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Germán Ahumada Russek

MEXICO - Real Estate & Construction

House of Sales

President, Consorcio ARA

Bio

Germán Ahumada Russek was born in 1944 in Mexico City. He attended Universidad Iberoamericana and studied Civil Engineering. In 1977, Russek and his brother founded Consorcio ARA. In 1996, the company was listed on the Bolsa Mexicana de Valores (BVM).

How will the government’s plan to build more low-income houses affect the industry and your business? At first, we were skeptical of its plan because it was not explained very […]

How will the government’s plan to build more low-income houses affect the industry and your business?

At first, we were skeptical of its plan because it was not explained very well. The government said we had two years to adapt to the new project. We have a lot of land available, but most of that land will be developed by us. We will be able to finish everything we have started, even if it is far away. We are changing the way we do things a little bit. The government does not tell us to build a type of home—we choose whatever we want. If you want subsidies, you have to do what the government wants, and do it within the price range that it specifies. We are not focusing on subsidies anymore because the only thing that is limited in the housing business is the amount of money that goes for subsidies. What has changed is that investors used to want growth. Now, they want us to generate free cash flow. You have to be very careful of how many projects you open and how much land you buy. You have to be concerned about free cash flow because that is an issue. Right now, we are looking into the possibility of opening a real estate investment trust (REIT) or selling the seven shopping centers and five strip malls we have.

How popular have REITs become, and where do the main investment opportunities lie?

Right now, it is a booming market. It was unthinkable three to five years ago. The government changed the tax laws making it possible to open REITs. We started building vertical homes many years ago. It was a challenge back then because people wanted the possibility to expand their homes at a later date. For many years, we would add an extension to the back part of the home and on top. That is how we worked for many years, until the authorities said we should start going vertical. It is a cultural thing. Some years ago, we started the development of 4,600 single homes and another developer started building vertical three-story homes. The other development was for 300 homes. We finished 4,600 units before it finished its 300. Now, things have changed and everybody is constructing taller buildings; people are getting used to that. In places like Mexico City, where there are a lot of people, it is not a problem; however, if you go somewhere like Chihuahua and you build a vertical project of three homes, one on top of the other, nobody would buy it. Also, the laws have to be changed in the municipalities. It is not as easy as it seems, because we still have the federal government, the state government, and the municipal governments, and in some cases we have to deal with all three from different political parties. There needs to be more cohesion across the board. Sometimes, it takes months or years for somebody to agree on the federal changes. You have to be careful where you buy your land. We used to buy a lot of ejidos. After the revolution, the large haciendas were split up into ejidos, and they were given to the people. The laws changed and since 1994, people have been allowed to sell their ejidos. It might be a plot of land with 100 owners. We have bought around 35 ejidos and each one has its own story. Close to 65% of the land suitable for housing in Mexico is ejido land. There is a huge potential with edijos; however, the complexities for these acquisitions are massive.

How has Consorcio ARA remained strong in the face of a volatile local housing market?

We have our own machinery and are self-sufficient. We are vertically integrated, which is good and not so good. It is very good when you have a lot of work in one place. When you are running out of land or when you cannot get the permit fast enough, it is not good. There are projects where if you were not vertically integrated, you could not do them. We have been the most conservative company out of the housing companies in the stock market. We have very little debt. Another thing that we did in 2012 was generate free cash flow, but we had positive free cash flow; even though it was not much—only about Ps660 million. We are the only company in the sector that gives dividends.

“We are the only company in the sector that gives dividends.”

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