

more dynamic according to its size. The country’s economy

and The Economist, describing how Mexico is split into

is not growing as it should and its growth rate must be

two. One Mexico is extremely dynamic and is growing

doubled. That also goes hand in hand with higher inclusion

and another is poor and lagging. This is something that

levels. The additional growth the country needs must be

truly worries the OECD as a structural vulnerability of the

characterized by greater inclusion, especially of women

Mexican economy. Inequality has tripled between Mexico’s

and the lagging regions.

most dynamic and its poorest states over the course of two decades. The ZEEs are a very ambitious proposal to revert this disparity. The next administration may modify

The Organization for Economic Co-operation and Development

or redefine the program, but we believe it is a great way to

(OECD) is an intergovernmental economic organization with

generate activity in Mexico’s southern regions and boost

36 member-countries, founded in 1961 to stimulate economic

economic growth.

progress and world trade.

| INSIGHT

PLANNING: THE SOLUTION TO THE INFRASTRUCTURE GAP IGNACIO GARCÍA DE PRESNO Lead Partner of Global Infrastructure and Projects Group of KPMG

When PPPs first came to the forefront of the infrastructure

leaders like governors and mayors want 100 percent of the

industry, they were held up as the cure for Mexico’s

credit for projects and they are reluctant to start a process

infrastructure woes. But according to Ignacio García de

that will be completed under another administration.” García

Presno, Lead Partner of Global Infrastructure and Projects

de Presno says the government tends to think it should

Group of KPMG, projects must be analyzed individually to

make its mark and redesign the entire country in just one

know if a PPP is actually the most suitable option. “There

six-year administration. “The current administration has

are a number of different PPP modalities, from concessions

thought more about the long term, with initiatives like the

to service agreements,” he says. “All could work, and some

Energy Reform, which will not reap benefits for many years

better than others. But there is a perception that they can

or the Red Compartida, which will be completed over the

fix everything and the issue is that they were not designed

next 10 years.” Similarly, the Durango-Mazatlan highway

to do everything.”

was initiated during a previous administration and was completed under the current administration.

García de Presno says that people often tend to forget that PPPs ultimately need funding from the public sector.

To better stimulate PPP development of infrastructure,

“It is like using a credit card rather than a paycheck,” he

García de Presno believes the root that must be addressed is

says. “The government must decide whether to use a

tax reform. “Government does not have the money to spend

PPP and pay small amounts over many years or whether

on infrastructure and the country’s tax structure is very

to pay upfront through traditional public works.” He says

limited,” he says. Instead, Mexico funds its infrastructure

that, even then, it is not necessarily the best option as the

development through concessions. García de Presno warns

government also must contribute funds unless the modality

that, while this works for roads, it could not be applied

is a concession and this is not always possible.

easily to a country like Mexico for public services such as water or waste management. “We need to stop using

A main problem with the government tendering projects

water as a political hostage,” he says. “Yes, water itself is a

is that it starts with an idea rather than a fully formulated

basic human right but having it delivered to our homes is

project, García de Presno adds. By the time the developer

not. The dam and purification facilities cost money.” While

has won the bid and started construction, several

water concessions are used successfully in Aguascalientes,

unforeseen issues inevitably arise as a result of poor due

Saltillo and Cancun, he does not believe this model can be

diligence and planning. “Ninety percent of the time, the

applied successfully in several areas of Mexico City because

project will begin before fundamental aspects like soil

resistance to pay for the service would be too great.

conditions, archaeological and protected land issues and rights of way are properly analyzed, additionally, rule of law

“Often, countries like the Netherlands are referenced as

and organized crime also interfere with the development

models because those populations have access to free

of the projects,” he says. “In this regard, the perception

education, free water and other public services as well,”

of projects consistently coming in late and over budget

García de Presno explains. “What is not explained is that,

is wrong; the issue is that the budget was not planned

in the Netherlands, the highest tax bracket is 52 percent,

correctly from the outset to cover these fundamentals.”

while the lowest is 37 percent. This is how these countries can afford to offer better services to the people.” He says

In terms of planning, he believes this should be done years or

in Mexico these examples are used to demand the same

even decades in advance. He uses the example of the NAIM

system without paying the same levels of tax. “On paper it

airport project, which is scheduled to be completed by 2025.

is a simple discussion but in practice it is very complicated

“We should already be thinking about the roads, access and

to reconcile agendas across all governments and states,” he

public transport links,” he says. “The problem is that local

says. “But we can start with a comprehensive tax reform.”

INSIGHT |

PUT URBAN PLANNING IN THE FRONT SEAT PABLO VAGGIONE Coordinator of the Mexico and Cuba Office of UN-Habitat

For many years, urban planning has taken a back seat on

life. “The country must adapt a systematic view of how

government agenda,s resulting in the uneven growth of

cities should work and create a network of cities within

Mexico’s cities. But Pablo Vaggione, Coordinator of the

the country,” he says. “Cities should all have a specific role

Mexico and Cuba Office of UN-Habitat, says that has to

and complement each other if they are to grow as a whole.”

change. “Urban planning has been left pending for many political administrations,” he says. “It is complicated to

But establishing well-planned cities is little help if they all

change yet fundamental to re-think.”

become islands within the country. Vaggione says they must be interconnected through the development of resilient

UN-Habitat is a United Nations agency that works to

infrastructure. “A territory works only when it has good

improve urban structure and achieve adequate shelter for

infrastructure that is well-planned and is based on a global,

all. Vaggione points out that Mexico boasts a privileged

state and national vision,” he says. “We are convinced

geographic position between the Atlantic and Pacific and

that Mexico will significantly benefit from a new National

acts as a bridge between North America and Latin America. It

Infrastructure Plan that considers the needs of not only

has a large population with a young demographic that gives

the individual sectors but of the entire country. A strategic

the country all the right tools to become a leading economy.

vision and the capacity to identify which projects are

But it all depends on how Mexico uses these features to its

essential from an evidence-based approach will determine

advantage. “Infrastructure allows a territory to function and

investments with the highest impact and the least risks.”

coordinate all its activities, whether they are social, economic or environmental. It is a catalyst for development and can

UN-Habitat is developing a City Prosperity Index (CPI),

help boost Mexico’s many advantages.”

which measures infrastructure, quality of life, inclusion and environmental factors that impact the growth of cities.

At the Habitat III summit in Quito in 2016, the 193

By end of 2018, Vaggione expects to have more than

participating countries agreed to establish the New Urban

305 municipalities measured, home to the majority of

Agenda and pledged to live by the Sustainable Development

the Mexican population. “The GDP of the 59 metropolitan

Goals (SDG) to boost the development of more sustainable

areas in Mexico is greater than that of Peru, Argentina and

cities around the world. “There are 17 SDGs, each with their

Colombia combined,” he says. “Adding in the number of

own specific actions,” Vaggione explains. “Two of every

opportunities in the territory, infrastructure should be taken

three actions within these goals are related to urban,

into account as an investment and not an expense as it will

territorial or local development.” These tools were created

further boost the country’s economic development.”

to help cities make the most of the resources they have. The UN has found that in general, the countries that Many of the issues Mexico is facing are a consequence of its

have developed sustainably have done so due to a

fast urbanization that took place in the second half of the 20th

strong correlation between urban development and

Century, with little or poor planning of infrastructure projects.

economic growth. Vaggione explains that Mexico’s current

As a result, Mexico’s cities have grown spontaneously and

development model involves high land consumption, which

without much structure but Vaggione stresses that the

in turn increases transportation and mobility costs, as

structural challenges cities face are not the consequence

well as social fragmentation. “Low density expansion has

of one particular political mandate. According to Vaggione,

proven to be less efficient than compact development,” he

eight of 10 Mexicans now live in cities.

says. “Compact urban development should be a priority for Mexico, which is one of the reasons why SEDATU was

Disparities in growth often cause a fragmented vision for

created. The purpose of the agency was to reconnect land

cities, in effect limiting productivity and the quality of

use and housing policies.”

Matute Remus Bridge in Guadalajara, Jalisco

STATES & MUNICIPALITIES

According to the World Bank, Mexico has more than 125 million people scattered across its 32 states and 2,462 municipalities. With forecasts suggesting 90 percent of the countryâ&#x20AC;&#x2122;s population will live in cities by 2030, the development of sustainable infrastructure becomes a pressing priority.

The automotive, aerospace and manufacturing industries are boosting the development of various states but for secondary and tertiary cities to become more attractive to both national and international investors, essential infrastructure must be developed.

What is certain is that these cities demand transport, logistics and basic infrastructure, such as water pipes and energy transmission infrastructure. 2018 welcomed new governors and municipal presidents with the objective of analyzing the areaâ&#x20AC;&#x2122;s priorities though detailed infrastructure plans. This chapter portrays the state of the infrastructure industry through the eyes of municipal presidents, mayors and governors of the countryâ&#x20AC;&#x2122;s main regions.

CHAPTER 2: STATES & MUNICIPALITIES 22

ANALYSIS: Taxes: The Root of Mexico’s Infrastructure Problem

VIEW FROM THE TOP: Miguel Márquez Márquez, State of Guanajuato

VIEW FROM THE TOP: Alejandro Moreno, State of Campeche

VIEW FROM THE TOP: Francisco García, State of Tamaulipas

VIEW FROM THE TOP: Alejandro Zairick, State of Veracruz

VIEW FROM THE TOP: Efraín Arias, SCT State Office Queretaro

VIEW FROM THE TOP: Ramón Dávila, State of Durango

INSIGHT: Alejandra Vega, CMIC Queretaro

VIEW FROM THE TOP: Marco Uribe, CMIC San Luis Potosi

INSIGHT: Luis Celis, Grupo HH & Asociados

VIEW FROM THE TOP: Álvaro Burgos, State of Guerrero

| ANALYSIS

TAXES: THE ROOT OF MEXICO’S INFRASTRUCTURE PROBLEM Mexico has a US$544 billion infrastructure gap to fill. While the private sector can help through PPPs, there is another factor that could fill the government’s coffers: taxation. The fact is, Mexico is among Latin America’s lowest tax collectors and the question may be not if, but when this will change

Among the main reasons why infrastructure projects are

municipalities and states increased 150.7 percent between

not being developed at the necessary rate is the lack of

2000 and 2017. Because they are no longer able to take on

government budget to fund them. According to the OECD’s

more debt, these entities look to the federal government for

Revenue Statistics in Latin America and Caribbean report,

support. A study by Mexico Evalúa found that between 2011

Mexico is among the six countries with the least total tax

and 2017, states received over MX$260 billion more than

income in the region. In fact, the Mexican government

the amount approved by Congress in the federal budget.

collects 17.4 percent of GDP through taxation while the average OECD country’s income is 34.3 percent.

In 2015 alone, INEGI data states that 86 percent of states’ total income came from the federal government itself,

Part of the issue is political motivation. Few politicians want

the highest percentage in the last 10 years. But the main

to impose new taxes at the risk of losing potential votes,

mandate of the federal government is to fulfill the needs

especially at the local level. An example is the country’s

of the country as a whole, therefore prioritizing federal

property tax, which is often used as a means to invest in

infrastructure projects and at times placing the needs of

the development or improvement of local infrastructure.

small cities and states on the back burner.

Municipalities have the right to collect these taxes but according to the Mexican Institute for Competiveness

MEXICO’S SDGs

(IMCO), only 57 percent of municipalities carry out property

Mexico’s cities are growing rapidly and to allow the

appraisals, representing 0.2 percent of Mexico’s GDP. The

country to reach its Sustainable Development Goals

average in OECD countries is 1.1 percent.

(SDGs), it should invest US$544 billion from now until 2040. According to the World Bank, Latin American

“Local entities often wash their hands of collecting more

countries on average invest 3.3 percent of their GDP in

taxes so they do not pay a political cost, as is the case

infrastructure development, while most Asian and Pacific

of the tenure tax, which they can collect but choose not

countries invest an average 7.7 percent of their GDP. For

to,” says Diego Diáz, a researcher at IMCO. According to

Latin American countries, including Mexico, to bridge their

the UN FAO, tenure tax can be applied to areas such as

gaps, the Economic Commission for Latin America and

commercial farmland to encourage the efficiency of the

Caribbean (CEPAL) estimates that they would have to

agriculture carried out on the land. “Taxation related to

invest 6.2 percent of their GDP annually for eight years.

tenure rights is an important source of revenue for central

From 2013-2017, Mexico invested US$16.56 billion a year,

and local governments, and such taxes should be based

approximately 1.58 percent of its GDP, according to Global

on appropriate values,” says the organization.

Infrastructure Hub data.

Because there are neither positive nor negative incentives

The private sector can help, and it has been more active

for individuals and companies to pay taxes, many do not

in the infrastructure sector, having invested over US$12.2

pay at all. According to an INEGI study covering 2003 to

billion from 2013-2017, but there are many projects that

2012, 59.8 percent of Mexico’s total population participates

must be constructed by the public sector as they are not

in the informal economy, which is responsible for around

financially viable for the private sector alone. Among the

26 percent of GDP. According to the Public Account of

top areas requiring attention is social infrastructure, such as

the Federal Superior Audit, in 2016, tax evasion cost

schools and hospitals, especially as city populations continue

the Mexican economy MX$483 billion, representing 2.8

to grow. Another sector that is drastically underserved by

percent of GDP.

municipalities and cities is water and waste management, whose social importance make them far more intricate cases.

MORE DEBT

In particular, there needs to be a distinction between what is

The lack of collection of local and state taxes pushes the

a right and what is a service, says Roberto Oilvares, President

states to go further into debt. According to the Center

of RELOC and Former Director General of ANEAS. “There is

for Economic and Budgetary Research (CIEP), debt of

a difference between the right to access water and potable

Construction of Guadalajara Light Train

water services as the latter has an economic variable since

the largest increase in informal employment occurred in

water infrastructure has an economic value. The focus must

the construction sector with 350,956 workers. Formalizing

be on exploring the possibilities for private participation and

the construction sector could have a huge impact on tax

association for water services,” he says. According to Ignacio

collection and provide the government with the money

García de Presno, Lead Partner of Global Infrastructure and

necessary to not only upgrade IMSS, ISSSTE and other

Projects Group at KPMG, the optimal medium-term solution

public institutions to offer workers better health and

is PPPs. “The government does not have the money to spend

education services, but also build better streets, MTS

on infrastructure and the country’s tax structure is very

projects and water infrastructure that the country needs.

limited,” he says. While countries like the Netherlands are often referenced

WHAT WILL IT TAKE?

as infrastructure models for their access to free education,

The fact that 53.4 percent of Mexicans do not pay taxes

free water and other public services, García de Presno says

limits not only the country’s economic development but the

there is a reason for that. “What is not explained is that,

construction of the country’s most pressing infrastructure.

in the Netherlands, the highest tax bracket is 52 percent,

While 50 percent of the population lives in poverty, many

while the lowest is 37 percent,” he explains. “This is how

are also informal workers and García de Presno believes

these countries can afford to offer better services to the

incorporating this demographic into the formal economy

people.” He says in Mexico these examples are used to

would be a big step forward for tax collection. More

demand the same system without paying the same levels

than 57.6 percent of the employed population in Mexico

of tax. “On paper it is a simple discussion but in practice

works in the informal sector, generating 22.6 percent of

it is very complicated to reconcile agendas across all

the country’s GDP. According to the National Survey of

governments and states,” he says. “But we can start with

Occupation and Employment (ENOE), from 2012 to 2015,

a comprehensive tax reform.”

| VIEW FROM THE TOP

ENSURING INVESTMENT STAYS IN THE BAJIO MIGUEL MÁRQUEZ MÁRQUEZ Governor of the State of Guanajuato 24

Q: What would you consider the highlights of your

We expect all these factors will offer the certainty required

administration regarding new investment?

for investment to continue arriving to Guanajuato after we

A: During this administration, we have consolidated

leave office. We have 100 pending projects to attract new

Guanajuato as the biggest automotive cluster in Latin

investment to the state, 70 percent of which are oriented

America. We have manufacturing facilities belonging to

to the automotive industry.

OEMs such as Mazda, Honda, GM, Ford and Volkswagen, while Toyota will shortly finalize the construction of its new

Q: Considering the recent USMCA agreement, what is

venture in the country. By 2020, we expect Guanajuato will

Guanajuato’s position regarding international trade?

be the main vehicle producer in Mexico and Latin America

A: We are confident that the agreement reached by the

In terms of FDI, we had projected a total of US$5 billion

government will return certainty to the market. Nevertheless,

by the end of the administration but we will close our

when negotiations looked precarious, we were prepared for

six-year period with almost US$13 billion in new projects.

a scenario with or without NAFTA. We know that if NAFTA

Consequently, we have had a great impact on the state’s

were to be canceled or changed to a bilateral agreement

unemployment rate. Guanajuato has recently been among

there would be an impact on our operations but it would also

the main states regarding job creation and by the end of

open an opportunity to further diversify those operations.

the administration, we will have generated 300,000 new positions. In 2017 alone, 62,000 new jobs were created,

The CPTPP, for example, opens new possibilities for our

leading to an average of 50,000 new positions per year.

products to be exported to Asia and South America. Right now, Guanajuato exports to over 125 countries representing

Q: How are you ensuring continuity in Guanajuato’s

US$22 billion per year when 20 years ago we only exported

investment promotion strategies?

to three countries representing production worth US$200

A: Investment promotion is not only dependent on state

million. If we consider this administration alone, we started

policies as all the investment projects are approved by a

2012 with US$11 billion yearly in exports and we have

Citizen’s Council. That being said, Guanajuato offers legal

doubled that number. We need to diversify our operations

certainty above anything else. According to the National

but not compromise the good relationship we have with

Institute for the Consumer, we are among the Top 3 states

our North American neighbors.

for contract fulfillment. As a result, companies know that whatever contracts they sign with this administration

Q: Considering Guanajuato’s 2040 vision, what advice

will stand once the new government arrives. We also

would you give to the next administration to maintain the

offer certainty based on the development plan we have

state’s growth momentum?

structured for 2040, which helps investors understand

A: Creating and maintaining the trust of new investors

where the country will be in the next couple of decades.

should be a priority. Our administration was built on trust

Lastly, according to INEGI’s latest census, Guanajuato is

and delivering on our promises regardless of the contracts

the region with the least corruption in the country, thus

we might sign. Especially in an uncertain environment, the

providing transparency in every process a company must

best thing we can offer companies is confidence regarding

follow with the government.

their investment, no matter what. Furthermore, we must consider ourselves as account managers, which means that we must follow up on any relationship we establish with

Miguel Márquez Márquez is a Mexican politician affiliated with

new investors. We are allies and partners throughout the

the PAN party. He has been Governor of Guanajuato since 2012.

lifetime of their investment and not just while the plant is

Previously, Márquez was mayor of the Purisima del Rincon

being built. Education must also be at the top of the list for

municipality

the new administration.

VIEW FROM THE TOP |

REVIVING A SOUTHEAST GIANT ALEJANDRO MORENO Governor of the State of Campeche 25

Q: How is Campeche collaborating with the private sector

according to the 2014 national quality of life study carried out

and academia to encourage the industry’s development?

by the consultancy firm Mercer. The study evaluated 11 criteria:

A: Despite the downturn the energy industry has

political and social environment, economic environment, labor

experienced over the last couple of years, it will remain

market, socio-cultural environment, healthcare, schools and

a major driver of economic prosperity and security in

education, public and transport services, entertainment,

Campeche. With over 40 years of experience in the industry,

consumer goods, housing and natural environment.

Ciudad de Carmen remains Mexico’s oil and gas capital. We have been working very closely with the private sector

In terms of security, Campeche is proudly one of the most

and academia to make sure it stays this way. We are aware

peaceful states in Mexico, according to a 2015 study carried

that with the Energy Reform new operators and service

out by the Institute for Economics and Peace and has had the

providers will come to Campeche and compete with local

lowest crime rate in the country for the past five years. We

companies, and we want to be prepared. Having said this,

understand the importance of safety and security, especially

we are confident that local suppliers have the experience

for international companies that come from developed

and skills needed to compete with international companies.

economies and have higher standards in these areas. Among

They will simply need to adapt to the new landscape and

other factors, we have broad energy resources, a young

the challenges that will come with it.

and skilled labor force, a recently modernized and enlarged port, offering a broad supply of services for the oil industry

The Energy Reform requires different minimum levels of local

and a privileged strategic location in the Campeche Sound

content depending on each contract phase and area. We are

– the country’s most important in terms of hydrocarbons

working closely with academia to align the qualifications of

reserves and production. Campeche has a lot to offer to

our graduates with the needs of the energy industry. The

international companies looking to expand their businesses

lack of English-speaking labor could become a barrier that

into the southern region of the country.

inhibits locals from working in international companies. To prevent this from happening, we are implementing bilingual

Q: What is the state doing to consolidate its participation

degrees at the public universities of Ciudad del Carmen, such

in the federal ZEE program?

as UTCAM. The private sector also plays an important role in

A: The state of Campeche is one of the seven ZEEs in the

developing human capital by creating training programs and

country. One of the main objectives of the ZEE program

using the local workforce and service providers.

is the diversification of the economy. As part of this program, we want to generate well-paid jobs, attract

The government of Campeche also created the state’s Energy

investment, generate and strengthen local value chains,

Agency, a decentralized public organism from the Ministry

promote exports and increase productivity, all with the aim

of Sustainable Energy Development with budgetary and

of improving the region’s wellbeing. All of the above will

operational autonomy. The Energy Agency will manage and

be achieved through a competitive package of incentives

promote the development of energy projects in a safe, reliable,

that include federal and local fiscal incentives, nonfiscal

profitable and sustainable way to generate new employment

incentives and public-private funding for the attraction of

opportunities and welfare for the citizens of Campeche.

public and private investments.

Q: What are the competitive advantages that position the state as a strategic and stable entity to invest in the short,

Alejandro Moreno is the Governor of the State of Campeche.

medium and long terms?

He graduated as a lawyer from the Instituto Tecnológico y

A: Ciudad del Carmen and the city of Campeche were in

de Estudios Superiores René Descartes. Before becoming

the Top 10 cities with the highest quality of life in Mexico,

governor, he was a federal congressman in the LXIII legislature

| VIEW FROM THE TOP

TAMAULIPAS’ ENERGY ASSETS SPARK INFRA DEVELOPMENT FRANCISCO GARCÍA Governor of the State of Tamaulipas 26

Q: What steps have been taken to prepare for peak oil and

market structures, specializations, territorial space control,

gas activity in light of the state’s hydrocarbons resources?

easy access to raw materials and developed transport and

A: The federal and state levels should fully commit

telecoms infrastructure.

themselves to capitalizing on the benefits of the Energy Reform. In the particular case of Tamaulipas, we have

Tamaulipas has made the most of these assets to stand

committed a large pool of financial resources to boosting

out as a favorable environment for investment and it is the

the industry through measures such as creating a public

No. 1 state in capacity creation for the diversification of

structure focused on the hydrocarbons industry’s needs

export products that go beyond oil and gas. There is a wider

and its fast pace. To that end, we developed the Integral

spectrum of assets that add to the state’s competitiveness

Strategy for the Energy Industry’s Development, which

levels, such as the presence of suppliers and distributors

includes four guidelines for the state’s government. First,

or fiscal and regulatory incentives for companies willing to

public infrastructure should be prioritized to serve the

settle here. We are also invested in bringing about structural

industry’s activities, particularly the Port of Tamaulipas,

changes to create judicial certainty in deregulation of

which will have an offshore terminal. Second, investment

permits and processing times and a firm commitment

in human talent is required, as is the modernization of our

to security. The government of Tamaulipas is devoted to

education centers. Third, we should create and consolidate

governance and legality and works under a reliable business

a competitive local supply chain to support operators in

culture with a hydrocarbons industry that has been present

meeting their local content requirements. Finally, we need

for around 100 years.

to generate investor confidence. It is important to highlight that preparing for the challenges of the reform’s application

Q: What is your approach to cooperation and competition

has been a strategy for Tamaulipas since day one, as we are

among the country’s leading oil and gas states?

confident that this industry represents tangible benefits

A: There are certain criteria set at a global scale to evaluate

for our society.

how investment flows will behave and these include judicial certainty to decrease investment risks, productive projects

Q: What are the competitive advantages that make

and transparency in regulations and the legal framework.

Tamaulipas a strategic and stable entity for investment?

In Tamaulipas, we have employed a different approach to

A: As business leaders expressed in a survey conducted

other states to position ourselves based on our own assets

by the Mexican Institute for Competitiveness (IMCO),

and market conditions. We see our administration as a

Tamaulipas is a state with an unbeatable location. We

facilitator and as a strategic partner since we see productive

share a 370km border with Texas, and we have 17 border

activity, public administration and social benefit as a highly

crossing points, five international airports, a refinery, three

intertwined matrix.

ports, natural gas processing plants, 45 industrial parks and a significant pipeline network. We have competitive

Q: What will be your administration’s legacy for Tamaulipas’

advantages that turn Tamaulipas into a strategic state

oil and gas industry?

and economically sustainable receptor of investments.

A: The planning and creation of new public infrastructure

Moreover, we have a strong supply of human capital,

must always be aligned with the social and economic development of the state. Under this vision, the development of the Port of Matamoros will be one of the pinnacles of

Francisco García started his political career as a campaigner

this administration, with infrastructure that will stand out

for PAN in 1999. He was a federal representative for Reynosa,

as the legacy for offshore services, cost-effectiveness and

a city for which he would later become municipal president.

operational efficiency. This is a result of the port’s strategic

In 2012, he was elected as a Senator representing Tamaulipas

location facing the Cinturón Plegado de Perdido area.

VIEW FROM THE TOP |

ZEEs HELPING DETONATE O&G INDUSTRY ALEJANDRO ZAIRICK Minister of Economic and Harbor Development of the State of Veracruz 27

Q: What is SEDECOP doing to position Veracruz

Q: How is Veracruz improving its business platform?

internationally?

A: To the best of its ability, the government of Veracruz

A: Our local government attended the Offshore Technology

extends a helping hand for companies to set a solid foothold

Conference (OTC) in Houston in 2017 for the first time

in the market and undergo a seamless process from arrival

since the event’s inception. We wanted to see first-hand

to the launch of operations. We are working on regulatory

the industry’s main players and gauge which ones might

improvements to expedite permitting processes and

be interested in investing in Veracruz. That same year, we

administrative procedures and to make them as dynamic

launched the Alvarado port project to meet the oil and gas

as possible. Our goal is to decrease our 755 procedures

sector’s inherent needs in logistics and supply. Veracruz’s

and services and to shift toward shorter response times

coastline is 750km long and our state’s geostrategic position

and shortened procedures.

in the Gulf of Mexico and its valuable oil and gas resources necessitated such a strategic project. Local suppliers in

Q: What other stimuli are you offering to newly arriving

Veracruz also want to know what newcomers will need and

investors?

under what time frame. SEDECOP is working with them to

A: We are drafting an instrument similar to the ZEEs but

provide training programs. We are also working with the

at the state level. We are trying to structure what the

federal government to develop our supply chain in the oil and

municipalities can provide in terms of attractive tax rates

gas industry to help these and other companies in the state.

and other incentives among strategic positions within Veracruz. We are still polishing the inner workings of the

Q: How are federal programs such as the Special Economic

instrument. Industrial park developers are also part of

Zones (ZEEs) making an impact in Veracruz?

this conversation to provide the most effective stimulus

A: In the particular case of Veracruz, it involves

instruments possible. We are motivated by the sizable

Coatzacoalcos, Nanchital and Ixhuatlan del Sureste. These

potential they have seen in the state.

create attractive opportunities for private players in federal, state and municipal taxes. Previous federal programs created

Q: What will be this administration’s legacy for Veracruz’s

a one-stop shop that assisted private players in fast-tracking

energy sector?

permitting and administrative procedures at all government

A: We want to set the stepping stones for Veracruz’s

levels. This complete package created a pipeline of 15 letters

effective and efficient development. A fully-functional

of intent a few steps away from closing. Expectations are

State Energy Agency will spearhead these efforts and we

high and the interested companies include refineries, liquid

want to leave a solid foundation for our strategic Alvarado

storage businesses and offshore services providers.

port for the next administration. It will be a critical link in Veracruz’s prosperity chain, considering the oil and gas

Q: What is Veracruz doing to ease anxieties relating to

industry in Mexico exceeds the parameters of any other

community relations and security?

industry in terms of investments, job creation, wealth

A: Veracruz is dealing diligently with these two particular

creation, social impact and economic growth. It is set to

issues. We are working closely with the Ministry of Interior

become a major stimulus for Veracruz’s economy and will

to address these situations accordingly. The South of

positively impact other sectors.

Texas-Tuxpan pipeline, a development by TransCanada, is a positive reference in that regard. In most cases, the problems are rooted in misinformation so we are focusing

Alejandro Zairick has served as Veracruz’s Minister of

our efforts on creating exchange platforms between

Economic and Harbor Development since December 2016.

corporations and communities to dissipate any doubts and

He also served as a state congressman in Veracruz’s LXIII

to be part of the solution.

Legislature from 2013 to 2016

| VIEW FROM THE TOP

QUERETARO’S GROWING ROAD NETWORK EFRAÍN ARIAS Director General of SCT State Office Queretaro 28

Q: What sparked Queretaro’s need for more road

This beltway should be expanded to 12 lanes but the ROW is

infrastructure development in the last few years?

complex and it is not possible. The northwest and southwest

A: Given the state of Queretaro’s fast-growing industries

beltways could also be expanded to increase capacity. The

such as aerospace, manufacturing and industrial parks,

State of Queretaro is also analyzing the development of

transportation of goods is important. The capacity of our

another circuit toward the Queretaro International Airport.

highways is reaching its limits and that is why we must coordinate with local and state authorities as to what

Q: How are most road and highway projects funded in the

projects should be developed. The only highway that

State of Queretaro?

existed 15 years ago was Highway 57, which interconnected

A: Most projects are funded through public financing from

Laredo to Piedras Negras. Later, the Palmillas-Apaseo El

the Federal Expenditure Budget (PEF). SCT receives an

Grande macrobeltway was constructed to ease traffic on

annual budget that it then distributes among the states

Highway 57. Vehicles headed to the Bajio region would

and to different projects. Nevertheless, the public budget

use this macrobeltway to avoid crossing the city. Then

varies greatly each year. Five years ago, we would construct

the northeast and southwestern Queretaro beltways were

MX$22 billion in federal roadways and in 2018 we were

created to also ease traffic. These three beltways are the

construction only MX$16 billion due to Congress’ policies.

result of the real estate and industrial evolution in the Bajio

Throughout 2018, the State of Queretaro will use MX$1.07

region. Queteraro sees constant interaction between the

billion to develop the new road network that includes

federal road network and the state network, and SCT works

presidential commitments such as Bernal-Higuerillas,

to follow the trends of how the industry and its needs are

Portezuelo-Palmillas and Paseo de la Republica.

evolving in the state. When we do have highways that are profitable, the private Q: What new needs has SCT Centro Queretaro identified

sector is invited to participate. There are many projects

to boost the competitiveness of its road network and

in Mexico that are not necessarily profitable but they are

industries?

socially important. The country always wants to make sure

A: Conservation and maintenance is also an important

there is a balance. Each state proposes its projects and the

part of a road network. SCT Centro Queretaro’s role is to

Ministry of Finance approves the resources. In Queretaro we

optimize resources and distribute them throughout the

currently do not have PPAs, although our neighbor, San Luis

entire state. Highway 57, for instance, is the main artery that

Potosi, has the PPA for the maintenance and conservation

interconnects the state to the rest of the country, but it has

of the Queretaro-San Luis Potosi section of Highway 57. The

reached its maximum capacity. This is one of the reasons

macrobeltway was also constructed under a PPA scheme.

why the capacity of the Paseo de la Republica section was expanded to its full capacity to 12 lanes and the Queretaro-

Q: What is the main challenge SCT Centro Queretaro

Mexico section is being expanded to six lanes.

encounters when developing new or improving existing road infrastructure?

Although the macrobeltway has been in operation for only a

A: I believe the country is well-managed and that there are

year, it already has a traffic volume of 11,000 vehicles a day.

enough monetary resources. I believe that the country does have the financial capacity to construct; there are other factors that are causing projects to increase in costs and

Ministry of Communications and Transport (SCT State Office

time. One of the main problems transport infrastructure

Queretaro) is responsible for the planning, design, construction

projects face is right of way, especially when developing

and

projects for the Mexican highway network. For instance,

conservation

transport

and

communications

infrastructure throughout the state of Queretaro

when a highway is modernized and expanded, the project

may need to adjust its path. Years ago, the modifications

tender projects if a certain percentage of the ROW has

were far more modest and roads were constructed with

been liberated but projects are forced to a halt when the

high slopes for a much faster and cheaper construction.

remaining ROW cannot be obtained. The construction

Today, many communities are claiming the historical ROW

teams must have a great deal of conviction to overcome

from highways that already exist. ROW has the power to

all of the obstacles that they will face to finish a project.

derail a project, especially since now many ejidos do not even have the proper documents to accredit the property.

Environmental permits are also playing a crucial role in the development of highway projects. These permits include

An example in neighboring Guanajuato is the Toyota

not only environmental impact studies but also the change

manufacturing plant. The company had problems with

of land use. To obtain a change of land use, SEMARNAT

the ROW for the El Castillo elevated highway crossing.

requires that the land purchase be accredited. There are

Companies must hire large teams of lawyers and technical

also many laws that hinder progress. For example, to

experts to obtain the rights. There are communities that

obtain an explosives permit to create a tunnel for a road,

are noble and cooperate and then there are many that

the process could take up to more than half a year as it

want to abuse the system. The government allows us to

goes through the various entities and levels of government.

VIEW FROM THE TOP |

NEW HIGHWAY CREATES LOGISTICS HUB IN DURANGO RAMÓN DÁVILA Minister of Economy of the State of Durango

Q: What projects should the state of Durango prioritize?

Q: In what ways has the Durango-Mazatlan highway

A: The state has a variety of needs when it comes to the

impacted the economic well-being of the area?

development of highways. We need to finish the highway

A: It has positively strengthened tourism in Mazatlan but

that leads to Guadalajara. When it comes to electric

the industrial opportunities available at the Mazatlan port

infrastructure, we need to cover several areas in the state.

were not properly considered when it was being planned.

Industrial infrastructure is also quite important and should

As a result, the government is collaborating with Sinaloa to

be developed throughout the state.

expand the port. Once it is open, the highway will provide merchandise access to the Pacific Ocean, making Durango

Durango has an aggressive incentive program that is focused

an important logistics hub. The port is the entrance and exit

on attracting investment for the development of real estate,

to the Pacific Ocean, and the highway is the shortest route

such as residential developments and shopping centers. We

from the Atlantic to the Pacific.

have also examined regulatory processes, streamlining and simplifying them to help attract investment.

Q: How are authorities taking advantage of PPPs? A: We are starting to incorporate them and we even went

Q: How are ZEEs helping boost the state’s economic

as far as changing the state’s legal framework to be able

well-being?

to appropriately take advantage of them. The state is

A: Durango would like to be included in the ZEEs or at least

approving projects and finding ways to collaborate with the

to incorporate areas of the state that perfectly meet the

private sector to develop more. Primarily, we are investing

program’s requirements. Durango plays an important role in

in industrial infrastructure and highways.

improving Mexico’s competitivity because of its logistically strategic position. The state wants to be involved in the special economic zones and believes that its incentives

Durango Ministry of Economy is in charge of promoting

could help attract significant development to the area. But

investment and boosting productivity within the state of

it is ultimately up to federal agencies to decide what states

Durango. The state plays an important role in promoting the

should participate.

development of infrastructure for economic development

| INSIGHT

QUERETARO BUILT BY LOCAL COMPANIES ALEJANDRA VEGA President of CMIC Queretaro 30

For a state to accelerate its economic growth, it must

The Queretaro Metropolitan Area is composed of various

prioritize public works and real estate, says Alejandra

municipalities so Vega says to create optimal projects, it

Vega, President of CMIC Queretaro, pointing to the impact

is crucial that local, state and federal governments create

on construction in Queretaro as an example. “Queretaro

synergies. “The current administration has increased its

has experienced fast growth in terms of infrastructure

investment in public works each year. This means that the

development in the last few years and because of that

local and federal governments have been working closely

dynamism, we expect the construction sector to grow 8

to make the best of their resources,” she says. “We expect

percent by the end of 2018,” she says.

to see the same thing with AMLO’s administration.” To boost investment from the private sector, the government

Manufacturing, automotive and aerospace companies

has sent trade delegations to other countries to attract

are settling in Queretaro’s industrial areas, creating

investment into various industries, including automotive.

magnets for employment. This, in turn, has encouraged

“The synergy created by not only the different levels of

the construction of university facilities, housing and

government but also the private sector has detonated

commercial developments offering services and

investment in the state,” she says.

entertainment. CMIC Queretaro is the Queretaro branch of the Mexican Construction Chamber, representing the

Promoting self-sufficiency would increase the value of

interests and needs of the construction sector before

Queretaro’s construction sector, Vega says. “Creating

the government.

synergies between governments helps create a solid plan throughout the state but creating synergies between

In the last 15 years, Queretaro has grown 29 percent and

companies and the supply chain will create quality

according to CONAVI, by 2021 the state of Queretaro will

projects,” she says. CMIC Queretaro has entered strategic

have more than 2.18 million inhabitants, of which 1.32 million

alliances with 40 material suppliers and various financial

will live within the metropolitan area. As urban sprawl

institutions to establish more credit lines and access to

expands throughout the Queretaro territory, the demand

better product pricing for projects. This allows the chamber

for more public infrastructure has also increased. “Although

to offer financing for large projects and a competitive

70 percent of construction activity is from the private

advantage to the companies that are affiliated with

sector and 30 percent from public works, the government

the chamber.

announced a historic investment in public infrastructure of MX$19 billion for 2018. We believe that the industry will

The sector has seen an increase in new SMEs and to ensure

grow drastically with this investment,” says Vega.

they remain competitive in the eyes of new investment, CMIC has developed a program to train its local affiliates

She highlights that the state of Queretaro has already

and incentivizes companies to invest in training by

made great advances in the improvement and

rewarding those that accumulate the most training man-

construction of basic services, such as water, waste

hours. “Whenever we have a project, we promote the

management and energy infrastructure. To keep up with

companies that invest the most in training,” says Vega.

the fast pace of urbanization, Vega says the state will need to develop more transport and social infrastructure,

CMIC Queretaro believes that beyond learning technical

and quickly. “CMIC Queretaro has proposed the creation

skills, construction workers should give back to their

of a Project Bank for medium and long-term development.

communities. The chamber is working with its affiliates to

This will allow the government to be more efficient when

improve and renovate public-school lunch areas. “We want

managing its resources for public projects, as well as

to form a construction sector that is not only competitive

ensuring the continuity of projects,” she adds.

but that is also socially responsible,” Vega says.

VIEW FROM THE TOP |

GOVERNMENT COORDINATION STABILIZES INDUSTRY MARCO URIBE President of CMIC San Luis Potosi 31

Q: What subsectors within the infrastructure industry

A: This has had a negative impact on the generation of public

should be given priority by the next administration?

and private construction projects. This is especially true for

A: The first project that must be carried out is long-term

cement because it is one of the major inputs for various

urban planning to cater to city growth. San Luis Potosi’s

materials involved in construction. Excessive increases that

capital grew based on its industrial zone, but without

are not in line with the inflation rate of the country cause a

considering logistics. We must map our growth for up to 30

stagnation in large-scale projects because these materials

years with the goal of solving city mobility problems. For

may represent up to 40 percent of the project’s budget.

example, the San Luis Potosi state government has begun a

Ultimately, it is the final consumer that pays these costs.

project to connect the city’s Periférico ring road to alleviate its mobility struggles. The planned investment in 2018 is

We had a disagreement with CEMEX in 2017 that was

MXN$1.7 billion and MXN$5.1 billion over the next three years.

rooted in the significant rise of cement prices. If CEMEX increases prices other suppliers are likely to do the same

CMIC’s role in bringing about the construction of better

because it is a key player in the cement producer market. This

infrastructure starts by monitoring the three levels of

significant rise meant many businesses started seeking to

government and encouraging incoming administrations

import cement alternatives. Foreign companies can help the

to finish the projects started by the prior one. This highly

market become more competitive, but they need to organize

depends on the relationship between the federal and state

their distribution chain first to be able to serve the market.

parties in power. Differences between political parties

Ultimately, we resolved our differences with CEMEX and it

should not be reflected in the agenda and yet this has

is likely that cement prices will not increase significantly.

significantly affected the country. For example, if the party ruling a state differs from the federal party, it is likely that

Regarding the impact of cement and steel prices on the

the state will have less economic support. This is echoed

development of infrastructure, there is an agreement

in PPPs, as private investors need guarantees that their

between the Ministry of Economy and the president’s office

investment will be paid.

to keep commodity prices steady and avoid a negative macroeconomic impact. Price fluctuations have a direct

Q: What regulations and policies should be improved to

impact on tender costs of constructions and in the bidding

boost the country’s infrastructure development?

presentation. If a project were won based on a specific

A: I think Mexican politics have eroded as the existing laws

budget and then the price of materials went up significantly,

are encouraging corruption and theft of public resources.

the builders would have to apply for an adjustment of

We lack reliability and legal certainty. Those in a position

costs to absorb the increases. In the case of developers of

of political power should have clean backgrounds. This

social housing, adjustments could not be made to projects

may seem utopic, but we have to have unity and we must

in process, because by increasing the costs the price of

build an agreement between our political parties and our

the property exceeds the affordable level for the target

representatives so they can govern collaboratively. Federal,

demographic. This means these developers must absorb

state and municipal governments, senators, local and federal

this difference. They can either see diminished profits or

congress must be united to secure the investments that each

cut variable costs.

city needs to carry out its infrastructure projects and provide certainty to PPPs. This unity will also give foreign investors the confidence they need place their investments in Mexico.

CMIC represents the interests of construction companies, offering services to promote a highly competitive industry

Q: How are the increasing prices for cement and steel

at the forefront of innovation that incorporates social

impacting San Luis Potosi’s construction industry?

responsibility and technological innovation

| INSIGHT

LEASING INFRASTRUCTURE, UNDERSTANDING PPPs LUIS CELIS Director General of Grupo HH & Asociados 32

A PPP is like leasing a car, says Luis Celis, Director General

interests are prioritized above planning and decisions are

of Grupo HH & Asociados. “The buyer has two options

rushed, projects are obstructed.”

to acquire it: paying up front or using credit.” Although the use of credit will always be more expensive due to

Another example of politicization hindering top-priority

interest, leasing has been widely adopted, and Celis says

projects is a bio processing plant in Mexico City, which

the same can apply to PPPs. “There has to be an analysis

was designed to process urban waste that is currently

of affordability and an instalment plan, including defining

disposed of in Morelos and the State of Mexico because

which kind of car can be bought.”

there is no landfill site in Mexico City. “A week without collecting waste can fill the Zocalo and a month, the

The Mexican consultancy specializes in PPPs, while

Azteca Stadium,” Celis says. “But the government is not

assessing project pre-feasibility and impact studies.

willing to invest one more peso than what it currently

Continuing the car analogy, Celis says it is not only

pays.” He adds that the energy that this plant would

about the purchase, it is about having the funds to keep

generate could power the 12 Metro lines, saving money.

it running in perfect condition, and the same is true for

But its tendering was temporarily suspended. “This

infrastructure. “Unfortunately, there is also a lack of

plant is very much needed but I do not know if it will be

resources for maintenance,” he says, as most government

completed,” he says. “It is currently politicized beyond

resources are allocated to current expenditure and

the real benefit it would yield to the city.”

infrastructure investment often takes a backseat. “So, a five-year-old building looks much older due to a lack of

Grupo HH & Asociados is participating in the tendering of the

budget for upkeep and maintenance staff,” Celis adds.

Observatorio-NAIM express train. “We can frame the financials

“The private sector handles this better. Through a PPP,

of the project and contribute in the judicial and technical

the government can rely on private sector experience

phases,” he says. “It is a challenging project and we were

and services for the construction and preservation of its

entrusted with the urban and environmental impact study.”

infrastructure.” For a project undertaken in such a densely populated Although there are infrastructure demands across all

area, the main challenges are to plan appropriately and

sectors, such as roads, hospitals and railways, Celis

to an adequate timeline. “Each project has its timeline for

says PPPs are not suitable for all and should instead be

construction, procedures and socialization, to mention

tailored. “The existence of this scheme does not mean

only a few. NAIM’s train is a project with multiple factors

that all projects must be carried out in the same way,” he

to consider simultaneously so it can be delivered

says. “Each has a different need according to its location

efficiently and on time,” he says.

and context.” The firm also participated in a PPP in Puebla, bidding Although he believes PPPs can help bridge the

for the remodeling of two hospitals and two outreach

infrastructure gap, Celis acknowledges that working with

clinics through a financed public work in which the

the government can be demanding for the private sector

investor funded the rehabilitation of the buildings and is

as it can imply last-minute changes and other restrictions.

now receiving monthly income from a four-year scheme.

He gives the example of The Victoria Hospital, which was

“The project was well-planned and generates an income

planned for a specific location and when about to be

for the investor, so it was concluded on time and to a high

tendered, its site was changed. “Today the building is not

quality.” Celis says this is the perfect example of how a

as productive as planned,” he says. “We are convinced

PPP should work and the case should be replicated in

the PPP scheme works but when political or economic

other states.

VIEW FROM THE TOP |

ZEEs PUSHING THE DEVELOPMENT OF LAGGING STATES ÁLVARO BURGOS Minister of Economy of the State of Guerrero 33

Q: What investment agenda is the Ministry of Economic

Q: What is the ministry’s assessment of the ZEE

Development pushing for Guerrero’s infrastructure

implementation in Guerrero and how is it contributing in

development?

this process?

A: For Governor Astudillo’s administration it is important

A: Guerrero is within the Lazaro Cardenas and La Union

to increase investor confidence in Guerrero. We want

ZEE, so we are closely working with the government of

investors to see the local government as an ally that aim to

Michoacan for its development to better capitalize on

provide legal certainty. The hospitality real estate sector is

the potential that the Lazaro Cardenas Port provides

attracting significant investments, especially in Acapulco and

both states. The ministry is also collaborating with ZEE

Zihuatanejo, which carries more jobs creation. To contribute

and World Bank representatives, among others, to install

to this investment boom, we are working with other

a one-stop window so companies can obtain all permits

government institutions to enhance security. For example,

required across all three levels of government in one place,

The New International Airport of Acapulco was recently

simplifying the process and improving response times. I

inaugurated. This infrastructure allows the state to increase

think that any challenge related to the implementation of

its tourism supply and logistics. Previously, Acapulco only

ZEEs will be overcome as all government levels and other

had eight flights available; today, it has more than 20 national

involved players have the best will and disposition to push

flights and international arrivals from the US and Canada. We

the project. We are waiting for the definition of the final

are also fomenting the arrival of cruise ships to the state, with

polygon for the Lazaro Cardenas and La Union ZEE and

35 arrivals in 2018 compared to six before. Zihuatanejo has

hopefully, companies will be able to start investing and

also experienced significant growth due to tourist inflows

operating in 2019. We already have an estimated initial

and the development of the Costa Grande Highway. We want

investment of US$2.5 billion.

to renovate its tourism area, which includes the Pescador Promenade, to provide a better and safer image.

Regarding the infrastructure for developing the ZEE polygon, the ministry is promoting the International

One key project for the state’s infrastructure is the

Airport of Zihuatanejo to improve the area’s logistics. I

modernization and expansion of the highway that connects

also believe that as the ZEE is developed, it will demand

Coyuca de Benitez with Acapulco, providing traffic relief

the infrastructure that it requires to keep growing. We are

for visitors to the state. Also, to attract more tourism from

confident that ZEEs will contribute to developing lagging

Puebla, the Siglo XXI road is being expanded to connect

states such as Guerrero. Their inherent purpose is to bridge

it with El Sol highway. For this endeavor, the state is also

the development gap between the northern and southern

investing in the creation of several roads, such as those

states, helping to fight poverty in the state.

from San Marcos to Ometepec or from Tlapa to Puebla. We are convinced that this kind of infrastructure investment

The ministry is working with a consulting firm on the

will enhance the development of Guerrero’s communities.

creation of a pilot program to train SMEs, especially from

Regarding the financing of all these projects, main

La Union and Zihuatanejo, to become suppliers of the

highways are being developed with federal funding, while

industries that will be established in the ZEE. There is a

local investment and minor projects are being carried out

great deal of international interest in the ZEEs project.

by the state government through its Ministry of Urban Development. It is remarkable that most of the companies constructing and developing are local, so we are giving

Guerrero Ministry of Economy aims to be a change agent in

our executives the chance to grow their companies and

the national economy, to enhance Guerrero’s competitiveness

create more jobs for the state under the coordination of

and improve income and citizen welfare levels in a sustainable

CMIC Guerrero.

manner

José Arturo Herrera Solís water treatment plant in Tijuana

WATER & WASTE MANAGEMENT

Mexico’s water and waste segments faced challenges between 2013 and 2018.

Although the NIP followed CONAGUA’s 2030 Water Agenda, projects such as Monterrey VI, East Drainage Tunnel (TEO) and the Zapotillo have yet to be completed and some are under revision once again. The construction and maintenance of water and waste projects through PPPs is controversial despite the scheme’s potential to address the countries water issues, even with a smaller budget for 2018.

According to SEMARNAT, Mexico has 447.26km3 of natural water availability on average per year, more than most European countries. But the four hydrological regions with the highest level of renewable water resources, representing 67 percent of the country’s total, are located in the southeast of Mexico, where only 23 percent of the national population lives. Mexico’s urban hubs – Monterrey, Guadalajara, Ciudad Juarez, Queretaro and Mexico City – are all located in the north and central belt of the country. How will Mexico provide fresh water to its growing cities and at the same time dispose of the hundreds of thousands of tons of waste that are generated? This chapter analyzes the country’s water and waste priorities and sheds light on the agenda necessary to ensure the country’s supply of this vital resource.

CHAPTER 3: WATER & WASTE MANAGEMENT 38

ANALYSIS: Sustainable Water Consumption

VIEW FROM THE TOP: Roberto Olivares, ANEAS

INFOGRAPHIC: A Strategic Water Overview

INSIGHT: Ramón Aguirre, SACMEX

VIEW FROM THE TOP: Federico Casares, Veolia Mexico

INSIGHT: David Díez, Aqualia

VIEW FROM THE TOP: Iram González, O-tek

INSIGHT: Jahir Mojica, SUEMA

INSIGHT: Jordi Valls, SUEZ Mexico

VIEW FROM THE TOP: Yolanda Padilla, Fluence

| ANALYSIS

SUSTAINABLE WATER CONSUMPTION Mexico is home to biodiversity and natural resources. But with a high population growth, water availability is falling. The adequate use of water resources and the development of sustainable infrastructure are among the keys to ensuring the country's supply of this vital resource

Mexico’s water resources are divided into 13 Hydrological

potable water networks and sewage infrastructure,” he says.

Administrative Regions (HAR), with a total of 653 aquifers.

“We believe that this rehabilitation is the right opportunity

Of those, data show the country is overexploiting 105.

for the private sector to become a strategic ally for the

Roberto Olivares, Former Director General of The National

government to address the enormous challenges that the

Association of Water and Sanitation Utilities of Mexico

country has together.”

(ANEAS), believes this is unsustainable. “Mexico must understand that a transcendental solution for water

BREAKING PARADIGMS

problems concerns breaking the paradigms regarding water

Olivares says the start of a solution would be to ensure

culture,” he says.

water resources are adequately used. “The different uses of water, besides urban purposes, must be addressed though a

But shrinking budgets for water management are keeping

holistic approach,” he says. “Urban water services represent

Mexico’s hands tied, Olivares adds. “Eleven years ago, the

about 14.6 percent of the total water usage, so we must

water sector had a budget of MX$11 billion. By 2011, the

also consider industrial, agricultural and other applications.”

investment in water management was MX$58 billion, after

SEMARNAT reports that agriculture is the primary water

the World Water Forum highlighted water as a priority.

user in the country. Olivares says the key is to build adequate

Today, the budget has been cut and barely stretches to

infrastructure to make agricultural water use more efficient.

MX$23 billion.” CONAGUA has claimed itself unable to continue investing due to the country’s sluggish economic

Education should also be a priority, Olivares adds, but with

conditions, delegating water responsibility to local

the caveat that education is not the solution to all water

governments, which have even lower budget availability

problems. “The belief that by focusing on educating children

to address these problems.

everything will change is naïve,” he argues. “This approach was implemented during the 1980s but it seems that that

Mexico City is the country’s Ground Zero for water issues.

generation of children who are now grown-ups did not

As the most populous city in the country – home to about

learn how to properly take care of water resources.” He says

20 percent of the entire population – its HAR puts the

water should also be understood outside the concept of it

highest degree of pressure on water resources, according

being sustenance and positioned as an economic service.

to CONAGUA. With a 101 percent overexploited aquifer and a 138.7 percent water stress level, its citizens have the

WATER FUNDS

lowest water availability – an average of 150m3 per year.

Mexico is a privileged water basin but the resource’s

“The latest data we have for Mexico City is that 30m of

natural availability will drain at its current consumption. In

water is consumed bimonthly, an average of 500L per day

attempting to find a sustainable balance for the stress put

per household,” says Ramón Aguirre, Director General of

on HARs, organizations such as The Nature Conservancy

SACMEX. “This is a very high consumption level that should

(TNC) have bet on water funds. Their main objective is to

be significantly reduced. A reasonable decrease could be

invest in the preservation of the upper watershed ecosystem

20 percent, or around 24m3 bimonthly.”

and groundwater infiltration areas to guarantee the quality

and quantity of the water supply. Overall, 40 percent of the city’s water is piped from other aquifers but another 40 percent is being lost due to leaks

“Drinking water supplies are greatly affected by how land is

given the poor rehabilitation of water infrastructure. “We

managed,” says TNC. “Practices that clear forests, increase

are actively swimming toward a water crisis and, unless

erosion and create pollution reduce both water quality and

we reverse in due time, the current will pull us under,” says

reliability.” As a result, watersheds are degraded. Nuevo

Aguirre. Federico Casares, Business Development and

Leon pioneered with The Monterrey Water Fund (FAMM).

Institutional Affairs Director Mexico of Veolia, adds that the

The fund aims to pay for environmental services, education,

situation calls for private businesses to become involved.

research and to fund urban riparian restoration, among

“Besides all the commercial matters that water systems

other activities. Still relatively new, if successful, other states

entail, water management also implies the rehabilitation of

could turn to water funds to cover their water deficits.

VIEW FROM THE TOP |

WATER CULTURE: ALL THE USES AND ALL THE USERS ROBERTO OLIVARES President of RELOC and Former Director General of ANEAS

Q: What are Mexico’s most pressing needs regarding water

the expense, and obviously they do not and never will.

and sanitation infrastructure?

Also, given that water and sanitation services are a state

A: I am convinced that the main problem is the substitution

monopoly, it should be the state that is responsible for

and rehabilitation of existing infrastructure. As the National

them. The modification to Article 4 of the Constitution,

Water Program (PNH) — the particular public policy for

regarding the human right to water, establishes that the

these matters — does not specifically address infrastructure

state will secure this right.

rehabilitation, this vital and key issue is neglected. As a result, 45 percent of Mexico’s water is lost due to leaks and

Q: What is your view on the private sector’s involvement

an increasing number of sinkholes. This problem must be

in water management?

properly addressed through clear policies that prioritize the

A: The most important factor is to acknowledge that

investment of major maintenance for water infrastructure.

privatization of water poses no risk in Mexico as this is not allowed by the Constitution. Also, people often make the

To be more specific, water production costs can be split in

mistake of believing that water is a human right. There is a

three. First, the daily expenses that can be considered fixed

difference between the right to access water and potable

costs, such as energy bills and rent, payrolls and other inputs.

water services as the latter has an economic variable since

These are poorly managed in Mexico. Second, the cost of

water infrastructure has an economic value. The focus must

major maintenance and infrastructure substitution, which is

be on exploring the possibilities for private participation

not handled well at all. Third, the development of a master

and association for water services. This collaboration must

plan for water management and services that considers

be shielded by robust regulations, to which ANEAS is

a demographic growth forecast and aim to guarantee an

contributing.

optimum supply of water services for the future. If the first two are not addressed, then the third one cannot even be

Q: What is ANEAS’ forecast for the future of water

considered. This problem can be solved through investment

management infrastructure in Mexico?

by securing the required resources as a national security

A: We expect that the next administration will take over the

priority, as it should be according to the law.

responsibility of water management. There is a precedent for a platform based on the General Water Law, drafted

Q: How much investment is required to achieve adequate

by the Commission of Potable Water and Sanitation of

water management in Mexico and how can this be financed?

the Chamber of Deputies. ANEAS is closely working on

A: Eleven years ago, there was a budget of MX$11 billion

this law that proposes a path for a new integrated water

for the water sector. By 2011, the investment in water

management model together with watershed management,

management was MX$58 billion, after the World Water

water security and the human right to access water.

Forum highlighted water as a priority. Today, the budget has been cut and barely reaches MX$23 billion. The big

Urban water services represent about 14.6 percent of the total

drain on this investment in such a short period corresponds

water usage, so we must also consider industrial, agricultural

to CONAGUA announcing its inability to continue investing

and other applications. The creation of the National Council

due to the sluggish economic conditions the country has

for Water Culture (CONACH) was a great accomplishment.

faced for several years. It also invoked Article 115 of the Constitution and argued that the provision of water services is a municipal duty. By delegating this responsibility to the

The National Association of Water and Sanitation Utilities

municipalities, the federal authorities are neglecting the

of Mexico (ANEAS) has 37 years of experience supporting

fact that this decree was published 35 years ago without

increased efficiency in the delivery of services and fostering a

considering if municipalities had the capacity to absorb

higher level of human capital professionalization and autonomy

| INFOGRAPHIC

A STRATEGIC WATER OVERVIEW 1

In some regions, Mexico has privileged water sources, which promotes economic and social development. But the high population density in urban areas, such as the Valley of Mexico, has heightened stress levels in some of the country’s Hydrological Administrative Regions (HARs). The declaration of water as a basic human right makes it mandatory for the

government to address this problem. The issue, however, is not just about water availability, it is about the optimization of federal and municipal resources to

build better water infrastructure. The National Infrastructure Program 2014-2018 considered many strategic projects for sustainable development. Some are still under review or under construction, while only a few were completed during the

III

Peña Nieto administration. The government also targeted new sources of water supply and to replace volumes with better

quality water through the inclusion of wastewater treatment plants (WWTP), aqueducts and desalinization plants.

3 MONITORING WATER

HARs INSTALLED TREATMENT CAPACITY AND POPULATION Zone

Hydrologic administrative region

Installed capacity (m3/s)

Flow treated (m3/s)

Treated water vs installed capacity (percentage)

Population in 2016 (million people)

Baja California Peninsula

12.38

7.40

59.78

4.52

Northwest

5.55

2.61

47.02

2.88

III

Pacific North

9.99

8.58

86.66

4.55

Balsas

22.82

17.18

75.28

11.93

Pacific South

3.46

2.78

80.34

5.09

Río Bravo

28.07

18.14

64.62

12.46

VII

Northern Central Basin

2.48

1.92

77.41

4.61

VIII

LermaSantiagoPacific

19.89

14.96

75.21

24.45

• Enforcement authority: National Water Commission, through the Sub-Directorate General of Water Management and related units, basin organizations and local directions

• Types of withdrawals: Domestic, industrial, energy production, environment, transfer to the sea or another system and national

North Gulf

8.19

7.19

87.78

5.33

Center Gulf

7.47

5.19

69.48

10.65

South border

13.28

10.37

78.09

7.75

XII

Yucatan Peninsula

0.005

XIII

Aguas del Valle de Mexico

6.75

5.08

140.33

101.41

0.005

100

security

• Sanctions: To reverse the overexploitation of aquifers, the federal government implemented

4.69

regulatory actions such as closed

Total

75.26

areas and regulations to limit

23.37

or prohibit water extraction in

122.27

preserved areas

WATER TREATMENT PLANTS AND POPULATION DENSITY 200

Operational plants

Data outside graph

VII III 150

VIII

• XIII has a population density of 1,282.13

Inh/km2 and only 72

100 50

operational plants I II XII

120

Population density (Inh/km2)

150

NUMBER OF PROTECTED NATURAL AREAS

Natural resources protection area

Biosphere reserves

National parks

Natural monuments

Flora/Fauna protection areas

Sanctuaries

There are six categories for protected areas in Mexico. Among those, the Natural Resources Protection Area preserves and protects the soil, watersheds, water and resources located on forest lands

(which are not included in other categories)

Source: Source: CAAM, JAMA, VDA, KAMA, SIAM, AMIA, ANFAC, Automotive News, Data Center

SURFACE AREA OF PROTECTED NATURAL RESOURCES (million ha)

4.503

12.751

6.795

Natural resources protection area

Biosphere reserves

Flora/Fauna protection areas

VII IX

Strategic CONAGUA projects

6 7

VIII 8

Hydrologic administrative region

XIII

XII

9 IV 10

X XI V

GLOBAL LIGHT PRODUCTION INVESTMENT IN VEHICLE STRATEGIC CONAGUA PROJECTS (MX$billion)

6 16.162

Source: Conanp, General Law of Ecological Balance and Environmental Protection, OECD, CONAGUA, Mexico Water Atlas 2016

10 El Realito 3.527 dam

6.788 El Purgatorio dam

El Zapotillo dam

Monterrey VI project

4 La Laja 1.537 dam

0.521

PicachosMazatlan

2 La Paz 0.545 desalination plant

1 Ensenada 0.517 desalination plant

Riviera 0.979 veracruzana system

9.564

Atotonilco wastewater treatment plant

Private Public

18.283

| INSIGHT

EMPOWERING WATER MANAGEMENT INSTITUTIONS RAMÓN AGUIRRE Director General of SACMEX

Water is a human right, but not one so easy to secure in the

The current budget deficit for water management is

fifth-most populated city in the world, with over 9 million

undeniable, as most Mexican water institutions operate in

citizens and an area surpassing 1,959km2, according to

the red. The need is simple: more money to better secure

ProMéxico. The city’s water issues are numerous and solving

Mexicans’ human right to water. But he says the water

them starts with the ability of the country’s related authorities

management challenge is unique in that people cannot

to step up and step in. “If Mexico wants to thrive in solving

physically see the benefits. “Water management has the

its water problems, it must empower its water management

problem that any investment is literally buried under the

institutions,” says Ramón Aguirre, Mexico City Water

surface. Nobody sees water infrastructure, that is why its

Management System’s Director General.

investment is so low,” Aguirre says. “This is a sector in which construction works bother the population, are expensive and

The Mexico City Water Management System (SACMEX) is one

nobody really sees the true benefit. It is only natural that it will

of the most important dependencies in the Mexican capital

be neglected unless it reaches breaking point.”

and has a huge operational scope but Aguirre says in terms of decision-making power, it must take a backseat. “SACMEX

The dilemma becomes one of investing in a sort of invisible

is a directorate of the Mexico City government so it is not a

infrastructure that permeates the whole city when politicians

priority,” he says. To start, Aguirre believes SACMEX’s structure

could instead bet on more visible projects, Aguirre adds. But

should be modified to become a decentralized body of the

given the government’s unwillingness to allocate the required

city’s government and its director general should be given

resources to rehabilitate water infrastructure, where is the

the power to make decisions regarding water management.

money that water systems need coming from? The most

“It is not about giving SACMEX superpowers but to allocate

reasonable option is to turn to the private sector for help. “I am

to it the water-related faculties currently fragmented between

convinced that PPPs are the solution to water issues but they

the Attorney General, the Ministry of Finance and SEMARNAT,

are simply not allowed in this city,” he says. He explains that a

among others,” he says.

reform enforced in 2017 pretty much closes the door for PPPs to dive in and help to solve water problems. “The constitution

The dispersion of decision-making power implies a delay in

establishes that there must not be private capital in water

response times, compromising the system’s efficiency, says

potabilization, distribution or sewage and supply services,

Aguirre. “An issue that I could sort out in one hour takes

which are the government’s responsibility.”

me a month, as I need to consult with other institutions,” he says. “Water priorities are not to be fragmented among

Seeking another approach to address this issue and lawfully

a series of institutions with other important responsibilities

bridge the budget deficit that water management institutions

because they are unavoidably going to fall down the priority

face, Aguirre thinks it is crucial to find a strategic balance

list, hindering improvement.”

between subsidized and paid services. Mexico City has some of the highest water tariffs in the country for commercial uses,

Aguirre’s requests for Mexico’s government are not only

but also the lowest for low-to-middle class residential use.

about decision-making powers; investment in water

This implies that most of the water used in the city is highly

management infrastructure is also a crucial concern. “I

subsidized; another burden straining the budget.

hope the next administration will prioritize water issues. Our research indicates that properly addressing these require

Aguirre explains that water tariffs have remained almost

at least a yearly investment of MXN$5.5 billion, with long-

unchanged over the years, except for the inflation adjustment.

term planning,” he says. “We are actively swimming toward

While he thinks it is unlikely the government will increase

a water crisis and, unless we reverse in due time, the current

prices for an amenity that is considered a human right, he is

will pull us under.”

convinced this could be a huge opportunity to secure more

resources for water management and to promote a wiser and more sustainable level of consumption. First, he says, it is key to establish a limit on the human right to water. “Basic residential consumption is 20-50L per day. That is the human right to water,” he says. But when carrying out the calculations, considering an average of four residents per house in the city, the domiciliary water intake would be around 200L per house daily, equaling 18m3 bimonthly. Aguirre thinks that is a fair and reasonable amount to subsidize with very low tariffs but the issue is the huge discrepancy between this and the real numbers. “The latest data we have for Mexico City is that 30m3 of water is consumed bimonthly, an average of 500L per day per household,” he says. “This is a very high consumption level that should be significantly reduced. A reasonable decrease could be 20 percent, or around 24m3 bimonthly.” Water culture has permeated the population as awareness of taking care of resources has improved but saving the resource is not yet a widespread practice. “The need to preserve water resources is a known issue but this is not reflected in the average water use in the city,” he says. Decreasing water subsidies could be the right push to transform culture into action. Aguirre has seen it work before, as other megalopolises in Latin America have managed to lower their water consumption. For example, Bogota reduced its consumption to an average of 21m3 bimonthly. But Aguirre says that multiple and simultaneous approaches are fundamental for all issues from water leaks to water quality, from flooding to sinkholes, and from over-consumption in urban areas to the over-exploitation of aquifers. “The city is no island, so the effort to tackle water problems must be made alongside surrounding municipalities,” he says. “We must work in tandem to fix leaks, carry out accurate measurement, purification and modernization of the infrastructure, all with long-term planning.” Aguirre says it is more important than ever to stop letting urban water issues take the backseat and start prioritizing solutions. People in rural areas are historically used to hoarding water from artesian wells and waterwheels. “But in cities, people do not have supply alternatives. You either source water through the network or from a water truck,” he says. Establishing priorities for such a complex topic is not so easy. Aguirre wants to start by securing supply and focusing on water quality. He says poor neighborhoods should be prioritized as they have an irregular supply, often dependent on water trucks. But to solve sourcing, leaks must be fixed first. “It is pointless to seek more procurement sources if we are not addressing leaks,” he says. “We cannot keep putting more water into the strainer. That is the worst investment the city can make.”

| VIEW FROM THE TOP

ADDRESSING ENVIRONMENTAL LIABILITIES IN MEXICO FEDERICO CASARES Business Development and Institutional Affairs Director of Veolia Mexico

Q:Â What are the main problems that Mexico faces regarding

be generalized, always having the government or private

water and waste management and what is the role of the

companies handling all water-management matters.

private sector in addressing these? A: Meeting the needs for water and waste infrastructure is

For example, in Mexico City, we work with SACMEX doing

one of the main regional challenges for Latin America. I think

water measuring, invoicing and collecting on behalf of the

Mexico is lagging in water and waste management, as only

institution. We contribute by making this huge process

about 55 percent of its wastewater is treated, according

more efficient, which in the end is translated into savings

to CONAGUA. Regarding waste, around 85 percent is sent

for the government. We also have operated the whole

to landfills, but many of these are not in compliance with

municipal water system of Aguascalientes for 25 years, from

environmental regulations and best practices, presenting

extracting water from wells to redistributing, measuring and

risks of soil and groundwater contamination and release

invoicing it, among others. I believe this is a good example

of air emissions including different pollutants and Green

of how a private company can operate within a public body

House Gases (GHG). Mexico produces more than 100,000

in a reliable way. When we entered this contract, continuity

tons of garbage a day, demanding a large investment

in water services in Aguascalientes was around 65 percent,

for its appropriate management. The country also has

but we have improved it up to 99.5 percent.

an important number of environmental liabilities related to contaminated sites, many of them since decades ago

Q: What are the key factors to consider when ensuring a

and that now need to be addressed remediation and/or

reliable and efficient water management system and how

restoration programs to rehabilitate the sites as they can

can Veolia contribute to this goal?

potentially contaminate watersheds and have harmful

A: Besides all the commercial matters that water systems

effects on human health.

entail, water management also implies the rehabilitation of potable water networks and sewage infrastructure. Veolia

Veolia believes that the private sector has a key role to play

offers the technology to repair pipes without having to break

as the needs are numerous and governments cannot cover

ground and disrupt streets. Understanding the disturbance

them all by themselves. Beyond the economic matters, such

that these works can represent in densely populated cities,

as funding allocation, the technological expertise is also a

we developed technologies with autonomous robots that

key contribution that the private sector has the capacity

identify where subsoil infrastructure repairs are needed

to make. Governments are not always able to develop the

and that carry them out with the least disruption to urban

specialized expertise to execute projects, whereas Veolia,

dynamics. We believe that this rehabilitation is the right

for example, has been advocated to water, waste and

opportunity for the private sector to become a strategic

energy management for the past 160 years.

ally for the government to address the enormous challenges that the country has together.

Q: How should water management infrastructure projects be prioritized?

Veolia has been working in Mexico for 25 years and

A: Infrastructure priorities can be perceived differently by

we hope to further see the government opening the

different actors, so the challenge becomes one of merging

door to PPPs for developing water infrastructure. We

multiple perspectives into creating the best infrastructure

understand that water is a complicated topic as any

needed. To start, there must be a definition of whether

private investment is often perceived as the privatization

water projects will be carried exclusively by the government

of a human right. I think that water is a human right, but

or if it is better to allow the participation of the private

its piping and purification are not, at least in cities as

sector. We believe that each city and each hydrological

densified as Mexico City. So private participation is crucial,

zone requires a tailored strategy. Solutions should not

especially in cities that have no water and need to invest

Veolia water treatment plant

in desalination plants as well as wastewater treatments

the end consumer, companies believe their responsibility

plants and systems for water reuse.

ends and have no obligation regarding what happens with the product in the future. This is shifting to reincorporating

In ensuring an efficient and reliable water management

products into manufacturing processes after their useful

system, all major infrastructure projects must start with a

life ends. The industry must open space in its value

diagnostic study to identify the conditions of water and

chain to better use materials and waste. I believe that a

sewage networks that allow determination of how much

circular economy approach should be driving the next

needs to be invested and how it will be represented in

administration and industrial agenda in the future.

savings and efficiency. But Latin American countries are not used to take this step and usually prefer to start digging

Q: How is your partnership with the energy companies and

blindly. Diagnostic tests allow allocating resources where

why were you the right partner to operate their plants?

most needed. For example, Mexico lacks specialized tests

A: Regarding water management for energy companies,

to determine the level of investment required to address

we operate four water plants for five Iberdrola electricity

all leakage problems. But I have witnessed that once a

stations. We won the bid for this project a couple of years

city or municipality has decided to invest in fixing leaks,

ago as the company understood that its expertise was

the benefits are immediate as the amount of water loss is

energy generation, for which water matters are simply

reduced and more water is available.

fundamental. As the latter is not Iberdrola’s core business, it tendered the operation of its water treatment plants. Our

Q: What is the role of a circular economy in improving the

management has saved the company US$1.1 million per year

water and waste management sectors in Mexico?

because we know how to manage water plants efficiently

A: Veolia is dedicated to promoting a circular economy

and with the required technology. We also operate residual

through all its processes. I think this is the global

water treatment plants for Ternium.

development model to pursue because it not only shifts from a linear economy that extracts, uses and disposes of

We are striving to further develop our industrial solutions

resources but promotes reuse and recycling. China recently

for water management. When starting in Mexico we were

launched a regulation that prohibits import of material

lagging in this niche because our core business for many

for recycling. As China was the biggest receptor of this

years was the sale of water treatment equipment though

material, countries now need to find other alternatives

Veolia’s Water Technologies. But we realized that even if we

for disposing of their waste. This entails developing more

sold the best equipment to a client that does not have the

infrastructure for waste management and recycling and

expertise to properly use it, the machinery would eventually

modernizing existing facilities. So, if a material cannot be

fail. So, for the last five years, we have implemented a

reused, at least it can be turned into energy. For example,

business model that integrates our equipment as part of the

EU countries estimate that China’s ban will represent an

management services we offer. We make the installation,

additional investment of €10 billion to convert its recycling

finance the equipment and operate it in long-term contracts

facilities, so that is the challenge for local and federal

to add more value to the industry.

governments. Regarding the industrial sector, the circular economy

Veolia Group is the global leader in optimized resources

demands companies have an extended responsibility

management. The group designs and provides water, waste

approach to products. This means that after manufacturing

and energy management solutions that contribute to the

a given product and delivering it to the supply chain or

sustainable development of communities and industries

| INSIGHT

POOR MAINTENANCE, NOT INFRASTRUCTURE, THE KEY WATER PROBLEM DAVID DÍEZ Country Manager of Aqualia

It is often agreed that Mexico suffers a lack of water

Privatization of water services is often mistaken for the

infrastructure but David Díez, Country Manager of Aqualia,

privatization of water but this is far from the reality, Díez

says most of the country’s water problems are not rooted

adds. “When granted a water contract, we do not own water.

in an infrastructure shortage but in its poor maintenance.

We are concessionaires and operators of a supply service

“We continue to see a deficit because the rhythm of

for the time that it is entrusted to us. The municipality

infrastructure development is not aligned with the need

remains the owner of the water itself.”

for its maintenance or the country’s growth,” he says. As water matters are the jurisdiction of municipalities and Aqualia reviews, designs, constructs, operates and finances

municipal administrations only last three years, long-term

water projects. “Our vocation is not to build and leave but

planning is crucial. But Díez says there is an issue with short-

build and stay for the long term,” he says. “Eighty percent

term thinking as municipalities charge extremely low water

of our business is maintenance and operation while only 20

fees. “The issue is not whether water is cheap or expensive.

percent is infrastructure construction.”

It is a matter of a low collection,” he says. As the monitoring,

“

We continue to see a deficit because the rhythm of infrastructure development is not aligned with the need for its maintenance or the country’s growth”

operation and maintenance of water infrastructure are often neglected, the service becomes irregular. Users do not want to pay for an erratic water supply and as the payment is low, the sector starts taking the back seat. Aqualia’s Country Manager believes that the first step in breaking this vicious cycle is education. The company tries to add its grain of sand by promoting education campaigns. “Water companies are the only ones that promote lower consumption and savings of their product,” he says. “But this makes sense to us because we do not sell water. We sell the service of a high-quality and sustainable water supply.”

By 2050, 90 percent of Mexico’s population is expected to live in cities. The rapid growth of metropolises demands

Díez says there in no city in Mexico with a sustainable

enhanced servicing and operation of water services to make

water cycle. Cities either lack water or have treatment

them more efficient. “I think the problem is not building new

deficiencies. While society is not yet as committed as it

water infrastructure as there is no scarcity but the operation

should be to water matters, he believes the country is

and maintenance of existing features,” Díez says.

going down the right path. “Water scarcity and supply irregularity lead people to better appreciate this resource

The lag in maintenance is also combined with an investment

and its services,” he says.

shortage in the sector, aggravating the situation. “Investment could be low if maintenance was optimum.

Awareness opens up many areas of opportunity for

But if investment is made without maintenance, a vicious

companies such as Aqualia. “Around 40-50 percent of

cycle is triggered,” Díez says. To address both, he mentions

Mexico’s population lacks a 24/7 water service and only

PPPs as a success case in providing funds while ensuring

around 20 percent of the country’s wastewater is properly

optimum servicing. “With the private sector operating

treated,” he says. “We believe that Mexico is a country full

water infrastructure, there is a constant cash flow and a

of opportunities and that with the right will anything can

long-term sense of responsibility for projects.”

be accomplished.”

VIEW FROM THE TOP |

INVESTING IN LONG-TERM WATER MANAGEMENT IRAM GONZĂ LEZ General Manager of O-tek

Q: How do your products benefit your clients and what

separate investments while our product implies a one-time

areas of opportunity within the water infrastructure

investment. Once we can get the industry to understand

segment have you uncovered?

this, I foresee many more market opportunities.

A: For PPPs, our product has an advantage over similar options because the private sector seeks the best materials

If the next administration follows through on its intentions

for its projects. From a cost-benefit approach, our materials

to prioritize the welfare of the citizens and fight corruption,

are also the best choice. Our product requires no maintenance

I am convinced that it will see that our product is the best

after installation. Our pipes also can be installed in 30 percent

option in the market, as it has all the perks of traditional

less time, implying that our clients will receive returns 30

materials, such as plastic, concrete or steel, without their

percent faster. Our pipes do not require any welding for

disadvantages. Our pipes do not corrode and can endure

installation but are united by removable couplings and can

earthquakes that measure between 6.8 and 7.3 on the

be assembled with materials from any local hardware store.

Richter scale because of the property of the plastic and

For example, we provided 12km of piping for the Picacho

the advantage of our joint coupling system.

aqueduct in Mazatlan in under a month and a half. Q: What guarantees are you providing to your clients to The best practice abroad and the biggest area of opportunity

inspire trust?

for Mexico is to care about every peso spent. In the public

A: We do not have a 150 year-project that stands as a

sector budget resources are scarce and specifically for

showcase or the endurance of our product but we do have

water projects, the cheapest option is often seen as the

the backing of the technologyâ&#x20AC;&#x2122;s parent company, FlowTite,

best. Water projects usually take a backseat because they

which is the biggest Fiberglass Reinforced Polyester brand

imply hidden infrastructure and the way to optimize water

in the world. This technology is global and follows the same

expenditure is to buy cheap. But the cheap option is meant

quality standards in Saudi Arabia, the US, Canada, Norway,

to last for 15-20 years, whereas our materials last up to

Germany, Australia, Mexico and everywhere else. We also

four times more than conventional materials. Another best

have our own laboratory in Latin America to carry out long-

practice, then, is to have a long-term view of water projects

term tests on our pipes, which we extrapolate to prove our

to make the best cost-benefit investment. The problem is

150-year guarantee.

that Mexico has an administration-centered view that lasts six years. So, if concrete is cheaper and will last 20 years, the

Q: What will the pipes of the future look like and how will

public sector is unlikely to choose Glass Reinforced Plastic

these disrupt water projects?

(GRP), which is slightly more expensive. In the search for

A: If we want to have Smart Cities in Mexico, we cannot

lowest initial cost, the public sector often overlooks the long

continue using century-old technology, such as concrete.

term. GRP will last for 150 years without maintenance and

We need to invest in sustainable solutions. Our pipes use a

has faster installation, without any additional hidden costs.

percentage of recycled PET resin. They are also 100 percent hermetic preventing water loss through leaks. I see a future

Q: How are you addressing this problem and what

focused on technology but governments must be willing

opportunities do you expect from the next administration?

to invest in the best options available for water projects.

A: Decisions should be made following a cost-benefit approach. It is very simple; our product is just a little more expensive than the average price of traditional materials.

O-tek International is a subsidiary of Colombian-based

But that extra expense, when divided over a lifetime

multinational Grupo Orbis. O-tek focuses on applications

that is four times longer implies a significant saving. In

for glass reinforced plastic (GRP), particularly pipes for

the long-term, the cheaper product would require four

hydraulic works

| INSIGHT

A CIRCULAR ECONOMY FOR RE‑THINKING WASTE MANAGEMENT JAHIR MOJICA Founder and CEO of SUEMA

The ideal model today for waste management combines

greater value throughout the whole supply chain of

the four Rs: reduce, reuse, recycle and recover. But Jahir

any product. “When rethinking business models around

Mojica, Founder and CEO of SUEMA, proposes adding a

industrial processes, I am convinced that the central

fifth: rethink. “It is no longer enough to think about how

focus should look for ways to deliver value through a

to manage waste; companies must rethink their business

more efficient use of resources and without harming the

models to deliver value without compromising on waste

environment,” he explains.

disposal,” he says. In a circular economy, collaboration instead of competition Change does not have to start with the acquisition of

is the flagship concept. “We need to link industries in

revolutionary equipment or a significant investment.

an enhanced value chain. This is the ultimate paradigm

Mojica explains that it can be achieved through simple

shift for improving the way we do business in Mexico,”

actions like substituting a boiler or a processor. “Up to 100

Mojica says. “As waste reduction is a cross-sectoral issue,

percent of the waste produced can be avoided through a

one industry cannot fight it alone. We need collaborative

small change in the way the company operates.”

action from the government, companies and consumers.”

SUEMA specializes in two links of the waste management

Mojica adds that some industries believe they have

value chain: the transformation of residues and harnessing

exerted all their options and have no room for further

them in the form of energy. “We design and innovate waste

improvement in their waste management processes.

processes by applying cutting-edge global technologies

But a multisectoral perspective proves them wrong, as

but also by developing new systems to improve and

it is indeed possible to deliver more value with fewer

redesign waste treatment,” Mojica says.

disposals by interconnecting production chains. “A multisectoral perspective shows that when two value

For example, SUEMA has established a biodigester in

chains are joined, the inefficiencies of one become the

the Milpa Alta municipality in Mexico City. This plant

necessities of another.”

is the only one of its kind in the country and the most innovative in Latin America. It is capable of generating

Another crucial paradigm refers to modern consumerism

175kWh/d, enough electrical energy to light the Nopal

and the need to own things. Household appliances are

Collection Center during the day. “It transforms waste,

a great example, Mojica says. “We all want to have our

whose treatment represented an expense for companies,

own house, car, fridge and washing machine,” he says. But

into an input,” Mojica says.

regardless of how environmentally-conscious a person is, having the capabilities to recycle a full refrigerator at

SUEMA is also working with the sugar industry to reduce

home is unlikely. So, these materials end up thrown in a

the waste produced by sugar mills and turn it into a

river, dumpsite or elsewhere.

biofuel that can be used in other production processes. In this case, incineration is the most common technology

Understanding this weakness at the end of the value chain,

applied but Mojica believes the trend is moving toward

Mojica explains that there should be more of a focus on

gasification. “Thermochemical treatment technologies are

manufacturers owning their products as they have all the

the most effective solutions,” he says. “Our goal is to bring

infrastructure to provide maintenance and reincorporate

these to the Mexican sugar industry.”

the disposed pieces into their production chain. “If we change our paradigms and place importance on the use

Based on the company’s experience, Mojica emphasizes

of things rather than their ownership, we could radically

the importance of a circular economy that promotes

change the industry and its way of creating value.”

INSIGHT |

LESSONS IN BUSINESS MODELS FOR WATER INFRASTRUCTURE JORDI VALLS Director General of SUEZ Mexico

The administration of water services requires commercially

finding the best technology for the given issue. In

and fiscally efficient administration, which the private

Saltillo it was water scarcity, meaning fixing leaks had

sector can help provide, says Jordi Valls, Director General of

to be prioritized. “We have strong capabilities to reduce

SUEZ Mexico. “It does not matter if the water management

this problem, which has been proven through our work

is public or private, it has to be well-managed,” he says,

with Aguas de Saltillo,” Valls says. “Our main investment

adding that it is only logical for the public and private

was to split the pipelines into sectors, using sensors to

sectors to collaborate in bringing their views to better

understand how much water was being lost and where.

address the issue. “Mixed-models must work as a close

We then modified the pressure to reduce the leakage.”

and collaborative partnership in which both sectors must have very well-defined duties and rights,” Valls says. “As

According to Valls, sectorization can also be applied to

the private sector, our duty is to provide a good service.

solving leaks in other cities. “The problem is that this

Our success is not merely defined by economics but by

system works based on sound and in cities that are

when citizens are comfortable and happy.”

too noisy it is hard to hear anything,” Valls explains. To overcome this, SUEZ decided to implement iDroloc

For a PPP collaboration to work, Valls emphasizes

technology. “It works with helium. The gas is introduced

that the government must understand its role as both

into the water network and the iDroloc machine can

stakeholder and regulator. “The government fixes the

detect when the helium is released from the network,

pricing for citizens. The tariffs must introduce incentives

finding the leak.” The company hoped to use it in Saltillo

for sustainable consumption,” he says. Optimum pricing

by the end 2018 and it will also be proposing it to

must cover the cost of the service and of replacement of investment while punishing higher consumers, Valls adds. When venturing into water PPPs, there are many models to choose from, but SUEZ is interested in working with the government to develop successful PPP water projects via outsourced services, mixed companies and BOT, among other models,” Valls says. But not every model is suited to every need. For example, Valls explains that BOT has the advantage that the private sector invests the money that the government does not have immediately available.

“

SACMEX’s new administration in 2019.

I think it is important to clarify if the new administration wants to work via PPPs or not. I agree with transparency and clarity in choosing the best proposal”

The mixed-companies model also has benefits when tackling efficiency issues. For example, SUEZ started its

As for the incoming government, Valls asks for clarity. “I

concession with Aguas de Saltillo facing water scarcity and

think it is important to clarify if the new administration

inefficiency. It decided on a mixed company model as the

wants to work via PPPs or not. I agree with transparency

best to address these. “The main shareholder is the public

and clarity in choosing the best proposal,” he says. He

sector through the City Council, holding 55 percent, and

mentions that when drafting tenders for water projects,

SUEZ holds the remaining 45 percent of the company’s

and of any kind, the government should consider three

shares,” he says.

factors. “First, if it is covering a public necessity. Second, if it is in a position to attract technology, service and

Once the most appropriate model to enhance water

financing providers and third, which guarantees can be

management is chosen, the matter becomes one of

provided.”

| VIEW FROM THE TOP

SAVINGS, EFFICIENCY FROM COMPACT WATERTREATMENT SOLUTIONS YOLANDA PADILLA Regional Manager Mexico and Central America of Fluence

Q: How do Fluence’s projects help countries and

A greater reuse of water in sectors such as agriculture,

communities solve their water needs?

industrial activities and domestic use should be Mexico’s

A: Water shortages and the pollution and salinization of

main goal. As the demand for water for industrial or farming

fresh water wells are key hydric challenges worldwide. In

activities increases and companies lack the necessary

lieu of this situation, Fluence looks for opportunities to

amount or quality of water, reusing water becomes more

promote its solutions in the countries and communities that

important and needed.

need them. We have gained a great deal of experience in water treatment thanks to our presence in Israel, where

Q: How are Fluence’s modular, containerized water-

we have an R&D center and a sales office. Israel reuses

treatment solutions more competitive than traditional

up to 80 percent of the water it uses and its government

water-treatment plants?

works strongly with desalinization companies to transform

A: Fluence´s decentralized solutions are an economical

seawater into freshwater.

solution. Building a giant water-treatment plant and transporting water to communities through distribution

Q: What are the main differences between desalinization

networks are expensive activities. Water or wastewater must

processes in Mexico and in other countries where Fluence

be transported through long-distance piping infrastructure

is present?

to a central treatment location and back out to its end-

A: In terms of the desalinization of seawater, countries

use location, which may be miles away from the treatment

such as Chile desalinize water for industrial and economic

plant. This method is complicated and inefficient in terms

activities such as mining, which is not the case in Mexico.

of the need to pump, distribute and collect the resource

Desalinization in the country focuses more commonly on

between the consumer and the plant. Our solutions limit

producing freshwater for human consumption rather than

the cost of building pipelines to a centralized facility.

for industrial purposes. Cities such as Los Cabos or islands

Decentralized treatment reduces startup time and expense

like Cozumel need desalination to cater to the needs of

as water and treated wastewater can circulate directly back

their floating population, so it is common to find small

to a municipality, to local surface water or to another nearby

plants that treat wastewater and desalinize seawater. The

user, such as an industrial cooling tower or landscape

largest concentration of desalinization plants in Mexico is

irrigation system. Fluence’s NIROBOX and ASPIRAL are

found in the Baja California Peninsula, in northern cities like

good examples of that. While the company does not pay so

Tijuana and Ensenada, with big desalination plants going

much attention to the size of a project as it does to making

into construction like our own project, San Quintin; and in

sure it is local, it is important to point out that communities

the south, in Los Cabos and San Jose due to the growth of

with more than 100,000 inhabitants need over 200L/s of

the tourism industry. Hotels there tend to have their own

freshwater, which is not insignificant.

desalinization and purification plants. Q: What can be done to make sure that water-treatment Q: What best international practices do you think Mexico

plants in Mexico are working to their full capacity?

needs to implement to improve the efficiency of its water

A: The challenge of maximizing the treatment capacities

consumption?

of plants in Mexico is usually found in the maintenance

A: Water reuse is an important practice that Mexico should

and operation areas. These activities always entail a cost

adopt because the future of well replenishment depends on

for the operator and energy consumption is perhaps

it. The country reuses only a small proportion of the water

the main source of costs in water-treatment plants, so

it consumes when it should aim to reuse 80 percent of its

reducing energy consumption allows plants to operate

used hydric resources. This is a complicated goal because

more efficiently. With this in mind, we focus on offering

freshwater is needed in all activities, including water reuse.

decentralized and containerized treatment solutions

that, due to their compactness, require less electricity

an inflation-indexed MX$16.95. These types of water tariffs

to operate and last longer. For instance, in the segment

are often highly subsidized by the government and final

of wastewater treatment the company has a patent for a

consumers such as households or industrial facilities end

membrane aerated biofilm reactor (MABR) that requires

up paying only a fraction of that cost.

less energy to operate. Using this technology can curb energy consumption by up to 80 percent in wastewater

Q: A bill that prevents the participation of private capital

treatment plants, which translates to a longer uptime.

in water management activities was presented before the Mexican Senate in September 2018. How could such

Q: What is Fluence’s preferred scheme to build its water-

a regulation impact Fluence’s operations if it became

treatment projects?

mandatory?

