The private equity industry is finally returning in real estate markets after a long recession, according to a report by consultants Ernst & Young Global Limited, in November 2013. They also said the real estate private equity sector is positioned for growth in 2014.
While private equity real estate funds are a relatively new market in many regions of Latin America, it was U.S. market conditions in the early 1990s that led to the creation of "opportunity" funds that took advantage of new development tracks and regions as well as falling property prices to acquire real estate assets at significant discounts. Private equity real estate has come to light as an independent asset class at the beginning of the 21st century and since has experienced tremendous growth.
In Costa Rica private equity real estate funds are getting attention. These funds are managed independent mutual fund asset companies who focus their collective capital on residential and commercial real estate projects. Currently there are 185 private equity funds listed in Costa Rica and 22 fund managers.
While typical private equity funds tend to have a high entry costs, new funds types in Costa Rica are offering low break-in thresholds of $1,500 to $10,000 and subsequently attracting many new and first time investors. This type of collective investment provides greater bargaining power to the management companies, and expands real estate investment options for investors.
In San Jose and surrounding cities in the Central Valley there has been steady growth in investment funds focused on commercial development such as strip plazas. This market has done exceptionally well in recent years but many experts are now saying the market is capping because growth was too fast. Experts are expecting a cooling period while current inventories are filled.
Residential development funds are just now seeing a focus with fund companies as more of them see growing potential in the residential rental markets for many areas in and outside the Central Valley.
Alajuela was recently confirmed as the fastest growing region in Costa Rica. Not only is it home to Costa Rica's main international airport, the country's largest manufacturing and technology industries are also located in Alajuela. Recent Foreign Direct Investment for further development, including a new Chinese industrial complex has caused an explosion of new growth further attracting the attention of Investment Fund and development companies.
As a result of this regional growth the entire Occidente (west) region of Alajuela has seen excellent growth, even through the global slowdown in recent years. The primary cities in Alajuela Occidente are, Grecia, Naranjo, Palmares and San Ramon all of which have seen steady growth both in commercial and residential developments. This growth has impacted the residential rental market in all of Occidente with extremely low inventories causing long waiting lists for housing rentals.
These low rental inventories in Alajuela Occidente as well as many other regions have now caught the eye of investment fund companies looking to expand their platforms from typical commercial projects to residential developments. Industry experts are predicting that Costa Rica will see a growing number of these fund companies entering the residential rental market as the country continues to improve its international profile as a destination of choice for business, investment, travel and living.