I OVERVIEW OF THE MARKET

During 2020, real estate M&A and real estate private equity (PE) investment operations have been uncertain for many of the parties involved in corporate and financial transactions. Unfortunately, the prospect of growth for these sectors remains uncertain, as the Mexican government has made clear that its agenda is focused on saving money and investing in other areas of opportunity, such as the energy (mainly crude oil) and social sectors. Corporate and financial areas will face many challenges, and with limited support from the government the forecast for the second half of this year does not seem promising at this time.

A series of circumstances have been paramount to determining the ongoing situation of M&A and PE investment in the Mexican market:

During the first half of 2020, covid-19 has caused uncertainty and unease for investors and dealmakers. Despite the concern the pandemic has caused in the market, the current administration's policies for addressing the disease have been perceived as rather erratic and with scarce financial support and incentives for the private sector. As a result of the pandemic, striking a deal to merge, acquire or invest in real estate has become challenging due to the social distancing and communication hurdles. Furthermore, uncertainty of how much assets, properties or businesses are worth the day after a possible transaction, and the fluctuation of material prices have caused a stall in these sectors.

Nonetheless, this crisis did not only surge because of the pandemic and the governmental decisions adopted this year. According to the National Institute of Statistics and Geography,2 the Mexican GDP in 2019 was negative, meaning that the country stepped towards 2020 announcing that, at least economically, things would not be easy, and several banking institutions announced that GDP may drop to 9 per cent this year.3

Furthermore, the devaluation of the Mexican peso against the US dollar, together with the low price of oil, has also played a significant role on real estate investment returns and M&A operations.

II RECENT MARKET ACTIVITY

i M&A transactions

This year, M&A deal flow started in a weak fashion compared with previous years, and every month of 2020 is proving to be a challenge. According to information provided by Seale & Associates, by April 2020 there was a decrease of 53.8 per cent of reported transactions in Mexico in contrast with March 2020.4 Foreign transactions data has been discouraging too, showing that, compared with April 2019, this year the volume of transactions has also drastically decreased.5

Furthermore, information provided by April's monthly report from Transactional Track Record shows that during the first quarter of 2020, 81 M&A transactions took place, out of which 42 were closed for US$1,297 million. This figure reflects a 57.75 per cent reduction compared with 2019's first quarter.6

Although the outlook seems grim for this market, there are still areas of opportunity for companies that are withstanding the crisis, owing to the further possibility of investing in foreign companies and acquiring the ones that have not been so fortunate to survive for a low market price.

ii Private equity transactions

Despite the current uncertainty, real estate PE is still holding out in a positive manner. Real estate investment represents a relatively secure way to invest money nowadays, providing the investor with a regular income through the payment of dividends, such as real estate investment trust (REIT) profits, supported by the existence of the underlying realty. During a time of crisis, it is only logical that investors feel much safer knowing that their money is being managed in a safe environment in comparison with other investment sectors.

In an effort to increase Mexico's attractiveness for investors, the infrastructure and real estate trust (FIBRA) model (which is similar to the REIT), backed by 27,500 million US dollars of accumulated assets, which make up a portfolio of 23.8 million metres squared in more than 1,750 properties,7 has proved to be a key mechanism of investment. FIBRAs are helping to keep the real estate sector alive by issuing attractive debt to the market and by providing a safe place for investors to protect their investments.

The FIBRA model has performed formidably, yielding 30 per cent over Mexico's CPI.8 Proof of this is how strongly FIBRA 1 and FIBRA Terracina began in the first quarter of the year, closing some of the most relevant operations before the start of 2020, including:

  1. acquisition of US$1,000 million in debt bonds of FIBRA 1 by foreign investors;9
  2. payment made by FIBRA Uno to FINSA of US$841 million for a portfolio of 74 industrial properties;10 and
  3. expansion of an industrial manufacturing property in Aguascalientes by FIBRA Terrafina, investing US$11.2 million.11

III REAL ESTATE COMPANIES AND FIRMS

i Publicly traded REITs and REOCs – structure and role in the market

FIBRAs allow any entity or person to invest in a portion of real estate,12 focusing on investments and rights to derive income from the lease of the FIBRAs' properties. A typical structure consists of the contribution of real estate assets into a trust, which will retain title to the properties while being managed by a professional property manager. The trust will issue investment-type securities (usually real estate trust stock certificates: CBIs),13 which are usually traded on the Mexican Stock Exchange (BMV)14 or on international capital markets. The resources obtained from the offering will go into the trust. The properties are leased, thereby allowing investors to obtain two potential sources of income:

  1. periodical payments arising from the rents; and
  2. variable income arising from the appreciation of the properties (i.e., trust corpus).