A: We usually focus on building and delivering water-

A: I think this initiative is a step backward, but even if it enters

treatment plants to clients. However, Fluence can also

into force, the contracts that had been previously signed

provide water service solutions through different financing

between the public and private sector would continue to be

models, such as a PPP, BOT and BOO, when projects are

valid until their maturation. This means the population would

large enough to be feasible and their concessions last at

continue to perceive that it is a company rather than a public

least 10 years. Not all water-treatment projects can be easily

dependency that sells water, which would cause conflicts.

financed. For instance, smaller ones may not be profitable

It is important that the public educates itself on how water

under these schemes because their financing costs rise.

treatment is handled in Mexico and why private capital is key to this process. The private and public sectors leverage each

Q: How is Fluence’s Mexico client portfolio divided

other when it comes to developing infrastructure and the

between the public and private sectors?

absence of private investments translates to stagnation in this

A: The tourism real estate segment is experiencing strong

segment. Fluence engages in PPPs to build and operate water

growth, especially in the form of houses, but private

plants but we neither distribute water to final consumers nor

clients have a smaller participation in our portfolio. These

account or charge for it. These activities are the government’s

companies demand solutions for water reuse and discharge

responsibility. Fluence focuses on continuing to build and

but the largest market demand in Mexico is in purifying

finance water-treatment plants and then operate them for

water for communities and treating city wastewater. The

the duration of the contract with the government.

public sector accounts for the largest share of our portfolio. For instance, the government of the state of Baja California

Q: What role is Fluence planning to play in Mexico’s water-

is a key client for Fluence. We have four desalinization plants

management market in the coming five years?

in the state that take seawater, treat it to meet national

A: Our concept of centralization through the offering of

and international purity standards and deliver freshwater

containerized solutions that ensure important energy savings

to local communities. The next step in this area is to close

help us differentiate ourselves from other companies in this

the cycle by treating wastewater for their use in irrigation

sector. Similarly, we are not too large a company, which

in agriculture-intensive areas such as Ensenada.

reduces the size of our administrative structure and increases our competitiveness. In Mexico, Fluence offers solutions that

There are still many areas of opportunity to treat water in

target the specific water needs of each region. For instance,

Mexico but players in this segment are aware of the needs

our NIROBOX product is designed to desalinize seawater and

of the market and have the expertise and intelligence to

supply fresh water to remote areas such as islands. These

develop in it. In northwestern Mexico, this is evident in the

solutions are also useful for situations where a development

public tenders. The desalinization plant in Los Cabos was

must be built quickly or for industrial facilities that need to

built in 2003, which was followed by the Ensenada plant 15

fit a small water-treatment plant in their operations or grow

years later and then the San Quintin, Rosarito and Guaymas

step by step. Containerized water-treatment solutions prevent

plants that were awarded with a lapse of only three years.

manufacturing companies or hotels from having to build a large water-treatment plant according to growth expectations

Q: How are Fluence’s projects in Baja California being

that may not be met. Instead, these companies can grow

financed and when are they planned to start operations?

and acquire a new modular treatment station as they need

A: The most representative project in this state, the San

more water.

Quintin plant, is being developed under a PPP scheme. The State Water Commission (CEA) of the state government is a key partner of this project but Fluence is developing it in

Fluence is the global leader in the delivery of innovative,

partnership with two Mexican construction companies. This

cost-effective decentralized water, wastewater and reuse

plant’s costs amount to MX$550 million approximately and

solutions for businesses and communities anywhere in the

its tariff for treating each cubic meter of water amounts to

world

Queretaro's bike-sharing system

URBAN PLANNING &Â MOBILITY

Mexican cities continue to grow, with urban areas in the country expanding 7.6

times from 1980 to 2010 and with the population increasing 1.9 times, according to ITDP. While urban sprawl and mobility problems are likely to increase as cities expand, there are actions that can be implemented to help ensure these emerging cities grow sustainably.

According to CAF, the main areas of opportunity for Latin American countries are reducing commute times, higher service frequencies, increasing security and comfort. As citizensâ&#x20AC;&#x2122; purchasing power increases, cars continue to be a priority. So, public resources for urban infrastructure have historically been allocated to the development of grey infrastructure such as roads and second floor for ring roads.

This scenario lays out one of the main issues at hand for Mexico: the construction of public transportation alternatives. Now, only nine cities have BRT systems and four have metro systems. This chapter entertains expert perspectives on investment, urban planning strategies and mobility projects that together make cities more livable and prosperous.

CHAPTER 4: URBAN PLANNING & MOBILITY 56

ANALYSIS: With Population on the Move, the Time for Mobility is Now

VIEW FROM THE TOP: Laura Ballesteros, SEMOVI

VIEW FROM THE TOP: Mauricio Cobo, Municipality of Queretaro

VIEW FROM THE TOP: Maximiliano Zurita, CAF México

INFOGRAPHIC: Mobility, a Work in Progress

INSIGHT: Fernando Mijares, Modutram Mexico

INSIGHT: Adriana Lobo, WRI Mexico

VIEW FROM THE TOP: Alfonso Vélez, AutoTraffic

VIEW FROM THE TOP: Gregory Narce, Transconsult

INSIGHT: Gabriel Ballesteros, Ballesteros y Mureddu

VIEW FROM THE TOP: Héctor González, Prosperia

INSIGHT: Jorge Gordillo, GVA

| ANALYSIS

WITH POPULATION ON THE MOVE, THE TIME FOR MOBILITY IS NOW As of 2018, 55 percent of the world’s population lives in urban areas and by 2050 this number will reach more than 68 percent. Mexico is no different, with more than half of the country’s population living in 54 cities. Mexicans continue to flock to urban centers, creating a need for mobility solutions and improved urban planning

As in many other developing countries, Mexico’s population

automotive, manufacturing, aviation and agricultural

is on the move. According to INEGI, by 2050, 90 percent of

sectors. But these cities are beginning to experience

the country’s people will be living in urban areas. Although

negative side effects from their fast urbanization, including

it has urbanized at a slightly slower rate than the average in

mobility problems and infrastructure issues. Following UN-

Latin American and Caribbean countries but significantly

Habitat’s recommendations for sustainable development,

faster than Central America, its population by size of urban

the goal is to increase the density of these cities to boost

settlement has increased drastically since 1990. Mexico has

the quality of life.

18 cities with a population of 300,000-500,000, 20 cities of 500,000-1 million, 14 cities of 1-5 million and one city

According to the Minister of SEDATU Queretaro Adán

of 5-10 million, according to the UN. The capital, Mexico

Gardiazabal, the Queretaro Metropolitan Area (QMA)

City, is the country’s only megacity with more than 10

population has increased by 566 percent and its urban

million people. By 2030, as the country’s cities continue to

footprint by 1,762 percent between 1970 and 2017. Along

grow, the number of cities with populations of 1-5 million

with it, the number of cars also increased by 1,943 percent.

will expand to 22. Mexico will also have two cities with a

QMA’s growth rate average is of the highest in the country

population of 5-10 million.

with a 2.8 percent average between 2010-2015. “Queretaro must be cautious about its population density and should

Experts believe that as Mexico’s population becomes more

aspire to reach at least 100 inhabitants per hectare,”

urbanized, mobility should be given more importance and

says Cobo.

integrated into a city’s urban planning and zoning. “The human right to a city is not incorporated in the constitution

GOING VERTICAL

and therefore we tend to forget about it,” says Minister of

Many municipalities are seeing the virtues of high-

Mobility of the Municipality of Queretaro Mauricio Cobo.

density cities and are changing their zoning plans to attract investment and development. The Municipality

THE NEGATIVE ROLE MODEL

of Queretaro recently changed its zoning regulations

Mexico City’s arteries are clogged with more than 5.5

and plan to encourage vertical development. It created

million cars circulating every day. Although there are

eight different programs for its seven neighborhoods and

various modes of public transportation, including bike-

historic downtown area. “All of this is to create a more

sharing systems, Metro, BRT systems, light train, buses and

compact Queretaro. If this plan is followed correctly the

trolleys, there is still a wide gap to fill in terms of quality of

city should have 80-100 inhabitants per hectare. These

service, maintenance and quality of fleets. This has in turn

programs will incentivize vertical development and mixed-

caused more people to choose the car as their mode of

use projects,” says Cobo.

transportation. “Cars occupy more than 85 percent of urban space and on average, each one transports only 1.5 people,”

For developers, going vertical is not a problem, it is a

says Maximiliano Zurita, Director General of CAF México.

good investment. Monterrey began encouraging the

“If we do not create an inclusive public transportation

construction of vertical commercial, corporate and

system, we will find ourselves with serious problems. We are

housing projects in its downtown area and the boom

accustomed to seeing MTS systems go from high-density

has only begun. San Pedro Garza Garcia has traditionally

areas to the center of a city but most likely the people who

been known as its business district and the downtown

own the cars do not come from these areas. If we want to

area was abandoned for some years. But mega projects

reduce the number of cars, we must reach the high-income

are now under construction, although there are still various

housing areas and persuade them to use the MTS.”

factors to consider to restore its downtown. “Before developing in this area, we must first make sure that the

NOT JUST MEXICO CITY

right infrastructure exists or if we need to construct and

Mexico’s largest urban areas are boosting the country’s

rehabilitate its basic infrastructure,” says Antonio Elosúa,

economic development by fostering the growth of the

President of the Board of U-Calli.

VIEW FROM THE TOP |

NEW MOBILITY PRIORITIES FOR A NEW ADMINISTRATION LAURA BALLESTEROS Former Deputy Minister of Planning at SEMOVI

Q: What challenges need to be tackled when working

be universal and open to all users regardless of the method

toward implementing a sustainable mobility vision?

of transportation. The new government should invest in

A: Any government working to offer safe and sustainable

having complete streets, with biking infrastructure, confined

mobility faces two challenges. The first is to generate as many

lanes for public transportation and general lanes for private

transportation options as possible to give people access to

vehicles. The biking infrastructure alone should grow by 60

the city and reduce commute times. The goal should be to

percent, adding 270km to the current network and providing

reach a modal split where 80 percent of the population uses

better connectivity with public transportation systems.

public transportation, while less than 20 percent use their own vehicle. Today, 45 percent of people use public transportation, 35 percent are pedestrians, 2 percent are cyclists and the remaining are private vehicle users. The second challenge is to guarantee the population’s well-being. Road safety must remain a strategic priority in mobility planning for the next administration. The government must not fall into populist practices and remove all speed-limit regulations. These are the key to ensuring the safety of the population and we must

Today, 45 percent of people use public transportation, 35 percent are pedestrians, 2 percent are cyclists and the remainder are private vehicle users

keep working to ensure technology can save lives. Q: What should be the role of the private sector in the Q: What priorities would improve Mexico City’s mobility

development of Mexico City’s mobility infrastructure?

landscape?

A: Private investment is critical in the development of

A: The city must evolve following three fundamental

a successful mobility plan. Today, the government does

guidelines. First, the government must ensure accessibility to

not have enough resources to support these projects,

the city through a safe, inclusive and structured transportation

which means PPPs are the best way to move forward. So

system. The current transportation network must grow by 30

far, PPPs have been an excellent vehicle for infrastructure

percent or 240km of additional public transportation lines,

development but the government must ensure that all

which is the least the city needs to allow people to have access

projects are properly tendered to eradicate any form of

to their rights and all services the government can offer.

corruption. Projects should be better planned to avoid most of the profits coming from infrastructure projects going

The best strategy for the city would be to invest in 24km of

directly to private companies. Today, only 30 percent of a

Metro lines to expand the existing network and decongest its

project’s profit benefits neighborhoods while the company

stations. At the same time, the government should grow the

keeps 70 percent. This rate should be reversed to ensure the

Metrobús network by 80km and take the next step toward

healthy development of the city. Similarly, the government

electrification of public transportation and overall mobility.

must establish clear communication with companies to

Finally, the city should work on the implementation of a

direct projects and technology developments toward what

Metroférico, a 50km cableway system that would connect

the city truly needs. The country needs committed investors

five north delegations with the city center. Right now,

that want to work on public infrastructure projects.

people traveling from the north of the city suffer commutes of approximately two hours. This system would reduce this time by 60 percent.

The Ministry of Mobility of Mexico City (SEMOVI) is in charge of all regulations related to public and private transportation

The second guideline the city should follow is related to street

within Mexico City. Its goal is to align the city’s regulations with

infrastructure. Streets are the base of mobility, so they must

the safety of all users and the preservation of the environment

| VIEW FROM THE TOP

GIVING MUNICIPALITIES THE POWER TO CHANGE MOBILITY MAURICIO COBO Minister of Mobility of the Municipality of Queretaro

Q: Why should more municipalities have their own Ministry

billion, should be allocated only to mobility projects within

of Mobility?

the city. We have been subsidizing the car for many years and

A: The municipality of Queretaro is one of the few in Mexico

now it is difficult to motivate people to use alternatives. We do

that has a Ministry of Mobility. This is an urgent matter that

not implement methods such as road taxes to disincentivize

all cities with more than 50,000 inhabitants should begin to

the use of cars like other countries do. Allowing companies to

look at. Citizens have four methods of transportation: by foot,

use streets and highways free of charge is a type of subsidy.

bicycle, public transportation or car. Throughout the country

The government spends a great deal of money on building

cities have given preference to vehicles, which in the end

these roadways but gets almost no return on them.

determines the shape of the city. Cities then begin to force citizens to aspire to owning a car because of the way the city

Q: What is the main cause of Queretaro’s mobility problem

has been designed, meaning this option offers a better quality

and why did the government decide to create the Ministry

of life. This makes cities also grow unequally and hostile to

of Mobility?

unmotorized transportation methods. At the ministry, we

A: If the government invests in public infrastructure, the

create the public policies for mobility and then design and

private sector tends to respond. One of the main reasons

execute projects such as bike lanes throughout the city.

why the Ministry of Mobility was created was because the city has grown extensively in the last years. In the 1970s, the

Q: How does the ministry obtain funding for its mobility

city of Queretaro had a population of about 300,000 but

initiatives?

it had a density of 200 inhabitants per hectare. Today, the

A: The ministry is part of the municipal government so it

city’s urban density is 45 inhabitants per hectare, which is

only receives funds from the local government and the

a dramatic decrease. Urban sprawl has grown 30 times in

mayor’s office. The municipal government has various

the last 30 years with extremely low densities, creating a

sources of funding but most of Queretaro’s income comes

problem that we must overcome quickly. This was largely due

from the city itself. Property tax and domain transfer

to the housing policy that was established. More and more

payments in Queretaro are both strong income sources for

people demanded single-family homes and did not like to

the local government. When a real estate developer wants

live in vertical developments. There are more than 40,000

to create a project that exceeds 500m , it has to have the

vacant lots within the city that add to the large dispersion

approval of the Ministry of Mobility and then, according to

problem. One of the main reasons why the ministry was

the Income Law, it must pay for the impact the project will

created was to reverse this problem and increase the city’s

have on mobility.

population density.

The bigger the project, the more the developer has to pay.

Q: How has the municipality improved the public

This is relatively new in cities because before a developer

transportation system without being involved in the actual

would pay a fee that dealt with transit but we are now being

BRT or bus systems?

more thorough and creating mobility impact studies. If

A: The BRT system is the responsibility of the state

the development will create traffic and heavily impact the

government but the bus stops are the responsibility of the

city’s mobility, then the developer will pay for that impact.

municipality. Sixty-four percent of the population moves

Developers demand that the money is invested in a project

around by public transport, 35 percent by car and 1 percent

or service that is near to their project. As a result, the fee is

by bicycle. If 64 percent of the municipality uses public

a win-win for both the city and the project.

transportation and we are not responsible for the transport

itself, we can improve the state of the bus stops. We decided When it comes to funding, the income the mobility impact

to construct high-density bus stops that are safe, comfortable

studies generate each year, which is approximately MX$15-20

and have access to communication services. Together with

View of Queretaro

the Queretaro Transport Institute (IQT) we have created

are made in the hope that more and more people will begin

mobility solutions that will enhance the quality of life of the

to use it because it is available and the correct infrastructure

people living in Queretaro. We are constructing 15 of these

exists to permit mobility.

high-density stops in areas that are hubs for intermodal transportation. We chose the stops according to the areas

There always seems to be strong resistance to bicycle

that had the highest density of users and that were not within

initiatives. If the infrastructure exists and the right tools are

the short-term plans of the BRT system.

provided, a culture is created. Further, these investments are extremely beneficial for the development of more sustainable

Queretaro has contemplated the construction of eight BRT

cities in the future. We now have 5,000 users and more than

lines in the next few years. The municipality of Queretaro has

1,800 trips a day, which demonstrates the system is working

the advantage that it is surrounded only by municipalities and

and will have an impact on the city.

not by another state, as in the case of Mexico City. When it comes to bicycle infrastructure, we are developing as far as

Queretaroâ&#x20AC;&#x2122;s mobility master plan dictates that it should have

the border with the next municipality so that it can pick up

500km of bicycle lanes. This administration has undertaken

where we leave off.

the construction of 200km of bike lanes, integrated with the 60km that already existed to create a network. Studies were

Q: How has the municipality responded to the QroBici and

carried out to see how likely citizens were to use the bike

bicycle infrastructure developed in the last few years?

infrastructure and surprisingly, 80 percent of the people in

A: QroBici began operations in March 2018 with 450 bicycles

the 15 to 35-year age bracket said they would be willing to

and 50 stations. Ninety-five percent of users access the

use the bikes as their mode of transportation if the correct

bicycles through an app and the remainder uses a physical

infrastructure was in place.

card. The bike system is operated by Estrategias de Movilidad Urbana but the system belongs to the municipality. The municipality pays a fee each month to the operator. Many

The Ministry of Mobility of Queretaro is one of the first municipal-

questioned why the city was investing so much in the bike

level ministries that is dedicated to improving mobility throughout

system and lanes if only 1 percent of the population used

the city. It focuses on creating alternative transportation solutions

bicycles as their mode of transportation. These investments

and improving access to public transport

| VIEW FROM THE TOP

INTEGRATING URBAN PLANNING AND TRANSPORT FOR BETTER MOBILITY MAXIMILIANO ZURITA Director General of CAF México

Q: What is the root cause of Mexico’s mobility problems?

decisions almost autonomously even though SEMOVI is

A: Mobility is a right and it must be understood as a way

part of the board. The only private entity is the Suburban

to facilitate movement while supplying the social, cultural

Train, which is concessioned by CAF. The others are

and economic needs of the people. Currently, the country

public organisms but they are not coordinated. Mexico

lacks an integral public policy for passenger transport.

City has a population of 9 million but the Metropolitan

With such a policy in place, the country could plan and

Area of the Valley of Mexico (ZMVM) has 22 million. Most

execute a strategy that outlines and provides efficient

people come into Mexico City on a daily basis from the

mobility solutions. At the same time, these projects must

surrounding areas.

be part of the whole. The projects created to this day have been developed in isolation and they sometimes

Q: How would you rate CAF’s concession of the Mexico

do not interconnect, creating general solutions only for

City Suburban Train?

certain zones.

A: The Suburban Train is the only concessioned MTS in the ZMVM. It has been in operation for more than 10 years

The selection of projects should be based on the quantity

and it is the best transportation system in the country.

and type of passengers that will be transported and from

The cost of the train is not subsidized but it competes

there the most efficient and appropriate Metropolitan

with the cost of the public transport of the State of

Transport System (MTS) should be chosen. Projects

Mexico. This system demonstrates that it is possible to

are planned according to the latest trends that may

have an efficient and affordable MTS in cities. Users have

not necessarily add value to an area. This is why many

consistently graded the system between an 8.5-8.9 every

routes become saturated quickly. MTS networks should

year in our annual surveys.

be designed to complement each other and not compete among themselves.

When the tender for the Suburban Train was launched, the company decided that it was a great opportunity

The urban development codes do not contemplate urban

to invest in Mexican infrastructure and move from

transportation systems. When a city grows and is in need

being a train provider to an operator. The client today

of an MTS, there is no space for it. This obligates cities to

demands an integral service and offers various services

look for subterranean and elevated solutions, which make

and products. The tender called for the lowest price tag

the project much more expensive than it needs to be.

and CAF offered the lowest tariff. We constructed the project with a loan from commercial banks and it took

Q: Who should design and plan public transportation

us approximately a year and a half to finish construction

systems in Mexican cities?

of 27km of double tracks with six stations.

A: In metropolitan areas there should be one single transport authority, as is done in large cities across the

In comparison to other projects where the concessionaire

world. In Mexico, no such government body exists. For

is the constructor, we wanted to quickly put the train into

instance, the Metropolitan Area of Guadalajara (MAG)

operations. The private sector is more efficient and has

consists of five municipalities with perhaps five different

fewer limitations than the public sector when developing

political parties that differ in the types of policies

new projects. Mexico is a great country to implement new

and projects that should be developed. There is no

business models. The concession opened opportunities

consistency or coordination. Mexico City alone has five

to contribute to mobility in this country.

different entities that participate in mass transportation: SEMOVI, STC, the Light Train, Metrobús and the Suburban

Q: In what additional features or sustainable practices

Train. For example, the STC Metro System makes

has CAF invested for the Suburban Train?

A: The Suburban Train uses clean energy, which is generated through solar panels. That energy is then sold to CFE to create the lowest power prices on the market. The trains themselves also generate energy through the braking systems. We integrate materials that not only required less maintenance but that also extended the lifespan of the infrastructure and trains. Trains used to have a lifespan of 15-20 years and now our trains offer 30-40 years. Security, speed and trust are the main attributes of the Suburban Train. When people are given good services, they truly value and respect it. There is no vandalism

on the trains and people make sure to take care of it. It is important to continue improving the service and innovating to make the experience even better. This requires a significant investment but it pays off completely. We have created an assembly plant in Huehuetoca that allowed us to slowly increase the amount of local content in our trains. At the beginning, we manufactured the aluminum train boxes but now the Huehuetoca plant constructs 95 percent of the trains in Mexico. CAF initiated operations in 1993 as a Mexican company and in 2018 it is celebrating its 25 th anniversary. The company has captured approximately 85 percent of the market and has become the most important player in the sector. CAF is a Mexican company that provides products CAF train for the Mexico City Metro System

for Mexico built by Mexicans. Q: How has CAF participated in Monterreyâ&#x20AC;&#x2122;s MTS, MetroRey? A: CAF has participated in MetroRey for many years. We

Q: What is your opinion on the Observatorio-NAIM

provided the first trains for Line 2 and were the first to

Express Train?

provide air conditioning in the trains. We also won the

A: The Observatorio-NAIM Express Train is an interesting

project for Line 3 in an international tender. The financial

endeavor. There are various proposals regarding the path

scheme was structured so that the State of Nuevo Leon

and the type of train that should be used and we have served

would not have to absorb the debt. Under that financial

as consultants to various companies participating in the

plan, Banobras had to grant the financial leasing of the

preliminary studies. This train will connect Observatorio to

trains. Hopefully by the end of 2018, we will be able to

AICM and eventually to NAIM. It is an expensive solution for

begin construction of the trains for Line 2.

a city that is in urgent need of more Metro connections. The government predicts that the Express Train will probably

Q: Could the Mexico-Toluca Interurban Train also be

transport 200 million passengers but that demand does not

operated and maintained by a private company?

yet exist. People can already reach AICM but we would need

A: We won the project for the Mexico-Toluca Interurban

to connect NAIM to this network. Perhaps a more plausible

Train to do the track systems, the signaling system, trains

solution would be creating a link between the two airports

and workshop equipment. We are also interested in the

for the time being, using this as an extension to the current

operation and maintenance of the system itself. SCT has

route and with time and more resources, expand it.

decided to assign the concession to FONADIN and at the same time contract the services of an operator. The Suburban Train was concessioned with private investment

Construcciones y Auxiliar de Ferrocarriles (CAF) has provided

but the federal government decided that the Interurban

trains for the Mexico City Metro System, MetroRey and the

Train should be a state-funded project since it could not

Mexico-Toluca Interurban train. It is also the concessionaire of

guarantee rights of way.

the Mexico City Suburban Train

| INFOGRAPHIC

MOBILITY, A WORK IN PROGRESS The Mexico City government favored vehicle infrastructure

including the Metrobús system. Meanwhile, the entrance of

for years without taking sustainable mobility into account.

several players in the alternative mobility sector has also

This has resulted in a collapsed infrastructure that can barely

helped alleviate traffic and reduce the number of vehicles on

handle the 35 million daily trips that citizens have to complete.

roads. The arrival of a new administration will introduce fresh

The implementation of the new Mobility Law in 2016 has

development opportunities for the city but in the meantime,

led to some benefits in terms of public transportation,

this is the status of the city's mobility ecosystem.

HOW IMPORTANT DO YOU THINK VEHICLE OWNERSHIP IS FOR MEXICANS?*

MEXICO'S NATIONAL VEHICLE PARK (including cars, passenger and cargo vehicles, million) 62

2016

39,801,827

2017

41,311,027

2018

41,888,455 until May

8.4

Private

55.1% Very important 35.2% Important 1.2% Not important 8.5% No answer 16.8

25.2

33.6

Public

No answer Not important

RIDE-HAILING SERVICES

UBER

CABIFY - EASY

In Mexico, Uber

Cabify and Easy are the

plans to have

largest Ibero-American

DIDI important CHUXING Mildly DiDi Chuxing is the latest Very important player to enter the Mexican

500,000 drivers

players competing in the

ride-hailing market. The

using its platform

global ride-hailing market.

Chinese company officially launched its DiDi Express

by December 2018

Easy and Yaxi were the

with operations in

first ride-hailing platforms

service in Toluca in April 2018

10 more cities. As

to appear in Mexico. Easy

following the implementation of a pilot program. Around 21

of April 2018, Uber

acquired Yaxi in March 2018

was present in 41

to increase its fleet and

million drivers worldwide use

cities in Mexico

improve services

the DiDi platform

ECOBICI

BICYCLE AND ELECTRIC MOPED SHARING SERVICES

In 2017, more than 9.5 million trips were completed using ECOBICI’s shared bicycles.

VBIKE According to an article published by

Entrepreneur in May 2018, VBike plans to

Around 4.36 million ECOBICI trips were

introduce 50,000 dockless shared bicycles

completed in 1H18 compared to 4.94 million

in Mexico. The first stage of the project will

trips in 1H17. By the end of July 2018, over 52.47 million bicycle trips had been completed and 283,265 users have been registered since the program started in 2010

MOBIKE Mexico is the first country where

see 2,000 VBike bicycles made available in several neighborhoods of the Benito Juarez delegation, located in the centersouth of Mexico City

ECONDUCE Between 2017 and 2018, Econduce

China's Mobike has operations in

reached a fleet size of almost 500

Latin America. Mobike’s dockless

electric scooters, with over 400,000

bike-sharing service first arrived to Mexico City in February 2018 when the company introduced its first 50 bicycles in the Miguel Hidalgo delegation *Mexico Automotive Review 2018 interviewee survey

complete trips and an increased user base. Econduce’s scooters take two hours to charge and the energy necessary to charge a regular EV can charge up to 70 Econduce scooters

MEXICO CITY'S PUBLIC TRANSPORTATION SYSTEM

As of April 2018, Mexico City’s subway system comprises 226km of railway transited on average by 273 train carriages

Mexico City’s Mobility System 1 (M1) includes 94 bus routes offering four services: Ecobus, Express, Atenea and a regular

These carriages travel an average distance of 121,500km and transport 4.43 million passengers every day

service. The Atenea service focuses on guaranteeing sexual violence-free commutes on the main roads of Mexico City 63

As of April 2018, 609 buses operate on M1’s routes Monday through Friday, while 364 cover The Suburban Train route is made up of 27km of railroad and seven train stations that cover four municipalites in eastern

the weekends, traveling an aggregate 115,000km on a daily basis transporting 386,000 passengers

State of Mexico and two delegations of northern Mexico City

STC metro Metrobús Tren suburbano Tren ligero Trolebús Main avenues and highways

The Mexico City Light Train’s single route stretches for 25km and is operated by 20 double-cabin trains. In April 2018, the Light Train’s units traveled 145,000km and transported 2.83 million passengers

By April 2018, Metrobús’ fleet was composed of 679 buses designed to meet Mexico City’s electric bus system (trolebús) comprises eight lines stretching for 204km

the needs of Mexico City’s streets. There are four different types of Metrobús buses: articulated, biarticulated, double-decker Euro VI and 12m units. Between Monday

In April 2018, an average of 154 electric buses traveled 985,400km and transported 4.04 million passengers

and Friday, an average of 561 buses are in operation. On weekends, this figure is reduced to 352

Source: INEGI, ITDP, STC Metro, Metrobús, Ferrocarriles Suburbanos, STE-CDMX, SM1-CDMX, Uber, DiDi, EcoBici, Econduce, Mobike, Excélsior, Entrepreneur

| INSIGHT

LEAN RAPID TRANSIT FOR LIVABLE CITIES FERNANDO MIJARES Co-Founder and Business Development of Modutram Mexico

Mass Transportation Systems (MTS) are necessary for cities

allows it to interchange the size of its stations according

to grow sustainably but sometimes cities place too much

to the expected demand, unlike conventional rail systems.

weight on one system rather than creating a seamless

“Intermediate stations with lower demand would be smaller

network of transportation systems, says Fernando Mijares,

but stations integrated with other MTS would be much

Co-Founder and Business Development at Modutram, the

bigger, with several parallel modules. Larger stations can be

group charged with selling a new system called Autotrén.

integrated with other systems such as BRTs or metro lines,”

“Cities need more collective transport options to be

he says. “All the stations are equipped with an overtaking lane

sustainable and more livable. Autotrén is a new mode of

to provide an express or semi-express service to passengers.

transport that is already approved by PROTRAM. It will

Optionally, each service can be scheduled according to

boost mobility within cities by making extensive rapid

real-time demand.” This is done through destination kiosks

transit networks viable thanks to its lean infrastructure.”

that allow users to choose the station they want to go to,

“

Autotren is an urban intervention tool that has the ability to transform a city”

says Mijares. Although Autotrén offers a unique value proposition, its main challenge is convincing local governments of its virtues. “The main obstacle to overcome is that it is new in the market and we have to convince governments and investors that it is going to work. Government and investors tend to look for success cases first,” says Mijares. Although the system is new, it employs technology that is readily available and

Modutram was founded in 2010 by professionals of the

most importantly a financial scheme that has already been

Guadalajara automotive industry with the objective of

successful in Mexico.

creating a technological innovation that would improve urban mobility in Mexico. Autotrén is a Group Rapid Transport

Modutram wishes to integrate Autotrén into cities through

(GRT) system developed by the triple-helix approach

PPP schemes, just like that used for the Metrobús system.

of a team of Mexican companies and research centers

Mijares proposes that Autotrén use the same financing as a

with government support. It is a modular transportation

BRT system; through FONADIN’S PROTRAM fund entities it

system that can be either underground or above road level.

could retrieve financing and then transport companies could

“Autotrén’s main focus is to serve backbone axes of medium

invest in the rolling stock. “The financial scheme has already

capacity. This is lower capacity than metro but similar to Bus

proved to function well throughout the country and there

Rapid Transit (BRT) systems. These medium capacity main

would be no problem adapting it to Autotrén,” he says. The

axes have around 10,000-15,000 passengers per hour per

PROTRAM program is part of FONADIN and it grants federal

direction but are often unviable to develop at a street level.

funds to develop MTS.

In those cases, Autotrén’s lean infrastructure makes them viable,” Mijares says.

Mijares believe that states should look at Autotrén as much more than just an MTS. “It is an urban intervention tool that

The modularity of the system means savings of space

has the ability to transform a city. It recovers public space

and money. “Transportation corridors do not have the

by taking away street-level public transport to open up more

same demand throughout their entire extension. There

space to pedestrians and bikes,” Mijares says. “The idea is to

are segments that require higher capacity but others that

take space back but not for cars. The sidewalks, bike lanes

have lower demand; capacity can be built accordingly,” he

and parks are the municipality’s responsibility and the state

says. In comparison to other systems, Autotrén’s modularity

would take care of the transportation system itself.”

INSIGHT |

GETTING TO THE ROOT OF MEXICO’S MOBILITY PROBLEM ADRIANA LOBO Executive Director of WRI Mexico

Mexico, eighth in the world for road mortality, requires

related entities and help homogenize transit regulations

greater legality and a change of federal laws to achieve a

across the country. “The total cost for this plan is mainly

sustainable and safe mobility model, says Adriana Lobo,

related to management and is not represented in the national

Executive Director of the World Resources Institute (WRI)

budget, considering the millions of lives it would save,” says

Mexico. “It may seem that legality is largely unrelated to

Lobo. She believes that a good initial budget for efficiently

infrastructure but it is really related to everything. We must

addressing Mexico’s mobility issues would be “MX$300 million

enhance and strengthen the judiciary and justice system in

to start, while a reasonable budget for implementing a solid

Mexico,” she says.

plan would be around MX$800 million per year.”

Historically, road safety and mobility programs have not been

When striving to address the Mexican road safety problem

high government priorities because the socio-economic

at its roots, it is useful to follow global trends to understand

impact they represent is not fully understood, Lobo says.

what best practices can be implemented in Mexico.

For instance, even though more people die in road accidents

According to Lobo, there is a global tendency calling for

than from AIDS, the annual budget to fight the health virus

car-free cities through the development of high-quality

is significantly higher than that for road safety. “It is a matter

alternative transportation systems that eliminate the need

of priorities and I believe this issue is not being properly

for cars. “Mexican regulation has started to speak the

prioritized,” she says. “It represents a long-term investment

sustainable language but that has not yet translated into

but nothing compared to how expensive it is to take care of

plans and actions to achieve a mobility revolution,” she says.

the victims that will go to IMSS.”

“We are 30-40 years behind in infrastructure building and investment for this purpose.” Unless Mexico focuses first on

After years of studying Mexico’s policies and infrastructure,

making legality a priority, the country is unlikely to fix its

WRI Mexico, a global research organization striving for

problems and will lag behind in global mobility innovation.

the sustainability of natural resources, has developed an efficient yet affordable plan to ease the country’s mobility

Second to legality, technology plays a strategic role

issues. According to Lobo, modifying car regulations that

in improving mobility safety worldwide. The trend for

among other changes like to forbid the sale of vehicles

electromobility is moving forward in the country despite

without airbags and make the use of baby chairs mandatory

its high costs and lack of supporting infrastructure. Lobo

are of prime importance. The National Accident Prevention

believes Mexico could significantly benefit from better use

Council has reported that car accidents are the second

of its electric network. However, the question of how to

cause of death among people between the ages of 25 to

finance the high initial outlay remains unanswered.

34 and the first between the ages of 0 to 24, mostly due to these two factors.

Information technologies for shared cars and autonomous vehicles also create a new mobility reality that is expected to

Speed limits remain another controversial factor in the

improve road safety. But the huge revolution for information

increase of road-related fatalities in Mexico. WRI Mexico

systems and mobility has to be regulated carefully, as its

believes that sealing an agreement with the private sector to

consequences are uncertain. “Autonomous vehicles could

install more road cameras could help alleviate this problem,

either be heaven or hell,” says Lobo. “Imagine if instead of

eliminating most expenses while generating revenue for the

parking, users could leave their cars driving around while

government. But road cameras should be integrated into a

they run their errands.” She is certain that there will be some

holistic and robust regulatory framework that also includes

surprises ahead on the road to a technological revolution, so

road infrastructure and culture. Lobo advocates for the

the capacity to foresee and prepare for them through more

creation of a national agency that will coordinate with other

comprehensive and better-enforced regulations is vital.

Bike and pedestrian space in Queretaro

VIEW FROM THE TOP |

INCORPORATING MOBILITY INTO THE URBAN AGENDA ALFONSO VÉLEZ Director General of AutoTraffic

Q: How does AutoTraffic use data mining and data science

less time, assuming that 85 percent of the drivers do not

for mobility?

drive at risky speeds. But this methodology focuses only

A: Our Livink SmartMobility service gathers data from four

on cars, neglecting other road users, such as pedestrians

channels: purchase of existing data, our installed sensors and

and cyclists. Around 50 percent of the 18,700 car accident

the physical qualification of infrastructure and government

casualties in Mexico are pedestrians and cyclists. If someone

sources. There is a great deal of data available. The challenge

is hit by a car at 50km/h there is no chance of survival.

is gathering it on a single platform and then designing

Second, we can manage speed through design. Roads can

the algorithms and machine learning implementations so

be modified to prevent driving over the speed limit through

this information can be translated to enhanced decision-

physical implementations, like reducing the turn radius at

making. Finally, we provide users with analyzed information

curves so drivers have to slow down. The third method is

and perform simulations to suggest changes that enable

photo enforcement for speeding drivers. This is a successful

real Smart Mobility for society. For example, through our

technology that helps decrease speed among 96 percent of

simulations we can forecast how the city is likely to react

drivers. Implementing these methods allows us to ensure a

to a new BRT line or a biking lane. We can anticipate users’

reduction of casualties of at least 60 percent.

behavior and suggest adjustments to increase the level of satisfaction and decrease the risk of failure.

Q: How would you make Mexico’s cities more walkable and what are the main factors hindering this?

Q: Puebla has been the latest state to jump on board the

A: Car-free cities are the trend all over the world given the

Mobility 3.0 wagon. What is the state of this project?

Sustainable Development Goals and the New Urban Agenda

A: We have seen a lot of interest among governments in

from UN Habitat to implement more walkable, sustainable,

developing an urban agenda. If we continue to pursue

safe, efficient and enjoyable cities. In Mexico, we have to work

such an agenda, we will see very different cities in the

at municipal, state and federal levels to achieve a sustainable

next six years: safer, more efficient, more sustainable and

urban development in mobility public policy. I would pursue

more resilient. That is our goal at AutoTraffic. Two years

this goal through the creation of a federal Ministry of Mobility,

after beginning the Mobility 3.0 project in Puebla, we have

the publication of a Mobility Law based on the Mobility

mined and analyzed a huge amount of data on the city’s

Pyramid, the further regulation of the Mobility Law, the

mobility and urban infrastructure. We also improved control

implementation of technical infrastructure standards and the

of traffic violations, such as speeding, red light compliance

regulation of the Traffic Law. I would also implement a Smart

and invasion of pedestrian zones. We implemented safe

Mobility platform to have as much data available as possible

intersections for vulnerable users, such as those with

related to traffic safety, mobility sustainability, infrastructure

disabilities, pedestrians and cyclists. We also deployed

and resilience. Historical downtowns are a good start for

award-winning technology from BiomiTech, our partner

the implementation of car-free zones. For example, Puebla’s

company, to reduce air pollution.

authorities implemented the biggest tactical urbanism in Mexico, recovering 15,000m2 over four downtown streets,

Q: How can AutoTraffic help reduce the number of traffic

freeing up more space for pedestrians and cyclists, with only

fatalities annually?

one lane for parking access.

A: AutoTraffic has an integrated public policy approach to reduce casualties and serious injuries by traffic crashes, which consists of managing vehicle speeds. This reduction

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

can be addressed in three ways. First, implementation

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

of speed limits. These used to be defined by the V85

and accident prevention technologies and aims to be a leader

methodology, which considers how to move more cars in

at the national level for safe, efficient and sustainable mobility

| VIEW FROM THE TOP

AT THE ROOT OF MEXICO’S URBAN PLANNING PROBLEMS GREGORY NARCE Commercial Director of Transconsult

Q: What are the main factors hindering enhanced urban

within the cities. The complexity lies in the fact that many

planning and mobility?

states do not even have a Ministry of Mobility, much less

A: Urban planning frequently derives from a macro vision

an urban mobility strategic vision. Under these conditions,

that is translated into different sectors. Nonetheless,

developing sustainable mobility projects is challenging.

in Mexico, there is no general framework that allows government offices to effectively manage the creation

Q: What public transport solutions can benefit the

of urban infrastructure. For instance, the maintenance of

secondary and tertiary cities the most?

projects such as the Metro is determined by the political

A: Due to the fact that the investment levels and

will of local governments. Mexico should strive for an

infrastructure requirements for a light train or a Metro

infrastructure fund that guarantees long-term planning and

are higher than those of BRT corridors, the Mexican

maintenance of projects beyond political administrations.

trend favors the latter. BRT corridors can be an optimal

In this sense, the industry is very dependent on political

alternative for transforming the mobility of secondary

decisions, hindering the optimization of its resources.

cities, yielding a positive change that will benefit citizens. A concrete example is the mobility plan for the city of

Moreover, urban planning issues are subordinated

Juarez, developed by Transconsult. According to the

to financing. Transport systems require a short, mid

surveys applied to users, 80 percent was satisfied with

and long-term fare planning strategy that establishes

the BRT service and perceived an improvement in safety

transport investment priorities and diverse financing

and security of the system. It seems to me that the users

mechanisms such as PPPs or subsidies. From my point

initially experienced some inherent resistance to adopting

of view, we should explore mixed schemes for bringing

these corridors. However, after several years of functioning,

projects to fruition, given that it is naive to think that all

citizens usually gain a good perception. I consider the

public infrastructure will be supplied merely with public

maintenance of the current scheme based on traditional

investment. Banobras, through FONADIN, has a program

microbuses untenable as their management has no order

to incentivize public transport. PROTRAM co-finances

or professionalization, and responsibility is not clearly

mobility plans, which allows local governments with scarce

allocated to a particular actor.

resources to implement city planning while fostering a strategic vision.

Q: How can cities better integrate new transport projects such as NAIM into their urban planning strategy?

In my estimation, the inadequate service provided to

A: In Mexico City, we must take into consideration that

users is a repercussion of the lack of professionalization

taxi and Uber fares are more affordable than in other

of public transport. The problem stands in direct relation

international cities. Consequently, these means of

to the fares although, above all, it is the result of the

conveyance are a suitable transport option. Regardless,

structural absence of a business strategy, which prevents

when designing an airport, it is crucial to plan and consider

public transport from being profitable and impedes its

other public transport alternatives for passengers and

modernization. Therefore, one of my suggestions to the

employees. Even though highways are expanded, they will

Mexican authorities is to professionalize transport services

inevitably be congested. In Mexico, NAIM has options such as the extension of a Metro line. In any case, the absence of effective planning results in decisions that are often taken

Transconsult is a Mexican company with more than 15 years

opportunely, which makes it more difficult for a consulting

of specialized experience in sustainable urban mobility,

actor to generate real improvement. Unfortunately, an

infrastructure, management, specialized supervision of civil

insufficient forecasting echoes across the whole sector,

works and operation of public transportation infrastructure

from developers to consultants and end-users.

INSIGHT |

LEGAL INFRASTRUCTURE IS THE BEST MEDICINE GABRIEL BALLESTEROS Partner at Ballesteros y Mureddu

To bridge Mexico’s infrastructure gap, there should be

The legal infrastructure antidote prescribed by Ballesteros

less focus on creating structures and more on creating

also demands a transfer of urban planning to citizens,

legal infrastructure, says Gabriel Ballesteros, Partner at

because they are the ones living in cities. “If we do not give

Ballesteros y Mureddu. “Legal infrastructure is equally

decision-making power to citizens, we will continue changing

important to infrastructure itself but it is not being treated

our urban planning strategies every six years, reinventing it in

with the importance and value required for producing

accordance with the new leader’s view,” he says. He suggests

infrastructure development,” he says. “Planning is the great vaccination that prevents the epidemic of badlyplanned projects.” On the path to create urban and public works policies, Ballesteros says the first step would be to carry out a revision of Mexican legal structures without halting urban development. “The risk to development is the reason why neither the industry, the municipalities nor the government are working to address this problem,” he says. “We are focusing on continuing projects in the field and not on making public-planning policies.” He proposes a focus on

“

a city agenda that is drafted with citizen participation.

Planning is the great vaccination that prevents the epidemic of badly-planned projects”

It is not only about the government transferring urban planning to citizens but about them taking ownership of

coordinating the three levels of government, balancing

it. “Citizens must raise their voices and challenge poor

municipal and state public works and transferring part of

infrastructure decisions,” he says. “They should ask questions

the urban planning to citizens.

about the projects being carried out due to the urgency to inaugurate them before the administration leaves office.”

On a municipal level especially, Ballesteros says Mexico needs to rescue its planning institutions. Between 2000

Urban settlements grow in three ways, according to

and 2010, the country founded 54 municipal institutes of

Ballesteros: they either expand, become denser or

planning, but Ballesteros says they lack bite. “All these

regenerate. He says a strong urban development plan can

agencies are merely empty gestures, as they look good

help authorities keep abreast of changes and predict new

for municipal presidents but do not have any substantial

needs. “The three processes can happen simultaneously.

impact,” he says. “We must create effective institutions

Urban development plans should estimate how many

that coordinate the relationship between citizens and

hectares cities need to regenerate, fill in and expand to

government.”

better define the incentives and maintain balance. The outcome is a living, compact and working city.”

These institutions would prevent duplication in government efforts related to infrastructure planning, as the structure

Ballesteros gives two examples of cities achieving

of who is responsible for infrastructure is not clear at the

this balance, Mexico City being the best. “Mexico City,

moment. “We must strive for a balance between municipal

with all its problems, has done a great job in rescuing,

development and federal public works,” he says. “Municipal

regenerating and reconnecting public spaces,” he says.

presidents are constantly begging for resources and

“It has created the right amount of verticalization.”

recognition for municipal governance, while governors

Another city working for connectivity and re-planning is

are not giving those rights.” Ballesteros explains that the

Aguascalientes. Other cities Ballesteros highlights include

lack of recognition worsens when the parties differ on a

Guadalajara, which he says has focused on rehabilitating

municipal and state level.

and regenerating urban spaces.

| VIEW FROM THE TOP

BUILDING WEALTH THROUGH REAL ESTATE HÉCTOR GONZÁLEZ Partner and Co-Founder at Prosperia

Q: Considering real estate cycles, how should developers

need and how much money they can pay to satisfy it. Then

determine the right timing for their projects?

we subtract the number related to available supply to

A: When speaking about the right timing for a real estate

specifically meet that given demand. The result equals how

project we must consider demographic and economic

much is needed in that particular market. These algorithms

cycles. The first refers to a local phenomenon and is about

have proven to be precise and applicable all over Mexico.

meeting people’s needs at a certain time, while the second is macroeconomic in scope. For example, 10 years ago there

We do not believe in whole markets, but in niches. For

were only a few investment funds able to buy specialized

example, is there an office surplus in Monterrey’s East

portfolios. But regulatory changes gave birth to Fibras, which

Valley? Or in Mexico City’s Santa Fe neighborhood? Some

were enhanced due to an international appetite for emerging

may say yes but an analysis of market dynamics is needed

markets, such as Mexico. This created a real estate boom

to accurately define which price segment or what kind of

but it also led to artificial demand as some developers were

buildings have a surplus or shortage. A successful property

no longer only selling to end-users but to Fibras. Project

involves a measurable market, a quantifiable sales speed

planning was aimed at pleasing the most successful Fibras

and a product aligned with the market niche’s demand. It is

and their value was no longer intrinsic only to themselves but

not the same thing to design an apartment to be occupied

to the appetite Fibras had for them. To prevent oversupply,

by a family as an apartment designed for roommates. When

we carefully follow demand cycles in the real estate market

developers understand their target market, they can better

but also strive to understand what is going on with who

define what it needs. This must be done by contemplating

purchases, finances and owns real estate portfolios.

time, price and location.

Q: How does your methodology prevent developing to

Q: What project is most successful in portraying Prosperia’s

meet artificial demand?

methodology?

A: We developed our own in-house methodology and

A: We strive for all our projects to deliver a solution, regardless

data algorithms, starting from a deep understanding of

of its value. For example, we are working with ITESM to

socio-economic income levels. It allows us to foresee how

transform its Monterrey campus into an open space, creating

many meters in each real estate market niche are missing

a TEC District. This was a response to the city’s rapid growth,

or if there is a surplus, at which prices and who will be

which greatly intensified the demand for housing. Land is

occupying these spaces. We have a tool to identify the

scarce and home builders had to develop new suburbs far

needs of an individual based on a certain income. But as

from shopping centers and office buildings, causing great

Mexico lacks a formal institutional standard regarding the

fragmentation for the city. We took an image of the city from

definition of socio-economic levels, it was impossible to

a height of 30,000 feet and we found that the university’s

define a standardized metric to measure it. We built our

real estate was in a valuable and strategic area of the city

own database and datasets to do so. We translate this

that was being underexploited. But the current campus is not

data into valuable information for developers through

located in an aesthetically-pleasing part of the city, so ITESM

a simple subtraction algorithm. The first number comes

understands the need to improve its surroundings.

from an assessment of the number of people with a given Our role in this project is to analyze the city’s needs so the 200ha of TEC District can become a positive change Prosperia is a consultancy specialized in market analyses for

factor while making the project a profitable investment. We

the commercial and financial feasibility of real estate projects.

delivered a 25-year plan with a clear and cost-efficient view

The firm has consulted on more than 500 projects and

of how the district’s infrastructure and mobility should look.

participated in the conceptualization of more than 7 million m2

Our blueprint included housing, offices and research centers.

INSIGHT |

RECONVERSION PROJECTS CAN SPUR URBAN DEVELOPMENT

“

The real estate cycle is taking a second spin. Existing properties are being revived and upgraded to better take advantage of them” Jorge Gordillo, Mexico City Director of GVA

Drawing on this experience, Gordillo says that a policy that prioritizes public transport would offer significant advantages over that which boosts car use, as has been the case in Mexico. He points to the construction of the Periférico’s second floor 10 years ago to address traffic needs. “Which areas benefited from having a road above them?” he asks. “Meanwhile, those streets located close to a MetroBús have seen real benefits.” The reconversion of the social tissue through real estate projects and urban planning forces architects to think about society in terms of its different economic social

Lack of space in Mexico means developers need to get

classes. “This sensitivity allows them to find multiple

creative to find the precious square meters required

penetration modes to develop public spaces; it is hard to

to develop their projects. Jesús Gordillo, Mexico City

have all classes converge in one project,” he says. He uses

Director of architectural firm GVA, says that reconversion

La Mexicana Park in Santa Fe, Mexico City, as a success

projects with public transport as their backbone offer

case for architecture as a social experiment that achieved

opportunities for urban regeneration. “Reconversion

high community penetration.

means that prime real estate that may be a little deteriorated can be regenerated to create greater social

The reconversion boom has also reached hospitality real

impact,” he says.

estate. GVA itself has 12 ongoing hotel projects. “The real estate cycle is taking a second spin,” Gordillo says.

To bring about social change, public transport should

“Existing properties are being revived and upgraded to

be a key factor as it directly impacts public spaces and

better take advantage of them.”

civic culture. “Transport routes have a high social and economic penetration as they immediately revalue the

According to the Director, it is also crucial to find the right

land around them,” Gordillo says. For example, new

balance between innovation and respect for community

Metrobús stations tend to revive the areas in which they

customs when redeveloping certain areas. He highlights

are located. The surrounding streets start to gentrify and

GVA's collaboration on a transport terminal project in

the neighborhoods become more walkable. In turn, new

Poza Rica, Veracruz. Gordillo says the challenge is to

real estate opportunities open up.

incorporate novel and groundbreaking elements such as escalators, which are not traditionally seen in local

The firm has 50 years of experience in the market. “We

bus stations. The firm also wants to gradually change

started as a local firm with offices in Guadalajara that

local paradigms and make the terminal a lounge space

saw enormous opportunities to open offices abroad,”

that serves as a social area instead of just being a

Gordillo says. “We went from local to international with

transit facility.

the challenge of adding value over all the other firms operating in big cities.”

GVA is currently working with transport companies to develop new transport terminals that integrate real

GVA initially seized opportunities in the hospitality

estate components in these areas. Gordillo explains that

market to open offices in the Dominican Republic. “We

non-traditional locations can host the most promising

started to delimit our company’s vision according to the

real estate opportunities. “These developments are

needs of a foreign developer and the local tools available

usually located in deteriorated urban areas with some

to carry out a project. This process helped us understand

transport connectivity but with interesting opportunities

how to better guide the client in financing their projects

for rehabilitation,” he adds. GVA is also exploring the

in Latin America,” Gordillo says. GVA has since specialized

opportunities for health facilities within mixed-use

in offering an integrated approach to projects that vary

developments, such as the Ciudad Salud project in

from residential to hospitality, always with the goal of

Queretaro. “These projects have a high impact on the

generating a positive social impact.

quality of public space use,” he says.

SITA's iBeacon Technology

SMART CITIES &Â TECHNOLOGY

Smart Cities, Industry 4.0, machine learning and the Internet of Things are the buzzwords taking over the infrastructure industry. Mexicoâ&#x20AC;&#x2122;s largest cities are all pushing smart initiatives to transform into more efficient, safer and more sustainable places to work, live and play.

But smart solutions require smart, and more importantly, trustworthy data, something lacking in many Latin American countries, according to CAF's 2017 RED Report. Mexico also demands the development of more telecommunications infrastructure to support its networks. To that end, the 2013 Telecommunications Reform opened the arena for new players to provide services and also outlined the development of the Red Compartida, a national project to introduce a wholesale mobile network across the country that launched in 2018.

This chapter includes the expertise of technology giants and Smart City experts and analyzes the challenges that Mexico faces on the path to smartness. Furthermore, it presents the innovative solutions and initiatives companies and governments are undertaking to tackle this endeavor and improve the life quality of its citizens.

CHAPTER 5: SMART CITIES & TECHNOLOGY 76

INFOGRAPHIC: One of its Kind: Deploying the Shared Network

VIEW FROM THE TOP: Alejandro Preinfalk, Siemens Mexico and Central America

VIEW FROM THE TOP: Alfredo González, Nokia

Marco Vigueras, Nokia

VIEW FROM THE TOP: María Teresa Safón, Indra

INSIGHT: Aris de Juan, Clear Channel International

VIEW FROM THE TOP: Santiago Echeveste, Johnson Controls BTS Mexico

TREND SPOTLIGHT: Smarten Up: Mexico Lags in Smart Rankings

INSIGHT: Miguel González, Vertiv

INSIGHT: Marco Vidali, Rizoma

Pablo Lezama, Rizoma

INSIGHT: Luis Rubio, Holland & Knight

INSIGHT: Luis Tejadilla, Belden Industrial Solutions

VIEW FROM THE TOP: Alejandro Donnadieu, Bentley Systems

VIEW FROM THE TOP: Uriel Torres, SITA

VIEW FROM THE TOP: Gustavo Paredes, Schindler Mexico

VIEW FROM THE TOP: John Donoghue, Allied Wireless and National Fiber Networks Mexico

| INFOGRAPHIC

ONE OF ITS KIND: DEPLOYING THE SHARED NETWORK The Shared Network is the largest telecommunications

US$7 billion

initiative in history. The project, rooted in article C6-106 of the Peña administration's initial Government Commitments, pursues the ambitious goal of bridging Mexico's digital gap by delivering 4G LTE network connectivity to 92.2 percent of

Estimated total investment

the population by January 2024. As the first self-sustaining PPP in the country, the project is expected to attract 100 percent of its investment from the private sector. In 2017, Domestic partner: Hansam

the project was awarded to Altán Networks, a consortium 76

of investment funds, strategic partners and telecom experts. When deployed, Altán will deliver the infrastructure during the concession period directly to operators and not to end users, avoiding monpolistic practices.

C6-106

Government Commitment to establish a digital agenda to bridge the digital gap and democratize access to telecoms

Strategic partner: Grupo Multitel

First self-sustaining PPP in Mexico and pioneer in adopting the World Bank standards for open contracts

A team of over 150 professionals

Financial investors: Morgan Stanley Infrastructure, Awarded to International Finance Altán Networks Corporation (IFC), Consortium: CKD Infrastructure Mexico (CKD IM), China-Mexico Fund, Caisse de dépôt et placement du Québec (CDPQ), FFLATAM-15-2 and Isla Guadalupe Investments

Industrial partners: Axtel and Mega Cable

The minimum service quality requirements consider the development of a 4D LTE origin mobile broadband with 4Mbps speed in down-link and 1Mbps in up-link

A 7.1 earthquake shocks Mexico and the project’s work is suspended

The goal is to offer 4G LTE network connectivity to 92.2 percent of the population under a 20-year concession

r be

The record of installing 500 antennas per month is accomplished

em pt

7 01

6 01 r2

em ov

13 20

y Ma

2 er

16 20

h rc

18 20

em pt

The concession for the Shared Network is awarded to the Altán Networks Consortium The bases for the Shared Network Tender are announced by SCT and IFT

16 20

Telecommunications and Broadcasting Reform is published in the Official Journal of the Federation

Tender is launched

br Fe

17 20

The first Shared Network antenna is installed in the State of Mexico, starting the installation of 7-8 service towers per day, for a total of 2,200 antennas and 7,000km of fiber optic lines over the first year

The first phase’s goal to cover 30 percent of the population and 28 Pueblos Mágicos is exceeded, reaching 32 percent coverage of the total population, or 36.1 million people, including 5.8 million in rural areas and over 20 Pueblos Mágicos

THE SHARED NETWORK — MILESTONES AND FORECASTS FOR POPULATION COVERAGE* 0 20 40 60 80 100 120

Number of Pueblos Mágicos covered Total population covered

92.2%

103.5

(million)

Percentage of total

14.5

population covered

99.5 14

7.9

32.2% 5.8 36.1

ch ar

18 20

The mobile broadband market grew 200 percent, jumping to 82.7 million lines in 2018 compared to 27.4 million in 2013

THE PUBLIC COMPONENT: While the project is entirely designed, deployed, operated and maintained by the private sector through the awarded consortium, the PPP considers a public contribution: The Ministry of Communications and Transport takes part through: PROMTEL leases 90MHz of the 700MHz band Telecomm contributes 2 optic fiber threads

Source: IFT, Altán Networks, INEGI

u an

56.1

70% J

20 20

The market for fixed broadband grew 45 percent, to 17.7 million lines in 2018 compared to 12.2 million lines in 2013

n Ja

85% y

u an

13.4

50%

covered (million)

95.4

78.6 11

Rural population

88.6%

22 20

u an

24 20

23 20

*Population percentages based on the INEGI 2010 census

J 21 20

The total price of communications dropped by over 25 percent from June 2013 to June 2018, contrasting with a 21.3 percent increase in inflation

The drop in prices from 2015 to 2017 amounted to an estimated MX$133.7 billion in cumulative savings for end users, which equals half of ISSSTE’s annual budget or 3 times UNAM’s annual budget

The Accomplishments

The elimination of National Long Distance (LDN) cuts mobile phone calling prices by 42 percent from 2Q13 to 2Q18

The penetration of fixed broadband increased 26.8 percent from 2013 to 2018 after stagnating at -2.5% average rate between 2011 and 2013

The GDP contribution of the Telecommunications and Broadcasting sectors increased to an average of 2.4 percent in 2018 compared with 1.6 percent in 2013

FIVE YEARS AFTER THE CONSTITUTIONAL REFORM:

The Shortcomings

Congress is preparing an amendment to the Federal Telecommunications and Broadcasting Law to enable users to terminate their service plans without penalizations and for licensees to renew their concessions with no forced terms

By January 2022 The Telecommunications and Broadcasting Reform’s the shared main objective was to increase market competition in the sector. network is After five years, several players have entered the market but America Mobile continues to hold twoexpected to cover thirds of the market share 100% of Pueblos Mágicos, a total of 111

| VIEW FROM THE TOP

IMPACTING HOW MEXICO PRODUCES, CONSUMES ENERGY ALEJANDRO PREINFALK Vice President of Energy Management, Building Technologies and Mobility at Siemens Mexico and Central America

Q: How does Siemens shorten its clients’ learning curve

A: Toward 2024, Siemens’ objective is to reduce its carbon

and associated costs when implementing its technological

footprint by 50 percent compared to 2017 levels. By 2030, we

solutions?

are working to become a fully carbon-neutral company. It is an

A: On the cost side, the important factor is to shed light on the

ambitious target but it is directly related to energy efficiency,

total cost of ownership, which is not limited to the investment

operational digitalization and renewable energy, three of the

involved in implementing this new technology at present but

niches in which we excel.

also includes the investment projected in the long term for operational and spare-part cost optimization, among other

Q: How is Siemens fostering energy efficiency in the country’s

factors. On the learning curve side, Siemens is immersed in an

industrial activities?

intensive awareness-raising campaign in the market. We are

A: Siemens continues to work closely with its clients to assist

present across different exhibitions and forums such as data

them in attaining their energy efficiency goals by using

center expos and HVAC fairs. We also provide detailed training

our technologies. We are involved in significant consulting

and certification services to integrators and engineering

activities in the market on that specific issue. The requirement

companies that thoroughly dissect the inner workings of

of CELs established for qualified users will contribute to the

building management systems and incorporate our solutions

faster implementation of these technologies. Adoption of

in their designs.

digitalization in Mexico’s electricity systems will be boosted by the implementation of measures to comply with the country’s

Q: How does Siemens remain innovative in a fast-moving

Grid Code by April 2019. We are working with our clients

sector and where does it see the best prospect for growth?

so they are ready for these new standards on both power

A: The company’s pillar is innovation. We cannot remain in

producer and energy consumer spectrums. The target is to

any comfort zone. Our core value is to maintain our role as

provide operational efficiency and adequate load factors for

digitalization pioneers in the market. We are focused on

our clients based on internal diagnostics.

remaining close to our clients to get a first-hand perspective of their needs and provide value-added solutions to cater

Q: How does Siemens provide the best efficiency solution to

to them. Innovation is only as valuable so far as it can be

its clients’ most common problems?

implemented and if it solves a specific problem. Mexico

A: A common factor is the implementation of efficient

continues growing and developing its industrial tissue,

lighting systems. Siemens developed smart lighting

meaning electricity consumption will be on the rise, calling

management systems applicable in commercial buildings as

for a sturdy and smart grid. Energy efficiency is another

well as industrial parks. This enables effective management

critical issue. Forty percent of the country’s electricity

of both artificial and natural light. Installing and operating

consumption is used by buildings. To that extent we can make

high-efficiency industrial engines to save energy is

this consumption more efficient, greatly impacting the way

another common issue. There is also interesting business

Mexico produces and consumes energy.

potential in ventilation management. This mainly involves deploying smart air-conditioning controllers to efficiently

Q: Siemens reduced its CO2 emissions by 4 million tons in

manage room temperatures with HVAC systems. Based

2016. What are the company’s further goals in that regard?

on this diagnostic, we developed an integrated building management platform called Desigo CC for efficient building operation. It is a smart system that orchestrates the

Siemens is a global company focusing on the areas of

energy features and requirements of a building, considering

electrification, automation and digitalization. The company is

energy, water and natural gas consumption, lighting, fire

a top-tier producer of energy-efficient and resource-saving

control, ventilation, air-conditioning, video surveillance and

technologies

building access controls.

VIEW FROM THE TOP |

THE BOOM FOR TELECOM SERVICES IN MEXICO Alfredo González Latin America North Head for Enterprise and Public Sector at Nokia

Marco Vigueras Country Senior Officer for Mexico at Nokia

Q: What impact did the 2013 Telecommunications Reform

to our clients’ needs. In Mexico, we are working to have local

have on the Mexican market and what areas of opportunity

districts developing connectivity solutions.

still exist? MV: The Telecommunications Reform generated a huge

In Smart Cities, Nokia is focusing on the implementation

boom for telecoms services in Mexico, an area in which the

of smart lighting to allow cities to be safer and to optimize

country was lagging. As more competitors enter the market,

their energy consumption. We are also working with video

the user has more options for providers and services. The

analytics solutions to allow the operation of a greater

reform also contributed to creating more professional jobs in

number of surveillance cameras with fewer personnel. For

the country, especially in engineering and telecommunication

example, any abnormal move at a train station, such as

studies. Overall, the economy was revitalized as the rules

people going in an unusual direction or somebody leaning

for doing business changed. The route toward the Shared

into a forbidden area, will trigger an alarm. Instead of having

Network has also made communications more accessible

to monitor all the cameras, the human personnel will just

to all Mexicans. It is a unique project with the potential of

focus on those that have been triggered.

becoming a worldwide example of success. Q: What are Nokia’s most emblematic projects in Mexico Q: How is the future of telecommunication networks

up to 2020?

looking in Mexico and what is Nokia’s role in developing it?

MV: The Shared Network is one of Nokia’s key projects at

MV: AirFrame and AirScale are two architectures being

the moment. Everything is going well and we believe we will

promoted by Nokia in alignment with the company’s

comply with the deadlines. We are also working with several

vision of developing telecommunications infrastructure.

clients to carry out due diligence and to ensure that they will

The idea is that these can work with existing platforms

have the required infrastructure for 5G when it arrives. Our

like 4G LTE and at the same time are ready to migrate to

job is to prepare all operators so they will be ready for 5G

future platforms, like 5G. Regarding the 5G network, we had

networks. Nokia is also working on transportation, energy

estimated it would be implemented by 2020, but our CEO

and government communications systems, among others.

has announced that it is anticipated for 2019. The market is moving at a faster rate and exponentially demands new

AG: In transportation, we can contribute a great deal.

technologies. 5G networks will allow people to live in a

For example, we are working on NAIM, advising the

different way, with higher speeds and more data, while at

different stakeholders on how it should work in terms

the same time migrating to IoT and the interconnection

of telecommunications. It is important to highlight that

of devices. This may appear to be simple but it has the

we are proposing technologies for 2020 through fixed

potential to be as futuristic as we wish.

broadband for internal telecommunications (Passive Optical LAN) with military-grade security, lower

AG: Nokia is already deploying 5G networks in several cities

investment and lower operational costs, among other

abroad. I believe that one of the key contributions of 5G to

benefits. Also, we are proposing 4G LTE solutions for

IoT is latency performance, which is so low it enables the

airports, as we believe that the airport should supply

automation of many business processes. 4G allows it but

users with wireless connectivity solutions.

5G will further perfect it. For example, Nokia automated the first mine worldwide with 4G LTE. Also, we contributed to developing connectivity so data can reach systems through

Nokia serves communications service providers, governments,

different means and be processed in real time. We offer

large enterprises and consumers, with the industry’s most

solutions that enhance data automation while ensuring data

complete, end-to-end portfolio of products, services and

protection policies. Our platform is flexible enough to adapt

licensing

| VIEW FROM THE TOP

TECHNOLOGY TO BOOST INTERMODALITY AND EFFICIENCY MARÍA TERESA SAFÓN Transport Director of Indra

Q: What role will technology play in Mexico’s future

leader in many innovative projects with both public and

transportation systems and how has Indra participated in

private initiatives. The Connected Vehicle for example

boosting the efficiency of Mexico City’s Metrobús?

applies artificial intelligence to a vehicle so it can interact

A: Technology plays a vital role in everything related to

with others and the infrastructure, collecting data on

efficiency, security, intermodality and transport. Indra

vehicle occupancy, which can lead to dynamic tariffs. These

focuses on technology consulting. Technology is vital

features are not yet in demand in Mexico from the public

to guarantee the reliability of transport systems, to have

sector but the private sector is interested in starting to

the entire MTS fleet localized at all times and to reach

integrate the technology.

intermodality so that the service is easier to use. Technology also provides reliability in terms of times, routes and action

Indra’s experience in Mexico’s transport segment has

plans in response to contingencies. In Mexico City, we are

been predominantly with the private sector but we do

working on all of the operating Metrobús lines. Every line

not limit ourselves. Our transport services are divided

integrates our Operation Assistance Systems (OAS), which

into four markets: traffic, urban transport, ports and

includes onboard video-surveillance units, a driver panic

airports and railroads. We are collaborating in more traffic

button and console, GPS and information systems for

projects in Mexico, and most of our client portfolio is in

passengers at stations.

the private sector because we work closely with most tollroad concessionaries. There are very few public tenders

These technologies increase the reliability of the Metrobús

associated with technology systems applied to roads, with

service by focusing on security and efficiency. Having both

the exception of those tendered by CAPUFE or Banobras.

the fleet and the stations monitored increases security and

Metrobús for instance is not our final client; we work directly

helps the police solve traffic and vandalism incidents quickly.

for the operators. CAPUFE is not our final client either, as

As of 2018, more than 600 units have our technology

we work for the operator of that road. Roadis is an operator

integrated and more than 1.2 million passengers a day

that is interested in finding alternative payment options

benefit from it. The Intelligent Transportation Information

through cell phones or other methods. More efficient

Center (CITI) controls the seven Metrobús lines. This center

payment options have been integrated into MTS projects

allows a more efficient management of Metrobús fleets and

but toll roads have been more standardized and have not

allows for a faster reaction to contingencies during its day-

advanced in integrating innovative technologies.

to-day operations. Q: Why is the technological adoption rate in Mexico for Q: How have the public and private sectors embraced

toll systems slower than in other countries?

innovation and new technologies for transport

A: Mexico has low bank coverage rates. In Europe, credit

infrastructure?

card payments for toll systems function well. In Mexico,

A: There is appetite for innovation, especially in the private

payment would be limited to approximately 35 percent

sector. Companies are looking for strategic technological

of the population due to the low penetration of these

partners to innovate within the market. Indra invests 6-8

products. The payment collection method must ensure

percent of its annual sales in R&D. In Europe, Indra is a

coverage for the majority of the population. I believe that credit cards will increasingly penetrate the market because these payment methods are far more secure, prevent fraud,

Indra is one of the world's leading technology and consulting

are much more efficient and would help homogenize the

companies. Its transport division works closely with toll road

system so users do not need different cards for different

concessionaries and operators, as well as with Metrobús

segments or roads. We want to revolutionize toll systems

operators, providing technology and innovative products

in Mexico through alternative payment methods.

INSIGHT |

COMMUNICATION CHANNELS: UNLOCKING SMART CITY POTENTIAL ARIS DE JUAN Regional President for Latin America and Southern Europe of Clear Channel International

Communication and advertising channels can play a significant

to enhance security and help prevent crimes, as they are

role in addressing urban problems and providing services,

directly connected to the city’s central security systems.

helping cities become smarter in the process, says Aris de Juan, Regional President for Latin America and Southern

Apart from surveillance, these stations can increase

Europe of Clear Channel International. He is convinced that

connectivity by using their urban furniture as a communication

the further development of IoT will unlock more possibilities

platform that incorporates Wi-Fi antennas. As 90 percent of

and that the potential for enriching the exterior is unlimited.

Clear Channel’s advertising screens are digital, the company

“Our mindset is to constantly think of what new solutions to

broadcasts valuable content such as real-time traffic

offer. Our bet is to use the accessibility and underselling of

information and emergency messages during contingencies.

technology to transform the business,” he says.

After the September 2017 earthquake that struck Mexico City and other areas, Clear Channel International committed 100

As technology and IoT take on a larger role in the

percent of its advertising spaces to transmit civil protection

development of Mexican cities, companies like Clear Channel

messages throughout Mexico City. As a result, in February

can use their expertise to contribute solutions to the plethora

2018 it was awarded the Best Corporate Digital Signage

of problems cities face. “City mayors must address three key

Award for using its digital infrastructure to serve the public

issues: safety, waste management and mobility. We believe

as a response to the disasters.

these should be the central axes for city services, and our goal is to provide the solutions,” de Juan says.

Taking its civil service another step further, the company is also involved in waste management, a problem that requires

Clear Channel International was a pioneer in the mobility

an innovative solution as Mexico’s cities are expected to

sector, introducing its Smart Bike systems into Mexico City

grow rapidly. Similar to its mobility exchange scheme, Clear

in 2000 by exchanging its services for advertising spaces.

Channel offers recyclable waste containers and manages

“SmartBike is not the end but a beginning. It is the start of

waste treatment. In exchange, cities provide it with permits

a journey toward city transformation,” says de Juan. Eight

to install broadcasting platforms that the company then

years later, Clear Channel’s SmartBike system in Mexico City

sells to advertisers while reinvesting part of the earnings

is now the largest bicycle-sharing system in Latin America

in city services. “This is a 360° model. The city gives us the

and it is pioneering the integration of electric bikes. De

means to generate the resources to provide the services,

Juan explains that the efficiency and systematic growth

such as waste management, without implying an extra cost

of Mexico City’s system has made it one of the three most

for the government,” says de Juan. This model has already

successful SmartBike systems in the world, following

been implemented in Madrid. In Mexico, the company has

Barcelona and Montpellier. “Mexico is now recognized for

started developing projects in Puebla.

its sustainable public mobility around the world. This is our main contribution to the mobility problem,” he says.

Even as the company innovates its solutions, de Juan says there is still untapped potential for improving quality of

The success of the SmartBike system lies not only in

life in Clear Channel’s roots: outdoor advertising. Digital

improving mobility but in self-financing the maintenance

billboards can be used to display valuable information such

and operation of the system through outdoor advertising.

as temperature, time and traffic. With more than 70 percent

With SmartBike self-sustaining, Clear Channel began

of the Latin American population living in urban areas, the

looking for new ways to contribute to the country’s “smart”

street is a place where people are spending up to 25 percent

evolution and turned its attention to security. The company

more time. “They can skip TV commercials, online ads and

offers surveillance cameras that can be incorporated into

other methods of advertising but street advertising is

SmartBike stations or other Clear Channel urban furniture

inevitable. Why not take advantage for the good of the city?”

| VIEW FROM THE TOP

INCREASING PENETRATION OF SMART CITIES SANTIAGO ECHEVESTE Vice President and General Manager, Contracting, Systems and Refrigeration at Johnson Controls BTS Mexico

Q: What is your assessment of the development of Smart

services but at the same time, the number of public hospitals

Cities in Mexico?

remains almost even. This is a huge opportunity area in the

A: Smart Cities is a new concept in Mexico and requires

country. IMSS is our main client and we are collaborating

teamwork with the government and an alignment of policies.

with construction companies such as Marhnos, PRODEMEX

The user, government and private sector need to collaborate

and ICA. The Energy Reform also opened up interesting

and work together to achieve this desired new way of life.

opportunities in the energy sector and we are working

Smartphones are crucial as people need to receive and

closely with PEMEX.

share information to create a community around the Smart City. For example, the Waze app is an initiative that helps

Q: How is your merger with TYCO going to affect your

people build a community around traffic. This applies to

business offering in Mexico y?

other elements such as water and energy consumption that

A: The first year of the merger was spent in aligning both

benefit from the integration between users and devices,

organizations and establishing our service offering. Now we

which should be connected in real time.

are focused on developing solutions for all our verticals such as hospitals, energy, industrial and commercial buildings.

But Smart Cities represent challenges for building the

We have such a broad portfolio that we can offer a solution

infrastructure for a strong wireless network. I think the

for every type of failure. Our goal is to develop tailor-made

government is moving slowly in this direction. While it is

solutions for all our verticals. This merger enabled us to

adopting some technologies, from the process standpoint

become the biggest company for building solutions. I think

this is only the beginning. Mobile devices, internet coverage

that the market is receiving it very well as it is convenient

and connectivity need to have higher penetration. Mexico

for the customer to have one single point of contact to

City has made some advancement in being smart as it has

their solutions.

traffic sensors, cameras and smart lighting in some areas. Our project pipeline in the country is looking strong. We Q: How are Johnson Controlsâ&#x20AC;&#x2122; solutions fostering the

closed our fiscal year 2018 at the end of September,and

development of Smart Cities and where do you add value?

year-on-year we grew around 20 percent, which is

A: Johnson Controls contributes with several applications

impressive given the countryâ&#x20AC;&#x2122;s 2.6 percent growth rate. I

for Smart Cities. For example, in the US we run parking

think that the key to this success is to continue improving

payments through smartphones and also have solutions for

our market penetration by hiring more salespeople

smart lighting systems. In Mexico we are working toward the

and technicians to better serve those markets that are

first phase along this path, which we call Smart Equipment;

overlooked.

that is, having devices connected to the IoT. We also provide Smart Chillers. The idea is to gather data from equipment to

Q: How are you innovating in HVAC systems and to what

enable predictive maintenance and prevent failure.

extent did your merger with Tyco disrupt this innovation? A: Since day one we have never stopped innovating. I

We are more focused on the energy and health sectors.

believe innovation is moving toward IoT and hardware.

Universal policies establish the human right to health

Accordingly, we launched YZ, a new chiller with magnetic bearings designed to work with low-pressure refrigerants. It is oil-free and its unique condenser design yields a low

Johnson Controls is a multinational leader in HVAC and air

refrigerant charge, also adding points to sustainable-

system products that focuses on innovation and boosting the

building certifications such as LEED. We also have new

efficiency of buildings. It has vast experience working in the

control systems such as Verasys. This is a commercial

commercial and health sectors

platform designed for HVAC contractors.

TREND SPOTLIGHT |

SMARTEN UP: MEXICO LAGS IN SMART RANKINGS More than 65 percent of the world’s population will live in cities by 2040. In Mexico, 72 percent of the people already do, according to EY. By 2025, developing countries will have 440 Smart Cities and Mexico is expected to be in the Top 5. Today, though, the country still has some way to go Global trends are pushing cities to become smart, not only

The EasyPark Smart Cities Index focuses on transport mobility,

to tackle energy consumption but also to improve quality of

sustainability, governance, innovation economy, digitalization

life. “A Smart City is one that achieves harmony and efficiency

and high living standards as the main axis for any Smart City

between its inhabitants and suppliers,” says Javier Cordero,

planning. The organization analyzed more than 500 cities and

President and Director General of Oracle Mexico. In the 2017

measured how developed they were in terms of these factors

Smart Cities Index issued by the EasyPark Group, two Mexican

to rank the Top 100. Copenhagen, Singapore, Stockholm,

cities squeezed into the Top 100: Monterrey and Mexico City.

Zurich and Boston lead the list. In Latin America, Panama, Brazil, Colombia and Mexico are the only countries included,

From a demographic perspective, cities are urban settlements

the latter just making the cut. Monterrey was ranked the 98th

with more than 100,000 inhabitants. The world has around

smartest city with a 3.54/10 score, while Mexico City took No.

1,961,969 cities, but only a tiny percentage can be considered

100 with a 3.19/10 average. Monterrey was best-ranked for

smart. The EasyPark Group, a parking services company,

its environment protection and worst for its urban planning,

annually scans the world looking for the 100 Smartest Cities.

scoring 8.88/10 and 1.0/10 respectively. The same categories

Mexico made the list but the country and its Latin American

marked Mexico City's top and bottom, with 8.10/10 and 1.0/10.

counterparts clearly have a long way to go to climb the rankings. Together, the region had just eight cities on the list,

As for the rest of Mexico, secondary cities are growing

all in the bottom third. The two Mexican entries were at No. 98

with the goal of achieving smartness. Gustavo Paredes,

(Monterrey) and 100 (Mexico City). To smarten up, Mexico’s

Director General of Schindler Mexico, believes the key is to

government, citizens and private sector should embrace

continuously improve the efficiency of how people move as

and implement technology that improves life quality. “Smart

cities grow. “Mexico City continues to be the epicenter of

Cities require IoT, the Cloud and Big Data,” says Cordero.

verticalization and Smart City developments,” he says. “But

“IoT is fundamental, since every element of the city must be

we see a significant amount of activity in secondary cities,

connected to send information to the cloud. All these data

such as Guadalajara, Monterrey and Cancun. Cities such as

become Big Data and must be analyzed to obtain intelligence

Leon, San Luis Potosi and Tijuana are also markets to watch.”

and thus make cities more efficient.” Understanding the importance of internet connectivity, Mexico launched a Telecommunications Reform in 2014. Two projects stand at its core: the Backbone Network and the Shared Network. The former’s tender was postponed to March 2019 from November 2018 to provide certainty to investors that the project would start during AMLO’s administration. The latter already completed it first phase in

EASYPARK’S TOP 5 SMART CITIES, 2017 Rank

CIity

Country

Score

Copenhagen

Denmark

8.24

Singapore

7.83

Stockholm

Sweden

7.82

Zurich

Switzerland

7.75

Boston

7.70

March 2018 and covers 32.2 percent of the population and 25 percent of the country’s Pueblos Mágicos with 4G LTE bandwidth connectivity. Advancing connectivity projects like the Shared Network is the first step to becoming smart. “This is the definition of a Smart City, to effectively link multiple players with technology to their benefit,” says Uriel Torres, Director of Sales and Corporate Relations of SITA. The second step, according to Marco Vigueras, Country Senior Officer for Mexico of Nokia, is a shared approach. “Today, Smart Cities and technology require a collaborative perspective,” he says. “To develop it, all the players involved – operators, suppliers and government, among others – must work together.”

LATIN AMERICA RANKINGS Rank

CIity

Country

Score

Panama City

Panama

4.49

Sao Paulo

Brazil

4.35

Rio de Janeiro

Brazil

4.07

Santiago

Chile

3.65

Buenos Aires

Argentina

3.63

Medellin

Colombia

3.62

Monterrey

Mexico

3.54

100

Mexico City

Mexico

3.19

Source: 2017 Smart Cities Index issued by EasyPark Group

| INSIGHT

EFFICIENT DATA CENTERS KEY FOR SMART CITY SUSTAINABILITY MIGUEL GONZÁLEZ General Manager Mexico of Vertiv

Increasingly connected and “smarter” cities call for faster,

servers in the country because their largest data centers

more reliable and capable data centers that can handle

are located in the US.

and process large amounts of information. But the large carbon footprint that these centers produce can challenge

Despite this issue, González says Mexico offers several

the sustainability of a Smart City in the long run. “Cooling

opportunities for Vertiv as telecom service providers

systems are the largest power-consuming part of data

such as AT&T, Telmex, Alestra and Telefónica invest in

centers,” says Miguel González, General Manager Mexico

the country and the company explores the retail and

at Vertiv. “But through innovative thermal solutions we offer

manufacturing industries. “We want to diversify our

systems that deliver the exact amount of cooling that each

business portfolio to support these companies,” he adds.

center needs to run safely and efficiently.”

“For instance, automotive companies continue to open assembly plants in Mexico and we have solutions that

González points out that the energy savings that Vertiv’s

cater for them.”

Energy Efficiency as a Service solution offers can help clients pay for the infrastructure that the company installs

In the case of Mexico’s manufacturing industry, González

in its data centers. “We are a technology company, so

underlines that the need for automotive companies to

rather than manufacturing and selling products, we focus

digitize their operations to implement Industry 4.0 practices

on developing solutions,” he points out. “Our main strength

and take advantage of IoT has created a demand for the

is that we can design data centers and deliver flexible and

edge computing solutions that Vertiv offers. “These clients

scalable solutions for this sector.”

need quick access to information and a local backup of that information. Edge computing plays a key role in that,”

As a company that has traditionally served the telecom

he says. González underlines that information enables

sector, Vertiv sees a promising future in the short term.

automotive suppliers to coordinate throughout the

According to González, the company went through hard

supply chain to achieve JIT logistics and manufacturing

times because the Telecommunications Reform of 2014

processes. “Edge computing ensures flexibility, reliability

caused major uncertainty and several telecom service

and productivity in operations and offers a better cost-

providers put their infrastructure investment projects

benefit by reducing the need to invest so much in raw

on standby. “But these companies are starting to ramp

materials,” he adds.

up operations again and I am optimistic that Vertiv will achieve significant growth in the next couple of years,” he

It is a similar case in the retail sector. González says

highlights.

just as edge computing enables automotive companies to remain close to their partners, big supermarkets

González adds that the telecom and infrastructure sectors

are interested in remaining close to their clients and

will play a key role in Vertiv’s growth as they will offer

understanding people’s consumer profiles. “They

a lot of opportunities for companies in Mexico. He says

are reconsidering their business models and making

Latin America has become an important global player for

investments in digitalization including data centers, data

Vertiv’s solutions. “Companies are interested in achieving

analytics and edge computing to that end,” he says. At

edge computing by bringing servers closer to clients to

the same time, González says Vertiv can help retail chains

avoid signal delays and latency,” says González. “In Mexico,

increase their energy-efficiency and reduce their CO 2

however, Vertiv faces several challenges because the

footprint. “The retail sector accounts for around three

country is in the middle point between the US and the rest

percent of the country’s power consumption,” he says.

of Latin America.” He points out that Mexico is so close

“Vertiv offers a portfolio of solutions for these companies

to the US that data center companies do not place their

that can help them reduce their energy costs.”

INSIGHT |

GENERATIVE DESIGN OPTIMIZES SOCIAL INFRASTRUCTURE

Marco Vidali Managing Partner at Rizoma

Pablo Lezama Innovation and Development Manager of Rizoma

In the last few years, the construction and engineering

One of the country’s largest and most important projects,

sectors have been promoting the use of Building Information

NAIM, has made BIM mandatory and is using the technology to

Modeling (BIM) in the development of infrastructure

develop the airport from the very start. Rizoma is participating

projects but Marco Vidali, Managing Partner of project

in the project and believes NAIM is setting the example

management firm Rizoma, says there are even more

for future infrastructure projects. Lezama believes that in

cutting-edge technologies available. “Artificial intelligence

larger public projects there is a great deal of potential for

(AI), data-driven design and metadata could help make the

transparency by using shared databases linked to BIM models.

best of the public and private resources, and serve a greater number of people,” he says.

