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MX23_RC_Softec_Gene

MEXICO - Real Estate & Construction

Eugene Towle

Managing Director, Softec

Bio

Eugene Towle has been Managing Partner of Softec since 1987 and is the founder of several companies in the real estate and high-tech sectors, including Hipotecaria Su Casita, Sand Inmuebles, and Mac Zone de México. He is an independent director of public and private companies in the real estate, hospitality, and financial sectors. He was marketing director of Apple de Mexico (1984-1987). He participated in the course Birth of Giants for the development of high-growth companies at the Massachusetts Institute of Technology. He has taught real estate marketing courses at ITAM, Universidad Iberoamericana, UNAM, and Universidad Anahuac since 1992 and has been a guest lecturer at Harvard and USC. Towle is a mechanical engineer with master’s degrees in mechanical engineering and business administration, all from Cornell University in Ithaca, New York.

"One of the things that we have seen in the last four years is a contraction in the start of new housing projects."

To better meet the immense demand for residential spaces, Softec is keen to become more customer centric and design spaces that truly meet their needs.

What reasons are behind Softec’s focus on residential projects?

The reason that we focus so much on residential is that in a given year between 5,000 and 6,000 new housing projects are evaluated for initiation or development. About 200 retail centers of different types, about 50 or 60 hotels 20 to 50 office buildings and five to 10 industrial parks are evaluated. So, the reason that we undertake mostly residential is that that is where the bulk of the development activity occurs, and if you look at the value of the Mexican industry in 2021, it was estimated at almost USD25 billion half of which was residential construction and the rest commercial real estate.

Why has Softec started to see a contraction in new housing projects?

One of the things that we have seen in the last four years is a contraction in the start of new housing projects. Real estate development is a capital-intensive business, and the capital to invest in buying land and to do the titling of projects has been limited, with investors wary about investing in this market. Yet, at the same time curiously, we have had the highest demand for new homes. The origination of new mortgages is at an all-time high, especially for homes in the middle and upper market. When the markets are expanding, developers tend to ignore their consumers and start building according to what is permitted, what the municipality allows in terms of density, type of product, and what is financeable by investors. The client seems to get sidelined. Many developers start to build a large volume of high-end project that are not focused on a specific client, which created the perception that the entire housing industry is over-supplied, which is not true. There is a tremendous scarcity of inventory, and new homes are becoming scarce. Mexico is a country with a relatively youthful population which translates into demand for a million new homes every year. And of 1 million homes, in the peak year of real estate development in 2006/2007, we built almost 600,000 of them. And in 2021, we did about 230,000, which amounts to 20% penetration of a million-unit market. This means we are not reading the market properly; so where then is the opportunity? The opportunity is precisely in reading the market properly and in finding the products that people need and want to buy, which means going back and doing your homework.

What are the main trends in the real estate market currently?

Our mantra is that you have to focus on your client and users’ needs. One very interesting thing is that we are re-centering to that idea to being more consumer centric. In housing, and residential, consumers are asking for high-speed internet, places where they or their children can study or work, and better balconies in apartments. The other thing they are asking for is adaptable spaces that can be used for different purposes at different times of the day. In the offices space, what we are finding is that offices are transforming. We will see a redefinition of spaces to have more meeting rooms, training rooms, places to meet with clients, and so forth, and there will be remote offices for different projects and so forth. Companies have to be careful about maintaining the esprit de corps, making sure that people know they are part of a team that will support them. Meanwhile, for hotels, we expect demand over the next 15 years to be between 260,000 to 300,000 new hotel rooms. Currently, we are at about 300,000 hotel rooms, and so the stock will probably double over the coming 15 years. In fact, what we have seen is that developers who began projects over the past two years of 2020-2021 are selling twice as fast, as those with older inventory.

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