FIBRAs have various tax incentives; therefore, in addition to compliance with listing requirements and obligations under the Securities Market Law (LMV),15 FIBRAs are subject to the conditions provided under the Income Tax Law (LISR)16 regarding trust corpus assets, the purpose of the trust, the distribution of profits and additional reporting obligations, among others.17

There are currently around 15 Mexican FIBRAs18 specialising in different types of properties, from retail/commercial and industrial, office space, hospitality, energy and infrastructure, mixed-used developments and logistics to learning-institutions and mortgages. Most FIBRAs are currently listed in the BMV. In 2019, FIBRAMX was the first FIBRA19 listed under BIVA,20 the new Mexican stock exchange launched on 2017 and competing with the BMV, holding around 10 per cent of the market.

Leading the market are:

  1. FIBRA Uno, with 641 industrial, retail and offices properties;
  2. FIBRA Macquarie, holding a portfolio of 234 industrial and 17 retail properties;21
  3. FIBRA Danhos, holding around 14 large properties for retail, mixed use and office spaces;22
  4. FIBRA Hotel, with 86 hotels and resorts;23
  5. FIBRAMty, holding 55 industrial, office and retail properties;24
  6. FIBRA Prologis, with 191 logistics and manufacturing facilities;25
  7. FIBRA Shop, with 17 shopping centres;26 and
  8. Fideicomiso Terrafina, with 287 industrial properties and 12 territorial reserves.

FIBRAs have performed well since their creation in 2011, showing an annual profit of approximately 31.49 per cent in 2019.27 Nevertheless, like most economic actors in 2020, FIBRAs are facing important challenges arising from the covid-19 pandemic; the S&P/BMV FIBRAs fell 24.99 per cent during the first quarter of 2020.28 Within the most affected FIBRAs we can identify those specialising in the hospitality, commercial and office sectors, such as FIBRA Hotel, FIBRA Uno and Danhos – these are the most heavily affected sectors.29

The past three years saw a rise of energy and infrastructure FIBRAs, such as FIBRA-E, a listed investment vehicle for energy and infrastructure projects. While recent amendments to the energy, oil and gas regulations and the current administration's agenda may foster uncertainty in the energy sector, other infrastructure projects may be unhindered. For

instance, in the middle of the covid-19 crisis and in an uncertain period for the economy and global financial markets, Promotora Ideal30 listed its 'FIDEAL' in April 2020, issuing 284,531,874 certificates.31 FIDEAL is an infrastructure-oriented FIBRA, holding concessions for the operation, management and fee collection of 12 toll roads in Mexico.32

ii Real estate PE firms – footprint and structure

Other than provisions set forth under the Foreign Investment Law (LIE)33 regulating, limiting or prohibiting foreign investment in specific areas or matters in Mexico (e.g., the Restricted Zone and 'T' shares for holders of rural land) and provisions in the Mexican Banking Law34 and the LMV, there is no specific regulation for private equity funding. In general terms, provisions under the LMV regulate securities offered to the general public and also provide specific safe harbours for private offerings of unlisted securities.35 The specific regulation will therefore be linked to the selected vehicle.

There are several vehicles used for private equity transactions, which depend on a variety of factors such as location, subject matter and (mainly) tax concerns. Mexican stock corporations (SAs),36 regulated under the General Law of Commercial Entities (LGSM),37 and investment promotion companies (SAPIs),38 regulated under the LMV, are commonly used for targeting companies because of their governance and because they are capital-oriented, providing less restrictions than partner-oriented entities such as limited liability companies (SRLs).39

Trusts are also commonly used in such transactions, given their versatility, including the possibility to create different types of beneficiary rights that serve to accommodate waterfall payment structures. Private equity investment trusts40 are used to improve private equity investment in Mexico by allowing investors to participate in non-listed Mexican entities. Among other things, the LISR includes provisions regarding investment thresholds, the purpose of the investment, participation on the board, allocation of remaining funds and distribution of profits and time frames for holding equity.41

IV TRANSACTIONS

i Legal frameworks and deal structures

As a general legal statement and by constitutional mandate, the original ownership of land within the Mexican territory belongs to the nation; private ownership derives therefrom.42 Therefore, there are certain types of properties whose ownership is reserved to the nation, there are other types of properties that may be acquired by private parties freely and without restrictions, and finally, there are types of property that must be acquired under certain restrictions or with additional legal procedures.