The change in political administration has heightened speculation over NAIM’s continuation but both Lezama

Generative design is half human, half computer and has the

and Vidali believe the change will bring opportunities.

power to produce and explore thousands of concepts and

This is especially true for the integration and adoption of

then identify the best options for an optimal end-product.

technology and innovation and for companies that want to

Vidali believes that social infrastructure is a great sector into

provide a new added value to the infrastructure industry.

which to begin integrating generative design technologies

“AMLO’s administration seems to be welcoming technology

and processes. “These types of technologies will allow the

and looks to promote transparency in the development

government to analyze different sources of information

of infrastructure projects,” says Lezama. “BIM and other

such as population, trends and use of infrastructure itself to

technologies will be a powerful tool to decrease corruption

create projects that have a greater impact on communities,”

and impunity in the development of infrastructure in Mexico.”

he explains. “In the health field for instance, we will be able to collect data from the past 10 or 20 years to understand

Another mechanism that can increase transparency is PPPs

weaknesses and opportunities. We can then integrate that

and Vidali says progress is reflected in the fact that, in the

data with population and health forecasts to analyze and

last couple of years, social infrastructure has been a very

develop an infrastructure plan that will suit short and mid-

active sector, in particular the construction of new hospitals,

term needs.”

jails and schools. Very often, these projects are carried out through PPPs and USPs. Vidali believes that it will also be

One possible downside in the Mexican market is that

a priority for the next government. “Social infrastructure

information and recent data is hard to come by. But

allows a society to evolve. The use of schemes such as USP

according to the company’s Innovation and Development

and PPPs allows the private sector to analyze and fund all

Manager, Pablo Lezama, Big Data will be the motor for

types of opportunities in the development and construction

development in the coming years and the industry will no

of social infrastructure,” he says.

longer have to wait for INEGI or other entities to release data. “IoT will drastically change the quality and quantity

Technology can help bridge the country’s social

of data available to build better projects,” he says.

infrastructure gap but both the public and private sectors must take matters into their own hands to ensure things are

Vidali explains that, although BIM has been making a

done correctly, according to Vidali and Lezama. “Technology

breakthrough in the Mexican market, penetration has been

could be the solution to make the construction sector

slow. “The market has yet to understand the importance

more transparent. Technologizing the sector would leave

of using BIM and other technologies in projects. In our

less room for subversive activity,” says Vidali. Nonetheless

experience, few companies have seen the monetary value

Lezama says technology alone does not go far enough.

of adapting these technologies and why they should be

“The public and private sectors need to remember that the

made mandatory,” he says.

end-clients are the Mexican people.”

| INSIGHT

IFT NEEDS MORE TEETH LUIS RUBIO Partner at Holland & Knight

The 2013 Institutional Telecommunications Reform was

But five years after the reform was passed, Rubio says IFT’s

designed to introduce true change to the country’s telecoms

regulatory power leaves much to be desired. “The biggest

infrastructure and break down the monopoly held by main

issue is that IFT does not have the teeth or the political will

operator America Movil. Luis Rubio, Partner at Holland &

to change things,” he says. “The projects themselves need

Knight, says the challenge was not in the writing but the

to be financially viable to keep up with the quickly-changing

implementation, and the results show it. “I believe we should

market and prices.” By giving IFT more power to regulate –

have seen stronger changes from the reform than those we

and sanction – Rubio believes that rules will be clearer and

have seen so far,” he says. “At the moment, expectations

projects a lot smoother.

are not being met.” But regulation is not the only sticking point that is holding Although the reform’s projects, such as the Shared Network

back telecoms infrastructure, he says. Another hurdle is

and Backhaul Network, have attracted the attention of

funding. PPPs could bridge the gap but many improvements

many, Rubio says implementation has been slow due to

are needed to allow these schemes to completely take off.

the existing providers’ long-standing and substantial power

For example, in Rubio’s experience, the private sector does

over the market. “International companies have wanted to

not trust regulators. “There was great hope and trust in

enter the Mexican telecoms market for many years but

the Telecommunications Reform but because IFT has taken

they are thinking twice and not necessarily committing

such a long time to move projects along, many investors

to it,” he says. “The market is attractive but they feel that

have lost that trust.”

the Telecommunications Reform will not be correctly implemented or will not be implemented fast enough.”

Other infrastructure sectors have seen successful PPPs but Rubio acknowledges that there have been some setbacks.

According to the 2017-2018 WEF Global Competitiveness

“The biggest issue is that the government still sees the

Index, Mexico ranks 84th of 137 countries in terms of its

concessions as a source of public sector income and

telephony infrastructure. IFT estimates that the current

that mentality should change completely,” he says. “The

telecom infrastructure covers only 33 percent of demand,

incentive should lie in development of services for the good

representing a deficit of 53,000 structures. “Most of the

of the public. As long as the current mentality persists, it is

infrastructure developed for telecoms has revolved around

going to be hard to generate more competition.”

what is a good business strategy and not so much about what is beneficial for the country in the long term,” says

For example, many mobile operators will renew their

Rubio. “The dominant player in the market – America Movil

concessions soon. If prices are low and the investment

– makes it extremely hard to compete with not only its

required is high, it will not make sense for new players. It

infrastructure but its rules.”

is essential that the government makes processes faster and more affordable for new entrants. “By not doing

Opening the market and creating a healthy atmosphere for

this, IFT is punishing competitors against a very well-

both operators and investors has been one of the greatest

established Telmex, a company that owns almost all the

challenges of the reform. But it will take more than reforms

telecommunications infrastructure in Mexico,” says Rubio.

and projects to ensure the success of the sector, according

The 2.5MHz bid is considered critical to allow operators like

to Rubio. Through the reform, IFT was created to ensure

AT&T, Telcel and Telefónica to improve their 4G broadband

that no company would hold more than 50 percent market

offering, for example. “But in the 2.5MHz bid, the price is so

share. Televisa’s and America Movil’s hold on the sector

high that participants are discouraged to participate. The

should have reduced significantly as the government

government should aspire to include as many participants

heralded a new era of competition.

as possible at a reasonable price to diversify the market.”

INSIGHT |

INTELLIGENT TRANSPORT FOR SMART CITIES LUIS TEJADILLA Regional Sales Director of Belden Industrial Solutions

A city cannot be Smart without having an intelligent

when taking public transport in most European cities,

public transportation system, according to Luis

passengers know the specific time at which trains and

Tejadilla, Regional Sales Director of Belden Industrial

buses will arrive. “We do not have that information

Solutions. He says intelligence is all about capitalizing

precision in Latin America yet, so Belden is helping to

on communications infrastructure for efficient, safe and reliable mass transport. “All city transport has to be integrated into a communications network,” he says. The challenge in Mexico is the informal transport systems, such as colectivos or peseros, that clutter many Mexican roads. As a result, regulation of the whole transport system under one network becomes a titanic mission. “You cannot control what you do not measure,” says Tejadilla. “To bring efficiency to the Mexican transport system, we have to first measure it.”

“

provide this kind of efficiency to users,” he says.

You cannot control what you do not measure. To bring efficiency to the Mexican transport system, we have to first measure it”

Belden is developing outside-the-box solutions to address the issue, using GPS devices to track informal

Transport communications also tackle the need to

drivers and their routes. This will create a database of

enhance passenger safety. “When a citizen is connected,

the routes used by peseros, for instance, and how long

response times to accidents decrease, which also reduces

it takes them to get from one stop to another to improve

casualties,” Tejadilla says. Belden has participated in

service efficiency. Belden is considering partnering with

several City Safety projects in Mexico by providing optic

other technology companies to bring better solutions

fiber, ethernet cable and industrial switches to better

to integrate informal transportation into city systems.

connect cities.

“We are striving to improve our offer for Smart City applications,” he says.

The company is also joining other city-transport projects, such as bidding for the communications infrastructure of

The goal is ambitious, hence the need to take precautions

the Mexico City-Toluca Interurban Train and collaborating

against threats and make the city network as secure and

with Guadalajara’s government to expand the Wi-Fi

reliable as possible. For this endeavor, the company offers

network in some areas of the city. “Our goal is to provide

smart switches and intelligent software that help control

the required infrastructure to make Wi-Fi accessible to

the network’s performance. “The world is moving toward

all,” Tejadilla says. The company does not bid by itself. It

Industry 4.0,” he says. “Our industrial networking switches

participates through its strategic partners and alliances.

help companies incorporate these principles as they will

“Belden does not sell directly but through our network

be able to connect the whole industrial world into the

of integrators and distributors, as we want to respect

network. We also offer solutions for cybersecurity, to

their business while focusing on manufacturing the best

measure Smart City networks’ security, traffic behavior

quality products that we can.”

and performance evaluation.” Dependability is the key to standing out among the An integrated transport network also improves quality

market’s competition, Tejadilla adds. “Reliability is crucial

of life. Tejadilla explains that Mexico lacks real-time

for us. We ensure that our devices can be used under the

information on transportation times. For example,

harshest conditions by offering a full warranty,” he says.

| VIEW FROM THE TOP

‘CONSTRUCTIONEERING’ AND THE DIGITAL TWIN ALEJANDRO DONNADIEU Regional Director Latin America of Bentley Systems

Q: Why should the industry apply “Constructioneering”

Q: What are the main subsectors in which Bentley is

and why is Bentley Systems the right partner to guide it?

working in Mexico and what new alliances is it pursuing?

A: In detonating infrastructure, we aim to innovate.

A: For Bentley Systems, infrastructure is the link between

Constructioneering applies technological advances to

earth and people. Without people or infrastructure, welfare

automate construction by implementing engineering and

is scarce. We equate infrastructure to generating social

construction as a single concept that allows a better flow

welfare through the sustainable exploitation of natural

in the development of the project. It prioritizes the project

resources, including road and rail, ports and airports,

over the personal interests of stakeholders. Bentley sees

bridges and telecommunications. We provide software

technology as a facilitator to achieve digital construction

solutions across many industries but, in this context, we are

though surveying, engineering design, constructible model

paying special attention to water and waste infrastructure

development and data collection within a connected data

given the importance it has in the long term. We are

environment that improves the execution of a project and

leaders in the design of sewage and hydric networks.

reduces its costs. The physical asset has a digital twin and

But we find the participation of the private sector is still

the synchronicity between both creates resilience for Smart

restricted compared to Latin America. We are working at

Cities as it allows a better knowledge and monitoring of

the municipal level to collaborate with local governments

all construction assets. The digital twin also enables a full

in improving the performance of water assets. The first step

follow-up of all the project requirements, which can be

is to carry out detection steps to understand how a given

environmental, for construction or for operation.

network is working. For example, we work in Australia to apply analytics to these networks and make the energy

Q: Where are you adding the most value and in which

cost of pumping water more efficient. It is possible to have

segment do you expect the greatest growth?

smarter infrastructure but we need the willingness of the

A: The way in which we add the most value to the

parties to apply the available technologies and the trained

industry is through a deep understanding of our role in

human component to do so.

the infrastructure supply chain. We know the information flow through an asset’s life cycle so we can help companies

Q: By how much can your software solutions accelerate

achieve their digital transformation by building the digital

project delivery and improve asset performance in

asset or twin of their infrastructure. Over the years, we

infrastructure?

have worked ever more closely with offshore, oil and gas,

A: This depends on the asset’s baseline performance. To

vehicle manufacturing and the telecoms sector to make the

improve performance from 60 to 80 percent can be quick.

country more competitive. We find that there is a significant

But as the asset is working more efficiently, the effort

investment in telecommunications, especially in fiber optic

required to see a smaller hike is greater. For example, an

and 5G internet. We provide the software to make these

increase from 90 to 92 percent can require the same effort

projects a reality from the engineering and construction

made to get the asset to the 90 percent level. But in any

to the 50-year operation. In addition, we could bring our

case, our technology can ensure improved performance up

leadership and worldwide experience in airports, roads and

to 90 percent with analytical and operational reliability. I

rail to the expansion of infrastructure projects in Mexico.

am convinced that analytics will be the key to making the final improvements in performance. To continue improving these numbers, we invest to understand infrastructure as

Bentley Systems is a global leader dedicated to providing

a welfare generator and keep innovating. We help put

engineers, architects, geospatial professionals, constructors

together all the pieces of the puzzle related to taking a

and owner-operators with comprehensive software solutions

project from construction to operation by building the

for advancing infrastructure

project’s digital twin.

VIEW FROM THE TOP |

BIOMETRICS: PUSHING THE AEROTROPOLIS TO SMART CITIES URIEL TORRES Director of Sales and Corporate Relations of SITA

Q: How does an Aerotropolis look and how can this be

have more than 15 clients in Mexico and help them address

implemented in Mexico?

their main challenges through our technology, such as

A: An Aerotropolis considers an airport not only in terms

strengthening cybersecurity. We have divided our solutions

of its installations but of the area of influence around it. For

into business segments for airlines, airports and government

example, if NAIM continues to be developed on Texcoco, all

to offer a tailor-made portfolio for each segment as they have

the surrounding municipalities would have to be developed,

different processes and require specialized technologies. We

which is why projects such as Ciudad Aeropuerto are being

are also linked with the industry’s main institutions, such as

developed. The airport must work with different stakeholders

the ACI, ICAO and IATA.

and authorities, such as CAN, SEDUVI and SEMOVI to achieve proper interconnection between the airport and the city. The

Q: Why should all airports invest in biometrics and why

definition of a Smart City is to effectively link multiple entities

should SITA be the chosen partner to accompany them?

through technology. While the air transport industry is our

A: Biometrics use facial recognition to complete the different

main focus, we add value in achieving this interconnectivity

checkpoints within an airport, from the check-in and baggage

by contributing our information and knowledge to be used

drop, to the security clearance and the boarding process.

by the city’s ecosystem.

As it is a very safe and reliable facilitator, many airports are starting to implement it. For example, we have collaborated

We also focus on carrying out all our operations and

on the Orlando and Boston airports in the implementation of

developing all our solutions with sustainability at their core,

biometric technology.

seeking to reduce carbon emissions and increase energy efficiency and asset optimization. For example, we provide

To deploy this technology, a facial database is needed to

airport lighting and air conditioning systems for boarding

create the biometric token for each user. Check-in kiosks are

areas that save energy when not in use. We also have a strong

an easy spot to allow people to get their token. Also, trusted

CSR program with scholarships for technology development.

traveler programs could be implemented to start using this

Going back to NAIM, we are studying how we can help expand

system, such as the Global Entry program in the US. But the

the area of influence around Texcoco through collaboration

way in which this implementation is carried out depends on

with the different municipalities and educational institutions.

each country and its migration policies.

Q: As an IT company how can you help Mexican cities

We are working with Grupo Aeroportuario del Pacífico

become smart by having smart airports?

and Cross Border Xpress to develop the first biometrics

A: Air transport detonates the growth of cities and contributes

pilot program in the country at Tijuana Airport, given the

to their GDP. Technology is a facilitator for the growth and

transborder air bridge between the US and Mexico in the area.

efficiency of an airport, which in turn impacts the development

This air bridge is unique, which makes this project especially

of cities. For example, the Toluca Airport is underused. Being

relevant and challenging as it also involves the US authorities.

IT-enabled could be a game changer by contributing to the

SITA took part in the whole technology development of the

reduction of traffic at the current Mexico City International

project and biometrics are the next step in keeping up with

Airport. Technology can also make the whole process of flying

the increasing passenger traffic there.

safer and more reliable. We are investing in R&D programs to explore the role that AI, blockchain and biometrics can increasingly have on improving airport operations.

Société Internationale des Télécommunications Aéronautiques (SITA) is an international IT company focused on providing

At airports, SITA is focused on three main processes:

practical solutions for air navigation and traffic services,

passengers, baggage management and air operations. We

commercial airport management and luggage processing

| VIEW FROM THE TOP

DIGITAL TWINS AND IoT TO MOVE BUILDINGS OF THE FUTURE GUSTAVO PAREDES President and Director General of Schindler Mexico

Q: How has Mexico’s rapid urbanization and the trend of

by analyzing data through EDGE computing and feeding

verticalization increased the demand for mobility solutions

the information into the cloud. With the use of fault

such as Schindler’s?

detection algorithms, it will be able to generate scenarios

A: We are in the business of moving people both vertically

that will predict when a failure will occur. This will allow

and horizontally. The verticalization of cities that results

us to replace parts before failure, translating into uptime,

from density and urbanization, escalators, elevators and

cost-effectiveness and a better customer experience. This

moving walkways plays a significant role in how we urbanize

is EDGE computing that will incorporate sensors in the

cities. We enable movement and urban development

cabin, monitoring operations and feeding information to

through our solutions. When thinking about the way cities

the cloud. To this end, we have partnered with GE Predix,

are growing, there is a juncture between making cities

which provides us with the platform to carry out this

livable and making them more productive. The bigger the

analysis. The second part of the Schindler Ahead solution

city the more energy it consumes. It is our job to optimize

provides the ability to manage content while interacting

the urbanization of cities. Cities are continuing to push the

with our products. We will be able to communicate the

development of mixed-use products, such as the “live, work,

relevant information when users use any of our elevators

play” spaces to increase the quality of life of its citizens.

and escalators. This will not only provide an added value for developers but also for customers. Building owners will

At Schindler, we continuously improve the efficiency of how

be able to drive content and traffic.

people move as cities continue to grow. With more than 20 million inhabitants, greater Mexico City continues to adopt

Q: What are the main challenges of introducing innovative

urbanization and Smart City developments. Mexico City will

movement management systems in Mexico’s older

always have a growing demand for vertical development

buildings?

and a demand for our solutions. But we also see a significant

A: We place a great deal of importance on life cycle

amount of activity in secondary cities such as Guadalajara

management. We do this to understand the purpose and

and Monterrey. Cities such as Leon, San Luis Potosi and

life cycle of the building itself and tailor a modernization

Tijuana are also markets to watch.

program. Buildings tend to change over time, especially commercial buildings. For example, open space concepts

Q: How is Schindler incorporating Digital Twins and the

have evolved and are not what they were 10 years ago, as

IoT to improve the efficiency of its solutions?

perhaps a building was originally designed. Open space

A: On the operational side, Schindler has a two-pronged

requires greater density on the floor and amenities, which

strategy to deliver the best vertical transportation

means different people and more traffic to manage. We

experience, through a digital solutions portfolio called

work with our clients to modernize their assets while

Schindler Ahead. First, we forecast when a failure will

looking at what the foreseeable purpose of the building

happen through predictive analysis. Today, the industry has

will be. If we see that there will be more retail space, then

greatly advanced in preventive maintenance, which is what

we will see that the traffic in the building will vary between

operators do when they carry out routine maintenance.

that and the office. Each requires a different traffic pattern.

Schindler Ahead will provide us with cognitive analysis We also look at energy consumption needs and that could change the technology that we use, depending on the Schindler is a world-leading mobility solutions provider and

investment capability of the client. The energy market is

manufacturer of escalators, elevators and moving walkways.

also changing and the ability to put energy on the grid is

The company has been present in Mexico for 75 years and is

key. There is a wide array of technology that allows this and

pioneering in terms of Digital Twins and IoT

we ensure its feasibility for the client.

VIEW FROM THE TOP |

NEUTRAL SHARED DIGITAL INFRASTRUCTURE JOHN DONOGHUE President and CEO of Allied Wireless and National Fiber Networks Mexico

Q: To what extent can your neutral dark fiber services

to incorporate technology to improve a specific service

provide cost-cutting benefits and how is this achieved?

or address certain needs, such as safety, traffic, water or

A: Globally, the deployment of neutral digital infrastructure

power management.

–including dark fiber, wireless infrastructure and data centers— has succeeded in providing OPEX versus CAPEX

In this scenario, the creation of a neutral shared digital

benefits to concessionaires, carriers, enterprises and the

infrastructure is crucial to further advance Smart Cities in

public sector. As carriers and concessionaires reinvent

the country. Mexico needs to deploy a great deal of fiber

themselves as content or bundle service providers, capital

and at least 80,000 towers and 500,000 small cells to meet

is deployed more effectively in their core business.

the demand for 5G connectivity, IoT, In-Building Wireless and AI applications. Neutral shared digital infrastructure is

Third-party tower companies, dark fiber companies and

also crucial to avoid an ROW cannibalization by carriers

data centers are the usually preferred deployment methods,

and to boost economic development in cities.

which we will aggressively push in Mexico through our Smart Cities strategy. Neutral Digital Infrastructure will

But Mexico’s current infrastructure ROW prevents many

create new companies to handle the responsibilities of

international companies from entering the market. A CFE

managing networks in the private and public sectors,

pole by law is allowed three cables but throughout Mexico

opening many new job opportunities in the country.

you will find as many as 20 fiber cables on a pole. Streets have been dug up as many as five times. In both scenarios,

Q: Why must Mexico’s cities aim for dark fiber infrastructure

corruption is the normal practice hindering foreign

on the path to becoming Smart?

investment in the telecommunications sector.

A: Dark fiber provides higher bandwidth for the existing and the next generation networks, including 5G, IoT, Small

Q: How did the Telecommunications Reform impact your

Cell Densification, Mobile Backhaul, Edge Computing, In-

business in terms of opportunities and challenges?

Building Wireless and a new silo of applications. It also

A: The Telecommunications Reform welcomed new

gives the private sector better control of its networks

investment, promoted competition between companies

and bandwidth to improve and protect businesses. With

and benefited Mexicans by lowering consumer costs for

a forecasted 25 trillion chips and sensors to be installed

wireless services by 50 percent. I think that organizations

over the next five years globally, data and video bandwidth

such as PROMTEL, IFT, CANIETI and CUDI have done an

requirements will grow substantially each year.

outstanding job in a short period of time. I also believe that the success of the Shared Network project will enable new

Global Smart Cities prove that neutral digital infrastructure

entries of mobile virtual network operators (MVNO). In the

favors private sector interests, resulting in its economic

US, TracFone has 24 million subscribers as an MVNO using

development. This will only happen in Mexico at the

all four US Wireless Carriers. Owned by Carlos Slim, this can

municipal level through PPPs.

serve as a lesson for the Shared Network project. Limited by capital, the only way the Shared Network project can be

Q: What is your assessment of the state of Smart Cities

built is through shared neutral digital infrastructure.

in Mexico and what would you prioritize to boost their development? A: There are no Smart Cities today in Mexico. The most

Allied Wireless and National Fiber Networks Mexico is a

important step in creating these in the country is to

thirty-five-year veteran of telecommunication and IT industries,

foster more PPPs at a municipal level. Municipalities

founder of the first dark fiber company in the US and Mexico.

already took the first step in becoming Smart, which is

It built out 1,500 cell sites for the first US PCS wireless carriers

Casa Coco, Serrano Monjarraz, Mexico City

ARCHITECTURE & DESIGN

Mexico’s real estate sector is demanding more innovative and sustainable structures to attract tenants. Architects are stepping up to the challenge of

transforming the country’s skylines. With new design trends, materials and standards, architects strive to meet developer expectations while also adhering to budgets. A key trend is multifunctional infrastructure with projects that serve a variety of auxiliary purposes. This also opens up space for developers to let their imaginations fly and expand the scope of their projects, while at the same time opening the door to greater returns.

Technology is another key element in the market, allowing architects, designers and developers to adapt spaces to the user’s requirements. Flexibility and multiuse also has become an important parameter for any kind of infrastructure, from roads to houses and from offices to airports.

In this chapter, architects and designers describe these emerging trends in detail while offering their vision of Mexico’s future infrastructure development and the importance of adapting to the needs of new generations.

CHAPTER 6: ARCHITECTURE & DESIGN 96

ANALYSIS: Multifunctional Infrastructure: The Keystone of Architecture Trends

INSIGHT: John Newcomb, CallisonRTKL

VIEW FROM THE TOP: Fernando Romero, FR-EE

BOX: Emblematic Projects

100

VIEW FROM THE TOP: León Omar Aguilar, ZVA Group

101

VIEW FROM THE TOP: Jacinto Arenas, Ares Arquitectos

102

VIEW FROM THE TOP: Iñaki Echeverria, Iñaki Echeverria

103

VIEW FROM THE TOP: Salvador Rivas, s*arc: salvador rivas architects

104

INSIGHT: Alberto Vidal, VIDAL Arquitectos

105

VIEW FROM THE TOP: Alejandro Garza, Naranjo Arquitectos

106

PROJECT SPOTLIGHT Reshaping the Visuals of the Santa Maria District

108

INSIGHT: Juan Carlos Baumgartner, spAce

109

INSIGHT: Mayer Hasbani, Mayer Hasbani

110

INSIGHT: Manuel Torres, MANUEL TORRES DESIGN

111

VIEW FROM THE TOP: Gilberto Rodríguez, GLR Arquitectos

112

VIEW FROM THE TOP: Gonzalo Montaño, Mac Arquitectos Consultores

Juan Ignacio Rodríguez, Mac Arquitectos Consultores

113

INSIGHT: Diego Cervantes , Herman Miller

114

VIEW FROM THE TOP: Alejandro Vilchis, GRUPO CONSTRULITA

115

VIEW FROM THE TOP: Sebastian Cammaert, Corev

| ANALYSIS

MULTIFUNCTIONAL INFRASTRUCTURE: THE KEYSTONE OF ARCHITECTURE TRENDS Imagine a highway designed to double as a water distribution and treatment plant, or a public park that integrates a whole community while also producing clean energy. Multifunctional infrastructure makes such projects the keystone of the industry’s trends and a reality that meets various infrastructure needs at once As space becomes limited in large cities such as Mexico

treatment plant, at the same time solving the problem

City, Monterrey and Guadalajara, architects and urbanists

of its flooding.

are increasingly looking for new ways to optimize square

meters. As developers look to verticalization and mixed-

In this context, projects should be viewed as more than

use developments, architects are discovering new uses for

solving one problem and also incorporate elements that

ordinary urban infrastructure such as dams and ring roads.

indirectly improve life quality. But is this a utopian dream?

“Multifunctional infrastructure could provide solutions

“For example, we designed a sports center in Atlacomulco

to more than one particular problem,” says Architect

in the State of Mexico but its beautiful lakes double as

and Urbanist Iñaki Echeverria. “The country should no

a water-treatment plant for the community,” he says.

longer be able to design projects that serve one sole

Unfortunately, this project was canceled due to high costs

purpose.” But while it seems only logical to improve the

and a lack of budget.

usefulness of a given piece of infrastructure, the concept of multifunctionality is still at an early stage in Mexico.

GREEN IS MULTIFUNCTIONAL The Periferico and Atlacomulco projects may be slightly

Architecture for multifunctional infrastructure aims to

too complex for Mexico to adopt yet, but Echeverría says

gather different functions in one space. Jacinto Arenas,

the country can start simply, through repurposing of its

CEO of Ares Arquitectos, says that functionality should

green and public spaces. The urbanist believes these are

be considered on a number of levels when developing

the ultimate form of multifunctional urban infrastructure.

a project. First, with a social component at its core.

Take public parks, for example. Not only can they be a

“Projects should aim to improve the lives of the people

communitarian space for leisure, they can also serve as a

who will live and work there,” he says.

green lung for cities while having artificial lakes that can be used as water treatment plants.

To achieve this, architecture should be both aesthetic and functional and should be analyzed in the context

And even if Periférico’s second floor can be seen as a

of the client and its particular surroundings. A deep

failure in some ways, it was a success in others. While it

understanding of customer feedback becomes crucial

did not become a huge elevated water treatment plant,

for project planning, says Echeverría. “Developers must

it succeeded as a green lung for the city. The Vía Verde

promote the purpose infrastructure will serve and who

project was launched in 2016 following a public petition on

it is aimed at to truly maximize its potential and take full

the digital platform Change.org, with the idea to turn over

advantage of the opportunity,” he explains.

1,000 concrete pillars into more than 60,000m2 of vertical gardens. Directed by architect Fernando Ortíz, this project

A MEXICAN UTOPIA?

achieved multifunctionality for Periférico. To address the

While architecture may open the door for multifunctional

financing hurdle, Vía Verde is entirely funded through

infrastructure, Echeverría warns that this opportunity can

private sponsorship, with sponsors getting advertisement

be missed, as was the case of Mexico City’s Periférico

opportunities in one out of every 10 pillars endorsed.

ring road’s second floor. The project involved a high cost and takes up a great deal of area in the city but

Just as with Periférico, Mexican cities are looking for new

when developing, it was only considered to meet a

uses for public infrastructure. Projects such as the Tlalpan

transportation need when it could have been much

Viaduct in Mexico City, the Tec District in Monterrey, or

more. “It is a missed opportunity to repurpose it into

the regeneration of the second section of the Interceptor

something that could provide benefit for the rest of the

Canal in Aguascalientes are some examples. “The market

population,” he says. “It could include a route to carry

demands straightforward solutions that innovate in

optical fiber or serve as a solar energy generator.” He

infrastructure development,” says Echeverria. “The

adds that, if properly considered, the structure of the

discussion for social and sustainable infrastructure is

road could work as a water distribution network and

becoming increasingly important.”

INSIGHT |

AN ARCHITECT’S ROLE IN SUCCESSFUL MIXED‑USE PROJECTS JOHN NEWCOMB Senior Vice President and Regional Practice Group Leader for Latin America at CallisonRTKL

Mixed-use is the buzzword of the real estate sector

team with its own board of directors and generates revenue,

as developers try to create livable spaces. But John

meaning it is self-financing.” Mexico City’s Chapultepec

Newcomb, Senior Vice President and Regional Practice

Park is maintained by the ProBosque Trust Fund. The park

Group Leader for Latin America at architecture, planning

generates not only profits but also capital gains for the

and design firm CallisonRTKL, warns that many developers

surrounding neighborhoods. Although a mixed-use project

do not necessarily understand that creating various types

is on a different scale, it has open green spaces that are

of establishments does not automatically add value to

used by end-users and must be maintained. “These spaces

surroundings. “Developing mixed-use projects goes well

can be monetized by installing some retailers, adding value

beyond incorporating different stores. The main challenge

to commercial areas, which translates into returns for store

is correctly integrating the different services and businesses

owners,” he says. “Green spaces must serve a purpose

to deliver a whole project with added value,” he says.

within a project.”

As Mexico’s concrete jungles continue to grow more

CallisonRTKL assists developers in creating master plans

complex, the role of architects in creating the cities of the

for their projects. The firm is currently working on the

future becomes increasingly important. Cities will continue

master plan of one of Zapopan’s largest projects, Acuarela,

to deal with higher population densities and, in the absence

alongside developer Desarrolladora Mexicana de Inmuebles

of a strong urban planning policy, architects are under

(DMI). The project will include a housing community and a

greater pressure to make cities more livable. “The main

specialized commercial and corporate area, joined together

way we are contributing to the creation of better cities

by various common areas. “Mixed-use projects require

is by boosting the construction of mixed-use projects,”

carefully-planned blueprints that will be developed over

Newcomb says.

several years,” Newcomb says. “In the case of Acuarela, this will be seven to 10 years.”

Mexico’s real estate sector is experiencing a boom in mixed-use projects because developers are promoting

Through its experience, CallisonRTKL has witnessed an

a change in the way cities are developed to make the

increase in the adoption of new technologies to boost the

most out of limited space. “Mixed-use developments will

success rate of projects. The firm itself is integrating virtual

be the place where people live, work and play, making

reality into its design processes, which allows for greater

cities polycentric,” explains Newcomb. “These types of

clarity in the design and lets clients take a peek at how the

projects will drastically increase the quality of life that a

finished project will look. “In general, the Mexican market has

city offers.” But he acknowledges architects alone cannot

been very receptive of this new technology and is happy with

make the difference. “Architects must work more closely

the results,” he says. “Having the chance to walk through a

with cities and governments and, in return, government

project without having to construct it first allows us to catch

planning commissions should be more open to architects

little details that we could not see so clearly before.”

contributing to the design and development of future cities,” he says.

Although there are perks to seeing the project before it is actually constructed, Newcomb explains that there is

An important component of any successful mixed-used

always the risk of clients getting ahead of themselves. “It

project is the use of green spaces, but Newcomb stresses

is a dangerous game because sometimes clients believe

that developers should not integrate these spaces without

that the project is finished and that construction can start

ensuring they are monetizable. “Central Park, for instance,

right away, when in reality there are still many things to

was not maintained by the borough of Manhattan for many

document, materials to choose and corrections to be

years,” he says. “Now it is maintained by a conservation

made,” he says.

| VIEW FROM THE TOP

THE EVERLASTING ESSENCE OF ARCHITECTURE FERNANDO ROMERO Founder and Director of FR-EE

Q: How are your designs redefining contemporary

Q: Which kinds of projects are in FR-EE’s pipeline and

architecture to incorporate sustainable techniques?

why is the firm pursuing these?

A: Architecture is always carried out with collaborators, which

A: We are pursuing a new generation of projects, of

enables it to be done more efficiently. I like to think about the

smaller scale, like small museums, houses and cultural

architect as an orchestra conductor that moves all the parts

centers. After a huge project like NAIM, we want to go

in harmony to solve the technical details of a project with the

back to projects that allow us to recover the energetic

lowest environmental impact and the most efficient use of

efficiency of the arc and dome applied to contemporary

resources. I think the last 30 years in architecture have been

construction techniques. We are also venturing into

about acknowledging the environmental impact that humans

industrial design of furniture and objects. For example,

have and today it is about exploring the use of technologies to

we are designing a sustainable catamaran. This allows

diminish impact. For example, NAIM is the first LEED Platinum

us to expand the way in which FR-EE operates within

airport in the world. We worked with our global collaborators

different contexts.

to design an efficient use of energy in a building whose architecture is as user-friendly as possible. I do not think that

Q: How likely is the development of MexLoop with

architecture has really changed in its essence, as it ultimately

Hyperloop One and in what time frame?

is about building for the needs of the human being.

A: I think Hyperloop is a technology that is here to stay as there has been a lack of innovation in transportation

MexLoop was selected from 2,800 participants as one of the 10 most viable Hyperloop corridors in the world

over the last century. Hyperloop presents a highly energyefficient technology, immune to the environment and able to connect cities in the lowest commute times. Our project was selected from 2,800 participants as one of the 10 most viable Hyperloop corridors in the world. We know that this is a long-term project that will not become a reality for a decade at least. But our proposal advocates

But intergenerational changes are forcing architecture

the use of national materials, such as Mexican concrete

to become more flexible. Humans are demanding easy

for the pillars and Mexican plates for the tube. The first

adaptability to multiple uses, as technology is enabling more

tests have started in the Middle East, in Dubai and Abu

multitasking in one place. Typologies used to be separated;

Dhabi. Finland and the Netherlands are also betting a lot

people slept in one place and cooked in another. But the use

on this technology.

of space is increasingly overlapping, with many people work from their homes or even from airports. So, architecture

Q: What is your forecast for the future of FR-EE’s

must become better adapted to humans’ needs. To me, the

projects such as NAIM and Border City under AMLO’s

best architecture is about translating each historic moment

administration?

and the evolution of civilizations. Architecture is the only

A: I think that a project of NAIM’s transcendence is the

art that ever lasts and that nobody can erase or hide; it is

consequence of several previous studies and years of work.

immovable and permanent.

In this case, a significant investment has been already made. We are convinced that this is the right project to boost Mexico’s’ growth. NAIM is the door to one of the most visited

FR-EE is a global architecture and industrial design firm

countries in the world and it is meant to potentialize the

founded by Fernando Romero. Its commitment to translating

Mexican economy. I think that infrastructure represents an

historic, social and environmental contexts into contemporary

investment for the future of millions of Mexicans. As such, it

urban destinations has impacted cities and communities

should have a long-term vision and planning. Infrastructure

projects should be immune to political changes, as they are closely related to the economic growth of the country. I have always been very interested in the US-Mexico Border. In my Hyperborder book, we analyze migration movements around the world. Trump’s administration has significantly impacted the project’s agenda on the border. Previous to this administration, we designed Border City as a very viable project to meet the needs of making migration flows between both countries more efficient by combining shared-services in one city. This project was to be carried out by landowners that wanted a border city, with FR-EE developing the idea and urbanistic vision of the city along with urban experts from New York.

EMBLEMATIC PROJECTS Architecture is a tool to enable the reconfiguration of public space by translating a given context into a destination. This understanding of the art drove the creation of FR-EE, a global architecture and industrial design firm that aims to have a positive economic, social and environmental impact. The firm has projects around the world, from China to Peru and Portugal to Chile. But FR-EE’s most emblematic projects are in its founder’s home country: Mexico. The New International Airport of Mexico: One-ofa-kind project, NAIM was designed to revolutionize the experience of traveling. It is already known as the airport of the future and the most sustainable one in the world. FR-EE designed the project in collaboration with architecture firm Foster + Partners and the Netherlands Airport Consultants. Soumaya Museum: Named in honor of billionaire Carlos Slim’s wife, Soumaya Domit, the Soumaya Museum hosts over 70,000 art pieces and has become one of the country’s treasure chests of art. The building’s design is characterized by an eclectic architectural style, with 16,000 hexagonal mirrored-steel elements creating a facade that rises 46m on Mexico City’s skyline. The museum was built in 2010 for the Carlos Slim Foundation. Plaza Carso: This project looks to recycling a city, reviving an old industrial site in Mexico City that dates back to the 1940s. The master plan grouped together a series of mixed-use buildings with residential, cultural and commercial purposes, including two museums, a theater and a commercial mall with offices and stores. The complex was also designed to be city-friendly, allocating 50 percent of the total area to green spaces, including garden rooftops, and the recycling of rainwater.

| VIEW FROM THE TOP

AESTHETICS, FUNCTIONALITY, DISRUPTION AND PURPOSE LEÓN OMAR AGUILAR Architecture Director of ZVA Group

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Q: What is the key for an architecture firm to develop

that help create a high-quality project and design. The

successful infrastructure projects?

project’s environment should always be analyzed first when

A: One of the most important points when it comes to

crafting the blueprint but it is important to understand the

developing projects in my firm is to create aesthetic and

exogenous factors, such as street traffic, that cannot be

functional projects that also have a purpose not just for the

controlled but must be taken into consideration to create

client but for the surroundings as well. The architecture we

a more functional design.

create has a specific use. The variety of projects we develop in-house include office, residential, industrial, hospitality or

Q: What is the role and contribution of architects in building

commercial. Regarding the type of project, they all can be

a more sustainable and resilient infrastructure industry?

multifunctional, such as in mixed-use developments.

A: Architecture trends are moving toward technology and artificial intelligence. In some parts of the world,

A key challenge for architects to be successful is to

buildings are being constructed with movement in mind

understand their clients’ feedback. The most important

so they can chase the sun. This is the concept of living

opinion for ZVA Group is that of those who see and use

architecture, which will set the pace for the future. ZVA

the spaces we create. We design projects for the user who

Group is incorporating technology through the use of

occupies them and interacts with them. We believe that

intelligent networks that allow us to control and monitor the

an aesthetic and functional design does not have to be

entire operation of a building. It is important as architects

expensive, which is the added value that we provide to

to understand the environmental and social impacts our

our clients.

designs have on communities; we must protect our future generations by creating environmental and sustainable

Q: How do you create successful master plans for the

footprints. I believe that is the duty of every designer.

whole development cycle of an infrastructure project? A: Having a complete master plan for projects is vital. I

Q: What are the main challenges and areas of opportunity

have 15 years of experience in the sector and I know it is

that the infrastructure industry will face up to 2020?

crucial to have a blueprint that includes monitoring and

A: Our main investors are foreign and private, mostly from

risk-management planning. It is not possible to fully control

the US. We have seen a great deal of foreign investment,

the final outcome of human intervention so we work on

especially from Asia in the Bajio region. This has opened

the master plan with our clients, which is the base of our

a great opportunity in the automotive industry and in

success as a company in providing high-quality final results.

residential real estate. Investors seek to build micro-cities, in which residents have all the facilities they need in one place.

I believe the key for the success of a project starts from its

One of the challenges we are facing is the rapid growth of

very beginning; that is, deciding where it will be located.

foreign companies in the country that has caused us to

By analyzing the location, architects can design better

adapt very quickly to new standards. Design specifications

buildings to be aesthetic, functional and operational. This

and needs have been adapted, which has opened the door

planning takes into account everything from the sun’s

to new international alliances and business opportunities

position to the direction of the wind, and many other factors

for architects. This is creating new competition among architects to excel in industrial design. We have a unique opportunity to build industrial cities from scratch. We no

ZVA Group is an architecture design expert focused on

longer want another box in the landscape but rather, we

technology, sustainability and work spaces. It represents the

are creating more functional, high-standard, high-quality

mission and vision of its clients through its designs. ZVA Group

projects that not only meet national standards but comply

provides strategic and innovative master plans for construction

with the international requirements.

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PLANNING KEY TO SUSTAINABLE URBAN GROWTH JACINTO ARENAS CEO of Ares Arquitectos

Q: How has the role of architecture in commercial real estate

Q: Why is it important that master plans are created in

changed in the last few years?

Mexico for the development of sustainable cities?

A: Mexico’s cities are evolving and its economy is booming.

A: Masterplans such as the one we developed for Nuevo

At the moment, Mexico City’s GDP is higher than that of

Tepic are designed to develop an area over the long term,

eight Latin American countries, with a tremendous amount

in our case over the course of 20 years. Nuevo Tepic in

of potential for development. But a growing market creates

particular is known for sugar cane and sugar processing.

new demands and trends that developers must adapt to

In many of these towns, urban sprawl is encroaching on

if they want to create successful projects. Architecture in

agricultural areas, especially in states such as Veracruz

Mexico is becoming more competitive each year due to

and Nayarit. This project includes 300ha and has an urban

greater demand for projects that provide an added value.

concept planned integrally with governmental offices,

New generations are looking for innovative products

green spaces, residential areas and the incorporation of

outside the traditional enclosed mall. Changes in purchasing

mixed use. In this case, the commercial area is located

preferences and online sales are creating innovation, and

next to the highway and we looked for ways to integrate

architecture and design now play a big role in differentiating

it with the city to ensure sustainable growth.

one product from another. We want to create attractive projects for communities Mexico’s middle class has grown and consolidated significantly

and developers but more importantly, to create projects

in the last few years. Mexicans now have more disposable

that will have a positive impact on how a city develops.

income. This is why mixed-use developments such as Galerías

We have to improve the quality of life of the public.

Valle Oriente in Monterrey and Averanda in Cuernavaca, have

Projects should aim to improve the lives of the people

caught the eye of consumers and have integrated successfully

who will live and work there.

into communities. This is mirrored in similar economies such as La Gran Manzana in Bogota and El Frutal in Guatemala. Each

Q: What do you believe needs to happen for cities to

year there are more couples with two incomes but without

flourish completely and foster growth?

children who are looking for new experiences and have new

A: In my opinion, sometimes the public sector does not

needs when it comes to shopping centers.

take the time necessary to plan. A great deal of projects are carried out quickly due to time constraints and

Q: How has Averanda impacted much smaller markets, such

consequently are carried out incorrectly. We must take

as Cuernavaca, Morelos?

more time to plan out projects correctly. A real estate

A: Averanda in Cuernavaca is one of our latest projects and

project can take many years to execute and we must

it is a recent example of why it is important for developers

respect the urban plans to ensure it will be an added

to adapt to the changing market needs and trends. It is

value to society. This is where both the private and public

crucial that developers offer an added value and differentiate

sectors are going wrong. My wish is that all developers

themselves. In front of Averanda is one of Cuernavaca’s

and the government become conscious to the fact that

oldest malls, Galerias, which has a more traditional concept.

we must plan things correctly and with enough time so

Averanda was designed with a more open concept,

that they will work properly.

integrating green areas and open-air spaces to take advantage of the weather in the area. Many brands have moved to Averanda due to its popularity. The integration

Ares Arquitectos is a Mexican architectural firm with presence

of various amenities such as entertainment areas, offices,

in more than 10 countries. Among its many key projects in

homes and of course shopping spaces offers a completely

Mexico, Averanda, Plaza Via, The Point, Tlanepantla and Citadel

different experience and it has proven to be a success.

should be highlighted

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UNLOCKING THE POTENTIAL OF MULTIFUNCTIONAL INFRASTRUCTURE IÑAKI ECHEVERRIA Architect and Urbanist at Iñaki Echeverria

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Q: What is the Mexican market demanding from Iñaki

But because these ideas require more development and

Echeverria?

institutional mechanisms to support them, it is difficult

A: 2017 was a good year for the definition of some projects.

to materialize them, regardless of the interest of private

We delivered five parks for a private corporation as part

investment funds. We are also striving to advance in

of their social responsibility agenda, including one of

multifunctional infrastructure development since the

particular importance in Coatzacoalcos. We participated in

country should no longer afford to design projects to

social infrastructure projects as well as in purely conceptual

serve one sole purpose. For example, the second floor of

and design projects, such as facades for the Liverpool

Mexico City’s Periférico is a controversial development, as

department store. The market demands straightforward

it represented a considerable investment that only focused

solutions that innovate in infrastructure. I believe that as

on private transportation. It is a missed opportunity to

the discussion for social and sustainable infrastructure is

repurpose it into something that could benefit the rest of

becoming increasingly important, Iñaki Echeverria serves

the population. It could include a route to carry optical fiber

as a node in which experts converge to solve problems.

or as a solar energy generator. If properly considered, the

We specialize in asking the right questions and coordinate

structure of the road could work as a water distribution

multidisciplinary teams to solve them.

network and treatment plant, at the same time solving the problem of its flooding.

Q: How does your process of asking the right questions help you turn ideas into unique approaches to every project?

Q: To what extent is there space for innovation and a

A: The right question to ask varies significantly from one

significant mobility improvement in cities as dense as

project to another because our goal is to provide tailor-

Mexico City?

made solutions. We focus on how to tap into the potential

A: All new projects, such as the Mexico City New International

of a project to become “more” and all it can provide in

Airport (NAIM), should have a public transport strategy

addition to its main purpose. Instead of a specific solution

incorporated into their planning from conception. I also

to a problem we understand projects as opportunities

believe incentivizing people to socialize and live close to the

to maximize potential and for innovation. We analyze as

workplace and incentivizing companies to recruit people

many factors and shape it to become much more than what

that live close by is a good direction, as it reduces commute

it was meant to be. For example, we designed a sports

times and traffic. Multifunctional infrastructures could

center in Atlacomulco in the State of Mexico where its

provide solutions to more than one particular problem, such

beautiful lakes double as a passive water-treatment plant

as mobility. I believe an important part of opening a space

for the community. I believe that the way to harness the full

for innovation comes from a design point of view that aims

potential of infrastructure is through design.

to break paradigms and unleash its potential. Developers must push what purpose infrastructure will serve and who

Our research has led us to interesting opportunities that

its aimed for, to truly maximize its potential and take full

we have not been able to fully capitalize yet. We have

advantage of the opportunity.

been conducting research on intensive vertical agriculture for several years, seeking to develop a pilot program.

Many people do not understand the need to innovate as it may imply an extra burden to their practices. Government intervention is required to promote and foster innovation.

Iñaki Echeverria specializes in researching the right questions

An initiative to change the workings of the sector is not

to create ideas. It provides unique and specific solutions in

likely to come from those that profit from the status quo but

every project. Echeverria teaches at Harvard and founded the

rather from external agents, following an ambitious strategy

Aedes Berlin Summer Workshop and the TEKIO forum

for development.

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DIFFERENT TYPOLOGIES: THE FUTURE OF ARCHITECTURE AND DESIGN SALVADOR RIVAS Director of s*arc: salvador rivas architects

Q: Why is variation in architectural design the way of

to collaborate with innovative companies and we are very

the future?

interested in new design possibilities such as 3D printing

A: Different types of design represent the future while giving

and robotics. We are still an emerging design studio but we

a nod to past techniques. Architects and designers risk

strive to be more efficient and to standardize our processes.

getting lost in style and are now coming back to forgotten techniques. For example, the new trend is mixed-use and

For example, one of my favorite projects is the ongoing

co-working spaces, which are somehow traditional concepts.

Saqqara mixed-use development in San Pedro Garza. I started collaborating previously on this project as part of

We increasingly have more specialized typologies, as

Foster+Partners design team from the concept stage to

clients are expecting new things all the time. The challenge

completion of the first phase. We still remain involved in

becomes one of knowing how to combine the different

the development of the next project phases. I especially

methodologies for different uses. Our favorite projects are

like this project as it generates a sense of community.

mixed-use models that represent the challenge of mixing

Also, we have been working on a modular project in

recreation, culture, housing and commercial. Architects

the UK to rehabilitate and reuse existing industrial

must identify this new reality and adapt it to their designs.

infrastructure, and that can be replicated elsewhere. This

We are part of this transformation. Change is the force

goes hand in hand with our principles of adaptability and

motivating us to be better in what we do.

sustainability. It proposed the combination of commercial with social developments. It would involve social spaces

Q: What are the main challenges and trends driving the

such as art galleries and nurseries in the lower levels

work of architecture firms?

in combination with residential, office and hotel spaces

A: Our industry in Mexico faces the challenge of changing

in the upper levels. I believe this project speaks to the

its mindset instead of aiming to carry out projects quickly

vision of our design studio as this concept could also be

and cheaply. We must plan for the long term. But having

implemented in Mexico.

said this, adaptability is key as architects and designers can no longer plan buildings that will last for a century. Rapidly

Q: How do you create a match between the architect’s design,

changing contexts and patterns call for adaptability, which

the developer’s expectations and the user’s demands?

must be supported by the use of technologies. Designers, for

A: It is key to assess the conditions in which projects will

example, are relying on new tools and solutions. If we compare

take place, from socio-economic, cultural and environmental

the architecture industry with automotive or aerospace, we

approaches before drafting a proposal. This provides our

find that we are still largely behind their developments. We

client with an added value and protects their investments.

are building as we did 50 years ago and this must change.

I believe that the architect is the instrument that enables clients, developers, collaborators and authorities, to

Q: What are the factors you take into consideration when

share perspectives to better define and clearly establish

choosing projects?

a project’s goals and objectives. My experience tells me

A: We are mostly interested in undertaking unique, innovative

that lack of communication and consensus between all the

and sustainable projects that have their own character and

parties involved makes projects more challenging.

identity that can relate to their unique context. They must be innovative in terms of technology, as we cannot keep designing and building as we did in the past. Emerging

s*arc: salvador rivas architects is a comprehensive design

economies are increasingly valuing new technologies,

consultancy and support network that has the aim of delivering

especially as they lead to more sustainable projects. One

innovative, unique and sustainable projects with a positive

of the motivations behind starting this firm was the desire

impact

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| INSIGHT

THE ARCHITECT AS GUIDE ALBERTO VIDAL Architect at VIDAL Arquitectos

104

While many believe the job of an architect is to design

printing has evolved over the last five years and materials

a building, Alberto Vidal, Architect at VIDAL Arquitectos,

now come prefabricated. Every day, these technologies are

argues that the architect’s role is to act as a guide, a bridge

becoming more convenient.”

that allows the client to achieve his or her dream project with the most appropriate inputs. “Some architects see the

Newer materials also are emerging that can be more cost-

client as an obstacle, whereas I see clients as an integral

effective, particularly in commercial developments. “While

part of the process,” he says. “I want to give people the

people may be reluctant to incorporate more cost-effective

architecture they need.”

materials into their living spaces, commercial developers can greatly benefit from this,” he says. He gives the example

Vidal says any project should adhere to three primary

of marble, which is expensive and porous. Replica marble

lines of investigation. First, always keep the client in mind.

may be an alternative for developers that have a lot of

Second, analyze the location and surroundings. “We must

space to cover and also offers benefits in terms of lightness,

look at the angle of the sunlight, the trees and we must be

flexibility and cleanliness.

very considerate of neighbors and their needs,” he says. The last factor to consider is regulation, including the number

When incorporating materials into buildings, Vidal

of parking spaces or the number of stories required and

advises developers to search for those that maintain their

permitted. But Vidal says that, although each project needs all

characteristics and age well. “A project can be compared

these things, they should be seen as minimum requirements.

to a person in that it will never look the same as it did on

The problem is that many architects see these three steps

day one,” he says. “A building should age with character and

as a final design. “This is not a good design, but a compliant

dignity.” He adds that this does not mean that the material

design,” he says. “It gives no additional value to the client

should not change at all. “Wood, for example, is a material

or to the city. I do not want to comply; I want to transcend.”

that ages, although depending on the quality, it can age very well,” he says.

To illustrate his point, Vidal says his favorite project is his own home, because it is reflective of his vision. “There is a certain

He stresses that a good design does not need to be

spirituality to architecture, whereby sometimes opinions are

expensive. The first building Vidal designed was a five-story

unconscious,” he explains. He says often our best ideas come

family-owned property. The firm then grew rapidly and is

when our brains are not consciously connected – during

present in most major cities, such as Hermosillo, Queretaro,

sleep or while daydreaming, for example. “Maybe a person

Cancun and Chihuahua, where Vidal Arquitectos was one of

likes or dislikes a building but cannot explain why. That is

the pioneers in vertical building. “A developer sought us out

what architects should strive for,” he says.

due to our work in Monterrey,” he says. “As a result of this project we were again approached by another developer

Essentially, Vidal believes that the definition of good

and the cycle continued.”

architecture is providing a sense of space. He says that, although technology contributes to this comfort, the reality

The situation in Chihuahua was particular in that it is

is that the comfort should cover all five senses. “However,

a location where families seek security, which vertical

although technology is not the most important aspect of

buildings offer. “The demands of clients changed a great

a living or work space, it is an additional element that can

deal after the first vertical buildings were constructed,”

be used to enhance the user experience.”

he says. Now, he believes this level of dynamism is being seen in locations like Irapuato, Saltillo and Queretaro. “The

According to Vidal, now is a very exciting time because

real estate environment now has a very strong identity in

we have almost any materials or technology available. “3D

Mexico,” he concludes.

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EXCEEDING STAKEHOLDER EXPECTATIONS ALEJANDRO GARZA Founder and Architect of Naranjo Arquitectos

Q: What makes Naranjo Arquitectos unique and the right

incorporate them according to our client’s taste and needs.

partner for your clients?

Wood is our favored material as it is traditional, well-known

A: Our first goal is to meet client needs. As each client has

in construction and architecture and has the lowest impact

a different taste, we are not committed to one architectural

on production and lifecycle.

style. While we always leave Naranjo Arquitectos’ mark on projects, we remain flexible to our clients’ demands. It is

Regarding our supply chain, we work closely with strategic

important to take the time to build a relationship with all

partners with whom we have built a strong relationship.

stakeholders to consider their expectations for the design.

We also strive to help the industry and small providers

Transcending the core purpose of any project is about

grow. To ensure our projects are more sustainable, we

exceeding these expectations and by surpassing them, we

use solar panels, urinals that do not need water, light and

develop projects that deliver tailor-made designs.

water sensors and LED lighting, among other features. We believe that impact emerges from the details; some

Our methodology for tailoring a project starts by

elements may seem small but in daily use they represent

interviewing the client and understanding the context. The

significant savings.

key is to listen to the client so we understand the objectives. Understanding the client implies knowing family and work

Q: What is the scope and impact of green building

dynamics, the intended use of the spaces and the desired

certifications in construction and how do you incorporate

lifestyle. We go in-depth on the client’s lifestyle so we

these into your designs?

can design the best project to match it. As we work on

A: The goal of green building certifications is to save water

residential projects, we must balance the expectations of

and energy, among other resources, but also to create

multiple stakeholders. This means that our design must

spaces that improve the health and wellness of their users.

consider investors, developers and the people buying

Certified buildings can increase their value as they are

their dream project. We mediate and coordinate all the

environmentally responsible and cost-effective in using

players involved to adapt to their needs through the best

resources. The aim to build responsibly also confers prestige

project possible.

on projects, making them more attractive to the customer.

Q: Which of your current projects best illustrates Naranjo

But green building certifications are still incipient in the

Arquitectos’ vision?

Mexican industry, especially for residential projects, as

A: We are developing the SM Living Residential project. We

the cost of green materials is significantly higher. For

are polishing the architectural master plan and will start

example, if I am building a house under a MX$10 million

construction soon. To raise the required capital, a private

budget and want to have it LEED certified, it will cost

investor and Famsa Bank are supporting us. I believe it is

US$15 million. I think the market is not yet ready for

ideal to take over the whole project, so we can make sure

this certification in residential developments; lower and

that our design is accurately translated in the construction

more cost-effective pricing is required. More interest

phase. In this way, we can really give life to what was drafted.

could balance prices so certifications become financially feasible for more projects.

Q: What innovative materials and technologies are you using in your designs and how are these impacting your clients?

Naranjo Arquitectos specializes in meeting the highest

A: Residential projects still use traditional materials and

comfort standards for users through architecture and design.

techniques, such as concrete and isolators. For finishing,

With a 26-year history, the firm creates tailor-made spaces to

trending materials are constantly changing and we

match its customers’ lifestyle and expectations

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| PROJECT SPOTLIGHT

106

RESHAPING THE VISUALS OF THE SANTA MARIA DISTRICT Monterrey is among the cities at the head of the pack in the verticalization drive. The aim is to redensify neighborhoods, giving its inhabitants the advantage of living and working in close proximity while also being close to lifestyle facilities, such as restaurants, convenience stores, banks and shopping centers. Understanding Monterrey’s need to be more compact, Naranjo Arquitectos is innovating the city’s skyline with vertical residential projects. SM Living is the firm’s reference for compact, quality living spaces. 107

Located in one of Monterrey’s most vibrant neighborhoods, the Santa Maria district, the project will contribute to reshaping the visuals of the area with its eclectic architectural style, a representative interpretation of the work of Naranjo Arquitectos. SM Living combines the predominance of horizontal and vertical lines of the School of Chicago with classical architecture elements such as cornices.

SM Living has 10 apartments, each composed of two bedrooms and an integrated living space with lounge, dining room and kitchen Above all, SM Living was designed to synchronize with the environment and optimize resources in its daily operations. The discrete simplicity of bricks, used in exterior and interior walls, favor the aesthetics of the project and its thermic and acoustic insulation, protecting the inside from the extreme climate conditions of the city. The huge windows optimize energy consumption by flooding spaces with natural light. Living areas are defined by an open and neutral composition, allowing the user to personalize them as desired. SM Living has 10 apartments, each composed of two bedrooms and an integrated living space with lounge, dining room and kitchen. These apartments each also have a pantry, a laundry and a private balcony that gazes onto the east of the city. Additionally, the complex includes a set of additional amenities for residents to enjoy at a stone's throw from their homes. This upscale living facility gives users the benefit of living next to two main avenues and near shops and businesses of all kinds, providing a central, convenient but luxurious way to live.

| INSIGHT

INNOVATIVE DESIGN APPROACH PRIORITIZES IMPACT ON HEALTH JUAN CARLOS BAUMGARTNER Director General of spAce

108

Architects understand how their designs can impact the

different states of mind. “We are hacking this system as we

surrounding environment but they rarely focus on how these

also want to understand the relationship between mental

same designs can impact physical and mental health, says

states and physical environments,” he says. “My concern is

Juan Carlos Baumgartner, Director General of design and

that architects and designers do not have a clue about the

architecture firm spAce. “Part of the reason why there are

impact we actually have on mental health.”

more than 300 million depressed people in the world is that architects have not understood that every single thing that

A deep analysis of architecture has also allowed Baumgartner

we build, builds us back.”

to spot the main trends shaping real estate markets. For example, with offices moving from fixed cubicles to co-

SpAce looks at design and architecture from the point of view

working spaces, he advises developers to hire an expert to

of the people who will live and work in the environments it

help improve the performance of those spaces. “Natural light

creates, Baumgartner says, adding that architects around

is key as it has a significant impact on physical and cognitive

the world have built millions of square meters that did

health,” he says.

not help people to be happy. “Many of these spaces even promoted depression, as proved by several studies conducted

He stresses that space should certainly be optimized, just not

in the 1960s,” he says. The negative impact of design and

in a way that negatively impacts of the workers’ wellbeing.

“

architecture was found to be rooted in a lack of natural light

“Only 70 percent of space is used because offices are empty

and few incentives for socialization.

when employees are in meetings or with clients,” he says,

We are concerned about the impact of design on human beings; we want to help clients build experiences around their brands”

adding this can represent an opportunity for innovation. Baumgartner says that many developers recognize that spAce’s knowledge of the workplace can be applied to other types of design, like residential. “The information and knowledge that we have on how to approach millennials, for example, is highly appreciated across multiple sectors because we know what they want and understand the new limits between working and living.” The company, which has been working intensively on industrial

To arrive at the approach that underpins the firm’s work,

design over the last couple of years, will soon launch HOME

spAce studied the link between architecture and happiness.

by Baumgartner to bring its philosophy to where people live.

“We developed a theory called Design for Happiness that aims

“From carpets to wall finishings and from sculptures to house

to understand the connection between the built environment

accessories, this is an innovative consultancy that is starting

and positive or negative emotions. We focus on triggering

to grow in Latin America as we see things in different ways;

the former,” Baumgartner says. “We are concerned about the

we do not limit ourselves to design or architecture,” he says.

impact of design on human beings; we want to help clients build experiences around their brands.”

New technologies, such as BIM, are also impacting the work of architects and designers but Baumgartner points out that

Design for Happiness is based on neuroscience. Through

not even artificial intelligence can translate the essentials of

a partnership with a neuroscientific center in Canada,

understanding the impact of architecture on people. “The

Baumgartner started using electroencephalograms to

effect of a physical environment on people does not change

measure brain reactions and how space designs influence

if you build it using technology,” he says.

INSIGHT |

PROJECT DEVELOPMENT WITH AESTHETIC, URBAN SUSTAINABILITY APPROACH MAYER HASBANI CEO of Mayer Hasbani

Aesthetics and functionality should not be conflicting ideas

the building and the surrounding area and we constructed

but architects and developers must understand the market’s

an architectural thesis of how the project should be carried

demands and how spaces can be made more functional

out to reinterpret the art deco style and modernize it. The

through shared amenities, says Mayer Hasbani, CEO of

project was very well-received and it was validated by INBA,

architectural firm Mayer Hasbani. “We decided to promote

so constructing it was easy in the end.”

our spaces as something exclusive,” he says. “Amenities became very important under this scheme because they are

Verticalization has become a main trend that the firm has

the gateway for individuals to become part of a community

decided to champion as a way to solve several social and

and to get to know their neighbors.”

infrastructure problems. “Verticalization adds no extra cost for the city, whether land is zoned for a three-story or a

Hasbani has approached several projects with the idea of

15-story building,” says Hasbani. “The city can get the taxes

building something functional that also has aesthetic appeal

from these buildings without compromising available space.”

to cater to the changing mindset of today’s residents. “While projects once focused on apartments with three

The firm has specialized in verticalization for the last 10

bedrooms and gardens following a more horizontal vision,

years and Hasbani says the company’s experience shows

in the cities where we have operated 25 percent of the

verticalization and urban densification do not necessarily

apartments were inhabited by one or two people,” says

imply the building of 30 to 40-story skyscrapers. “Cities

Hasbani. “As a result, we have adapted to provide more

can have high levels of densification with an average

compact spaces that still offer aesthetic appeal while also

height of eight to 10 stories like in Barcelona or Madrid,”

offering added value through amenities.”

he says. “Mexico’s cities have an average height of two to three stories with isolated peaks of 50 stories.” Successful

The firm expects demand for spaces that offer both style

verticalization can offer companies equilibrium in their

and comfort to continue. Mayer Hasbani conducted a study

cost-benefit analyses of certain heights. This improves the

that showed demand for studio apartments and units

economic viability and profitability of projects at eight to

for two people has significantly increased. Since 35-40

10 levels. In comparison, building a 50-story project implies

percent of a person’s lifetime can be spent in this kind of

an investment in high technology to support the structure.

space, Hasbani says that any space designed to cater to this demand should offer something different to attract

Hasbani sees great potential in cities beyond Mexico City

attention.

to keep fostering verticalization, with ongoing projects in Puebla, Queretaro, Tijuana, Merida and Leon. The firm

Mayer Hasbani’s capability to adapt to the users’ needs and

has also detected an opportunity in the contraction of

the environment has also allowed it to participate in more

apartment size. Hasbani also points out that land and

demanding projects such as the restoration of a building

construction costs, as well as interest rates, have risen

protected by INBA as a heritage site. Capital Park, located

disproportionally to the increase in the average income of

in Mexico City’s Condesa neighborhood, was particularly

the population, so companies must adjust their offering to

difficult because it involved conceptualizing and modernizing

meet new price demands. “The most efficient way to reduce

an Art Deco-style building without compromising the

construction costs would be to reduce parking spaces. Our

integrity of the surrounding area, while negotiating with

projects are normally designed so 50 percent of the area is

several public entities. “We approached INBA on two

destined for users and the rest for circulation and parking

occasions, the first with the intention to develop the project

space. If we could find a way to reduce space for cars, that

and the second to present our proposal,” says Hasbani. “After

could cut construction costs by 30 percent, thus balancing

our first encounter, we carried out a thorough analysis of

the scale,” he says.

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| INSIGHT

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THE ASPIRATIONAL SEGMENT AND THE ‘WOW’ EFFECT MANUEL TORRES CEO of MANUEL TORRES DESIGN

For an architect, good design is good business. But good design is no accident; it is based on a thorough understanding of the target market, says Manuel Torres, CEO of MANUEL TORRES DESIGN. When venturing into Mexico in 2011, the Spanish firm that traditionally worked in the luxury segment saw an opportunity in the aspirational segment – a burgeoning middle class with a desire to buy brand name apartments. “We offer high-quality and highclass projects, while keeping costs low,” he says. “We want to provide the ‘wow’ effect.” The firm has several projects in progress, some vertical and others horizontal. The Polárea Residences in Nuevo Polanco, Mexico City, are an emblematic example of MANUEL TORRES DESIGN’s work in verticalization, achieving a significant demographic densification. “We carried out all the interior design, from apartments, amenities and the landscape of Phases 3 to 8 of the project. We gave it a shift, enhancing its resource management while boosting its sales,” Torres says. He adds that Polárea is being developed by Grupo Lar, a frequent partner for MANUEL TORRES DESIGN, notably on the LÓPEZ COTILLA projects in the city of Guadalajara, TIVE in Bosque Real, REVA in Zona Esmeralda and MARSALA in Santa Fe, all in Mexico City. MANUEL TORRES DESIGN also carries out projects in retail, such as the GRUPO TENERIFE showroom on Polanco’s Masaryk Avenue in Mexico City, high-impact boutique hotels and large corporate projects. The firm carries out custom projects in residential villas and mixed-use projects such as TSAYA, which has a commercial plaza and vertical housing. “We will soon complete the FRACTAL Residence in Queretaro and some hotels and residential projects in Mexico City.”

VIEW FROM THE TOP |

MONTERREY’S 30‑YEAR EVOLUTION GILBERTO RODRÍGUEZ Principal of GLR Arquitectos

Q: How has Monterrey’s architecture and urbanism

at affordable and even subsidized prices. Such a strategy

developed over the last three decades?

would directly benefit the people forced to buy a home

A: The quality of a city is directly related to the quality

in municipalities such as Zuazua, which is two hours away.

of its architecture and urbanism. I think that in Mexico

The reality is that the city is becoming prettier but also

we have historically had ill-planned cities but we are

more unequal, which is its greatest area of opportunity.

gradually correcting them. For example, Monterrey has changed significantly in the last 30 years. The

Q: How have technology and social media impacted

inauguration of Monterrey’s Contemporary Art Museum

architecture and design in Mexico?

(MARCO) marked the city’s development from a vigorous

A: GLR Arquitectos has worked hard to remain at the

and working city to a more cultural one. This mindset

forefront of technology. We were one of the first five

change has allowed my generation of architects to access

architecture firms in the city to launch a website around

a set of clients ever more interested in culture. While this

20 years ago. We have pioneered in broadcasting our

makes projects more demanding, it also places a higher

work through social media around the globe. This has

value on architecture and design.

allowed us to become known in distant places such as Israel and Korea and to attract clients in Kuwait, Lebanon,

Monterrey is experiencing verticalization in residential

Egypt and Saudi Arabia. But globalization also contrasts

projects that are transforming the city. This is helping

Mexico with the world, making us more aware of what we

to densify the urban area and improving the city’s looks.

are missing as a country.

Monterrey was perceived as a horizontal city, but it is no longer so. We currently have the tallest building in Mexico, which speaks of the city’s transformation. But this has also led the cost of land to significantly increase, hindering new generations from purchasing big homes near the center of urban areas where their families usually live. Q: What are the main urban shortages in Monterrey and how can these be better addressed?

The inauguration of Monterrey’s Contemporary Art Museum (MARCO) marked the city’s development from a vigorous and working city to a more cultural one

A: The city is sadly expanding while overlooking the lower classes. It is sad to see social housing being developed

The new slogan of the Harvard School of Design is

two-and-a-half hours away by bus from work centers.

“Think Global, Act Local,” encouraging the guild to have

But this generally takes place across the whole country.

a worldwide vision but be concerned about how this

We need to improve public transportation; the size of

would impact local communities. Social media is also

Monterrey means just three Metro lines are no longer

gaining relevance in promoting the work and success of

enough. We must also stop the incessant land expansion

architects, especially with new generations and clients in

as developers look for the cheapest parcel without caring

foreign cities where word of mouth is no longer enough.

about how far away it is located or how that will impact citizens’ quality of life. This reality is contrasted with a desolate city center.

GLR Arquitectos is an architecture firm concerned about the environment, energy savings and the implementation of new

I think the next step is to densify all the empty blocks in

sustainable design alternatives beyond any type of certification.

the city center, which could evolve into residential projects

It constantly carries out solar energy and efficiency studies

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| VIEW FROM THE TOP

PLANIMAGINATION EXPLAINED

Gonzalo Montaño Lead Partner of Architecture and Development at Mac Arquitectos Consultores

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Juan Ignacio Rodríguez Lead Partner of Real Estate Planning at Mac Arquitectos Consultores

Q: What is “Planimagination” and how is this implemented

not visit it. It required a huge investment and it was designed

from the conception to the end of a project?

as a sculpture, but it does not work because architecture has

JR: The company integrates two main divisions: architecture

to be an instrument that people can use. It should not only

and real estate development, and real estate planning and

be aesthetic, but a tool. This is the ultimate idea of what

commercial leasing. We have a diverse team of specialists

Planimagination should be.

involved in all our projects. That integration of perspectives and expertise is what we call “Planimagination.” I believe the

Q: How can you create aesthetic, functional and versatile

duty of the architect is to solve the architectural program,

spaces that meet the demands of both clients and

not to create it. Mac Arquitectos Consultores aim to advise

developers?

its customers on what is best use for their properties, but we

JR: Architects must know the project’s budget from the

need the market to give us a program to solve. We analyze

beginning and design accordingly. This implies a revision

the market and design a feasible plan to address the problem.

of the process of design to make sure the budget is not

Planimagination also takes into account the social and

exceeded. But it also concerns the prices at which the project

environmental impact of projects, the people that use them

will be sold or leased. That is Planimagination; it is mixing

and their surroundings. Social impact is not just measured by

the design with the cost, the engineering, the planning, the

users, but by the surrounding community.

leasing and everything else involved in having a feasible project. Projects should also improve their surroundings,

GM: I think that projects have a soul and a story to tell

examples of which are Antara or Reforma 222.

and the architect should help the owner find it. But if the project does not have one, we should be able to understand

GM: I always advise my clients that to meet their design

its soul and then create the story to be told by it. The best

expectations for their dream house they must be willing to

projects are those that integrate the problem, solution, idea,

sacrifice their dream budget. But in commercial projects that

concept and name into one whole concept so they become

is not possible. If we design out of budget for commercial real

better and more successful. This integration is what we call

estate, the project will be a mess as it will no longer comply

Planimagination. We believe that our clients should not just

with the expected returns for investors. Many architects lack

copy concepts, as project planning should consider the

this understanding of being responsible with the budget for

factors inherent to each one, such as income, the time people

their designs. For example, the World Trade Center in Mexico

are willing to spend using the space and the transportation

used to be the “Hotel de México,” but its developers ran out of

available in the area, among others. We really get involved

money before finishing it. We offer the added value of project

in our projects by taking all these factors into consideration.

intelligence to prevent this from happening.

For example, there is a very fancy shopping center in Las

Q: Why are so-called convenience centers the most attractive

Vegas. It is located on one of the biggest avenues in the

for commercial real estate investment in Mexico?

world and was assigned to a very prestigious architect. He

JR: Mexico’s market is more driven to convenience centers

did a fantastic job on the design of this retail center as the

than to fashion malls due to the size of the base of the

outcome is beautiful, but it does not work because people do

pyramid: the lower to middle class, which is more suited to this type of project. Also, this phenomena answers to the fact that customers are more likely to go more often to a supermarket

Mac Arquitectos Consultores specializes in architectonic and

than to a Department Store. As a result, a shopping center

urban conceptualization. It has 65 years of experience in the

anchored with a grocery store has more traffic that one

Mexican market, with more than 1,200 architectural projects

anchored with a fashion outlet. Convenience commercial

and the planning of about 500 real estate projects

centers are more in keeping with the country’s demand.

INSIGHT |

OFFICE SPACE BASED ON THE LIVING MODEL DIEGO CERVANTES Vice President Sales Mexico and LATAM of Herman Miller

As life expectancy increases, people are working longer

Answering this need, Herman Miller developed the concept

to maintain their standard of living when retired. This

of Living Office, which is based on a study made across 500

phenomenon means up to five different generations are

companies. “We came up with 10 different working settings,

working in the same space, says Diego Cervantes, Vice

seven collaborative and three individual,” Cervantes says.

President of Sales Mexico and Latin America at Herman

Settings are designed to support the specific activities and

Miller. “In this scenario, our research on workplace trends

purposes of the people who will use them.

finds that the attraction and retention of talent is becoming a key challenge,” he says. “We provide advisory services

Once the best settings are defined for a customer, the need

for companies to attract and retain talent through their

to move to a different space that supports it often arises.

office spaces.”

But as Herman Miller’s expertise is not finding office spaces but transforming them, it must team up with real estate

Famous for inventing the Eames Chair, Herman Miller adapted

experts. “We collaborate with developers and brokers, such

its business strategy to not only provide luxury furniture for

as CBRE, Coldwell Banker, Colliers, Cushman & Wakefield

offices but to also act as a consultancy for improving the

and JLL. Our goal is to work together from the beginning, as

performance of office space. With real estate being the

we create the need for our clients to move to a new space,”

second-greatest expense for any company, only after payroll,

Cervantes explains.

it becomes of utmost importance to have every m2 operating in an optimal way. “We help our clients make the right decision

After finding the right model and the right space, it is time to

regarding such an important cost,” Cervantes says.

focus on creating the Living Office to foster interaction and productivity. This is when Herman Miller adds the most value

The consulting offered to the end-customer by the

with its high-quality furniture, says Cervantes. “I am convinced

company also evaluates equipment performance. “Our goal

that productivity rises when sitting in a high-performance

is for our clients to really use their space in an efficient

chair, as idle times due to discomfort can be avoided.”

way,” Cervantes says. This is achieved through what the company calls Visioning Workshops, which contrast clients’

Another piece of advice that the company gives is to have

objectives, vision and mission with the technology used

unassigned workplaces for staff that spend less than 50

and the company’s structure. The visioning occurs when

percent of their time in the office. Herman Miller has chairs

the organization develops a common vision, helping its

with sensors that calculate the usage rate of a given space.

decision-makers to think creatively, devise strategy and

For example, a company with a specific area for staff that

gain corporate alignment as they work toward their goals.

spend more than 40 percent of their time visiting clients is

“We evaluate the way technology affects their processes

not using the space optimally. “This area is not providing high-

by helping them assess the way in which these tools can

performance in relation to its m2,” Cervantes says. “We can

leverage their business priorities.”

help companies optimize the utilization of their spaces for the company to be more efficient and effective.”

In the process of pursuing an efficient use of space, while retaining talent across multiple generations, the company

To remain at the forefront of furniture innovation, Herman Miller

also finds that offices have become more of a place to

recently launched its Cosm Chair. This is the first intelligent

interact. According to Cervantes, any place with internet

chair, as it identifies when it must be softer for relaxation or

connectivity can now be a workplace but people keep going

more rigid for concentration through the vertical force that the

to the office to solve problems through a collaborative

user puts into it. “We focus on visual and physical ergonomics.

approach. “We need to foster spontaneous spots in which

The user must be comfortable but also like the aesthetics of

we can make faster decisions,” he says.

the chair,” adds Cervantes.

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| VIEW FROM THE TOP

TAILOR-MADE SOLUTIONS LIGHT UP MEXICO ALEJANDRO VILCHIS Director General of GRUPO CONSTRULITA

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Q: What added value do Mexican companies like GRUPO

A: We are involved with our clients from the very beginning

CONSTRULITA provide?

of their project. We are confident that this is the best way

A: GRUPO CONSTRULITA has three main divisions:

to ensure the project is completed on time and is of the

Tecnolite, which sells products to the end user through

expected quality. We participated in the lighting of the

distributors; Construlita, which manufactures the products

Lazaro Cardenas Bridge in Guadalajara. This project was

and sells solutions to other professionals for large projects;

unique because the government did not want to use any

and a third unit that provides lighting as a service to federal,

lampposts on the bridge or place lights on the columns.

state and municipal governments. Our added value is

We developed a new product called MetroLED for urban

that we have identified the unique needs of the Mexican

lighting that can withstand large movements and weather

market. Most international brands cater to and focus on the

that adapted to the characteristics of the bridge. It delivers

needs of those specific markets that may not be the same

a very angled and lateral grazing light and transmits a lot

in Mexico. We make sure that our products and services

of sharpness and comfort to the driver.

not only meet the needs of the local market but adapt to the various challenges and environments. If you have to

Sometimes the issues that come up are not technical.

purchase from the US, Asia or any other country, the time

Guadalajara also has high rates of vandalism and illumination

and costs are much higher. The fact that we are close to our

infrastructure is particularly susceptible. To keep this from

clients translates to higher flexibility in the type of products

happening, we developed a special shell for urban lights

we offer and in their delivery.

that made it more difficult for people to steal them. It is crucial that we accompany our clients from the beginning

Lighting-As-a-Service (LAS) is our third division and we

of the project to take into consideration all the requirements

are growing fast. We are working with three town halls: in

that could arise at any stage of the project.

Torreon, Hermosillo and Guadalajara. This is a small sector in Mexico in which we have spotted a large area of opportunity

Q: How has GRUPO CONSTRULITA financed its steady

and we want to compete with larger companies. Mexico has

growth throughout the years and how does it invest its

just began subcontracting public illumination services. Our

utilities to gain the best advantage?

goal is to continue growing in illumination concessions and

A: The Group was created approximately 33 years ago by

at the same time continue providing services to the private

a group of businessmen with only US$5,000. We follow

sector. Also, we are analyzing large projects with Fibras

strict guidelines that allow us to experience steady growth.

and we already have collaborated in various projects with

We have not invested in offices or warehouses; instead,

Parks and Fibra Uno. The main challenge in working with

we rent all our industrial infrastructure. As a group, we

private developers is that they want more than just lighting

chose to invest all our money in products and people. Our

services. They also want air-conditioning, illumination and

distribution channels are all third parties to keep in line

other services integrated into one.

with our strategy.

Q: When does GRUPO CONSTRULITA prefer to enter a

Eventually, we invested in a plant in Queretaro because

project and why is this approach important?

we believed that we could not depend on third parties to manufacture professional products, although we are not the owners of the real estate. We may need a plant three

GRUPO CONSTRULITA is a Mexican group composed of

times as big in the next few years and it is ludicrous to

three divisions dedicated to manufacturing, design and

invest in only temporary plants. We are now working with

implementation of lighting solutions for both public and

FEMSA Logistics to distribute our products. When possible,

private commercial developments

we delegate tasks and processes to third party experts.

VIEW FROM THE TOP |

TEXTURE AS A DIFERENTIATOR SEBASTIAN CAMMAERT CEO of Corev

Q: How has Corev’s learning curve venturing in the Mexican

any projects in tenders. We also have a strong relationship

market been?

with prestigious and well-known architecture firms, such

A: Corev started 38 years ago due to the lack of texturized

as Legorreta and Serrano Monjaraz. Nowadays, however,

products on the market. Our business line has partly evolved

emblematic projects are no longer managed only by

from previous experience with similar products. When

brand name firms and small studios are becoming more

entering the Mexican market, we had high sales volumes,

and more important. We are also diversifying our market

as there was no similar option. But texturized products

channels, testing new ways to reach our market directly.

soon became an asset and the added value we provided

For example, for our decorative lines, we are implementing

evolved as we began to differentiate ourselves with high-

a do-it-yourself application set of products that we will

quality products that can be combined with other materials

soon launch.

to provide decorative details to projects. So, we moved from big volumes to a differentiating value. Nowadays, our

Q: What is your assessment of the US and Mexico’s markets

market competition is based on similar substitute products,

for texturized finishings?

but there is not yet an identical offering.

A: I think the US and Mexican markets are very similar regarding finishings. The difference lies in the distribution

Regarding finances, the company started with private

chain. In the US it is very hard to find a construction

capital and private banking. Corev is a 100 percent private

distributor as the business model is more mainstream. In

owned company, so we do not have any public offerings

Mexico it is more common to have turnkey distributors

or listings. We look for private financing when needed,

that buy and commercialize products and also provide

such as when developing our plant in Colombia four years

installation services. Our plant in Houston mainly supplies

ago. Something to highlight is that our products are water-

Texas and other nearby areas, while in Mexico and Colombia

based, implying greater sustainability. Because we are

the logistics and distribution allow our plants to supply

positioned as a quality provider, we import many of our

across each country.

raw materials form North America. Q: What is the legacy that Corev wants to leave in Mexico Q: What is the main added value that your products offer?

and what are the company’s growth plans?

A: All our products are sustainable, technologically

A: Our vision is to continue as the market leader with our

advanced, made with high quality materials and ready to

sustainable and technologically-advanced products. It is

use. We have an EIFS system for light facades with thermic

not only about having a different product in the market,

isolation. This system was developed after WWII for quick

as all our competitors are also investing in developing new

infrastructure reconstruction, so it has the advantage of

projects. It is about finding different ways and channels

allowing a fast and insulated application. Market trends are

to use our products. We are leaders in the differentiation

calling for LEED certifications and the EIFS system provides

for architectural finishings in Mexico. We still have a great

credits for this rating system. It was not easy to introduce

deal to accomplish in the country, but we plan to remain

this technology to Mexico, but now it is in high demand.

positioned as such. We are focused on current projects and are not currently developing any new markets.

Q: Who are Corev’s main clients and partners? A: Our main clients are from the hospitality, health, commercial and residential sectors. For example, we have

Corev is a leader in the manufacture and market of textured

been closely working with important private and public

and decorative coatings. The company offers a broad solutions

hospitals in the remodeling and interior design of several

portfolio, including interior stuccos and decorative finishes,

health facilities. We do not sell directly, so we do not bid for

special exterior coatings, EIFS systems and architectural paintings

115

Puerto Interior manufacturing facility

MATERIALS & INNOVATION

The building blocks of the Mexican infrastructure industry go beyond cement. Technology and innovation are transforming the countryâ&#x20AC;&#x2122;s infrastructure into more sustainable, smarter and efficient structures that recast the lives of citizens. As the countryâ&#x20AC;&#x2122;s various subsectors face the challenge of producing more resilient and sustainable infrastructure, materials and technology companies are jumping in to find and provide customized solutions.

2018 was a challenging year as uncertainty hit the market but to keep up on a global level, industry leaders believe Mexico must continue building and innovating, no matter the obstacles. This chapter outlines the innovations that the industry is developing as new materials are created to address these obstacles. The main materials and service providers in the country provide insight on how they are creating positive disruptions for more efficient, cost-effective and sustainable infrastructure.

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CHAPTER 7: MATERIALS & INNOVATION 119

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VIEW FROM THE TOP: Luis Hernández, Caterpillar

121

VIEW FROM THE TOP: Héctor Serrano, Guardian Glass

122

VIEW FROM THE TOP: Hector Ávila, Danpal Mexico

123

VIEW FROM THE TOP: Bernardo Álvarez, Grupo IDESA

124

INSIGHT: Rendell Segura, Owens Corning Insulation Latin America

125

VIEW FROM THE TOP: Enrique Escalante, Grupo Cementos de Chihuahua (GCC)

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VIEW FROM THE TOP: Igor Saez de Ibarra, ULMA Construction

128

VIEW FROM THE TOP: Roberto Abarca, ADCOMA

129

VIEW FROM THE TOP: Vanessa Bautista, MABASA Soluciones Constructivas de Acero

130

VIEW FROM THE TOP: Ramiro Gordillo, dormakaba Group

130

COMPANY PROFILE: Octavio Ochoa, Aceros Metalli

131

INSIGHT: Felipe Martínez, General Paint

| VIEW FROM THE TOP

PRODUCTIVITY, EFFICIENCY AND SAFETY REDUCE OPERATIONAL COSTS LUIS HERNÁNDEZ Country Manager of Caterpillar

120

Q: How does Caterpillar help the industry to increase its

new equipment. 2015 and 2016 were hard but the industry

efficiency and become more cost-efficient?

began to stabilize in 2017. These economic fluctuations

A: Caterpillar is evolving alongside the industry. We are

led our clients to improve their cost structures, so they

introducing a new platform for hydraulic excavators for

are increasingly preferring to lease the equipment instead

the Mexican construction market. This new generation of

of buying it. Moreover, clients have also become more

excavators increases productivity by up to 40 percent,

interested in refurbished equipment.

reduces maintenance costs by 15 percent and fuel consumption by 20 percent in comparison to our previous

Q: Considering these changes, how do you expect the

series of excavators. With this offering, Caterpillar aims to

infrastructure sector to perform during the coming five years?

change the construction industry by increasing efficiency,

A: President-elect Andrés Manuel López Obrador’s policy

productivity and operator safety to altogether reduce total

proposals include interesting infrastructure projects. For

operational costs.

that reason, we believe that the incoming presidential administration will bring great opportunities for us in the

Our mission is to provide solutions to our clients to build

sector. Expectations change with every governmental

a better world. Caterpillar can offer these products thanks

transition but it is likely to include an increase in investment

to the excellent support of our three dealers in Mexico:

for the sector.

Madisa, Tracsa and Matco. These three privately-owned companies distribute our lines for mining, infrastructure

All governments in Mexico must invest in infrastructure,

and energy generation. Caterpillar subsidiary Solar Turbines

as this is essential for the country’s competitiveness. As

directly distributes gas compression turbines for the oil and

a result, we expect the infrastructure market to continue

gas sector and Progress Rail supplies locomotive, railcar

developing. The only change we expect is for investment

products and services to the railroad industry.

to be more concentrated in the south and southeast of the country, which was announced as part of the

Q: What main changes has the industry faced during

new government’s 25 main projects, of which many are

the past few years and how have they influenced

infrastructure related. Furthermore, we expect an increase

Caterpillar’s strategy?

in PPPs. Overall, we are optimistic about the future.

A: The construction industry in Mexico has significantly evolved due to the country’s changing economy. While

Q: Caterpillar acts as an umbrella for other brands. Which

there is still investment in new equipment, economic

of these provides the strongest added value in Mexico?

fluctuations in the sector led us to increase our service

A: We have added many different brands to our portfolio,

offering. The construction sector was very strong following

including some for the energy sector, such as the MaK brand

the recession in 2009, a trend that continued until 2014

for marine engines. Solar Turbines, MWM, Perkins, Progress

when the industry peaked. After that, global trends hit

Rail, SEM and Yellowmark are all in our portfolio. These are

Mexico, leading the government to reduce spending on civil

our strongest lines in Mexico but Caterpillar is by far our main

construction, which in turn caused a significant contraction

brand. We continue to be leaders in the construction market

in the infrastructure industry as clients stopped investing in

thanks to design improvements that increase efficiency. Moreover, the Product Link system allows for all equipment to collect and send operational data on fuel usage, efficiency,

Caterpillar is the world’s leading manufacturer of construction

productivity and maintenance to a server. Currently, we have

and mining equipment, diesel and natural gas engines, industrial

around 14,000 assets connected, which allows us to determine

gas turbines and diesel-electric locomotives. It is a leader with

what the market needs in terms of spare parts and where

the largest global presence in the industries it serves

those are needed. This will allow us to better serve our clients.

VIEW FROM THE TOP |

GLASS SECTOR ON STANDBY WITHOUT GOVERNMENT REGULATIONS HÉCTOR SERRANO Country Manager Mexico of Guardian Glass

Q: What are the main factors that could promote the

A: Mexico is a fast adopter of new technology. As an

growth of the glass market in Mexico?

example, before tempered glass began expanding in Mexico

A: Energy monitoring is impacting demand for our products.

more than 15 years ago, various technologies already

There are many products that facilitate the reduction of

existed in other countries. But Mexico jumped straight to

energy consumption in buildings, while allowing natural

the newest tempered glass technology in the market. The

light to enter the building. The performance of glass has

issue is that so far, the high-performance glass market in

evolved a great deal to meet sustainability objectives and

Mexico is just too small. Residential real estate represents

this is something that we must promote through norms. We

70 percent of the total glazing market and so far, is using

need to demand more from the industry and its providers

the most basic products. An important part of the market

to ensure the sustainability of future projects. We see that

is also the independent architects who build single homes.

the demand for tempered glass is growing rapidly, with laminated glass showing high growth rates. But the only

Q: How has Guardian Glass’ presence in the market evolved?

thing that will truly promote the use of these types of

A: We opened our plant in Queretaro in 2004. We had

products is a boost from the government.

some operations in Mexico through distribution before 2003, but no manufacturing operations at the time. When

Q: How have sustainability and energy efficiency trends

we entered the market, there was a surplus of material in

impacted your product portfolio?

