Equity Int'l sees now moment to invest in Brazil

By Herbert Lash

NEW YORK (Reuters) - Brazil is on the verge of disproving an old adage that it is perpetually the land of the future, the chief executive of realty investor Equity International said on Wednesday.

Gary Garrabrant said Brazil offers tremendous opportunities, citing the likelihood of an investment grade credit rating sooner than analysts think, low inflation and a growing middle class.

"We're going to be creative in Brazil because we're very bullish on the country," said Garrabrant at the Reuters Latin America Investment Summit. "It's the ideal time to invest in Brazil."

Special finance is an area where Equity International can use its debt investment techniques to an advantage, he said. For example, Garrabrant said it was difficult in Brazil to get a bead on the pricing of housing-related debt.

Brazil will follow Mexico in developing affordable housing and other areas related to real estate, such as special purpose companies for lending, which makes Garrabrant enthusiastic about the country and investment opportunities, he said.

Garrabrant said there will likely be a shake-out in the Brazilian home builder sector. It has 15 public home builders, perhaps double the number the market can bear, he said.

CLUB BRIC

Brazil's anemic growth rates in recent years have led some critics to wonder if the country deserves to be part of the BRIC, an acronym grouping Brazil with fast-growing Russia, India and China.

Garrabrant dismissed such talk, saying his firm had searched Russia for a partner to no avail and has not invested in India because of the immense regulation to negotiate to get projects off the ground.

But Garrabrant has found several partners in Brazil, and the company has invested in China, too. In Brazil, Equity International has stakes in home builder Gafisa SA (GFSA3.SA: Quote, Profile, Research, Stock Buzz), in shopping center operator BR Malls, which has filed to go public, and Bracor.

Garrabrant said that so many investors had inquired about Brazil as an investment destination that it was on the verge of being worrisome, as Equity International likes to operate where the playing field isn't too crowded.

"On a superficial level Brazil is hot. It's fashionable to be investing in Brazil," he said.

Garrabrant acknowledged problems exist in Brazil, such as double-digit bank lending rates. But rates are falling and a coveted investment grade rating might occur within two years, faster than a market consensus of two to three years, he said.

"Rates are still too high," he said. When rates fall they "generally don't happen in a straight line, and not as fast as they should."

However, Brazil's middle class is growing and the country's vast poor are about to gain affordable housing. Foreign investors have not missed that story, Garrabrant said.  Continued...