Regarding real estate property, under federal statutory law there are agrarian community ownership regimes (ejidos and comunidades) that basically provide the ownership of a land to an agrarian community under a special regime that is different from private property. Under these regimes, the sale of real estate property as well as the granting of any right of use are prohibited unless:

  1. ejido land is converted into private property under certain circumstances and requirements; or
  2. private parties enter into an agreement to use ejido land subject to certain requirements and conditions43 regulated by the Agrarian Law.44

Owing to the fact that ejidos and comunidades cover a substantial portion of the Mexican territory,45 compliance with federal statutory law governing them is of extreme importance.

Despite this important exception, private real estate property is governed by the Civil Code of each local jurisdiction, but depending on the business plan and the structure decided for the acquisition of the real estate, it may involve additional laws and regulations (federal and local), such as the LIE and the LGSM, among others.

The typical deal structures used by real estate private investors in Mexico to purchase property are:

  1. direct acquisition, through contractual arrangements that do not constitute a legal entity or a trust (purchase and sale agreements); and
  2. indirect acquisition, through either:
    • corporate structures and legal entities (stock purchase contracts, merger and spin-off restructures); or
    • a real estate private trust.

Direct acquisition through contractual arrangements that do not constitute a legal entity or a trust (purchase and sale agreements)

Contractual arrangements that do not create a trust or a legal entity are the most common way of acquiring a real property for residential purposes, although not so much for institutional investments. The purchase and sale agreement is governed by the Civil Code where the real estate is located. This type of agreement is binding upon execution in most of the Mexican states, including Mexico City, except for the State of Quintana Roo, where recordation with the Public Registry of Property is necessary for perfecting conveyance and vesting rights.46

Depending on the transaction, the purchase and sale agreement can be executed under different modalities:

  1. title retention or reserve of ownership agreement, when the title of the real property is not transferred until the aggregate amount of the purchase price is paid;
  2. purchase and sale in instalments agreement, when the purchase price shall be paid in tranches or on a future date after the buyer has taken title and possession of the real property;
  3. ad corpus, for acquiring the property as a whole; and
  4. ad mesuram, when the purchase price is determined by the metres and bounds of the property (price per metre squared), among others.

Indirect acquisition through corporate structures and legal entities (stock purchase contracts, merger and spin-off restructures)

The most common corporate structures used in Mexico are SAs and SAPIs, as well as SRLs.47 In such companies, private investors hold the proportional undivided interest of any real property owned by the company as an indirect right as shareholders or partners respectively, regardless of the way of acquiring the membership over them (e.g., stock purchase agreement, merger or spin-off restructures).

Indirect acquisition through a real estate private trust

Private real estate trusts are contracts under which private investors convey, as settlors, ownership of real estate properties to a trustee,48 with certain objectives for that real property (i.e., its development and sale or lease) for the benefit of the certain beneficiaries named by the settlor or for the settlor itself. A trust is the most common way of acquiring institutional investments and can be constructed as a pass-through entity for tax purposes or as a tax entity different from the settlors or beneficiaries, and may include a technical committee, which could work like a board of directors of a company. Other benefits of the trust include:

  1. to the extent that its purpose does not contravene any legal provision, the real estate trust can be adapted to any requirement from the private investors' needs; and
  2. the real estate title is held by a financial institution, thus protecting it against creditors of the settlors or beneficiaries (i.e., there is insulation from bankruptcy).

ii Acquisition agreement terms

Acquiring real property in any location overseas requires an extensive amount of research, planning and preparation, and Mexico is not the exception. Hence, certain important aspects must be considered at the moment of executing either a purchase and sale agreement, a stock purchase agreement or a trust agreement.

Direct acquisition through contractual arrangements that do not constitute a legal entity or a trust (purchase and sale agreements)

The following relevant matters should be reviewed through the proper due diligence process in a purchase and sale of real estate transaction:

  1. property title (formalised in a public deed issued by a notary public), duly recorded with the public registry of property (PRP) where the land is located;
  2. certificate of non-encumbrances or liens and real folio or chain of title for at least the past 20 years, issued by the PRP;
  3. all contracts, deeds and covenants affecting the real property; and
  4. land use and zoning certificates and licences.

In addition, the following terms must be included in the corresponding agreement:

  1. the legality of the origin of the economic resources in accordance with the Federal Law for the Prevention and Identification of Transactions with Illicit Source Resources (the Anti-Money Laundry Law)49 and its Regulations;
  2. the covenants and provisions applicable to the property (i.e., condominium codes, environmental or the like);
  3. the costs and taxes paid by the buyer; and
  4. in the event of co-ownership, written evidence of the co-owners' waiver to their right of first refusal.