Mexico. We were a new player and it was difficult to start

A: Some countries are establishing Net Zero initiatives,

off on the right foot, especially with the crisis of 2009. Our

which means that buildings must be able to produce

goal as a company was to maintain employment and we

enough energy to meet their own needs. These technologies

focused ourselves on our long-term growth strategy.

have a cost, of course, and we need to continue creating new products that will allow us to reach these goals,

After 2010, we saw significant growth in the market and our

from illumination to solar control. I am convinced that

domestic sales have increased in the ensuing years. Guardian

these technologies will grow much faster when they are

Glass is a global company and we have vast experience

accompanied by the right norms and regulations. We are

in markets all over the world. The company had always

working arduously to raise awareness among our clients.

belonged to one owner, who passed away in 2009 and had

Buildings that strive for LEED or other certifications focused

a vision of what would happen to his company in the future.

on sustainability are a perfect match to our vision.

His family became partners of the company and in 2012 we entered into a partnership with Koch Industries, which took

Q: Why should buildings incorporate your product over

over 44 percent of our shares and subsequently acquired 100

those of your competitors?

percent. Guardian Glass had in the past grown organically,

A: Guardian Glass is focused on innovation, with significant

with its own resources and talent. Koch’s acquisition ensures

investments in R&D for the different glass segments.

steady growth going forward. We have been constantly

In architectural products, we are a world leader in the

investing to enhance our operations, with recent investments

development and manufacture of high-performance coated

in Jumbo coating facilities in the US and in Europe, as well

products that offer attractive aesthetics, allowing natural

as expanding our float capacity in Europe.

light while at the same time reducing the amount of energy consumed. We are convinced that this strategy gives us a competitive advantage and the preference of our customers.

Guardian Glass is a manufacturer of high-quality glass products for use in the automotive and construction sectors. It

Q: How has the country’s residential real estate sector

is part of Koch Industries and has had a manufacturing plant in

adapted to sustainable glass products?

Queretaro since 2004

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| VIEW FROM THE TOP

BRIDGING THE GAP BETWEEN PLASTIC AND GLASS HECTOR Ă VILA Director General of Danpal Mexico

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Q: What are the main areas of opportunity Danpal spotted

A: Danpal 3DLITE has a set of blinds installed to automatically

within the Mexican market and what is the companyâ&#x20AC;&#x2122;s

regulate light across different times of the day. The light

added value?

transmission varies between 7-35 percent as it is a very

A: Since polycarbonate started to be fabricated in Mexico,

dynamic solution. For example, when used in facades, the

price was prioritized over quality so competition was between

light and colors change as someone passes by. Our main

low-quality plastics and glass. Glass can be inconvenient as it

challenge is to convince the architect that we offer a different

can break and does not isolate heat or luminosity. We saw an

and innovative product that will work, look good and be safe.

opportunity to enter the market with an intermediate option,

Our projects are the best way to show this as they are the

a high-quality product that has weight, lighting and thermal

proof of our quality.

advantages. Our key niches are in skylights, facades and interior design. Our systems work based on light transmission

Q: How is the Danpalon system improving construction

and heat transfer, keeping luminosity high and heat controlled.

times and which types of projects can benefit the most from this system?

The average lifespan of Danpal's products is 25 years

A: It was very challenging to gain market share as plastics and polycarbonate have a bad reputation among architects in Mexico. We had to break all those paradigms and prove that Danpal systems could break new ground on quality and durability. The placement of our systems can cut installation times by half compared to working with glass. Also, glass can break, endangering workers, while Danpal systems are unbreakable.

The average lifespan of our product is 25 years. Danpalon

Our products are very popular for translucent roofs in

comes with a 10-year warranty and a decade after installation

commercial and hospitality developments. Danpal systems

it will continue to look and work as new. As part of our added

are aimed at a market that appreciates high quality products

value, we also participate in the whole project cycle. We

and durability. Regarding facades, Danpalon is used for walls,

do not sell materials; we sell a complete solution. We work

especially to build light boxes to prioritize the luminosity

with the architects and the structural engineers from the

of spaces. Our facades can withstand wind speeds of

conceptualization stage of the project. We provide the

up to 350km/h. Our materials have been tested against

material and its installation, allowing us to guarantee the

earthquakes and their flexibility makes them an ideal option

best performance of our systems. All our translucent thermal

for buildings in Mexico City. We build strong translucent walls

systems provide unparalleled light diffusion. In addition, they

that are also insulated to regulate extreme temperatures.

offer excellent temperature control. Danpal systems also add LEED points to buildings in which Q: How do you convince potential clients of the advantages

they are installed. Our production plant is certified to

of products like 3DLITE?

ISO-14000 as it produces low carbon emissions. The heat regulation and increased luminosity that our products offer help reduce electricity consumption as thermal insulation

Danpal Mexico was created by the association between the Israeli

decreases the use of air conditioning. Also, durability implies

manufacturer Danpal and the Mexican marketer Tecno Impacto.

that our plastics do not need to be replaced in a short period

Danpalon panels are present in more than 80 countries. In Mexico,

of time but only after more than two decades. Our products

the company is backed by its more than 20 years of experience

include 2-3 percent of recycled resin and can be reused.

VIEW FROM THE TOP |

SOCIAL HOUSING IS MEXICO’S FUNDAMENTAL NEED BERNARDO ÁLVAREZ Deputy CEO of Grupo IDESA

Q: Why did Grupo IDESA decide to create NOVIDESA?

primary needs are in housing. Of course, there is a demand

A: In 2005, NOVIDESA was born from one of the largest

for offices and commercial centers but there is a higher

industrial groups in Mexico, with the purpose of developing

need for residential, and not just for the middle-upper

and manufacturing sustainable materials for construction.

segments. We need to provide the lower-income segments

Because NOVIDESA works under the IDESA umbrella,

of the population with decent housing near their jobs.

clients can be certain that we have the appropriate infrastructure and the group’s support.

In my opinion, as a country we must promote the development of vertical and social housing in Mexico using

NOVIDESA’s products are designed for energy savings

the most efficient building materials. These homes must be

and thermal insulation, as well as building lighting systems,

of the highest quality, which is crucial so that in the case of

providing added value for builders and for the end user.

another natural disaster, people will not lose their homes like

Building with panels requires less manual labor and time

we saw in September 2017. The supporting infrastructure

than traditional construction methods. This translates to

must be built around these developments too. There are so

cost reductions. Whether it is a shopping mall or a house,

many abandoned social housing developments throughout

energy consumption is much lower when implementing

the country where the local and state governments had

panels into the construction mix. In Mexico City, our

committed to developing supporting infrastructure and

products have become popular among large developers

did not deliver. Now all those homes are derelict and

of offices and mixed-use projects because they help shorten

uninhabited.

the building time required for projects. Q: What is required for Mexico to reach its full potential in Q: What benefits does NOVIDESA offer and why should

terms of construction?

developers choose it over its competitors?

A: Rule of law is fundamental. After solving that we can

A: The main difference between NOVIDESA and its

dedicate our time and efforts to what we know best. But if

competitors is that we are constantly thinking about the

there continues to be a lack of rule of law and uncertainty

customer. As a result, NOVIDESA offers a much greater

continues to permeate sectors, we will not be able to

focus on savings and sustainability. We offer construction

develop economically to our highest potential. We must

systems that allow savings in execution times and

take steps to avoid corruption and we must facilitate

optimization of resources. We can offer a more than

processes for those that want to do the right thing. For

30-percent reduction in construction times compared to

instance, in construction, obtaining licenses or permits

traditional systems. We provide full solutions, from thermal

for a project is an extremely tedious process. We need to

insulation against moderate temperatures in all weather

work together as a country to eliminate the high level of

conditions to lighting systems for the structures.

inequality. We also must support those that want to create more opportunities. If the government supported industrial

Q: Why is it difficult to innovate within the social housing

development, the sectors would create many opportunities

sector in Mexico?

to significantly reduce inequality. We must all contribute to

A: Large housing developers must change the way they

make the most of the country and its resources.

build social housing because building thousands of homes in one spot is now inefficient. Acquiring large ecological reserves for projects of that size and developing the services

NOVIDESA is a Mexican panel manufacturer that is part of the

is extremely expensive. The country must develop vertical

holding company Grupo IDESA, one of the country’s largest

housing because it is more economical than horizontal

petrochemical players. NOVIDESA’S products have been

housing in terms of infrastructure and space. The country’s

certified by USGBC and the Trust for Electric Energy Savings

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| INSIGHT

RULE ENFORCEMENT, A GREENFIELD FOR SUSTAINABILITY, EFFICIENCY RENDELL SEGURA General Manager of Owens Corning Insulation Latin America

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Thermal insulation solutions could greatly improve the quality

the development of norms for residential building efficiency.

of life of low-income segments of Mexico’s population but the

“As leaders, we have the responsibility to generate demand,

Mexican government must get the ball rolling, says Rendell

but at the same time, to enhance the quality of life of

Segura, General Manager at fiberglass building materials

people,” says Segura.

manufacturer Owens Corning Insulation Latin America. “There are interesting opportunities for insulation products in

The company followed such a strategy in Chile. “The Chilean

Mexico but authorities must generate appropriate incentives

government aimed at reducing the air pollution caused by

to develop more energy-efficient buildings.”

poor people burning wood to keep their homes warm in the winter,” he explains. The government started offering

Segura says the government needs to enforce the Mexican

subsidies to boost energy efficiency by insulating these

norms on energy efficiency in buildings and perhaps

homes and Owens Corning provided support to establish the

offer incentives for developers to adopt more sustainable

most cost-effective solutions. “We understood the scopes

construction systems that improve quality of life. “Around

of these opportunities and now provide these people better

300,000 social housing residences are built every year in

living conditions while also marketing more fiberglass,” says

Mexico and they usually employ concrete, blocks or bricks,

Segura. He points out that Chile has the highest per-capita

which are thermally inefficient systems,” he says. “And

consumption of fiberglass in Latin America due to the fact

though there are norms on energy efficiency in buildings

that it is the only country in the region that has implemented

such as NOM-020-ENER-2011, these regulations are largely

a code for mandatory home insulation and that was accepted

not applied.”

and applied by home builders.

Residential real estate within markets where there is a

Owens Corning also takes advantage of its Building

consciousness about the importance of energy-efficient

Science department to help clients efficiently design their

buildings offers many opportunities for Owens Corning,

projects. “Energy efficiency is more than just about thermal

according to Segura. “In these markets hundreds of thousands

insulation, but about studying how a building operates,”

of houses are built and those new houses require thermal

says Segura. He adds that the company can take a client’s

insulation to be energy-efficient,” he says. Looking ahead,

blueprints in AutoCAD to run energy simulations that

Segura forecasts that as countries such as Mexico and Brazil

consider the construction materials that will be used and

enforce regulations on energy efficiency and build houses

give recommendations for an energy-efficient project. “This

that meet these standards, they can generate meaningful

allows us to offer a useful tool to potential clients and stand

energy savings and create more comfortable homes.

out in the market,” highlights Segura.

Mexico has a strong influence in the Latin American markets,

But there are several challenges for energy-efficient buildings

so Segura forecasts that a greater awareness of sustainability

to become commonplace in Mexico. Segura says that each

will incentivize the creation of more regulations and greater

country has its own construction practices and it takes a while

government support for energy-efficient buildings, which

for cultural change to happen. However, he expects that as

will make markets such as Mexico and Brazil more interesting

compliance with regulations in this area becomes common,

for Owens Corning because of their population size and

developers will realize it makes more sense to change some

projected economic growth. “These are the two markets

of their practices. In Mexico, building energy-efficient houses

that will offer the most opportunities,” says Segura.

could mean the use of materials such as drywall or the employment of light construction systems. “This may take

Segura points out that Owens Corning could support the

a long time, so it is important to develop solutions for the

Mexican authorities with its Building Science expertise in

constructive systems used today in the meantime,” he says.

VIEW FROM THE TOP |

NATIONAL COMPANY GAINING INTERNATIONAL POSITIONING ENRIQUE ESCALANTE CEO of Grupo Cementos de Chihuahua (GCC)

Q: How is GCC impacted by the Mexican and the US

We would be more worried if we were facing a renegotiated

governments’ infrastructure commitments?

NAFTA that does not favor Mexico, which could impact

A: We remain fairly optimistic about the US market. It is

foreign investments coming to Chihuahua, and then our

a market experiencing a natural growth cycle, which we

sales in the local market could suffer. The border of Ciudad

believe will last at least three to four more years. According

Juarez with Texas and New Mexico depends heavily on the

to industry data, between today and 2021, the US economy

manufacturing industry for exports to the US. Whenever

will continue growing, which means that the construction

there is a local industrial project, such as warehouses,

sector will expand too. In addition to this natural growth,

we participate. Employment levels improve and housing

the Trump administration outlined a National Infrastructure

and commercial construction follow. It is a virtuous cycle.

Plan that would also boost the construction sector,

Should the uncertainty continue or NAFTA’s renegotiation

although the authorization and implementation of this

fail, these investments for industrial warehouses would be

plan has been delayed. However, we remain optimistic

delayed, which would impact us negatively.

the plan will be implemented given that the US has a real need to modernize and replace its infrastructure to remain

Q: How is GCC adapting its portfolio and innovating in

competitive.

its solutions to comply with your vision of being the best company in solutions related to cement and concrete?

In Mexico, business has a different rhythm. Given the

A: GCC is a regional company that can easily compete

political environment, there is a great deal of uncertainty,

with the largest global cement companies. Due to our size

which halts infrastructure investment. But we see this as a

and our strategy, we can be faster in the development of

transitory factor. Regardless of the political environment,

innovative solutions that can better serve our clients’ needs.

we believe that Mexico continues to require infrastructure

Part of our strategy is to continually discover innovative

investment in airports, roads, railroads, ports, and housing.

solutions. By this we mean not only innovative products

We feel that in the medium and long terms, expectations

but also innovative processes and services.

are favorable for the country’s construction and cement industries.

We have a specific area for R&D and an innovation area that work jointly to solve problems for either clients or for

Q: How is GCC mitigating the risks associated with the

the industry in general. This is how several of the products

volatility resulting from the Mexico-US relationship?

and solutions we sell were developed. For instance, for the

A: Our Samalayuca plant has always been oriented to

mining industry, we have developed different products such

export. Even when we were faced with antidumping

as Fraguamax, which is used in many mines on a national

sanctions from the US government, this plant continued

level and that we also export to Central and South America.

exporting cement to the US thanks to its proximity to the

These types of products are not sold in large volumes but

border and to its very competitive production cost.

are specialized, high value-added solutions that allow us to differentiate ourselves from global competitors

In the event that NAFTA renegotiations failed, we would

that are mostly focused on volume or on the traditional

have had to abide by the WTO’s rules. Under these rules,

construction sector.

cement would fall into a 0 percent tax bracket to enter the US. In a more pessimistic situation in which there would be no NAFTA and the WTO’s rules would not be followed,

Grupo Cementos de Chihuahua is a vertically-integrated

we have proven in the past that cement from our plants

company with operations in Mexico and the US. It manufactures

is extremely competitive so we would not be too worried

and sells cement products, mortar, concrete, aggregates and

on the export side.

other construction materials

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Construction of Prologis industrial park

VIEW FROM THE TOP |

CAPITALIZING ON SCAFFOLDING, FORMWORK OPPORTUNITIES IGOR SAEZ DE IBARRA Director General Mexico of ULMA Construction

Q: What added value does ULMA provide the Mexican

so we are working to modify that portfolio share. To

infrastructure industry?

remain competitive, we have a materials park available to

A: ULMA is a global leader in construction development,

our customers to ensure the provision of tailored-made

with the infrastructure sector at the core of our business. We

solutions. Our park is focused on civil works and industrial

are also focused on residential and commercial real estate

equipment.

and on industrial development. I think Mexico provides great potential for the sector and we are waiting to see

Q: What would you ask the next administration to prioritize

how the newly elected federal administration prioritizes its

to ensure the infrastructure industry’s growth?

investments for construction and maintenance. I foresee

A: I think that we are all seeking to exploit Mexico’s huge

opportunities for high-quality construction equipment such

development potential, which we find particularly significant

as those ULMA provides.

in the infrastructure sector. The previous administration carried out important reforms, of which several are still undefined.

Our local offices in Mexico replicate the structure of our parent

There is still a lot to do, so we hope the next administration

company in Spain. We have four main divisions: commercial,

continues to invest, particularly in energy and infrastructure.

logistics, finance and administration and also a technical

We will continue to bet on the energy sector, given its high

department. We have been in the Mexican market for 15 years

demand for construction materials. As for infrastructure, the

but we rely on our head offices to set the guidelines for our

possibilities are endless, but we expect to see a realistic and

actions and for providing specialized training to our staff.

well-defined plan that will allow us to be better prepared to face future demand. Private investment is flowing, so the

Wood continues to be the main material used for scaffolding.

government needs to catch up or it will lag behind.

This is our main competition in the sector as rather than having traditional wooden scaffolds, we offer industrialized

Q: What is your ideal scheme for working with the public

versions that provide enhanced security and boost the

and private sectors?

modernization of the building sector. Although our solutions

A: In formwork and scaffolding, we manufacture all our

are more advanced than the national standards, our

equipment at our facilities in Spain. We buy that equipment

competitive advantage abroad is often not competitive in

from our parent company and bring it to our materials parks

Mexico. However, big construction companies are increasingly

in Mexico. We never work directly with the government but

imposing these higher standards on their contractors,

rather with the constructors that bid for projects. The ideal

favoring our business. We hope the Mexican market will

scheme for us is to be directly hired by a constructor to develop

continue to let us prove the added value of our solutions.

engineering solutions. We do not execute construction because our partner companies have a specialized team

Q: What are ULMA’s most emblematic projects in Mexico?

for that purpose. We provide technical advice on how to

We recently worked on Puente Interlomas, which is

operate our equipment. Today, construction companies are

completed. We are also involved with the Mexico City-

increasingly outsourcing scaffolding and formwork operations

Toluca Interurban Train project, working with OHL and La

through a third party, which is not convenient for us as these

Peninsular. This is our main civil project in Mexico. We also

intermediaries are often smaller and less qualified companies.

provide tunneling cars, which constitute a complex and modern engineering solution for boring. ULMA Construction is a manufacturer and supplier of

About 25 percent of our portfolio in Mexico is allocated

formwork and scaffolding systems for the construction sector.

to civil works and 75 percent to real estate construction.

It specializes in building, civil engineering, industrial and energy

But infrastructure is the company’s core business globally

construction and on restoration and maintenance works

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| VIEW FROM THE TOP

OLD SCHOOL VS NEW SCHOOL MACHINERY TRENDS ROBERTO ABARCA Director General of ADCOMA

128

Q: What is the main pattern in the Mexican construction

of 50-60 machines. As ADCOMA, we have formed commercial

sector when it comes to heavy machinery?

alliances with other machine leasing businesses, and together

A: The old school construction industry traditionally pushed

we have more than 200 machines in inventory. We are

the lifespan of a machine until the very end. In the past

currently closing some large contracts so that by 2020-

few years, we have tried to change the trend and purchase

2022 we can at least double our inventory. Approximately

machines that will last for up to 10 more years. The oldest

70 percent of our clients are from the construction sector

machines that we are purchasing are 14 years old so they

and the remaining 30 percent in other subsectors. Adcoma

should last until at least 2024. More projects look for LEED or

wants to focus on acquiring machinery for urban settings and

sustainability certifications and to obtain these, it is necessary

projects. We want to comply with sustainability and safety

that they use newer machinery. We focus on providing

standards for upcoming real estate projects in Mexicoâ&#x20AC;&#x2122;s cities.

machines and services to mostly top-down projects, which implies that if the machinery emits gasses or is in a closed

Q: What are the main challenges ADCOMA is facing as new

environment it cannot be used because it causes harm to

technology enters the market?

the workers. Nevertheless, there are many companies in the

A: ADCOMA imports many machines, meaning dollar

sector that continue to use really old machines throughout

exchange rates greatly impact our bottom line. Our inventory

the country, perhaps in more open-air projects.

is mostly composed of Caterpillar, Bobcat, John Deere and Case. John Deere machines for instance are often too

Q: What is the benefit of leasing over owning heavy

electricity-intensive for the Mexican market. Caterpillarâ&#x20AC;&#x2122;s Tier

machinery for construction?

4 motor is the latest globally in motors but the 2016-2017

A: Ninety percent of our business is focused on the leasing of

models cannot be imported into Mexico because of problems

machines and the remaining 10 percent are sales. Machines

with Mexican diesel. No matter how much we want to improve

are far more efficient than humans, saving up to 30 percent

the machines to boost the countryâ&#x20AC;&#x2122;s productivity, the diesel

in costs and much more in time. There are cases where

quality dictates how far we can go. We are purchasing newer

companies have leased machines for an extended period

machines but this is problematic because they break down

and at this point it makes sense for them to purchase the

due to the diesel quality.

machinery. But this is not very common as maintaining and operating heavy machinery is complex and not everyone is

Q: What are the main challenges to overcome to reach

qualified to do so. It is best to let us do what we do best and

growth objectives?

for construction companies to focus on building. Companies

A: Monterrey and Guadalajara are highly competitive

should let experts operate the machinery on their sites to

markets and are becoming saturated. We are shifting to

make the most out of the machines and ensure they work

working in smaller cities. We believe that Guerrero has many

properly. Preventive care is much more cost-efficient than

opportunities for us, but due to the insecurity problems, we

corrective care when it comes to machinery.

do not carry out many projects there. Mexico is changing. Nowadays construction companies now have a purchasing

When leasing machinery, companies can obtain approximately

department and suppliers must compete through price,

30 percent in profit after tax. We currently have an inventory

quality and service. We are placing our bets on bringing in more efficient and high-quality machines to add value to the construction sector. We need more investment. We are

ADCOMA is a Mexican heavy-machinery provider for the

involved in various large projects but sometimes because we

construction industry. It provides excavators, tractors and

do not have enough machines we are forced to turn down

compressors for lease and sale. The company has experience

projects. There is a lot of risk associated with machinery

in all types of real estate and infrastructure projects

because it can be a magnet for theft.

VIEW FROM THE TOP |

GUARANTEES AND CUSTOMER SERVICE STAND OUT VANESSA BAUTISTA Administrative Manager of MABASA Soluciones Constructivas de Acero

Q: How do you expect the Mexican steel market to evolve

all project issues, so expanding its portfolio is an important

in the short to medium term?

element of MABASA’s strategy. We add value to clients’

A: There is a great deal of uncertainty because the steel

operations by creating partnerships in various infrastructure

market is going through a speculative phase. This is related

sectors and handling all project requirements to effectively

in part to President Trump’s rhetoric toward the automotive

deliver turnkey projects. While there are many alternatives

industry. I expect steel to experience an increase in prices

in the metallic roofing segment, guarantees and customer

that will hopefully stabilize in the medium term but there

support helps us stand out.

are few tariff-based protection mechanisms that work to the advantage of Mexican steel companies.

Q: How are new trends in construction impacting demand for building materials?

Q: What are the most important characteristics that

A: Sustainability is gaining importance in construction as

MABASA looks for in a steel supplier?

companies pay more attention to this trend. Our work in

A: MABASA purchases steel coils, rolled sheets and panels

NAIM, and the fact that some of our materials suppliers are

from Ternium. This partner focuses on high-volume markets

US companies with a focus on sustainability, has helped

so that it can comfortably roll and sell its steel in bulk but

MABASA raise its operating standards in terms of both

construction is not necessarily one of these markets. This

sustainability and safety. A key MABASA objective is to

industry can be more demanding for steel companies

make sure a client’s plant operations continue uninterrupted

such as MABASA because we require smaller volumes,

when we are providing roof maintenance to replace panels,

special colors and strict delivery times. This can make our

repair leaks or introduce cooling equipment.

relationship with Ternium somewhat difficult because if something is not delivered to us on time, we have to face

Q: What are MABASA’s expansion plans for the short and

the client. MABASA has worked with Ternium for several

medium terms?

years already. In that time, it has opened its procurement

A: We will continue consolidating our business through lean

channels to include more players from abroad that ensure

practices in the next three to five years. MABASA wants

delivery times are met because quality does not vary as

to streamline its internal processes, have more and more

much in this particular segment. We are also working with

personalized customer service, continue professionalizing

Kingspan and meTecno.

the company and perhaps start the process of listing on the BIVA. We want to keep the advantages of being a

Q: What is MABASA’s strategy to stand out in the steel and

family company in terms of employee treatment while also

metallic roofing segments?

creating a corporate governance structure to overcome

A: Competition is tough in steel because it is easy for

the challenges that family companies face. MABASA also

an entrepreneur to hire a couple of engineers who

plans to continue exploring new markets in South America.

commercialize and install products and open a company.

We have been invited to support some clients in Colombia

MABASA differentiates itself by developing clients’ projects.

and Panama but also expect that the Mexican economy will

We focus on finding solutions to their problems and offer

experience solid growth in the short to medium term that

guarantees thanks to the support that our engineers offer.

will favor MABASA.

We also employ surety bonds to ensure clients’ investments are protected against delivery delays and noncompliance with technical specifications.

MABASA Soluciones Constructivas de Acero is a Mexican construction company that prides itself on the efficiency of

We are also aware that clients look for integral solutions so

its technical and professional staff. It designs and carries out

they can deal directly with a single supplier that takes care of

projects with high standards of quality and safety

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| VIEW FROM THE TOP

THE MOST NEEDED INNOVATION: STANDARDIZING SECURITY SYSTEMS RAMIRO GORDILLO Director of Sales at dormakaba Group

130

Q: How is dormakaba helping the Mexican infrastructure

A: The trends we find in the industry call for more robust and

industry to be more sustainable?

resilient mechanisms that are very unlikely to fail. The solutions

A: We offer products and solutions that incorporate sustainable

we offer, which vary from access doors, entrance security

components. Regarding energy savings, we offer electronic

systems and emergency exits, are increasingly in demand as

devices that operate without batteries, such as access locks

the industry grows more aware that Mexican infrastructure

that generate their own energy through the movement of

often lags behind in security matters. We have found that

the handle. This may seem a small thing but it contributes to

prior to a consultation, our clients often do not comply

the environment and at the same time results in operational

with basic principles such as emergency doors that open

efficiency because the need for keys is eliminated. Energizing

outward, which is the easiest way to exit during an emergency.

a lock leads to other infrastructure needs and dependence on

Security calls for easy, controlled and restricted access with

other factors that always carry a risk of failure. Our solutions

unobstructed exits. Despite the growing awareness among

focus on minimizing these risks.

architects and developers, there is still a certain laxness regarding security regulations and compliance. I believe this

Q: What are the main areas of opportunity in terms of access

is due to a combination of factors. Inspections usually neglect

security in the Mexican infrastructure industry?

a comprehensive analysis of all security requirements that

| COMPANY PROFILE

FLEXIBILITY OPENS RESOURCES TO SMEs OCTAVIO OCHOA CEO of Aceros Metalli

Aceros Metalli started in 2016 with the vision of becoming

that the ultimate measurement of its expansion is stock. “We

a specialized marketer for Deacero’s products. Today,

started with 60 tons and today we have more than 700 tons

the company has diversified into other brands but all its

in inventory. We expect to have more than 1,500 tons by 2020,

products are either structural profiles, flats or tubular. “The

considering that we invoice around 30 percent of our total

first month we sold six tons. Today we exceeded 300t/m

inventory,” he says. Despite the company’s quick evolution,

and have 185 customers,” says Octavio Ochoa, CEO of

its main market niche remains SMEs. “A big marketer has a

Aceros Metalli. Based in Monterrey, the city remains an

minimum purchase of three tons. With us, clients can buy

active location for small to-midsize steel marketers.

whatever amount they need,” Ochoa says.

“Every avenue holds the potential for clients, from vehicle component manufacturers to blacksmiths,” Ochoa says.

Part of the company’s expansion includes diversification.

Aceros Metalli also has customers in Tampico, Zacatecas,

To this end, it has launched a fencing division, Cercos

Toluca, Saltillo, Aguascalientes and Chihuahua.

Metalli. “We are bidding for several projects,” says Ochoa. The division has already completed fencing projects for

In the first two years of its operation, the company had 14

several parks in Monterrey, including the Rufino Tamayo

employers, three vendors and several trucks. But Ochoa says

park with GM Capital.

projects should have. There is a pressing need to standardize

the expertise in tourism developments, which is now

these specifications but as the industry is not very familiar

multiplied with Dorma’s expertise on security accesses.

with these regulations, security providers, before salespeople,

Now, our clients can have more technology in one single

should be consulted first.

provider, so we transcend the client-supplier relationship and become their partners. We are involved not only in

We recently launched a simulation service in which companies

providing accesses security but in the conception of

can fabricate a whole virtual reality ecosystem. This precisely

projects and aftersales period.

aims to allow our clients to better conceptualize which solutions are best for each of their projects and needs. It

Today, dormakaba is an important and influential player in

also helps the architecture versus security challenge, as

the industry across its different sectors, such as tourism and

architects can sometimes create spectacular designs that

real estate. Our strength and experience are entirely at the

disregard operational safety. It is important to find a balance

disposal of the industry, as we strive to help developers, the

between having design freedom and compliance with safety

government and the final customer. We must overcome the

regulations. I am convinced that it must be a joint effort

myths regarding manufacturing costs and choose the most

among architects, government, developers and suppliers like

robust solution because security should not be taken lightly.

us to raise awareness of compliance.

Also, when operating, any cost reductions related to a lowquality product will imply a higher expense in the end. It is

Q: How has the Dorma and Kaba merger evolved and how

important to ensure adequate infrastructure that will provide

has it set itself apart in the industry?

minimal risk of failure.

A: The merger of Dorma and Kaba in 2015 gave birth to dormakaba. It has been a great experience merging and complementing our expertise and visions. This match

dormakaba Group offers products and solutions and that

helped us to broaden our portfolio by integrating different

secure the access to buildings and rooms. It focuses on

concepts, technologies and solutions that provide more

security, sustainability and reliability. The company’s goal is to

value for our customers. For example, with Kaba we gained

remain at the customer’s side as a skilled partner

INSIGHT |

GREENER PAINTS, HIGHER QUALITY FELIPE MARTÍNEZ Director General of General Paint

Thanks to an increased demand for green building

Originally founded in Vancouver, Canada, in 1911, General

certifications such as LEED, the construction industry

Paint’s operations became 100-percent Mexican in 1996.

is demanding more eco-friendly products. Since these

“From that point on we focused our operations completely

building certifications include specific requirements in

on catering to the needs of the Mexican market and

terms of paint and coatings, more sustainable buildings

eventually also Central America and the Caribbean,” says

mean a demand for more eco-friendly paint. According

Martínez. The company has a manufacturing facility located

to Felipe Martínez, Director General of General Paint, the

in Lerma, State of Mexico, that supports its operations.

adoption of sustainable products that deliver environmental advantages is the new market trend. “We expect that a shift

General Paint focuses mainly on industrial and architecture

toward sustainable paints that offer an ecological benefit

with high-quality products including everything from paint

is a future trend that will happen slowly,” he says. Martínez

to solvents, epoxy coverings and waterproof coatings. “We

highlights that while demand for these products in the

develop sustainable products for architecture and focus on

Mexican architecture market is still small compared to the

meeting the demands of this segment,” says Martínez. The

size of the market, General Paint expects it to experience

company also produces special coatings oriented to the

significant growth in the future.

petrochemical, mining and construction industries.

131

To reactivate the economy, we must get the construction sector going again” Andrés Manuel López Obrador

INDUSTRY WISH LIST FOR THE NEXT 6 YEARS As he prepares to take office, Andrés Manuel López Obrador is stoking both hope and concern. He has targeted higher public spending on infrastructure to help revive the economy while also promising to increase transparency to root out corruption. But his statements on key projects such as NAIM have spread uncertainty. Overall, the incoming president has outlined seven key focus areas related to better connectivity, reconstruction and inclusion projects and the expansion of roads and rails.

In the meantime, legal certainty and project continuity remain muddy at best for many looking at the country as a potential investment destination. To provide a clearer picture of the industry’s expectations, Mexico Infrastructure and Sustainability Review has compiled the hopes, concerns and suggestions from the leading voices across the infrastructure value chain as the new administration prepares to take power.

133

| A LOOK BACK

PEÑA NIETO’S LEGACY Peña Nieto leaves office with a mixed infrastructure legacy that includes the initial stages of a new and highly touted international airport in Mexico City. But he also leaves behind unfinished projects and reduced industry competitiveness. Here are his triumphs and shortcomings

134

At the beginning of his presidential term, Enrique Peña

In general, Peña Nieto’s administration was able to maintain

Nieto established 266 Government Commitments (CG)

economic stability throughout his time in office, handing

as part of his overall National Development Plan to

over an economy that although flawed, is in good condition.

accomplish five goals: Mexico at Peace, Inclusive Mexico,

S&P’s New Political Scenario After Presidential Elections

Mexico with Quality Education, Prosperous Mexico and

study says that the new administration will receive a

Mexico with Global Responsibility. Of the 266 CGs, 105

stable country, with fiscal deficits and manageable current

were allocated to SCT to boost the country’s development

accounts, as well as a stable level of inflation and a moderate

through infrastructure. These CGs, included in National

burden of net debt.

Infrastructure Plan, outlined ambitious projects and goals but one key issue got in the way: budget constraints.

To tackle transport and telecommunications issues, SCT was allocated a budget between 1.3 and 2.5 percent of the total

From 2013 to 2017, SCT spent on average MX$6.6 billion more than was originally allocated in its budget

federal expenditure from 2012-2017. SCT’s budget peaked in 2014-2015, at about 2.5 percent of the total budget, and in 2016 it began to drop, hitting 1.3 percent for 2017. From 2013 to 2017, SCT spent on average MX$6.6 billion more than was originally allocated in its budget. From 2016 forward, the Mexican government began exploring PPPs as a solution not only for transport infrastructure but also telecommunications, social and water works to help fill the gaps where the public budget did not suffice.

Mexico suffers from low tax revenues, high public debt and construction costs. According to the OECD’s Revenue

MORE THAN JUST MONEY

Statistics in Latin America and Caribbean report, Mexico is

Private investment infrastructure hit its all-time high in 25

among the six countries with the least total tax income in

years in 2017 as the construction of emblematic projects

the region. The Mexican government collects 17.4 percent

through PPPs began to take shape. Peña Nieto's structural

of GDP through taxation while the average OECD country’s

reforms brought along a series of projects that would place

income is 34.3 percent. Nevertheless, the country’s tax

Mexico on the map not only for local investors but also

revenue followed a rising trend throughout the Peña

international firms. The Telecommunications and Energy

Nieto administration, going from 5.9 percent in 2013 to

Reform finally started to bear fruit through the development

7.0 percent in 2017 in relation to its GDP contribution,

of the Shared Network, hydrocarbons licensing rounds and

according to the Income Law Initiative (LIF). Between

long and midterm electricity auctions.

2014 and 2015, Mexico had the highest increase in tax revenue in relation to GDP of all OECD countries when it

Though PPPs proved a lifeline for Mexico’s growth, two

jumped from 5.6 percent of GDP to 6.7 percent of GDP.

other factors deeply impacted the administration’s ability to boost infrastructure in the country: corruption and lack

Regarding debt, the federal government’s total debt until

of planning. The former steadily increased in the last six

August 2018 totaled MX$7.7 trillion. Over the past six

years. According to the Corruption Perceptions Index,

years, the country’s debt mostly rose, though at much

Mexico’s score dropped each year by at least one point,

lower rates than with previous governments. From 2016

starting at 34 in 2013 and dropping to 29 in 2017 on a

to 2017, debt in proportion to GDP decreased from 48.7

100-point scale. The infrastructure industry is particularly

percent to 46.2 percent. A good indicator of Mexico’s

vulnerable to risks resulting from lack of transparency

well-being can be observed through the country’s

and should employ mitigation strategies, says Jacobo

credit rating throughout the administration. Mexico has

García, Senior Specialist on Integrity and Procurement

maintained respectable A3 (Fitch) and BBB+ (Moody’s)

Policies at the OECD. “Everything that deals with public

credit ratings since 2016.

contracts such as public works or service procurement

Solved the saturation of AICM

is highly susceptible to lack of transparency through all

through

phases of a project,” he says.

the

NAIM,

development

currently

under

construction

Transparency was particularly important for Peña Nieto’s flagship projects: NAIM and the Mexico-Toluca Interurban

Telecommunications projects that will provide broadband

political administrations and Peña Nieto was finally able

internet service to at least 92

to get the projects not only designed but funded. NAIM, in particular, has set an example for transparency in public tendering. Its use of new technologies and open information has become the new standard for infrastructure projects and has created confidence among national and international investors. Lack of planning, the second factor plaguing the industry, is something that even NAIM cannot escape. According

POSITIVE

Train. These projects have been on the wish list of three

percent of the population by 2024 The Mexico-Toluca Interurban Train was developed and is currently under construction T h e

federal

government

allocated over MX$390 billion to the construction, modernization and maintenance of road

to Mexico Evalúa, the cost of NAIM has been bumped

135

infrastructure from 2012-2018

up 68 percent from its original cost, from MX$168.8 billion to MX$285 billion. The project has also seen a

Port capacity was doubled to

delay increase of 75 percent. Cost overruns and setbacks

support growing energy and manufacturing sectors

in construction times impact almost all infrastructure projects in the country and Mexico Evalúa says this is due to inefficiencies in planning.

The strengthening of airport, road and rail has helped increase tourism in Mexico, boosting the

Besides the financial and administrative sides of the business,

number of international visitors

companies must also consider the social and environmental

from 78.1 million in 2013 to 99.3 million in 2017

implications of their projects. Roads, ports, airports and even real-estate projects saw an increase in time and budget due to conflicts with surrounding communities. One example is the Mexico-Toluca Interurban Train. The project has experienced a 77-percent increase in costs from MX$33.7 billion to MX$59.2 billion and a time delay of 50 percent. A large amount of these cost overruns were due to legal problems acquiring rights of way, especially in the

WHAT WERE THE POSITIVES AND NEGATIVES?

La Marquesa-Observatorio segment of the project. “Ninety percent of the time, the project will begin before fundamental and rights of way are properly analyzed. Additionally, rule

M ex i co ’s i n f ra st r u c t u re h a s seen

its

competitiveness

of law and organized crime interfere with the development

rankings drop from 57 in 2016

of projects,” says Ignacio García de Presno, Lead Partner of

to 62 in 2017, particularly in rail

Global Infrastructure and Projects Group of KPMG. Peña Nieto will leave behind cornerstone projects and an open invitation for international investors and companies to help Mexico bridge its infrastructure gap. Yet, Mexico

infrastructure Several projects are left in t h e co n s t r u c t i o n p h a s e to b e co m p l e te d by t h e n ex t administration

Infrastructure & Sustainability Review interviewees from 2017-2019 agree that Mexico needs to provide certainty on projects, greater transparency and to promote an anticorruption environment to foster the economic growth

Deficiencies in planning have caused costs and delivery times to increase for construction projects

of the country through infrastructure. “If the country can ensure these conditions, the market will open to new players

Public sector investment in

that will bring technology and innovation that will ultimately

infrastructure dropped to 1.3

transform the country,” says Reyes Juárez, Director General and President of FOA Consulting.

percent of federal expenditure in 2017 from 2.5 percent in 2014

NEGATIVE

aspects like soil conditions, archaeological and protected land

| ELECTION RESULTS

THE SHIFT IN POWER The July 1 elections brought the biggest change in the history

President-elect López Obrador, held less than 3 percent of

of Mexico’s federal executive power. The country now has

the chairs in the Deputies chamber for the 2012-2015 period

for the first time ever a president that is not from one of

and had no representation in the Senate for the 2012-2018

the biggest and oldest political parties PRI or PAN. But the

period, it has now jumped to holding over 40 percent of each

legislative power has also seen a tremendous shift. That

chamber. The Mexican people have spoken and it remains to

same day, Mexicans also voted for the Senators and Deputies

be seen how the President-elect will act for the benefit of the

that would represent them. While MORENA, the party of

country wielding the power in both chambers.

Mexico’s benchmark

BIGGEST WINNERS

stock index, the S&P/BMV IPC,

Company

Opening July 2

Closing July 2

Variation

Company

Opening July 2

Closing July 2

Variation

plummeted 7.6

LACOMER UBC

20.77

21.77

4.81

CIE B

20.80

18.90

-9.13

AEROMEX

26.99

27.94

3.52

VITRO A

61.00

57.85

-7.50

GSANBORN B-1

19.00

19.53

3.33

PE&OLES

355.24

331.38

-6.93

GENTERA

17.67

18.13

3.19

CIDMEGA

43.00

-6.91

SARE B

0.035

2.94

PINFRA

141.00

136.35

-5.31

percent in May, marking its biggest one-month decline since February 2009.

Source: BMV

SENATORS IN THE CHAMBER IN 2012-2018

42 RELATIVE MA JO RIT Y

136

BIGGEST LOSERS

55 PRI 34 PAN 19 PT 8 Independent candidates 7 PRD 5 PVEM

8 7 6

HOW ARE MEXICAN SENATORS ELECTED?

5 5 1 N/A

The Mexican Senate is composed of 128 seats. Of those, 64 are elected by simple majority. Every state is represented by three senators. Each party or coalition nominates a “formula” composed of two senators. The formula that earns the most votes earns two seats in the Senate for its two candidates. Another 32 senators are elected by the “first minority” system. The party that earns the second-highest

number of votes can send one of the two senator candidates it nominated. The remaining 32 seats in the Senate are assigned according to the principle of proportional representation and are dubbed plurinominal senators.

PLURINOMINAL SEATS

13 MORENA 6 PAN 6 Social Encounter 2 PRI

2 PRD 2 PT 1 Citizens' Movement

Source: Mexico's Senate, INE

2018 STATE GOVERNMENT ELECTION RESULTS

MORENA-PT-PES Citizens' Movement PAN-PRD-MC PAN-MC PAN-PRD-MC-PSI-CPP

2018 PRESIDENTIAL ELECTION RESULTS AND PERCENTAGES 137

53.19% AMLO

Source: INE

DEPUTIES IN THE CHAMBER IN 2012-2015

212

22.27% Anaya

16.40% Meade

214 PRI 113 PAN 99 PRD 27 PVEM 12 Citizens'

5.23% Rodríguez

12 MORENA 11 PT 10 New Alliance 2 Independient candidates

Movement

12 8 5 2

HOW ARE MEXICAN DEPUTIES ELECTED? There are 500 seats in the Mexican Chamber of Deputies. Each of the 300 uninominal deputies that occupy them are elected by simple majority. They each represent one of the 300 electoral districts into which Mexico is divided. The remaining 200 deputies are elected by proportional representation and are dubbed plurinominal deputies. No

200

party can have more than 300 deputies in total. In some districts, individual parties field their own candIdates outside of a coalition.

Together We Will Make History coalition (MORENA, PT, Social Encounter Party)

For Mexico in Front coalition (PAN, PRD, Citizens' Movement) Everyone for Mexico coalition (PRI, PVEM, New Alliance)

200

PLURINOMINAL SEATS

85 MORENA 41 PAN 37 PRI 12 PRD

11 PVEM 10 Citizens' Movement

4 PT Source: Mexico's Chamber of Deputies, INE

| PROFILES

ANDRÉS MANUEL LÓPEZ OBRADOR President-elect of Mexico

Andrés Manuel López Obrador (AMLO) started his political career in 1976 by supporting the candidature of Carlos Pellicer as Senator for the state of Tabasco. The next year he became the Director of the Indigenous Institute of Tabasco. After the creation of the Democratic Revolutionary Party (PRD) in 1989, AMLO 138

was named president of the party in Tabasco. He was PRD’s President from Aug. 2, 1996 to Apr. 10, 1999, a period during which the party gathered the widest national presence since its creation in 1989. On Dec. 5, 2000, AMLO became the Mayor of Mexico City. Among his achievements are the creation of programs to support the elderly, single mothers, unemployed, rural producers and micro-businessmen, together with major infrastructure projects such as Periferico’s second floor. His first attempt to become President of Mexico began on Aug. 11, 2005. He was supported by PRD, the Working Party (PT) and the Convergence Party. After his defeat, he published a document called Nation Project on March 20, 2011. After that, on Dec. 9 of the same year, he registered as pre-candidate to run for the presidency for a second time, supported by the same parties. Again, he was unsuccessful. After creating MORENA, AMLO became President of the party’s national council on Nov. 20, 2012. He held that position until Dec. 11, 2017. One day later AMLO registered as precandidate for the presidency for the third time, representing the coalition MORENA, PT and the Social Encounter Party (PES). On the evening of July 1, 2018, AMLO registered a consistent lead during the ballot counting process, leading to his opponents recognizing him as President-elect and offer their congratulations. On July 3, 2018, President Peña Nieto met with AMLO in the National Palace to discuss the transition plan of both administrations.

“We must end corruption. [...] Projects are currently assigned directly and at times tenders are not even held. We are ending with these practices and you (construction workers) will be able to work and have benefits again” Andrés Manuel López Obrador, at the CMIC Jalisco Conference

JAVIER JIMÉNEZ ESPRIÚ

CARLOS URZÚA

Incoming Minister of

Incoming Minister of Finance

Communications and Transport

Carlos Urzúa has been a consultant for the World Bank, the Latin American Economic

Javier Jiménez Espriú has served as the General

Commission and the United Nations Program

Manager of the Transport and Machinery Division

for the OECD. From 2000 to 2003, Urzúa

of the Ministry of Public Works. He was Deputy

was Minister of Finance in Mexico City’s

Secretary of Communications and Transportation

administration. Since 2004, he has been the

at SCT, Assistant Manager of PEMEX’s commercial

most senior national researcher at the National

area and Chief Executive Officer of Compañía

Research Institute, and in 2007, he became a

Mexicana de Aviación. Espriú has also been a

member of the Mexican Academy of Sciences.

member of various advisory boards in the energy

He graduated as a mathematician from ITESM,

and transportation sectors in Mexico, such as the

holds a Master’s degree in mathematics from

Mexican Institute of Petroleum and the Mexican

IPN and a Master’s and Ph.D. in economics

Institute of Transportation. In addition, he served

from the University of Wisconsin.

as Administrative Secretary General of UNAM, has been a full-time professor for over 30 years and was the Director of the Engineering Faculty from 1978 to 1982. He served as Chairman of the Mexican Engineering Academy and obtained the National Engineering Award in 2008. Espriú is a Mechanical and Electrical Engineer from UNAM and has a postgraduate degree from the Conservatoire des Arts et Metiers of París.

“Even with a reorientation of public spending, it is not going to be possible to implement a government-only approach. We want to promote and stimulate private participation” Javier Jiménez Espriú, Aug. 22, 2018

“We are going to send back a very well measured, balanced budget (...) taking into account social, public investment and infrastructure programs” Carlos Urzúa, Oct. 11, 2018

ROMÁN MEYER Incoming Minister of Agricultural, Territorial and Urban Development Román Meyer is an expert in felony prevention and improvement of public spaces. He is an Architect from ITESM and has a Master’s in urban management from the Polytechnic University of Catalonia. He has been an advocate of social urbanism projects mainly for the rehabilitation of public spaces, social integration, public health, mobility and economic development.

139

| THE NATION PROJECT

POLICY PRIORITIES Infrastructure development correlates with the economic development of a country. President-elect Andrés Manuel López Obrador will inherit a hefty infrastructure gap. AMLO sees the construction sector as a pillar of development and looks to double public-sector investment in infrastructure development

140

Andrés Manuel López Obrador’s campaign for president

After securing funding and rule of law, López Obrador’s

promised to restore Mexico’s industries and economy

strategy to truly impact the country’s infrastructure gap

through the eradication of corruption. The construction

is to carefully select the projects that will be carried out

industry is particularly susceptible to corruption, with

during his administration. AMLO has stated that he wants

an estimated 10-30 percent of the value of the global

to undertake only a few, but well-thought-out projects

construction industry lost through corruption, according

that will not exceed the country’s capacities and that will

to WEF. This is mainly due to the infrastructure industry’s

have a direct impact on largely overlooked regions such

complex transaction chains, large-scale of investments and

as Oaxaca and Chiapas.

the uniqueness of each project.

TOP PRIORITIES To make a difference in the country’s infrastructure

As López Obrador’s team officially enters Los Pinos and

development, López Obrador’s Nation Project aims to

begins formulating the new National Infrastructure Plan

restore rule of law and ensure that each peso allocated

for the next six years, the private sector is anxiously

to infrastructure projects is indeed invested into that

awaiting not only the announcement of new projects

project. He has also decried the bribes that he says

but also the fate of President Enrique Peña Nieto’s

impact construction workers and companies directly and

current projects. López Obrador will inherit a number

that must be eliminated immediately. The money saved

of projects from Peña Nieto’s administration, most

by eradicating corruption will be will be used to invest

importantly NAIM, the Mexico-Toluca Interurban Train

heavily in public works that will generate economic growth

and the Shared Network.

throughout the country. According to AMLO’s Austerity Plan and Pejenomics Volume II, the reallocation of public

COMPLETION OF KEY NIP PROJECTS

finances would lead to savings equivalent to 1.9 percent

L ó p ez O b ra d o r h a s a l re a d y a n n o u n ce d s eve n

of GDP, which would be reinvested in infrastructure and

infrastructure priorities that he hopes to accomplish

other public programs.

during his administration. The Transisthmian Corridor has caught the private sector’s attention and is especially

Although the savings generated from preventing

appealing to transport and logistics companies. His

corruption will be directly invested into public works, most

plan includes providing continuity to Special Economic

countries turn to tax collection to increase their funds

Zones but also creating a corridor that will interconnect

for public investment. In this regard, López Obrador has

Mexico’s southern states. This plan will include the

stated there will be no increase in taxes “in real terms.” He

modernization and construction of ports, airports, road,

has also said that no new taxes would be created during

rail and industrial infrastructure to promote logistics and

his administration. Instead, the president-elect wants to

facilitate trade from coast to coast.

develop a customs-free zone along the border with the US where income tax would be reduced to 20 percent

CMIC has evaluated the project and believes that it will

and VAT to 8 percent to incentivize trade and investment.

make Mexico more competitive and that it will generate a positive impact on the country through the use of PPP

The first question is where will the funds come from given

schemes. Nevertheless, it is important to keep in mind that

the previous years of tight budgets. López Obrador has

it will also require a great deal of secondary infrastructure

pledged to lower the wages for president and government

development. In an interview with Obras, incoming SCT

officials and re-allocate those savings to infrastructure and

Minister Javier Jiménez Espriú discussed the possibility

social development programs across the country. This

of further works. “We will start developing the corridor

will be accompanied by support for the banking sector,

rapidly through the modernization of railways, highways

maintaining the autonomy of Banxico and reintegrating

and ports,” he said. “Other entities will start with the

development banks into the infrastructure system by

development of urban zones and related territories. The

making them the engine for SMEs.

idea is to create a new industrial port in Salina Cruz.” The

project is still in the planning stage and the main points

boost for marginal areas are infrastructure priorities

experts have asked to keep in mind is that it must also

that will help interconnect the country’s developing

be accompanied by industrial real estate development

communities and boost its economic activity through

and favorable market conditions to attract the necessary

the attraction of industrial, tourism and trade activity.

investment.

The main challenge for these priorities stems from a low federal budget for public investment, making it necessary

“We will start developing the (Transisthmian) corridor rapidly through the modernization of railways, highways and ports. The idea is to create a new industrial port in Salina Cruz”

to make projects financially viable for private sector investment. Some of AMLO's main policy priorities focus on the following infrastructure: Telecomunications - During Peña Nieto’s administration, the Telecommunications Reform was passed, breaking up the telecom monopoly and boosting the competitiveness of services offered in Mexico. In the Nation Project, López Obrador has given priority to guaranteeing internet access to the entire population by increasing wideband coverage and also creating a fund for social telecom coverage. According to a statement issued by

Javier Jiménez Espriú, Incoming

Salma Jalife Villalón, the incoming Deputy Minister of

Minister of Communications

Communications Technology at SCT, López Obrador’s

and Transport

administration looks to evaluate some modifications to the Telecom Reform if the private sector considers it necessary to reach its targets.

Another project that has captured investor interest is the

Road Infrastructure – López Obrador’s vision of boosting

Mayan Train. This cargo and passenger train has been

the country’s connectivity through the construction

proposed as a way to boost the economies of Mexico’s

and modernization of 300 rural roadways aims to also

southern states and archaeological sites. López Obrador’s

generate jobs in Mexico’s most marginalized states of

objective is to complete this project within the first four

Guerrero and Oaxaca. But the new administration may

years of his administration with a budget of US$6-8

be in for a much larger challenge. According to the

million. As outlined, the project will be composed of

SCT Directorate General of Roads (DGC), 7km of every

1,525km of rail that will cross through five states and

10km of the federal, state and municipal rural roadways

stop at 14 stations. López Obrador has proposed that

network are in poor or irregular condition due to a lack

the project be funded through a tourism tax and will

of funding for maintenance and conservation. That is

incorporate private sector investment into the project.

approximately 53,521km of rural roadways in need of immediate attention. During Peña Nieto’s administration,

To reduce time and costs, López Obrador's proposal

Banobras introduced the Maintenance-Rehabilitation-

traces the old Palenque-Valladolid rail, using its existing

Operator (MRO) contracts to further incorporate the

right of way to construct the project. But the right of

private sector into the modernization and maintenance

way for the rest of the project will be perhaps one of

of Mexico’s road network, filling in the gaps where the

the biggest challenges this project will face. The route

federal budget could not stretch.

will require the acquisition of hundreds of kilometers of land, which not only poses a challenge when negotiating

Reconstruction - After the September 2017 earthquakes,

with ejidos but also in the technical complexity of the

the reconstruction of affected areas is among López

terrain. It is estimated that on the Yucatan Peninsula there

Obrador’s top priorities and challenges to meet his

are more than 9,000 cenotes, similar to a sinkhole with

goal of inclusion and economic growth. On the one-

groundwater, requiring great engineering capacity and

year anniversary of the earthquake, López Obrador

thorough planning.

presented his Plan for Reconstruction in which he defined the creation of an Interministerial Commission for

INCLUSION THROUGH DEVELOPMENT

Reconstruction that will incorporate all levels and entities

The remaining infrastructure priorities are strategies to

of government. The goal is to coordinate the construction

create a more inclusive country through the development

across all involved entities and allocate funds primarily

of infrastructure. The construction of 300 rural roadways,

to the reconstruction of housing, health, education and

a guarantee of telecommunications accessibility and a

cultural heritage sites through public funds and not loans.

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| THE NATION PROJECT

THE NATION PROJECT: A BREAKDOWN President-elect Andrés Manuel López Obrador’s Nation Project outlines his goals and expectations for the next six years. While some of his policies are seen as positive for the industry, others could generate uncertainty. With a strong position in Congress, AMLO is poised to have a significant impact on the industry

Andrés Manuel López Obrador takes office on Dec. 1

• Reduce the special tax on production and services to lower prices of gas and electricity

and although the Nation Project outlined his intentions to boost the country’s economic development through infrastructure investment, there has been little indication from MORENA of how key projects will be implemented. The result has been a rise in speculation and uncertainty 142

among private sector players. The objective of AMLO’s proposal for the infrastructure industry is to reactivate the Mexican economy through

RESTORE RULE OF LAW

• Bribes impact construction workers and companies directly and must be eliminated • Guarantee the democratic rule of law • No more corruption; that money will be used to increase public investment and generate economic growth

an active construction sector, generating both wealth and jobs. By appointing an austere government and

AMLO stated that at the beginning of his presidential

eradicating corruption, there will be more public funds,

administration, he will allocate MX$500 billion to the

acting as the “seed that will allow the country to attract

following seven infrastructure priorities:

domestic and foreign private investment and together build infrastructure projects.” One key for the industry will be the new National Infrastructure Plan, which has yet to be announced.

THE NEW MEXICO CITY AIRPORT

• Revise all contracts and tenders in the construction of NAIM

LARGER INFRASTRUCTURE BUDGETS

• Launch a public consultation on the Texcoco project • Possibly move the project to the Santa Lucia Air Base

• Double the investment in public works • Support for the banking sector; no nationalization of banks • Reduce wages of president and government officials and use savings for infrastructure and social development programs • Development bank will be an engine for SMEs • Maintain the autonomy of Banxico and the macroeconomic balance

THE TRANSISTHMIAN CORRIDOR

• Provide continuity to the Special Economic Zones by giving priority to programs that will directly impact the Isthmus of Tehuantepec and the northern border states • Construct and modernize ports, airports, road and rail infrastructure from Coatzacoalcos to Salina Cruz, interconnecting the Pacific coast markets with the east coast

A FEW, GOOD PROJECTS

• Make only a few, but well-thought-out projects that do not exceed the country’s capacities but have a direct impact on neglected regions

TAX COLLECTION

• No increase of taxes “in real terms” • No new taxes • Reduce income tax to 20 percent and VAT to 8 percent in the customs-free zone

MAYAN TRAIN

• Cancun-Tulum-Bacalar-Calakmul-Palenque Passenger Train • Project is designed to interconnect Mexico’s main archeological sites and southern states, boosting tourism, culture and logistics • Funds for the project will come from a tourism tax and include private sector investment • The objective is to finish the project in four years at a cost of US$6-8 million using the right of way of the old railroad between Palenque and Valladolid

• Will run through five states with a total of 1,525km and will be divided into three sections: Gulf,

• The reconstruction will be through public funding and not loans

Jungle and Caribbean • Will have 14 stations in the following cities: Bacalar, Calakmul, Cancun, Ciudad Campeche, Chichen Itza, Escarcega, Felipe Carrillo Puerto, Izamal, Merida, Palenque, Playa del Carmen, Puerto Morelos, Tulum and Valladolid

INCLUSION OF MARGINAL AREAS

• The economic and social inclusion of marginalized municipalities near tourist and border cities, as well as municipalities near the Mexico City Metropolitan Area such as Chimalhuacan, Ixtapaluca, Valle de Chalco,

RECONSTRUCTION OF STATES AFFECTED BY 2017 EARTHQUAKES

Ecatepec, Los Reyes and La Paz

10. 300 RURAL ROADWAYS

• The Interministerial Commission for Reconstruction will be created to coordinate the three levels of government and entities that will be responsible for the reconstruction of housing, health, education and cultural heritage

• Construct and restore 300 rural roadways to boost the connectivity of Mexico’s road network • Generate more than 50,000 jobs for workers from Oaxaca and Guerrero

• Will allocate an additional MX$10 billion to the reconstruction of homes and other sectors

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11.

INCLUSIVE TELECOMMUNICATIONS

• Negotiation of agreements with materials and workforce providers to simplify processes and avoid increase of costs

• Guarantee internet access to the entire population by increasing wideband coverage and create a fund for social telecom coverage

Sources: López Obrador Official Website, INE, El Universal

| INDUSTRY WISHLIST

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WHAT IS ON YOUR WISH LIST FOR THE NEW ADMINISTRATION TO STRENGTHEN MEXICO’S INFRASTRUCTURE INDUSTRY?

EDUARDO RAMÍREZ President of the Mexican Chamber of the Construction Industry (CMIC)

To further incentivize investments in Mexican construction companies, the government could provide certainty through a guaranteed rule of law. For companies to think about their future growth, rule of law is essential to create trust in their investments. Our affiliates need to feel secure. There are many cases of insecurity across the country and that has a cost. Companies must pay insurance for their machinery, security guards and protection for their employees to ensure their investments are safe.

REYES JUĂ REZ Director General and President of FOA Consulting The structural reforms that have been implemented are interesting but they must be complemented. The skeletons of these reforms must be structured and instead of being canceled, they need to be analyzed as to what they are missing and how they can be complemented. The structural reforms must facilitate the development and completion of projects for the country as a whole. To ensure the reforms have a greater impact, they must

JORGE WOLPERT Director General of CONAVI

instill trust among investors and provide them with the legal

There are a number of projects, such as NAIM, the Mexico City-

certainty they require. If a country

Toluca Interurban Train and some other major road infrastructure

is creating new reforms every six

projects that were not finalized and should continue during the

years, it is not a good indicator

new administration. I would like to emphasize the Special Economic

to investors. More than anything,

Zones (ZEEs) in the south of the country, a project that started

the country needs to establish a

only two years ago and that I believe it is important to consolidate

decentralized entity to prepare

in the years to come. This region is characterized by low income

long-term projects, which at the

and scarce opportunities, so the idea to create a strategic area

same time will disseminate the

for economic development that will trigger investment and

PPP law so that local and state

employment is crucial. To reinforce this project, it is important

authorities have an understanding

to generate a proper taskforce including the private and financial

of how it works.

sectors and the local and federal authorities.

JOSĂ&#x2030; ZOZAYA President of Kansas City Southern Mexico I would ask for full respect of rule of law and the concession system. I also think the law should remain as it is, since regulatory change creates market uncertainty and hinders investment. I would also request investigation into the viability of allowing average train speeds to be increased. Finally, promotion of a harmonic coexistence between local communities and rail companies should be a central aim. The key to success is to remain in constant communication with local authorities, so we are better coordinated regarding the issues that we discuss with communities.

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ÁLVARO BURGOS Guerrero Minister of Economy Governor Astudillo has been very clear about the need to work collaboratively with the Federal Government to bring more federal resources to Guerrero, as the state is about 95 percent dependent on them. I believe that the newly-elected President has shown the will to work with different political actors and seek consensus. It is important to work for the reconciliation of the different political parties and actors. We must promote a shared agenda across all government levels and the private sector to boost the development of the country.

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ELÍAS MIZRAHI Director of Investor Relations at Fibra Danhos First of all, for real estate to be successful, the macro environment has to be healthy, which would include interest rates, GDP growth and consumer confidence. If the new government looks to attract investment and grow the economy with an open market perspective and really builds on today’s foundations, the country will be financially sound. The fundamentals in Mexico are solid, with GDP growth, the beginning of a reignin on inflation and a primary surplus. Second, the corruption that has always existed in the real estate industry, especially with permitting and licenses, needs to be addressed. This kills investment. We would like a transparent process and zero corruption of political officers in terms of zoning. In the latest Corruption Perceptions Index, Mexico’s ranking suffered due to the levels of corruption present in the country. Transparency International ranks Mexico 106th out of 177 nations. The government should facilitate the ease of doing business for the private sector by addressing this issue.

JACOBO GARCÍA Senior Specialist on Integrity and Procurement Policies at the OECD The first step is to look at public works as a strategic and not an administrative task. Secondly, the government should finish NAIM. There is no reason to cancel NAIM and it is an essential facility for the country’s development. We must improve CompraNet. We have developed a short, medium and longterm plan to ensure the quality of this system and how the government could go about it. CompraNet focuses mostly on the tendering phase of a project and it should cover pre- and post-stages as well. Information in the system must be standardized. Internal auditing is also necessary to ensure that all the information on the platform is correct.

JUAN JOSÉ RISOUL President of Grupo SACMAG Water is running out and Mexico does not have the infrastructure to tackle the problem. Mexico’s cities are already experiencing the side effects of this issue, as many must get their water from outside sources. Some desalination plants are being planned but they are still financially unviable. The price will fall as the years pass and I do believe that it is a good option to quench the country’s future thirst.

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ALFREDO GONZÁLEZ Latin America North Head for Enterprise and Public Sector of Nokia I would prioritize the Backbone Network project, which is included in the Mexican Constitution under the recent constitutional reform and the new Federal Telecommunications and Broadcasting Law, but is lagging. Its correct implementation is most needed as it aims to build the foundations of a national fiber optic network by using CFE’s existing infrastructure, as well as new complementary facilities. Given how susceptible Mexico is to natural disasters and unforeseeable contingencies, there are connectivity solutions that can help public safety organizations in this context, such as portable LTE networks. Under these circumstances, sometimes the antennas and communication systems are damaged or fail due to an energy outage. These solutions can be activated in the case of an emergency, especially when traditional communications networks collapse or are congested.

JOSÉ-ORIOL BOSCH CEO of BMV Group I think the most important thing is to spur greater growth. Mexico’s growth has been relatively limited. Rather than growing 2.5 percent, Mexico should grow by double that, at least. I think it would be interesting to include in the agenda certain incentives to motivate companies to seek funding from the BMV. Of the companies we have listed on the BMV, more than 90 percent are concentrated in four states in the country: Nuevo Leon, Mexico City, State of Mexico and Jalisco. It should not be like this because the GDP of those four states is not 90 percent of the country’s GDP. This means something is failing and we need to look at how we can support those companies in other states. We also think the support from development banks is very important. NAFIN has been focusing a great deal on Green Bonds, the first of which was raised in 2016. We think it is important for the government to see and consider the BMV as a pillar of financing in the country.

| INDUSTRY WISHLIST

ALEJANDRO RUÍZ Head of Construction, KPMG in Mexico Fiscal reform is necessary to acquire the funds to bridge the country’s infrastructure gap. Another requirement is to reinforce PPPs and make them more attractive. The PPP process is important to ensure transparency and financial security. Many are requesting fiscal changes in Fibras' and CKDs' structures to maintain the sector’s growth. Private initiatives should find their own opportunities in the Mexican

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sector, through PPPs or USPs, and not wait around for the government to propose projects but look for areas of opportunities within the sector. We should have an efficient center to receive these proposals and increase the number

LUIS RUBIO Partner at Holland & Knight If we have a protective government, projects will not do well. There must be a long-term view and private parties involved. If we do not hand telecoms infrastructure over to the private sector, the government will be completely unable to develop any itself because it takes too long and technology is changing so rapidly. This must be a priority for the Mexican government, no matter the administration or party. Continuity in projects and rule of law need to be improved. If not, nothing will change. These factors will increase credibility within the sector, which in turn will boost investment and development.

IGNACIO GARCÍA DE PRESNO Lead Partner of Global Infrastructure and Projects Group of KPMG The only wish I have is for water to be revolutionized. The whole planning process, rule of law and delivery charges must be overhauled. When we talk about water we encompass agriculture, health and a variety of other sectors. If we run out of water we run out of everything. Water will become the next oil. The main problem is that the political agenda does not match the human rights agenda or the taxpayers’ agenda.

of initiatives within the sector.

CARLOS REDONDO Country Manager Mexico of ROADIS To detonate investment in infrastructure, there must be adjustments made to legislative policies and more specific actions to promote certain projects. I believe that maintaining the current regulatory framework would be ideal, especially since concessionaires and investors feel comfortable with the current framework. The tendering process could be improved to make it more transparent and competitive. Examples on how to do things can be found within Mexico, as has been done in the energy and oil and gas auctions.

SERGIO RAMÍREZ Director General of Acciona Infraestructuras México

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We would like to see more transparency in rules and regulations, efficiency in the identification of projects and continued public investment in infrastructure. It is important that the government identifies the needs of the country. My wish is for a renewed impulse for policies to promote continued infrastructure development in Mexico.

EFRAÍN ARIAS Director General of SCT Centro Queretaro I believe that the Federal Attorney should not only make sure that everything is being done correctly but it should also carry out the tendering processes for the projects. This way SCT could focus on the actual construction, planning and design of the infrastructure projects the country needs. The Federal Attorney has all of the requirements and tools to carry out tenders and ensure transparency.

GONZALO ROBINA Co-CEO of Fibra Uno (FUNO) We would like to see incentives for foreign investment. Approximately 55 percent of FUNO’s capital is foreign investment. FUNO has been attracting investment from all over the world. This new administration should have a pro-foreign investment stance.

Prologis construction site

ENGINEERING & CONSTRUCTION

The construction sector plays a major role in the economic development of the country and represents 4-5 percent of GDP. But given the uncertainty that traditionally arises during political transitions, public infrastructure spending is expected to decrease in 2018 and 2019, pushing construction and engineering firms to diversify and invest in real estate and other sectors. Federal budget cuts have deeply impacted the industry in the last five years with an average growth of only 0.4 percent, mainly due to private sector investment.

According to CMIC, the construction market is worth approximately MX$2.4 trillion and is divided into 23 percent public sector and 77 percent private sector. Apart from diversifying during difficult times, international and national construction firms are encountering familiar problems. In the aftermath of the September 2017 earthquakes, the Civil Works Law and Safety Regulations will be changed to demand more from companies, raising the bar for the sector. How will the country ensure that its buildings are up to par with regulations and safety standards? This chapter addresses the main challenges and solutions for the engineering and construction sectors in Mexico directly from its top decision makers.

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CHAPTER 8: ENGINEERING & CONSTRUCTION 154

ANALYSIS: Unleashing the Power of Construction Through PPPs

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VIEW FROM THE TOP: Sergio Ramírez, Acciona Infraestructuras México

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VIEW FROM THE TOP: Fernando Vázquez, Grupo TADCO

Javier Pascual, Grupo TADCO

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VIEW FROM THE TOP: Enrique Alonso Zúñiga , Sacyr Ingeniería e Infraestructuras México

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INSIGHT: Roberto Calvet, AECOM

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VIEW FROM THE TOP: Juan José Risoul, Grupo SACMAG

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INSIGHT: Jóse Ramón Delgado, Ayesa Mexico

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VIEW FROM THE TOP: Roberto González, Robbins Mexico

164

VIEW FROM THE TOP: Mario Olivera, PRODEMEX

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VIEW FROM THE TOP: Guillermo Ortiz, Consorcio IUYET

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VIEW FROM THE TOP: Federico Alba, Alba Proyecto Estructural

167

VIEW FROM THE TOP: Jesús Valdez, Miyamoto International CDMX

168

INSIGHT: José Amarante, Hill International

Máximo Muñoz, Hill International

169

VIEW FROM THE TOP: James Delano, ATCO México

170

VIEW FROM THE TOP: Carlos Salazar, Shimizu Corporation

171

INSIGHT: Alejandro Ruíz, KPMG in Mexico

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INSIGHT: Iñigo Mariscal, Marhnos

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INSIGHT: Antonio Garibay, Ingeniería en Administración de Contratos (IAC)

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| ANALYSIS

UNLEASHING THE POWER OF CONSTRUCTION THROUGH PPPs Cities are growing, which creates the need for infrastructure. Yet, governments only have six years to see projects through and normally they do not have the funds to support them. PPPs could be the go-to option to bridge this gap but the people must understand the difference between a partnership and privatization For citizens, public-private partnerships (PPPs) are often

reasons why international players are hesitant to enter the

accompanied by the words “privatization” and tend to be

infrastructure industry,” says Romano.

automatically vilified. But PPPs are a huge boost to the rate

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of infrastructure development that couple private sector

Transparency is a crucial element to improve investor and

expertise and public sector risk management. “It is important

company confidence in infrastructure projects through

to educate people about what a PPP consists of, especially

prequalification processes for project tenders. “For some

when they think that it translates to privatizing the country’s

reason, in Mexico everybody is frightened by the idea of

assets. In reality it is simply detonating investment,” says

prequalification in projects. At the end of the day, establishing

Carlos Redondo, Country Manager Mexico of ROADIS.

prequalification requirements is an excellent way to ensure the skillset of the participants entering a bid, giving a project

According to IDB’s Evaluation of Infrastructure Public-Private

an added value and ensuring its quality,” says Reyes Juárez,

Partnerships 2017, PPPs contributed only 0.4 percent to

Director General and President of FOA Consulting.

Mexico’s GDP in the last decade. Among Latin American countries, Mexico ranks second in terms of investment through

According to the 2018 WB Procuring Infrastructure Public-

PPPs but in perspective, PPPs represented only 1 percent of

Private Partnerships Report, Mexico’s scoring in the

the region’s GDP from 2006-2015. Meanwhile, in developing

preparation, procurement and contract management of PPPs

Asian economies PPPs represented 1.6 percent of GDP.

is above 80 on a 100-point scale. The country’s PPP Law is modeled after successful examples in other countries and the

This scheme is not only beneficial for the construction

research shows its validity. The challenges arise during the

sector but for the government and the entire country, since

implementation and the assurance of transparency during

it expedites the development of infrastructure projects

the selection of projects in order to successfully bridge the

needed to support the growing demands of cities and their

infrastructure gap. According to Ignacio García de Presno,

inhabitants. The key lies in selecting the right projects and

Lead Partner of Global Infrastructure and Projects Group

the most qualified players to see them through. PPPs are

of KPMG, projects must be analyzed individually to know

being used all around the world to help bridge government

if a PPP is actually the most suitable option. “There are a

funding gaps and meet vital public needs. “There needs to

number of different PPP modalities, from concessions to

be close coordination between the public and private sectors

service agreements,” he says. “All could work, some better

to identify the projects that can be developed through PPPs.

than others. But there is a perception that all PPPs can fix

We must figure out how to transform PPPs into a business

everything and the issue is that they were not designed to

incubator,” says Sergio Ramírez, Director General of Acciona

do everything.”

Infraestructuras México. Long-term planning is another key issue that prevents PPPs PPPs also increase transparency within the construction

from successfully delivering the benefits they could offer.

sector. In Mexico, public works can be contracted

The consensus among Mexico Infrastructure & Sustainability

through three types of processes: direct awarding,

Review interviewees is that the lack of long-term planning has

restricted invitation and public tenders. According to

been the bane of infrastructure development for the country.

Manuel Roman, Partner-in-Charge at Jones Day, the PPP

Juárez explains that for decades, the country has developed

mechanism became a way of professionalizing the sector

six-year infrastructure plans that align with the term of the

and allowed both national and international private entities

administration in power even though the complex nature of

to play a larger role in the infrastructure industry. He says

the industry makes it difficult for the president who develops

the common belief is that PPPs are essentially giving

the plan to actually finish it. “More than anything, the country

money away to the private sector; on the contrary, they

needs to establish a decentralized entity to prepare long-term

actually increase transparency and reduce opportunity

projects and PPPs, which at the same time will disseminate

for corruption. “This would promote stricter guidelines

the PPP law so that local and state authorities will know how

for anti-corruption and transparency, which are probable

it works completely,” says Juárez.

VIEW FROM THE TOP |

PUBLIC, PRIVATE INVESTMENT NECESSARY TO BOOST DEVELOPMENT SERGIO RAMÍREZ Director General of Acciona Infraestructuras México

Q: What are the main challenges construction companies

There are many necessary projects that need to be built and

are facing to develop the country’s most pressing projects

now the private sector can promote their development on

and what is Acciona’s role?

the local, state and federal levels. If there is a clear balance

A: There needs to be clarity in the regulatory framework so

between public and private investment in infrastructure,

both public and private investment continues. Topics such

the government will be able to allocate more money to

as right of way need to be addressed so that investment

social projects that the country desperately needs and

continues to flow into the sector and country as a whole.

more financially-viable projects can be concessioned to

Projects must be thoroughly valued in terms of both cost

the private sector.

and impact. The cheapest option is not necessarily the best choice. Security is another issue that must be addressed.

Q: How important is the integration of more PPPs and USPs

Construction companies must be able to guarantee the

in the Mexican infrastructure industry?

safety of their workers throughout the country.

A: The country has a large infrastructure gap and the government does not have the funds to bridge it by itself.

Acciona is present in over 40 countries and we have

There needs to be a close coordination between the public

been operating in Mexico since 1978. We have become a

and private sectors to identify the projects that can be

Mexican company building the country’s most important

developed through PPPs. We must figure out how to

infrastructure and we will continue investing in the nation’s

transform PPPs into a business incubator.

development in the years to come. We have expertise in the delivery of all kinds of infrastructure and we have developed

As for USPs, although companies get their investment back

our engineering skills greatly through various transport,

if they do not win the tender, few companies want to invest

water and social infrastructure projects.

the amount of time and labor that goes into a proposal. If the public and private sectors can work together on a list

Q: How has the country advanced in terms of infrastructure

of infrastructure priorities, and then develop these through

development?

PPPs, USPs and other schemes, this would create jobs and

A: Mexico’s infrastructure industry has experienced a

deliver much needed progress.

transcendent change thanks to the collaboration of the public and private sectors in the delivery of large

Q: What role does NAIM play in the future development of

public works. This has allowed for greater infrastructure

the country and how is Acciona participating in it?

development. Many of the roadways developed and the

A: Construction of Mexico City’s new international airport

concessions offered in the last few years have not only

is already underway and it is creating thousands of jobs.

given work to the construction sector but unified the

Funding has been raised and is specifically tied to the

country. Public private partnerships (PPP) have boosted

project, which is vital to the future of the country. Acciona

development greatly but there is still a great amount to do

is part of the consortium that is building the terminal. Over

in terms of airports, ports, rail and roads to interconnect

120,000 tons of steel are being used in this structure alone.

the country even more. Railroads should be given priority

The manufacture of the steel, its transport and installation

and they are needed not only to transport people but also

has given work to more than 5,000 Mexicans.

cargo and boost the country’s logistics. Peña Nieto’s administration passed various important

Acciona Infraestructuras is a leading company for developing

structural reforms including for telecommunications, public

sustainable solutions around the world through its different

works, energy and education. We need to work together

activities,

to identify proposals and present them to the government.

industrial and service

comprising

construction,

concessions,

water,

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| VIEW FROM THE TOP

PPPs CAN INCREASE INDUSTRY TRANSPARENCY Fernando Vázquez President of Grupo TADCO

156

Javier Pascual Director General of Grupo TADCO

Q: How did Grupo TADCO establish its relationship with the

the construction of many homes in the next few years.

government for work in Mexico’s infrastructure industry?

Mexico’s cities are trying to close off their urban centers

FV: Taller de Arquitectura, Diseño y Construcción (TADCO)

and migrate toward more vertical developments. Another

was founded in 1985 to support the reconstruction of Mexico

sector we are hopeful will pick up is public education

City after the earthquake that leveled the city. Through the

and more projects will be tendered in the future through

years, the company transformed into one of the Mexico’s

PPPs. Outside of Mexico, we are also looking to launch

most important construction companies. During this time,

supervisory and consulting services in Central and

we had an opportunity to work with the federal government,

South America.

supervising a penitentiary project. These types of projects are complex and only big construction companies such as

FV: We will also see a great amount of activity in the health

GIA, ICA or Prodemex can carry them out. This is how we

sector through various hospital tenders from ISSSTE and

became a consultant for the federal government.

IMSS. Over the years, we have actively participated in this sector and we are starting to enjoy the fruits of our labor.

Q: What are the main factors that will differentiate companies within the infrastructure industry?

Q: How has Grupo TADCO financed its growth and how

JP: We are betting on three different factors for our

does it want to continue funding its participation in new

future development: technology, innovation and PPPs. In

projects?

the future, projects will not be delivered on paper but

JP: We have credit lines with banks and our participation in

on disks and flash drives. Technologies such as BIM and

NAIM has increased our flows but we are looking for new

REVIT will push disruption within the construction sector

options to finance our growth. Additionally, we are working

and push the country forward. It is also surprising that in

on our corporate governance structure to align with the

some projects or areas we are still constructing using the

interest of investors. We want to establish an administrative

same methodologies as we did years ago. This is why it

council and comply with other specifications that both

is vital that we innovate in our construction systems and

banks and the BMV require. Transparency will help us not

bring change to the sector by integrating new materials

only improve our day-to-day activities but also to expand

that are more sustainable and that will not only cut down

and realize our growth expectations.

construction times but also increase safety. Q: Why is it so difficult to retain human capital within the Q: Which subsectors are attractive to Grupo TADCO and

construction and engineering sectors in Mexico?

under what schemes?

FV: Within the construction sector, the turnaround of

JP: In a country like Mexico, I believe PPPs are the future

human capital is becoming a real challenge. There is a

for the development of the country. I think that the private

great amount of competition within the industry because

sector is much more efficient than most public entities.

these new generations are embracing more skills, especially

In terms of segments, housing is an area we believe will

through technology. Grupo TADCO has experienced many

be very active in 2018. The country’s housing deficit,

challenges with the fast evolution of technology. People who

particularly in the social housing segment, will require

are continuously learning and training themselves are in high demand from all companies, therefore creating a gap. We are at an important juncture and the sector has to adapt quickly.

Grupo TADCO is a Mexican engineering, supervision and

We see a great opportunity in the niche of BIM and REVIT.

architecture company that has been in the market for more than 30 years. The firm is participating in the supervision of

JP: Millennials are particularly difficult to understand. They

NAIM and various social infrastructure projects in Mexico

are more worried about the human aspects of a company,

more than just the compensation. They want more time

that they have a great deal to offer to the international

out of the office and want to have more freedom. The

market. Our alliance with SACMAG, for instance, has

company decided to offer more flexible working hours

allowed us to begin working in some South American

and home office to adapt to the needs of new generations.

countries.

Q: What has been Grupo TADCOâ&#x20AC;&#x2122;s experience working with

The presence of corruption and the lack of transparency in

SACMAG and NACO in the supervision of NAIM?

various government processes scares many international

JP: The main challenge we are facing is the terrain. It has

players. They believe that Latin American countries

been incredibly difficult to stabilize the locationâ&#x20AC;&#x2122;s subsoil to

have high corruption, creating a large barrier to entry.

a point where both NACO and the CICM have decided to

Many international companies have had the experience

stop fighting nature and work in phases. We want it to sink

of investing in tenders only to discover the tender was

homogeneously and for this we designed each part of the

manipulated. PPPs will professionalize the system and

airport with more than 10,000 specialized instruments. We

eliminate these barriers for international companies.

implement an observation method in which we benchmark each and every instrument to ensure the equal sinking of the

Q: What are your recommendations for the next

terrain and that it is behaving as it was expected to in theory.

administration to improve infrastructure processes? JP: I think that we need more openness from various

Q: What legacy does Grupo TADCO want to leave in

governmental agencies to include more private sector

Mexico and what are its expansion plans?

participants in infrastructure projects. There are many

JP: Grupo TADCO wants to collaborate with more

basic services that could be drastically improved if placed

international companies and provide an added value with

under a PPP scheme.

our in-depth knowledge not only of the industry but of the country. This is why we have been able to create alliances

FV: One of the biggest problems within the infrastructure

with European and US companies. We understand how

industry is that tenders for projects begin in the middle of

the government operates, which is a great strength that

a presidential term. It should be from the very beginning

these new companies need to be successful in Mexico. We

of a presidential term and everything should have already

want to show that Mexican companies can integrate this

been adequately planned so that, in the six years of the

cutting-edge technology into infrastructure projects and

term, the projects will actually be completed.

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BOOSTING MEXICO'S INFRASTRUCTURE FROM EVERY ANGLE ENRIQUE ALONSO ZÚÑIGA Director General of Sacyr Ingeniería e Infraestructuras México

Q: How have Sacyr’s operations evolved in recent years

Light Train. Through concession contracts, we are also

in Mexico?

participating in the Piramides-Tulancingo-Pachuca highway

A: Globally, Sacyr is divided into four divisions: Engineering

and the Tlahuac General Hospital in Mexico City.

and Infrastructure, Concessions, Services and Industrial. Sacyr 158

is present in 29 countries and is driven by over 30,000 people

Q: What project would you highlight as your main

who seek to create a more prosperous and sustainable world.

achievement due to its technical difficulty?

We operate 3,800km of highways throughout the world and

A: One of the most emblematic projects we have developed

have constructed more than 700km of 40 different high-

in Mexico is Line 3 of the Guadalajara Light Train. The most

speed rail projects. Sacyr also manages more than 40 waste-

difficult aspect of the project was the construction of the

treatment plants, 2,500 beds in various hospitals and more

tunnel. However, thanks to our experience in other countries

than 900MW in electricity generation and cogeneration

we were able to complete it successfully with a TBM tunneling

projects.

machine. The project consisted of a 5km underground structure that would pass under the historic city cathedral.

Sacyr's RARx solution mostly uses rubber dust from tire recycling, which has economic, technical and environmental benefits.

Of the entire project, 680m were in a trench and the remaining 4km were executed across a tunnel with a diameter of 11.55m. This was necessary to screen and improve the soil through the jet-grouting technique to protect historical buildings. The project has five underground stations (Normal, Mayor, Catedral, Independencia and Plaza de la Bandera) with structures that are 110m in length and 20m in width, double access, waiting areas, distributors and platforms, as well as technical and ventilation rooms in both headers.

Mexico is a strategic country for us and we believe that we can add value to the development of infrastructure from a

Q: Sacyr México recently won the tender for the San Alejandro

technical point of view, integrating innovative and efficient

Hospital in Puebla. What key factors should construction

solutions, and as private investors in project financing through

companies consider when bidding for a hospital in Mexico?

PPPs. We believe that PPPs can be an important mechanism

A: Hospital projects are highly complex due to their

for the country’s economic development in the coming years.

specialization. They involve a large number of installations

We also believe that the development of transport projects

with technical specifications that are not required in other

for people and goods will contribute to the generation of new

types of buildings. In these projects, executive design must

business opportunities, especially to improve conditions in less

be exceptional and use of spaces must be well defined so the

favorable regions. There is great potential in developing social

future operation of the hospital and its services are efficient.

projects, such as schools, universities and hospitals.

Definitely, the user must be the main focus of the project.

Sacyr is committed to improving the quality of life of

The San Alejandro Hospital involved the replacement of

Mexicans through the development and operation of various

the 210-bed Pediatric Gynecology Hospital and the 205-

infrastructure projects such as the Queretaro Regional

bed Regional General Hospital, both located in San Andres

Hospital, the Pediatric Gynecology Hospital, the Regional

Cholula, Puebla. Sacyr’s was in charge of the design and

General Hospital in San Alejandro, the Ciudad Acuña General

development of the executive project, construction of civil

Hospital and the Specialty Hospital in Pachuca. Sacyr is

works and the supply, installation and testing of start-up

also participating in the construction of the New Mexico

equipment and permanent installations. We also took over

International Airport (NAIM) and Line 3 of the Guadalajara

the design, manufacturing and installation of furniture, as

well as the signaling, atmosphere, institutional image and civil

participants have the opportunity to follow a specific career

protection of the hospital.

path that will allow them to take future key positions in the company.

Q: What is Sacyr’s participation in NAIM and what areas of opportunity have you identified in the project?

Q: What are Sacyr’s expectations for your business in Mexico

A: This project represents a great challenge, which we seek

during the AMLO presidency?

to comply with the highest quality to continue positioning

A: We are very optimistic about the future scenario with the

ourselves as a benchmark for infrastructure development in

incoming government, with which we will be working very

this country. Sacyr is participating in the construction of the

closely. In this new stage, the development of infrastructure will

foundation of NAIM’s ground transportation center, which

be boosted and we are committed to being a key participant

consists of a reinforced concrete slab with an approximate

in this process. We are an established company in Mexico with

surface area of 143,740m2. A special construction process

global presence that watches out for communities where we

was established with a geotechnical component as a

are present, collaborating with partners and Mexican talent.

fundamental pillar given the unique characteristics of the soil. In this area, the ground offers little support due to existence of sand sediments through which high-pressure water runs. We designed our concrete formula to comply with the high specifications required in the project. We are even creating this mix in a plant located on-site thus guaranteeing its durability. Q: How is Sacyr innovating within the Mexican infrastructure industry and what is the main added value it offers to clients?

LINE 3 OF THE GUADALAJARA LIGHT TRAIN

Crosses the city of Guadalajara in 33 minutes

• 18 stations • 13 elevated and 5 underground • 4 in Zapopan • 6 in Guadalajara • 3 in Tlaquepaque

A: Our main added value is contributing our experience accompanied by innovation. Over the years, this has led us to position ourselves as the fourth-largest infrastructure multinational in Latin America. Sacyr has been in Mexico since 2008 and has joined forces with local companies to develop several projects. We are innovating within the sector by introducing materials that support the circular economy. Our RARx solution uses rubber dust from tire recycling, which has economic, technical and environmental benefits. This increases the durability and useful life of streets and offers better response against reflection and crack propagation, as well as better resistance to fatigue. It also lowers conservation

It will integrate Line 1 and 2 of the light train Links with Macrobus, Trolebus, Pre-Tren

Reduces the use of 10,000 cars

costs. In addition to reusing tires, our new solution also decreases the amount of raw materials needed to manufacture the mixture (aggregates and asphalt) by creating thinner reinforcement layers. RARx also reduces the noise vehicles

Expected date of completion: Oct. 2018

make, thus increasing the quality of life of people living on streets paved with this material.

