There is a chronic shortage of quality office space in Fortaleza, which I noted on my first trip to Brazil last year. Finally, I’ve found a deal where we can profit from this shortage.

For the top professionals in Fortaleza–lawyers, accountants, architects, etc.–their only option is to let space in shopping centers. When I first saw this, I assumed the guy I was meeting was too cheap to rent a proper office. But in this city, a unit above the food court is top of the line office space…and highly sought after. If there was anything better, it would be snapped up.

Since April I have been scouting for the right office deal to recommend. On our members-only scouting trip last month I found it. If you are serious about investing in Fortaleza you need to pay attention to this alert. I’m not sure when the next prime office deal will come along.

These are prime pre-construction office units which I expect to appreciate during the build period. I also expect these units to command a strong rental yield from reliable tenants on completion. And this is a deal that we can get in on with as little as $770 down.

The case for buying quality office space in Fortaleza is pretty straight forward. There is a chronic shortage. The economy continues to grow, creating further unsatisfied demand. New supply will come on stream; very little of this however will be in the areas where businesses want to be based. There is a shortage of developable land in prime areas.

Location, Location, Location

Brazilians like to live near where they work, or work near where they live. A short drive…or ideally a stroll. This office project is in the most up market residential area in Fortaleza. The city’s biggest shopping center (Iguatami) and the established commercial and residential area of Aldeota are within minutes by car. The main thoroughfare through the city, Ave Santos Dumont, offers easy access across the city of Fortaleza and surrounds.

The Project

This project is a joint venture between Brazil’s third-biggest and publicly traded house builder and Fortaleza’s biggest developer. The office suites are 33, 39 and 45 square meters. Suites can be joined together to make larger units on request. Construction will be high-end. Amenities include beauty salon, gym, wellness center, restaurant, and meeting rooms. A shopping mall will be constructed as part of the project.

Units start at $62,000 or just under $1,900 per square meter. Two car parking spaces would cost you an additional $17,500. Prices stay the same across all floors. I have been able to pre-reserve 50 units for our little group. As I write, pretty much all the remaining units have been snapped up by the local market.

Plans call for a second tower. The developer is talking about selling the second tower in bigger units (complete floors). He remains tight lipped about when he’ll launch the second tower and at what price, but I expect prices to be higher than the first tower.

Comparable Pricing

True comp pricing is difficult. Deals like this rarely come up pre-construction. Resales in completed buildings of this quality rarely happen. Business owners typically buy offices for their companies to use. The closest comp is Metropolitan building nearby in Aldeota. It was completed 15 months ago. It’s a regular occurrence for owners in this building to receive unsolicited offers for their office suites (as far as I am aware not one owner has sold). These offers are typically at least $2,400 per square meter–28% more than the price we’re getting at "our" project.

Rental Yield

The suites in this project would rent for $525-$650 per month if available today. I expect this figure to be higher by the time the units are delivered. That’s a pretty solid yield considering units start at $62,000. The tenant is typically responsible for fitting out the unit and covering all costs (with the exception of property tax) associated with the unit. Of course, it is up to you (or your agent) to negotiate these terms on your behalf. Finding a reliable tenant isn’t difficult. Once you have found a tenant your involvement (and work) should be minimal.

Terms, Terms, Terms

In the past, we have been able to buy pre-construction condos with 1% down and monthly payments of 1%. The terms on this building are even better. You can lock down a 33-square-meter unit plus two parking spaces (total price: $80,000) with a down payment of $770. Monthly payments of $770 will be made during the build period. On completion of building in three years, you have two options:

1) Pay the developer the outstanding balance, or

2) Let the developer finance the balance

The Recommendation

As with previous recommendations I like the smaller 33-square-meter units. Price per meter on the smaller units is marginally lower. The yield on these smaller units will be higher. I have reserved one of the 33-square-meter suites.

Get an information pack, including floor plans, renderings, and instructions on how you can reserve a unit, today. As there is a limited number of units available (50), units will be allocated strictly on a first-come-first-served basis.

Wishing you good real estate investing,

Ronan McMahon

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