Indirect acquisition through corporate structures and legal entities (stock purchase contracts, merger and spin-off restructures)

The basic matters to review in a stock acquisition are as follows:

  1. articles of incorporation and the mercantile folio of the target company, issued by the Public Registry of Commerce (PRC);
  2. current by-laws;
  3. powers-of-attorney and their registration with the PRC;
  4. corporate books and financial statements;
  5. compliance with tax, labour and social security obligations;
  6. absence of liens over the company's assets; and
  7. warranties given by the seller to the buyer, such as no reserves of ownership, limitations or claims affecting the company's assets, including real property.

In the event of a merger agreement, it is important to have the written consent of the shareholders' meeting of both companies evidenced by the corresponding minutes, duly recorded with the PRP and filed according to procedures established by the LGSM. In addition, representations and indemnity provisions regarding the legality of the origin of

the economic resources in accordance with the Anti-Money Laundry Law and its regulations must be included in the corresponding agreement.

Indirect acquisition through a real estate private trust

Typical details that a private real estate trust must provide are as follows:

  1. the parties involved;50
  2. corporate governance provisions that the agreement may foresee;
  3. the moment of acquisition of the real property (before or after the execution of the agreement) and the designated beneficiary party;
  4. whether there will be financing to acquire the real estate in order to comply with the guaranty trust provisions under the General Law of Negotiable Instruments and Credit Transactions;51
  5. the type of trust that will be required (due to the flexibility of this vehicle this can be used as a pass-through entity for tax purposes or as a tax entity different from the settlors); and
  6. the location of the real property to determine if it should be converted into a restricted zone trust as per the LIE provisions.

The Constitution states that foreign nationals cannot directly own real estate located within 100 kilometres from the borders nor within 50 kilometres from the beaches (the Restricted Zone). Thus, in the incorporation of a Mexican company or trust agreement it is required that foreign investors in all cases agree to subject themselves to what is called the 'Calvo Clause'52 for holding title in such a company or trust,53 and to obtain a permit from the Ministry of Foreign Affairs, as a general rule.

Finally, in connection with the National Law of Extinction of Domain, it is important to carry out a proper due diligence process before the acquisition of any interest on real property since this statute allows the government to forfeit or impound any asset in or with which illegal acts have been committed.

iii Hostile transactions

Except for proxy-battle scenarios (uncommon) or forced-bankruptcy, hostile takeovers and transactions are not applicable in Mexico.

iv Financing considerations

The attraction of real estate investment resides in the various ways such operations can be financed. Traditional ways to finance real estate projects include:

Bank loans

These provide the necessary capital to grow the real estate operation in exchange for interest and often other fees that add to the overall cost of the loan.

Investments funds or crowdfunding

This is proving to be one of the best ways to invest owing to the rapid manner in which money is raised. Crowdfunding or investment funds allow small- and medium-sized investors to participate in all kinds of projects, increasing the range of possible investors for a particular operation. Furthermore, this type of funding allows for continuous entry of capital and has proved to be highly transparent in its operational procedures.

FIBRA

As previously discussed, this is a relatively new way of investing capital in real estate that has proved to be, during a crisis, a safe and profitable alternative for investors to receive a stable income with relatively little effort. A FIBRA normally operates as follows:

  1. real estate owners provide their real property to the portfolio of the FIBRA in exchange for capital and dividends;
  2. the trustee or manager of the FIBRA and real estate, usually a banking institution or an expert in the subject, registers it in the stock market and issues CBIs54 to attract investment capital from investors. Naturally, the owners and shareholders of the FIBRA may benefit from the dividends; and
  3. in proportion to their investment, the investors receive the capital generated by the FIBRA's real estate lease (at least 95 per cent of the annual profit must be distributed between the investors).55 As a result, the investors may enjoy the benefits of this mechanism without having to deal with the management of the property.

Development capital certificates

Development capital certificates (CKDs) are used to finance a range of development and construction projects with potential profitability. Few investors can invest in CKDs owing to the high amount of capital that is needed to participate in such mechanism. As a result, ordinarily, pension fund institutions (AFOREs)56 invest in CKDs.