Transport 15,000 people per hour

Q: What are Sacyr’s views on talent development and its importance for the company’s growth strategy? A: Sacyr is betting strongly on human talent. Our team in the country consists of 400 direct employees and more than 3,000 indirect employees. Through our Talentya program we promote the development of youngsters. This program

Two terminals: Periferico Zapopan and Central Camionera

Estimated cost as of April 2018:

MX$25 billion

Source: SCT, SITEUR

targets recent graduates who are starting their professional careers and who are interested in joining a company that is passionate about challenges. Talentya includes all areas within

Sacyr Ingeniería e Infraestructuras M éxico is a global

the company and aims to incorporate the best talent within

construction and engineering company with presence in 29

an ambitious development program that is structured and

countries. It is participating in the construction of NAIM, hospital

has a specific retention plan. With a duration of 24 months,

projects and the Piramides-Tulancingo-Pachuca highway

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| INSIGHT

PRIVATE PARTICIPATION IN DESIGNING INFRASTRUCTURE INVESTMENT ROBERTO CALVET Director General Mexico of AECOM

160

While infrastructure investment is directly related to the

across political administrations. “Mexico needs a long-term

evolution of the economy and cities, not all industry outlays

planning entity that can help to preserve all the lessons

are appropriate. Roberto Calvet, Director General Mexico of

learned from past projects and initiatives. It will also aid

AECOM, believes that scarce resources demand a thorough

guaranteeing projects’ social, environmental and financial

expenditure plan that tackles the most urgent needs.

sustainability,” he says.

“Infrastructure investment must be carefully designed to prioritize projects that innovate in cost-reduction while

The lack of a long-term infrastructure plan makes investors

increasing efficiency and sustainability,” he says.

cautious about their next bets. “Investors want to understand how the next infrastructure projects and programs will be

For wiser investment, Calvet says the private sector’s

decided,” he says. “The industry is waiting to see which

participation is crucial to creating a long-term planning that

public policies will enhance infrastructure-related sectors

coordinates projects in a more efficient way. “The private

such as energy and oil and gas. He says AECOM has a

sector’s contribution starts as a solution to address the

significant responsibility in NAIM so it continues to be one

need for financial resources but transcends to providing

of the company’s priorities. “We will also keep advising

the technical knowledge that companies have to optimize

the oil and gas sector regarding infrastructure, social,

the use of capital,” he says.

environmental and logistic matters,” he adds.

Beyond securing financial resources and supplying

In the meantime, the company has a private capital division

specialized expertise, involving the private sector in

reviewing the future behavior of the market. “AECOM Capital

public infrastructure development can also work as a way

is analyzing where seed capital would be more successful in

to distribute risk. “The construction and start-up phases

fostering growth,” he says. “This is our strategy for taking

are the riskiest of a project. PPPs are a great strategy

on some project risk while acknowledging that we are not

for risk management in infrastructure,” says Calvet. He

the project developer.” Calvet believes the capital branch

mentions that hospitals make a great case for successful

is the company’s key differentiator against its competitors.

“

collaborations between the public and private spheres.

The construction and start-up phases are the riskiest of a project. PPPs are a great strategy for risk management in infrastructure”

Of the world’s Top 5 engineering and project management companies, AECOM is the only one with such a division. As a global firm, AECOM also participates in multiple markets to shield itself against uncertainty hindering infrastructure projects. “Each market is like a piston for us so the company’s car can keep rolling even when the inertia of one market tries to brake it,” he says. Despite the industry suspense over the transition between two political administrations, Calvet remains optimistic about the future of the sector. “The need for infrastructure is

To bring about closer collaboration between both

imminent. No leader would make decisions to the detriment

sectors, AECOM is promoting the creation of a national

of the industry that powers economic growth and social

infrastructure council with the private sector’s participation.

development,” he says. “I think the new infrastructure

To address the need for a long-term view, Calvet also hopes

cabinet has the adequate people and that AECOM will be

to see the prompt creation of a National Planning Institute

able to collaborate for the benefit of the sector in analyzing

that ensures the continuity of infrastructure projects

the much-needed macro strategies.”

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SPECIALIZATION KEY TO SUCCESS IN MEXICAN ENGINEERING JUAN JOSÉ RISOUL President of Grupo SACMAG

Q: What role has Grupo SACMAG played in the

We have experience in immense projects in Mexico, including

development of Mexican infrastructure and what are its

the Cancun International Airport’s control tower, which is the

growth strategies?

tallest in Latin America at a height of over 100m.

A: As a consulting company, we are the first to serve potential clients. We are among Mexico’s largest consulting

We are also working on Mexico’s largest airport, NAIM, as

companies and have been named the top consultancy firm

master civil engineers. We are part of a consortium integrated

in Mexico by the National Consulting Companies Chamber

by NACO and TADCO. The tender called for consortia

(CNEC). Our role has been to become the eyes of the client

that combined national and international experience. Our

during project development, ensuring that the project is

consortium integrated our local knowledge together with the

executed on time, within the available budget, with the

global expertise from NACO. We won the airside tender, which

required quality and meeting strict safety standards. Going

includes the airstrips, platforms, runways, drainage systems,

forward, Mexico will require a great deal of hydrocarbons,

electric distribution networks, fuel storage and distribution

energy, health and transportation infrastructure.

infrastructure, 17 maintenance buildings and everything that surrounds the terminal building. To give an idea of the

Q: What role do PMOs play in the development of transport

complexity of the project, there have been more than 23,000

infrastructure through PPPs?

different blueprints drafted. We have an experienced technical

A: Mexico has reached the point where it no longer builds

team and have delivered good results as a consortium.

its infrastructure. Instead, it creates tenders and involves the private sector a lot more through PPPs. These schemes are

Q: What is the biggest challenge Grupo SACMAG has

good alternatives to bridge the country’s infrastructure gap.

encountered in the engineering and supervision of NAIM?

Years ago, the majority of the country’s highway network

A: The largest challenge we have encountered is definitely

belonged to the government and now, most is concessioned

the soil, so overall design has been a large challenge. In this

to private companies. It is now a rarity for the public sector to

project, the runways have been the most difficult phase.

oversee the development and maintenance of federal roads.

Nine different trials have been performed on the terrain to determine what system to use. The prevailing solution

We are independent engineers and we oversee the quality

is based on a preload system that involves 2m of tezontle

of a project and ensure it is accomplished on budget and

with 2-3m of basalt stone as preload material. It is expected

on time. Nevertheless, in Mexico a PMO does not sign

to sink approximately 2m in 12 months after the total load

contracts. We provide the client with expertise to undergo

is installed. The specifications of the runways are also

pre and post-tendering stages but ultimately, the client

extremely strict. The quality of the runways must ensure

makes the decision as to who wins the tender. In the US,

that they will only require significant maintenance every

PMOs usually sign on behalf of the client, which I believe is

20 years and lighter maintenance every eight years. The

better because without this system, a consulting company

current AICM airstrips require maintenance every one to

is not able to guarantee its projects.

two years. Because they require such frequent maintenance, there are some areas of the airstrips that have more than

Q: What experience does Grupo SACMAG have developing

10m of pavement layered on top of itself.

Mexico’s airport network? A: Grupo SACMAG has years of experience working in airports throughout the country. As a company we have participated

Grupo SACMAG is a Mexican engineering and consulting firm

in the Saltillo, Cozumel, Guadalajara and Cancun airports. We

with more than 55 years in the market. It has worked on NAIM,

carry out all types of tasks, including engineering, project and

the Mexico-Toluca Interurban Train, Mexico City Metro lines 3

construction management, site supervision and consulting.

and 7 and the Atotonilco WWTP

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| INSIGHT

ADAPTING TO TAKE ADVANTAGE OF UPCOMING OPPORTUNITIES JÓSE RAMÓN DELGADO Country Manager of Ayesa Mexico

162

The Mexican infrastructure industry is going through a

infrastructure projects for his administration, including the

transition period as the country shifts into a new political

Mayan Train and the construction of 300 rural roadways.

administration. But due to a decline in the development

But Delgado believes that now the new administration must

of public infrastructure, Jóse Ramón Delgado, Country

ensure that the campaign promises tally with the budget.

Manager of Ayesa Mexico, says engineering companies

“Many of the projects are very social and are may not be

must adapt. “Ayesa has always worked closely with the

attractive for the private sector to participate through

public sector and when we first arrived in Latin America

a concession or PPP,” he warns. “The administration will

15 years ago, we wanted to continue to working in public

have to differentiate what budget will be allocated to social

projects,” he says. “Diversification is key during times like

projects and how the rest will be bridged with private sector

these and Ayesa is diversifying not only in the different

resources.”

subsectors but also in the regions in which it is operating.” PPPs have been the most successful in the transport With the changing administration, public sector projects of the

sector, in particular road infrastructure development and

Peña Nieto era are tailing off while the new administration is

maintenance due to the returns that can be provided by

yet to develop its National Infrastructure Program. This means

tolls collected. Banobras has released PPP tenders to the

there has been a natural slowdown in public infrastructure

private sector for various roads such as Tampico-Ciudad

project development but private sector development has

Victoria, Campeche-Merida and San Luis Potosi-Matehuala

continued to boost the industry. In the next year, Delgado

and is expected to continue doing so in the years to

foresees a decrease in public projects and says engineering

come. Banobras decided to open these opportunities to

companies should not simply wait around for public projects

the private sector so it could operate them in a more

to present themselves. “There are still many opportunities

efficient way and transfer as little cost as possible to the

to take advantage of and Ayesa is taking the leap to new

end users. Ayesa recently was awarded the supervision

segments within the transport and social infrastructure

of operation and maintenance through an administrative

sectors while the public sector gains traction,” he says.

supervision agent of 580km of the Southeast Package. This package, also awarded by Banobras, includes six

Ayesa is currently in the process of finalizing various

highways that run through Veracruz, Tabasco, Campeche

large projects such as Atotonilco, which is already in its

and Chiapas.

operational phase, the Mexico-Toluca Interurban train, the third pipeline of the Cutzamala aqueduct and NAIM.

Delgado says another factor the government should

The construction of NAIM is one of the most important

consider to attract private investment is decreasing

projects in Latin America but with the changes in political

project risk. For infrastructure development, this can

environment, uncertainty has arisen. “The future of NAIM

come in the form of rights of way (ROW) and social

is unknown in the medium term but we believe it will be an

and environmental studies. It is common for projects

investment that will continue under the new administration,”

to experience cost and time overruns, in what Delgado

says Delgado. “It is probable that the contract assignation

believes is a lack of planning, which is exacerbated by

or construction scheme or even the final allocation may

government time constraints. “It is important to allocate

change but due to the advances already made, it would

resources to the planning stages of a project and not just

send the wrong message to international markets if the

create projects to fulfill political goals,” he explains. “We

project were stopped.”

need to identify the needs of the country, as well as the financial viability of these projects. Infrastructure planning

Throughout his campaign, incoming President López

in the investment cycle could save 30-40 percent of the

Obrador established various priorities in terms of

cost overruns generated during the project.”

VIEW FROM THE TOP |

THE POSSIBILITIES OF UNDERGROUND SPACE ROBERTO GONZÁLEZ General Manager of Robbins Mexico

Q: What is your assessment of Mexico’s underground

SCT. We have worked on the TEO project for 10 years. I

infrastructure?

believe the project should have had more comprehensive

A: Robbins is an advocate and promoter of the use of

studies before starting construction, but it is a fundamental

underground space. The surface is finite and should be used

infrastructure project for wastewater management in Mexico

by the people, not by cars. So, we believe in promoting

City. Our machines yield the best returns for mechanized

underground mass public transportation, such as the

innovation. We have had Robbins equipment working on

Metro system. Robbins designs boring machines for each

projects such as the Metro line 12, the TEO, several pipe

type of ground. Geology marks the specifications for each

jacking projects and the TEP.

underground project but I think that Mexico must give geological studies the importance they deserve, as project

The TEO is one of the largest drainage infrastructure

developers often overlook these to reduce time constraints.

projects in the world and will work together with the

Geotechnical studies are the best way to choose the best

Central Drainage Tunnel that was finished in the late 1970s

machine for boring in the safest and fastest way. For

along with the wastewater canal to transport water into

example, crossover machines allow the operators to change

the state of Hidalgo. Robbins supplied three Earth Pressure

between two boring modes for different ground types, such

Balance machines to work on this project. Over the course

as rock and clay. This versatility also improves tunneling

of construction, there were several changes and unexpected

safety and can minimize the risk of sinkholes or heave on

events such as flooding on Lot 1, and mixed ground found

any excavation, which is especially important while boring

on Lot 3. It was truly a unique experience to work on such

underground in highly-populated areas such as Mexico City.

a fluid project that involved high-water pressure, mixed ground and full-face rock.

Q: How does Robbins provide value to its clients? A: Robbins has pioneered many types of boring machines

Q: What other projects are you considering in Mexico and

since 1952, so our clients can count on our experience. We

in which sectors?

design our machines to provide the most efficient design

A: The transition period between administrations slowed

and the most profitable excavation for our clients. They

down several tendering processes but I believe there are

can count on us as an ally and a strategic partner that will

many opportunities at NAIM. ICA won the tender for deep

accompany and guide them through their mechanized

drainage. There are also tenders for the drainage works

excavation phases. We provide very robust machinery

related to the runways. All the drainage will be released

that, with the right maintenance, can be reused for several

through the Valley of Mexico General Drainage Tunnel, an

projects and can also be updated by upgrading the

18km tunnel that will feed into the TEO. Also, as Mexico

technical systems.

City has many wastewater management needs, CONAGUA has significant plans for collectors feeding into the deep

Q: How was your experience in the Northern Drainage

sewage tunnels. There is a lot of demand to build new

Tunnel (TEP) and Southern Drainage Tunnel (TEO)?

tunnels for metro or high-speed rail and hydro projects

A: A Robbins Crossover (XRE) TBM was chosen to bore

and to start using innovative mechanized tunneling for the

a 5.5km tunnel as part of Mexico City’s wastewater

mining industry.

management efforts in the second phase of the TEP, making it the first crossover machine to bore in North America. Regarding our experience collaborating in public projects,

The Robbins Company is the world’s foremost developer

we have had experience with construction companies like

and manufacturer of advanced, underground construction

ICA, Carso and the Aldesa-RECSA Consortium, along with

machinery. Robbins has been involved in hundreds of tunnel

the governmental dependencies such as CONAGUA and

boring projects around the world

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APPEALING TO REASON FOR INFRASTRUCTURE PROJECTS MARIO OLIVERA Director of Construction at PRODEMEX

Q: As a 100 percent Mexican construction and infrastructure

government makes a risk transference to the private sector,

company, what added value does PRODEMEX offer?

which we must carefully analyze.

A: Compared to foreign companies our key added value lies 164

in our interests related to the country as we are focused

Q: What is your assessment of the NAIM project and its

on promoting Mexican growth. We plan to operate in the

challenges?

country for life, so it is in our best interest to collaborate

A: The first challenge was to create the structure and allocate

with local companies and foster their development. Foreign

responsibilities to support such a huge project. I think NAIM

companies come to Mexico and often outsource most of

is a spectacular project that is very much required by the

their staff and services, while we do everything directly.

country but it has been unjustly politized. All the experts and technicians have already said that Texcoco is the right place

Q: What areas of opportunity has PRODEMEX uncovered

to build the airport. Although there is a judicial path that can

in social infrastructure and what would it do to improve it?

be pursued if the project is canceled, I think the industry

A: I am also Vice President of PPPs at CMIC. We are carrying

must appeal to reason. If every technical player in the country

out a study with PwC and Currie & Brown to evaluate this

says the project must continue, it would be unreasonable for

scheme’s performance and will present it to the incoming

the incoming administration to say the opposite. To start a

administration. After reviewing the first draft of the

new airport in another area would delay its construction for

study I can say that it is necessary to ensure the Mexican

at least five years, which would be expensive and detrimental

Infrastructure Council is turned into a nonpartisan and

to the entire country.

long-term body that can implement long-term planning in Mexico. This must be approved and validated by Congress.

I must point out that AICM operates on a similar terrain. It

We must define where we want the country to go at least

was not built with pre-load, creating the need to fix airstrips

over the next 30 years, or we will have contradictory efforts

every year. NAIM’s engineering has enabled the maintenance

that get us nowhere.

times for the airstrips to be around seven years. I think that a public consultation is a must for major infrastructure projects

Q: What hospital project can act as a showcase

but not at the stage in which NAIM currently is. At this point,

for PRODEMEX?

the decision of continuing the project must be technical and

A: The Issemym Hospital in the State of Mexico is already

made by experts and not left to the opinion of the people.

operating perfectly. I think that our expertise in BOT for hospitals was crucial for the success of this project as we

Q: What are your expectations for the infrastructure

developed it with all the strength that only experience

industry and for PRODEMEX in 2019?

provides. For example, when starting a PPP, it is normal to

A: The change of administration is the main challenge the

underestimate the initial risk assessment. SCT road projects

industry faces. There are great expectations for the new

are constantly updated in terms of tariffs and inflation.

government, accompanied by doubts about how projects

But there are price changes, such as a sudden 30 percent

will be developed. I think 2019 will be very tough for SMEs.

increase in asphalt prices, that are not covered by these

Those finishing projects at the moment will struggle

assessments. When tendering a project through a PPP, the

with pipeline while those that start projects will face the challenge of adapting to a new government while doing so. As for PRODEMEX, we recently launched several PPP

Promotora y Desarrolladora Mexicana (PRODEMEX) is a

projects for roads and hospitals. We are involved in some

Mexican company based in Mexico City. It has become a leading

public works, such as NAIM’s Airstrip 3 and the terminal

construction and infrastructure generation entity, participating

building. We are also working on a 4km section between

in over 100 projects and it is present in 23 states

Observatorio and Mixcoac for Mexico City’s Metro Line 12.

VIEW FROM THE TOP |

EYEING THE MAYAN TRAIN, OTHER RAIL INFRASTRUCTURE GUILLERMO ORTIZ Director General of Consorcio IUYET

Q: As a civil engineering and project management company,

every peso spent. Also, when advancing a construction

in which kinds of projects would you like to participate?

project, the government automatically sends the contract to

A: The newly-elected government is advancing the Mayan

IMSS, so we end up having two partners that do not contribute

Train project, which would be the biggest infrastructure

a cent to the project but are its main shareholders. So, when

initiative in the country, crossing five states. We would like

we submit a budget for a project, we calculate all these

to take part in this project. So far, we know that it will reuse

payments and, in the end, the project is awarded to some

part of the ancient Palenque Rail, while another segment will

company tendering for half of the price. If the government

cross Tulum and will be available for both passengers and

makes a base budget, why is it tendering projects that come

freight. This project is a challenge given the geography of

in under what it calculated? I think it is in Mexico’s best interest

the areas it will straddle, full of cenotes and underground

to have healthy businesses.

rivers. This would mean stringent due diligence in terms of ROW and for social aspects with so many communities and

Q: What are your goals and expectations as a company over

ejidos involved. It is also of utmost importance to highlight

the next two years and what do you need to accomplish these?

the cost-effectiveness of carrying out this project with

A: Seeking to broaden our structure, we are bidding for

Mexican infrastructure companies as we can offer a more

projects in Guatemala, Peru and Ecuador. We foresee a lot of

competitive price.

infrastructure investment in these countries applicable to the technologies that we can offer. In Mexico, we saw the need

We also expect more investment in other rail projects during

to expand our range so we are currently collaborating with

the next administration and we would like to participate more

companies such as Grupo Sordo Madaleno and CAABSA. I

in this endeavor as I think that Mexico needs more rail. We

find that projects such as Sordo Madaleno’s Torre Reforma

must also focus on finishing ongoing projects, such as the

Colón are shaping the image of our country to the world. In

Mexico City-Toluca Interurban Train and NAIM. I think that both

this project, we are participating in its engineering, with a

projects are doing well despite some construction setbacks.

high-resolution topographic survey. We are also exploring the possibility of using BIM. The added value of our engineering

Q: How would you address corruption in Mexico?

is that it includes the whole project ecosystem.

A: The construction industry is fundamental for the development of the country as it generates new economies,

The country needs to have the right conditions for

new towns and new local businesses, to mention a few. To

construction companies and projects to thrive. The market

address corruption, my approach would be to pay high and

is contracted and people do not want to invest. The proof is

competitive salaries to public officers as a measure to tackle

that we are working and invoicing 30 percent of what we used

extortion. Lowering public wages will not solve anything.

to. However, some public officers that have been in charge

According to Maslow’s hierarchy of needs, we must have our

for too many years are being replaced, which we expect will

workers’ needs covered by their salaries, so they can focus on

be beneficial. We also need the incoming administration to

doing their jobs instead of worrying about how to pay rent

fulfill its promises. I think that it must focus on generating

and feed their families.

more infrastructure as this is the way to foster the country's growth. For this to happen, Mexico needs long-term planning.

I also perceive the need for more private investment as it is proven to yield better results, delivers projects on time and with higher returns. But the government is giving zero

Consorcio IUYET is a Mexican company that offers services

incentives to Mexican construction companies. The reality

is that our majority shareholder is SAT. Taxes are killing

management, construction supervision, BIM and engineering

construction companies as we must invoice and tax return

projects

civil

engineering.

specializes

project

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| VIEW FROM THE TOP

STRUCTURAL ENGINEERING: BACKBONE OF A SOLID PROJECT FEDERICO ALBA Director General of Alba Proyecto Estructural

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Q: How has Guadalajara reacted to the vertical building

features in a structure. Building developments that meet

trend that is becoming the rule in residential real estate?

world-class safety standards while having a smaller budget

A: The market is craving large residential developments

is one of the most interesting and beautiful challenges that

built by experienced residential developers. In Guadalajara,

we face as a structural engineering firm. This challenge has

developers such as TyA, DMI and Kiva build residential

prompted Alba Proyecto Estructural to establish its own

complexes comprising six or seven towers in which people

costs department. We differentiate ourselves from other

happily invest. On the other hand, there are companies

structural engineering companies in Mexico by involving our

focused on other sectors that have land and capital then

costs department in every decision we make as a strategy to

hire managers to become real estate developers. The

ensure that the project we offer clients is developed within

residential segment has been good to us.

budget. We cannot allow ourselves to develop the project blindly and hope that it will meet the budget.

Q: How has the growth of residential real estate in Guadalajara impacted the demand for structural reviews?

Q: What is the state of the renewal of Expo Guadalajara

A: The arrival or expansion of some companies has detonated

that Alba Proyecto Estructural is carrying out?

demand in the segment in Guadalajara. For instance, Oracle

A: This is a very ambitious project. It has seven basement

is building its headquarters in the city, which has spurred

levels that equal 70ha of parking space and a hotel area. A

Greystar, a property management company we work with, to

world-class convention center that can hold 3,000 people

demand at least two 600-unit residential buildings to meet

like Expo Guadalajara will not only boost development but

the incoming need. We not only work with Greystar directly

also become an icon for the city. One of the main challenges

but also indirectly. For example, Torre Américas 1254 is a

that we have faced with this project is the fact that our

development where Alba Proyecto Estructural took part as

partner’s team wants to have large spans and strong

an indirect supplier for Greystar. We supported the company

cantilevers while the team within Expo Guadalajara wants

that sold it this development. Other projects in which Alba

the project to be economical. With this project, as well as

Proyecto Estructural has collaborated with Greystar include

others, the main goals for Alba Proyecto Estructural are to

the development of a 52-story building in Perisur and the

ensure the building is safe, that it meets the architect’s vision

review of the Santa Fe project in Mexico City. Alba Proyecto

and that it is built according to the client’s budget. This

Estructural operates as a key ally for Greystar as we often

project was awarded to Grupo Sordo Madaleno because

carry out the structural design or review of its assets.

of the broad vision it has in the construction business. While the firm has excellent architects, it also knows about

Q: What are the main difficulties that Alba Proyecto

branding, urban regeneration and other key topics.

Estructural has encountered in structural engineering? A: In terms of regulations for this activity, there are practically

Q: What are the main areas of opportunity for Mexican

no differences between Mexico and other countries. However,

talent to effectively engage in structural engineering?

there is usually more capital to be invested in adding daring

A: At an undergraduate level, Mexican universities are doing

features to a project in countries such as the US. Having a

a great job in the development of talent but at a graduate

higher budget ceiling allows for the implementation of more

level there are several gaps. We need more graduate programs in structural engineering. There is only one such program in the area of Guadalajara and it is offered by

Alba Proyecto Estructural is a Mexican structural engineering

a private university that not every engineer can afford.

firm that offers structural engineering, reviewing and consulting

Similarly, there are more programs in structural engineering

services. It has traditionally focused on large-scale residential

offered in Mexico City, some by public universities, but not

development but also on road infrastructure projects

everybody can afford to move there to study.

VIEW FROM THE TOP |

BUILDING RESILIENT INFRASTRUCTURE JESÚS VALDEZ CEO of Miyamoto International CDMX

Q: What added value can Miyamoto introduce into the

construction. As a result, we can ensure that a building was

Mexican industry?

constructed following the strictest international standards.

A: The way to rebuild the city is through the creation of strategies to facilitate rebuilding and recovering properties.

We have found that Mexican engineers are highly

We understand that the owners of the buildings that

qualified in structural matters. But resources often force

collapsed during the Sept. 19 earthquake in 2017 have

them to choose conventional constructive methods

many doubts about engineering and they want certainty

over their more sophisticated counterparts. We want to

that their properties will be rebuilt in the best way possible.

complement Miyamoto’s international experience with

We offer engineering services for reconstruction and for

local knowledge and combine both strengths. For example,

new buildings. Miyamoto differentiates itself with our

many international firms come to Mexico to learn about

extensive experience across 23 offices worldwide, working

soil mechanics. Mexico City’s soil is really one of the most

with complicated soil such as that found in Japan and New

complicated in the world, so experience here can be applied

Zealand. We follow national regulations but also the stricter

anywhere in the world. We have national and international

international standards like California’s building codes.

experience. We have worked in some of the tallest skyscrapers in Japan and the US. We have also carried out

Miyamoto’s philosophy is that engineering saves lives while

the engineering and design activities for the development

keeping businesses running. We believe that structures must

of an isolated support for the statue of Michelangelo

be designed to protect life. We are reviewing several projects

Pietà Rondanini in Milan, Italy. We know how to adapt our

that already have completed the structural engineering

experience to different businesses and priorities.

phase because investors want to be certain that there will be no structural mistakes and that their investments are safe.

Q: What role does Miyamoto International plan to play in

We specialize in different types of structural engineering and

the Mexican market over the next two years?

depending on the building type, we refer these evaluations

A: We are interested in working closely with project

to one of our international offices. In Mexico City’s case, we

management firms. Our goal is to provide a full package

are working with Miyamoto Los Angeles.

for structural safety backed up by Miyamoto’s quality. We have also identified a huge potential for residential and

Q: What opportunities did the Sept. 19 earthquake provide

corporate complexes. The industry is waiting to see how

for Miyamoto to display its capabilities?

the next administration’s policies will unfold, which has

A: Regarding the opportunities, we think that in the first

put the brakes on development. Rental residences for co-

five years after a high-magnitude earthquake, people keep

working and co-living are also booming amid a modern and

structural risk very present in their minds. But with time, this

urban market. We will be focused on vertical building and

awareness fades, as happened in Mexico 32 years ago. Last

infrastructure projects through companies that are being

year’s earthquake reminded people about the importance of

allocated the full package for engineering and construction.

structural engineering, which today has become a decisive

We hope to collaborate with a construction or construction

factor when purchasing a property. This is a value that we can

supervision firm at NAIM. We do not plan to carry out more

add for investors because Miyamoto has its own Structural

specialized projects for the moment.

Safety Certificate. Our brand experience provides certainty related to structural safety. A one-star certificate means that we reviewed and made recommendations on a given

Miyamoto International uses in-depth experience to provide

structural design, two stars mean that Miyamoto International

clients with innovative, cost-effective solutions. It has extensive

carried out the structural design of a building and three stars

knowledge in disaster response, risk engineering, education,

implies that we designed the structure and supervised the

transportation, healthcare, civic projects and risk assessment

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| INSIGHT

METHODOLOGY: THE SECRET RECIPE FOR INFRASTRUCTURE

“

A well-dimensioned structure incorporated at an early stage is an investment, not an expense” José Amarante, Vice President of Business Development and Operations LATAM at Hill International

President for Latin America, is convinced that the number and magnitude of risks in infrastructure is significant. “These projects deserve to have a qualified team permanently assigned to monitoring all the vital signs to successfully meet the project’s objectives.” Unfortunately, there is still a lot of improvisation when facing unforeseen conditions, often with a lack of a pre-defined alternative plan, he says. “This approach results in constant unnecessary delays and cost deviations. A well-dimensioned technical structure, incorporated at an early stage of the project is an investment, not an expense.”

Creating quality and resilient projects is directly correlated with 168

employing detailed processes and a replicable methodology.

Project management is not yet mandatory for all projects in

Máximo Muñoz, Business Development Manager for Mexico

Mexico, but Muñoz believes that it should be fundamental.

of Hill International, says his company has found the secret

“Developers should not see it as an expense but as an

recipe. Whether it is the Burj Khalifa in Dubai or the Bancomer

investment that will be rewarded with a successful project.”

Operations Center in Mexico City, methodology is the key to

Convincing potential clients of its added value has been the

success. “Regardless of who executes these set procedures

company’s greatest entry barrier. “Hill is better positioned

or where, if followed, the project should be successful.” Hill

in the market segment that has already understood that

International entered the Mexican market in 2004 and today

project management is a necessary investment, as the correct

specializes in two areas: project construction management

management from the outset allows projects to develop

and monitoring. After collaborating on its first construction contracts, the firm's leaders realized the opportunity for project management in Mexico. “We recognized that projects would usually experience some type of construction deviation, so we saw the opportunity to help clients by offering project management,” Muñoz says. Project management is designed to anticipate and mitigate any possible risks that may arise during the planning, design, construction or closure phases of a project, resulting in its completion on time, within budget and of the highest quality. José Amarante, the company’s Business Development Vice

“

smoothly,” he says.

The correct management from the outset allows projects to develop smoothly” Máximo Muñoz, Business Development Manager Mexico at Hill International

VIEW FROM THE TOP |

PARTNER LOCALLY FOR INTERNATIONAL SUCCESS JAMES DELANO Vice President of Structures and Logistics, Government and Community Relations at ATCO México

Q: How has ATCO’s structures and logistics division grown

been talking to new companies entering these markets

in the last year and what opportunities does it see in the

looking for fast development, repeatability, market

real estate market?

penetration and results. Other high-potential clients

A: We want to get our structures and logistics division

include hotel developers needing express and practical

going this year. This is the business that ATCO Group

multi-story developments. Schools, hospitals, offices and

started with in 1947 and has always been our flagship line.

other social infrastructure in Mexico use very traditional

We have been investigating opportunities in the market

building strategies. We will work at changing this and

since our arrival to Mexico in 2014. We have found that

making the market realize there is a new and innovative

there are various companies doing this type of business

solution that will solve its needs quickly and efficiently.

in Mexico but mostly in the rental sector and only a few

Then the sector will become even better at adapting new

manufacturing workforce housing solutions to support new

elements.

economic growth in nonurban settings. I think demand for workforce housing will definitely play an important role as

Q: What projects are in ATCO México’s pipeline for

new development begins, especially after the president

2018-2019?

takes office and with new economic zones coming in the

A: Since we entered the Mexican market, we have worked

next few years.

closely with productive state enterprises in constructing pipelines. These types of projects have allowed us to

We are approaching a time when prefabricated buildings

become more familiar with the country and with the rules

will play an important role as a shelter solution. This type

of the game. We continue to look for new opportunities,

of structure is at least 25 percent faster to build and has

whether in the energy, water, construction or logistics

a longer life span, incorporating modern and sustainable

sectors. The country is demanding more and more reliable

materials and energy solutions. The more we can show the

energy to compete globally and we continue to develop

market the attributes of this technology, the more popularity

various energy projects such as distributed generation,

it will gain. The world of modular building has been evolving

hydro plants and solar farms.

in Europe and other North American countries. It is only a matter of time before we see factory-built kitchens and

We recently purchased a hydro plant and are building a

bathroom units and ready-to-install smart walls. We are

power generation plant in northern Mexico. We are also

ready to begin building our modular structures solutions.

developing a solar panel plant and bio-generator projects

This gives us what we have always wanted in Mexico.

in central Mexico. These are great areas of opportunity in Mexico, generating efficient sustainable energy. On the

Q: What strategy are you employing to develop the

pipeline and liquids side, we have partnered with CICSA

modular and logistics structures business?

to develop storage infrastructure and take advantage of

A: We want to enter sectors we had not been in before,

midstream opportunities. Storage like in every industry is

either in Mexico or Canada, such as commercial buildings

inventory and we need it to be efficient. We are also looking

like food chains, convenience stores, gas stations and

at smaller industrial water projects, where we can apply our

pharmacies. These are businesses that can be developed

experience from Canada.

in a modular way that look for fast, easy and efficient construction. Modular buildings allow for 25-50 percent more efficiency in building time in comparison

ATCO México is a division of Canada’s ATCO Group, which

to traditional construction methods. The technology

specializes in the development of structures and logistics, as

allows construction in a factory-controlled setting while

well as specialized renewable energy infrastructure such as

simultaneously preparing the land and permits. We have

bio-generators and hydroelectric plants

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| INSIGHT

JAPANESE COMMITMENT A DIFFERENCE MAKER IN MEXICAN MARKET

“

Shimizu follows the Japanese culture in which time is law, so our monitoring and control processes are strict, ensuring we comply with our deadlines”

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Carlos Salazar, Deputy General Manager of Shimizu Corporation

verticalization boom. Japanese developers have a lot of expertise managing seismic matters, which is why we believe we can provide high-technology alternatives to withstand earthquakes in Mexico,” Salazar says. The company has a research facility in Japan specifically designed to analyze how a building will behave during a telluric movement. “We are implementing these technologies mainly in Japan and Asia. In Mexico, we started collaborating with UNAM and have conducted two workshops with students and professors to discuss these discoveries,” explains Salazar. “This initiative is the first step on our road to becoming an earthquake engineering firm over the long term.” It has no intention however, of entering the real estate development segment, he adds

The Mexican government needs to be more aware of the hurdles it imposes on industries such as infrastructure

Shimizu, which assists projects from their initial stages

and construction and strive for procedural flexibility, says

onward while cooperating with sales and design staff

Carlos Salazar, Deputy General Manager of Japanese

globally, sees an area of opportunity to continue adding

construction expert Shimizu Corporation, adding that

value with the continued growth of the industrial market.

greater policy homogenization is required to make the

But Salazar says the company will look beyond its

infrastructure industry more efficient.

Japanese partners as it seeks to diversify its Mexican business. “Globally, our company has a great deal of

“The government’s goal is to better control the safety of

experience with non-Japanese clients in various regions

the construction sector, but in doing so it has established

around the world. Now is the opportunity for us to engage

many restrictions. This affects project time frames,

with new clients.”

so I would ask related dependencies to revise these requirements. Ultimately, they are affecting the sector’s

Salazar also recognizes that competition is growing.

clients and their investments,” Salazar says. The end result

“We have perceived that local companies have improved

is not just an imposition on companies and their bottom

significantly in terms of quality and safety to compete

lines but it also affects the country as a whole. “All these

with us,” he says. As the differences between Shimizu and

bottlenecks make international companies hesitate about

its competitors become less pronounced, the company

investing in the country.”

will rely on the trust of its clients. “They have the certainty that we will always deliver their projects on time and

At a global level, Shimizu’s experience covers a wide range

to a high standard.” To adapt better to the market, the

of infrastructure, from dams to bridges and nuclear plants,

company has built a mostly Mexican team mixed with

but it has a more focused in Mexico. The company arrived

elements of the Japanese culture and commitment to

in the country more than 20 years ago to support its

customer service. “Shimizu follows the Japanese culture in

Japanese clients with industrial warehouses, a segment

which time is law, so our monitoring and control processes

that remains a central focus for the company in the

are strict, ensuring we comply with our deadlines. Our

country. “We are participating in industrial and corporate

construction systems are based on surveillance so we

projects, building factories and warehouses,” Salazar says.

keep track of any time-sensitive adjustment that needs

“Our international added value is that we have extensive

to be made.”

expertise and equipment in all types of projects.” The company also relies on its talent to differentiate That expertise includes earthquakes. In the wake of the

itself. “Throughout our experience in the Mexican market,”

September earthquakes that devastated parts of Mexico

Salazar says, “we have found that our added value is our

City and some surrounding states, Shimizu believes it

technically skilled and qualified engineers who provide

can provide the kind of technology the country needs.

professional services that lead to the successful delivery

“Emerging cities, such as Puebla, are experiencing a

of solutions, efficiency, quality and commitment.”

INSIGHT |

CONSTRUCTION SMEs UNDERGOING CHANGES ALEJANDRO RUÍZ Head of Construction, KPMG in Mexico

Small to medium-sized enterprises (SMEs) are the

changing generations. The study finds that approximately

engine that drives Mexico, representing 99.8 percent of

40 percent of employees are Generation X and 37 percent

all companies in the country. The construction sector is

are millennials. Construction companies must adapt and

home to many of these SMEs, which are growing quickly,

facilitate the coexistence of three different generations

representing major challenges in oversight and working

that are in the market right now. “Baby boomers, Gen X

environments, says Alejandro Ruíz Head of Construction

and millennials are integrating themselves into the same

at KPMG in Mexico

working space. Gen X is becoming extremely relevant because it is the generation that generally has more loyalty

According to INEGI’s 2014 Economic Census, 45.7 percent of

to the company and responsibility. It will play a key role in

the companies in the construction sector in 2013 employed

incorporating and motivating millennials to participate in

10 or fewer people and 40.4 percent had between 11 to 50

projects within the same company,” says Ruíz.

employees. “The Mexican construction market is extremely fragmented. In Mexico City alone, there is a large number

There are many companies that have been around for more

of mini-companies that generate approximately MX$2-3

than 50 years, have established corporate governance

billion a year and most of the time, these companies are

models and are now in their third generation. But Ruíz says

not audited at all. They went from earning MX$100 million

that a great part of the market is comprised of companies

to MX$2 billion at an exponential rate,” says Ruíz. These

that are 10 years old on average and are extremely

hundreds of SMEs found their niche in the market and

successful. “The time for change is near and there is a

are profiting greatly; nevertheless, they have yet to install

fear of handing over control to the next generation. It is

flexible controls to ensure sustainable growth. “When

important for these companies to create management

companies grow at such a fast pace, it is hard to establish

and organizational charts, where they slowly incorporate

not only controls, but healthy working cultures.”

these younger generations into decision-making processes, with the help of third-party advisors.” A common cause of

KPMG offers auditing, process optimization services, project

conflict, according to KPMG, comes from not establishing

management and human retention consulting for players of

rules for financing and compensation. It becomes a power

all sizes in the construction sector. One of the main hurdles

battle and the best way to ensure a healthy culture is not

the firm has highlighted within the sector, especially for

by pitting employees against each other, but rather by

Mexican players, is talent retention. “Talent has been a

complementing the skills and abilities of each member.

great challenge because millennials no longer want to have long careers. Instead, they look to partake in projects that

Apart from generational changes, every six years the

provide results in a much quicker way, both economically

Mexican market is forced to adapt to a new federal

and on their resumés. It is important that construction

administration, which can be a challenge for many

companies create career plans that encourage their talent

businesses. “Creating trans-sexennial master plans would

to stay and grow within the company,” says Ruíz. According

help reduce uncertainty within Mexico’s infrastructure

to KPMG’s 2017 Global Construction Survey, 28 percent of

industry and support companies,” Ruíz says. Without long-

respondents said there was no common approach at all to

term master plans, there is always the risk that projects

their employee promotion processes and that promotions

could be suspended when there is a change of government.

were generally considered on a case-by-case basis, making

“This demotivates the industry from investing money in

standardization a must in the sector.

these projects, and if they are not secured, this creates a lack of trust between the public and private sectors. It also

The virtues and flaws of millennials are shaking up the entire

makes financial institutions wary, leading to higher debt

infrastructure industry as companies strive to adapt to

prices and ultimately hurting the players in the sector.”

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| INSIGHT

CREATING SOCIAL WELFARE THROUGH INFRASTRUCTURE PROJECTS IÑIGO MARISCAL Co-Director General of Marhnos

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As the government often lacks human and financial

success is to have a specialized team for every business

resources to plan the new projects the country requires,

segment. More than a company, Marhnos endeavors to

the private sector is jumping in with unsolicited proposals

become a platform for talent development and leadership.

(USPs). “We have used this scheme to develop projects

“We want to have people who are well-trained and who

with a positive cost-benefit return, understanding that

are principled,” Mariscal says. “Our company is also a

not all gains are monetary but are also related to security

financial platform with a solid creditworthiness to back

and inclusion,” says Iñigo Mariscal, Co-Director General of

up our projects,” he adds.

Marhnos. “We always build to operate in the long term so we make sure to build well and with high quality.”

To continue raising capital, Marhnos is in the process of issuing its second CKD. “This is a long process but we

When participating with USPs, Marhnos starts all projects

are working with most of the companies we collaborated

in a way that makes sense socially. “We want people to

with on our first CKD: Banamex, Profuturo and Afore XXI

live near their work and social sphere, so they can reduce

Banorte,” Mariscal says.

commuting times and have a better life quality,” he says. But with exponentially growing populations and cities,

This CKD is expected to help the company finance its

this is becoming a titanic endeavor.

project pipeline in Mexico City and Guadalajara while continuing to bridge Mexico’s infrastructure gap through

Marhnos reviews over 30 properties a month but only about 2 percent is eligible to be recycled. It looks at location, size and potential to fulfill its purpose of building welfare

PPPs. “I think PPPs open the way to build the needed infrastructure without having the government disbursing any money,” he says. “Our goal is to build the best way possible on time, budget and quality. We do not get any money until we build and start operating.” For example, Marhnos has extensive experience building and operating hospitals through this scheme, such as the only LEED-certified hospital in the country, the Regional Hospital of Tlalnepantla. “I think PPPs for hospitals help solve users’ need for health services. This is the way to create new infrastructure and provide good healthcare

Marhnos believes that the solution is in recycling space.

services,” Mariscal explains.

“Recycling the city is a time-consuming process as land is vacated and available at a slow pace,” Mariscal says.

This is also a very responsible alternative, he says, as

“We review over 30 properties a month but only about 2

the constructor knows how much it will cost to operate

percent is eligible to be recycled. We look at location, size

the hospital over the whole concession so it can better

and potential to fulfill our purpose of building welfare,”

administrate the asset. “We undertake the risk of a fixed

he adds. For example, for the Nueva Ribera development,

operational tariff from Day Zero before the hospital

Marhnos reused an old chocolate factory and turned it

is even built,” he says. “The government will pay us a

into a residential complex.

monthly fee made by fixed operational costs and variable operational costs.” This scheme is favorable as the

The firm has five business divisions: Habitat, Roads,

government makes one tender and once concessioned

Hospitalia, Public-Private Buildings and Properties. Amid

it can entrust the project to one company for its lifetime

such a broad diversification, the company’s secret for

instead of having to re-tender it every year.

INSIGHT |

GUIDED EMPOWERMENT FOR A NEW WORKFORCE IN PROJECT MANAGEMENT ANTONIO GARIBAY Director General of Ingeniería en Administración de Contratos (IAC)

In an industry constantly trying to boost performance,

space to build their path and climb up the ladder. “We

optimize resources and maximize benefits, innovation

must not let existing employees become a bottleneck for

is crucial. According to Antonio Garibay, Founder of

the people behind,” he says. “We should not be afraid to

Ingeniería en Administración de Contratos (IAC), the

empower the new workforce knowing that they will make

best way to disrupt old processes is to empower the new

mistakes but also learn in the process.”

workforce. “We need to grant a degree of confidence to our new collaborators through guided empowerment,”

But the new workforce is not entering the industry empty

he says. “Education and training are the keys to achieve

handed. According to Garibay, it has much to offer, such

high performance and diversification, while learning

as the easy adaptation to new technologies, command

from previous mistakes, especially in construction and

of several languages and computing and social media

management of infrastructure projects.”

skills. These are becoming ever more important in the context of Industry 4.0, IoT and IIoT. “New technologies

IAC has built a multidisciplinary team of engineers, financial

for infrastructure developments are extremely useful for

analysts and lawyers, among other disciplines, to provide

reducing risks of error and thus the possibilities of extra

all the in-house knowledge to structure and develop an

expenses and deadline modifications,” he says. “IT tools

infrastructure project in the most efficient way. “We add

are disrupting the way project management is carried

most value in the economic, financial, technical and legal

out. All these mediums and software facilitate the interfaces

optimization of the life cycle of infrastructure projects,” he says. “We are not a single-focus consultancy. We work across the borders of different areas to build a tailored solution for each development, regardless of whether it is in power generation, oil and gas, water, transport or manufacturing.” In linking the different threads of a project to maximize its output, Garibay says education is key. “IAC stands out from other firms due to the amount that we have invested in theoretical and practical training for our people,” he explains. “But education does not end by studying a

“

between suppliers and customers.”

IT tools are disrupting the way project management is carried out”

For example, Building Information Modelling (BIM) is a technology improving project viability. “BIM is a medium to develop the whole life cycle of an infrastructure project,

degree and carrying out an internship; it is crucial to have

from its conception to its programming, execution,

the ability to be multidisciplinary and to understand the

operation and maintenance,” he explains.

different aspects of a whole project.” For example, IAC lawyers spend time on construction sites, enabling them

He says the new Mexico City Airport (NAIM) constitutes a

to really understand what is going on in the project and

great example of a development benefiting from innovative

learn about its technical and economical particularities

technological platforms, such as ACONEX. “This is a very

on a daily basis.

friendly database that allows joint management of all database and supplier interfaces while enabling a global

When making the transition to a new workforce and

administration of information,” he says. IAC is taking part in

empowering the existing one, it is also fundamental to

the development of NAIM’s passenger terminal building and

allow existing employees to eventually be able to enjoy

the third runway. “We have a well-established relationship

retirement. Since their expertise is most valuable at this

with many of the participating companies, such as Carso and

stage, Garibay highlights their value as advisors and

ICA so we were invited to help them with the contractual

guides for the new people coming in, also giving them

administration of their project scope,” says Garibay.

173

Saqqara residences in Monterrey

RESIDENTIAL REAL ESTATE

A healthy housing sector is a building block to a sustainable city as housing developments have the ability to transform the life quality of inhabitants. But according to CAF, Latin American housing markets have not responded to rapid urbanization processes for reasons that include a lack of quality housing inventories

with access to basic services, price discrepancies between homes and average salaries, low penetration of mortgage markets and the large gap between the informal and formal housing markets. The 2013 National Housing Plan was designed to address the country’s housing deficit. CONAVI states that the country’s formal housing sector drew in MX$450 billion, while more than 500,000 homes were built by the informal sector, putting a roof over the heads of 4 million people.

The country’s middle-upper housing sectors have grown in the last year, especially in cities such as Monterrey, Mexico City and Guadalajara, but the social-middle housing sectors, which have the most demand, still need catering to. CONAVI expects a housing boom in Oaxaca, Yucatan, Tabasco and Veracruz, while Nuevo Leon and Jalisco continue to grow exponentially. This chapter gathers the insights and forecasts of top residential developers and other main stakeholders outlining what the sector is expected to look like going forward.

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CHAPTER 9: RESIDENTIAL REAL ESTATE 178

ANALYSIS: The Gentrification of Mexico’s Growing Cities

179

VIEW FROM THE TOP: Marcos Fasja, GFA

180

VIEW FROM THE TOP: Eduardo Orozco, Greystar Mexico

181

INSIGHT: Carlos Rousseau, Orange Investments

182

PROJECT SPOTLIGHT: A New Way to Live in Guadalajara

184

VIEW FROM THE TOP: Ignacio Bezares, Grupo LAR

185

INSIGHT: Antonio Elosúa, U-Calli

186

VIEW FROM THE TOP: Marcelo Chapa, MACH Construye

187

VIEW FROM THE TOP: Fabián Sánchez, CREA

188

INSIGHT: Rogelio Zambrano, Carza

189

INSIGHT: Andreu Cors, Gava Capital

190

COMPANY SPOTLIGHT: Real Estate Giant Highlights Demonstrated Ability to Adapt

192

VIEW FROM THE TOP: Carlos Pantoja, Deloitte

193

INSIGHT: Daniel Tovar, Grupo Acerta

194

INSIGHT: Flavio Tavera, Desarrollos Inmobiliarios de Occidente (DIOCSA)

195

INSIGHT: Ignacio Vivanco, Garvi Grupo Inmobiliario

196

INSIGHT: Jack Levy, Grupo VEQ

197

VIEW FROM THE TOP: Agustin Levy, Levy Holding

198

PROJECT SPOTLIGHT: Recinto Escandón

177

| ANALYSIS

THE GENTRIFICATION OF MEXICO’S GROWING CITIES When it comes to Mexico’s booming cities, the housing sector is transforming traditional neighborhoods and new apartment complexes can be seen across skylines. The momentum is there. The question is, how can Mexico ensure sustainable and inclusive growth? Mexico’s housing sector is undergoing a transformation

According to SHF, comparing 3Q16 to 3Q17, Mexico City

that is not only altering city landscapes but impacting the

housing prices rose 7.4 percent. The municipalities with the

lives of residents across the country. The 2016 Housing

highest capital gains are Escandon, Coyoacan and Alamos.

Act changed the rules of development and as a result

The construction trends are shifting from the west to the

incentivized compact and vertical construction. While this

center and south of the city where 63 percent of projects

has improved the quality of life for residents, it has also led

are concentrated as of 4Q17, according to TINSA.

to price hikes that have put housing out of reach for many. 178

“We are seeing a shift in the market dynamics,” says Andreu

Of the 584 projects registered with the Association of

Cors, Director General of Gava Capital. “There has been

Real Estate Developers (ADI) countrywide, 250 are within

a steady increase in housing prices that are completely

the residential sector, representing construction of over

unsustainable and people cannot afford to buy.”

28,868,423m2. ADI associates invested over MX$6 billion in 2017 in the Miguel Hidalgo delegation alone, the majority

According to the findings of the research project, between

targeted to the middle, residential and residential-plus

2000 and 2015, urban development policies in Mexico

subsectors. According to Softec, the middle housing

City increased the prices of both the land and the units

sector is priced between MX$639,663 and MX$1.6 million.

themselves and, although policies have also improved the

According to INEGI’s National Occupation and Job Survey,

quality of life of certain neighborhoods, most are inaccessible

more than 24 million workers earn less than MX$5,000 a

for the majority of the population. The conclusion of the

month, only 6.1 percent of the national occupied population

research is that the policies have contributed to the creation

earns MX$12,000 a month and the 2018 minimum wage

of a more expensive and exclusive city.

continues to be extremely low at MX$2,686.14 a month.

The first line of action for governments to promote the

RECYCLING CITIES

development of compact and vertical cities can be seen as

One area in many cities that is attracting the attention of

a step into “new urbanism.” According to the Congress for

developers is the downtown core. Queretaro, Mexico City

the New Urbanism, planning and development is based on

and Monterrey are pioneering in restoring these neglected

the principals of how cities and towns are built with walkable

districts. In Mexico, traditional neighborhoods such as San

blocks and streets, housing and shopping in close proximity

Rafael, Santa Maria La Ribera and Guerrero are beginning

and accessible public spaces. In Mexico, local governments are

to see the purchasing of vecindades and the construction

beginning to change the zoning plans of its downtown districts

of six-story-plus housing complexes.

to allow for more diversified construction, fewer parking requirements and higher-density housing developments.

While the development of compact cities will help create

As developers begin to add value by constructing new

more sustainable living spaces in the future, experts say

apartments, the riches are not flowing equally.

these cities must first make sure that the basic necessities, such as water, energy and mobility infrastructure, are

A clearer picture of gentrification can be seen in Mexico

covered. “I have always thought that we need to recycle

City, where prices keep going up, even after the Sept.

cities and start by regenerating the city centers that are

19 earthquake. In fact, this caused populations that lived

inhabited. The infrastructure and homes located in the

in some of the highest-value, but worst-affected areas

downtown area could be optimized and given a different

to migrate out of those neighborhoods. “The Polanco,

air,” says Antonio Elosúa, President of the Board of U-Calli

Cuauhtemoc and Juarez neighborhoods absorbed the

discussing Monterrey’s real estate boom. But he warns that

excess of artificial demand as people from the hard-hit

developers must learn from past mistakes and carry out the

areas of Condesa and Roma searched for new homes,”

adequate planning beforehand. “Before developing in this

says Eduardo Orozco, Country Manager of Greystar Mexico.

area, we must first make sure that the right infrastructure

“Newer and undamaged apartments in buildings in these

exists or if we need to construct and rehabilitate its basic

areas experienced a 20-30 percent rise in rent.”

infrastructure,” he adds.

VIEW FROM THE TOP |

RESORT LIVING TO TRANSFORM RESIDENTIAL MARKET MARCOS FASJA Deputy Director General of GFA

Q: What is Resort Living and what impact has it had on the

complement each other. Younger clients will want to rent

Mexican residential real estate market?

and live near the centers of their everyday lives but once they

A: We focus mainly on residential, hotels and mall projects

grow older and need more space or want to settle down,

but we strive to create truly unique projects. We purchase

they will purchase larger products like the ones we offer.

the best land possible to fit the unique needs of our projects. We specialize in the concept of Resort Living. In these type

Q: What made Privada 14 such a successful example of

of projects, the goal is for our clients to feel as if they are

Resort Living?

on vacation or living in a hotel. People often believe that

A: Our projects must be the best they can possible be in

the concept of Resort Living will increase their maintenance

all aspects. In many cases we use most of the land for our

and service costs. In these type of projects, we integrate all

projects to offer the best quality. For example, we prefer

amenities, such as gyms, salons, yoga studios and parks,

to develop 150 apartments that are above par instead of

within the development itself. Because you already have

180 regular apartments. We are willing to sacrifice space

all the amenities, you no longer have to pay for them in

to boost the value of the other aspects. Privada 14 in

another place and you do not have to leave your complex.

Bosques de Las Lomas was constructed four years ago.

With our newest project, Avenue Polanco, in Mexico City,

The apartments were between 400-800m2 but the terrain is

we created a 1,500m2 park, which is very difficult to find in

40,000m2, 20,000m2 of which is next to a canyon. That type

the highly popular Polanco neighborhood. We are involved

of land no longer exists. We had the permit to construct

throughout all the phases of our projects to ensure quality.

only 76 apartments. This project was sold completely in only six months at a price tag of approximately US$1.5

Our projects also tend to boost the value of an area. For

million per apartment. We took it as an opportunity to show

example, our project in Guadalajara, The Landmark, has

our clients that we would exceed their expectations and

drastically increased the value of the surrounding area. Two

invested even more on the finishes.

years ago, prices were at MX$45,000/m2. Now, prices have jumped to MX$75,000/m2. Once we complete the project

Q: How does GFA maintain its position in a highly

we are confident that prices will increase even more. The

competitive market?

market is looking for new and unique products and people

A: Years ago, the market had only a few options when it came

want to have everything they need near their home.

to purchasing residential real estate. There are many small developers in the market that would simply purchase land

Q: What segment of the Mexican population has embraced

and develop any type of project. But the learning curve in

Resort Living the most?

real estate development allows us to improve our product

A: In most cases, our market is young people and families.

continuously. The most important thing a developer has is its

Older generations sometimes do not understand why they

name. Creating projects that exceed expectations and leave

should sell their homes and move into a much smaller

buyers happy will ensure the reputation of the developer. We

apartment. But the young generations understand that

have many alliances but we always want our partners to think

moving to an apartment does not mean that they are only

like we do and prioritize the same values as GFA. One of our

purchasing a 180m space. They are also purchasing their

strongest partnerships is with Thor Urbana.

share of the pool, spa, gym and gardens. They do not have to worry about providing maintenance for the day-to-day demands of a house. Contrary to what many believe, young

GFA is a Mexican real estate development company that

generations are buying homes; they are just demanding a

specializes in AAA residential developments. Its newest

different product. The rental and sale market for apartments

projects, Avenue Polanco and Avenue Napoles, are being built

are completely different but at the same time they

under the concept of Resort Living

179

| VIEW FROM THE TOP

DEMOGRAPHICS BOOST MEXICAN RENTAL HOUSING SECTOR EDUARDO OROZCO Former Country Manager of Greystar Mexico

180

Q: To what extent is the rental housing market developed

Newer and undamaged apartments in buildings in these

in Mexico and how does it compare to the US market?

areas experienced a 20-30 percent rise in rent. This

A: The US rental housing market is much more mature

clearly demonstrates the imbalance between supply and

than in Mexico. The majority of assets stabilized and new

demand, where residents continue to rent and compete

supply is directly correlated with the creation of jobs.

for the limited supply of quality rental units available.

New sources of employment attract people from different

Cities continue to grow, attracting not only investment

areas, increasing the demand for rental housing locally.

but also foreign nationals, further increasing the demand

This is compounded by existing local demand, which is

for quality rental apartments.

the bedrock for any new asset. Despite the maturity of the US market, we expect continued growth in key cities

Q: What has been Greystarâ&#x20AC;&#x2122;s experience in raising capital

that host new jobs and economic activity.

for these types of projects? A: We manage foreign capital and are in the process

Demand for rental housing in the Mexican market, however,

of expanding our assets under management through a

is linked to demographics and consumer behavior rather

CKD with Mexican capital. Raising a CKD is a lengthy

than the creation of new jobs. This is due to a lack of

process. There are many CKDs in the pipeline and

existing supply of professionally-managed and high-quality

many managers are looking to raise capital for their

rental housing. The countryâ&#x20AC;&#x2122;s large renter population lives

projects. Meanwhile, the Afores have limited resources

in informally leased units referred to as the shadow market.

to underwrite the pipeline of opportunities before

Macroeconomically, Mexico is experiencing steady growth

them. As this backlog continues to clear, the market

with a positive switch from informal to formal labor.

of developers and investment firms looking to enter

Demographic trends in Mexico are also positive, with a

the industry has become increasingly competitive and

large percentage of young people entering the workforce,

sophisticated. However, Mexican capital has historically

accelerating social and geographic mobility, growth in

been conservative and not accustomed to venturing

single and two-person households, and other dynamics

into innovative sectors that are operationally intensive.

that are conducive to rental demand.

Mexican institutional investors work over long cycles with small teams charged with making important decisions.

Q: How did the September 2017 earthquake impact the

This can lead to a lengthy process to raise a CKD.

rental market in Mexico City? A: We have witnessed a significant change. People still

International funds continue to have a large appetite for

want to live in central locations with proximity to work

Mexico. Despite changing macroeconomic conditions and

and urban amenities but as an outcome of the earthquake,

uncertainty I do not believe these have had a substantial

the market is beginning to differentiate between

impact on the long-term thesis for investment multifamily

high-quality and poor-quality buildings. The Polanco,

housing in Mexico. Project financing has incurred increased

Cuauhtemoc and Juarez neighborhoods absorbed the

volatility in interest rates, raising the cost of leverage.

excess of artificial demand as people from the hard-hit

This is especially important in large housing developments

areas of Condesa and Roma searched for new homes.

like ours with three to four-year timelines to design and build. Over the last few years, we have established a strong relationship with the Federal Mortgage Society

Greystar offers fully-integrated real estate services. It has over

(SHF), which has created loans specifically designed to

437,000 multifamily and student units under management

incentivize the construction of rental housing. We hope

globally and more than US$11.4 billion of sponsored multifamily

that these products and our partnership with SHF will

projects in the US

prevail through the political changes over the coming

year. Additionally, commercial banks are beginning to

purpose-built rental housing has the lowest cap rates of all

show more interest in investing in Mexico.

real estate classes. This speaks to its attractive risk-return profile and its desirability as an investment product.

Q: Why should investors and banks look to rental housing as a favorable option for the next year?

In the case of Mexico, we are convinced that the first

A: Purpose-built rental housing is one of the largest real

professional players in the industry will achieve outsized

estate opportunities in which institutional capital in Mexico

returns. Simple demographics indicate there is an extremely

has almost no presence currently. The asset class has several

large demand for quality rental housing. In my opinion, we

attractive characteristics that makes it very desirable for

are very far from attaining balance between supply and

institutional investors. Firstly, it is a liquid investment with

demand of rental housing across Mexican cities. Greystar is

attractive yields. Secondly, it has proven to be less cyclical

focused on developing directly and through partnerships

than other asset classes in the case of economic downturns.

10,000 new apartments in the next five years in Mexico.

And thirdly, there is very high demand for the product. In

Upon achieving this goal, we will only have scratched the

more developed markets such as the US, Europe and Japan,

surface of Mexico’s profound market opportunity.

INSIGHT | 181

TAPPING INTO NEW MARKETPLACES CARLOS ROUSSEAU Co-Director and Founding Partner of Orange Investments

A global vision involves dabbling in new markets, which

In Mexico, the Bajio region is gaining a significant portion of

also implies assuming new risks. To increase the chances of

Orange Investments’ attention. Its proximity to Mexico City

succeeding, Carlos Rousseau, Founding Partner of Orange

has made the region a viable alternative for people seeking

Investments, believes a local ally is key. “When venturing

to relocate near the capital. “Queretaro is a key market for us.

into a new market it is crucial to go hand in hand with

Our performance and experience there have been very strong

relevant local entities and a good network. This partner

so far,” Rousseau says. “It is attracting important companies

must be aligned with our organizational vision,” he says.

and its procedure times are faster than in most of the country.”

As an international company, Orange Investments’ goal is

But the secret of venturing into new markets is not only

to diversify into new marketplaces. “There is not enough

about finding the right ally and opportunity. Both must

room in one country for all players,” Rousseau says. “Our

be buttressed by the company’s added value. To keep

vision is that of a global company, which demands we

developing its value, Orange Investments has designed a

keep exploring new markets.” For example, in 2018 the

set of strategies for positive disruption. “We are developing

company ventured into Colombia and the US. Orange

new alliances to upload our company data to the cloud. We

Investments aims to double its size and staff over the next

are also venturing into IT for project management,” explains

couple of years.

Rousseau. The idea is to be able to better connect with the office and the customer 24/7 from any location.

Latin America remains a target market for the company given the region’s potential. “I believe there are more

Besides dependability, Orange Investments’ main added

opportunities in countries south of Mexico than to the north,

value lies in seizing the full potential of projects. “Landowners

as these markets are in general less sophisticated than

increasingly are seeking more information about the

Mexico’s,” he says. But expansion involves the challenge

potential their land holds. They look at us to design the best

of translating the way of doing business in Mexico to other

strategy to reach this potential,” he says. “We seek to carry

countries. “For example, the Fibras and CKDs market is not

out projects that will leave a legacy in the life quality of the

very developed in Colombia, so a developer would need to

people and to develop the market. We design these from

find other vehicles to meet funding needs,” he adds.

scratch aiming to leave a positive footprint.”

| PROJECT SPOTLIGHT

A NEW WAY TO LIVE IN GUADALAJARA For most Mexicans today, the excitement of moving into a new home is often overshadowed by the stress related to paperwork for a new lease contract, the logistics of the physical move and the struggles faced when discovering all its defects. But what if it was possible to apply for a new apartment online, provide minimal documentation and get full support for a move into a luxury furnished apartment with high-quality amenities and the best service included? To have the conveniences of a hotel with the comfort of a home, without having to worry about the electricity, gas and water bills or calling the plumber to come fix a leak? To begin enjoying the space on day one? Greystar is making this new way of living possible, starting in Guadalajara. 183

Living with Greystar will make sure that home is never a headache but only an encounter with efficiency, comfort, community and new moments. The Stratto Americas experience features purpose-built rental apartments with luxury designs, ample amenities and world-class administration. It also encompasses fast turn-around times for all new applications, minimum obstacles for approval and full support from the Stratto Americas team to streamline contract signing and help organize move in with minimal friction. Residents will have unlimited access to luxury amenities, including the aqua lounge, social room, fitness center, co-working space and a round-the-clock concierge service to cater to any daily need. Stratto Americas is located entirely on the upper floors of Torre 1500, a 33-floor mixed-use tower designed by Mexican architect Javier Sordo Madaleno and located prominently on Guadalajaraâ&#x20AC;&#x2122;s premier financial and business corridor, Americas Avenue. The project has more than 200 apartments with a mix of studios, one-, two-, and three-bedroom units, as well 14 penthouses on the top floor of the tower with spectacular views of the metropolis. All apartments are equipped with luxury appliances, utilities contracts and have the option to rent a complete furniture package specifically designed and optimally suited to the future resident. The master plan for Torre 1500 also includes a high-end lifestyle center on the first four floors of the building, which will feature a gourmet food market, fine dining, shopping and services. Office spaces, conference centers and an AC Hotel by Marriott are located in the adjacent tower, seamlessly integrated into the same master plan. Residents will enjoy the privileged views of Americas Avenue as well as Guadalajaraâ&#x20AC;&#x2122;s Country Club, one of the cityâ&#x20AC;&#x2122;s largest and most luxurious green spaces.

| VIEW FROM THE TOP

BUILDING SMALLER TO DIVERSIFY IN THE RESIDENTIAL SEGMENT IGNACIO BEZARES Regional Director for Mexico and Peru at Grupo LAR

Q: What regions of Mexico and which new segments are

Iztapalapa boroughs in eastern Mexico City have everything

attractive for Grupo LAR?

that Grupo LAR looks for in terms of demand in our target

A: We concentrate our developments mainly in the State

price segments.

of Mexico and Mexico City. Around 95 percent of the 184

investments in our product are focused on this region. The

Q: What projects in the luxury residential segment does

capacities necessary to succeed in the residential markets

Grupo LAR have in its pipeline?

of Mexico City and the State of Mexico are different from

A: Our residential offering for the top-price segment has

those in other regions of the country, so we focus on the

been concentrated in the Bosque Real area in Huixquilucan,

areas where we excel. Rather than developing in new

State of Mexico, ever since we purchased land in this area in

areas, Grupo LAR is interested in venturing into new price

2016. We are launching a variety of residences ranging from

segments of the residential market in these states. Having

100m2 to 520m2 there. Grupo LAR is excited to develop in

said that, there are some plans to invest outside of Mexico

Bosque Real because it is one of the last green lungs of

City and the State of Mexico, but these kinds of investments

Mexico City and the prices per square meter and per unit

must be substantial to make sense. The average price of

are highly competitive compared to similar residences in

our in-stock residential units is MX$5.5 million but we

other areas. We have enough land to build around 2,800

want to enter less expensive segments. The majority of

residential units, so there is more than enough space to

the investment projects that Grupo LAR is analyzing and

develop for a long time in several phases. Our main target

about to close focus on offering residences at prices of

for these products is young people and families who have

MX$2.5-$4 million because this market is underserved. We

the purchasing power to acquire larger residences. Grupo

are not interested in substituting luxury residences for more

LAR is also developing houses in the top-price segment

inexpensive housing but in complementing our offering

in Moncayo in Atizapan, State of Mexico, but the most

with products that cater to other purchasing powers. Grupo

important investments in this segment are concentrated

LAR will develop less costly residential projects in areas of

in Bosque Real.

the Valley of Mexico where it has not invested before, which makes more sense than trying to maintain our offering of

Q: How has Grupo LAR evolved to cater to the increasing

more expensive residences in new areas.

demand for amenities in residential developments? A: In Mexico, consumer prices have increased but the

Q: Where in the Valley of Mexico is Grupo LAR planning to

purchasing power of people has stagnated. This prompts

develop to target these new segments?

developers to build smaller apartments so the price of a unit

A: The area between the peripheral ring and Punta Norte

does not increase as much as the price per square meter does.

in northern Mexico City offers a large opportunity where

Smaller apartments push families to spend time together

it is possible to invest and where there is a market for

in spaces outside of their homes. This incentivizes Grupo

MX$2.5 million residences. The Azcapotzalco borough is

LAR to add more amenities in its residential developments,

also attractive but this area presents challenges of water

which is possible thanks to the size of the projects. Building

shortages and building restrictions, so we would need to

a 250-unit development offers few opportunities to offer

manage projects in a special way there. The Iztacalco and

many amenities as the size does not allow it. We are a company that has few but sizable investments and size is an important factor for Grupo LARâ&#x20AC;&#x2122;s success. The company aims

Grupo LAR funds and manages commercial, residential,

to build residential developments that have at least 1,000

industrial and corporate assets. Its strategy is based on risk

residential units. By making large investments, we reduce our

diversification and the development of competitive advantages

dependence on market cycles and more effectively generate

through international alliances

and consolidate value in an area.

INSIGHT |

LOCAL PARTNERS FOR A SUCCESFUL EXPANSION ANTONIO ELOSÚA President of the Board of U-Calli

Expanding to new markets is an arduous task for any

The company’s latest venture was alongside Miami real

company but even for the most experienced developers,

estate mogul Jorge Pérez, of Related Group, and Inmobilia.

constructing in a new place can be an intricate process.

Together, Inmobilia and U-Calli acquired a Spanish

Antonio Elosúa, President of the Board of Monterrey-based

developer that had gone bankrupt in Puerto Cancun to

developer U-Calli, says it is important to apply lessons

create a new type of high-end residential project. After

learned when taking the leap.

Inmobilia and U-Calli had turned the company around, they invited Pérez to join the venture. The SLS Tower in Cancun

“U-Calli has experimented with working outside of

has 120 apartments with hotel services, and 110 were sold

Monterrey many times,” he says. “Our first venture was

before the construction was even started. Elosúa says the

constructing a housing development in Leon, Guanajuato,

product sold quickly and was a hit among both national

which allowed us to learn our first lesson when expanding.

and international buyers.

This was around the time of the subprime mortgage crisis in the US and the company experienced great losses.”

U-Calli has investments in Merida, Cancun, Queretaro,

U-Calli decided to focus on the market it knew best:

San Miguel de Allende, Saltillo, and of course Monterrey.

Monterrey.

Although the company continues to look for new opportunities throughout the Mexican territory, Monterrey

But Elosúa says that a few years later, the time came to

still plays a vital role in its portfolio. Like Guadalajara and

take the leap again, this time taking time to find the right

Mexico City, Monterrey has experienced an accelerated and

partner. U-Calli was invited to venture into the Queretaro

uneven growth that has led to various mobility and security

housing market through an alliance with VIVESA, called

issues. “Monterrey has grown horizontally and it has not

VIALLI. This alliance developed various bulk lots destined

done so in an orderly fashion with a joint vision among

for homes. “Boosted by a strong industrial sector, Queretaro

municipalities. There is no master plan that integrates all

is a fast-moving market for real estate development,” says

the necessary infrastructure,” says Elosúa.

Elosúa. “Each of our developments there sells 10 houses per month, so with eight subdivisions we sell almost 80

Recently the downtown Monterrey area has caught the eye

houses per month.”

of investors and developers alike that want to regenerate the urban landscape and build upward. Elosúa is a supporter

After gaining traction and confidence in the Queretaro

of this plan. “I have always thought that we need to recycle

market, U-Calli was then invited by Inmobilia to develop

cities and start by regenerating the city centers that are

a mega project in the still-underdeveloped city of Merida.

inhabited. The infrastructure and homes located in the

“Country Towers was our first project in Merida. The two

downtown area could be optimized and given a different

towers were the tallest residential towers from Puebla to

air,” he says, while also warning that developers must learn

Panama. Each tower had 33 floors, breaking the horizontal

from past mistakes and carry out the adequate planning

city’s paradigms,” Elosúa explains. Country Tower units

beforehand. “Before developing in this area, we must first

were priced at over MX$6 million each, aiming to cover the

make sure the right infrastructure exists or if we need to

needs of Merida’s upper economic level. Elosúa says that

construct and rehabilitate its basic infrastructure.”

the project was not as successful as expected and even though Merida is considered among the best places to live

The Mexican real estate sector is a labyrinth to navigate

in Mexico, there was not enough market for the products

as it involves many variables but as an architect, Elosúa

they were offering. “If we decide to construct another

says the ultimate goal of real estate and architecture is to

project in Merida, we would definitely aim to target the

serve a greater purpose. “Architecture’s function is to serve

middle-income market,” he adds.

mankind; if it fails to do so then it is a sculpture.”

185

| VIEW FROM THE TOP

AFFORDABLE VERTICAL HOUSING FOR MONTERREY MARCELO CHAPA Commercial Director of MACH Construye

186

Q: How did MACH Construye evolve from a construction

its developments to support its growth in a sustainable

company to become a developer and what are the

manner. The myth that purchasing land is better than

advantages of doing both?

purchasing air has caused cities to expand in a disorderly

A: MACH has always had a large pipeline of projects. We

way. In the end, it is cheaper for cities to verticalize because

have had up to 68 projects under construction at one

higher densities are created with a smaller radius needed

time for different companies. We migrated from being

for service provision.

a construction company that provided services to other developers, to developing only our own. Each project

Q: What added value does the company provide its clients?

has its own financial scheme and no project depends on

A: MACH Construye has been building projects in

another. MACH Construye includes a concrete plant, design

Monterrey for many years and we have earned the trust

firm, machinery, glass manufacturer and steel plant. We

of our customers. That trust allows us to continue selling

benefit from this integration because it places more than

through word-of-mouth. To perform well in the pre-sale

50 architects and more than 300 pieces of heavy machinery

period of a project, you must have the trust of your clients.

at our disposal for any project.

Skypoint is a 43-floor project with 150 apartments and it is our tallest development at the moment. The pre-sale

We have constructed throughout Mexico and in the US but we

phase was extremely successful; we had already sold 80

are now looking to centralize our operations in Nuevo Leon.

percent of the apartments before starting construction. We

The Metropolitan Area of Monterrey (ZMM) is among the areas

have the best prices in the market and we offer the best

with the most economic growth in Mexico. The purchasing

construction materials possible. The apartments are energy

power of the people in Monterrey is three times higher than

efficient, integrating double-glazed windows to keep the air

any other area in Mexico. Our plan is to continue consolidating

in and all external walls are thermal. In pre-sale, we allow

our efforts in the ZMM. There is a lot of demand and potential

our clients to personalize their apartments. They can make

to grow and we want to make sure we make the most of it.

some architectural changes and choose their own finishes, a feature no other developer provides.

Q: Why has MACH Construye decided to focus on the construction of vertical mixed-use projects?

Q: How has MACH Construye been able to maintain

A: Mixed-use is the future. We have a clear vision of

affordable price tags on its vertical housing products?

what type of developments we want to create, which

A: We have the best payment plans in the market. We offer

is vertical housing. Many developers in Monterrey are

down payments of MX$99,000 and monthly payments

working together to create better communities. The city

of MX$9,000, making housing more affordable to more

has been expanding drastically, generating more traffic

people. We directly finance one part of this and the rest

because people are living on the outskirts of town. There

is done through a mortgage. At the moment, banks are

is always demand for housing and with urban sprawl, cities

extremely flexible and are offering good mortgage rates

become more chaotic. Seoulâ&#x20AC;&#x2122;s urban area, for instance, has

for people who want to buy homes. Loans are being

remained stable over the past 30 years despite the fact the

provided on pre-sale periods up to 24 months in advance.

population has doubled. The city has learned to verticalize

We benefit greatly from this because we are able to offer more attractive plans. We always want to sell at least 30 percent of the units in the pre-sale phase before even

MACH Construye is a construction and developer group that

breaking ground, to demonstrate viability and demand. This

specializes in the development of vertical mixed-use projects

has not proven to be difficult and most of our projects are

in Monterrey. The group has plants, machinery leasing, an

beginning construction with 50 percent of the units sold

architecture and design firm, and a construction company

during pre-sale.

VIEW FROM THE TOP |

QUANTIFYING THE FEASIBILITY OF REAL ESTATE PROJECTS FABIÁN SÁNCHEZ Executive President of CREA

Q: What advice would you give to developers of a

role to advise it on the market conditions and highlight

commercial real estate project and what is your added

other possible uses of land such as an apartment or office

value in the process?

building it can lease or sell, which could yield a much

A: CREA has been working with institutional investors,

higher return when considering the expenses associated

banks and developers, analyzing their commercial real

with operating a hotel. We give our clients numbers so

estate projects in Mexico and Latin America since 2006.

they can analyze what the most cost-effective option is.

Commercial real estate projects must provide an income in

We provide not only the market study, but also information

the same way that hotels, shopping malls, offices, hospitals,

on the financials of the project. Seventy percent of our

industrial parks and institutional rental housing do. This

clients work in mixed-use developments.

sort of project must take into account several quantifiable variables, such as the size of the supply, the size of the

In quantifying the feasibility of real estate projects, it is hard

demand, the price and occupation rate of commercial real

to speak qualitatively as interviewees can distort the research.

estate in an area. Measuring these elements allows the

But measuring the average expenditure in consumption,

definition of whether a project represents a good or bad

income and retail sales of a particular area can provide

opportunity. Our core value proposition is quantifying the

better insight for the client. INEGI is providing high-quality

economic and financial feasibility of a given project.

quantitative information. Qualitative data is hard to come by as it is more about feeling. Ultimately, it does not yield hard

The developer should also choose the best investment

data and the representativeness of the samples is low.

opportunity, always thinking of the cost opportunity. For example, in financial terms, the internal return rate (IRR)

Q: What has been CREA’s biggest challenge in venturing

for institutional multifamily rental is not competitive.

into Mexican real estate consultancy?

Investors do not necessarily find real estate attractive with

A: The biggest challenge for us is the lack of information

a 12 percent IRR compared to a risk-free rate approaching

in developing countries. Compared to the rest of Latin

8 percent on the secondary market in Mexico, available

America, Mexico has good statistical data. But some

through Treasury Bonds. Considering the processes and

sources are not very good or are not focused enough on

risks involved in a project, which include obtaining permits,

retail. Also, USMCA and other commercial treaties gave way

the time for construction and hiring staff, it may not always

to many foreign brands that are used to working with data

be the best option. Also, we have seen a compression in

measurement. The challenge becomes one of obtaining

cap rates in the commercial real estate space over the past

the required information to also supply foreign customers,

few years. These rates are approaching those of mature

which translates into getting the qualified human capital

markets like the US and Canada. With the perceived

that can accomplish this. The ultimate challenge is to

higher risk profile of Mexico, these rates are becoming less

elevate the use of all this information and turn it into data

attractive to investors

science. Many companies are using web algorithms to do data mining but this is useless if not combined with data

Q: How can a developer make a real estate project

science to analyze the mined information using regression

profitable?

and econometrics.

A: First, a developer should analyze what type of commercial real estate is best for a specific property, whether it is a shopping mall, office, industrial or

CREA is a leading real estate consultancy that helps investment

institutional multifamily. We provide a “best use of land”

funds, banks and private investors with their real estate

study to assess the greatest use for a property. For

projects. CREA has participated in more than 1,000 studies in

example, if a developer wants to build a hotel, it is our

the US, Mexico, Brazil, Colombia, Guatemala and El Salvador

187

| INSIGHT

PAINTING A PICTURE OF THE PERFECT APARTMENT ROGELIO ZAMBRANO Director General of Carza

188

Pre-sales are notoriously difficult since the concept is

yet the building has no showroom for customer pre-sales.

convincing people to part with a significant amount of money

This will take place in the next few months and Zambrano

for something that does not yet exist. Rogelio Zambrano,

is confident that, with the presence of an accurate model

Director General of developer Carza, says the key for a

of the building, the units will quickly be snapped up. In all

company like his is using technology to its advantage and

its developments, Carza is passionate about the concept of

painting a virtual picture of the future building. “We use

creating living spaces. Living, like Carza’s other projects, will

technology to create a visual building that incorporates

include swimming pools, event halls, green areas, community

everything, right down to the view the apartment will have.”

spaces with barbecue facilities, children’s play areas and roof terraces. “This year we will start to build the first 80 units and

Zambrano says BIM technology is becoming increasingly

the next year we will build the remaining 150,” says Zambrano.

accepted in the real-estate industry as developers begin to recognize its inherent benefits. But he does not solely rely on

But Carza not only wants to have an impact on its end users,

BIM. “We use the Autodesk suite, which is very complete,” he

but also on its workers. “We build these projects to make

says. “We also construct model houses on a dollhouse scale,

a bigger impact in the sense that we incorporate everyone

meaning we can give the end user or the investor a really

into them,” Zambrano says. For example, at Cantera, around

complete picture of how the building will ultimately look.”

800 people are working on the site. Carza has constructed classrooms where, either before or after their shift, workers

Carza works on residential spaces in Nuevo Leon and the State

can take classes, ranging from basic skills like reading and

of Mexico, targeting socio-economic demographics that range

writing to more technical skills such as English or computer

from C to A/B. According to Zambrano, the company’s main

science. “We now have a range of graduates from Cantera’s

asset is its understanding that its clients do not want to buy an

classrooms who have learned various skills,” says Zambrano.

apartment but quality of life, based on three pillars: location, security and functionality. “Ultimately, these three factors will

The ability to offer the best project to clients goes beyond

dictate quality of life,” he says. “People want proximity not only

end users and workers, and often starts with legislation,

to work but to schools, services and stores, with amenities

according to Zambrano. While he applauds the efforts of

inside facilities. Security is a very important factor across the

the federal government in passing the Human Settlements

country and obviously all this has to come with high quality.”

Law in 2017, he believes it is not being implemented as it

The developer has typically worked on horizontal housing

should on a state-by-state basis. “This is a law that will

projects, such as Cumbres de Sol and Valle Azul, but like most

help us offer better products to clients because it takes

developers in Mexico’s largest urban hubs, it has recognized

everything into consideration, including surroundings and

the need to go vertical. The company’s upcoming projects,

mobility,” he says. But he says more needs to be done

Cantera and Living, are both horizontal developments in areas

in Nuevo Leon. “In Nuevo Leon, certain things changed

that lack space for construction. “We decided to build Cantera

with this law but in comparison to the developments in

in San Jeronimo because it is an area with a lot of housing

the federal law, the changes have been very limiting.” On

demand but very little space,” Zambrano explains. “Similarly,

the other hand, he warns that if the legislation is very

Living is located in San Nicolas de los Garza, where space is

strict, it will limit creativity. This is a risk in Mexico where

even scarcer.”

he says innovation in construction processes needs to be accelerated, not hindered. “Innovation can be very simple

Although he admits there was some initial resistance from

or very complex, ranging from using different colors for

neighbors to a vertical development, Cantera is advancing

cement to using 3D printing techniques,” he says. “There

well and construction on the second tower is slated to begin

are many technologies we are not implementing right now

by the end of 2018. Living is a little less advanced, and as of

because the correct legislation does not yet exist.”

INSIGHT |

DIVERSIFICATION FOR A SHIFTING HOUSING CYCLE ANDREU CORS Director General of Gava Capital

Mexico’s housing sector is seeing a shift in demand as

the projects and then distribute a percentage of the profits

young people often cannot afford to buy property, despite

back to the fund.

a rising middle class. “We are seeing a shift in the market dynamics,” says Andreu Cors, Director General of Gava

With more than 36 projects in 15 different cities, the

Capital. “There has been a steady increase in housing prices

diversification of Gava Capital’s portfolio has been an asset

that is completely unsustainable and people cannot afford

to the company, especially when looking to the BMV for

to buy. The rise in construction prices and interest rates

funds. Gava Capital issued its first CKD, GAVACK, in 2017

have impacted the sector greatly.”

with a cap of MX$2.5 billion to fund housing and industrial projects. “Mexico has very few pension funds and of those,

Cors adds that, although there is much optimism and

only three are four are actively investing in structured

investment, there are some red flags that may indicate a

instruments,” Cors says. “One must create traction with

new real estate cycle. “There have been many good years

Afores to invest in real estate instruments. Gava Capital was

with high prices and with a market eager to buy,” he says.

able to issue this CKD because it aligned its interest with

But he warns that the emerging cycle will create limitations in purchasing power for the middle class. “Developers must be more prudent when entering this new cycle and should not base their future decisions on how they made past decisions.” He highlights the relatively low penetration of mortgage loans among the middle classes in Mexico in comparison to other countries as a signal that this demographic is suffering a constraint in disposable income. Gava Capital entered the Mexican housing market at the end of the 2008 housing crisis that struck the US. Previously, Sofomes would help finance projects but after the market

“

that of the Afores and co-invested 16 percent into the CKD.”

There has been a steady increase in housing prices that is completely unsustainable and people cannot afford to buy”

He says Afores look for companies that have good track

grew more complicated and Sofomes became reluctant

records, a diversified portfolio and experienced teams to

to invest, Gava Capital saw a window of opportunity. “The

invest in CKDs. Gava Capital had invested MX$3 billion

market was there and we just needed to offer a different

before it issued its first CKD, which generated trust among

value proposition,” says Cors. He explains that there were

the Afores. That money was invested in over 25 projects,

already various funds that were focused on financing

providing the company a solid track record.

profitable projects so Gava Capital decided to differentiate itself from other funds by focusing on a specific niche: the

Half of Gava Capital’s portfolio investment is allocated to

middle class.

projects in Mexico City and the State of Mexico, with an average price tag of MX$850,000–MX$5 million. At the

Gava Capital’s focus is on developing developers that

moment, only 20 percent of the CKD has been allocated

will in return create valuable investments. “Of course, it

and the fund plans to invest MX$500 million in the next

is important to invest in profitable projects but our real

two years in various housing and mixed-use projects. Cors

vision is to create long-term relationships with developers

is optimistic but cautious. “The market looks hopeful but

and foster the growth of Mexican talent,” he says. The

we must definitely watch interest rates,” he warns. “Hikes

company looks for developers with strong portfolios but it

have been impacting the sector greatly and could stop

also looks for companies whose values are aligned with its

development, heavily impacting profit margins and the

own. Developers are co-investors along with Gava Capital in

purchasing power of clients.”

189

| COMPANY SPOTLIGHT

190

Real de Monteza, Bosque real

Moncayo, Zona Esmeralda

REAL ESTATE GIANT HIGHLIGHTS DEMONSTRATED ABILITY TO ADAPT Grupo Lar is a multinational real estate company, specialized in the investment and management of real estate assets. With more than 40 years in the Mexican real estate market, it has demonstrated a great ability to adapt to the cyclical nature of the sector, allowing it to take on future opportunities in optimal conditions in all the segments in which it operates. Grupo LAR’s organizational structure is based on the improvement of competitive advantages with the help of strategic agreements and constant updates. The company’s diverse expansion markets were selected by evaluating their stability and capacity for expansion, managed by professionals with extensive experience in the sector and international vocation. Polárea, Nuevo Polanco

Grupo LAR’s objective is to create projects that add value and improve the quality of life of its clients. It provides the best amenities in addition to having excellent locations and a variety of distributions. Within Bosque Real Country Club, Grupo LAR’s premier project in the State of Mexico, Real de Monteza and Tivé offer nature, safety and quality design to its users. Real de Monteza offers a 6,000m 2 club house and a total of 123,000m2 for development. Over 50 percent of the surface is designated to pedestrian, circulation and green areas, creating a balance between functionality and nature.

Tivé, Bosque Real

In Nuevo Polanco, Grupo LAR’s Polárea is the best place to live in Mexico City. In Zona Esmeralda, its Moncayo development offers exceptional houses and terrains, while its López Cotilla offer attends Guadalajara’s housing demand with an optimal quality project Approximately 95 percent of the company’s portfolio investments are focused in the State of Mexico and Mexico City areas. It is also venturing into new price segments of the residential markets in these two regions. Grupo LAR’s developments offer the most exclusive locations that ensure high capital gains for investors. In the same way, the design and vanguard of each project guarantees that buyers of its products will realize the best possible return on investment and that they will have all

López Cotilla, Guadalajara

the necessary amenities at their disposal to make each day special.

