High vacancy and low rental value lead real estate in FIIs to perform below market average

The analysis of Cap Rate is essential to calculate the return on an investment. In the calculation used by SiiLA's intelligence team, the NOI is analyzed, that is, an analysis that encompasses the price paid for the asset and the projected revenue that the property will generate.

One of the points that draws attention is the rental value. Properties that are part of FIIs have asking prices below the average for their markets. In the CBD regions of São Paulo, for A+, A, and B assets, the average today is R$ 92.43/m². In properties within FIIs, the value is R$ 79.45/m², as indicated in the graph below.

An example of the contrast in Cap Rate value can be given by the purchase of floors 10 to 14 of Block I, 6, 7, and 12 of Block II, and 2 to 4 and 9 to 11 of Block III of the Condomínio São Luiz by the Kinea fund, KNHF11 - Kinea Hedge Fund, in a transaction carried out in February this year with a stabilized Cap Rate of 6.34%. The property, Class B, is located in the JK region, in São Paulo.

In contrast, GS1 acquired five floors of the PVN Corporate Boutique, for R$ 60 million, with a stabilized Cap Rate (which measures the expected performance for the property between 7 and 10 years) of 8.22%. The development, also Class B, is located a few blocks from the Condomínio São Luiz Building and was purchased in January this year.

For Giancarlo Nicastro, CEO of SiiLA, this is a reflection of poor fund management. The executive does not generalize, but states that the explosion of managers and the increase in the number of real estate funds brought unprepared managers to the market. 

“Funds buy cheap assets and outsource their marketing, not closely monitoring negotiations and market dynamics. Some focus only on quickly reducing vacancy to calm down the shareholders. And by not focusing on good long-term returns, a manager ends up prioritizing leasing assets below market value. We can say that this is poor management,” says Nicastro. 

For the executive, the only way out is investment. Nicastro states that outsourcing is extremely harmful to the FII market and, moreover, the lack of investment in teams and asset improvement should be a priority.

“It is a matter of marketing. An asset needs to be attractive and, most importantly, functional for the tenant. If we look at the owners, we see constant investments in retrofits and improvements in assets, as well as an internal team to market and follow up with tenants. Managers need to take control of their developments,” he concludes.