As the issuance of Mexico's first public REIT approaches, the sector's potential is again a topic of conversation among structured finance cognoscenti. "The start-up phase is likely to be slow, but these deals will be increasingly attractive," said a source at the Mexican Securities Exchange. He estimated that there were $5 billion worth of A' and A+' rated office property in the major conurbations of Mexico City, Monterrey and Guadelajara that were a "natural market" for FIBRAs, as REITs are known locally. He added that the same would go for roughly $6 billion in A'-rated industrial properties in the same areas. "I think that if we've covered 10-to-15% of that in the next couple of years, we'd be good," he said.

Timed to price by the end of the month, Casablanca Trust is a Ps300 million ($28 million), 24.5-year FIBRA containing five private sports clubs ultimately owned by Grupo Propulsa. Multivalores is the arranger. Pricing will come to between 250 basis points and 350 basis points over 28-day TIEE, to be paid out monthly. "It has a reference that is understandable to the market," said Fernando Lezama, deputy director of corporate finance at Multivalores. "We believe that this [public REIT] will lift the lid off the others."

While market players are keeping their eyes glued to Casablanca and investors' reactions to the REIT, others have their misgivings about its applicability to the FIBRA market in general. One banker at a rival shop pointed out that Casablanca has only one lessee, Impulsora y Operadora de Clubes, arguing that it won't provide much of a template.

All the same, some of the results of the marketing phase are already piquing questions about how FIBRAs in general will work with the investment public. For instance, private mutual fund managers have been discussing how to book shares in a FIBRA, apropos of Casablanca, according to a source familiar with the sector.

For now, FIBRAS are verboten for pension funds because they are real estate investments. Plans are afoot to open the sector to pension funds, but the source at the securities exchange said that the question of their involvement wouldn't matter for the smaller deals that will likely populate the initial landscape. When the hoped-for infrastructure, large commercial complexes and hotels latch onto the sector however, the vast liquidity wielded by the pension funds will be welcome.

Still, as it was in the U.S., the main idea behind the FIBRAs is to popularize real estate investing, and only the involvement of smaller, retail investors can accomplish that.

Predating the current talk of public FIBRAs were private ones that came out after legislation enabled the creation of FIBRAs in 2004, according to Jose Luis Fernandez, a partner at tax boutique Chevez, Ruiz, Zamarripa, y Cia. But those FIBRAs were apparently vehicles for single investors to purchase property with a lower tax load, sources said.

Interestingly, regulations passed this year to foster the creation of public FIBRAs, went hand-in-hand with others seemingly motivated by a desire to dampen the use of private ones by a single investor. Now a private FIBRA must have at least ten investors, according the securities exchange source.

For public FIBRAs, regulators established that retail investors must hold at least 20% of its assets. A FIBRA is obligated to invest 70% of their assets in property, with the remaining 30% in eligible instruments, and to distribute no less than 29% of net profits to its shareholders.

In all-important realm of taxes, FIBRAs have an advantage, but some say it isn't enough to offset costs, such as those associated with administration.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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