191

| VIEW FROM THE TOP

TO USE INSTEAD OF OWN, TO RENT INSTEAD OF BUY CARLOS PANTOJA Lead Partner for the Construction, Tourism and Real Estate Industry at Deloitte

Q: What is Deloitte’s overview of the Mexican infrastructure

There is also a pressing need for private companies to abide

industry and its most pressing needs?

by zoning restrictions.

A: Mexico most certainly requires a greater investment

192

in infrastructure. Most of the world-class studies and

Q: What financial mechanisms for real estate funding being

infrastructure rankings place the country around 70th or

used abroad could Mexico benefit from?

80 . These ratings consider roads, rails, ports, airports

A: Mexico has taken important steps with the creation

and other segments of the infrastructure industry. The

of laws that allow institutional financing to reach the

economic crisis Mexico faced in the last couple of years

infrastructure industry through Fibras, CerPIs and CKDs.

imposed a budget cut on the industry. As a consequence,

These mechanisms must be public and listed on the stock

many of the NIP projects of the 2013-2018 administration

exchange, but I am convinced that privatization through

were canceled. The most relevant and visible project at

a limited partnership would be very useful, as is done in

the moment is NAIM, followed by the Mexico City-Toluca

the rest of the world. This has not happened here yet due

Interurban Train and the Lazaro Cárdenas Terminal. In this

to the government’s fear that it will jeopardize workers’

scenario, the industry requires clear rules and a long-term

savings and concerns about documentation and inspection

infrastructure plan that correspond to a deep study on

of where resources are going. I perceive that Mexico is

the real impact that projects have and that endorse why

achieving a maturity level that will allow the creation of

they should be prioritized. This requires resources that

limited partnerships. This will give sponsors more access to

must be secured by the government as, besides PPPs

institutional funding mechanisms according to their track

and other financial mechanisms, it is its responsibility to

record, the project and investment proposals. Also, this

ensure infrastructure development. The next president

would negate the need to audit these investments through

should strive to guarantee the resources to implement an

the stock exchange. This is the next step that Mexico should

infrastructure master plan.

take, which should be viable in the midterm.

Regarding real estate, Mexico’s population will grow

Q: What is Deloitte’s forecast for demand in the

by 12 million by 2025. With a growing middle-class, the

infrastructure industry?

demand for housing remains strong. But the reduction of

A: The market often wonders if Mexico’s commercial real

subsidies such as INFONAVIT, higher interest rates and

estate has become saturated, which I think is not the case

contingencies like earthquakes have people reconsidering

as the country has adopted commercial centers as a safe

what to prioritize. The industry has to learn from its past

place to go take a walk and spend family time, so there is

lessons and aim for clear rules, an urban development

still demand. Most shopping malls have incorporated movie

master plan for city growth and precise property registries.

theaters, amusement parks and restaurants. This makes

To make construction processes more clear and efficient,

commercial centers attractive for users, meaning demand

technology is key because it easily allows the identification

for these spaces will remain steady.

of construction density levels per area. This is useful in the establishment of fair property tax brackets, for example,

Regarding tourism real estate, the industry has experienced

which is an important revenue stream for the government.

a boom. Today, tourism is mostly oriented to the coast, such as the Riviera Maya, but the sector must start taking advantage of other segments such as cultural, religious

Deloitte is a business consultancy that addresses customer

and medical tourism. I think these niches can catalyze

needs and specific problems through a multidimensional

higher spending per tourist. It is not a matter of attracting

perspective. Its professional services encompass audits, taxes,

more tourists but having them stay longer or spend more

financial advice, risks and public and private advisory

in the country.

INSIGHT |

QUERETARO’S HOUSING MARKET BRINGS HOPE TO DEVELOPERS DANIEL TOVAR Director General LATAM at Grupo Acerta

The infrastructure industry is vulnerable to geopolitical

mid-term elections also led to investor caution. “We have not

uncertainty and global market fluctuations. Highly

been able to carry out other projects in our pipeline due to a

dependent on materials prices, in recent years some cities

lack of funding,” he says. “We continue to search for investors

have experienced a contraction of construction activity as

that believe in our capabilities. This has been our greatest

inflation pressured new developments. Daniel Tovar, Director

challenge despite our experience as developers.” 193

General of LATAM at Grupo Acerta, says that as a result, developers are looking to cities that have withstood these

Still, despite the challenges, Tovar says money for investment

challenges. Among the leaders is Queretaro. “The inflationary

is there. “Investors are being more cautious, but are still

impact on the housing sector has drastically boosted prices

looking for opportunities to invest. We have received positive

all across the country. Yet, in comparison to other Mexican

responses from the banking sector in general and were able

markets, Queretaro has contained its prices,” he says.

to close deals with Banregio and Santander,” says Tovar. Grupo Acerta surpassed its growth expectations in 2017 and

In the last few years, Queretaro has become home to hundreds

aims for 15-20 percent in 2018, a conservative prediction

of new families. After the September 2017 earthquake,

according to Tovar. He adds that convincing investors and

INFONAVIT in Queretaro saw a 33 percent increase in weekly

attracting capital will always be a challenge for developers.

mortgage requests in the state, jumping from 300 loans a week in 2016 to 400 weekly in 2017. Forming part of the

The construction of housing also involves many public

Bajio region that represents more than 15 percent of the

entities, which creates yet another hurdle. “We faced

entire Mexican housing market, Queretaro is now among

additional challenges working with public bodies on

the Top 5 real estate destinations in Mexico according to

environmental issues because not only were they from

the Mexican Association of Real Estate Professionals (AMPI).

different levels of government, but also different agencies,”

Many housing developers see Queretaro as the land of

says Tovar. In some situations, companies face several rounds

opportunity, with an increase in demand forecast for 2018.

of negotiations to achieve a win-win situation, making processes much more tedious. “Aligning our interests is

Its demographics, industrial attractiveness and proximity to

difficult,” he continues. “There always comes a time where

Mexico and Leon make Queretaro a job magnet, boosting

we believe the government is overstepping and vice versa.”

the demand for new homes. Developers, including Grupo Acerta, are taking advantage of these factors and looking

Grupo Acerta is developing its first planned community

for new ways to innovate and adapt to the changing needs

in Queretaro, called Altos, in the Juriquilla area of the

of new generations. “This year we have been analyzing

city. As of January 2017, it had sold more than 50 percent

the opportunity to venture into the rental housing sector

of its lots to renowned developers Ruba, Caisa and

and we believe that the results that we have received are

Urbana. “The average price for a vertical development

positive,” Tovar says. “We are validating a new project for

is approximately MX$25,000/m 2 and for horizontal

this subsector for the next few years.”

developments it is around MX$20,000/m 2,” says Tovar. The company also has its own housing developments

The factor that no developer can escape is volatility. Much

within Altos, called ZENDA and Celesta. ZENDA will have

like 2017, 2018 began under a cloud of uncertainty, causing

109 individual lots. The project is in the procurement

a contraction in the country’s economy. In 3Q17, GDP shrank

stage. Celesta contains 166 apartments and by February

by 0.3 percent compared with the previous quarter, the first

was in the commercialization and presale stages. “The

contraction in almost two years. This has made it difficult for

development is receiving a good response from the

companies like Grupo Acerta to attract investment. NAFTA

market and as of January 2018 we have more than 20

renegotiations, rising inflation rates and the November 2018

apartments sold,” Tovar says.

| INSIGHT

COMPACT AND WELLCONNECTED HOUSING FOR A BOOMING CITY FLAVIO TAVERA Commercial Director of Desarrollos Inmobiliarios de Occidente (DIOCSA)

A rapid increase in population over the last decade means

housing to low-income families with easy access to mass

Guadalajara’s real estate sector is booming. But while the

transportation systems,” says Tavera. “We need to develop

city is flourishing, it is failing to do so in an orderly way,

living spaces focused on lowering the use of land and

says Flavio Tavera, Commercial Director of Desarrollos

commuting costs.”

Inmobiliarios de Occidente (DIOCSA). “The city grew 194

extensively to the south and east, with an unequal

This agreement between the public and private sectors

distribution of social classes,” he says, highlighting that

is especially important when it comes to addressing the

high-income classes remain mainly located in the west.

needs of low-income market segments, says Tavera. Each municipality has its own development plan, which according

DIOCSA is a consortium focused on housing construction

to Tavera, should aim to unify and plan an orderly growth of

and sales that is developing across the state of Jalisco,

the metropolitan area. “A recent update of some of Jalisco’s

striving to contribute to its urban development through

municipal plans gave investors more certainty to invest in

compact and well-connected housing and mixed-use

vertical housing, helping make the city more compact,” he

projects. Today, the metropolitan area of Guadalajara

said. “Zapopan is a good example as its market demand

is made up of nine municipalities. DIOCSA understands

called for high-class hotels, housing and offices in one area,

the social distribution and offers developments for

requiring developers to build vertically.”

different market niches but with a focus on the middleclass residential segment that has a purchasing power of

The economic and geographic conditions of Guadalajara

MXN$1.8-3 million. It also builds social housing near massive

also continue to attract investors. “It has been a growth

transport infrastructure at affordable prices, normally

center in the eastern region of the country,” says Tavera. “It

between MX$450,000-850,000. “If there is the potential

can be viewed as a pilot city for commercial purposes. If a

to avoid high transport costs, social housing becomes more

project succeeds here, it is likely to do so in other cities.”

appealing to low-income families,” Tavera adds. But the decline in the younger demographic presents Guadalajara’s fast expansion led big consortiums to buy

a challenge for Guadalajara’s developers. The forecast

huge land parcels for housing on the outskirts, but these

finds that the city’s population is getting older, steering

areas were lacking basic services. “This fostered changes

the market toward one-story, accessible housing. The

in land-use regulations, a decrease in the quality of housing

demographic trends are also demanding fewer rooms per

services and increase in commuting times,” Tavera says. “The

house. “The average now is 3.7 compared to the previous

problem became one of having over-priced and poorly-

4.5 inhabitants per house, as families are becoming smaller

connected land.” This opened the door for developers like

and looking for more compact living spaces,” he says.

DIOCSA to create smart projects that would successfully densify the city, making prices affordable and developments

DIOCSA has experienced the ups and downs of the market,

accessible to the main transport systems.

which are largely dictated by demographic changes and public policy. As a result, its next step is to become

DIOCSA follows the Sustainable Transport Oriented

completely self-sustaining. “We look for the land we buy,

Developments (DOTS) urban model, which focuses on

carry out the marketing processes and develop it by

planning and designing around mass transport systems and

ourselves, without outsourcing,” Tavera says. Although the

building compact, high-density neighborhoods. The model

company wants to be self-reliant, it does not rule out other

has been recognized as a priority in both the National

developers relying on it. “We build all our projects internally

Program for Urban Development and Housing 2014-2018

from scratch, but we can also commercialize developments

and by Mexico City’s Mobility Law. “The idea is to provide

belonging to other constructors.”

INSIGHT |

A DIVERSIFIED PORTFOLIO TO BUILD LONG-TERM RELATIONSHIPS IGNACIO VIVANCO Director General of Garvi Grupo Inmobiliario

Guadalajara’s real estate market is responding to a

to finance a MX$1 million house, the monthly payment

boom in demand but the city’s preference for horizontal

must be at least MX$10,000. This implies that the buyer,

development conflicts with land shortages, says

individual or couple, has to earn at least triple that, around

Ignacio Vivanco, Director General of Guadalajara-based

MX$30,000, meaning the company overwhelmingly

developer Garvi Grupo Inmobiliario. “The reluctance to adopt verticalization is an entry barrier for many large developers,” he says. “For a developer from Mexico City, where medium-size projects have 40 levels, the height of the biggest building in Guadalajara, projects here may be too small.” Residential projects in Guadalajara tend to be significantly smaller than in the Mexican capital, with fewer units and an average of 20 levels for vertical projects. Vivanco attributes this mainly to the size of the city and people’s preference to live in smaller and more exclusive developments. “As the city is smaller than Mexico City,

“

targets the low-middle income segment.

For a developer from Mexico City, where medium-size projects have 40 levels, the height of the biggest building in Guadalajara, projects here may be too small”

people do not like to live in big residential complexes,” he says. This means that larger developers are reluctant to

Despite the reluctance toward verticalization and mixed-

enter the city due to the smaller economies of scale, but

use complexes, Jalisco and its capital remain very

this is where Garvi Grupo Inmobiliario sees opportunity.

attractive for real estate. With 450-500,000 homes sold each year in Mexico and 55,000 in Jalisco, mainly

Vivanco is convinced that, despite its preference for

in the metropolitan area, Vivanco says developers are

horizontal building, the city will eventually evolve toward

increasingly looking at the state, given the size of its

the vertical. “People are still reluctant to live in vertical

market. He believes that the city’s history has proven

housing but it is increasingly more complicated to build

that if a project is tested and works in Guadalajara, it will

horizontally due to land reserves,” he says. Garvi Grupo

succeed in the rest of Mexico. “Developers are increasingly

Inmobiliario is diversifying its portfolio by offering both

looking at Jalisco and its special market,” he adds.

horizontal and vertical residential real estate, the latter coming in at around MX$2.5-5 million per unit. “This will

But according to Vivanco, management is often the

complement our portfolio of MX$1-2.5 million projects,”

main challenge for projects. “Permits specifically can be

he says. “Our strategy is designed to provide an option

a nightmare,” he says. “It seems the authorities, instead

for the largest demographic possible.” In this vein, the

of fostering an industry that generates so many jobs in

company is also venturing into leasing mixed-use projects.

multiple sectors, aim to hamper its growth.” Vivanco believes the incorporation of technology to automate

Garvi Grupo Inmobiliario started operations a decade ago

bureaucratic procedures is the best way to overcome

with horizontal housing projects that followed market

this obstacle. “This can save a great deal of time and

demand. Through its current portfolio, the company is

manpower, while preventing corruption and extortion, as

characterized by providing affordable housing, working

currently licenses still depend on an individual approving

to ensure it can cater to the maximum number of clients

them,” he says. He welcomes the announcement by the

possible. “We accept all types of credit,” he says. He

Property Registry, which will soon launch an online

explains that for an individual to obtain a bank loan

platform that will help address this issue.

195

| INSIGHT

HUMAN CAPITAL KEY TO DEVELOPING MINDFUL PROJECTS JACK LEVY President of Grupo VEQ

196

A booming market creates abundant opportunities for real

differentiation is key. Its latest project, Meridiano 103, was

estate developers to prosper but one of the best tools for

developed with quality in mind but without sacrificing price.

a successful incursion into any market is having a unified

Located on one of Guadalajara’s most important streets,

vision within the company, says President of Grupo VEQ Jack

Avenida Vallarta, it is a mixed-use project that consists of

Levy. “Grupo VEQ places a great deal of importance on the

three towers divided into 212 apartments and a two-story

people within the company and what they want to achieve

commercial area. “We wanted to make sure that this would

so that together we can grow with a shared vision,” he says.

be a development that would truly enhance the quality of life of the people at the best price possible, without

This shared vision has allowed the company to adapt

sacrificing the quality of the materials and finishes,” says

quickly and often to go with a gut feeling when choosing

Levy. The development would cater to Guadalajara’s fast-

its projects. But Levy says the company will now be much

growing middle-income segment.

more focused on strategic development. “Our team has developed skills to identify great opportunities throughout

Although Grupo VEQ's strength has centered mostly on the

the country, allowing us to participate in many important

residential sector, it has started developing projects within

projects, which includes the tallest residential buildings

the tourism sector, having identified a growing demand. “At

in Guadalajara such as Torre Q,” he says. “But we were

the moment, about 10 percent of our portfolio is destined

never able to sit down and establish where we wanted

to tourism projects and we would like to continue actively

the company to move in terms of the sectors we want to

participating in the sector over the next few years,” says Levy.

“

specialize in and the products we want to offer.”

The next step is to look for new financing solutions through funds or partners that believe in what we are doing”

The company’s own growth has mostly been through organic means but with its goals of venturing into these new markets and regions, it has also began considering new sources of financing. “We have a good relationship with five commercial banks that allowed us to grow at least 150 percent in the last three years,” Levy says. “The next step is to look for new financing solutions through funds or partners that believe in what we are doing.” There are many funds catering to the Mexican market, such as Nexxus and Seven Bridges Advisors, that use money from investors and

In the last three years, however, the company has focused

pension funds whose long-term investment and ROI goals

on its core strengths and grown in a sustainable manner.

typically align with real-estate projects.

Mexico’s rising demand for real estate development has allowed Grupo VEQ to expand to seven cities and develop

While there has been an abundance of funding availability

over 11,000m . Levy explains that Grupo VEQ's home market,

for real estate development in the last few years, mainly

Guadalajara, has slowly moved into vertical development,

from Canadian pension funds and Afores through new

and the team has been able to better understand the

financial instruments such as CKDs and Fibras, Levy

needs of its clients and to forecast what will happen next

insists that despite the opportunities for development, it

in residential development. “Our quick growth says good

is important to build with mindfulness and ensure that the

things about how we conduct our business,” he says.

projects created add value. “We must build according to

demand and not our own preference, ensuring that projects Grupo VEQ has extensive experience, having been

are integrated into the communities and they meet the

involved in 23 projects. But in such a competitive market,

needs of our potential residents.”

VIEW FROM THE TOP |

RE-STANDARDIZING THE FINAL PRODUCT AGUSTIN LEVY Executive President of Levy Holding

Q: What areas of opportunity has the company identified

country, such as B+ offices and mixed-use developments

within the market that it would like to penetrate?

with 50 apartments and commercial premises. We are also

A: We started out as a real estate marketer, which taught

starting to look for bigger land areas to develop bigger

us valuable lessons in how, where and why to sell. The

projects, with the intention of doubling our uptake in the

next step was to gather resources through specialized

next 12 months. We are considering a 1,000-apartment

crowdfunding. Our capital raising grew to a point where

project in Playa del Carmen. But we do not want to lose

we needed more properties, leading us to venture into

our segmentation within projects, so our developments

real estate development. In this niche, we found that

remain exclusive to our clients.

product innovation was lagging and so our goal was to offer a different asset. We believe we are disrupting and re-standardizing the final product in real estate. For example, over a certain area, our clients can choose if they want a loft or a two-bedroom apartment. Also, we integrate sustainability, using solar panels or other technologies to make our buildings eco-friendly and cost-efficient. Our products can create average savings of 40-45 percent, so instead of paying MX$1,000 for maintenance, our clients will pay around MX$450 since we use the monthly rental income from our units to

Levy Holding’s products can create average savings of 4045 percent; instead of paying MX$1,000 for maintenance, clients will pay around MX$450 and monthly rental income subsidizes maintenance

subsidize the monthly maintenance cost. Regarding the financial aspect, we have used crowdfunding We also want to grow in the hospitality market and our

to raise capital and gathered around MX$300 million from

guidance for the next two years is to have 450 rooms,

word of mouth. But while crowdfunding is a successful

mainly in the 4-star sector and boutique hotels. Around

way to access financing, we also want to list on the stock

half of these rooms will be for senior living and we

exchange. Our goal is to launch our first CKD in no more

expect to be the pioneers in this niche in Jalisco. AMAR

than two years for MX$3.5-5 billion.

Consulting is an expert on senior living in Mexico and we are seeking to collaborate with the firm by hiring it

Q: How do you differentiate from your competitors and

as our suppliers and exploring a possible alliance in the

ensure you are adding the most value to the market?

future. As Chapala has the biggest foreign community

A: We are changing the idea of how to build and develop

in the country, we believe it is a great market for senior

real estate, staring with Guadalajara and the Riviera Maya.

living as this population is expected to expand quickly.

In four years, we have raised more than MX$3 billion in assets, with exponential growth in the last two years,

Q: What is the company’s strategy for organic growth

mainly due to our differentiated product. Regardless of

and how do you finance expansion?

the price, our projects keep selling because nobody else

A: We were able to reach our targets due to our company

offers a similar product.

pillars of transparency and autonomy. We strive to have the best qualified team, with 15 shareholders at the moment. I think this is the secret to being a diversified

Levy Holding is a business group committed to the economic,

business. We will keep innovating, as this is the foundation

social and environmental development of Mexico, starting

for our company’s growth. We use targeted strategies to

from its five strategic axes: customer service, innovation,

provide better coverage to some neglected niches in the

sustainability, quality and humanism

197

| PROJECT SPOTLIGHT

198

RECINTO ESCANDÓN Mexico City’s neighborhoods are transforming and adapting to the needs of new generations. Nevertheless, it is important that new real estate developments integrate into the existing social tissue, preserving neighborhoods’ traditions and culture to create sustainable cities. Recinto Escandón is a mixed-use development located in the heart of the Escandon neighborhood in Mexico City. It will merge new lifestyles with existing communities and traditions. The project is designed and developed by Estudio Tacubaya, a Mexican architectural firm based in Mexico City with vast experience developing in Escandon. The development will seamlessly integrate into the neighborhood tissue through an inclusive and conscious transition, integrating elements from the present and the past that represent the continuous development of Escandon. Interconnecting to the city’s main arteries: Viaducto, Circuito Interior, Periferico and Insurgentes, the Escandon neighborhood is a commuter’s paradise, with easy access to the Metrobús, Metro and ECOBICI systems. Located in the Miguel Hidalgo municipality, Escandon’s appeal aligns with the lifestyles of new generations that embrace the shared economy models looking for co-working and coliving spaces that mold into their everyday needs. The project’s centric location adds a unique capital gain to the development. Not only is real estate development flourishing around it, but government investment continues to pour in and the neighborhood has a continuous housing demand to fulfill. The proximity to Roma and Condesa also is boosting the attractiveness of Escandon, making it a real estate investment trend for middle and upper-middle class buyers. This urban regeneration project will maintain the cultural essence of its surroundings through an inclusive gentrification. The project will include residential, commercial and cultural spaces that will bring together the neighborhood’s local gastronomy, artisans, performers and talent into one space. The entertainment and dining spaces will foster the exchange of ideas among residents and visitors and drive economic activity into Escandon. This 5,000m 2 mixed-use project contains two towers interconnected by a loggia and a common open area for residents. It contains more than 20 apartments, ranging from 32m 2 to 200m 2. The property will also include approximately 1,000m2 of cultural and commercial-oriented leasable space. Strategic alliances with alternative mobility solutions providers add another element that allows Recinto Escandón to make the most of this commuter’s paradise.

199

ZVA Group Mexico mixed-use project, Queretaro

COMMERCIAL REALÂ ESTATE

In the last few years, US commercial real estate headlines have consisted of major chains going out of business and malls shutting down. Yet, Mexico has proven to be the diamond in the rough. With a great deal of GLA available, the commercial real estate segment in Mexicoâ&#x20AC;&#x2122;s cities continues to grow along with the purchasing power of a growing middle class. But building a successful commercial space in Mexico does not mean just creating a building with stores and adding in offices spaces. Culture, food courts, theme parks and other elements are being mixed in

to create a broader, marketable experience.

Mexico City, Monterrey and Guadalajara have a surplus of office spaces and developers are turning to mixed-use projects to make sure their portfolios are balanced. The roles developers play in creating cities is vital, creating spaces where people live, work and spend their free time. But they also have the responsibility to make their developments sustainable and inclusive, which can entail spending on social and environmental impact studies and supporting infrastructure. The main commercial real estate developers and brokers working in Mexico are profiled throughout this chapter to detail the state of the segment and its prospects.

201

CHAPTER 10: COMMERCIAL REAL ESTATE 204

ANALYSIS: Mexican Malls Defy Odds, Take Flight

205

VIEW FROM THE TOP: Gonzalo Robina, Fibra Uno (FUNO)

206

INFOGRAPHIC: Designing a Mixed-Use Skyline

208

INSIGHT: Elías Mizrahi, Fibra Danhos

209

VIEW FROM THE TOP: Jimmy Arakanji, Thor Urbana

211

VIEW FROM THE TOP: Gerald “Rick” Ricker, Reichmann International

212

INSIGHT: Enrique Villanueva, Pulso Inmobiliario

213

VIEW FROM THE TOP: Gaston Wainstein, Walmart de México y Centroamérica

214

VIEW FROM THE TOP: Lyman Daniels, CBRE

215

VIEW FROM THE TOP: José Lobatón, Proyectos 9

216

INSIGHT: Marco Garza, GM Capital

217

VIEW FROM THE TOP: José Luis Flores, LOMA Desarrollos

218

VIEW FROM THE TOP: Rafael Garza, Grupo Plate

219

VIEW FROM THE TOP: Javier Lomelín, Colliers International Mexico

220

INSIGHT: Fernando Amescua, KIVA Grupo Inmobiliario

221

VIEW FROM THE TOP: Ignacio Ramírez, INVERTI

222

VIEW FROM THE TOP: Alberto Limón, Consulta

223

VIEW FROM THE TOP: Guillermo Sepúlveda, Avison Young

224

INSIGHT: Victor Lachica, Cushman & Wakefield

225

INSIGHT: Isaac Orozco, Grupo Momentum

203

| ANALYSIS

MEXICAN MALLS DEFY ODDS, TAKE FLIGHT It appears the demise of the shopping mall may have been exaggerated. While e-commerce has taken a toll on traditional shopping centers in the US, Mexico has been watching and learning. The result is a significantly different trend south of the border

204

Due to the unprecedented closing of hundreds of malls

The Mexican consumer looks for a secure environment

throughout the US, the real estate industry has coined the

where they can spend their Sundays with their family,

term “dead mall” to describe shopping centers that have

with places to eat, have fun and shop. Developers have

high vacancy rates or low consumer traffic. According to

adapted to the needs of these consumers and have pushed

a 2017 Credit Suisse report, 20-25 percent of US malls will

for projects that stray away from the boxed-in model of

close within the next five years due to a sharp decline in

traditional shopping centers. Spaces such as Miyana, Toreo,

traffic. The main culprits are e-commerce and developers’

Manacar, Parque Las Antenas and Artz are the types of

inability to adapt to changing consumer needs. As more

projects taking over the Mexican market. Open spaces,

people shop online, they shop less at anchor stores, forcing

green areas, gourmet food courts and new brands are the

them to close and creating a domino effect where the

value proposition that will directly impact the success of

decrease in mall traffic later causes smaller tenants to

a project.

close too. A clear example of the impact these factors have on a Mexico, on the other hand, is the largest e-commerce market

shopping center can be seen in Cuernavaca, Morelos, about

in Latin America with an annual spend in 2017 of US$21

93km south of Mexico City. Ares Arquitectos designed the

billion, according to the Latin America Ecommerce Report

Averanda shopping center, with a more open concept,

2018. The market is expected to continue growing due to

integrating green areas and open-air spaces to take

improvements in connectivity, higher financial inclusion and

advantage of the weather in the area. “In front of Averanda

increased digital literacy. Yet, the Mexican market seems to

is one of Cuernavaca’s oldest malls, Galerias, which has a

be bucking the US trend and shopping center GLA is on the

more traditional concept,” says Jacinto Arenas, the firm’s

rise. Of ADI associate’s 584 projects in 2017-2018, 99 were

CEO. “Many brands have moved to Averanda due to its

shopping centers and 101 were mixed-use, representing 34

popularity. The integration of various amenities such as

percent of the total. In 2017, Mexico had an inventory of

entertainment areas, offices, homes and of course shopping

22 million m2 of commercial space, and throughout 2018,

spaces offers a completely different experience and it has

300,000m were added to the national inventory.

proven to be a success.”

By the end of 2018, Mexico will have an estimated

And while the industry’s mantra has always been location,

2.3 million m 2 of shopping center space through the

location, location, successful locations can sometimes

construction of 39 new projects. Unlike its northern

surprise. Developer Fibra Danhos, for example, has

neighbor, Mexican commercial real estate developers

identified various mixed-use diamonds in the rough

are completely changing the rules of the game when it

in areas that are not so obvious. Its Parque Tezontle

comes to shopping malls. According to industry leaders, an

shopping center in Iztapalapa, one of Mexico City’s

element that differentiates the Mexican consumer market

lowest-income neighborhoods, has been a success for

to other markets is the culture itself and core traditions.

many years, credited with the highest spend per person

Mexican developers refer to the country’s traditions of

compared to the rest of Fibra Danhos’ portfolio. The

using city squares or zocalos to meet their shopping

developer recently opened Parque Las Antenas nearby.

and entertainment needs. “City squares or Zocalos were

“Despite official figures that suggest Iztapalapa is not

traditionally the meeting point of communities throughout

one of the most affluent neighborhoods, informal labor

Latin America and we want our projects to serve the same

in the borough is very common, meaning the official

purpose for the new generations,” says Jimmy Arakanji,

figures do not accurately reflect the purchasing power

Founder and Co-CEO of Thor Urbana. “Many countries,

of the people living there,” says Elías Mizrahi, Director of

including Mexico, have strayed away from spending time

Investor Relations at Fibra Danhos. “When we saw the

in their city squares due to insecurity. By providing secure

characteristics of the project, for us it was a no-brainer to

environments, we can give back a sense of community and

increase our reach in Iztapalapa and bring more services

strengthen the social tissue.”

to those living in the borough.”

VIEW FROM THE TOP |

FIBRAS READY TO INNOVATE AND CONTINUE GROWING GONZALO ROBINA Co-CEO of Fibra Uno (FUNO)

Q: How do fluctuating interest rates impact the

bigger than that in Mexico. The first REITs were created in

performance of Fibras in the Mexican market?

the 1960s in the US and the first Fibra in Mexico in 2011. The

A: What gives the sector relief is that the intention and

US market is 50 years more mature than our market and it

measures to lower the interest rates are being implemented

is difficult to compare the two. The REIT boom took place

by Banxico. The presidential elections generated volatility

in the 1990s. As of June 2017, there are 13 Fibras operating

within the market. Some measures and precautions were

in the Mexican market. If there are no large jumps in the

implemented by the authorities and financial institutions

Mexican economy in the next year, we will see the entrance

to ensure that the peso would not be affected. The cost

of a couple more Fibras. Before the presidential elections,

of money has become more expensive for the real estate

two new Fibras joined the market, Fibra Educa and Fibra

market and developers are advancing cautiously in terms of

Upsite. They decided to launch operations regardless of

financial leverage. Previously, financing cost 3.3-3.5 percent

the volatility present in the market, which means that the

and now it is close to 8 percent.

sector is being viewed positively by investors.

In other years of high volatility, such as in 1994 or 2007, 2008

Q: What are the main factors that have helped FUNO to

and 2009, many developers were overleveraged. As a result,

be successful in Mexico’s real estate sector?

they had to auction off their assets to recover funds. This is not

A: FUNO has the best commercial real estate portfolio in

happening in the Mexican market because both developers

Mexico and Latin America. Our business model supports

and banks learned from those experiences. As a Fibra, we

all our operations and assures that we deliver the optimal

have been preparing ourselves for this situation by creating

locations for our tenants. Throughout the years, FUNO has

additional credit lines to ensure we have the liquidity to seize

been the trailblazer within the Fibra sector. Our goal is clear:

the opportunities that may arise. In 2018 and 2019 everybody

to generate the maximum amount of value over time.

will be cautious. FUNO will continue to focus on delivering long-term sustainable value in the real estate sector.

FUNO will continue to grow as much as the markets allow us to. FUNO has been able to add to its portfolio over 8

Q: How does FUNO view the presidential election results?

million m2 in such a short period of time by seizing the

A: When Andrés Manuel López Obrador was Mayor of

opportunities offered by the economy and the real estate

Mexico City, he boosted the real estate sector. The skyline

market We know it is important to consider both factors

that we see today in Reforma is thanks to the policies he

because it is not enough to have for instance a lot of

implemented. He provided the first incentives to build the

liquidity within the market, but not enough opportunities

first skyscraper, Torre Mayor, on Reforma. He provided

in real estate projects. The main characteristic FUNO

incentives for construction, such as making property

has demonstrated to be successful is to find the right

tax deductible for the first 10 years. I believe that he will

time to merge both markets. The size and footprint of

continue to boost the sector in the years to come. He

FUNO’s assets are accompanied by an even larger focus

seems to support the development of organized real estate

on sustainable practices. We have created a world-class

growth. This implies changes in the use of land, licensing

sustainability strategy to have a positive impact on people,

and population density to make more organized processes

cities and surrounding communities.

but they will not become a constraint. Q: How will the Mexican Fibras perform in the next year

FUNO is the first and largest real estate trust fund in Mexico.

compared with the US REIT market?

It began operations in 2011 with 13 properties. It now has more

A: It is very difficult to compare Fibras with REITs. Real

than 552 properties and over 8 million m2 in the office retail

estate in Mexico is in an earlier stage and the US market is

real estate segments

205

| INFOGRAPHIC

DESIGNING A MIXED-USE SKYLINE

TORRE REFORMA

Mexican real estate developers are not only reaching for

• Extras: Sky Lobby Robotized parking spaces

the sky but adding new uses to their projects to offer a unique value proposition. In a competitive market, the traditional commercial or corporate space requires

• Developer: Fondo Hexa

• Architect: LBR&A Arquitectos • Structural Engineer: Arup • Certification: LEED Platinum BD+C: Core and Shell v2 – LEED 2.0

Auditorium: 100-person capacity

innovation in the types of spaces offered. Location, location, location continues to be a top factor that makes a project successful, but developers are also reacting to the new rules of the game.

Height:

M2 BUILT IN MEXICO PER SECTOR

NATIONAL INVESTMENT PER SECTOR

246m

Floors:

Commercial Space:

Total

US$35.9 billion

64.6 million m2 44.7% Residential

40.9% Mixed-Use

34.7% Mixed-Use

25.9% Residential

12.6% Commercial

22.8% Commercial

3.2% Corporate

4.5% Corporate

2.5% Industrial

4.3% Tourism

28,868,423 m2

22,445,320 m2

8,174,746 m2

2,077,352 m2

US$14.7 billion

US$9.3 billion

US$8.2 billion

US$1.6 billion

1,609,201 m2

US$1.5 billion

1.9% Tourism

1.0% Industrial

1,204,412m2

US$366.8 million

0.3% Infrastructure

0.4% Infrastructure

0.1% Hospital

0.3% Hospital

195,000m2

66,330m2

US$143.2 million

US$98 million

Office Space:

45,000m2 Investment

US$130 million What makes it successful? Torre Reforma broke the skyline with a sustainable and unique design. A 20th century INBA-protected house was moved to make way for the skyscraper. Although not a strictly mixed-use construction, the location gave the office tower an edge and attracted the first Mac Store to Mexico, along with a 2,500m2 Sport City and a unique food court concept, thus incorporating mixed-use elements.

EVOLUTION OF MEXICO'S SKYLINE (100m+) 300 275

*Investment between 2013-2018 from ADI Associates

250

GEOGRAPHIC DISTRIBUTION (Buildings above 100m)

225 200

62.3%

of buildings over 100m are located in Mexico City

Torre Reforma 182m

World Trade Center 172m

Torre Ejecutiva PEMEX 211m

175 150 125 100

2 Tijuana

14 Monterrey

75 50

6 Zapopan 3 Huixquilucan 81 Mexico City

6 Puebla

25 0 1952 1954 1956 1958 1960 1962 1964 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998

206

2,500m2

• Tallest project

Number of completions

TORRE MANACAR

PABELLON M

• Developer: Pulso Inmobiliario • Extras: Sky Lobby and Robotized parking spaces • Auditorium:

140m

Total Construction

200,000m2

• Extras: Sky Bar and Heliport

100-person capacity

Height:

US$106.5 million

• Architect: Landa Arquitectos

• Certification: LEED Gold BD+C: Core and Shell v3 – LEED 2009

Investment

• Structural Engineer: Arup

Investment

• Developer Proyectos 9

• Architect: Teodoro González de León

US$100 million

• Certification: None but constructed with sustainable materials to decrease energy consumption

• Auditorium: 4,500-person capacity • Convention

Floors:

Commercial Space

Center: 3,800-person capacity

Commercial Space:

25,000m2

Office Space

• Hotel: 178 rooms

25,000m2

30,000m2

Structural Engineer: VSL México

Office Space:

44,000m2

Height

206m

Total Construction:

Floors

180,000m2 What makes it successful?

What makes it successful?

Torre Manacar brought the Insurgentes Sur Corridor

This mixed-use mega-construction incorporates the

back to life with a mixed-use project that rekindled

traditional commercial and office space concept with

both commercial and office flames. The project

an auditorium, convention center and hotel to increase

restored a community legacy, Cine Manacar, and kept

traffic. This development sparked construction in the

it as part of the project itself. Its anchor stores are

Monterrey downtown district, a step away from the

H&M and Cinemex, bringing a new value to the area.

traditional San Pedro Garza Garcia district. Part of the

The project is surrounded by a variety of mobility

project restored public infrastructure and created a

choices making it a sustainable option for corporates.

corridor connecting to the Macroplaza.

Torre Reforma 246m

Torre Mayor 225m

T.Op Torre 1 300m

19 18

Chapultepec Uno 241m

17 16 15 14

Reforma 180 163.7

13 12 11

Miyana 176m

Reforma 222 108.5m

10 9 8

Torre Virreyes 130m

Capital Reforma 108.5m

7 6 5 4 3 2

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1 0

Source: LBR&A, Pulso Inmobliario, SkyscraperPage, Landa Arquitectos, ADI

207

| INSIGHT

STANDARD REAL ESTATE BOLSTERED BY STRONG EXECUTION

“

Real estate is completely cyclical and to be able to withstand all those economic cycles, a developer must be disciplined” Elías Mizrahi, Director of Investor Relations at Fibra Danhos

City with a huge need for living services. “Sometimes people underestimate the consumption capacity of people in this area,” he says. “Despite official figures that suggest Iztapalapa is not one of the city’s most affluent neighborhoods, informal labor in the borough is common, meaning the official figures do not accurately reflect the purchasing power of the people living there.” In fact, Fibra Danho’s Parque Tezontle is credited with the highest spend per person compared to the rest of the group’s portfolio. But Fibra Danho’s recipe for developing successful projects is based on more than just discipline and a good

208

Unlike its northern neighbors, Mexico lacks public

eye for overstated markets. An asset-by-asset approach

recreational spaces and entertainment, says Elías Mizrahi,

is critical to take full advantage of any portfolio, making

Director of Investor Relations at Fibra Danhos, adding

each project unique. “It is really about viewing each

that it is up to developers to transcend their role of

project as a standalone asset and identifying what adds

building infrastructure and also build community. “As

the most value in that particular location,” he says. “We try

developers, we try to make the lives of people within the

to incorporate uniqueness into each of our developments.

communities in which we invest much easier. We create

For example, in the case of Parque Tezontle, it is the

shopping malls as community centers where we include

only location in Iztapalapa that provides a terrace with

stores, restaurants, cinemas and services,” he says.

restaurants. Reforma 222 is one of the only open areas on Paseo de la Reforma, a street with many office buildings.”

Fibra Danhos is a Mexican developer dedicated to building, renting, operating and managing iconic

There is one final factor, Mizrahi says. “The community-

commercial properties and high-quality office complexes

building characteristics we incorporate into our designs

in Mexico City and Puebla. The group focuses on investing

at Danhos, with the inclusion of banks, gyms, cinemas

in safety, architecture and good design to transform

and green spaces, gives us the edge in that we do not

citizen dynamics through its projects. “The first factors are

exclusively provide retail.” Parque Las Antenas, for

very basic, such as security, safety, architecture and clean

example, includes an entertainment park that stretches

design. The second set of factors make shopping malls

over a 23,000m2 area of the shopping mall’s roof.

very particular,” Mizrahi says. For example, population density, consumer spending and the availability of other

While there is no infallible recipe for navigating all market

malls in the area.

cycles, the strategies deployed by Fibra Danhos help to better shield and keep its commercial real estate portfolio

Danhos has thrived as a public entity for five years and

healthy. This is increasingly important when dealing with the

as a private company for over 40 years. “Real estate is

changes in retail management as new segments gain share,

completely cyclical and to be able to withstand all those

such as e-commerce. “I think e-commerce has not yet fully

economic cycles, a developer must be disciplined. When

arrived to Mexico, although sooner or later this will happen,”

looking at all the Fibras in the market, the average loan-

Mizrahi says. “Having said that, we are better positioned

to-value is 35 percent; ours is 10 percent,” says Mizrahi.

than the US, where there was over-expansion. Also, in the US, private equity is a common form of financing and there

To withstand market cycles, it is crucial to invest in

is a lot of debt. Mexico is not a very leveraged market.”

healthy macro environments that offer good interest rates, GDP growth and consumer confidence. “Danhos is

Mizrahi does not think e-commerce poses a risk to the

not doing anything complicated. For us, this is standard

firm’s business model, although he says it will transform

vanilla real estate, but our execution is extremely strong,”

retail. “Traditional retail will disappear and it will now

Mizrahi says. “We buy land at cheap prices and look at

be all about experience. The Danhos experience is all

superior assets and locations.” Mizrahi gives the example

about creating an ‘Instagrammable’ mall by investing in

of Iztapalapa as an overlooked municipality in Mexico

experience.”

VIEW FROM THE TOP |

CREATING 21ST CENTURY TOWN SQUARES JIMMY ARAKANJI Co-Founder and Co-CEO of Thor Urbana

Q: Why has Thor Urbana decided to focus on the Mexican

City squares or Zocalos, were traditionally the meeting point

commercial real estate market?

of communities throughout Latin America and we want our

A: There continues to be a deficit in quality commercial

projects to serve the same purpose for the new generations.

spaces required to meet the demand of Mexicoâ&#x20AC;&#x2122;s growing

Many countries, including Mexico, have strayed away from

population. We continue to see great activity in the

spending time in their city squares due to insecurity. By

construction of commercial real estate and Thor Urbana

providing secure environments, we can give back a sense

wants to continue creating new retail and mixed-use

of community and strengthen the social tissue. By investing

projects that adapt to the needs of the 21st century market.

in these inclusive spaces we are able to generate win-win

We have noticed that modern society is no longer interested

situations where our tenants are able to retain customers

in the traditional commercial spaces as people now seek

longer and continue attracting new ones. We are developing

social, community and experiential spaces that add value

projects with these characteristics in Metepec, Merida,

to their everyday life

Guadalajara, Cancun, San Luis Potosi and Tijuana, and look to continue doing so within new booming cities.

Thor Urbana has identified many cities that have the right combination of demographics and economic development

Q: Why did Thor Urbana decide to construct Town

for commercial development. Commercial real estate is

Square Metepec?

continuing on an upswing and demand will only continue

A: Our value proposition brings with it a variety of

to grow. There are many new brands that want to penetrate

entertainment and restaurant options. A great example is

the Mexican market through innovative projects such as

Town Square Metepec. The Toluca Valley has more than 3

the ones we are developing. We are leading commercial

million people and there was no project that offered the

developers but we want to make sure that we continue to

type of experience, lifestyle and tenant mix that we are

create truly unique projects that bring cities to life.

offering in our project. Most of the residents of Metepec had to travel to Santa Fe to find these kinds of amenities.

Q: What is the role commercial real estate developers have

This project will break the traditional paradigm and will give

in transforming Mexicoâ&#x20AC;&#x2122;s secondary cities?

Metepec a new city center for social interaction.

A: Developers have a considerable responsibility in detonating investment in secondary cities through the

Almost all real estate projects are accompanied with social,

creation of valuable real estate projects. Ultimately,

environmental and economic implications that developers

developers have a direct impact on the urban landscape

must solve and there will always be groups that are in favor

of a city or neighborhood through what they construct. We

or opposition of its construction. That is the law of real estate

have the ability to develop world-class projects that will not

development all over the world. Thor Urbana wants to be the

only boost the aesthetics of an area but also its economic

best neighbor possible and acts responsibly to improve the

activity. Thor Urbana wants to continue developing spaces

quality of life of the area and bring a new value proposition

that have a positive impact on their surroundings. The type

that did not exist before. We investigate and run focus groups

of real estate investments that we are making generate

to ensure that the project is of the expected quality and that

employment and boost economic development, but what

it will have a positive impact on its surroundings.

we really want to achieve is the creation of a project that society can truly benefit from. The types of projects we are creating go beyond serving a mere commercial purpose

Thor Urbana is one of Mexicoâ&#x20AC;&#x2122;s leading real estate investment and

but actually aim to create spaces within the community

development companies. It specializes in mixed-use projects with

that promote social interaction and wellbeing among clients

developments in Metepec, Merida, Mexico City and Guadalajara.

without them necessarily having to purchase an item.

It is developing over 10 million square feet across the country

209

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LOOKING FOR A THIRD HOME RUN ON REFORMA GERALD “RICK” RICKER Director General of Reichmann International

Q: From your experience, how has the Mexico City office

second home run after Torre Mayor and both have been

market performed in 2018 and what are your expectations

quite the success. With the tenant expansions that we have

for the future?

done recently, Torre Diana is now down to its last 500m2

A: The Class A office market has continued to grow at

available for lease of the building’s 64,000m2 capacity. All

record levels in Mexico City. 1Q18 was a record due to the

over the world, Reichmann International has always been

movement to quality buildings as a result of the September

attracted to central business districts (CBDs) and it has

2017 earthquake. Then, due to various economic factors

always been our strong suit. We truly believe that any city is

such as the presidential elections, NAFTA renegotiation

best defined by its CBD. There are also many opportunities

and rising interest rates, the velocity of transactions in

in Santa Fe and Insurgentes. But Reichmann can provide

2Q18 slowed down. Since the elections in July and the

special services to the types of tenants, both national and

announcement of the USMCA trade agreement, some

international, that are oriented toward the CBD.

certainty is stabilizing the Mexican economy. As a result, corporate decision-making on office leases has been very

Q: What is the most difficult aspect of acquiring land to

active during 2H18.

develop a project? A: One of the main challenges to acquire land, particularly

The increase in interest rates is keeping the “silly money”

on Reforma, is the time it takes to negotiate with the owners.

out of the market. There is a saying in real estate that bad

My experience in Mexico is that properties tend to be

money chases out good money and in the last couple of

passed down from generation to generation. This makes it

years, easy access to cheap capital has allowed almost

challenging because what was once a negotiation between

anybody to build an office project. The office market has

five family members can quickly turn into 14 members

seen an incredible amount of new construction and this

that have conflicting interests. Achieving a 100 percent

excess supply of product is not substantially competitive,

consensus from the stakeholders to close a deal becomes

which has forced some developers to set lower prices to

very difficult. In the case of Torre Mayor for instance, it took

lease their lower-class buildings. The market takes time to

more than five years to assemble five different parcels next

realize which new buildings are truly class A from those that

to the tower. Those parcels were owned by families and

may be a B-. The market has expanded but the oversupply

individuals with whom we had to negotiate one by one

of product that is not truly A-level has caused some

to obtain the land. The land for Torre Diana was originally

confusion among tenants.

seven different parcels that were part of a trust that was created by a former minister of education in the 1920s.

Transactions that were on hold are now being finalized

Instead of leaving it as an inheritance for his children,

and we believe 2018 will end with much higher overall net

the previous owner placed it in a trust fund from which

absorption than we have averaged in the last 10-15 years.

the proceeds would go to scholarships and funding for

During the last 20 years, the Mexico City market typically

education. After many years, the board of trustees decided

absorbed 200,000-225,000 net rentable square meters

to cash out and sell the land. This deal was somewhat easier

(RSM) per year. In the last three years we have been at

because the negotiation was not a family with conflicting

levels well over 300,000RSM. I am confident that 2018 will

interests but a trust.

also end in the same amount. Q: What are Reichmann International’s plans to continue

Reichmann International is a Class A office developer and

transforming the Reforma Corridor?

asset manager with more than 60 years of experience building,

A: We are looking for new plots of land on the Reforma

owning, leasing, financing and operating public and private

corridor to develop a new tower. Torre Diana was our

real estate assets in North America and Europe

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| INSIGHT

HIGH LAND COSTS SHAPING DEVELOPMENT TRENDS ENRIQUE VILLANUEVA Development Director at Pulso Inmobiliario

Dense cities offer a great market for new projects but

sell right away and others who may want to take advantage

gathering parcels of land large enough and in the right

of the situation to drive the price up.” Pulso Inmobiliario

location is growing more difficult each year, says Enrique

hires various brokers to knock on all doors and negotiate

Villanueva, Development Director of developer Pulso

each case on its behalf.

Inmobiliario. “Acquiring the land for a project is no easy 212

feat,” he says. “Buying land piece by piece can take quite

Creativity and thinking ahead could save developers hassle

some time, as it involves making decisions about the

and money later, according to Villanueva. Pulso Inmobiliario

development location and carrying out various market

will build a new skyscraper on Reforma in collaboration

studies, and Pulso Inmobiliario is a specialist in these

with another important developer. The project, Impera, will

matters.” He emphasizes that choosing the right location

be built on a plot of land that only this JV could develop,

necessitates long-term planning and creativity.

he says. “This parcel had been on the market for years, not because it was not attractive, but because it was

The cost of land, especially in cities such as Mexico City,

extremely difficult to build a project there due to new

Guadalajara, Monterrey, Cancun and Puebla, is climbing

parking regulations,” says Villanueva. He explains that even

rapidly as these are some of the most attractive cities

though new regulations in Mexico City reduced parking-

for mixed-use developments. Pulso Inmobiliario’s newest

space requirements, developers must still offer their clients

project, Encuentro Oceania, located close to AICM, is a good

a certain number of spaces. The terrain’s size only permitted

example of choosing a strategic location. “Oceania Avenue is

four to five parking basements because any more would be

a great location because there are no shopping malls of its

extremely expensive given the type of ground. The ramps

size in the area,” Villanueva says. “Although there are many

themselves would take up most of the terrain, making it

stores and services, there are no mixed-use developments

almost impossible to integrate parking into the project.

with large anchor stores or entertainment centers.” Facing this parcel is the New York Life building, another Villanueva says that, after analyzing the demand, developers

of Pulso Inmobiliario’s projects that encountered a

should make sure that the terrain is appropriate for the

similar challenge. To provide enough parking for the

project in terms of licenses and permits. Encuentro Oceania

towers, the developer purchased various pieces of land

will be developed on land that was once home to a large

on a street located approximately 100m away. “Mexico

factory. “This meant we did not have to purchase many

City regulations allow for satellite parking as long as it is

parcels of land and negotiate each one and even though

within a radius of approximately between 200-300m and

we do have to change the land use permits, it is easier

there is no need to cross a busy street,” Villanueva says. A

to change from industrial to commercial than any other

high percentage of this satellite parking lot services New

type,” he says.

York Life and another part will now be used for clients in Impera’s new boutique offices.

But not all Pulso Inmobilario’s developments have gone so smoothly. In the case of Torre Manacar, the developer

There will always be challenges in the market, but Villanueva

began by purchasing the Manacar Urban Center, which

says it is up to the developer to make the best of the space

was a mall with offices that took up half the block. As the

it has and to innovate in its projects to truly make an impact.

project grew and became more ambitious, the company

“We are no longer a real estate business. We are interested

continued purchasing surrounding parcels of land. In

in improving the quality of life of the people living in the

total, Pulso Inmobilario bought 11 parcels, each negotiated

neighborhoods surrounding our projects,” he says. “The key

individually. “Negotiation is difficult because one cannot

to success is making a project that brings a neighborhood

negotiate in bulk,” he says. “There are people who want to

to life and boosts the quality of life of its citizens."

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RETAIL GIANT MOVES FORWARD WITH AMBITIOUS PLANS GASTON WAINSTEIN Senior Vice President for Real Estate Development, Corporate Strategy and Special Projects of Walmart de México y Centroamérica

Q: What is Walmart’s expansion strategy for Mexico?

prototypes, costs and strategic alliances are based on our

A: We have a portfolio of brands and a strong national

ambitious expansion plans.

presence that has allowed us to grow throughout the entire country. We have the right formats to continue growing

Q: How is Walmart adapting its stores and infrastructure

and opening not only new stores but also expanding our

to the growing e-commerce trend in Mexico?

logistics capacity through distribution centers. We are

A: Walmart wants to continue developing its omnichannel

investing heavily in overall infrastructure and in remodeling

proposal. Omnichannel allows clients to purchase products

our stores to keep them fresh and updated. We have an

anytime and anywhere. We are investing a great deal

ambitious investment for the country using all our existing

of money in this and the clients value our efforts. Our

formats. We continue opening new stores in all our formats,

omnichannel approach combined with our strong physical

which are Bodega Aurrera, Walmart, Sam’s Club and

presence throughout the country allows our offering to

Superama. Bodega Aurrera is a significative vehicle for the

be even stronger. We have 23 distribution centers across

company and it has become a popular brand for the value

Mexico and Central America, boosting our logistics network,

customer segment.

which we plan to also expand in the coming years.

Our extended portfolio is far more urban than those of

Although Walmart is a leading company worldwide, its goal

other markets. For Mexico, that means that spaces are far

is to continue being the leader and to continue innovating

more reduced, forcing us to focus on making the most of

on a day-to-day basis. We incorporate a great amount of

the space available. Walmart’s vast experience allows it

technology to develop our stores and we are a serious

to share best practices and create more efficient stores

company with a good reputation that wants to innovate

that waste less energy, better sales-floor ratios and more

within the real estate sector.

technological stores. Q: What new alliances and partnerships does Walmart wish Q: What role does Walmart play in the development of

to develop?

Mexico’s commercial real estate sector?

A: We want to strengthen our relationships with local

A: We are a retail company, not a construction company,

developers, Fibras and other third parties interested in

even though we construct many square meters a year

helping us fulfill our mission. We would rather not go it alone.

and manage the largest commercial expansion program

We look for serious partners and good projects. Because

in Mexico. We prefer to delegate the building to the

the partnerships we create are long term, we place special

companies that know how to do it better because it is not

emphasis on having partners that also look for transparency

our core business. Our business is to find the best locations

and quality in their projects. It is important to understand the

and offer the best retail services possible.

needs of each party and work toward common ground with all types of developers. A good developer is one that can

Walmart does not dabble in real estate speculation. When

identify the needs of the end client, the needs of Walmart

we do come across large lots of land, we search for another

and others to create a project that is coherent, financially

developer or anchor to accompany us in the project. We

viable and is sustainable in the long term.

are not in the business of real estate capital gains. We believe that there is space in Mexico to duplicate our size, which is why we have decided to double in the next 10

Walmart de México y Centroamérica has more than 2,400

years. Walmart announced in 2016 an investment of US$1.3

stores in Mexico under four brands: Bodega Aurrera (Mi

million in its logistics alone for the next few years precisely

Bodega, Bodega Aurrera Express), Walmart, Sam’s Club and

to enable that goal. All of the innovation in creating

Superama

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| VIEW FROM THE TOP

MARKET TRANSPARENCY ADDS VALUE LYMAN DANIELS President of CBRE

214

Q: How would you respond to suggestions the real estate

It has highly trained, highly skilled labor and engineers that

market has stagnated over the last few months?

can satisfy those workforce demands. Monterrey is the major

A: I would disagree. Firstly, market activity is actually slightly

industrial city of the north. It will continue to grow but it is

higher than it was at the same time last year in office, industrial

very dependent on industrial activity and output. I think that

and retail. There has been consistency in the market. 2016 was

will have a lot to do with geopolitical and economic situations

a record year for absorption and when comparing 2017 year-

because ultimately it is an industrial hub.

on-year it has been a very strong year so far. The elections certainly caused a certain amount of hesitation but this

The whole Bajio region will continue to be important. The

happens in all countries. But the antagonist is the uncertainty

growth of this region has historically been very strong, slowing

rather than the outcome of the elections.

in the last year or two mainly due to the uncertainty in the automotive sector. But I think in general it will continue to

We measure market activity by demand, and the demand this

grow strongly, but exactly how strongly will be dictated by

year has been very consistent with that of last year for 1Q18.

political and economic forces.

However, I believe 2Q18 will show completely different results. Having said that, I think after the elections when we know

Q: What makes a project really successful in Mexico?

what direction the country will take, a lot of that uncertainty

A: Firstly, the current and future demand must be well

will be dissipated. Investors and users of the space will be

understood. This comes from having good forecasting abilities

ready to make decisions again.

and understanding where the economy is moving. After this, a developer should incorporate itself into a region where it

CBRE remains very bullish on Mexican commercial real estate

adds value.

because of all the factors that have created growth over the last few years, from the population dynamic to the work ethic

One important factor is location. But there are also other

to the location. We think this market will continue to grow.

considerations such as the quality of design, the quality of tenancy, the care and maintenance of the asset and the overall

Q: Which city do you believe will have the strongest activity

efficiency of that building. It is also important to consider who

in the next few years?

the neighbors in the building are.

A: I think all the major and secondary cities will have strong activity for their own reasons and each one is very dependent

Q: What is the main added value you offer to clients?

on different industries and different factors. Obviously, Tijuana

A: Real estate is a local business and a personal business.

is strong because of its connection with the US. The issues

We are the largest, and we have better access to those local

with Tijuana at the moment are access to labor and access

markets and relationships. When our clients come and ask

to land. There is a lot of demand in Tijuana for industrial, and

for information, we are able to give them first-hand access

right now it is difficult to find solid industrial facilities that are

to those markets, sub-markets, contacts and people, which

vacant in the city. Guadalajara continues to be a strong market

allows them to gain a foothold in the country. Another factor

for different reasons. It continues to be an area where there

is that, because of our size as a vertically-integrated company,

is a lot more development of high tech and R&D facilities.

we can not only help clients find a space, we can also help them go through the design, construction, post-construction, move-in and the management of that space. With all those

CBRE Group is the largest commercial real estate services and

tools, the client can access the whole range of services in

investment firm in the world. It is based in Los Angeles and

one place. It is the difference between going to a restaurant

operates more than 450 offices worldwide with clients in more

that serves only a main course, and going to a restaurant that

than 100 countries

serves starters, entrees, main course, dessert and an aperitif.

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RECLAIMING DOWNTOWN MONTERREY TO DELIVER QUALITY OF LIFE JOSÉ LOBATÓN Director General of Proyectos 9

Q: What opportunities did Proyectos 9 identify that

to design new master plans that consider the new needs

prompted the company to develop downtown Monterrey?

that an area may have. New flexibility guidelines and tax

A: The accelerated economic growth of the region

incentives have also been created. For example, the area

prompted the construction of real estate in Monterrey’s

surrounding subway stations are now unlimited mixed-use

periphery because it was easy to build in that area. This

areas so that skyscrapers can be built and the Monterrey

caused a swift but disorderly growth on the outskirts,

city government has implemented mechanisms to remit

which eventually caused environmental and traffic chaos.

and reimburse some taxes so that this capital is invested in

Proyectos 9 realized there were no new developments in

street furniture, parks and other infrastructure.

the center of Monterrey because most companies were attracted to the inexpensive land on the outskirts of the city.

Q: What is Proyectos 9’s strategy to finance its developments?

Q: What are the main obstacles that you have faced to

A: Proyectos 9 has several investment models. We have a

develop real estate in this area of Monterrey?

strategic alliance with a private investment fund that takes

A: There have been several challenges, land ownership

part in all our real estate developments. That enables us to

being one of the most significant. Many properties in

purchase land and fund construction operations. Once our

downtown Monterrey have been in families for generations

projects have achieved a level of maturation, Proyectos 9

and consequently there are legal ownership problems as

has solid leverage with Fibras that purchase finished projects

family members contend for them when an owner dies

that are already stabilized and generating revenues. We do

without a will. At the same time, there were no local

not need to raise CKDs or publicly list in the stock exchange

government incentives for real estate developers, such as

since we are supported by private investment funds and

zoning and land use permits.

we can effectively balance the capital risks of our projects.

The fact that there were many abandoned buildings in

Q: What new real estate developments are part of

the center of Monterrey caused several issues when crime

Proyectos 9’s pipeline?

rates went up in 2009. These buildings were often used

A: Our vision is to develop 600,000m2 of construction

by criminal organizations, so economic activity dropped

in the center of Monterrey up to 2H22. This offering will

abruptly at night in downtown Monterrey. Thanks to projects

include around 100,000m2 oriented to offices, 50,000m2

such as Pabellón M, the city center is starting to recover

for commercial use, 500 residential units, 450 hotel rooms,

and attract more construction projects. There are around

a couple of educational establishments and a hospital. We

30 significant projects in the area that will completely

have developed a land bank to purchase spaces in the

transform downtown Monterrey in the next seven years.

areas surrounding the Constitución 999, Torre 411, Centro Cuauhtémoc, Centro Campo and LoLa to develop Distrito

Q: How is the local government working with Proyectos 9

Moca. We have a very specific mobility and tree planting plan

to support the rejuvenation of the Monterrey city center?

for this corridor. It will offer both new and secure mobility

A: There has been a great collaboration between us and

opportunities for people that come to the area to work and

the authorities. This includes basic concepts such as

will offer several amenities for people who live there.

efficiency in delivering permits as well as more complex steps such as studies of the area’s infrastructure and urban transportation offering. This collaboration has translated

Proyectos 9 is a 100-percent Mexican company that focuses on

to more sophisticated guideline models, for instance. We

the development of commercial real estate projects from the

take part in roundtables with the government in which we

planning and feasibility phases to the integration, direction and

analyze urban master plans from decades ago in order

supervision of the project’s evolution

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| INSIGHT

A DEVELOPER’S MISSION TO RESTORE MONTERREY MARCO GARZA Founding Partner of GM Capital

216

Monterrey may be ignoring the lessons learned by

and 20 on the way, according to Colliers International.

Mexico City’s unplanned and sporadic horizontal growth

Regardless of the activity, Garza says there needs to be

that created the urban sprawl that exists today, but GM

more coherent planning around the projects. “There are

Capital is hoping to correct that by restoring mobility and

many new developers who see the potential in Monterrey

transforming the Metropolitan Area of Monterrey (ZMM).

but their interests conflict with the city’s needs. They offer

“More than 190,000 cars and 230,000 people commute

real estate products without factoring in urban planning.”

to San Pedro Garza Garcia each day, immobilizing the municipality’s streets,” says Marco Garza, Founding Partner

Despite such high rates of development in areas such as

of GM Capital. “Monterrey developers must take action

Valle Oriente, Garza says people have yet to move back into

and boost the development of resilient projects that will

the city center where they often work. He believes the main

improve quality of life.”

reason for this is that the right value proposition has not

“

More than 190,000 cars and 230,000 people commute to San Pedro Garza Garcia each day, immobilizing the municipality’s streets”

been transmitted to the market. GM Capital’s two upcoming projects, Distrito Rivera and Distrito Armida, aim to motivate people to leave their homes on the outskirts of town and live closer to where they work. “The plan is to offer education and other services along with affordable housing to motivate people to move into San Pedro Garza Garcia,” he says. GM Capital’s developments all have different price points. The prices for units in Distrito Armida and Distrito Rivera range from MX$3.5-9.5 million. “Each project targets a different demographic, providing complements for each district,” says Garza. “But this market of 230,000 potential

Monterrey’s population has doubled, yet urban sprawl

clients is still too large. The market is big enough for more

has grown eight times its original size, swallowing up

developers to meet the demand.”

neighboring municipalities. Nuevo Leon, and especially the ZMM, is booming in terms of real estate development. The

As of May 2018, over 50 percent of Torre Malva in

state of Nuevo Leon has been the leader in Mexico’s housing

Distrito Armida had been sold. Phase 2 of the project

market, ahead of Jalisco and the State of Mexico, in terms of

consists of a shopping center and a project with Hospital

new housing. Commercial real estate is also on the rise with

Angeles. “Grupo Empresarial Angeles wanted to expand

more than 245 existing commercial projects in the ZMM, 26

its hospital by 10,000m2 into our land and we saw the

in construction and 11 in the planning phase, according to a

opportunity to construct a tower alongside it that will

2H17 Collier International report. The city’s fast development

contain clinics and a long-stay hotel to complement the

has given way to new symptoms and Garza believes a lack

development,” he says.

of vertical housing is a key reason why the city continues to expand horizontally and to grow in an unsustainable manner.

The goal of GM Capital’s projects is to be inclusive and to address in one single area all the needs a family might have,

Consequently, Garza says one way to provide relief is

while always keeping in mind the idea that people should

through the development of well-planned mixed-use

live near their jobs. “At GM Capital we believe that we have

projects. “Mixed-use projects where inhabitants can spend

a responsibility to deliver projects that contribute to a city’s

85 percent of their time will be the cure for Monterrey,”

development in terms of the new dynamics required for an

he says. The ZMM has over 30 existing mixed-use projects

improved quality of life,” says Garza.

VIEW FROM THE TOP |

OPPORTUNITIES IN MEXICO’S NORTHERN STATES JOSÉ LUIS FLORES Executive Director of LOMA Desarrollos

Q: What segments is LOMA Desarrollos focusing on and

can either choose to enter and exit a high-yield project

what trends has it seen in the market?

in two to three years or participate in the monthly lease

A: In these regional markets, the segments we are targeting

scheme and receive yields between 9 and 12 percent.

are C and D, which are slightly lower in income than what most developers strive to achieve. Instead of large

Q: What characteristics do regional markets demand from

department store anchors, we are implementing a strategy

commercial real estate developments?

of using supermarkets, such as Soriana, as anchors. Due

A: Mexico is filled with opportunities. The city that will grow

to insecurity in these markets, commercial centers are

the most from now until 2050 in Mexico is Tijuana. In Tijuana,

becoming the meeting point for communities and that is

we are developing our large mixed-use project along with two

why we want to make sure that our commercial centers

residential projects. Culiacan is another city that is growing

create a positive experience for shoppers. In Tijuana, we are

rapidly and we already have four projects there. In medium-

developing a mixed-use project that will bring a different

sized cities, these power centers and smaller projects are

vibe to the city and create common areas where people

perfect, but we are also beginning to develop mixed-use

can come together. We are also developing a project in

projects in cities that are growing exponentially. Tijuana and

Tizimin, which is located in Yucatan, between Merida and

Culiacan are a perfect match for us because land prices are

Cancun. This project will become the town’s theater and

more expensive in these areas and one must densify to make

the focal point for its citizens. Affordable prices also allow

it viable. Mixed-use projects create experiences that are not

smaller businesses to formalize and move into a more

necessarily based on the anchor store but on gastronomy

sophisticated shopping space. Our projects contain national

and community. There must be a harmony between prices,

brands that target lower-income segments, such as Waldos,

store selection and how the spaces are used.

and we complement this with regional brands. That is why it is important to adapt prices to the area. Developing

Q: What unique challenges might developers encounter

in regional areas has the advantage of having cheaper

when constructing in Mexico’s northern states?

land and we have the benefit of having existing business

A: Permits and licensing in the regional markets are

relationships with anchor stores such as Soriana.

extremely difficult processes. In these markets, municipal presidents give the green light for permits and projects. It

Q: What is LOMA Desarrollos’ financial strategy to develop

differs greatly from city to city. For instance, in Tijuana it

throughout various states in the country?

has been extremely difficult to obtain the permits. In some

A: Sixty percent of the capital we use comes from investors,

areas this is due to education and lack of knowledge about

including 20 percent from LOMA Desarrollos, with the rest

the topic and in some it is outright bureaucracy. Insecurity

from national and regional investors. The remaining 40

is definitely a challenge in these cities as well. We have

percent is financed through banks. We are open to new

already faced various situations in some of our projects in

investors with a minimum buy-in of MX$5 million. Our

Culiacan and Tijuana. A challenge that is not seen as much

successful projects have created trust among investors

in large cities is the use of cash. In Culiacan, for instance,

and that is how we have grown so much in the past years.

almost everybody uses cash and no cards, which is a good challenge to have in a way.

We have two schemes for shopping centers. With one, we create an investor pool, and we rent and sell the spaces in the commercial center to obtain high yield rates between

LOMA Desarrollos is a commercial and housing developer that

20-40 percent annually, which is above the market average.

focuses on markets such as Chihuahua, Nuevo Leon, Sonora

The second scheme is to create an investor pool, purchase

and Coahuila. It has more than 25 years of experience and it is

the land and then lease the spaces monthly. The investor

now developing two mixed-use projects in Tijuana and Culiacan

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| VIEW FROM THE TOP

NEW CLIENTS, FUTUREÂ PARTNERS RAFAEL GARZA Co-Director of Grupo Plate

Q: What added value does Plate bring to project

We have built such a strong relationship with this company,

management in the infrastructure sector?

we have become its go-to project manager. We attribute our

A: Over its 47 years, Plate has been positioned as a project

success to building these strong relationships and achieving

management leader, having managed over 10 million m of

client loyalty. We also work permanently with other national

retail, industrial, corporate, and apartment constructions.

and international real estate firms and institutions such as

There are only a few companies with our experience in

United Technologies Company (UTC), Internacional de

Mexico, especially in the northern part of the country.

Inversiones, Universidad de Monterrey, BMW and many

Honesty, fairness and loyalty are three key cultural principles

more. Our goal is to prove to our clients that we are the

through which our clients distinguish our services and that

right partner to manage their projects, working to exceed

have led to our success. Our experience brings a great deal

expectations. In every new client, we see a future partner.

218

of value to each project. Q: How has Monterreyâ&#x20AC;&#x2122;s real estate sector evolved over Q: How is your methodology different from that of other

the last decade and how is Plate seizing its opportunities?

project management companies?

A: Real estate firms have to reinforce municipal and state

A: We build long-term business relationships based on

programs focused on the promotion of redensification of

confidence, focusing our efforts primarily on existing clients

downtown areas and vicinities. Land prices in Monterrey

to guarantee their satisfaction. Our clients include Grupo

are very high, so the use of new guidelines such as higher

Acosta Verde, a company we have continually collaborated

densities and fewer parking requirements helps real estate

with over 18 years in more than 34 shopping center projects.

firms reduce costs and increase the profitability of their projects. As a project management company, we help our clients to visualize and understand the true potential of

Grupo Plate is a project management company that has 47

their land. We forecast significant growth in Nuevo Leon

years of experience working in the industry. It has managed

and other states. In Monterrey, we will continue looking at

over 10 million m2 of retail, industrial, corporate, and

an increase of mixed-use vertical projects with better urban

apartment constructions

infrastructure and connectivity.

VIEW FROM THE TOP |

RESURGENCE OF RENTAL GOODÂ NEWS FOR DEVELOPERS JAVIER LOMELĂ?N CEO of Colliers International Mexico

Q: What are developers and investors looking for when

benefit from a year like this are those that can adapt to the

they contract companies such as Colliers International?

new circumstances. These factors automatically slow down

A: Our clients demand extremely specialized talent. It is

activity and players will adopt a wait-and-see attitude.

not enough to be familiar with the real estate market; it

Everyone must understand that real estate is a long-term

is critical that we know our clientsâ&#x20AC;&#x2122; businesses to provide

game, a marathon and not a sprint.

personalized advisory services. This has made the service provision sector a lot more demanding and competitive.

Q: What are the elements that raise asset values in Mexico

Colliers International has integrated the wide scope of

and what should developers keep in mind when choosing

services offered within the real estate industry and we

projects?

can do anything from project management, appraisal

A: For a development to be successful it is important to

and commercialization to maintenance and operation of

consider a broad variety of variables, including architecture,

assets. Third-party appraisals are becoming more and more

market cycles, potential clients, exposure, efficiency, prices,

important, as the integration of investors into the real-

sustainability, market trends and location. The development

estate market demands transparency and an independent

must have a focus on future clients. Understanding the

perspective. Land use, fiscal implications, density and

requirements and needs of customers facilitates the long-

regulations are always factors that impact the success of

term possibility to lease the project. In terms of pricing,

a real estate project.

monitoring the real estate market allows us to track the levels of leasing that are prevailing in an area. With

Q: What opportunities has Colliers International seen in

additional supply and demand analyses, we can estimate

the rental housing segment?

whether a project is viable or modifications must be made,

A: Colliers International could become more involved in the

so that the leases cover the cost of development.

rental housing market through mixed-use projects. There could be a decrease in purchases of individual assets that will

In terms of market trends, the analyses go much further.

later be placed on the rental market but we are also seeing a

New technologies and the rapid growth of new applications

comeback of institutional investors into that segment.

require new jobs and a way of working for the future. It is estimated that in a few years the labor model will change

Rental disappeared some years ago because of regulations

significantly, especially with the growing popularity of home

that were passed, protecting tenants. This made investments

office and shared working spaces. Some jobs such as bank

less profitable since rent prices were limited and could

tellers and physical mail and courier services are expected

not be raised more than 85 percent of the increase in the

to experience reduced working hours, while on the other

minimum wage. These regulations have been modified,

hand new jobs will be created in the future that do not

making it a good option for investors once again. We see

currently exist. But by far, one of the most important factors

that developers are now acquiring entire portfolios, giving

to consider is location. The ability to get from different

life to economies of scale and with much greater viability.

points in the city with ease and access to public transport leads to a privileged mobility scenario, a component highly

Q: How will the 2018 elections impact real estate

valued by any tenant.

development in Mexico and how should players prepare for change? A: This year is filled with question marks. The transition of

Colliers International Group is a global real estate services

political administration, the renegotiation of NAFTA, interest

company with more than 15,400 skilled professionals operating

rate hikes and modifications in fiscal rules are causing the

in 69 countries. The company culture encourages people to

real estate industry to question its foundations. Players that

think differently, share ideas and create solutions

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| INSIGHT

NEW GENERATIONS DEMAND NEW MIXED-USE SPACES FERNANDO AMESCUA Director of Investor Relations at KIVA Grupo Inmobiliario

220

Mexico’s most important real estate markets have been Mexico

owned businesses. “Guadalajara has always had a strong

City and Monterrey for many years but another state is gaining

entrepreneurial spirit and that spirit has driven the success

strength. Guadalajara has experienced a real estate boom and

of many family-owned companies. These companies are

institutional investors have rushed in to take advantage of

now far more institutionalized, provoking them to move into

commercial opportunities. But there is also room for smaller

corporate offices,” says Amescua. When family companies

investors to take part, says Fernando Amescua, Director of

are passed down through generations, they tend to become

Investor Relations of KIVA Grupo Inmobiliario.

more institutionalized and look for more collaborative environments and efficient locations to host their offices.

“The entry barrier for investors in a residential space is much lower than that of a commercial space due to lower price tags.

The Guadalajara market still has a great deal of room to grow

Corporate buildings and commercial projects have always

in comparison to that of Monterrey and Mexico City when

been in the hands of larger developers,” says Amescua. “The

it comes to office spaces. Guadalajara is also re-densifying

essence of KIVA is to eliminate that entry barrier so individual

its downtown areas to foster the development of vertical

investors can participate in commercial and corporate projects

and mixed-use projects just like many other cities across the

that give them access to higher capital gains.”

country. “The urban sprawl of Mexican cities has grown in

“

The entry barrier for investors in a residential space is much lower than that of a commercial space due to lower price tags”

a disorderly way, without long-term infrastructure planning. Infrastructure development is usually thought out for about five or six years and the lack of long-term planning directly impacts the quality of life of future generations,” says Amescua. An increase in mobility problems and extremely long commutes have pushed governments to reconfigure their zoning plans to bring people back into the cities. Changing zoning plans to boost vertical and mixed-use development is good for real estate developers and allows them to create new projects in areas that had become too expensive. “People want to have shorter commutes and

KIVA specializes in the development of mixed-use projects

the current governments have tried to provide certainty

that contain commercial and corporate components,

to zoning permits to promote the re-densification of some

through smaller-ticket prices for investors. But the key to a

areas. The city of Guadalajara has made these changes to

project’s success is not in entering a completely new market.

its zoning plans and is pushing vertical development of

Instead, KIVA looks for locations that are surrounded by

residential, commercial and office projects,” Amescua says.

other offices and commercial spaces to create synergies and in return increase traffic and boost capital gains.

With new opportunities on the horizon, KIVA will continue looking for projects that will provide its investors with the

The company is developing projects in Jalisco, Queretaro,

highest returns while also having a positive impact on their

Guanajuato and Nayarit, but the Guadalajara market

surroundings. “If our projects are quality projects that offer

continues to show positive signs of growth. “The office

our investors a hefty capital gain with legal certainty, we will

market in Guadalajara has grown steadily over the past few

keep developing. We are not interested in being the largest

years. Companies were accustomed to having their offices

developer; we want to create winning projects,” Amescua

in homes or apartments,” Amescua says. A factor that has

says. The company’s newest mixed-use projects include

influenced this growth is the change in generations of family-

the Avania and Bravante Business Centers in Guadalajara.

VIEW FROM THE TOP |

UNDERSTANDING PERMITS AND PROCEDURES IGNACIO RAMÍREZ CEO of INVERTI

Q: What are the inhibitors and catalyzers of real estate

Q: What are INVERTI’s most popular services and how are

development in Guadalajara and what is INVERTI’s role in

these shaping its growth strategy?

improving this market?

A: INVERTI was born from the need to follow procedures

A: The main problem in Jalisco and the metropolitan area

and solve the question on how to best use a given piece

of Guadalajara is the lack of alignment in urban regulations.

of land. We provide integral consulting that starts with the

Tlajomulco, Zapopan and Guadalajara have clear urban

lawful use of land to delivering the required licenses. We

policies that allow improved urban conditions, but that is

accompany our clients from the land-acquisition stage,

not the case for the rest of the municipalities. The lack of

through the whole process of deciding what project will

continuity in these regulations is preventing orderly growth.

be developed, further notarizing the project and obtaining

I believe that the main catalyzer for real estate investment

all the licenses to operate it. This turnkey service is in high

is procedures and permits. Mexico’s National Development

demand. We have grown 100 percent yearly for the last three

Plan (PND) sets out the requirements in a specific way. The

years and are forecasting the same growth to 2021 with the

fact that the development guidelines are becoming clearer

same personnel, as we focus on improving our practices

is helping boost real estate investment.

and making them more efficient. For example, we have 25 ongoing projects for permits of which nine are in the

INVERTI has 25 years’ experience helping to professionalize

analysis stage and 10 appraised. When we finish one project

permits and procedures through the creation of a system

we already have a pipeline to substitute it. Some of our main

that compiles all the laws and regulations in Jalisco and

clients are Oracle, Thor Urbana, GFA Architects and BP.

the metropolitan area of Guadalajara. This allows us to cooperate and advise the government on which regulations

We also have extensive experience within different sectors.

are hindering development. We also provide insight to

For example, over the last four years we have been working

investors on what they can do with their land according

with Thor Urbana’s The Landmark project, which is the

to the land-use regulations to ensure their projects are

biggest mixed-use development in the metropolitan area.

compliant, which gives developers legal certainty.

We were given a deadline to start developing and we made sure all mandatory permitting was done by then. This has

Q: What are the main challenges for developers when

helped us gain more clients and also to maintain a strong

building successful and profitable projects?

relationship with architects.

A: We provide integral consulting on real estate projects, at the engineering and architecture stages of a

Q: What would be on your wish list for the next

development. Without procedures and permits projects

administration?

cannot happen, as these are the base for defining the

A: I think we need more clarity in the procedures for permits.

project’s parameters. Ninety percent of developers find a

This is key to continue fostering the growth of investment

piece of land, design what they envision for it and finally

projects. Clarity will allow us to multiply investment, as it

start considering permits, but it should be the other

shortens project times, increasing capital returns. Investors

way around. Developers and constructors often blame

need to know from the outset what they can develop on each

permits for the problems in their projects, but these

specific piece of land to mitigate the risk of a project failing.

should not be an issue if due diligence is carried out. I think the main challenge the country faces in this regard is to professionalize regulatory oversight. For example,

INVERTI offers integral consulting on permits, procedures and

universities teach architects and engineers how to build,

regulations covering the whole process of developing real estate.

but not how to handle permits. I think there should be a

It is mainly focused on the metropolitan area of Guadalajara, in

course on this.

Zapopan, Tlaquepaque, Tlajomulco, El Salto and Tonala

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| VIEW FROM THE TOP

VALUABLE PROJECTS ON TIME, COST AND QUALITY ALBERTO LIMÓN Founding Partner at Consulta

222

Q: How do you add value to real estate projects

more people. I think industrial development could help

and differentiate yourselves from other project

by generating more jobs. Nuevo Leon has huge industrial

management agencies?

potential, while its commercial sector is saturated in

A: Real estate developers have an intuitive instinct regarding

municipalities such as San Pedro Garza Garcia. But the state

which projects to pursue but the need to professionalize

remains attractive due to its population density and high

developments led to the creation of the construction

concentration of middle-class residents, such as in the San

manager. Nuevo Leon pioneered project management in

Nicolas municipality.

Mexico, which goes beyond directing the construction project to a holistic management approach. Consulta

Overall, Mexico lacks balance between industrial,

addresses the need to have the architectural master plan

commercial and residential real estate developments. The

completed on time, within budget and of a high quality.

private sector should play a more active role to achieve a

We understand that project management starts with

long-term urban planning that enables the organic growth

conceptualizing the best use of a property and ends by

of the sector. Trade associations and professional chambers

satisfying the customer’s needs with a value proposition.

can contribute to a more integrated development, for

Value can be tangible, such as profits for investors, and

example, through government lobbying.

intangible, such as something that is valuable to society. We develop unique projects that are useful to society, in

Q: Who are your main clients and what are the firm’s most

harmony with the environment, convenient for the end user

emblematic projects at the moment?

and profitable for investors. Our mission is to translate good

A: We have interesting projects in Queretaro, such as

ideas into cost-effective and sustainable developments.

overseeing the urban planning of La Porta, a 17-tower project developed by Investti. We are also collaborating

Q: What is your forecast for Mexico’s real estate market in

with Investti on an industrial development called La Nora,

the next five years?

among other projects. We are working on a residential

A: Many cities are inside a real estate bubble about to

project within a vineyard called Puerta De Lobo in El

explode. Queretaro had a significant inflow of people

Marques, a municipality that hopes to become the new

leaving Mexico City in search of a higher quality of life.

stop along Queretaro’s wine and cheese route. We have

But transport solutions, such as the Toluca Interurban Train,

several projects, mainly for commercial centers in Yucatan

and the rehabilitation of secondary cities like Puebla are

and the southeast. We are also working on a 10ha mixed-use

turning this migratory trend upside down as there is more

development in Tulum, Quintana Roo.

variety and Queretaro is no longer the main destination. Developers are building for a demand that is no longer

In Nuevo Leon, we are collaborating with Grupo Inmobiliario

growing exponentially. In the case of Mexico City, it has

Monterrey (GIM) to develop Torre Insignia. The project

an endless real estate market, diversified with vertical and

should be finished over the next four years and at a height

mixed-use projects. Merida has an overwhelmed market

of 330m, it will be the highest tower in Latin America. We

with more commercial area than Guadalajara but a fifth of

are also working with GIM on the project planning and

the population. It is a beautiful and safe city, but it needs

construction management of a convention center above the Main Entrance and Fashion Drive malls in San Pedro Garza. We are excited about this project as it will incorporate

Consulta is a project management firm that creates high-value

cutting-edge technology and be versatile enough to host

real estate projects. Its multidisciplinary team specializes in

concerts, galas and other entertainment activities in the

understanding the market to positively transform it through

top business municipality of the state. Show Center will be

innovative, social and sustainable projects

finished by November 2018, hosting 240 events per year.

VIEW FROM THE TOP |

MEXICAN OFFICE MARKET, A RISKY YET PROFITABLE GAME GUILLERMO SEPÚLVEDA Principal and Managing Director at Avison Young

Q: In such a competitive market, what differentiates Avison

the same leagues as Columbus, Ohio, in spite of being by

Young from other real estate service firms in Mexico?

far the largest office market in Latin America. Having said

A: The main characteristic that differentiates us from

this, in terms of ongoing new construction, Mexico City has

our competitors is that we are not a public company

more than 1 million m2, more than larger international office

but rather a collaborative partnership. We believe that

markets such as Chicago.

under this scheme we are able to better serve our clients since Commercial Real Estate (CRE) transactions are not

We expect the inventory to surpass the 7 million m2 ceiling

necessarily aligned with quarterly reports. This allows us

in the next 24 months and thus, for the vacancy rate in

to have better alignment with our clients’ interests. We are

some sub-markets in the metro area to start becoming a

a global CRE services company with 84 offices in North

concern. The desirable average vacancy rate is between 10

America and Europe. Our 2x5x5 service model implies that

to 15 percent and although Mexico’s current average is just

we serve two types of clients: users/occupiers and owners/

above 15 percent, if it starts to elevate, markets develop

investors. These clients are linked to five asset types: office,

a surplus of product. If this growth pace continues and

industrial, retail, multi-family and hotel. They provide five

assuming the same 300,000-400,000m2 on average are

services: tenant/landlord representation, property and

absorbed annually, vacancy rates will go up, which will

facility management, capital markets, project management

in turn lower lease prices and subsequently asset values

and appraisals and advisory services.

will also follow. For example, the Polanco, Reforma and Insurgentes corridors are today healthy but there is a great

Q: What is Avison Young’s relationship with Canadian

amount of new construction of more than 500,000m2 in

pension funds and what role do they play in its growth

these three markets alone.

strategy? A: In July of this year, one of the top institutional investors

Additionally, developers and landlords will face some new

from Canada, CDPQ decided to invest CA$250 million

and increasing challenges in the next few months with the

in Avison Young. We will use the proceeds to invest in

change in the federal and local governments. At the federal

acquisitions and the recruitment of key professionals to

level, the final signature on a revised NAFTA affects the

fuel our ongoing growth and global footprint as well as

exchange rate. A majority of the leases in Class A and A+

our service-line capabilities. With almost CA$300 billion

offices are dollar-denominated, which deters companies

in net assets, CDPQ’s global portfolio of investments spans

from signing new leases. At the local level, the entering

across various markets and sectors, including private equity,

government has agreed with the still incumbent city

infrastructure and real estate. In the latter, for instance, CDPQ

authorities to stop the granting of new construction permits

owns Ivanhoe Cambridge, which in Mexico owns 50 percent

on mid to large size developments. This is troublesome

of MIRA through which it invests in large, mixed-use urban

to say the least for developers pushing new projects,

developments. We are looking forward to collaborating with

albeit if this trend continues, existing buildings and those

this and other CDPQ owned companies in Mexico.

already under construction would stand to benefit since the impasse would create greater demand for existing and

Q: Is there an unhealthy vacancy rate in Mexico City

upcoming office inventory.

and what is your forecast for the next year in terms of office spaces? A: The office market has been growing rapidly in the last

Avison Young is a global commercial real estate services firm

few years. However, when comparing the size of Mexico

that has rapidly expanded. With offices in Mexico City the

City’s 6.2 million m Class A and A+ inventory to that of

firm is interested in expanding its services offering to other

US and Canadian cities, it is still actually a mid-size city in

locations, both in Mexico and Latin America

223

| INSIGHT

LEVERAGING HIGH‑VALUE REAL ESTATE VICTOR LACHICA President and CEO of Mexico and Central America at Cushman & Wakefield

224

Space in Mexico City is scarce and prices are soaring for the

are seeing innovative developments within them or in their

real estate available in prime locations. Some developers

immediate surroundings,” says Lachica. “This generates

are taking advantage of this scenario to generate greater

new interest and impacts on important submarkets, as

returns, says Victor Lachica, President and CEO of Mexico

can be seen in Santa Fe in Mexico City, Valle Oriente in

and Central America at Cushman & Wakefield. “Grupo Lar

Monterrey, Puerta de Hierro in Guadalajara and even Centro

bought a substantial plot of land next to Carso’s in Nuevo

Sur in Queretaro. He adds that this gentrification has been

Polanco, in 2012,” he explains. “It was able to develop on

happening all over Mexico City, most notably in the Condesa

part of it but, due to its location, it was attractive to sell

and Roma neighborhoods, and more recently in Napoles

certain pieces to Carso at a high premium. The land was

and Del Valle. “These locations have the benefit that they

valuable to Carso as it would allow expansion of its own

are extremely central and close to transport links,” he

assets and it was willing to pay for it.”

says. The next location to experience this will be the area surrounding Metro Observatorio, Lachica says, due to the

The boom of development in Nuevo Polanco started when

installation of the Mexico City-Toluca Interurban Train.

