By TBY | Dominican Republic | Mar 09, 2017
Real Estate Investment Trusts (REITs) are securities similar to mutual funds that allow investors of different sizes to take an ownership share in real estate ventures. International investors drawn to […]
Real Estate Investment Trusts (REITs) are securities similar to mutual funds that allow investors of different sizes to take an ownership share in real estate ventures. International investors drawn to the Dominican Republic by its strong growth and investor-friendly political climate are utilizing these new securities to transform the real estate market, expanding the stock of rentable commercial and industrial space in Santo Domingo and other growing economic centers.
REITs came to the Dominican Republic in 2014 when the National Securities Council (NCS) approved a USD2.2. billion fund to be managed by Pioneer Investment Fund. Offered in four issues of DOP550 million with a maturity date of 10 years, the fund has the stated objective of investing 90% of its portfolio in real estate for rent in the corporate, industrial, commercial, and office sectors. Assigned a BBfa(N) rating upon its arrival in the market, the fund is made up of publicly offered shares valued at a DOP1,000, with a minimum investment of the same. The first management investment company to operate in the Dominican Republic, Pioneer Investment is a subsidiary of Panamanian firm Pioneer Holding. Pioneer developed this security because of the potential it saw in the market. It has previous experience bringing financial instruments to the Dominican market; in 2012, Pioneer’s United Domestic Fixed Income Fund was approved by the SNC, making it the first of its kind in the nation. It views REIT as an opportunity to offer liquid investment options to a broad range of investors, as the structure of REIT by definition creates a diversified background. REITs also are unique in that they provide tax incentives to investors while complying with the Dominican Republic’s financial transparency laws. Pioneer’s plan is to help democratize the real estate market, helping it diversify both geographically and culturally as a result of a strengthened credit market.
Other firms are taking the same path to create new opportunities for investors and the market. JMMB Group, one of the largest financial firms in the Caribbean, is opening a REIT through JMMB Sociedad Administradora de Fondos de Inversion SA (SAFI), a subsidiary recently established in the Dominican Republic. SAFI has USD393 million in funds under its management, and in August 2016 JMMB reported it had raised USD3 million through its REIT’s initial public offering. While based in Jamaica, JMMB has expanded its presence throughout the Caribbean, and executives see potential for the country to make up a far greater share of JMMB’s revenue than its current 8%. Like Pioneer, JMMB’s REIT will consist of a portfolio made up of corporate, commercial, and industrial real estate assets.
The rise in REITs can be traced to the Dominican Republic’s strong housing sector and the government policy that supports it. In May 2012, the Central Bank of the Dominican Republic (BCRD) enacted a series of measures to boost the availability of credit to the economy. Most significantly, it reduced the reserve requirements for Dominican banks, a move that increased total lending by USD489 million. The BCRD cited the real estate sector as a particular point of emphasis, announcing that one-quarter of the increase in lending funds was assigned to buyers of affordable housing, with another 5% earmarked for buyers of newly completed housing. Actions like these have helped the sector remain robust in an uneven economic environment over the past few years, with global interest in the island reaching new highs. The emergence of REITs should have a continued positive impact on the Dominican Republic’s resort and commercial housing industries, generating positive economic impacts that should present new opportunities for the market as a whole.