Icatu Vanguarda Invests R$ 275 Million in Guarulhos Airport Property: What Drives a 14.96% Cap Rate?

In recent years, Brazil has increasingly turned to public-private partnerships to modernize its infrastructure. One of the most impacted areas by this model is airport management, with concessions transferring the operation of these assets to private companies. However, unlike land and private assets, in the case of concession areas, companies hold the rights to manage and explore airport revenues, but do not own the properties, which revert to the public sector at the end of the contract. 

This concession model, along with the dynamics of an airport, has direct implications on the valuation, behavior, and revenues from properties located in these areas. And it is precisely this scenario that explains the Cap Rate in this transaction of Aero I by Icatu Vanguarda. 

With its first phase delivered in January 2024, Aero I is classified as a Class B development, with a ceiling height of 8 meters, 79 docks, and a floor load of 4 tons per m². The asset is currently 100% leased to companies such as Latam, Mercado Libre, and Azul Linhas Aéreas, and there is a second phase under development, expected to be completed by the end of 2025, which will add more than 150,000 m² of logistics space to the airport. 

Read: With Occupancy Costs Three Times Higher, is it Worth Leasing an Industrial Properties Within Latin America's Largest Airport?

Another important factor is the operational risk in this logistics concession model. Managing an airport involves a complex set of operations, from leasing areas to managing logistics spaces and parking. Additionally, these businesses are strongly tied to passenger and cargo traffic, whose demand can fluctuate according to economic cycles and tourism sector trends. 

To this complexity, we add the fact that passenger flow is directly affected by external economic factors such as economic recessions, global crises, and even health crises, such as the Covid-19 pandemic. This sensitivity to external factors increases the investment risk. 

The business of airport concessions adds a layer of regulatory risk. Changes in public policy, concession terms, or tariffs can significantly impact profitability. Additionally, since the government retains ownership of the underlying asset, concessionaires face uncertainty about future renewal terms or re-bidding processes, adding to the perceived investment risk. 

The market for airport concessions is less liquid than traditional real estate investments. The specialized nature of these assets narrows the pool of potential buyers, reducing competition and increasing the return required to attract investment. 

Therefore, a high Cap Rate for a transaction involving a logistics asset located within a concession area is justified when a thorough analysis of the negotiation conditions and the asset’s performance is conducted. 

Unlike traditional income properties, which can be freely negotiated between two parties, concessions are agreements with an expiration date. In this context, the risks inherent to this type of operation must be factored in when defining the values negotiated in an acquisition transaction. However, it is important to remember that the counterbalance of investing in an asset within an airport is a lucrative income and high demand. For large players who rely on airport logistics, having facilities within such a space can guarantee efficiency and an unparalleled competitive advantage.