Sordo Madaleno decided to build Antara on the outskirts of the Polanco neighborhood. Cushman & Wakefield worked

The traditional model of residential building is also changing

on this project alongside Walton Street Capital, leasing the

and owners are taking advantage of this. “While previously

mixed-use development’s office spaces. “In the years since, the

people were living in large houses, today, mixed-use

area has developed around Antara, incorporating residential

developments offer smaller apartments but incredibly

developments, public transport and amenities,” he says. “The

dynamic and rich surroundings able to satisfy all kinds of

land in the area has since significantly increased in value.”

needs while working, shopping and living in the same zone,” Lachica explains. “The desire to live in the heart of the city

This demonstrates the increasing value that new Class A

has overtaken the desire to own a large home.” This has

developments are bringing to each location, whether in long-

benefited those who purchased large homes in up-and-

established areas such as the business district, or through a

coming areas prior to the boom. “The government allows

new well-planned project. “The main objective of all these

a house to be converted into eight apartment buildings so

developments is to improve quality of life,” says Lachica.

the owners are doing this to create more value.”

Due to the fact the area was largely industrialized before

While his overall perception of commercial real estate

the establishment of Plaza Antara, many large factories,

is positive for the coming years, he points to the office

including Grupo Modelo and Colgate were present

space trend as a potential risk area. “As long as the trend

there. Lachica says Colgate was able to capitalize on

of moving from old spaces to new continues, office spaces

the increasing property prices when it decided to move

will flourish,” he says. “But developers are now left in doubt

its operations from Mexico City to Guanajuato. “The US

by the announcement from President-elect López Obrador

Embassy, represented by Cushman & Wakefield, bought the

that government organizations will be decentralized. This

property in a transaction worth more than US$100 million,”

would mean a drop in demand for office space in Mexico

he says. “Colgate was able to move to Guanajuato and

City as entire industries are relocated.”

invest in a Triple A facility, as well as pay to relocate some of its expert technicians as a result of the profit it made.”

Nevertheless, Lachica predicts large mixed-use projects such as Parque Las Antenas and Puerta La Victoria

Lachica says this development boom can be observed in

will continue flourishing in Mexico City, Monterrey and

Mexico’s main cities, like the San Pedro neighborhood in

Guadalajara, as well as in up-and-coming secondary cities

Monterrey or Guadalajara’s Providencia. “Those locations

such as Queretaro, Puebla, Leon and Morelia.

INSIGHT |

DESIGNING THE PROJECT DEVELOPMENT PRESALE ISAAC OROZCO Commercial Director of Grupo Momentum

Real estate developers traditionally mitigate risk by

financing plans for up to 48 months. Once the seed capital

conducting a market study as a first step to determine

is secured, the company pre-sells the rest of the project

viability. Grupo Momentum, a young developer helping

before building it. For example, for the construction of

to shape Queretaro’s skyline, believes more is needed

Torre Momentum, the group’s headquarters, around one

and works under the premise that sales should shape the

quarter of the cost was paid upfront equity and the rest

design of the product. “First, we launch the pre-sale phase,

was obtained in pre-sales. 225

and depending on the interest we receive, we determine whether or not the project is feasible,” says Isaac Orozco,

The company follows two more principles that add value

the company’s Commercial Director. “Sales are our real pre-

to its projects. First, ease of use. For example, Grupo

feasibility study.”

Momentum built Torre Momentum in the residential neighborhood of Milenio, Queretaro, so people could live

Instead of having separate processes, Orozco says that sales, marketing and design must be integrated when developing a project. For example, Momentum Centro Sur in Queretaro, one of the company’s main developments, was meant to be mixed-use, combining offices, health facilities, a clinic and apartments. But the project’s pre-sales showed that the residential aspect did not pique much interest. “We saw that apartments were going to sell but not at the rate we needed,” he says. This led to a re-design and the developer eliminated the residential segment, incorporating a hospital instead of a clinic and doubling the number of offices and health centers offered, which boosted sales.

“

close to the office.

Selling our properties to a stranger does not ignite confidence in the same way as when we demonstrate that we are the first to bet on our projects”

The pre-sales trial-and-error process is also crucial in

Second, Grupo Momentum positions itself and its

determining Grupo Momentum’s growth strategy. Orozco

developments by analyzing its competitors in relation to

explains that the company aim to grow organically and at

what the market is really demanding. “We realized that the

a pace it can handle. The company’s business model makes

office market in Queretaro was relatively overlooked,” says

partners its first clients, starting with its shareholders.

Orozco. “Our main lesson learned is that we must always

“The true measure of a valuable project is one we want

strive to provide a product for any neglected market. We

to own ourselves,” says Orozco. “Selling our properties to

observe what our competitors are doing so we do not

a stranger does not ignite confidence in the same way as

duplicate their efforts.”

when we demonstrate to potential clients that we are the first ones to bet on our projects.”

Although competition is healthy, Orozco believes that companies should instead strive to differentiate themselves.

The second financing source is friends and family,

“If there is a high level of competition in the market, a

although Orozco says this relationship has morphed more

company must look for an added value to transcend that

into one of regular clients. With foundations in place from

competition,” he says. This differentiator can come from

seed capital, whether from banks, investment funds or

special amenities in the projects, location or quality. But

its own resources, Grupo Momentum can kickstart its

if competition is mandatory, developers should compete

projects with a unique incentive for those first investors

against their previous projects, always adding something

to buy a unit, who can obtain attractive pre-sale prices or

innovative that elevates the new ones, he adds.

Prologis warehouse

INDUSTRIAL PARKS & LOGISTICS

The presidential election and NAFTA uncertainty made industrial investors more cautious in the past year but there are many factors that continue to make Mexico an attractive investment destination. Although FDI decreased by 14.8 percent to US$29.69 billion in 2017 from US$34.86 billion in 2015, Mexico remains the second-most attractive Latin American destination for investors after Brazil.

Similar hurdles continued to hamper the industrial parks, logistics, manufacturing and e-commerce segments, including a lack of basic infrastructure outside primary cities. But the countryâ&#x20AC;&#x2122;s growing middle class, the e-commerce boom, the favorable geographic location for distribution and the affordable human capital helped spur new opportunities that will continue to shape the industry going forward. The sectorâ&#x20AC;&#x2122;s foreign and national industrial investors also welcomed a new government that could provide new growth incentives.

This chapter shines a light on the challenges and the opportunities that marked the previous year and which will color the years to come, directly from the perspective of industry leaders.

227

CHAPTER 11: INDUSTRIAL PARKS & LOGISTICS 230

ANALYSIS: E-Commerce Offers a New Channel of Opportunity

231

VIEW FROM THE TOP: Alberto Chretin, Terrafina 229

232

VIEW FROM THE TOP: Luis Gutiérrez, Prologis

234

INFOGRAPHIC: Location, Location, Location

236

VIEW FROM THE TOP: Lorenzo Dominique Berho, Vesta

237

VIEW FROM THE TOP: Alejandro Lara, American Industries

238

VIEW FROM THE TOP: Felipe Mier, Kingspan Insulated Panels

239

VIEW FROM THE TOP: David O’Donnell, O’DONNELL

240

VIEW FROM THE TOP: Giovanni D’Agostino, NKF

241

INSIGHT: Mauricio Garza, Interpuerto Monterrey

242

VIEW FROM THE TOP: Francisco Borrego, Grupo Inmobiliario CUBE

243

VIEW FROM THE TOP: Georgina Ibarra, Brickwalling

| ANALYSIS

E-COMMERCE OFFERS A NEW CHANNEL OF OPPORTUNITY The industrial sector was significantly boosted by the e-commerce and the export manufacturing boom in Mexico but the renegotiation of NAFTA in 2018 created investment caution. With a new USMCA deal on the table, what is the sector’s outlook? The increasing availability of new technologies and

A NEW DEAL

connectivity services is changing the way goods are

After 14 months of talks, North America has a new trade

purchased, forcing companies to adapt their real estate

deal: the US-Mexico-Canada Agreement (USMCA) that

and warehousing facilities to the e-commerce boom. For

replaces NAFTA. The lengthy renegotiations had some

the industrial sector, this is an opportunity. “Companies

questioning their further investment in Mexico. Forecasts

are preparing for this change. They are improving their

predicted a hard hit for industrial parks given the sector’s

processes to increase their participation in the e-commerce

close relationship with the automotive industry, which

market,” says Luis Gutiérrez, President Latin America of

looked to take the brunt of the trade pressure.

Prologis. “This boosts demand for logistics real estate as

“

companies change their supply chain strategies.”

230

The reaching of a preliminary agreement helped to calm the waters. “Since the elections in July and the announcement

If USMCA is not ratified, tariffs will conform to WTO rules, which will translate into an average weighted tariff of approximately 3 percent for Mexican exports to the US” David O’Donnell, Director General of O’Donnell

of the USMCA trade agreement, the resulting certainty is stabilizing the Mexican economy,” says Gerald “Rick” Ricker, Director General of Reichmann International. Also upbeat about the future, Terrafina’s Chretin says the commercial renegotiations mostly affected those companies that were in the early stages of venturing into the Mexican market. “But those companies already present in the country were already too immersed in their existing supplier and client network,” he says. Although there remains a modicum of uncertainty given the new deal is still awaiting ratification, David O’Donnell, Director General of O’Donnell, says there will be little long-term disruption in Mexico. “If USMCA is not ratified,

With companies like Amazon offering their Prime services

tariffs will conform to WTO rules, which will translate into

with rapid delivery times, warehouses need to be close

an average weighted tariff of approximately 3 percent

enough to residential centers but also far enough so the

for Mexican exports to the US. In the medium and long-

costs of facilities are not too high. “Companies like Amazon

term, this will not disrupt existing supply chains or limit

are under increasing pressure to deliver in short time

Mexico’s competitiveness. In the short run, it will create

frames so they have begun establishing small to medium

volatility,” he says, adding that “USMCA is not about

sized distribution centers within cities so they can meet

each member’s competitive advantage but the USMCA

e-commerce needs faster,” says Victor Lachica, Director

countries’ competitivity vis a vis other trading nations

General of Cushman & Wakefield. These distribution centers

and blocks.”

allow companies to store a small level of stock for a short period of time, significantly decreasing lead times.

Regardless of political changes and trade agreements, it is clear that Mexico remains a privileged country in

As e-commerce gains momentum in Mexico, demand

terms of geographic location and population. These

for industrial parks is rising, leading industrial real estate

factors should keep investors interested in the country

companies to adopt new business strategies. Terrafina, the

and its industrial segment, according to O'Donnell.

biggest industrial Fibra in Mexico, expects e-commerce to

“Mexico continues to benefit from its work force and

be a game changer. “As for the logistics sector, e-commerce

a reliable and competitive supplier base. Furthermore,

has been very beneficial for the sector and we expect great

the energy sector represents a great opportunity for the

opportunities to keep arising from it,” says Alberto Chretin,

manufacturing sector to create a block that imports and

President and Director General of Terrafina.

exports to the world,” he concludes.

VIEW FROM THE TOP |

THE LOGIC BEHIND INDUSTRIAL FIBRAS ALBERTO CHRETIN President and Director General of Terrafina

Q: What are your expectations for the country and the

macroeconomic factors. If the economy becomes stagnant

next administration?

and properties are not rented, then the investment suffers.

A: I hope AMLO succeeds. I also hope the new agreement

But at our 95.1 percent occupancy rate, such a situation

will be beneficial for Mexico. Regarding investment, I think

should lower this rate to 40 percent, which implies a low risk.

the Peña Nieto administration achieved a good synergy between the public and private sectors. ProMéxico also

Q: What are Terrafina’s goals over the next five years and

developed positive initiatives for investment attraction.

how will they be achieved?

I think this promotion should continue regardless of the

A: We have seized the growth opportunities that we

change in administration. In this scenario, the challenge for

have encountered. Our growth strategy was based on

Terrafina and the rest of the business sector is to remain

acquisitions, development and the organic growth of our

present and united, pursuing what is in Mexico’s best

portfolio. We started with an 80 percent occupancy rate,

interest. To achieve this, we actively take part in several

which we have significantly improved in a short period.

institutions, such as AMPIP, promoting investment in the

While we are not developers, we do know how to develop,

country. But our main goal is to foster our investors’ success.

which is positive as the recovery for developing is higher than for acquisitions. But the greatest part of our growth

I also think that the Fibra sector is performing very well

comes from the latter. We bought excellent portfolios from

in general terms. The Mexican Association of Fibras

Intermex, American Industries and Davisa, just to mention a

(AMEFIBRA) is bringing important topics such as regulation

few. We increased the volume and quality of our portfolio

to the table. There are opportunities to improve the current

through follow-ons for raising capital from the market.

legislation but my expectations for the sector are excellent. Today, Terrafina is at a consolidation stage. We do not plan Q: The issuance of CBFIs allows a greater segment of

to raise any more capital from the market anytime soon.

the population to invest. What is the next step in making

Our balance sheet is solid, with more than US$100 million in

investment accessible to more people?

the bank, which is enough to keep expanding, maintaining

A: The legislation that gave birth to Fibras aimed to boost

our buildings and servicing our debt. We are experiencing

real estate development, for the industrial sector in our case,

a period of stability that allows us to wait and see how the

and laid the industrial foundation of the country. If Mexico has

business environment develops. We are satisfied with our

strong industrial developments and a healthy supply of parks

investors and our performance and will focus on organic

at world-class competitive prices, this will boost investment.

growth and some minor expansions. While we are enjoying

Fibras and similar financial vehicles allowed more people

this period, we also will keep some options for capitalization

to profit from real estate. Before, only multimillionaires

open. Recycling capital is key. For example, a couple of

could invest in the sector. Imagine three people buying a

years ago we sold around 2.5 million ft2 valued at around

building together and leasing it. Half of the rent covers the

US$100 million. We are constantly open to the possibility of

asset’s expenses and the other half goes into its owners’

recycling capital through asset sales, which is a very healthy

pockets, insured by the asset itself and a long-term contract.

practice in real estate. These are either vacant properties or

Now imagine the same scheme for hundreds of buildings

located in markets where we want to reduce our presence.

purchased by hundreds of members through CBFIs and with a 10 percent yearly return from the buildings. The value of our properties in the country is US$2.4 billion. Besides their

Terrafina is a real estate trust, specialized in industrial and

natural valorizations, these also rely on stock value and as

designed mainly to acquire, own, develop and manage real

more people invest, the recovery also increases. But these

estate in Mexico. The properties within its portfolio consist of

investments comes with a risk, which is related to capital and

stores and light manufacturing assets

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| VIEW FROM THE TOP

DIGITAL SALES CHANNELS BOOST DEMAND FOR DISTRIBUTION CENTERS LUIS GUTIÉRREZ President Latin America of Prologis

232

Q: How has the growth of e-commerce impacted the

Prologis planned them well in advance and purchased

industrial and logistics real estate segments in Mexico?

the spaces because we predicted that trends such as

A: Mexico has fallen slightly behind in the development

e-commerce would gain importance. There is no other

of e-commerce compared to countries such as the US.

real estate developer that has enough land to house a

E-commerce accounts for around 3 percent of sales in

100,000m2 building. Fibra Prologis supports other clients

Mexico while in the US this figure amounts to around 12

with e-commerce operations, such as Palacio de Hierro,

percent, so there is still space for development. The arrival

Liverpool and DHL. These companies already operate from

of Amazon to Mexico boosted e-commerce in the country

our distribution centers. We understand the requirements

as companies started to compete in the area to retain

these companies have, such as the need for higher ceilings

market share. The ways in which people purchase goods

and special features specific to trucks.

are changing and these companies are addressing this change. They are improving their processes to increase

Q: What logistical challenges do e-commerce companies

their participation in the e-commerce market. This boosts

need to overcome to more effectively reach customers?

demand for logistics real estate as companies change their

A: Demand for “last touch,” last-mile delivery services offers

supply chain strategies. Around 40 percent of the demand

a distribution challenge. Companies are looking for ways

for space in Mexico City is oriented directly to e-commerce

to place distribution centers closer to consumers to offer

and 3PL operators in Mexico are expanding their activities,

more agile deliveries to central areas such as the Condesa

so Prologis expects solid demand in that segment in 2018.

neighborhood in Mexico City. Proximity to clients enables companies to deliver products within hours of them being

Q: What advantages have prompted e-commerce

purchased online. To cater to this segment, Prologis is

companies such as Amazon to trust Prologis with their

already developing vertical distribution centers in the US

distribution centers in Mexico?

as rents increase in central areas. We expect this process

A: Demand in e-commerce is different from demand in

will also take place in Mexico City and we plan to replicate

other segments. We have several global clients that engage

those processes locally. New distribution schemes offer

in e-commerce so we are aware of how this sector has

opportunities in the short term.

developed and its needs. One of Prologis’s competitive advantages in the e-commerce segment is its global reach.

Q: How do you expect Mexico’s industrial real estate

Amazon is our most important client globally. Prologis

market to perform in 2018 compared to other segments?

works with this company in 19 countries. We delivered a

A: There was a great deal of uncertainty related to NAFTA

100,000m -building for Amazon in May 2018 – Amazon’s

and the 2018 presidential elections and nobody knew

first distribution center of that size in Mexico. Prologis is

how the real estate market would perform in 2018. While

building a similar distribution center for Latin American

uncertainty can lead investors to postpone investment

e-commerce giant MercadoLibre.

decisions, markets have behaved more or less the same as

in 2017. Growth in consumer sales has decreased slightly These developments are probably the only two buildings

but demand for distribution centers is still highly dynamic.

of this size in Mexico’s industrial real estate segment. Fibra

While the industrial real estate sector has experienced demand increases, the office buildings segment has lagged behind due to an oversupply that harms rents. Office

Prologis is the global leader in the development of industrial

buildings also have a long construction process that lasts

real estate with over 30 years of experience in that market. The

around four years while industrial real estate only takes nine

company entered Mexico in 1996 and went on to become the

months once the land has been acquired. An oversupply in

pre-eminent global industrial real estate company

the industrial sector is rare.

Q: How is demand for industrial space oriented to the manufacturing industry different across Mexico? A: Markets oriented to the manufacturing industry remain healthy. Several firms plan to continue expanding in Monterrey and several cities on the border with the US, such as Tijuana and Ciudad Juarez, are dynamic. On the other hand, demand in Guadalajara has fallen because companies in this area tend to have a more locally-oriented profile and have suffered a greater impact from the presidential elections. Now that the elections are over, the market is starting to regain momentum in Guadalajara. Q: How will the results of the federal elections and the US-Mexico-Canada trade deal impact the development of transportation and logistics infrastructure? A: I expect that President-elect López Obrador will place consumption at the center of his economic policy proposal and provide continuity to trade with the US and Canada. Fibra Prologis is optimistic about this process as infrastructure is one of the pillars of the new government’s economic plans. López Obrador has won solid consumer trust and the support of the Mexican population, which should boost both the real estate market and the country’s economy in general. Regardless of his economic plans, we expect that local supply chains will continue to reconfigure as people change their consumption habits and Fibra Prologis will capitalize on this change. The new trade deal will have a positive effect not only on Fibra Prologis’s business but on Mexico’s economy in general. I expect that the Mexican manufacturing industry will remain an attractive sector. Very few companies’ expansion plans have been affected by NAFTA-related uncertainty and this trend should continue through 2019. Having said that, there is a risk that interest rates will go higher in Mexico, which could push investments toward more developed markets with lower interest rates such as the US. Q: What are the main challenges that Fibra Prologis has encountered when looking for and purchasing large plots of land in Mexico City? A: The Valley of Mexico is one of the most dynamic markets worldwide. About half of Fibra Prologis’ investments plans are focused on this state because it is a dynamic market that we know. Mexico City has an annual land vacancy rate of 2 percent, which is minimal. There may be demand for 840,000m2 in 2018 in this region but there is not enough land to satisfy this demand, which increases land prices. It is also difficult to acquire land here because many spaces are ejido-owned. This means it is necessary to try to get dozens of owners on the same page to purchase a plot of land in this region, which can be risky as one or two landowners who are not on board can effectively bring down a project. These challenges reduce the number of players oriented to this market.

233

| INFOGRAPHIC

LOCATION, LOCATION, LOCATION For new investors, choosing where to establish their

projections. Overall, Mexico offers competitive utility and

operations can be a challenging endeavor. The Bajio

land costs but the benefit will vary depending on the

region is growing but so is north and central Mexico. Many

region. Moreover, companies looking to place substantial

factors must be put into the equation for an informed

sums must also consider where their clients are and

decision to be made, which in the end will depend on

which region could offer the best opportunity for further

the company's priorities in terms of cost and expenditure

development in the long term.

ELECTRICITY COSTS - INDUSTRIAL REGIONAL BREAKDOWN (CFE)

Northwest North Gulf North Jalisco Bajio Gulf Center Center West Center South Center East Valley of Mexico – North Valley of Mexico – Center Valley of Mexico – South

234

TARIFFS FOR LARGE LOW-TENSION (LLT) AND LARGE MEDIUMTENSION (LMT) DEMAND PER REGION (MX$/kWh per month) 500 400 300 200 100 0 2016 (LLT)

2016 (LMT)

2017 (LLT)

2017 (LMT)

2018 (LLT)

2018 (LMT)

0 Mexico's metropolitan area

Queretaro

Source: Coldwell Banker Commercial, CENAGAS, Natural Gas Intelligence www.NatGasIntel.com/Mexico, CFE, KPMG, CRE, AMPIP

Queretaro - SLP

5 de Febrero

Mexico - Queretaro

Airport

Vallejo

Tultitlan

Toluca - Lerma

Tlalnepantla

Cuautitlan

Tepotzotlan

Naucalpan

Iztapalapa

Huehuetoca - Zumpango

AVERAGE LEASING COSTS FOR INDUSTRIAL FACILITIES IN REPRESENTATIVE INDUSTRIAL REGIONS (US$/m2 per month) 8

WATER AND GAS AVAILABILITY IN MEXICO'S INDUSTRIAL REGIONS (CONAGUA and CENAGAS)

WATER AVAILABILITY Zone

1 3

4 2 6

GAS AVAILABILITY

HydrologicalAdministrative Regions

Renewable or available water (hm3/year)

Northwest

North Pacific

25,596

Rio Bravo

12,352

Northern Central Basin

7,905

LermaSantiago Pacific

35,080

North Gulf

28,124

Aguas del Valle de Mexico 1

3,442

8,273

Balsas

21,678

Center Gulf

95,022

5 7

Pipelines to be tendered by CENAGAS Pipelines proposed by companies

Pipelines under construction

Private pipelines

235

Pipelines operated by CENAGAS

As of 4Q17, Mexico had 72.13 billion m2 of constructed industrial real estate

INVESTMENT COST-COMPETITIVENESS COMPARED TO THE US (percent) Mexico 25 Japan Canada 20 15 10 5

Germany

Netherlands

LARGEST INDUSTRIAL DEVELOPERS AND FIBRAS UK

Developer/ Fibra

# of Properties (ft2)

GLA

Fibra Terrafina

268

37,000,000ft2

Fibra Prologis

196

34,600,478ft2

VESTA

178

28,500,000ft2

Fibra Macquarie

271

29,281,000ft2

Amistad Industrial Developers

100

22,000,000ft2

American Industries

13,000,000ft2

Italy

France

Australia

RELATIVE SIGNIFICANCE OF LOCATION-SENSITIVE FACTORS WHEN INVESTINGCost INAdvantage MANUFACTURING Compared to theOPERATIONS US (Percentage) (percent range)

60 50 40 30 20 10 0

Labor costs

Facility costs

Logistics costs

Utility costs

Costs of capital

Taxes

2017

Monterrey

Guadalajara

Old Industrial Area

Northwest

Lopez Mateos South

Periferico South

El Salto - Airport

Santa Catarina

San Nicolas

Salinas Victoria

Pesqueria

Monterrey

Guadalupe

Escobedo

Cienega de Flores

Apodaca

1H18

| VIEW FROM THE TOP

INDUSTRIAL DEVELOPER BETTING ON THE BAJIO LORENZO DOMINIQUE BERHO CEO of Vesta

Q: Over half of Vesta’s real estate development portfolio

suppliers that support several automakers and do not

is in the Bajio region. What are the advantages of the area

depend on a single automaker to operate.

and what is your differentiator?

236

A: The automotive industry’s growth has concentrated

Q: How does Vesta collaborate with public authorities to

mostly in this region. Since 2008, states in this area have

promote Mexico as an attractive investment destination?

reached GDP growth rates of 4 percent compared to the

A: We work closely with ProMéxico and state governments

national average of 2 percent. This economic growth is

where our industrial parks are located. Vesta often visits

directly linked to industry’s expansion. Vesta has focused

a company’s headquarters in Europe, Asia or the US in

its operations on the Bajio region because of the area’s

tandem with government authorities to try and attract

economic dynamism. We excel at helping foreign OEMs

foreign investment to Mexico and promote the arrival of

and suppliers set up shop in the Bajio region because of

new companies to our parks. In some cases, our work with

our 20 years of experience working in this area as opposed

some of these potential clients’ partners and customers

to other industrial real-estate developers that have focused

increases the allure of our spaces. The COMPAS alliance

on northern or central Mexico.

focused on INFINITI and Mercedes-Benz’s production is located next to one of our supplier parks.

Q: What is Vesta’s strategy to meet the demands of automotive manufacturing companies?

Q: What type of lots does Vesta offer at its industrial parks

A: Vesta is focused on understanding every link in the

to cater to its clients?

automotive supply chain. We understand the infrastructure

A: We offer build-to-suit (BTS) and speculative buildings. Each

needs of each company in terms of quality standards, heights,

type offers its own advantages. BTS industrial warehouses,

switchyards, electrical power, automation, proximity to other

for example, are developed specifically to support the needs

companies and available labor in each regional market. There

of clients. But Vesta has set itself apart in the sector of

are different kinds of automotive companies, from OEMs and

speculative construction. Our buildings anticipate the needs

Tier 1s to automotive-oriented logistics operators. Vesta tries

of manufacturing clients and are flexible enough to cater

to understand each client to offer solid support.

to any client. Furthermore, they can be divided depending on the space that a company needs and are equipped with

Almost 30 percent of our automotive clients are OEMs.

all the services that a manufacturing company may ask for.

These include BMW, Mercedes-Benz, Volkswagen, Nissan,

Building industrial spaces speculatively also helps us to

GM and Chrysler. Tier 1s such as Voestalpine, HBPO and ZF

reduce the risks that the build-to-suit model entails. Of Vesta’s

account for 52 percent of our automotive clients, while the

project portfolio, 70 percent of the industrial buildings were

remaining 18 percent are Tier 2 and Tier 3 suppliers. We also

developed under the speculative scheme.

have distribution centers oriented mostly to the aftermarket where we support automotive companies, mainly OEMs.

Q: How can Vesta support its clients in their logistics

We target multinational companies with high credit quality

operations?

because they can commit to long-term contracts. Aside

A: By collaborating closely with clients. Not only are the

from OEMs themselves, our ideal clients are multinational

avenues in our industrial parks wide enough for trailers to move efficiently, Vesta also makes sure its clients’ switchyards are built with appropriate concrete, receive

Vesta is a Mexican real-estate development corporation that

constant maintenance and have enough space to park

focuses on industrial parks and distribution centers. The

trailers. Our buildings’ roofs must be at least 9.7m high so

company’s portfolio will total 2.8 million m2 by the end of 2018

clients can stow and store goods efficiently, while managing

with projects located in the Bajio, Central and Northern regions

forklifts with ease.

VIEW FROM THE TOP |

EXPANSION ACROSS NORTH AND CENTRAL MEXICO ALEJANDRO LARA Director General of American Industries

Q: How has American Industries grown its project

industry, one region may be better than another. For the

portfolio in the real-estate and sheltering markets?

automotive industry it varies. The most important factors

A: We have grown in terms of real estate and new

to consider when identifying a new investment site are

shelter administrative services projects in most of

location of clients and suppliers, cost and availability of

the regions where we operate. These regions include

labor. These vary from region to region, generate variations

Jalisco, Guanajuato, Queretaro, San Luis Potosi, Nuevo

in our costs modeling and impact projects depending

Leon, Ciudad Juarez and Chihuahua. Regarding our real

on where companies choose to install their operations.

estate offering, we are growing between 50,000m and

The north, for example, was ideal for the production of

70,000m2 in leased area per year, mainly in Guadalajara,

harnesses 30 years ago but as labor costs rose, many

Queretaro, Ciudad Juarez, Monterrey and Chihuahua. We

harness companies started looking for locations in central

are closing between 10 and 12 projects per year and we

and southern Mexico and in more remote northern areas.

expect to maintain this level of growth in 2018. Last year

In this sense, companies that need more specialized labor

was challenging but we hope for more certainty starting

and can pay higher salaries may be better placed in a

in 2Q18. Regardless, we know projects cannot be stopped

city with a more expensive labor market that suits their

despite the uncertainty originated in the ongoing political-

specialization needs.

commercial environment. If a company works in a heavy industry and its products Q: In which regions does American Industries expect to

are largely destined for the US market, being closer to

experience the most growth?

the border is a better option because the region is more

A: Markets that are not too dependent on the automotive

competitive on US-oriented logistics. Comparatively,

industry will not be so sensitive to the uncertainty

the Bajio region offers good opportunities to buy land

stemming from the NAFTA renegotiations. As a result,

at competitive prices. Finally, if companies depend

we expect more significant growth in regions such as

on electronics and design areas, Guadalajara can be a

northern Mexico and areas with greater diversification in

better option.

the electronics or aerospace industries, such as Queretaro, Chihuahua, Ciudad Juarez and Guadalajara. In comparison,

Q: How can American Industries promote investment in

regions with a greater exposure to the automotive sector,

less industrialized or nontraditionally automotive states?

such as Guanajuato, San Luis or Aguascalientes, will likely

A: Our clients usually look for places where competition

see slower development due to this uncertainty. At the

for labor against established industries is not as hard.

moment, between 30 and 35 percent of our operations

As industrial promoters, presenting location alternatives

are related to the automotive industry but despite the

to clients is our job. American Industries is considering

uncertainty regarding trade, we will not change our long-

projects in Durango and Zacatecas. However, clients

term expectations for the industry.

usually ask us for projects in those states instead of us offering them. Maybe, industrial promoters could be more

Q: What should real-estate developers and shelters

proactive and propose areas where there is a need for

prioritize to promote investment in Mexico?

employment sources to bring together demand and supply.

A: Having the most updated and accurate information is key to helping companies make a strategic projection of their costs in Mexico. American Industries has a Site

American Industries is a shelter and real-estate services

Selection service where the company offers potential

provider with more than 40 years of experience in the Mexican

investors a cost-modeling service that measures the

market. It has helped over 200 manufacturing companies

feasibility of their business in Mexico. Depending on the

establish their operations in Mexico

237

| VIEW FROM THE TOP

CUTTING TIMES AND COSTS, INCREASING SAFETY FELIPE MIER General Manager Mexico at Kingspan Insulated Panels

Q: How can Mexico bridge its innovation gap in the

as concrete and blocks, take more time and require the

infrastructure industry?

disposal of construction debris when the work is finished.

A: Construction sustainability is one of the main industry

As panels are installed faster and with less staffing, labor

challenges in Latin America. Buildings must be efficient,

costs are reduced and streamlined.

profitable and safe. In Mexico, the market is demanding

238

the professionalization of construction but with more

Kingspan panels decrease the spread of fire through a

cost-effective products. There are more regulations and

special foam that we developed 20 years ago, made of

policies to enhance construction performance. For example,

polyisocyanurate. In Mexico, 80 percent of insulated panels

earthquakes further the demand for safer buildings, while

are made of polyurethane. But this material has basically

the scarcity of resources leads to a more efficient and eco-

been phased out of the US and European markets in favor

friendly use of materials. In advancing a culture of safer

of polyisocyunarate while Latin America has yet to catch

construction, fires represent a great risk as some materials

up. The benefits of polyisocyanurate is that it is more

are not regulated for fire prevention. One of the main building

fire-resistant and helps prevent the structural collapse of

certifications promoted by Kingspan is FM approval for fire

buildings. Also, polyurethane generates a toxic smoke when

management, increasing safety and reducing insurance

burned, and the inhalation of these fumes is often cited as

costs. We also work with LEED for sustainability.

the cause of fatalities in fires. Our panels comply with all the structural resistance regulations, such as for earthquakes

Also, Mexico has different worlds regarding construction

and high winds up.

regulations. Obviously, prime projects, such as NAIM, comply with the highest international standards. But the

Q: What are Kingspan Mexico’s most emblematic projects?

lower-scale projects are not bound by the same regulations

A: The incipient residential real estate remains key for

so the industry has a great deal of opportunity regarding

development in Mexico, given how well-positioned

construction codes, products and material regulations and

traditional housing construction is. The industrial and

best practices. Aligning these would contribute to bridging

commercial real estate segments have the most demand for

the country’s infrastructure gap.

insulated panels. Kingspan Mexico has worked on several significant projects, such as the roofing for the workshop

Q: How do your insulation solutions help improve the

where the components for the Guadalajara Light Train are

safety and efficiency of construction?

being manufactured. The Heineken facilities in Tijuana and

A: Insulated panels have the advantage of reducing

Mexicali also use Kingspan panels.

construction waste and making the process faster and more efficient. It allows cleaner building using less labor.

Kingspan is also participating in NAIM, which has been a

Regarding construction times, installing insulated panels is

long and challenging process. We worked closely with the

very quick, allowing reductions in cladding, roofing and wall

master plan architects, striving to replicate the work that

construction time by six to seven weeks. After setting up

Kingspan carried out in similar projects, such as the airports

the metallic structure, up to 240m2 in panels can be installed

in Dubai and Abu Dhabi, in which we contributed the

per day by a four-person team. Traditional methods, such

ceilings for the terminals. For NAIM, we won the tender for the control tower’s ceilings, to be completed in the summer of 2018. But the control tower, at approximately 2,000m2,

Kingspan Insulated Panels is the global leader in high-

is a small project compared to the 250,000m2 roofing of

performance insulation and building cladding. Improving

the passenger’s terminal. Kingspan is also in talks with the

building performance, construction methods and ultimately

construction companies who won this tender to obtain the

people’s lives drives the company’s teams around the world

contract for the insulation panels.

VIEW FROM THE TOP |

LOGISTICS SECTOR DRIVEN BY E-COMMERCE, CONSUMPTION GROWTH DAVID O’DONNELL Director General of O’DONNELL

Q: How does O'DONNELL add value in Mexico’s logistics

A: O'DONNELL thinks ZEEs present an attractive opportunity

and industrial sector?

for those companies that can afford to operate in developing

A: All of our work is focused on improving our clients’

areas. But I am concerned that the plan has not been executed

competitiveness. We study the markets and sectors, we

yet, nor have we seen any major investment. The government’s

listen to our clients, we design, build and lease state-of-

transition will mean the next administration must see it

the-art industrial projects in core industrial logistics markets

through. Regardless of the ZEE initiative, will keep investing

and we provide creative financial solutions. We buy vacant

in major logistics markets and where there is proven demand. 239

land or underperforming industrial assets and we build speculative properties, anticipating market demand. We

Q: What is on your wish list for the next administration and

also upgrade industrial properties or provide marketing

what policies should the new administration implement to

expertise to lease vacant properties. For the last 23 years,

further boost infrastructure development?

we have developed a wealth of market knowledge and

A: The first thing to be addressed is rule of law. The

market contacts, and we have proven our expertise. Our

government needs to have more transparency, security and

business is driven by demand, so we need to invest where

justice in the system. Secondly, education must be prioritized

the demand is strong and consistent.

as Mexico will not be able to compete in the long term without an educated work force. Thirdly, I think that Mexico

Q: How might the new USMCA treaty impact the growth

needs to compete with the US on tax policies, so a tax

of the industry?

reform is in order. And lastly, there needs to be investment in

A: If USMCA is not ratified, tariffs will conform to WTO

infrastructure and a focus on manufacturing clusters, inland

rules, which will translate into an average weighted tariff

ports, rail crossings and the expansion of highways.

of approximately 3 percent for Mexican exports to the US. In the medium and long-term, this will not disrupt

Q: What new initiatives or incentives can be implemented

existing supply chains or limit Mexico’s competitiveness.

to boost industrial and warehouse development in Mexico,

In the short run, it will create volatility, which represents

as well as the logistics sector?

an opportunity for us. Mexico continues to benefit from

A: If the sector has to rely on incentives, it will not be

its workforce and a reliable and competitive supplier

competitive in the long term. The greatest gift to the sector

base. Furthermore, the energy sector represents a great

would be an administration that is responsible and proactive

opportunity for the manufacturing sector to create a block

throughout the permitting process. Furthermore, officials

that imports and exports to the world. USMCA is not about

need to establish a master plan for each city’s development

each member’s competitive advantage but the USMCA

and invest to support the plan. Also, the government must

countries’ competitivity vis a vis other trading nations and

strive to provide security and enhance the rule of law in the

blocks. Regarding the effects of Trump’s administration and

country. Finally, it should improve and extend education

the willingness of international investors to base operations

to maximize the country’s competitiveness. In summary,

in Mexico, the leasing of space has reached a historic high,

we need rule of law, security, a just and effective judicial

especially in the logistics sector and near the US border. We

system, education, infrastructure, a competitive tax policy

have not seen rents drop or companies leave. But we have

and responsible and proactive local and state governments.

not seen new companies making significant investments in Mexico, but those already here have driven the market through expansions.

O’DONNELL is a vertically integrated industrial developer and has developed approximately 11.31 million ft2 of industrial

Q: What is your opinion on ZEEs and what are the

properties with a total investment of around US$600 billion in

incentives for industrial parks that settle there?

nine strategically-located markets throughout Mexico

| VIEW FROM THE TOP

TRUMP POLICIES NO CAUSE FOR CONCERN GIOVANNI D’AGOSTINO President Mexico and Regional Managing Director Latin America of NKF

240

Q: How does NKF, a leading commercial real estate

demanding more market studies to really understand

consultancy, innovate within its area of expertise?

what their clients want. Our Global Cities report is an

A: NKF is the new kid on the block. Since 2011, the company

example of the kind of research required to comprehend

has grown based on mergers and key recruitment and today

what new generations need. Co-working has changed

it is among the Top 5 real estate brokerage firms. We strive to

the operational methods of many companies and it is

create the best knowledge and skills mix possible to better

the main trend NKF perceives. Even if it is not functional

serve our clients. We have developed our own software,

for all the divisions of a company, it can be adapted to

which has allowed us to collaborate with big companies

certain areas. Also, more users are certifying their spaces

such as Nokia, DOW, Honeywell and Nielsen. The fact that

with LEED, which implies a reduction of costs and some

such technologically advanced companies are using NKF’s

tax incentives. We are working closely with DOW, which

systems shows that we are doing something right. Our

recently merged with DuPont.

software allows us to measure percentage and efficiency of the use of office space, so we can have better readings

Q: How is the uncertainty raised by the renegotiation of

and reinvent the same spaces while increasing productivity.

NAFTA affecting the real estate industry?

We often find companies seek our advice on finding new

A: The renegotiation of NAFTA may affect the development

offices when they feel they have outgrown their current

of industrial parks and warehouses, but I do not believe it will

space. Often, however, they already have enough space, but

affect real estate services. The industrial regions, including

it is used inefficiently.

the Bajio may suffer, especially related to the automotive or aerospace industries. As Mexico has robust international

Co-working has changed the operational methods of many companies and it is the main trend NKF perceives

trade agreements with multiple partners besides the US, I am convinced that this will help mitigate NAFTA’s possible repercussions. Our commercial diversification helps us remain optimistic about the market. Q: Has the Trump administration impacted the willingness of international corporations to base operations in Mexico? A: I think it has had the opposite effect. The political situation in the US has many international investors viewing Latin America as an investment paradise. Mexico is

Q: What are the main trends driving the occupier market

attractive, especially given the instability in other countries

in Mexico?

in the region. NAFTA’s renegotiation has stalled some

A: The trend is for co-working. WeWork pioneered the

investments as investors wait for the outcome of the talks

adoption of this scheme globally and today the company

before making any move. But as the political term in the US

is almost a substitute for real estate developers as it

lasts only four years, I believe that by the time Trump exits

rents tailored-made spaces to big corporations. This has

office we will realize his impact was not as significant as we

developers striving to become more sophisticated and

thought. Conversely, it is our own internal policy that has the potential to affect us the most in terms of investment. We have been given a higher sovereign credit rating by

Newmark Knight Frank (NKF) serves clients’ needs across all

reference agencies and we are finally starting to see the

property types. Its experience and well-recognized team of

fruits of the structural reforms. All the factors molding

real estate professionals allow owners and investors to expand

business conditions in Mexico may deaccelerate our growth

their operations and capitalize on emerging market trends

rate, but the economy will continue expanding anyway.

INSIGHT |

ADDED VALUE IN NUEVO LEON CUSTOMS OFFERING MAURICIO GARZA CEO of Interpuerto Monterrey

A developed supplier base, skilled labor, as well as

leaving the park and they will not suffer delays at border

road, railroad and airport connectivity are among the

crossings,” says Garza.

advantages that make Nuevo Leon an attractive region for possible automotive investors. Add in price-competitive

In terms of utilities, Interpuerto already has an operating

utilities, logistics advantages and trade-oriented

electrical substation and is contemplating a cogeneration

amenities and you have a bulletproof investment-

project to supply its clients with cheaper, cleaner and more

attraction strategy, according to Mauricio Garza, CEO of

reliable energy, as well as steam if necessary. “A natural gas

Interpuerto Monterrey.

pipeline is planned to cross Interpuerto Monterrey, which will provide this resource at a price that is 20 percent

“Adding extra advantages such as a customs office, a

cheaper than the average market price,” says Garza.

Free-Trade Zone (FTZ) and competitive utilities have been key in marketing spaces at Interpuerto Monterrey,” says

The park has also reached several milestones in its logistics

Garza. All automotive companies demand amenities like

development plan. Located directly next to KCSM’s railroad

fiber optic, water, electricity and sometimes natural gas,

container terminal and several highways, Interpuerto

but Interpuerto Monterrey has gone one step further to

Monterrey offers both railroad and road transportation

offer amenities the market wants to boost efficiency and

capabilities. “Trains are the most efficient transportation

cut costs. “We have industrial plots ready for automotive

means in distances over 700km,” says Garza. “For shorter

companies so they need only focus on producing when

distances, it makes more sense to employ trucks.” Offering

they arrive,” says Garza.

both transportation means adds to Interpuerto Monterrey’s attractiveness for companies interested in both exporting

Located in the heart of one of Mexico’s key automotive

and serving the domestic market.

regions, Interpuerto Monterrey is a 1,400ha industrial park in Nuevo Leon. It caters to businesses that supply

Up to 85 percent of Mexico’s cargo is transported using

both the US market and automotive companies located in

trucks, so Interpuerto Monterrey invites clients to take

Central Mexico. Although Interpuerto Monterrey works with

advantage of railroad transportation when convenient.

tenants from various industries, automotive dominates the

“Companies that ship few containers use mostly trucks,

park’s operations with 65 percent of its business related

due to the fact that in most cases the frequency and

to this market.

delivery time of the train does not meet these needs,” he says. “The challenge is finding ways to implement small-

The park has worked extensively to improve its offering

volume trains to help companies efficiently transport their

for automotive companies and a customs office will open

goods over long distances so they can benefit from the

at Interpuerto’s facilities in August 2018. “The idea is that

price advantages that rail transportation offers over those

all of our clients’ imports and exports will be processed

distances.”

through this office,” says Garza. The project will reduce companies’ costs and processing times since products

Garza says that although 2018 has been a challenging

will no longer stop at the Mexican border for processing.

year for Interpuerto Monterrey because of the impact

“Pre-validation processes will also be carried out within the

from NAFTA renegotiations, domestic elections and the

park so Mexican authorities do not stop goods for revision

US tax reform, the park expects to sell 30ha and lease a

prior to crossing the border,” says Garza. “In the future,

few industrial warehouses in 2018. “We have around 350ha

Interpuerto Monterrey seeks to have a bi-national customs

under negotiation but companies are waiting to see what

system that operates between Mexican and US authorities.

happens with the new Mexican President and the new

“US customs agents will be able to release goods prior to

USMCA prior to moving on,” he says.

241

| VIEW FROM THE TOP

GUADALAJARAâ&#x20AC;&#x2122;S PROMISING REAL ESTATE MARKET FRANCISCO BORREGO Director General of Grupo Inmobiliario CUBE

242

Q: Why is Grupo Inmobiliario CUBE focused on developing

Q: What are the benefits and drawbacks of investing in

projects that are in between horizontal and vertical when

Guadalajara?

most cities are leaning toward verticalization?

A: The most attractive aspect of Guadalajara is its

A: We want to be disruptive in the market according to what

novelty. Because it is such a new market, there are many

we believe the absorption rate will be. When we created

opportunities to take advantage of. The market is more

Torre CUBE there was no vertical construction in the area.

receptive to new products and it is willing to pay for them.

Ten years ago, it was impossible to find a quality office

Guadalajara is a very complex market and has a certain

development in Guadalajara. Most companies worked from

peculiarity that is not found in other cities. Talking with

actual houses they rented as offices.

directors of different industries in Guadalajara, they agree that if your business or product succeeds in Guadalajara,

We then realized that the market was expanding quickly

it can make it anywhere in Mexico. Land prices in the

and we came across the land to build Distrito CUBE which

Guadalajara metropolitan area have grown rapidly along

consists of three towers, two of which would be six stories

with the prices per m 2 of apartments. Income in the

high and the other four. It was a good opportunity because

Guadalajara metropolitan area, however, is not the same

the market in Guadalajara was still resistant to verticalization.

as in Mexico City and therefore we are having difficulty

This allowed us to introduce a townhouse-style of product

selling at higher prices. The people do not have the capacity

into the market that was not completely a house nor an

to pay for it. Prices start at MX$30,000/m2, while high-

apartment. Millennials do not mind moving into vertical

end developers like Thor Urbana are selling at MX$60,000/

housing or offices, but for older couples, there is often a need

m2. The risk for developing such expensive products in

to leave their large homes when their children leave home.

Mexico is very high, especially in terms of security. We

However, the transition from a big living space to a smaller

have developed a program for our products that is called

one is difficult for them. This is the reason we do not call it an

Safe Neighborhood where we carry out background studies

apartment, but instead a home. The market has responded

on the people who purchase homes in our complexes and

very well and we have already sold 60 percent of the homes.

they must have recommendations. This boosts the safety of the neighborhood and makes our clients feel happier.

Combining housing, commercial and other aspects of life

Establishing such high prices can attract the wrong people,

into an integrated vertical development is a great way

especially in a city like Guadalajara. A good price range

of densifying a city and improving the quality of life of

is around MX$40,000-50,000/m2 but it should not rise

its inhabitants. This is not yet happening on a large scale

greatly in the next few years.

in Mexico. The city is making efforts to improve mobility throughout the city with projects such as Line 3 of the

Q: What is keeping international and national players from

Guadalajara Light Train. The new line is far away from

venturing into the metropolitan Guadalajara market?

commercial or AAA products in the city, which is a problem.

A: International players are still wary of coming into

It is not so much in the hands of the developer, but there

Guadalajara because of its unique characteristics. Big

must be a 50-50 compromise between the public and

corporates, for instance, mostly settle in Mexico City and

private sectors to create better cities.

Monterrey, with few venturing into Guadalajara. However, Grupo Sordo Madalenoâ&#x20AC;&#x2122;s Corporativo Andares project is one of the largest developments in the area at 36,000m2, and

Grupo Inmobiliario CUBE is a real estate developer that

it houses some of the largest corporations in the country.

concentrates on the metropolitan area of Guadalajara with

It shifted all forecasts for the office market in the last year.

residential, corporate and industrial projects. Its developments

The absorption rate of that project alone was the predicted

include: Torre CUBE, Rinconada Margaritas and Distrito CUBE

absorption for the entire year in the market.

VIEW FROM THE TOP |

BROAD APPROACH PROVIDES ADDED VALUE GEORGINA IBARRA CEO of Brickwalling

Q: What added value does Brickwalling offer the industry?

tool is composed of multiple inputs that allow us to adapt

A: The key to success when offering a wide services

to each customer’s case and provide a faster turnover.

portfolio is being able to adapt to a client’s business model. We contribute across all stages of a project by ensuring

Q: How can construction firms better manage risk and what

compliance with due diligence, strong and experienced

is your assessment of Mexico’s performance in this regard?

staff on site and an efficient closing model. Our value

A: When it comes to construction security, it is necessary

proposition lies in having a broad service offering, instead

to have a clear and binding internal regulation on safety

of narrowing our focus to a few areas. Also, by believing in

and sanitation. It is important for builders to have an

and betting on our human capital, we add expertise to all

on-site engineer to revise security matters. But safety

the services we offer. The market is constantly changing, so

in construction is also a component of the safety of the

we must evolve at the same rate to make sure we can adapt

investment. When managing project risk, it is crucial to

to our clients’ needs. Customer service and communication

prioritize thorough planning and due diligence. There

are also crucial differentiators from other project managers.

is always going to be risk but it can be managed and

We like to look at ourselves as the overseers of our clients’

mitigated through proper project planning. In comparison

investments, because it is our role to make sure projects

to the rest of Latin America, Mexico is outperforming in

are completed on time and with high quality.

construction regulation. There are some cases in which regulations are not followed properly but the majority

Q: How do you help Fibras, REITS and investment funds to

of players involved in construction strive to comply

make the best decisions when expanding their portfolios?

with them.

A: We find that the added value Fibras and investment funds want is short response times. As the number of

Q: What is your assessment of the performance of green

properties available for purchase is finite, investors need

building certifications in Mexico?

short turnarounds. It is also essential to ensure investor

A: We have collaborated in several LEED and BREEAM

confidence by carrying out Technical Due Diligence

projects as project and construction managers. For

(TDD), Initial Project Reviews (IPR), Property Condition

example, we have worked with Bioconstrucción y Energía

Assessments (PCAs) and Construction Risk Management

Alternativa (BEA) on several occasions. The market is

(CRM) reports, but to do so in a timely manner so they can

demanding more sustainable building. We have a special

invest before somebody else does.

position we created as the LEED champion of the projects we assess. This specialist works with the rest of our team

The capital reserve analysis of a property is also crucial

and with the certifying firm, such as BEA. But the market is

to understanding how much must be paid to optimize

still resistant to adopting these certifications as they imply a

the building’s operating conditions for up to 10 years. We

significant increase in costs, of around 25-30 percent. When

differentiate ourselves through our extensive PCA portfolio,

investors review their financial models and conclude that it

working for several Fibras and market niches, such as

is not feasible to invest in a green building certification, they

industrial parks, hotels, resorts, offices and commercial

will instead focus on the implementation of best practices

centers. This expertise allows us to be more assertive when

for their projects, which are not necessarily certified.

providing a cost estimate for the investment. In Mexico, we have worked with most Fibras, CKDs and other funds. To continue improving our services, we are developing internal

Brickwalling is a Mexican company focused on consulting,

software to improve and deliver all kinds of reports in short

construction and project management services. Its goal is

time frames. One example is a PCA software, the beta

to provide security and support in edification projects for

version of which will be launched at the end of 2018. This

investors, lenders and developers from the US and Mexico

243

Durango-Mazatlan highway

TRANSPORT INFRASTRUCTURE

Transport infrastructure is the backbone that props up a country’s economy, providing the avenues down which products and services are delivered. This segment in Mexico is starting to gain the attention it needs and a new federal administration is promising to focus a brighter light on the industry. PPPs are also poised to play a greater role and stakeholders are calling for long-term strategic planning to ensure continuity.

For the industry’s part, key factors have been identified that impact the success or failure of a project, especially under the PPP scheme. Adequate planning, transparent procurement processes, ROW and land permits, for example, continue to slow the development of transport infrastructure, leaving many of the NIP’s largest projects unfinished.

Given the challenges, can Mexico reach its goal of becoming a world-class logistics hub? In this chapter, leading transportation and logistics figures shed light on how to address the segment’s most pressing issues, providing insights and solutions.

245

CHAPTER 12: TRANSPORT INFRASTRUCTURE 248

ANALYSIS: Uniting Mexico’s Southern States for Economic Growth

249

INSIGHT: Jacobo García, OECD

250

INFOGRAPHIC: Enrique Peña Nieto Infrastructure Government Commitments 2013-2018

252

INSIGHT: Leopoldo Zambonino, MEXTYPSA

253

INSIGHT: Carlos Redondo, ROADIS

254

VIEW FROM THE TOP: Sergio León, SENER

255

VIEW FROM THE TOP: José Zozaya, Kansas City Southern Mexico

256

VIEW FROM THE TOP: Eduardo Luque, API Tampico

257

VIEW FROM THE TOP: José Rodríguez, API Altamira

247

| ANALYSIS

UNITING MEXICO’S SOUTHERN STATES FOR ECONOMIC GROWTH Guerrero, Oaxaca and Chiapas are Mexico’s diamonds in the rough. These states are the richest in natural resources yet continue to be the country’s poorest regions economically. For years, administrations have tried to foster their growth. Now they may have the answer to spur prosperity: connectivity The Pena Nieto Administration’s goal was to transform Mexico

infrastructure in 2017 with US$8.6 billion across 20 projects,

into a world-class logistics hub through 104 Government

but it has seen the highest private investment in the sector

Commitments (CG) that included the construction,

in the last 25 years. USPs were also introduced, and one

modernization and maintenance of roads, railways, ports and

of the first to be approved, the Las Varas-Puerto Vallarta

airports throughout the country. Most of these commitments

is under construction and when finished will interconnect

were completed or are under construction. Most CG projects

Jalisco to the Riviera Nayarit.

targeted roads. From 2013-2018, over 2,424km of new

248

roads were constructed and over 57,951km of rural roads

Another problem transport infrastructure projects face is

were modernized. But by far the three states with the least

right of way. “When a highway is modernized and expanded,

connectivity are Guerrero, Oaxaca and Chiapas.

the project may need to adjust its path. Years ago, the modifications were far more modest and roads were

Andrés Manuel López Obrador’s administration has

constructed with high slopes for a much faster and cheaper

ambitious goals to increase the prosperity of these states

construction. Today, many communities are claiming the

through key infrastructure priorities such as the construction

historical ROW from highways that already exist. ROW has

of rural roads, the Tren-Maya and the Transisthmian

the power to derail a project, especially since now many

Corridor. But just like those of previous administrations,

ejidos do not even have the proper documents to accredit

these projects are expected to encounter the same hurdles:

the property,” says Arias.

low federal budget, rights of way, environmental permits and insecurity. A prime example of how these issues have

Environmental regulations are also playing a crucial role

the power to completely halt a project are two highways

in the development of highway projects, especially in

in Oaxaca that have been undergoing construction for

change of zoning and land use permits. “There are many

more than one political administration. The Oaxaca-Puerto

laws that do not allow for progress in the development

Escondido and Oaxaca-Istmo de Tehuantepec are two

of infrastructure in the country. For example, to obtain

highways that once completed would drastically shorten

an explosives permit to create a tunnel for a road, the

travel times and safety, but due to a combination of these

process could take more than six months as it goes

three factors, have experienced significant delays.

through the various entities and levels of government,” explains Arias. Finding a middle ground between

According to México Evalúa, from 2000-2015 the federal

ejidos, environmental impact and the construction of

government spent more resources than it received and

infrastructure will be necessary for projects such as the

allocated more money than approved by the PEF. Mexico

Oaxaca-Puerto Escondido highway to be completed and

pays hefty subsidies, and its public debt has been like a

encourage the settlement of industries such as mining

snowball that continues to grow with rising interest rates.

operations.

From 2005 to 2015, the public debt increased from MX$153 billion to MX$549 billion. Mexico is spending a great amount

The last factor is insecurity. “The biggest issue the country

of money, but not a lot of money is coming in.

faces is its insecurity. This is especially important in growing states like Guerrero that have high levels of insecurity and

The low public expenditure for infrastructure development

projects in areas that are not urbanized,” says Ricardo

has led to higher private sector participation in the

Díaz de León, Infrastructure, Mining, Logistics and Tourism

construction of transport projects in the last years.

Coordinator at ProMéxico. Guerrero and Oaxaca have been

Guerrero, for instance, is 95 percent dependent on

particularly prone to insecurity problems in the past due to

federal resources, according to Guerrero Minister of

drug trafficking and high poverty levels. “Insecurity levels

Economy Álvaro Burgos. More PPPs were tendered for

the country has experienced creates nervousness for some

the modernization, construction and maintenance of the

investors. Federal and local governments need to continue

country’s road network to fill in the financing gap. Not only

working to improve the country’s security conditions,” says

did Mexico receive the highest private sector investment in

Enrique Escalante, CEO of Grupo Cementos de Chihuahua.

INSIGHT |

CORPORATE GOVERNANCE TO REMOVE THE ELEPHANT IN THE ROOM JACOBO GARCÍA Senior Specialist on Integrity and Procurement Policies at the OECD

The infrastructure industry is particularly vulnerable to

and digitalize processes. CompraNet for instance is

risks resulting from lack of transparency and should

not connected to the federal budget databases. The

employ mitigation strategies, says Jacobo García, Senior

government is working to link the systems but at a state

Specialist on Integrity and Procurement Policies at the

level all these processes tend to be done on paper. “Public

OECD. “Everything that deals with public contracts, such as

procurement should be seen as a strategic process that not

public works or service procurement, is highly susceptible

only boosts development but develops value chains and

to lack of transparency through all phases of a project,”

supports SMEs. It is far more than just an administrative

he says. “Each phase has its particular risks and the OECD

task,” says García.

suggests the application of risk-mitigation techniques. There has been a slight improvement in Mexico but there

Infrastructure projects become even more vulnerable

is still plenty to do.”

during election years, when their continuity is at risk. García believes that continuity directly correlates to governance

According to the Global Infrastructure Anti-Corruption

and long-term planning. A project that has been in the

Center, the industry’s uniqueness, complexity in transaction

headlines, with question marks hanging over its future,

chains, concealed work, official bureaucracy and large

is NAIM. The OECD sees a halt to the project as highly

investments make the infrastructure industry particularly

unlikely given the advanced stage it is in but García says it

prone to corruption and unethical actions. In Mexico, the

is important to guarantee that the projects are managed

2016-2017 WEF Global Competitiveness study indicates

professionally.

that institutional issues continue to delay the country’s development. Diversion of public funds, inefficient

The OECD has worked alongside GACM since the planning

government spending, preferential treatment in official

stages of NAIM, drafting three reports on its governance

government decisions, and the unethical behavior of

and integrity. García says that it is the only project in

some firms pushed Mexico’s competitiveness to 123 of 137

Mexico of that magnitude that completely follows open-

in the study. It also estimates that 10-30 percent of the

data standards. “Some risks we have identified deal with

value of construction is lost through corruption, making the

the corporate governance of GACM itself as it operates

construction sector the most vulnerable in the economy.

more as a public entity and not a corporation,” he explains. “This opens it up to political turbulence and I

The OECD recommends that pre- and post-tender phases

believe this must be kept as separate as possible.” GACM

be transparent since these stages usually do not follow the

has incorporated four independent members to its board,

same strict guidelines as the tender phases. “The chaos

as well as an ethics committee and codes of conduct, and

between different levels of government often experienced

it is working with the companies that are participating

in the planning stages demonstrates why transparency is

in the project to ensure they adopt these standards and

important at this stage,” García says. “An example of that is

practices.

the famous sinkhole on the Cuernavaca Expressway, where there was a lack of clarity as to which level of government

Many believe this kind of oversight is extremely costly,

the project fell under. We see a great weakness in the

but García says that, rather than being expensive, these

management of infrastructure at a state and local level and

types of initiatives require great commitment. Although

we believe that a good place to start is by strengthening

GACM’s organic structure is limited, making it far more

the execution power of these institutions.”

complicated, the will is there, according to García. “The cost of not implementing transparency measures is much

As a way to improve communication between government

higher, since projects could be jeopardized by corruption,

agencies, it is necessary to stop working on paper

scandals and a loss of credibility,” he says.

249

| INFOGRAPHIC

ENRIQUE PEÑA NIETO INFRASTRUCTURE GOVERNMENT COMMITMENTS 2013-2018 Enrique Peña Nieto delegated 105 Government Commitments

under construction, including two of three of the country's

(CG) to SCT, of which 103 correspond to Mexico's transport

most emblematic projects. López Obrador's administation will

sectors. Of the other two, one refers to the digital agenda

inherit many projects that will require continuity to have to

and the final relates to toursim. Some commitments remain

true impact on the country's infrastructure competitiveness.

EVOLUTION OF MEXICO’S RANKING IN WORLD COMPETITIVENESS REPORT 2012-2018 Number of countries in ranking 144

148

144

140

138

137

——Mexico’s ranking ——Overall infrastructure ——Roads ——Railroad infrastructure ——Port infrastructure ——Air transport

55 60 65 70 250

2012-2013

2013-2014

2014-2015

2015-2016

2016-2017

2017-2018

infrastructure

KEY PROJECTS*

Project

CUERNAVACA EXPRESSWAY

CG-263 MEXICO-TOLUCA INTERURBANTRAIN

CG-079 NAIM

MX$2.2

MX$59.2

MX$285

MX$1.3 billion

MX$33.7 billion

MX$168.8 billion

2014-2017

2014-2020

2014-2021

Price increase (%)

Time delay (%)

Total cost

billion

Initial cost Project time frame

billion

*Until August 18, 2018

HOW MANY CGs DID SCT COMPLETE?

103

Government commitments

ACCORDING TO THE 6TH GOVERNMENT REPORT FROM DECEMBER 2012 TO JUNE 2018:

70.9% Completed 22.3% Under

2,424km of new roads were constructed with an investment of MX$148 billion

6.8% Canceled/

38 new highways and nine operating segments were built

construction/ delayed*

No information

*Projects that have not been officially inaugurated are considered under construction or delayed Source: Proyectos Mexico, SCT Investment Program 2013-2018, 6th Goverment Report, Mexico Evalua, World Bank, 6th SCT Report, El Economista, El Universal

77 federal roads equating to 3,075km were constructed or modernized

SCT FEDERALLY ALLOCATED COMMITMENTS 2013-2018 25 20

Completed Under construction/Delayed Canceled/ No information

15 12 10

Rails

Ports

Airports

CANCELED/ NO INFORMATION

Rural roads

Roads

MAIN FACTORS FOR DELAY OR CANCELATION

CG-243 Transpeninsular Train Interconnect Mexico's southern states as planned by AMLO's Mayan Train

1 1

Junctions/ bridges/ distributors

1 1

Beltways

Highways

Airport modernizations

Specialized terminal/Tax

Port expansion

New ports

Passenger rail

Cargo railway

MTS

5 4

High costs

Ejidos/Environment

251

UNDER CONSTRUCTION/DELAYED CG-033 Line 3 Monterrey Metro

CG-183 Nuevo Laredo Cargo Airport

Boost mobility in the Monterrey

Complete cargo terminal to boost

Metropolitan Area

CG-211 Oaxaca-Istmo

CG-063 Rehabilitation of Port of

CG-213 Oaxaca-Puerto Escondido

Ciudad del Carmen

Increase connectivity in Oaxaca

Improve port's capacity to serve 1

needs of Energy Reform

border logistics

and boost logsictics, tourism and economic development

COMPLETED CG-073 Colima Railway Tunnel

CG-210 Ixtepec Airport

Increase rail capacity from Port of

Military and civilian airport to boost

Manzanillo

connectivity in Tehuantepec Isthmus

CG-182 Port of Matamoros

CG-217 Autopista Siglo XXI

Rehabilitate canals to support

Interconnect Puebla to Guerrero, boosting connectivity of Guerrero

growing O&G exploration

to eastern states TOURISM GROWTH 2012-2017 (million passengers) 100

99.3 94.9

87.1

80 70 60

76.7

78.1

2012

2013

2014

CG-027 Strengthen port, airport, railway connectivity to accelerate tourism growth

2015

2016

2017

| INSIGHT

PLANNED, PURPOSEFUL INFRASTRUCTURE LEOPOLDO ZAMBONINO Director General of MEXTYPSA

Transport infrastructure builds bridges that create social

AMLO’s infrastructure priorities, but I am hopeful about

and economic cohesion across cities, states, regions,

his announced intention to bring development to lagging

countries and continents and can especially help isolated

regions,” he says. “Public works are likely to be slowed

communities thrive. But these bridges should follow a

down by the transition period, but we foresee a lot of

plan and a purpose, says Leopoldo Zambonino, Director

activity from the private sector, in which we keep a

General of MEXTYPSA. “Transport infrastructure catalyzes

strong focus.”

the economic development of the whole country but it must 252

be based on a holistic infrastructure development plan to

While expectant about the next development plan,

accurately prioritize projects,” he says.

he demands more clarity from the government to see

“

Transport infrastructure catalyzes the country's economic development but it must be based on a holistic development plan”

the infrastructure road ahead. “We need coordinated actions for a long-term development regardless of who is president,” he says. Long-term strategic planning is also crucial to give certainty to investors, setting steadier grounds for pursuing a collaborative development. “I think public-private collaborations are key to deliver a better service to endusers,” he says. Prioritizing end-users, Zambonino also remarks on two contract schemes ideal for PPPs. “MRO and ASS contracts are focused on service and performance standards, so contractors are paid not by m3 but by service.

MEXTYPSA is a global engineering consulting group

As these favor the users, I think is what the government

working across multiple infrastructure sectors, such

should aim for,” he adds.

as water and roads. Present in Mexico since 2008, the company acknowledges the improvement the country has

Going deeper into the complexities of PPPs, Zambonino

made in developing road infrastructure to connect such a

explains it is also important to understand each PPP

rich geography. “Mexico has around 42,000km of freeway

separately as there is no perfect recipe that can be applied

roads. The government is starting to invest in performance

to all projects under this scheme. Accordingly, MEXTYPSA is

schemes for these roads,” he says, adding that MEXTYPSA

convinced of the importance of having a specialized team of

is positioned to capitalize on this opportunity. “We want to

collaborators in infrastructure financing. “We have created

provide the highest quality to deliver a higher value to all

a whole department for infrastructure funding, providing

our business divisions.”

an enhanced structure for every PPP,” he says. From the financial run to the CAPEX investment, he highlights

But Zambonino also thinks that despite the great effort

this department as simply crucial for the achievement

made, there is yet much to do, especially regarding permits.

of projects.

“Projects are stopped given the difficulties with rights of way. The public good should transcend personal interest to

Sharing a success story, he acknowledges Banobras’

promote macroeconomic development,” he explains.

and SCT’s performance working on PPPs, entities with which MEXTYPSA has collaborated multiple times. “Our

Before addressing this issue, the industry has yet to

operational models are aligned and I believe that we have

see what the next administration’s plan for the sector

learned together to provide a better and safer service to

is. “We have yet to receive more information regarding

users,” he says.

INSIGHT |

THE OPPORTUNITY IN MEXICAN ROADS CARLOS REDONDO Country Manager Mexico of ROADIS

Mexico’s labyrinth of roads and highways interconnects

road infrastructure gap cannot be filled by private or public

the country’s main industries and is a backbone for the

sector resources alone but recommends a combination of

country’s economic development. Although this backbone

both, depending on the risk profile and social benefits.

has been improved greatly throughout the years, Carlos Redondo, Country Manager Mexico of ROADIS, believes

The Saltillo-Monterrey highway, for instance, was a successful

Mexico still has many opportunities for growth. “There is a

project, not necessarily in the sense of it being the most

clear necessity for more road infrastructure. There is a great

profitable but because of the effort made for its completion

deal of private capital and the regulatory framework is also

with various governmental entities working closely with

good. We need more projects,” he says.

private companies. “The project ran into all the typical issues any construction project encounters, such as rights of way and

The national road system is composed of more than

cost overruns, but together we searched for the mechanisms

377,659km, of which 49,652km make up the federal

that would allow us finish the project,” Redondo says.

system. According to WEF, Mexico ranks 52nd of 138 in road infrastructure competitiveness, CANACAR has identified a

In the last few years of the Peña Nieto administration, SCT

150,000km road deficit and McKinsey Global Institute says

tendered various maintenance, rehabilitation and operation

the country must invest an additional 1.1 percent of its GDP

contracts (MROs) to develop and improve roads in the

to bridge the infrastructure gap. Throughout the sector,

quickest way possible. Redondo says that this is not the

the debate on whether the gap is due to a lack of projects

optimal project scheme for ROADIS, as these contracts

or a lack of money always re-emerges. Redondo explains

are short-term concessions with a high construction

that Mexico has limitations when it comes to infrastructure

component. “ROADIS prefers long-term concessions that

planning since planning does not normally surpass a six-

will allow us to take full potential of the highway while

year term. He says this complicates development as a

offering our customers high-quality services. Long-term

country requires a long-term vision.

concessions provide companies the appropriate time frame to implement innovative operational and financial solutions.

ROADIS is an international platform controlled by PSP, a

This allows the company to recover the investment and

Canadian pension fund with international presence. The

also face the challenges that may have arisen during the

company operates the Saltillo-Monterrey and the Perote-

construction and initial years of operations,” says Redondo.

Banderilla highway and Xalapa beltway. It began operating in Mexico after it purchased the two assets from Isolux Corsan.

While Redondo says the company prefers to have control with a preference for large assets and brownfield projects,

According to his experience in Mexico, another important

he stresses that ROADIS’ strategy is flexible. “We can

limitation is the number of profitable projects on offer.

participate in greenfield projects, with a certain component

“Although the different government entities have many

of construction and a certain level of proven traffic,”

projects, it is not that easy for the private sector to

Redondo says. “The ROADIS team brings broad experience

participate in them. Their viability can be an issue,” says

in both construction and operations.” According to him, a

Redondo. “Viable projects mean they have been developed

key element of the added value that ROADIS provides is

correctly from the start. This implies that aspects such as

that, because it is controlled by a Canadian pension fund,

rights of way (ROW), engineering and thorough traffic

the company’s ethics and transparency are embedded

studies have already been carried out.”

in all of its processes and how it carries out its business. “Because we are a combination of a long-term investor with

After generating viable projects, the question of where the

expertise in operation and management of both brownfield

money should come from arises. Redondo believes that the

and greenfield projects, we have greater flexibility,” he says.

253

| VIEW FROM THE TOP

PPP SCHEMES TO DRIVE SECTOR THROUGH ELECTION TERMS SERGIO LEÓN Infrastructure Commercial Director for Mexico at SENER

254

Q: What role has SENER played in the evolution of Mexico’s

In Atizapan-Atlatomulco, a highway that goes through

transport sector, especially roads and highways?

the mountain range that leads to Guadalajara, we have

A: We are a point of reference for Mexico’s transport sector.

projected the use of 80 different structures, among them

We have many years of experience working in Intelligent

bridges, over and underpasses and tunnels. These types

Transportation Systems (ITS). The company assisted SCT in

of projects are extremely ambitious and require a great

developing the ITS standards in 2011 for Mexico’s network

amount of expertise to develop from the design to the

and in 2014 we also supported Banobras in standardizing

implementation of engineering processes. The fact that

the electronic toll-collection systems throughout the

SCT has released more projects under a PPP scheme has

country. Now the entire road and highway network is

definitely improved financial viability and ensures the

standardized, whether it is under the control of FONADIN

quality of the infrastructure.

or concessioned to the private sector. We believe technology is extremely important and we are SENER is participating as an Integral Advisor for

constantly looking to integrate innovative technologies and

BANOBRAS in the new Telepeaje model for the FONADIN

processes into our projects, which has truly differentiated

road network. This will allow for greater diversification in the

us from others in the market. We integrate technologies

market. We also work closely with SCT in the development

such as BIM into all of our projects to mitigate risks and

and support for federal transportation projects. We have

stay ahead of the competition.

collaborated in modernization of road projects and the geometric elements of bridges and tunnels. One of our most

Q: What types of projects do you believe will keep the

important projects with SCT is a Supervision and Operation

industry running over the next two years?

contract for intelligent tunnels and control centers on the

A: There will be a great deal of uncertainty at a national level

Durango-Mazatlan highway. We work directly with both

throughout 2018-2019. This time frame can be defined as the

the public and private sectors, whether they are national or

pre and post-election periods. In a regular year, companies

international. In the last three years, SENER has worked on

tend to have a heavier work load toward the end of the year

more than 500km of road and highway projects in Mexico.

and in an abnormal year like 2018 the Gauss Curve appears earlier in the year. Post-elections, the industry must wait for

Q: How important is technology and innovation when

the new administration to develop its infrastructure agenda.

developing and improving Mexico’s highway system?

There will be uncertainty across the industry as a whole and

A: In the last few years, SCT has placed a great deal of

even more if the political color changes.

importance on technology and innovation, especially in highway projects. We have secure and safe highways

We believe that PPPs can be a catalyst in these types of

through the use of technology. For instance, if there is an

situations. These new schemes can be an option for not only

accident or situation on the Durango-Mazatlan highway, it

the public sector, but for the entire industry to continue

is recorded and authorities are notified right away. These

developing in the coming years. USP will also help bridge

types of systems require great investment but ultimately

Mexico’s infrastructure needs. Nevertheless, using these

will boost the performance of the road sector.

schemes requires better risk mitigation and being on top of all processes. I believe that Mexico has yet to achieve a completely successful PPP. Since the PPP law was approved,

SENER is an international engineering and technology firm

the industry and government have been working arduously

specializing in aerospace, infrastructure and transport. In

to perfect the practice in Mexico. Apart from the political

Mexico it has participated in MTS projects as well as various

uncertainty, the fact that petroleum no longer plays a huge

road infrastructure PPPs

role in Mexico’s finances has also impacted the economy.

VIEW FROM THE TOP |

ROLLING TOWARD A CONNECTED, COMPETITIVE FUTURE JOSÉ ZOZAYA President of Kansas City Southern Mexico

Q: How is KCSM helping unlock railway transportation

A: KCSM’s rail network converges with the Lazaro Cardenas

potential in Mexico and what impact has it achieved in

ZEE, so we opened the dialog with the institutions in

the economic development of the country?

charge of its development to explore the possibility of

A: KCSM currently has 4,251km of railway in Mexico. We are

having further reach within the area. For example, we are

committed to further upgrading our rail network through

considering extending some of our railways. We have not

an annual investment in its modernization; this in order

yet defined a specific investment for the development of the

to have a more competitive and efficient railway system.

ZEE, but we do make a yearly investment in modernizing

In 2018 we have planned to invest US$165 million, but the

and upgrading our railway network in the area, specifically

total outlay may end up being higher. We believe that

near the Lazaro Cardenas Port, where we have significant

we are achieving our efficiency goal as our key actions

activity related to rails and rolling stock including wagons

attest to our progress. For example, we collaborated with

and locomotives.

the Mexican and US authorities to establish an inspection booth at the border, which has helped to establish a more

Q: What transport projects would you prioritize for the

efficient train crossing in the area.

next administration and why? A: I believe that infrastructure projects are simply fundamental

We are working on international crew matters to avoid

to the country’s logistics with the view to making Mexico a

having our trains stopped at the border. We are also

global logistics hub. There is the need to improve existing

making a considerable investment in our rail yard in Nuevo

infrastructure, including roads, rails and ports. I believe that

Laredo, building the biggest rail infrastructure that we have

the country has a very good rail system as the KCSM lines

in the country. We expect this project to help us speed up

are integrated with the US and Canada. As we speak, many

train movements on the northern and southern crossings,

trains are crossing both borders, enabling North America to

increasing our efficiency and competitivity. Our outlay

be integrated as a logistics block.

is also focused on new equipment and locomotives. All of these actions may seem independent but they pursue

I expect to see an ever more connected and competitive

the objective of making our trains more efficient and

network in the future. This railway efficiency has brought

competitive. We move around 40 percent of the total rail

important investments to Mexico, such as the network that

freight in the country. While we do not expect to increase

serves the automotive industry. We must strive to improve

this percentage, the volumes moved keep growing.

this efficiency through strategic actions. For example, I think security is a relevant issue to deal with. KCSM has

The energy sector has also grown considerably. Railway

been closely working on improving railway transportation

transportation is now perceived as the rolling pipeline

security with several authorities, such as the Mexican Army

as services become more efficient and safer. KCSM’s

and the Federal Police. We have contributed a great deal

rail network interlinks with the key points for energy

financially to control and monitoring equipment for our

development in Mexico and the US, connecting from

trains, to better monitor the products we move. We think

Texas to the center of Mexico. We have had an important

that it is key to take more preemptive actions instead of

demand for gasoline transport, from the Mexican Gulf to

reactive ones.

the Bajio region. We participated in the fuels terminal in San Luis Potosi, which speeds up the storage and availability of fuels.

Kansas City Southern Mexico offers the most seamless and efficient transportation option to cross the US-Mexico border,

Q: What is the role of KCSM in the development of the

with customs pre-clearance for faster, lower-cost service than

rail infrastructure for ZEEs’ success?

trucks can offer

255

| VIEW FROM THE TOP

THE OPEN DOOR TO TAMAULIPAS EDUARDO LUQUE Director General of API Tampico

Q: How is the Tampico port expansion changing the way

This year, we are projecting an additional investment of

API operates and plans?

MX$100 million.

A: The port is going through a considerable expansion

256

project that has boosted our growth over the past 12

Q: Which areas require the most investment to make the

months. We had a great year in numerical terms with

port more competitive?

an overall growth of 24 percent in comparison to the

A: Maintaining the port in optimal condition is essential

previous year and with 115,000 tons more moved in 1Q18

to keeping our competitive edge and further investments

compared to 1Q17. We experienced a 53 percent increase in

in connectivity are key to achieving sustainable growth.

our public cargo segment, which increased 630,000 tons

As hydrocarbons take their hold in Tampico in the

in comparison with the previous year. Our private cargo

years ahead, a growing number of companies will seek

also grew by 10 percent, with an increase of 80,000 tons

to invest here and we need to provide them with the

compared to 2017.

necessary infrastructure to carry out their activities. We also have a second tender for the expansion of our

The port’s main activity is handling steel, which grew by 98

multiple-use terminal in sight, hopefully receiving bids in

percent last year, from 690,000 tons to 1.4 million tons. We

2018 to extend this facility. Infrastructure is the key tool

are working under our Port Master Development Program

for growth. We need to build and expand our existing

(PMDP), which also states that hydrocarbons should

roads, airports, ports and railways and use them as our

represent a larger share of our operations and this is where

basis for growth in the years to come. The Ministry of

we plan on expanding next. We are also analyzing a move

Communications and Transport has committed over MX$1

into the tourism sector. We are changing our regulations

billion to this end.

to make them friendlier to concessioners so they can exploit the land they use. We have seven new projects with

Q: Halfway into your Port Master Development Program,

this in mind.

what has been the main impact on the state’s economic development?

Q: What advantages does the port of Tampico offer to

A: The Port of Tampico will be central to the future

companies willing to establish operations here?

development of the hydrocarbons industry and this was

A: Connectivity is our first and foremost asset. The terminal

initially envisioned in our PMDP. The Energy Reform

is connected to a railroad, which saves costs and time

is finally taking its toll in the industry and we expect

and provides us with a direct link to the Bajio region. We

to see concrete results in the coming two years. The

also have a great highway network able to accommodate

southern part of Tamaulipas is fundamental to the state’s

heavy transport and we will be connected with the Tuxpan-

development and hence it represents an important part

Tampico highway that is under construction and should

of our growth plans looking ahead. Tampico is the hub for

further push trade to this region. We are close to Monterrey,

the state’s imports and exports and its door to and from

one of the biggest business hubs in the country, and once

the world. An example of this is the Custom Maritime

the new highway is complete, we will be less than five hours

House of Tampico that has duplicated its revenue since

from Mexico City. We have a dredging capacity of 32ft.

2015. As such a growth driver, we are transforming the state’s image in the eyes of the country and the world. Our trade, transportation, imports and exports have

API Tampico is the administrative body regulating commercial

not been affected by violence in any way. We want

activities in the trade of steel, wood, hydrocarbons, minerals,

the world to see that companies can trade in Tampico,

oversize cargo and industrial products. The port offers 20

establish operations here and do business with complete

regular commercial lines connecting 100 countries

confidence.

VIEW FROM THE TOP |

MAJOR PORT CAPITALIZES ON ENERGY REFORM OPPORTUNITIES JOSÉ RODRÍGUEZ Director General of API Altamira

Q: Given the port of Altamira outperformed other

involved widening the breakwaters and improving the

ports in Mexico in 2018, what factors accounted for

port’s safety. We also provided maintenance to buildings,

this success?

customs offices and sites to keep them updated. We

A: Last year, we had an average growth rate of 23 percent

recently signed an agreement with the Port Coordinator

on our total cargo, including our two main business lines

for the expansion of two terminals, as part of its plan to

of automotive and steel, which involves rolls, plates and

double the capacity of every single port in Mexico, with

tubes. This growth was partially due to the natural gas

Altamira being the only port that will actually triple its

marine pipeline coming from southern Texas to Tuxpan

capacity. Each of these two terminals will expand their

because logistics were carried out from Altamira and we

berths, providing them with new dynamism, new positions

were right in the middle of the full development process.

and better equipment. The current administration has

Our inherent assets are our biggest strength as we have

been crucial in the port’s development, we grew to

top-of-the-line technology, highly-skilled labor, the latest

unprecedented levels and we have already signed six

equipment, a land extension that fits to any project and

more water fronts that will unfold in the following months.

an entire production chain, from producers to customs, working according to unified rules and principles. We

Q: What are API’s plans for 2018 and what direction will

strive to provide the highest quality possible and we have

the port take?

a deep understanding of the industry, keeping deliveries

A: We expect 2018 to be as good as 2017 and maybe even

on time and minding our clients’ demands in terms of

better. The Energy Reform is now in full motion and it is

time and form. Finally, we also made the most of the

prompting things to accelerate. We have projects in the

Energy Reform and the first round of benefits it brought

pipeline, such as the new terminals, new concessions and a

to the oil and gas industry.

green light to expand the port. With the first hydrocarbons terminal on the go, we expect to have a second one in

Q: Given that Altamira is the undisputed hub for trade in

the future. The port currently has 17 berths, although it

Tamaulipas, which assets in particular offer advantages?

was originally planned for 90, and we are going to close

A: We have a privileged location as we stand right in

this federal administration with a 25 percent growth. We

front of the new drilling sites off the coast of Tamaulipas

would like to see a further expansion of berths.

and we are also close to the US. Additionally, we have unbeatable services in terms of quality. We have the

Q: What would you like the next administration

largest dock location in Tamaulipas with 9,500ha entirely

to focus on?

dedicated to port activities and trade. We also have

A: We pride ourselves on the level of connectivity from

extensive territorial reserves and strict environmental

and to the port of Altamira. We have a great railroad

policies to protect and preserve native species.

system and a complete road network connecting the port with the main industrial centers in the north and center of

Q: API Altamira has been at the center of large federal

Mexico. We need further connectivity heading to Mexico

investment plans. How has the port channeled these

City and we hope to see this happen during the next

investments?

administration.

A: We have an extensive public investment agenda that includes widening sailing canals, dredging and installing new electric substations. We try to foresee any potential

API Altamira is the administrative body in control of the largest

need our customers might have so we can place the right

port in the state of Tamaulipas and has been operating since

investments in a timely fashion to save them from future

1994. The port distributes the largest cargo of industrial and

inconveniences. Part of the current investment plan

commercial goods in the northeastern part of Mexico

257

Mexican Stock Exchange, Reforma Avenue, Mexico City

FUNDING & INSTITUTIONAL INVESTORS

In the first five years of President Peña Nieto’s term in office, US$27.3 billion

was allocated to SCT for the development of infrastructure, but according to the GI Hub, Mexico must invest US$544 billion to meet its infrastructure needs. 2018 marked the deadline for Mexico’s most important projects and investors are awaiting concrete infrastructure proposals from the incoming administration.

Amid uncertainty, investors are more cautious when investing in infrastructure development without the safety net provided by a PPP. As the industry continues to create new financial vehicles to fill its financial gap, Mexico’s stock markets could provide another avenue to help build the infrastructure the country demands, with transport and water infrastructure heading Mexico’s most pressing needs.

In this scenario, pension funds are taking a more active role in the industry through financial vehicles such as Fibras. This chapter covers the top financial entities investing in funding the country’s infrastructure development.

259

CHAPTER 13: FUNDING & INSTITUTIONAL INVESTORS 262

ANALYSIS: Opening Mexican Infrastructure Investment to the World

263

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

264

VIEW FROM THE TOP: Felipe Duarte, Grupo Financiero Banorte

265

VIEW FROM THE TOP: Juan Pablo Mijares, Banregio

266

INFOGRAPHIC: Development Through Capital, Debt Markets

268

VIEW FROM THE TOP: Astra Castillo, Fitch Ratings

261

Cherian George, Fitch Ratings

269

VIEW FROM THE TOP: Adrián Garza, Moody’s Investor Services

271

EXPERT OPINION: Víctor Requejo, Banco Inmobiliario Mexicano (BIM)

272

INSIGHT: Alejandro Rodríguez, Credit Suisse Asset Management

273

INSIGHT: Manuel Romano, Jones Day

274

INSIGHT: Luis Quintero, HR Ratings Mexico

275

Roberto Ballinez, HR Ratings Mexico

VIEW FROM THE TOP: Alfonso Vega, Serfimex

| ANALYSIS

OPENING MEXICAN INFRASTRUCTURE INVESTMENT TO THE WORLD Mexico’s infrastructure and real estate sectors have caught the eye of not only national, but international investors. 2018 was an exceptionally good year for private investment in infrastructure. Now with two stock markets, the options are open for constructing the Mexico of the future

262

The need for private investment in infrastructure

provide financing and maintain competitive market rates

development is not recent news. Globalization is pushing

to motivate investment in infrastructure projects. At the

countries and cities to improve their infrastructure

beginning of this administration, companies would pay

development to remain as competitive as possible and to

TIIE + 4 to 6 percent (averaging 7 to 9 percent) and now

keep up with the demands of its populations. Governments

rates are around TIIE + 6 to 8 percent (averaging 12 to

have figured out that they cannot do it alone. According to

14 percent),” Ruíz explains. “This makes debt much more

the World Bank’s Private Participation in Infrastructure 2017

expensive, leading to higher costs for companies, which

report, investment in infrastructure in 2017 increased 37

then must look to reduce their structures and get rid

percent in comparison to 2016, yet it is at the second-lowest

of assets to complete their projects. This has led many

level of investment in the past 10 years, and 15 percent

companies to bankruptcy, mostly SMEs.”

below the average for the past five years. A 2018, Mexico said hello to its second stock exchange, Mexico was one of the Top 5 destinations for infrastructure

Bolsa Institucional de Valores (BIVA), which looks to boost

investment in 2017, with the highest level of private

the participation of SMEs in the stock market. “Small to

investment in Latin America. Through 20 projects, Mexico

medium-sized enterprises (SMEs) are the engine that

collected US$8.6 billion from private investors, making this

drives Mexico, representing approximately 99.8 percent of

the highest level of investment in the last 25 years. Mexico’s

the economy. The country’s construction sector is home to

infrastructure development is composed of 63 percent

many of these SMEs that are growing quickly, representing

commercial banking while in the other four destinations

major challenges in oversight and working environments,”

(China, Indonesia, Brazil and Pakistan), the share of

says Ruíz.

commercial financing was relatively low.

FIBRAS, CKDS AND CERPIS Among the key sectors for investment is telecommunications.

Infrastructure developers are also taking advantage of

The Telecommunications Reform invited new players and

various instruments being issued in the stock markets.

new projects. Mexico’s Red Compartida project brought

The number of CKDs and Fibras in the Mexican stock

in US$946 million. In the international telecom sector, the

market continues to grow and during 2018, more Fibra

Red Compartida and a project in Myanmar contributed

Es and a new CerPI were issued to fund infrastructure

to more than 80 percent of the global 2017 telecom

development. The real estate sector now has 11 Fibras

investment. Mexico’s transport infrastructure sector also

and 23 CKDs.

attracted a great amount of private investment through the construction of the new Mexico City International

CerPI is a fairly new instrument, created in 2016 to

Airport (NAIM).

compliment CKDs. In 2018, the second CerPI was issued by GD Structure, an affiliate of Glisco Partners and Discovery

CONSTRUCTION INVESTMENT

Capital Management for a total of US$72 million. These

Although Mexico is receiving a great deal of private

instruments can be used for large greenfield projects,

investment, the country’s construction sector still requires

including projects in the energy sector. Fibras have gained

greater financing to boost the development of its internal

traction, but they are designed for developing and acquiring

economy. “The industry needs more fiscal incentives,

assets and may not be the best fit for companies that look

including better interest rates for construction companies,”

to rent and sell assets.

says Alejandro Ruíz, Head of Construction at KPMG in Mexico.