CKDs operate as follows:

  1. the entity that needs funding has present or future assets, resources or rights, which are contributed into a trust. The trust (usually managed by a bank or an expert real estate manager) issues stock certificates through the stock market to attract investment capital from investors;
  2. the development is completed with the collected money; and
  3. the trustee or manager periodically sells the property to pay the investors.57

v Tax considerations

Direct acquisition through contractual arrangements that do not constitute a legal entity or a trust (purchase and sale agreements)

In real estate property transactions, the main tax consideration is deductions, which are ways to diminish the taxable gain in such transactions. This applies for direct acquisitions and indirect acquisitions, either through trusts or mergers, if the latter are considered as taxable events (which is the main legal implication to avoid and will be explained in the next section).

The deductions stated in LISR are as follows:

  1. the proven acquisition cost (PAC), which is what the seller paid for acquiring the real property. The PAC can be determined in two different ways:
    • if the property title is dated before 2014, the PAC is proven by the property title; and
    • if the property title is dated after 2014, the PAC is proven by the tax electronic invoice (CFDI)58 that was issued by seller's grantor or by the notary public that drafted the property title;
  2. investments made in construction and improvements to the construction. These amounts must also be depicted and updated in the same terms as the part of the PAC reflecting the construction. To properly document this deduction, a taxpayer may use:
    • tax invoices that reflect the amount of such investments;
    • the notice of the termination of the construction; or
    • if both of the above are missing, an appraisal carried out by an authorised appraiser for tax purposes that refers to the date of the construction's completion;
  3. expenses pertaining to notary public and appraisers' fees as well as taxes. These relate to the issuance of property titles and appraisals as well as local taxes related to the transmission of real property;
  4. commissions paid by the seller in connection with the selling or acquisition of the property (i.e., fees paid to a real estate broker).

Indirect acquisition through corporate structures and legal entities (stock purchase contracts, merger and spin-off restructures)

The key issue in indirect purchases through corporations or legal entities is to avoid a taxable event in the merger of two corporations to acquire realty owned by the acquired entity. To do so, the acquirer must ensure that the merger is not considered as a sale for tax purposes.

Under the Tax Code, an acquisition through a merger will not be considered as a sale when the following requirements are met:59

  1. the notice of merger stated in the Tax Code's Regulations must be filed with the tax authorities;
  2. after the merger, the outstanding corporation or legal entity must continue to do the same business activities as the corporation that was acquired for at least one year; and
  3. the outstanding entity must file all the corresponding tax returns and notices that the acquired corporation or legal entity was obligated to file.

Indirect acquisition through a real estate private trust

Regarding indirect acquisitions through trusts, there are two main issues to take into consideration:

  1. when the conveyance of property through the trust is considered a taxable event for federal and local taxes; and
  2. whether the trust is a pass-through entity for tax purposes or not.

In the matter of conveyance of property through the trust, as a general rule, this will not be considered as a taxable event for income tax purposes as long as the settlor irrevocably designates a different person as beneficiary or loses the right to reacquire the real property (i.e., with no reversionary or revert provision). Therefore, careful consideration must be taken when drafting the trust agreement so as to avoid an early triggering of the income tax.

This rule is only applicable for income tax purposes. Local real estate acquisition taxes have their own set of rules regarding the moment when a transfer of property through a trust is a taxable event. It is important to bear in mind that these taxes do not tax the income or gain of taxpayers but rather the conveyance of real estate property itself. Therefore, additional analysis must be made on a case-by-case basis to determine if and when such taxes are triggered, as each scenario varies depending on the state or municipality where the land is located.

Finally, it is important to distinguish if a trust is considered a pass-through entity or not to determine if such trust will be considered as a taxpayer for income tax purposes. Trusts will only be considered as pass-through entities when they receive passive income rather than income that derives from business activities.60

vi Cross-border complications and solutions

Mexico does not tax foreign nationals in particular and does not have a tax similar to the United States' Foreign Investment in Real Property Tax (FIRPTA). Constitutional restrictions and structure vehicles for foreign investments are discussed above in Sections III.ii and IV.ii.

Mexico has signed treaties to avoid double taxation with almost every country in the world, including Australia, Brazil, Canada, China, Germany, Hong Kong, Israel, Japan, Netherlands, Russia, Spain, the United Kingdom and the United States.

V CORPORATE REAL ESTATE

Covid-19 has changed the way corporate real estate operations are conducted. For an entrepreneur or a seasoned company owner, the importance of owning a workspace or office has lessened owing to the necessity of companies having a safe working environment for their employees. During the first half of 2020, businesses needed to develop new working practices that allow them to operate with some sort of normality while ensuring their personnel maintain a safe distance from each other. Profitability has become a priority for companies to remain operational and uphold the rhythm of previous years. On the other hand, rent payment has turned into a burden that only a few company owners are willing to endure.

