Since their inception in 2011, banks have been pivotal in the development and growth of Real Estate Investment Trusts (REITs), known as FIBRAs in Mexico. Their active involvement in structuring debt and financing has propelled the evolution and expansion of the commercial real estate market through these public and private investment vehicles, which represent around 21% of the Gross Leasable Area (GLA) of the commercial real estate market and about 4.5% of the national Gross Domestic Product (GDP).

In addition to issuing Real Estate Investment Trust Shares (CBFIs) to finance their operations and property acquisitions, FIBRAs have other vital avenues for capitalization or obtaining investment resources: bond debt and bank debt. These mechanisms allow them to access direct financing from financial institutions, providing greater flexibility and diversification in their capital sources.

According to SiiLA FIBRA Analytics, FIBRAs' total debt at the end of 2023 exceeded 247.2 billion pesos (or 13.9 billion dollars), equivalent to 29.5% of the total value of their real estate assets. Banks hold a 39% share of this debt, while stock market entities represent 61%. This distribution highlights an inclination towards financing through capital markets and reflects a multifaceted strategy to optimize FIBRAs capital structure, enabling them to drive their expansion and consolidate their position in the dynamic commercial real estate market.

It is also worth noting that 59.6% of FIBRAs' total debt is denominated in dollars, implying significant exposure to exchange rate fluctuations. This foreign currency financing strategy can offer advantages in terms of costs and credit conditions, but it also entails risks associated with currency volatility. Thus, debt management and risk hedging become crucial elements in FIBRAs' financial planning to maintain stability and sustain long-term growth in the real estate sector.

Banks as Creditors of FIBRAs

In the financial realm, it is essential to distinguish between bank debt and bond debt due to their different sources and financing mechanisms. Bank debt originates from banking institutions, including commercial banks, investment banks, and other financial entities that offer businesses and individuals loans, lines of credit, mortgages, and other forms of credit.

On the other hand, bond debt refers to financing raised through the issuance of debt instruments traded in capital markets. These instruments include corporate bonds, government bonds, notes, commercial paper, and other debt securities issued and sold to investors in the stock exchange or secondary markets. Issuers of these bonds can be governments, corporations, or municipal entities, while investors are typically financial institutions such as investment funds, pension funds, and insurance companies. Additionally, financial intermediaries, such as brokerage firms and investment banks, operate in this process, facilitating the issuance and trading of securities in the market.

Currently, about 30 banking institutions and financial entities hold 39% of the total debt of FIBRAs. Among these institutions, five banks possess 61% of the bank portion of the total debt of FIBRAs, amounting to almost 58.6 billion pesos (around 3.3 billion dollars). BBVA leads with 38% of this bank debt, reaching 36.6 billion pesos (2.1 billion dollars). Santander and Bancomext follow them with 7% and 6%, representing 6.5 and 6.3 billion pesos (about 0.4 billion dollars). Banorte also plays a significant role with another 6%, equivalent to 5.6 billion pesos (0.3 billion dollars), and Scotiabank holds 4% of the debt, amounting to nearly 3.7 billion pesos (0.2 billion dollars). These figures reflect the concentration of credits and these entities' influence on financing the FIBRA sector and, by extension, Mexico's commercial real estate market.

Continuing with the distribution of bank debt in FIBRAs, other players contribute to the financing composition. Citibank arises with a 3% contribution, translating to more than three billion pesos (almost 0.2 billion dollars), establishing itself as a significant financial agent in the market. Inbursa follows with a similar percentage, contributing 2.9 billion pesos (0.2 billion dollars). HSBC and Sabadell, each with 2%, collectively add around four billion pesos (more than 0.2 billion dollars) to FIBRAs' bank debt. Banco del Bajio participates with 1%, adding about 1.2 billion pesos. This diversified participation highlights the complexity and broad financial support base of FIBRAs in Mexico.

The remainder of FIBRAs' bank debt, 28%, is distributed among various smaller financial institutions, but no less significant. Bancoppel, Bancrea, Banco Ve Por Mas, and Banco Monex are among these contributors, each providing a share that, while smaller than the dominant banking entities, collectively constitutes essential support for the diversity and strength of financing in the sector. Though varying in size and scope, these institutions are vital components of the financial ecosystem supporting the stability and continued growth of FIBRAs.

This mosaic of Mexican real estate trust financiers underscores the diversity and breadth of confidence in the FIBRA model and its role in catalyzing commercial real estate development, thereby bolstering the Mexican economy. For more information on the performance and development of FIBRAs, explore SiiLA FIBRA Analytics or contact us at contacto@siila.com.mx.