In February 2018, CONSAR announced changes to the Circular Unica Financiera (CUF) that gave Afores greater

He says a solution may be a new financial entity designed

flexibility in the type of investments they could make. Most

to this end. “We need a development bank that can

importantly, it allowed Afores to now invest internationally.

VIEW FROM THE TOP |

USING FINANCIAL INSTRUMENTS TO BRIDGE INFRA GAP JOSÉ-ORIOL BOSCH CEO of BMV Group

Q: How can the BMV help to bridge Mexico’s

CerPIs that will be launched in the coming months. It is

infrastructure gap?

always difficult to be the first, but now that the first CerPI

A: The BMV has already helped a great deal as there are

has been successful, the door has been opened and we will

many infrastructure companies that are listed on the stock

begin seeing more demand. It was the same story as the

exchange. We also have companies financing themselves

Fibras – the first real estate Fibra was raised by FUNO in

through debt, and these are the most traditional instruments

2011 and it was extremely complex, but it was more easily

in the market. In 2009, CKDs were created and since then

understood after the first issuance.

around 100 issues have raised about MX$170 billion. Of this, infrastructure represents about 30 percent, both in

Q: What are the implications of the new BIVA stock

the number of issues and in value.

exchange for your strategy? A: We are not yet sure what the BIVA’s strategy will be so I

Fibras were first raised in real estate in 2011, and the numbers

cannot comment much on that. However, we hope that the

continue growing. We are looking at new Fibras and we are

strategy will involve developing the trading market as it has

about to raise a Fibra in the education sector, which will be

great potential. If, instead of focusing on growing the market, it

the first of its kind. Also, Fibra Es were created in 2015, and

cannibalizes itself, the market will be equally as small, or even

the first infrastructure Fibra E was raised by Pinfra in 2016.

smaller. And with two stock exchanges, this makes no sense.

Since then, we have had various infrastructure Fibra Es, the latest one being that of GACM, as well as a first Fibra

Q: How can the International Quotation System (SIC) help

E on the energy side, issued by CFE. We have a range of

to position international companies in Mexico?

products for the industry to choose from and last year we

A: The SIC is a system that caters to foreign companies

created the first Special Purpose Acquisition Corporation

that are operated in Mexico. There are approximately 1,500

(SPAC), which is very common in other markets.

shares listed on the SIC, and of these, half are stocks and half are ETFs. Within those shares, there are companies

Q: Given that GACM recently raised a Fibra E on the BMV,

from different countries and different sectors. In terms

what will be the implications of the elections on this?

of mining, we have companies from the US, Canada, the

A: The Fibra E was created in 2015 for financing of energy

UK and Latin America listed on this index. This means any

and infrastructure projects. There have been some Fibras

investor in Mexico can buy these shares. Rather than being

since then but the most recent was that of the airport on

listings, they can be seen more as a registry of international

March 26, 2018. The airport is a large, long-term project

companies that allow Mexican investors to buy shares.

so I trust the infrastructure plans would not change with different administrations. It is clear to anyone who has

The SIC represents more than a third of the total volume

traveled through the current airport that the people of

of the BMV and the local exchange represents two-thirds.

Mexico need the NAIM project.

There is a lot of interest because a Mexican investor can buy shares in an international company, pay in pesos and sell in

Q: Why has there been such a lack of demand for CerPIs

pesos, while maintaining a fiscal advantage compared to

compared to other products?

buying the shares in Canada directly.

A: In comparison to the Fibra, which was a new asset class, the CerPI is a product that is similar to the CKDs but with some different management rules, including the role

BMV Group operates a stock exchange, derivative products, an

played by the administrator. We had the first CerPI issued

OTC securities and derivatives brokerage company, a securities

in real estate and I think now we will start to see much

clearing house and a derivatives clearing house to facilitate the

more demand for the product. There are already various

operation of the stock market in Mexico

263

| VIEW FROM THE TOP

A RICH FUTURE AHEAD FOR INFRASTRUCTURE INVESTORS FELIPE DUARTE Deputy Director General of Infrastructure and Energy at Grupo Financiero Banorte

Q: How has the infrastructure industry evolved in the last

it closes the gap for some uncertainties or circumstances

years and how has the financial market evolved with it?

that the government sometimes encounters.

A: I do not see a financial gap within the Mexican

264

infrastructure industry. I do see a vibrant market in which

Q: How will Banorte’s purchase of Interacciones impact

the selection and professionalization of projects has

its role infrastructure industry and what are what types of

improved drastically in the last years. I also see a financial

projects does it want to invest in?

market that has evolved in the last 10 years, both in equity

A: Banorte’s purchase of Interacciones will have a positive

and debt. The creation of new equity funds and financial

impact on the company’s portfolio and results. It will help

instruments such as CKDs has become important tools to

us understand the infrastructure needs of local governments

finance the country’s infrastructure development. Several

and together we can best meet Mexico’s infrastructure and

commercial banks have also began participating more in

energy needs. Interacciones is an important player within the

the industry. Banorte has specialized in both infrastructure

country’s infrastructure market and has been a flagship of

and energy sectors and we have seen that the market is

the banking industry in the last 10-12 years. It is very good in

becoming stronger. We see that the infrastructure financing

understanding the infrastructure needs of local governments.

market is becoming more intricate as years go by and this is

Project selection is important when providing financial services

good news for the project, for the banks and for the people.

to local governments and municipalities. For a project to be sustainable it must generate productivity gains. Otherwise the

Q: How has Banorte participated in the financing of

project may be compromised in the long term. Sustainability

infrastructure projects in the last few years?

refers to social, financial and environmental sustainability. This

A: Banorte provides a complete array of financial products

makes the selection of a project much easier.

to clients and one of our strengths is that we know the market and we are local players, which is something

NAIM is one of the best examples of a bankable project.

international companies always look for when investing

There are various commercial and development banks, as

in Mexico. We are actively providing financial products

well as financial instruments being used, apart from the

and services to various participants in the construction

fact that it is also an environmentally sustainable project.

of NAIM and airports are a large area of interest for us.

For investors to feel confident investing in an infrastructure

In the last 18 months, PPPs have been more active in the

project in Mexico, the project must prove that it is

country’s road sector when it comes to conservation and

sustainable, that it fulfills a need and that it is also a good

maintenance contracts. We believe that the port sector will

anchor for investment in impoverished areas.

also continue to grow in the next five to 10 years, mainly to Lazaro Cardenas and Veracruz. We are currently not

Q: How has the participation of pension funds and Afores

participating in passenger rail projects but we are open

impacted the country’s financial sector when it comes to

to new opportunities that may arise. PPPs are a relevant

infrastructure?

tool for governments to build and maintain infrastructure.

A: Almost all major funds are now operating in the Mexican

Although it is a relatively new law, it has great potential in

market. This is a good thing because that means that there

the next few years. It is a very good tool for the market, but

are more professional investors in the market that bring with them set of skills that complement the existing players. There is this need to develop managers that can deliver on

Grupo Financiero Banorte is one of the four largest commercial

the investments, including the operation and maintenance

banks in Mexico. It has participated actively in financing

of those facilities. Having stronger partnerships in the

infrastructure projects such as NAIM and various highway

market allows us to provide financial structuring that is

projects. It recently acquired Banco Interacciones

more efficient to specific assets or projects.

VIEW FROM THE TOP |

THE RIGHT HAND OF SME REAL ESTATE DEVELOPERS JUAN PABLO MIJARES Real Estate Banking and Appraisal Director at Banregio

Q: In which subsegments of the Mexican real estate

Banregio decided to reduce its position in this segment

industry is Banregio most actively participating?

and focus more on the middle-upper housing segments in

A: Banregio focuses mainly on the midsized enterprise

Mexico. Before the change in strategy, economic housing was

sector in Mexico and has always had a strong pull toward

the largest part of our portfolio, and in 2018 we were able to

real estate. The founders of Banregio are strong players within

rearrange our portfolio, shifting the middle-upper housing

the sector. Banregio provides financing for all aspects of real

segment to the most relevant position. This has helped us to

estate development in Mexico, from office spaces, shopping

maintain healthy growth in our housing portfolio.

centers, mixed-use projects and industrial parks to housing developments. It also provides financing for the construction

Many foreign funds are entering the market and looking

of additional infrastructure necessary for the development of a

for guaranteed returns over 20 percent with a series of

real estate project, especially for large housing developments.

penalties that could even cause a project to fail. Most funds do not get involved with the projects themselves and base

Banregio provides financing for commercial real estate

their decisions only on what will provide the best expected

projects either for lease or for sale, which is the second-largest

return for investors. Many of our clients have explored these

segment within our portfolio. When we provide financing for

types of instruments and end up returning to us due to the

sale, the spaces are sold to independent investors and the

importance we place on the projects themselves.

financing gets repaid with the income from the sales. When projects are financed as a long-term asset, then the process

Q: Why did Banregio decide to focus on the SME real

involves long-term loans where our client preserves the

estate development market?

commercial center as part of its estate and the repayments

A: The risk of working with an SME is that its resources are

are made over the following years with the rental income.

limited to only a few projects. A successful project could temporarily subsidize another project but SMEs tend to

The third-largest segment in our real estate portfolio is

only have the resources to invest in one project at a time.

the financing of industrial park developments, where we

Larger companies tend to have more projects in different

participate in financing the infrastructure of the park itself

geographical areas, which allows them to diversify their

or build-to-suit (BTS) plants and warehouses. As a bank,

income and have a more constant flow. SMEs value that we

we are also becoming more involved in the tourism sector

are highly involved in the projects in comparison to other

with a great appetite to expand our portfolio in the business

banks. SMEs and large companies pose the same amount of

hotel segment. Lastly, we offer loans for the purchase

risk. The important factor is that the project is well-conceived

of land parcels for real estate development, with the

and developed, and that the company has the expertise

understanding that later on we will provide the financing

and ability to execute it. Instead of aiming to have a larger

for the project itself.

volume of transactions, we look at the quality of the deals and projects we take part in. That has allowed us to have the

Q: What have been the main challenges Banregio has

lowest past-due loan portfolio rates in the real estate market.

encountered in financing the housing sector?

When it comes to bridge loans for housing development,

A: 2018 has been a peculiar year with exceptional events,

we have become the third largest bank at a national level.

such as the presidential election and the renegotiation of NAFTA. We knew that we had to be more cautious because the dynamics of the housing sector were bound to change.

Banregio is a Mexican regional bank with headquarters in

We forecasted that the economic housing segment was

Monterrey. The bank has a strong presence across the real

going to deaccelerate due to change in policies, a reduction

estate markets and is particularly active in funding housing

in subsidies from CONAVI and an increase in interest rates.

projects

265

| INFOGRAPHIC

DEVELOPMENT THROUGH CAPITAL, DEBT MARKETS Faced with a cash crunch, the government cast a wider

to be attractive for international and national investors

net to meet its budget shortfall to fund Mexico's much-

and as Andrés Manuel López Obrador's administration

needed infrastructure projects. Fibras, CKDs, CerPIs and

comes to power, the development of real estate assets will

Fibra Es are becoming more popular as vehicles for Afores

continue to drive construction while the industry awaits a

to invest in the infrastructure industry. Mexico continues

new infrastructure plan.

IN WHAT INSTRUMENTS ARE AFORES INVESTING? Citibanamex

ISSSTE

7.1% 3.1% 1

Banorte

7% 1.5%

3848

Inbursa 0.3% 4.5%

% of Afores' portfolio • CKD

5.1% 1.3%

1 1

• CerPI

• Fibra

• Fibra E

InverCap

Azteca

4.6% 3.3%

4.2%

Profuturo

5.1% 1.3% 1

3848

Metlife

2.1%

1.68% 2.3%

Coppel

Sura

2.5% 4.6%

Principal

4.9% 1 1.8%

266

FINANCIAL INSTRUMENTS FOR INFRASTRUCTURE DEVELOPMENT (MX$ billion) Energy and Infrastructure (Invests in transport, water and infrastructure assets)

MX$30 billion*

Fibra NAIM

MX$50 billion*

Fibra Via CKD Infraestructura México Fibra CFE RCO

18.2 16.4

Maximum

6.6 | 6.6

amount

Amount

4.7 8.45

issued

Blackrock

Navix 4.01

3.8 CKD

Axis

3.6

GBM

3.4 | 3.4

FIBRA E

Macquarie

3.3 | 3.3 3.9

Artha 3.2

PMIC LATAM

2.7 | 2.7 2.7 12.5

Blackrock 2.3

EXI

2.5 3.9

Riverstone

2.4

9 3.3 3.5

PMIC LATAM

1.8

GBM

1.8

Thermion

1.8

FCI

1.6 7

Riverstone

1.4 4.4

3.9

EXI

1|1

Marhnos

0.88

Ainda PMIC LATAM

0.780

0.4

Northgate

0.775 | 0.774

Balam

Financial Assets (Invests in Credit Markets)

Maximum

Credit Suisse

9.3

12.8

amount

Credit Suisse

6.8 | 6.8

Amount

Promecap

2.5 | 2.5

issued

3.5

2.5

Promecap

1.3 | 1.3

CKD 10

* Data outside graph

PMIC LATAM

.800 4

GBM

Nexxus

.690

FINANCIAL INSTRUMENTS FOR INFRASTRUCTURE DEVELOPMENT Capital (Invests in private companies ) 3.3

Nexxus PineBridge Northgate

2.8

Nexxus

2.6| 2.6

Axis

2.6

Abraaj

2.3

Latin Idea

2.2

Atlas Discovery Northgate Southern Cross

amount

2.6

Amount issued

CKD

3.2 5.8

1.9 2 2.6

1.6

2.9 1.6

EMX

4.5

1.5| 1.5

Wamex

1.4| 1.4

GD Structure

1.4

1.3

3.3

Atlas Discovery Renewable Resources Group Black Creek

.800

.799

3.9

Atlas Discovery

.780

3.9

Asis

.750

Dalus Atlas Discovery

Investment

CKD

Capital or Debt of operators or construction companies in infrastructure. Can be invested in any infrastructure project

CerPI

Similar to CKDs but investors play a limited role in the decision-making process

Fibra

Development, adquisition and leasing of assets. Can be used only for real estate investment

Fibra E

Similar structure to Fibra, but used for the acqusition and leasing of energy, social and road infrastructure only

1.2| 1.2

2.5

Fibras

Ignia Latin Idea

0.745 | 1.5 0.615 | 0.615 0.271 | 0.950 .041 | .41

Vector .034

FIBRA E

Name

2.03 | 2.04

Atlas Discovery

PMIC Latam

Maximum

Structured Instruments

Acon

4.1

2.7 2.9

267

Real Estate ( Invests in commercial, industrial, education and housing assets) MX80.1 billion*

Fibra Uno Fibra Terrafina Fibra Macquarie

21.2 19.03

Fibra Hotel Fibra Prologis

Amount

5.9

Fibra Shop

issued

5.5

MRP

CKD

5|5

Fibra Inn

FIBRA

4.5

Walton

4.01

Fibra HD

3.9

Walton

CERPI

4.4

3.9

FINSA-Walton

3.7

Fibra Mty

3.5

Prologis

7 5

3.3 | 3.3

Fibra Uno

3.2

Prudential

3.1 | 3.1

FINSA

2.8 | 2.8

Planigrupo

2.5 | 2.5

Artha

2.5 | 2.5

Artha

2.4 | 2.4

Fibra Plus

2.3

Artha

2.1 | 2.1

MRP

1.7

Vertex

8.5

National average of Afores' participation in CKDs: 4.9% Fibras: 2.0%

1.7 | 1.7

Capital I

1.5| 1.5

IGS

1.3

2.7

Vertex

.832

Mira

0.8

VEX

.600

4 3

IGS-I

.575 | 0.575

IGS-R

.513 | 0.513

Carza

.494

2.5

0.5

2.5

amount

8.01

Fibra Danhos

Thor Urbana

Maximum

13.5

Sources: CONSAR, BMV, Proyectos Mexico

| VIEW FROM THE TOP

MEXICO TO LEARN FROM INTERNATIONAL PPP BEST PRACTICES Astra Castillo Senior Director Mexico of Infrastructure and Project Finance at Fitch Ratings

Cherian George Managing Director of Global Infrastructure and Project Finance at Fitch Ratings

Q: Why does the country need more involvement from the

attention because people are much more fearful that it is

private sector in infrastructure development?

seeking to make money from the public sector.

AC: We predicted that there would be a larger PPP boom

268

after the first securitization of a PPP, which was ICA’s

In Canada, toll roads are not that viable. This means

prison project. It was one of eight projects granted to

that road infrastructure projects must be done through

private companies. The entire market thought it was a new

availability transactions. The revenue risk is retained by

beginning. It has been seven years since then and in this

the government and the private sector gets paid to build,

time, there have not been many PPPs at all. It has been

operate and maintain that road. The risk allocation has

slowed down because even though there are many PPP

also been tweaked, because sometimes there are risks

projects in Mexico, many involve national entities, which

that the public sector cannot handle, such as environmental

complicates things a bit. Municipalities and states normally

elements and rights of way. The bottom line is that there is

do not have the best counterparty quality, making these

no one size that fits all. Rather than completely reversing the

projects far more difficult to finance, not only by the market

approach, tweaking the system to reduce the opportunities

but also by banks. It is an issue because one counterparty

for the private sector to make too much money while

in these contracts can have a AAA rating and the other A-.

delivering more for the public could be a better way to go.

Penitentiary projects have been particularly problematic. They have been downgraded and even though operations

Q: Is there a lack of liquidity in the market or are there not

have been great from the company’s side, they are not

enough viable infrastructure projects?

receiving timely payments from the government.

AC: There is liquidity in the market. Pension funds are extremely interested in infrastructure projects. Pension funds' balance

CG: When the public sector manages public infrastructure,

sheets increase every two months because of contributions

some argue that it is inefficient, that costs are higher

from workers. I can see why concessionaires and operators

over time and that there is a lack of transparency in the

might say that there is not enough liquidity in the market,

processes. When the private sector is brought into the

but the issue comes from bankability. PPP projects can be

picture, there is more attention placed on the project.

attractive but unless the contracts are strong, containing clear

Any small issue is magnified because the private sector

termination clauses and good counterparties, the bankability

is perceived as making a profit. When thinking about it

of the project limits the construction company’s or operator's

broadly, the private sector makes profit from 20-30 percent

ability to acquire financing.

of the capital structure because that is the equity and the rest is debt. There would be debt anyway if it were a public

CG: In public infrastructure, the government holds all

project but, in a PPP, the added equity return is in the single

the cards. For a country to have a good PPP law, the

digits relative to total project cost. When comparing it to

government should begin by creating contracts that are

a public project, and this is true in many countries, overall

not only attractive to the private sector but which also

cost increases can easily reach double-digits, possibly

have restrictions on profit, ensuring quality of services and

more than offsetting the cost of equity. The private sector

maintenance. The public will then see the value. The rules

is capable of delivering more efficiency but it attracts more

are written by the government yet investors are willing to participate more. Infrastructure as an asset class is now global and there are many interested in investing in it.

Fitch Ratings is a global leader in credit ratings and research

Mexico is one of the stronger emerging markets and is

with experience rating more than 3,000 banks, 2,500 insurance

grabbing the attention of many across the globe. Ratings

companies and 84,000 public entities. In Mexico, it has rated

agencies provide an important input for investors on the

toll roads, public debt and social infrastructure projects

quality of the credit.

VIEW FROM THE TOP |

TACKLING RISK ALLOCATION IN INFRASTRUCTURE PROJECTS ADRIÁN GARZA Vice President and Senior Analyst at Moody’s Investor Services

Q: How does the allocation of risk change from a PPP to a

A trend we are seeing in countries such as Peru and

purely private or purely public infrastructure project?

Argentina is a PPP in which the government pays back the

A: The spirit of a PPP project is to allocate risks based on

capital investment with certificates that provide a revenue

the ability of each party to assume that risk. Some projects

stream in the future. Basically, these are deferred payments

are suited to a PPP, while others may have a public policy

that are unconditional obligations from the government.

nature. For example, the construction of gas pipelines in

This allows Peruvian companies to access financing in the

the south is required to develop the region but it might

international markets. Also, these payments are made in US

not make sense for a private entity to invest without the

dollars, eliminating currency risk for international institutional

involvement of the government. There is also a significant

investors. Because they have a strong revenue source from

gray area in which some of the risks and benefits of a project

the Government of Peru, sponsors can issue debt backed

fall under the remit of both the public and private sectors

by these obligations that is paid off as collections from the

and clearly the government can profit from partnering with

government occur, moving away from the usual project

private companies that are good at constructing, operating

finance debt risks that typically is dependent on operations

or executing a project, which is not the expertise of the

and construction. Despite the success this scheme is

authorities. On the other hand, the private sector may need

enjoying in Peru and is being developed in Argentina, I do

support with rights of way, the utility of relocation or handling

not think Mexico needs it as the country has a very strong

unforeseen risks, which are better suited to the government.

track record and efficient local markets with Afores investing

Projects that have this combination of characteristics are

in local projects.

ideal for PPPs and can benefit from this scheme for their execution and financing.

Q: What are Moody’s market expectations for the next 15 years?

When banks see that all the pieces are in the right place, they

A: The trend is to move less toward quantity of projects and

may be more willing to finance these projects. There are also

increasingly to focus on larger developments such as NAIM

new financing schemes emerging that are similar to equity. For

and the Mexico City-Toluca Interurban Train. In Mexico, we

example, in the energy market, CFE introduced the Fibra E,

foresee a lot of activity around the energy sector as a result

a partnership in which the rights to collect from transmission

of the Energy Reform: electricity, pipelines, storage and other

assets were sold. The asset itself was not transferred but

related projects. I think that Moody’s Investor Services will

the revenues were. This allowed CFE to partner with private

continue to participate in pipelines and generation projects,

investors without selling its assets, at the same time avoiding

as we expect 80 percent of the investment on the electricity

taking on debt while giving the private sector a window to

industry – out of a total of US$80 billion in the next 15 years

invest in the energy sector. Fibra E is an alternative that adds

— will be in this sector, especially between transmission,

to the options available in the energy sector.

distribution and generation. We rate many of the sponsors of these companies and remain close to the market. For example,

Q: What mechanisms are being used abroad that Mexico

we rate CFE and any other company in the energy industry

could implement to further bridge its infrastructure gap?

that trades on the Mexican Stock Exchange, like IEnova and

A: I am convinced that the underlying project is the most

TransCanada, among other major players.

important element and the financing will come if it is strong and it is economically sound. The circumstances of different countries drive them to find different mechanisms to support

Moody’s Investors Services provides credit ratings and research

projects. Mexico has a very strong track record in developing

covering debt instruments and securities. Moody’s Analytics

infrastructure via the private sector, with toll-road concessions,

offers cutting-edge software, advisory services and research for

power projects, gas pipelines and airports.

credit and economic analysis and financial risk management

269

270

Trading floor of the Mexican Stock Exchange, Mexico City

EXPERT OPINION |

THE TALE OF TWO MEXICOS VÍCTOR REQUEJO President of the Board of Banco Inmobiliario Mexicano (BIM)

The tale of the two Mexicos describes the country’s two-

since 2009 and in the beginning, we operated with

speed economic growth and how these different economies

money from SHF and 65 percent of our funds had to be

are pulling the country in different directions, creating a gap in

allocated to social housing. That has changed throughout

living standards. The housing sector is no different. Magazines,

the years and now we allocate 40-45 percent to social

developers and speakers at events and conferences highlight

housing, approximately the same for middle housing, and

the actions of the Fibras and the opportunities within the

10-15 percent for middle residential housing. It is difficult

high-end segment, which are attracting investment. But we

for commercial banks to compete with INFONAVIT and

are forgetting the much larger, second Mexico.

FOVISSSTE. INFONAVIT can provide loans at 4-6 percent rates. Although the banks provide affordable rates for

The housing market is segmented into two. The first segment

middle-class housing, those are still above 9 percent.

includes the buildings developed for and by the Fibras; the other includes the homes constructed by developers. In

Some developers are now putting their projects on hold

Mexico, almost 1 million homes are constructed each year,

to see what path the sector will take after Andrés Manuel

of which 35 percent are constructed by licensed developers

López Obrador (AMLO) takes charge. He certainly faces

and the other 65 percent are constructed on crowded plots.

many challenges but I believe some far-reaching solutions

Around 180,000 are built using materials such as sheet steel

would be to introduce vertical housing on a broad scale in

and bricks. This creates a great deal of opportunity in the

the suburbs, convince banks to provide loans and mortgages

MX$1.5 million and below demographic outside the ZMVM,

to the informal economy and increase the scope of social

or for the MX$2.5 million and below market within ZMVM.

housing subsidies. Thanks to FOVISSSTE and INFONAVIT, the country’s housing deficit has decreased, but now it is

Mexico has been able to develop so many homes each

necessary to examine the kind of housing that is provided.

year in most part because former President Luis Echeverria

To create more social housing, we must develop alternative

created INFONAVIT. INFONAVIT made it obligatory for

cities that may be farther away from the main cities but with

company owners to contribute 5 percent of the worker’s

more affordable prices. But before developing new cities,

salary to create a housing fund that would bolster his

the country must first ensure that they are well-connected

or her ability to purchase a home. INFONAVIT collects

and walkable, or with a robust transportation system to

approximately MX$150 billion through this fund for the

interlink each city.

purchase or improvement of housing. It is prepared to sign 10,000 loans weekly for the purchase of a home and

Although all this sounds like a challenge, in reality it is an

finances more than 500,000 homes a year.

opportunity. Even though Mexico constructs more homes than any other country in Latin America, including Brazil,

The government then created FOVISSSTE, which is a fund in

the housing deficit is decreasing at a slow rate. There is

which the federal government and other entities contribute

a gap in Mexico of between 8-9 million houses. At 11.2

resources so that their workers can also receive loans. The

percent, investment in mortgage credit is lower in Mexico

average loan INFONAVIT provides is between MX$350,000

as a percentage of its GDP compared to similar economies

to MX$380,000, which are for small homes. But FOVISSSTE

such as Chile with 23 percent or Brazil with 35 percent, not

provides higher loans, on average MX$600,000, which

to mention Canada and the US. By 2025, Mexico’s GDP is

allows for the purchase of bigger, more valuable homes.

expected to grow to MX$40 trillion and our goal is to reach 20 percent of GDP in mortgage credit, which would equate

In 2016, banks provided the most housing loans to the

to MX$8 trillion. Considering 2017 mortgage credits reached

population but the rate has decreased since then. Banco

approximately MX$3.47 trillion, this means a MX$4.53

Inmobiliario Mexicano has funded housing development

trillion opportunity for housing over the next six years.

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| INSIGHT

MORTGAGE REIT TO TRANSFORM REAL ESTATE SECTOR ALEJANDRO RODRÍGUEZ Investment Director at Credit Suisse Asset Management

Fibras and CKDs have boosted real estate development

CKDs managed to raise approximately US$1.25 billion. With

across Mexico and have institutionalized the market. But

the RE CKD we raised close to MX$6.5 billion.”

it is time to make way for a new type of vehicle that until now has only existed in more sophisticated markets: the

The first institutional investor that entered the Mexican

Mortgage REIT or Fibra Hipotecaria. Credit Suisse issued

market was GE Capital, which was the top player for many

the first CKD on the BMV and is now looking to make history

years. It was not until the 2000s that the country became

once again by issuing the first Mortgage REIT.

investment grade and more funds began pouring their resources into real estate. “Many began developing in

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“The current real estate vehicles on the BMV are dedicated

Mexico through global funds,” Rodríguez says. “Funds such

to funding equity,” says Alejandro Rodríguez, Director

as Prudential, Blackcreek and Walton entered the market

of Investment at Credit Suisse Asset Management. “Our

and began developing institutional-class assets and once

intention is to convert our real estate financing CKDs into a

the banks regained strength after the crisis, they also began

Mortgage REIT in the next three years. The main benefit is

lending once again.”

that instead of having a CKD with a three-year investment period and a 10-year lifetime, we will create a permanent

When the 2008 crisis hit Mexico’s markets, global funds

capital vehicle.” Credit Suisse launched its first debt CKD

were stuck with illiquid assets and quickly began pulling

in the market in 2012 and then the second in 2015: both

out their investments in Mexico. This is when the local

high-yield general credits that were not specifically for

market jumped in and issued the first CKD in 2009. “This

real estate.

CKD was not destined for real estate but it was used to pull resources from Afores that remained healthy after the

In the last few years, Fibras have raised and invested a

crisis,” says Rodríguez. Because CKDs are closed-ended

significant amount of money in the country, as one of the

funds with finite lifespans, the market began exploring

preferred asset classes for local and foreign investors.

new vehicles that fulfilled the permanent capital needs

What differentiates a traditional Fibra and mortgage Fibra

of real estate.

is the way returns are distributed. “The main difference between a Fibra and a mortgage Fibra is that Fibras own

This need led to changes in the country’s regulatory

the properties and then distribute the product of the rent

framework that gave life to Fibras. These instruments

to investors,” explains Rodríguez. “A mortgage Fibra,

allowed public investment through the BMV and were

on the other hand, lends the income-generating assets

a huge milestone for the real estate sector. Yet most of

and then distributes the product of the interest on the

the funds that were being injected into the sector were in

mortgage itself.”

the form of equity. Rodríguez explains that the leverage in the sector in comparison to international standards

To convert into a mortgage Fibra, the manager must first

was rather low and that the penetration of debt into

originate the loans needed to distribute the corresponding

the asset class was modest. “In Mexico, the total debt

interest. “We began by issuing our CKDs, allowing us to

in commercial real estate is around US$25 billion while

make the capital calls necessary to construct a portfolio of

in the US it exceeds US$3 trillion,” he says. “The way

loans in an orderly fashion,” says Rodríguez. To continue

Mexico finances its real estate developments is still in a

with its plans to issue the first mortgage Fibra, Credit

premature stage and must continue to incorporate banks,

Suisse has been developing its portfolios to match the

life companies, capital markets, specialized funds and

requirements of its future yields. “In our third CKD, we

Mortgage REITs to reach its full potential. Credit Suisse

created an adjacent strategy to both CKDs that made us

RE’s debt fund is a new step in a natural evolution toward

the largest credit fund manager in Mexico,” he says. “Both

a developed market.”

INSIGHT |

UNCERTAINTY NOT IN THE LAW BUT IN ENFORCEMENT MANUEL ROMANO Partner-in-Charge at Jones Day

Infrastructure in Mexico continues to be a local game when

impossible in some cases.” Although the legal basis is well

it comes to financing, with the support of FONADIN and

laid out, he says enforcement is hazy or even non-existent.

Banobras. “There are very few non-Mexican banks that are working in infrastructure and the main question is, why not?

Closely linked to this issue is another that continues to gain

Especially if many are already participating in other sectors

traction in Mexico: neighbors. The Chapultepec CETRAM

in the country,” asks Manuel Romano, Partner-in-Charge at

was a project intended to serve as a transportation hub

integrated law firm Jones Day.

to rescue one of Mexico City’s most important streets. The project involved the construction of an underground

The answer may lie in the PPP scheme. After it began to

mall, offices and hotels along Chapultepec Park, improving

be more widely adopted in 2000, the mechanism became

security and restoring an important part of the city. “Again,

a way of professionalizing the sector and allowing private

it was not a problem of legality,” says Romano. “Neighbors

players to play a larger role in bridging the infrastructure

began opposing the project and to this day, the project is

gap. “Through PPPs we could get more US and Canadian

halted. There was nothing the investor could do, even with

firms involved in the industry,” says Romano. “This would also promote stricter guidelines for anti-corruption and transparency, which are probable reasons why international players are hesitant to enter the infrastructure industry.” Increasingly, the private sector is becoming more involved in infrastructure through these schemes and the country’s health and road sectors are encouraging its participation. But there are far more complex factors at work in Mexico’s failure to attract international infrastructure companies, says Romano. “In Mexico, it is not a matter of legality because the laws are well-crafted,” he says. “Complications arise

“

the power of the law behind it.”

Through PPPs we could get more US and Canadian firms involved in the industry. This would also promote stricter anticorruption guidelines”

during the implementation. The PPP Law for instance is based on the success stories of Chile, Spain and Colombia.”

Apart from ROW and community issues, the complex nature

But, he adds, Mexico’s environment has unique nuances

of infrastructure projects calls for the diversification of risk

that were not properly taken into account when the law

through project finance. Romano believes syndicated loans

was drafted.

can be a good option to reduce risk levels for a participant. PPPs allow developers to share the risk, which is the

Take for instance road infrastructure’s biggest headache:

scheme’s attraction in these types of projects. But he says

Rights of Way (ROW). ROW is regularly an issue in the

many developers have failed to consider risk allocation and

development of new roads and MTS projects such as the

have overleveraged themselves to participate because they

Mexico-Toluca Interurban Train. To help alleviate developers’

feel they bid aggressively. “Without risk sharing, the liability

headaches with ROW, Romano says that the PPP Law

rests solely on the shoulders of one party,” Romano says. “If

intended to improve processes by removing the need of a

something does not go according to plan, then a company

full appraisal from INDABIN, allowing the private sector to

could lose a lot. Aggressive bidding on projects that could

assume full responsibility for negotiations to liberate ROW.

ultimately end up costing twice more than expected, could

“In practice, it is an entirely different story,” he says. “Mexico

potentially push companies to delay the project and like a

has various issues that no law can resolve. Companies have

house of cards, lead to lawsuits or even the cancelation of

all the legal instruments to expropriate parcels, but it is

contracts.”

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| INSIGHT

FINANCIAL MECHANISMS FOR SUSTAINABLE INFRASTRUCTURE Luis Quintero Executive Director Corporates/ ABS of HR Ratings Mexico

Roberto Ballinez Executive Senior Director of Public Finances and Infrastructure of HR Ratings Mexico

The desire to address climate change and abide by

MX$10 billion, which was five times oversubscribed. Both

environmental regulations has infrastructure developers and

examples are a good thermometer of what investors are

investors seeking to promote sustainable growth. Roberto

looking for, says Ballinez. “There is still some reluctance,

Ballinez, Executive Public Finance and Infrastructure

but the market has provided a first step that gives private

Director of HR Ratings, says awareness of social and

investors some certainty and encouragement to bet on

environmental impact calls for sustainable mechanisms for

sustainable bonds.”

project financing. HR Ratings, he says, is at the forefront of

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financial innovation, breaking ground with its methodology

Despite the increasing popularity of financial mechanisms

to rate green and social bonds.

for sustainable infrastructure, green and social bonds are still unknown to many. Now that awareness is beginning to

“HR Ratings’ ratings process is our differentiator. We are

grow, new mechanisms are emerging to ensure a smooth

headed in the right direction as the market for these

process. “HR Ratings previously had a methodology only for

financial tools is growing.” On the path to sustainable

green bonds and was unable to rate the social component

infrastructure, the market has the option to invest in a

of projects, hindering our ability to incorporate sustainable

green, social or sustainable bond. All financial resources

bonds,” says Ballinez. To meet market demand, the Credit

obtained from the issuing of the bond must be allocated to

Rating Agency (CRA) developed a methodology for both

projects that represent a social and environmental benefit.

social and green bonds, opening the path for sustainable bonds that can be rated in Mexico.

According to HR Ratings’ Directors, the global market for social bonds is growing, as they tap into a market that

In the case of green bonds, investors want to be socially

aims to invest in projects that improve social welfare.

responsible and environmentally aware when placing their

Pioneered in the UK in September 2010 by Social Finance,

capital, says Quintero. “When choosing between two similar

they have quickly spread. Aligned with the UN Sustainable

projects, the possibility to go for the green one is higher,”

Development Goals (SDGs) the international community

he says. But it is crucial for investors to understand that

is increasingly appealed to place its investments in them,

the presence of a green bond rating for a project does not

encouraged by international organizations such as the

come with any direct financial benefit, as the credit rating

IFC launching social and green bond programs. In Mexico,

is independent. Social bonds work somewhat differently,

NAFIN took the first leap of faith on social investment

in that they are not exclusively issued for infrastructure

mechanisms in 2017, issuing the first social bond in the

projects. “The first social bonds have been mostly directed

country with the MSE for MX$4 billion. The funds will be

to infrastructure developments but their goal is also to

allocated to education, access to financial services for low-

support that segment of the population looking to escape

income communities, microcredits for women and SMEs,

the poverty threshold and to break the cycle of inequality,”

among other targets.

says Quintero.

Luis Quintero, the agency’s Executive Corporate Director,

Keeping at the leading edge of financial mechanisms,

agrees that investor interest in projects is piqued when

HR Ratings’ products provide the framework to rate new

there is a green element. “Our perception is that investors

sustainable projects. “We believe that we will keep growing

are increasingly demanding a green and social component

with the market, supporting and guiding investors on

for the projects they invest in. Besides the usual race for

social and green ratings,” says Quintero. “It is paramount

profits, sustainable awareness is gaining momentum.” Grupo

for us to keep innovating and we strive to have updated

Rotoplas pioneered with the first sustainable bond issuance

methodologies, in order to act as a catalyst to incentivize

in Latin America for MX$2 billion, followed by Banobras for

market growth.”

VIEW FROM THE TOP |

LEASING EQUIPMENT FOR FISCAL BREAKS ALFONSO VEGA Commercial Director of Serfimex

Q: What niche does Serfimex serve in Mexico?

closely with stores such as Sonora Grill, Sushitto and various

A: Family-owned companies and SMEs in Mexico are not

others. We have also become the financial arm of Sport

all served by direct banking. This is the niche where most

Fitness that has the subsidiary brand Life Fitness, which is

intermediary banking institutions focus because larger banks

one of the top gym brands in the country. We also finance

do not have the capacity to provide services to this segment.

gyms for residential projects. Although we provide loans to

We generated specific products for these companies in which

construction companies, the construction and infrastructure

the greatest added value is providing personalized attention.

industry represents only 5-7 percent of our credit portfolio,

We strive to become partners of companies that are growing

while hospitality represents approximately 45 percent.

rapidly and to develop long-lasting relationships. Our bestselling service is leasing, where we concentrate on specific

Q: What are the main market barriers for SOFOMEs such

subsectors, such as hospitality, that have had positive growth

as Serfimex?

in the last two years. We are part of Grupo Kamaji, which has

A: In general, the market does not completely understand

a real estate division that constructs hotels throughout the

how leasing works and the benefits it has. Another entry

Riviera Maya. Two years ago, we opened an office in Cancun

barrier is the cultural aspect. In comparison to other

to provide better service to all those companies. Leasing

European markets or the US, Mexicans want to own things.

to the hospitality industry is risky because their actives are

Changing that mindset has been extremely difficult. If

extremely specialized. It is difficult to commercialize assets

you use leverage, this will be taken into account after the

such as industrial-sized kitchens. Not many institutions are

operational costs. When leasing, that cost is attributed to

willing to take the risk.

operational costs and is 100-percent tax deductible. This is an important fiscal advantage and for VAT generators it is

As an intermediary there are many factors to take into

accreditable in terms of interest and VAT on the entire rent.

account. It is not easy to maintain operations and obtain funding. It is difficult for intermediary financial institutions

Q: Are there more risks when financing SMEs in Mexico

to go from a more boutique service to institutionalizing its

compared to larger companies?

services but we were able to take that step and we are now

A: Our nonperforming loans actually behave better than

maintaining our position in the market. Although our portfolio

that of our loan portfolio. There is a natural guarantee and

has expanded, we still retain our key value of fostering close-

if the person stops paying, it is simpler to come into an

knit relationships with our clients.

agreement to sell the asset. Because these are productive assets, companies pay extra attention to the payments

Q: What role does Serfimex play within the Mexican

because without them, they would not be able to continue

construction and real estate industries?

operations and make money. The nonperforming loans

A: Providing services to the construction is difficult, especially

portfolio is much lower than that of the working capital

to companies that have more activity in public works. During

because the SMEsâ&#x20AC;&#x2122; working capital is almost the same as

the 2015-2016 real estate boom, we worked closely with heavy

a consumption loan where the destination of the funds is

machinery providers, providing them leasing services. But

unknown. In Mexico, most SMEs are family companies that

the sector entered a rough patch and we have not worked

normally do not separate their expenses.

with many companies involved in the construction sector unless they specialize in the private projects. When it comes to the real estate sector, we have leased elevators, control

Serfimex is a nonbank lending and finance institution

and fires systems, as well as other types of technology.

(SOFOM) that provides credit and financial leasing to SMEs for

Our strategy is to search for developers that work solely

both working capital and the acquisition of assets. It is part of

for private projects. At the moment, we are working more

Corporativo Kamaji, owner of Pulso Inmobiliario

275

BBVA Bancomer Tower, Reforma Avenue, Mexico City

INDUSTRY OUTLOOK

The new federal administration led by Andrés Manuel López Obrador has touted an infrastructure revival as a top priority for reinvigorating the economy. López Obrador has said that he would increase spending in the sector, highlighting modernization as a key plank in his strategy. That is good news for the industry but promises and action are two different things and key stakeholders are in waitand-see mode as the new president has also said he would revisit key projects from the Peña Nieto era, including NAIM.

Despite the political transition, not everything is uncertain. The government should remain committed to policies to reduce CO2 emissions and continue its path to sustainable development so the country can achieve its COP20 goals. At the same time, both the public and private sectors will have to embrace new ideas and actions to ensure the resilient growth of the country through a long-term plan. In this chapter, industry experts cast their eyes at 2019 and beyond, discussing the country’s priorities in terms of infrastructure development, financing and sustainability.

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CHAPTER 14: INDUSTRY OUTLOOK 280

INSIGHT: Luis Vega, Sustentabilidad para México (SUMe)

281

INSIGHT: Eduardo Miranda, Mexican Association of Intelligent and Sustainable Building (IMEI)

283

INSIGHT: Jorge Caballero, KPMG in Mexico

284

INSIGHT: César Treviño, Bioconstrucción y Energía Alternativa (BEA)

285

INSIGHT: Lourdes Salinas, THREE Environmental Consulting

286

INSIGHT: David Domínguez, 3Lotus Consulting Mexico

287

INSIGHT: Antonio Villarreal, Axioma

288

INSIGHT: Fina Moisés, Urban Land Institute (ULI) Mexico

289

VIEW FROM THE TOP: Francisco González, Constitucionalistas Mexicanos

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| INSIGHT

CHANGING MINDSETS ON SUSTAINABILITY, CERTIFICATION LUIS VEGA President of Sustentabilidad para México (SUMe)

Certifications like LEED or WELL are often viewed as an

can put them off the idea, there are long-term benefits

extra expense, and a niche for developers that want to

associated with certification. “When comparing the average

brand themselves as sustainable. Luis Vega, President

price of a standard house to a totally certified development,

of Sustentabilidad para México (SUMe), says that if

the latter will never be more than 10-15 percent more

companies correctly followed Mexican legislation on

expensive,” he says. Although that may sound like a lot for

sustainability, they could easily obtain these international

a developer’s bottom line, over the lifetime of the house it

certifications. “We do not have the correct auditing

is a drop in the ocean, he says.

processes and we must work on that,” he says. “But if

280

every developer in Mexico adhered to Mexican norms,

Still, the private sector can only do so much; the bigger

we could easily meet the requirements for any other

picture, according to Vega, requires a policy change.

legislation, including LEED.”

““LEED cannot only go so far alone,” he warns. “In September 2017, we learned that a natural disaster like

Supported by the World Green Building Council (WGBC),

an earthquake can change our landscape in an instant

SUMe works as a nonprofit consultancy that emphasizes

and if we do not invest in infrastructure, we will continue

the importance of sustainable certifications and helps

to exacerbate the problem.” He says that it is ultimately

companies obtain them for their developments. The

the responsibility of the government to implement the

consultancy works across a wide variety of certifications,

macro policy related to infrastructure, the environment

including LEED, WELL and EDGE, and Vega says it is

and water use.

constantly searching for others to help improve urban lifestyles. This also enables SUMe to offer a tailored

Vega points to events in South Africa as a reference for

approach to certifications. “We want to get all the

Mexico to take action sooner rather later. In the midst of

certifications under our umbrella so we can provide the

a three-year drought, on June 4, 2018, Cape Town was

right information to the market,” he says. “We want to avoid

expected to become the first major modern city in the world

the use of certain certifications that may not be appropriate

to face “Day Zero,” when the city’s aquifers were forecast

for a certain project.”

to run dry. To avoid that result, the country launched an aggressive but successful campaign geared at conserving

But for some, LEED certification is merely a branding

the resource. “We must make the commitment to do the

tool. One study found that, for US buildings, a normal

right thing today,” he says. “If we move in the right direction

construction could consume on average 29 percent more

today, we can avoid a situation like this.”

energy in some cases than a LEED-certified building. Vega dismisses the idea that certification is simply a marketing

The next presidential administration must also act

ploy and argues that it is a display of each company’s

by implementing a strong infrastructure policy, Vega

mindset and commitment to sustainability. “LEED is

adds. He believes incorporating sustainability into the

not only a brand but a part of the spirit of the people

culture of the country would go a long way toward

pursuing a better world,” he says. “A building without the

meeting infrastructure goals. “In every school today,

LEED label is not necessarily unsustainable. But LEED is

children are talking about how to recycle and separate

designed for companies that want to show the world that

trash, and every day they are starting to have a greater

they are conscious of their construction decisions and are

understanding about the importance of these initiatives,”

committed to the future of the country.”

he says. “Mexico City made the decision to separate trash but the problem is that this decision is not aligned with

Vega also argues that while LEED is not necessarily more

the rest of the country. This means most of the time it all

cost-effective for developers in the short term, which

goes into the same landfill.”

INSIGHT |

PROFESSIONALIZATION, CULTURE CHANGES NECESSARY FOR SUSTAINABILITY EDUARDO MIRANDA President of the Mexican Association of Intelligent and Sustainable Building (IMEI)

Many companies in Mexico are pushing for more sustainable

will educate the Mexican market to adopt sustainable norms

practices and the country has made great progress through

in a conscious way and not just to follow a trend.”

the adoption of certifications such as LEED. But regardless of the strategies applied, Eduardo Miranda, President of

Regardless of lobbying efforts, the public sector in Mexico

the Mexican Association of Intelligent and Sustainable

tends to have a much slower learning curve than the

Building (IMEI), a nonprofit that provides training and

private sector. IMEI has developed a good relationship with

education related to sustainable construction, says

CONUEE through the years and looks to continue creating

cultural and regulatory barriers still exist. “Even though the

strong bonds with other government entities. “Although

country’s regulatory framework is strong, there are many

CONUEE has responded positively, it has not been as fast

regulations that are not obligatory and therefore remain

as we would like it to be,” Miranda says. “We strongly believe

recommendations for the industry,” he says.

that professionalizing the sector, especially when it comes to installation services, will be a breakthrough for energy

Although many sustainable practices are not mandatory,

efficiency in all types of projects.” He points out that there are

the private sector is quickly adapting these norms into

many cases where the design and development of a project

their projects and continue pushing not only the quality

follows all the steps necessary to be sustainable, but when

of their developments but of the industry as a whole. IMEI

it comes down to the small operations such as installation

works closely with lawyers, consultants, developers and

of cables, processes are not carried out correctly and this

other industry players to accelerate the professionalization

generates problems in the project’s path to sustainability.

of the sector, to act as the role models for the country. “After enjoying many success stories in implementing these

Traditional energy consumption in buildings brings to mind

norms, we can then go to the government and demonstrate

air conditioning and lighting but Miranda points out that

the positive impact that it has not only on the sector, but

there are new high-consumption sources in the form of cell

on the entire population,” says Miranda.

phones, computers and tablets. “Miscellaneous objects are now exceeding the consumption of lighting, especially after

Sustainability may not be mandatory in legislation but

the incorporation of LED products,” he says. “We never

Miranda says many developers are beginning to feel

considered these objects before because they were not

pressure from their private sector counterparts, especially

as common. Servers, printers and even kitchens are other

as transnational companies continue to enter the country.

elements that exist in most buildings and cannot be turned

“JLL, CBRE and others are now demanding that buildings

off, while items such as air conditioning can be controlled

comply with sustainable characteristics before selling or

to save energy.”

leasing the assets,” he says. “Certifications such as LEED, EDGE and BREAM will continue to push and incentivize

Raising awareness among the Mexican population could

new players entering the market in the coming years to

play a significant role in saving energy, especially due

serve these niches.”

to the new consumption and building trends. “These new urban ecosystems brought together by coworking

Acting as almost a bridge between the public and private,

spaces concentrate large numbers of people and energy

IMEI belongs to a chapter of BOMA Mexico that is continuing

consumption will only increase from here. We must educate

to lobby for the implementation of sustainable norms in the

the country to truly impact the sector,” he says, adding that

country. Miranda says this high-level coordination is required

progress is being made, although not nearly enough. “There

to ensure the industry grows evenly. “We want the market

is a positive trend to follow sustainability and the technology

to grow in a uniform manner so that services and products

exists in the market, but the problem is that it is being

are professionalized along with it,” he says. “Together we

underused due to a lack of culture and professionalization.”

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Angel of Independence, Reforma Avenue, Mexico City

INSIGHT |

DISRUPTIVE FINANCIAL TOOLS TO BOOST MARKET JORGE CABALLERO Head of Real Estate, KPMG in Mexico

Mexico’s real estate market, whether commercial, residential

issue these financial instruments. “At the moment, there

or corporate, appears to be on track to a promising

is a significant pipeline of CKDs that are close to IPO, but

future, thanks in part to disruptive financial tools that are

we believe the market will behave similar to the way it did

underpinning the sector. “There is no bubble forming in

during the 2016 US presidential elections. At first, there

Mexico, at least from the real estate perspective,” says Jorge

was a decrease in investment and, once the results were

Caballero, Head of Real Estate at KPMG in Mexico. “Funding

revealed, the projects resumed in 2Q17. The impact was

and institutional investors continue to mature, especially

temporary, companies slowed their investments and were

with the introduction of CKDs and Fibras into the BMV. Now,

more cautious. The market realized that there was no

more real estate assets are owned by private institutions or

imminent risk and continued with their projects.”

investors, both national and international.” The interest is there, primarily among US and Canadian Fibras, CKDs, CerPIs and Fibra Es are encouraging Afores to

funds, says Caballero. Changes in political administrations

diversify their investment portfolios and venture into new

often bring challenges for all players throughout the

sectors. “Afores are playing a larger role and they want to

infrastructure industry. For real estate developers in

expand their limitations of how much they can invest in

particular changes in legislation could pose a hurdle. “The

properties, nationally and internationally,” says Caballero.

local legislation surrounding parking lots for instance has created a grey area around mixed-use projects,” Caballero

Since CKDs emerged in 2009, Afores have participated in

says. “Assets have a designated number of parking lots

78 CKDs and one CerPI with an investment of more than

depending on whether they are housing, commercial,

MX$159.9 billion as of February 2018. With the announcement

tourism or corporate developments; however, there is no

that CerPIs can be used for international investment, the

legislation for mixed-use projects.”

participation of foreign investors is expected to increase. Caballero explains that US and Canadian pension funds that

Housing appears to be whetting investor appetite the most.

are investing in Mexico are granted tax benefits and that in

According to Caballero, a number of investors are trying

the near future, Afores will be able to invest in international

to introduce a new type of housing asset: rental housing.

assets. Some funds are taking advantage of the various

Developers are paying close attention to the changing

opportunities the market is offering, especially in real estate

generations and understand that they want to live, work and

and infrastructure development.

relax in the same area and are not looking for mortgages. “One asset with a lot of potential is rental housing in cities.

“The need for investors to gain capital through Afores

In other markets such as the US and Singapore, people

is huge,” he says. But Mexico must make sure that its

are more often choosing apartments and condos in the

macroeconomic conditions are favorable for investors.

city over traditional housing to avoid traffic and to increase

Interest rates have jumped from 2 percent when these

efficiency in their everyday activities,” Caballero says.

instruments were released, to 7 percent in 2018. “It could get to a point where investors will question whether they

Disruption in the financial market for infrastructure

should put their money in a secure instrument where

development is positive for the sector but it must be

they have 7 percent return, or on an attractive but risky

complemented by disruption in related sectors to make

investment.”

these initiatives truly successful. “We are seeing new asset classes but there are no loans for these new assets, such

One wrench in the machinery is the uncertainty created by

as rental housing. Because the returns and structures of

NAFTA renegotiations and the aftermath of the presidential

these types of projects are different, existing standards and

elections in Mexico, which have made it more difficult to

products do not always apply,” he says.

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| INSIGHT

CERTIFICATION, PERFORMANCE AND ENFORCEMENT TO RAISE SUSTAINABILITY STANDARDS CÉSAR TREVIÑO CEO and Founder of Bioconstrucción y Energía Alternativa (BEA)

Mexico has come a long way in terms of pushing for

hospital projects,” he says. “But there is growing interest

sustainability but although there are more LEED buildings

from public institutions to incorporate more sustainable

and other certifications, Mexican regulation is still catching

practices in social infrastructure.”

up to international standards, says César Treviño, CEO of

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Bioconstruccion y Energia Alternativa (BEA). “In the 16 years

Just like in large infrastructure projects, Treviño says that

that we have been in the market, we have yet to see a project

the greatest challenge is in providing continuity to the

in Mexico where the official Mexican energy efficiency and

strategic sustainable plans across political terms. “We have

environmental impact code is more demanding than the

worked in projects where there are political changes in the

international best practices of LEED,” he says.

planning and development stages and it drastically alters the goal, dynamic and final outcomes of the project,” he

Mexico’s first certification was in 2005 and in 2015 the

says. “But there are better practices in terms of project

country had 139 LEED-certified buildings. By the end of

management and planning. We need to implement these

2017, Mexico had more than 305 LEED-certified buildings,

improved methodologies in public works.”

totaling over 5.16 million m of space. But Treviño says an 2

extra boost is needed, and only the government can provide

To encourage the public sector’s adoption of sustainable

it. In Mexico, the Voluntary Certification Standards are

practices, Treviño believes that the development of

based on additional fulfilment going beyond the minimum

specialized teams would help. “Depending on the type of

requirements. In the case of LEED, it requires developers

project, public institutions should have an in-house team with

to comply with various international energy efficiency

professional capacity to carry out the technical supervision

standards. If the local standard is equal or superior to its

of critical projects,” he says. “For a particularly large project

international counterpart, the local one can be used. Treviño

like a hospital or airport, the government can subcontract

explains that this is never the case and that LEED-seeking

these processes because it does not have the staff.”

projects continuously refer to international standards. Sustainability and related certifications in particular are not In a way, this scenario has also boosted the attractiveness

yet mainstream in Mexico but Treviño explains that recently

of LEED certifications among developers. Treviño explains

they have been adopted in unprecedented numbers. “Since

that it allows developers to truly differentiate their projects

green building is not obligatory for real estate projects,

in the market as they go above and beyond local regulations

many developers saw it as an effective differentiation tool,”

and do things differently. Treviño believes the public sector

he says. “The sector is at a stage where it is shaping its

will also come around in the near future. “We anticipate that

technical abilities for the market and breaking the status

the companies adhering to international standards will begin

quo, providing more value to sustainability practices and

to demand more from Mexican norms,” he says. “In the next

monetizing the results.”

few years, standards will be raised in terms of sustainability and voluntary certification requirements will also increase.”

There is hope for the widespread use of certifications in Mexico and Latin America, even though some are not as fast

Traditionally, the private sector is quicker to innovate and

to catch on as others. EDGE for instance has had a slower

adapt new technologies and sustainability practices. Despite

market penetration but Treviño says the possibilities it

the push from private sector investors and developers, the

offers will help it take off among private sector companies.

public sector still has room to grow. According to Treviño,

“There is a healthy market balance between world-class

90 percent of the projects BEA participates in are private

certifications, the increase in commercial performance and

sector and only 10 percent public sector. “At the moment we

the enforcement of basic national standards that will raise

have seldom participated in public transport, schools and

the bar in the country’s sustainability standings,” he says.

INSIGHT |

SUSTAINABILITY: NOT JUST GREEN MARKETING, BUT AN INVESTMENT STRATEGY LOURDES SALINAS Director General of THREE Environmental Consulting

Mexico’s mindset regarding sustainability is changing for

as Distrito Tec, which is being carried out by ITESM, push

the better but there are still gray areas as developers come

for the construction of sustainable buildings and bolster

to grips with just what it means to create a sustainable

the involvement of communities in infrastructure projects

project. “Sustainability can be seen simply as a label that

to generate greater value.

one can place on a building or as a marketing strategy,” says Lourdes Salinas, Director General of THREE Environmental

Salinas says one of the toughest sectors in Mexico’s

Consulting. “On the other hand, if carried out in the right way,

real estate is social housing due to restricted budgets,

with the right studies and analysis, it will give developers

specifications and locations. THREE Environmental

greater added value and a return on their investment.”

Consulting has participated in research alongside the Association of Companies for Energy Savings in

THREE Environmental Consulting’s goal is to support

Construction (AEAEE), where together they studied 14

developers in the creation of projects that focus on the most

cities with high population growth and different bioclimatic

cost-effective strategies within sustainability consulting and

characteristics to identify the best ways to increase comfort

LEED certification. “THREE Environmental Consulting carries

and reduce energy consumption in social housing.

out a series of numerical studies using computer programs to precisely measure the results each sustainability or

Later, in collaboration with IDB, KfW and SHF, THREE

architectural strategy would generate,” Salinas explains. “It

Environmental Consulting participated in the evaluation of

is important that any strategy implemented is not simply

energy consumption, humidity, and temperature with real-

aesthetic or subjective, but that it actually has numbers to

time sensors for EcoCasa housing, a federal program that

back up the investment. When developers see these results,

provides credit to developers that incorporate sustainable

that is when sustainability stops being a trend and becomes

technologies and practices in their projects. “Through this

a replicable investment strategy.”

project, we identified that in many cases, the problem is not energy consumption, but occupant comfort in social housing,”

One size does not necessarily fit all, which is why it is crucial

Salinas says. “Comfort levels vary greatly depending on how

to carry out the proper studies before implementing a

the house is used by each family, so comfort can be improved

strategy. “Not all sectors or projects are the same and it is

through education and community security.”

our job to be creative and find the unique characteristics that can increase the value of each product,” Salinas

One of the main issues the firm has identified is that it is

says. She stresses the importance of not only taking into

common in Mexico to have the subcontractor generating

consideration the space and environment, but also the

the design and engineering for a certain system also

habits of the people that will inhabit that space. “Developing

selling and installing the equipment. This is uncommon

best-fit solutions for residential real estate is far more

internationally; it means the same company providing

complex due to the variety of uses the space can have, as

the engineering solutions also provides the technology

opposed to commercial real estate, which tends to have

and systems, and without generalizing, this may adhere

standardized schedules and uses.”

to the most convenient low-cost and fast-turnaround metrics for the designer but fail to consider quality or

THREE Environmental Consulting has experience working

energy efficiency for the project. “The ideal situation is

on commercial and residential real estate, which includes

where a specialized engineering firm focuses on the most

many corporate, housing and mixed-use projects in

cost-effective, energy efficient design and a specialized

Monterrey and other cities across Mexico and the US.

construction company carries out an adequate installation;

Salinas identifies Monterrey as a city that is experiencing a

this is the recommended way to assure the best interests

strong push forward in sustainability. Urban projects such

of any project.”

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| INSIGHT

SMART CERTIFICATIONS FOR EVERY MARKET NICHE DAVID DOMÍNGUEZ Founder and CEO of 3Lotus Consulting Mexico

Just like finding the right shoe to fit Cinderella, developers

is elite and represents 30 percent of global infrastructure

must ensure they choose the correct certification for their

developers. “EDGE, on the other hand, is a tool that seeks

project. LEED, BREEAM, SITES, TRUE, EDGE – each has its

to serve the remaining 70 percent through a mass market

own scope and impact. It is a matter of finding the right one

transformation,” he explains. The latter is simpler, cheaper and

for every market niche, says David Domínguez, Founder and

faster to obtain, as it does not have the same scope of the

CEO of 3Lotus Consulting Mexico. Sometimes, however, the

other certifications. But he stresses that the certifications do

top option is not always the best fit.

not compete. Instead, each has a specific feature that makes it the best fit for a particular project. “For example, in Mexico,

286

In the end it comes down to priorities. LEED aim for net-zero

the cost of LEED is too high for hospitals, hotels and the

energy consumption, while EDGE focuses more on resources

housing market,” he says. “Other certifications, such as EDGE,

and simple sustainability. At the top of the pyramid, the Living

can bridge this gap.”

Community Challenge (LCC) targets a symbiotic relationship between all aspects of the environment and people. “The

This raises an important issue: green building must also

most demanding is the Living Building Challenge, followed

meet developers’ budgets. Constructing sustainably can

by Regenerative Design,” Domínguez explains. “LEED is on

be more expensive at the beginning, as the market needs

par with SITES and TRUE.”

to adapt its regulations, permits processes and materials to certifications’ requirements. Domínguez believes that, at the

Despite LCC setting the course that all sustainable buildings

moment, sustainable building can increase project costs by

should follow, it is still hard for Mexican metropolises to comply

5-10 percent, but many developments have seen the benefits

with all its waste, energy and water requirements. “LCC is

of building green without their costs going up. “We also need

the best option for new developments and its principles

incentives because if it is more expensive to build sustainably,

should be adopted in existing buildings where possible,” says

developers typically will not do it,” he says.

Domínguez. “But it is key to acknowledge that it is not always going to be viable and that other certifications may fit certain

In general terms, Domínguez believes these costs can be

projects better.”

divided in three. One is the money paid to the US Green Building Council for the certification, which for large projects

3Lotus Consulting Mexico has advised several projects on how

can reach US$30,000. The second cost is market-driven

to achieve LLC, but it is so restrictive that so far, no skyscraper

and considers all the consultants required for obtaining the

has obtained the certification in the world. “The available

certification. The remaining costs are allocated to all the

technology in Mexico is good, but compliance with this

extras the developer must incorporate to comply with the

certification’s requirements is still difficult,” Domínguez says.

certifications, such as special materials. “Developers need to

Given how much of a challenge it can be for big constructions

undergo a decision-making process to choose which materials

to achieve net-zero energy, water and waste; LCC currently fits

to use,” says Domínguez. “According to estimates, materials

residential real estate better. “In my opinion, residential is the

can increase costs between 3-5 percent.”

right way to go,” he says. “But in cities like Mexico City, with such a high resource-consumption rate, it is more challenging.”

Materials could also be the key for what Domínguez believes is the ultimate solution for building sustainability: energy

Given LCC’s complexity, LEED has been the certification with

consumption. “Facades can be the solution to 60-70 percent

greatest market penetration, making Mexico the LEED leader

to all energy problems,” he says. “A good facade with the right

in Latin America. Despite its popularity with certain projects,

material and proper building orientation that manages natural

Domínguez believes that LEED and the other certifications

light can save a lot of money on air conditioning and lighting,

at a similar impact level answer to a market that sometimes

increasing energy efficiency.”

INSIGHT |

INNOVATION KEY FOR PROJECT MANAGEMENT SUCCESS ANTONIO VILLARREAL Director General of Axioma

As the Mexican construction industry continues to evolve,

roots to new markets across the country and to gain the trust

the demand for qualified project managers increases,

of many small, medium and large developers. Axioma has

and along with that comes competition. Because project

participated in projects such as Saqqara Residential tower in

managers do not sell a product but services, Antonio

Monterrey, Sukarne plant in Durango, CFRSO Ramos Arzipe

Villarreal, Director General of Axioma, says that the key

with Black Rock and the platforms for BMW plant with

factor that will differentiate project management companies in the future is their ability to innovate. “According to KPMG, 49 percent of Mexican companies will have at least one project fail. In construction, a successful project is measured by its timely completion, within budget and that it meets the client's expectations. This fast-evolving economy demands continuous innovation,” he explains. Innovation in construction can be achieved through the improvement of products, processes, construction systems

“ Artha Capital.

In construction, a successful project is measured by its timely completion, within budget and that it meets the client's expectations”

and designs and according to Villarreal, developers and investors are becoming more demanding in terms of

Although there are many advantages to innovating, it is

construction quality, times and, of course, lower costs

not always easy to do, says Villarreal. “The main challenges

with higher returns. Villarreal believes the potential of the

companies face when approaching innovation is the lack of

Mexican construction industry is immense and that each

information and knowledge,” he says. “Axioma integrates

year more investors choose to place their money in Mexico.

project management strategies from other industries

According to INEGI, in 2Q18 FDI increased 14 percent in

and adapts those to the current situation. We use lean

comparison to the previous year, despite the cloud of

construction, design thinking and other strategies to

uncertainty generated by the presidential elections and

promote innovation internally.”

the NAFTA renegotiation. The construction sector itself demands the integration of One of the most alluring sectors for investors has been

technologies such as BIM to ensure projects run smoothly.

the Mexican real estate market and he says it is important

These technologies are the right hand of any project

that companies innovate through continuous improvement

manager. Human capital also is extremely important to

and creativity. “Mexico invests less than 1 percent of GDP

determine success in the construction sector and, according

in innovation while the international standard is 2 percent.

to Villarreal, there are many challenges ahead for project

Axioma is trying to break the mold and constantly invest a

management players.

percentage of its earnings in innovation,” Villarreal explains. “But we are aware that innovation in the construction industry

“There is a bright future ahead for the Mexican construction

is a long-term process and it requires a great deal of work.”

industry and a great deal to learn. Yet there are many things for which we can provide better solutions and improve,” he

When asked to define a successful project management

says. “The construction industry continues to be dominated

firm, Villarreal says that it must understand the business

by large companies that often make it difficult for smaller-

of its client to fully understand how to manage it. This

sized companies to keep up. This makes the retention of

philosophy has helped Axioma expand from its Monterrey

human capital even more challenging.”

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| INSIGHT

COLLABORATIVE LEARNING FOR IMPROVED URBAN PLANING FINA MOISÉS Director of Urban Land Institute (ULI) Mexico

Mexico has typically overlooked urban planning but a little

administrations. “We want to carry out more TAPs with

education could go a long way to improving the landscape

greater participation from the authorities.”

going forward, says Fina Moisés, the Director of Urban Land Institute Mexico. She adds that the best urban planning is

But Mexico’s gap in education needs to be addressed

rooted in knowledge-sharing between governments, industry

through multiple strategies in which TAPs and YLG are only

and academia. “Collaborative learning may be the key to

two pieces of the puzzle. Technology is one way Moisés says

educate Mexicans on improved urban planning,” Moisés says.

the country can learn to better integrate urban planning.

“Our mission is communication, information and education.”

But while new technologies contribute to create public spaces, it is vital to inform the users on how to use them

288

ULI, an expert in the responsible and sustainable use of

safely. For example, the public needs basic training on the

land, brings infrastructure experts together to share their

use of public transport, such as biking systems.

knowledge on how to build the best infrastructure that cities need but it also educates young people through mentorship

To further address cities’ mobility issues, the industry wants to

programs. One of the organization’s core initiatives to

provide mass public transport systems, such as new Metrobús

foster collaborative learning is the Young Leaders Group

lines. In metropolises that often never sleep, with people in the

(YLG). This involves a team of professionals under 35 years

street at all times, safe public transport solutions working at all

old immersed in mentorship programs with groups of six

times are required, Moisés says. “I have seen positive changes

people mentored by an industry leader. “This allows new

regarding transport and the creation and rehabilitation of

generations to immerse themselves in the knowledge of

public spaces but we still have a lot to do.”

“

experts,” Moisés says.

Collaborative learning may be the key to educate Mexicans on improved urban planning. Our mission is communication, information and education”

Education and mobility are two pieces of the puzzle but Moisés says this should not be the only focus. The growth of secondary cities should be fostered to alleviate the pressure from the biggest urban centers like Mexico City, Monterrey and Guadalajara. Moisés gives the example of the US and Europe boosting secondary cities where people can still access opportunities. “Fostering gentrification of secondary cities must stem from urban planning,” she says. That being said, Moisés acknowledges Mexico is learning from other countries’ best urban planning practices. “I think we are moving in the right direction and it is our mission to foster this trend,” she says.

Technical Assistance Panels (TAPs) are another component of ULI’s legacy and Advisory Services Programs. Its goal is to

Moisés adds that the gentrification trend implies urban

solve real urbanism cases through the collaboration of both

planning for emerging sustainable cities. With ever more

authorities and industry experts. “TAPs have significantly

people living in urban areas, cities are experiencing a

helped in the rehabilitation of cities,” Moisés says. These are

population boom that calls for new building techniques.

run and implemented by ULI’s local district councils. These

“The use of land is being concentrated and mixed-

councils select the panelists who will collaborate in working

use projects are setting the trend for real estate

sessions to address land-use challenges. In Mexico, the first

infrastructure,” she says. “Construction is shifting to

TAP took place in Tijuana in June 2013. Moisés wants to

verticalization, as the industry aim to make the best use

continue promoting the program across new governmental

of land and natural resources.”

VIEW FROM THE TOP |

ANALYZING THE CONSTITUTIONALITY OF TAXES FRANCISCO GONZĂ LEZ Partner at Constitucionalistas Mexicanos

Q: How can real estate developers better manage the due

paid in accordance with the amount of land developed, and

diligence aspects of their projects?

this can reach up to 10 percent, both for commercial and

A: There are several factors to take into account. Regarding

residential projects. This is one example of a tax that we

legal certainty, institutions have been proven to have a

address from the beginning, because to lose 10 percent of

certain degree of corruption, which causes the industry

the land beforehand is very harmful.

to be more cautious with due diligence, elevating project costs. Also, the fiscal burden for the construction industry

The day-to-day work of our firm is to contest construction

is growing extensively as Mexico City is imposing new taxes

taxes; of the taxes paid by a developer, up to 90 percent are

and other states are replicating this, affecting the feasibility

unconstitutional. Very few developers are aware of this, and

of several projects.

of those that are aware, even fewer launch dispute actions against the authorities. This requires extensive explanation to

Our firm aims to encourage the analysis of the

the clients so they can better understand which institutions

constitutionality of taxes. A great part of the fiscal costs

are involved in the process.

of a project can be recuperated, but about 70 percent of developers are clueless about this. As for the execution

Q: How do you reduce a developerâ&#x20AC;&#x2122;s project costs through

of the project, I advise my clients to really comply with

legal strategies?

applicable law. In a hurry to construct quickly, developers

A: We must ensure that normativity is being complied with;

often overlook procedures and end up being shut down.

it is not viable to build an industrial park in a residential

A great deal of the litigation we solve could have been

area or to build a 60-story building in an area with heights

prevented by complying with due diligence.

restricted to 30 stories. The key is to draft the executive plan according to the land regulations and always be very

Our clients are mainly Fibras, real estate developers and

clear so the developer understands the legal constraints.

multinational supermarket chains across Mexico. Some are afraid to contest taxes, which often enables abuse by the

To reduce land costs, it is important to have a thorough

authorities. The best way to prevent any corrupt practices

negotiation process with the ejido. The first owner after the

is to ensure the project is within the legal framework and

ejido is not subject to taxes, which can mean a significant

complies with all procedures. If the developer falters at any

cost-savings for the developer. Our goal is to conclude the

stage, it is going to increase times and costs of projects.

first transaction to avoid this tax. In cases when the first-

Carrying out thorough due diligence allows developers to

ownership premise is not applicable, it is a good strategy to

contest any possible objection to the project from a legal

make the landowner a partner of the project to avoid taxes

standpoint without giving way to bribes.

over immovable property and income tax. How much we can reduce costs depends on the type of project. For example,

Q: How can real estate developers better contest and

for a commercial real estate development, such as a shopping

manage the tax-burden of their projects?

mall, taxes represent 12-15 percent of total costs. We have

A: There are two paths for fighting an excessive fiscal

been able to retrieve up to 90 percent of these taxes and our

burden. The first is how to structure the business to pay

clients end up paying only around 3 percent of project costs.

a lower amount of taxes without resorting to adversarial dispute settlement. The second relates to the land acquisition process as there are several notarial and

Constitucionalistas Mexicanos is a law firm specialized in

procedural strategies to reduce times and costs. There

the design of strategies to counsel real estate developers

are some taxes that must be contested from the very

on the due diligence of their projects to reduce their fiscal

beginning of projects. For example, certain taxes must be

burdens

289

| ACRONYMS AFDZEE

Federal Authority for Special Economic

INFONAVIT

Zones

Instite for the National Housing Fund for Workers

Afore

Mexican Pension Funds

IIoT

Industrial Internet of Things

AICM

Mexico City International Airport

IoT

Internet of Things

AMEFI

Mexican Fibra Association

IPGH

Pan-American Institute of History and

BIM

Building Information Modelling

BMV

Mexican Stock Exchange

IPR

Initial Project Reviews

ISSTE

State’s Employees’ Social Security and

Geography

BOT

Build, Operate, Transfer

CAPUFE

Federal Roads and Bridges

CBFI

Real Estate Stock Certificates

LFZEE

Federal Law for Special Economic Zones

CEPAL

Economic Commission for Latin America

MLP

Master Limited Partnerships

and the Caribbean

MTS

Mass Transportation System

CERPI

Investment Project Stock Certificates

NAFTA

North America Trade Agreement

CETRAM

Mexico City Modal Transport Centers

NAIM

New Mexico International Airport

CFE

Federal Energy Commission

NIP

National Infrastructure Program

CIEN

Certificate for National Educational

NOM

Mexican Official Norm

Infrastructure

OECD

Organization for Economic Development

Industry

PCAs

Property Condition Assessments

CNBV

National Banking and Stock Commission

PMO

Project Manager Officer

Compranet

Mexico’s electronic procurement system

PPP

Public Private Partnership

National Council of Science and

R&D

Research and Development

Technology

ROI

Return on Investment

CMIC

CONACYT

Social Services Institute

Mexican Chamber of the Construction

and Cooperation

CONAGUA

National Water Commission

ROW

Right of Way

CONAVI

National Housing Commission

SAT

Revenue Service

CONSAR

National Commission for the Retirement

SCT

Ministry of Communications and Transport

Savings System

SEDATU

Ministry of Agricultural, Urban and

COPARMEX

Mexican Employers Association

CRM

Construction Risk Management

DBO

Design, Build, Operate

Ejido

Area of communal land

EPC

Engineering, Procurement and

Territorial Development SEDUVI

Ministry of Urban and Housing

SEMARNAT

Ministry of the Environment and Natural

Construction

SHCP

Ministry of Finance and Public Credit

Fibra

Mexican Real Estate Investment Trust

SHF

Federal Mortgage Society

Fibra E

Mexican Real Estate Investment Trust for

SME

Small and Medium Enterprises

the Energy and Infrastructure Sectors

TDD

Technical Due Diligence

GACM

Grupo Aeroportuario de la Ciudad de

UNAM

National Autonomous University of Mexico

Mexico

USMCA

United States-Mexico-Canada Agreement

GLA

Gross Leasable Area

USP

Unsolicited Proposal

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

ZMG

Guadalajara Metropolitan Area

INEGI

National Institute of Statistics and

ZMM

Monterrey Metropolitan Area

Geography

ZMVM

Valley of Mexico Metropolitan Area

Development Resources

INFOGRAPHICS & MAPS | 40-41

A Strategic Water Overview

62-63

Mobility, A Work in Progress

76-77

One of its Kind: Deploying the Shared Network

206-207 Designing a Mixed-Use Skyline 234-235 Location, Location, Location 250-251 EPN Infrastructure Government Commitments 2013-2018 266-267 Development Through Capital, Debt Markets

PROYECTS & TREND SPOTLIGHTS | 83

Trend Spotlight: Smarten Up: Mexico Lags in Smart Rankings

106-107 Project Spotlight: Reshaping the Visuals of the Santa Maria District - Naranjo Arquitectos 182-183 Project Spotlight: A New Way to Live in Guadalajara - Greystar 190-191

Company Spotlight: Real Estate Giant Highlights Demonstrated Ability to Adapt

198-199 Project Spotlight: Recinto Escandón

ADVERTISING INDEX | 6

Mexico Business Publishing

20 AMDETUR 36

Mexico Energy Forum

43 O-tek 54 WRI 74

Mexico Business Events

Guardian Glass

Danpal Mexico

110 NOVIDESA 118 SUMe 152 MISS19 157

Grupo TADCO

168

ATCO México

176

Greystar Mexico

202

Reforma 180

210

Reichmann International

218

Colliers International Mexico

228 IMEI 233

Johnson Controls

246 CMIC 260

Mexico Business Communication

278

Inmobiliare - B2B Media

| INDEX 3-I 3Lotus Consulting Mexico 286

Danpal Mexico 122

Acciona Infraestructuras 149, 154, 155

Deloitte 192

Aceros Metalli 130

DiDi Chuxing 62

ADCOMA 128

DIOCSA 194

AECOM 160

dormakaba 130-131

Alba Proyecto Estructural 166

Durango Ministry of Economy 29

Allied Wireless and National Fiber Networks Mexico 91

Easy 62

American Industries 231, 235, 237

Econduce 62, 63

ANEAS 22, 38, 39

Fibra Danhos 146, 204, 208, 267

API Altamira 257

Fibra Uno 9, 114, 149, 205, 263, 267

API Tampico 256

Fitch Ratings 134, 268

Aqualia 46

Fluence 50-51

Ares Arquitectos 96, 101, 204

FOA Consulting 13, 135, 145, 154

ATCO 169

FR-EE 98-99

AutoTraffic 67

Garvi Grupo Inmobiliario 195

Avison Young 223

Gava Capital 178, 189

Axioma 287

General Paint 131

Ayesa 162

GFA 179, 221

Ballesteros y Mureddu 8, 69

GLR Arquitectos 111

Banco Inmobiliario Mexicano 271

GM Capital 130, 216

Banregio 193, 265

Greystar 9, 178, 180-181, 166

Belden 87

Grupo Acerta 193

Bentley Systems 88

Grupo Cementos de Chihuahua 125, 248

BIM 85, 108, 156, 165, 165, 173, 173

GRUPO CONSTRULITA 114

Bioconstrucción y Energía Alternativa 243, 284

Grupo Financiero Banorte 264

BMV 10, 14, 136, 147, 189, 263, 267, 272, 283, 156

Grupo IDESA 123

Brickwalling 243

Grupo Inmobiliario CUBE 242

Cabify 62

Grupo LAR 184

CAF 53, 56, 60-61, 73, 175

Grupo Momentum 225

CallisonRTKL 97

Grupo Plate 218

Campeche 25, 143, 162

Grupo SACMAG 147, 157, 161

Carza 188, 267

Grupo Tadco 156-157, 161

Caterpillar 120, 128

Grupo VEQ 196

CBRE 113, 214, 281

Guanajuato 24, 29, 185, 220, 224, 237

CENAGAS 235

Guardian Glass 121

CFE 234

Guerrero Ministry of Economy 33

Clear Channel International 81

GVA 71

CMIC 9-10, 12, 30, 31, 33, 139, 140, 144, 151, 164

Herman Miller 113

CMIC Queretaro 30

HH & Asociados 32

CMIC San Luis Potosi 31

Hill International 168

Colliers International 113, 216, 219

Holland & Knight 86, 148

CONAVI 9, 11, 30, 145, 175, 265, 290

HR Ratings 274

Consorcio IUYET 165

IMEI 281

Constitucionalistas Mexicanos 289

Iñaki Echeverria 96, 102

Consulta 222

Indra 80

Corev 115

INEGI 63

CREA 187

Ingeniería en Administración de Contratos 173

Credit Suisse 204, 266, 272

Interpuerto Monterrey 241

Cushman & Wakefield 113, 224, 230

INVERTI 221

INDEX J-Z | Jalisco 234

Serfimex 275

Johnson Controls 82

Shimizu 170

Jones Day 154, 273

Siemens 78

KCSM 241, 255

SITA 72, 83, 89

Kingspan 129, 238

spAce 108

KIVA 220

State of Mexico 63

KPMG 9, 16, 23, 135, 148, 154, 171, 234

SUEMA 48

Levy Holding 197

SUEZ Mexico 49

LOMA Desarrollos 217

Sustentabilidad para México 280

MABASA 129

Tamaulipas 26, 256, 257

Mac Arquitectos Consultores 112

Terrafina 230, 231, 235, 267

MACH Construye 186

Thor Urbana 179, 204, 209, 221, 242, 267

MANUEL TORRES DESIGN 110

THREE Environmental Consulting 285

Marhnos 82, 172

Transconsult 68

Mayer Hasbani 109

Uber 62, 63

Metrobús 62, 63

U-Calli 56, 178, 185

MEXTYPSA 252

ULMA Construction 127

Ministry of Economy of the State of Durango 145

UN-Habitat 17, 56, 67

Ministry of Mobility of the Municipality of Queretaro 58-59

Urban Land Institute Mexico 288

Miyamoto 167

Veolia 38, 44-45

Modutram 64

Vertiv 84

Moody’s 134, 269

Vesta 236

Naranjo Arquitectos 105, 107

VIDAL Arquitectos 104

NKF 240

Walmart 213

Nokia 79, 83, 147, 240

WRI Mexico 65

NOVIDESA 123

ZVA Group 100, 200

O’DONNELL 230, 239 OECD 15, 22, 41, 134, 139, 146, 249, 290 Orange Investments 181 O-tek 47 Owens Corning 124 PRODEMEX 82, 164 Prologis 10, 126, 226, 230, 232-233, 235, 267 ProMéxico 14, 42, 231, 236, 248 Prosperia 70 Proyectos 9 207, 215 Pulso Inmobiliario 207, 212, 275 Queretaro 234 Reichmann International 211, 230 Rizoma 85 ROADIS 80, 149, 154, 253 Robbins Mexico 163 SACMEX 38, 42-43, 44, 49 s*arc 103 Sacyr 158-159 Schindler 83, 90 SCT State Office Queretaro 28 SEMOVI 57, 60, 89 SENER 254, 294

| PHOTO CREDITS Cover

GM Capital

Inner Front Cover Grupo Hermes 4

67 AutoTraffic 68 Transconsult

Infraestructura

69 MBP

ZVA Group Mexico

70 Prosperia

11 MBP

72 SITA

12 MBP

78 Siemens

13 MBP

79 MBP

14 MBP

80 Indra

15 MBP

Clear Channel International

16 KPMG

Johnson Controls BTS Mexico

17 UN-Habitat

84 Danfoss

Alejandro Alvarez Etchegaray

85 MBP

Alejandro Alvarez Etchegaray

Government of the State of

87 MBP

Guanajuato

88 MBP

Government of the State

89 MBP

of Campeche

90 MBP

Government of the State of

25 26

Tamaulipas 27

Holland & Knight

Allied Wireless and National Fiber Networks Mexico

Ministry of Economic and Harbor

Development for the State

97 CallisonRTKL

of Veracruz

98 FR-EE

SCT State Office Queretaro

100

ZVA Group Mexico

29 MBP

101

Ares Arquitectos

CMIC Queretaro

102

Iñaki Echeverria

CMIC San Luis Potosi

103 MBP

Serrano Monjaraz

32 MBP

104

VIDAL Arquitectos

SEFODECO Guerrero

105

Naranjo Arquitectos

SUEZ Mexico

108 MBP

39 ANEAS

109

Mayer Hasbani

42 MBP

110

MANUEL TORRES DESIGN

44 MBP

111 MBP

45 Veolia

112 MBP

46 MBP

113 MBP

47 O-tek

114 MBP

48 MBP

115 MBP

116

Suez Mexico

Puerto Interior

50 MBP

120 MBP

Ministry of Mobility of the

121

Municipality of Queretaro

122 MBP

Guardian Glass

57 SEMOVI

123 MBP

Ministry of Mobility of the

124 MBP

Municipality of Queretaro

125 GCC

Ministry of Mobility of the

126 Prologis

Municipality of Queretaro

127 MBP

60 MBP

128 MBP

129 MBP

CAF México

64 MBP

130 MBP

WRI Mexico

131 MBP

Ministry of Mobility of the

132

Grupo Hermes Infraestructura

Municipality of Queretaro

138

Marcos González

PHOTO CREDITS | 143 GACM

220 MBP

144 MBP

221 MBP

145

MBP, CAF México

222 Consulta

146

SEFODECO Guerrero, Sara Warden, MBP

223 MBP

147

MBP, Grupo BMV

224

148

Holland & Knight, Alejandro Alvarez Etchegaray

225 MBP

149

MBP, SCT State Office Queretaro, FUNO

226 Prologis

Cushman & Wakefield

150 Prologis

231 Terrafina

155 MBP

232 Prologis

156 MBP

236 Vesta

158 SACYR

237

160 MBP

238 MBP

161 MBP

239 MBP

162 MBP

240 MBP

163 MBP

241 MBP

164 MBP

242 MBP

165 MBP

243 Brickwalling

166 MBP

244

167 MBP

249 MBP

169

252 MBP

ATCO México

American Industries

SEFODECO GUERRERO

171 KPMG

253 MBP

172 MBP

254 MBP

173

Ingeniería en Administración de Contratos

255 MBP

174

Oficina Adrián Llaguno

256 MBP

179 MBP

257 MBP

180 Greystar

258

BMV Group

181

263

BMV Group

Orange Investments

184 MBP

264 MBP

185 MBP

265 MBP

186 MBP

268 MBP

187 MBP

269 MBP

188 MBP

270

189 MBP

271 MBP

192 MBP

272

Credit Suisse Asset Management

193 MBP

273

Jones Day

194 MBP

274 MBP

195 MBP

275 MBP

196 MBP

276

197 MBP

280 MBP

200

281 MBP

ZVA Group Mexico

BMV Group

María Dolores Robles Martínez

205 MBP

282 MBP

209

283

Thor Urbana

KPMG in Mexico

211 MBP

284 BEA

212 MBP

285 MBP

213 MBP

286 MBP

214 MBP

287 MBP

215 MBP

288 MBP

216

289 MBP

GM Capital

217 MBP 218 MBP 219

Colliers International Mexico

Inner Back Cover Secretaria de Obras y Servicios, CDMX

| CREDITS SENIOR JOURNALIST & INDUSTRY ANALYST: Brenda Salas JOURNALIST & INDUSTRY ANALYST: Veronica Yepes EDITOR: Ricardo Guzmán SENIOR EDITORIAL MANAGER: Sara Warden EDITORIAL DIRECTOR: Mario Di Simine PUBLICATION COORDINATOR: Omar Martínez COMMERCIAL MANAGER: Bruna Brandão COMMERCIAL DIRECTOR: Jack Miller COLLABORATOR: Madina Kurbanova COLLABORATOR: Estefania Villavicencio COLABORATOR: Alejandro Salas COLLABORATOR: Luis Pesce GRAPHIC DESIGNER: Mónica López SENIOR GRAPHIC DESIGNER: Ailette Córdova DESIGN DIRECTOR: Marcos González WEB DEVELOPMENT: Omar Sánchez SOCIAL MEDIA COORDINATOR: Karen Sujo CIRCULATION MANAGER: Elizabeth Solís DIRECTOR GENERAL: Jeroen Posma

“A country that invests in infrastructure is investing in the development and the progress of its society” Enrique Peña Nieto, President

Mexico Infrastructure & Sustainability Review 2019

Articles inside

MSMEs PRIORITY FOR FUTURE DEVELOPMENT

A RICH FUTURE AHEAD FOR INFRASTRUCTURE INVESTORS

ROLLING TOWARD A CONNECTED, COMPETITIVE FUTURE

THE LOGIC BEHIND INDUSTRIAL FIBRAS

CREATING 21ST CENTURY TOWN SQUARES

FIBRAS READY TO INNOVATE AND CONTINUE GROWING

ENSURING INVESTMENT STAYS IN THE BAJIO

INTEGRATING URBAN PLANNING AND TRANSPORT FOR BETTER MOBILITY

THE EVERLASTING ESSENCE OF ARCHITECTURE

PUBLIC, PRIVATE INVESTMENT NECESSARY TO BOOST DEVELOPMENT