As previously mentioned, the FIBRA model has been performing above expectations by remaining a stable option for investments owing to the security and transparency that this type of model provides to any individual. New FIBRAs have been incorporated and no spinoffs have been performed, demonstrating the ever-growing popularity of the structure. Nevertheless, FIBRAs' corporate real estate operations face a few challenges due to the following scenarios caused by the pandemic:

  1. the decrease, renegotiation and termination of corporate real estate lease agreements;
  2. there is less investment in the development of corporate offices and buildings due to uncertainty regarding construction progress and regarding the profits that corporate real estate may yield later on; and
  3. the cost–benefit ratio of leasing a work space that has proved not to be essential for most companies' daily operation.

Corporate real estate FIBRA leaders include:

  1. Fibra Uno, with a portfolio of 191 industrial and 99 office properties distributed in 6,759,400 metres squared;
  2. Fibra Macquarie, with a portfolio of 234 industrial and office properties distributed in 2,741,666 metres squared across Mexico; and
  3. Fibra Mty, with 55 office and industrial properties distributed in 690,230 metres squared.

Furthermore, operating company and property company (opco and propco) deals are still new to the Mexican corporate real estate market and are not normally executed as in the United States. Such investment structure is normally used in the commercial, office and hotel sectors, which are still majorly controlled by the FIBRA model.

VI OUTLOOK

The covid-19 pandemic has deeply impacted most sectors of the economy and will impact consumers' habits for the years to come. We are being forced to adapt to the 'new normal' and rethink products, services and supply-chain structures. Therefore, the main trends and developments in the industry will be market-driven practices aiming to reconcile with changing demands and consumer habits to succeed in this 'new normal'.

The Mexican government has offered little assistance to help companies to endure this pandemic. This, along with the fall of the Mexican peso against the US dollar will impact the real estate sector and its post-covid recovery.

FIBRAs reported receiving rent adjustment requests from their tenants, which could, in turn, affect their CBI holders. This forces managers to adopt strategies aiming to preserve liquidity, such as evaluating tenants' requests and alternatives for pay-outs to CBI holders.61 While creditors and investors become temporarily risk averse, there will be a trend to extend and balance property portfolios to diversify risk.

Foreseen trends have been accelerated. Working from home increased, and this is expected to push companies to re-evaluate their use of office space, also taking into account new health and safety measures. The anticipated growth of e-commerce will impact the retail and logistics sectors, the latter having had important growth during this crisis.

Major real estate companies and co-working providers are now looking to re-adapt – even redesign – their spaces with health and safety measures, a reduced number of meetings and controlled access to their facilities.62 Developers are also rethinking the allocation of spaces and open areas.

Sustainability trends are also noteworthy. By 2019, Mexico ranked in the list of the top 10 countries and regions for Leadership in Energy and Environmental Design (LEED).63 Responsible investment is also gaining strength through more objective environmental, social and governance (ESG) investments. As a global trend, most of the largest corporations follow Global Reporting Initiative standards.64 Even AFORES that have stringent investment restrictions are now encouraged to take ESG data and policies into consideration.65 Also, in 2015, development banking institution NAFIN66 issued the first Mexican green bond67 – the first in Latin America to obtain Climate Bond Certification – for several sustainable energy projects.68 This was followed by Mexico City's New International Airport (NAICM) Trust's issuance of green bonds to build a new airport,69 though the project was subsequently cancelled. Despite its cancellation, Mexico had 13 green bond issuances between 2018 and 2019.70 The BMV has enabled green bond issuance and partnered with the CBI71 and major institutional investors to back and boost the green bond market.72


Footnotes

1 Carlos Ibarra, Rodrigo De los Ríos and Carlos J Pérez Chow are partners and Alejandra Gutiérrez is of counsel at Ibarra, del Paso y Gallego, SC.

2 National Institute of Statistics and Geography (INEGI).

3 INEGI, consulted on 3 June 2020, https://www.inegi.org.mx/temas/pib/.

4 Seal & Associates, F&A April 2020, consulted on 2 June 2020, http://mnamexico.com/wp-content/uploads/2020/05/Reporte-Mensual-04-2020-ESP-F.pdf.

5 ibid.

6 Ochoa Cristina, Milenio Noticias, 'Fusiones y Adquisiciones de México caen 22 per cent', 5 April 2020, consulted on 2 June 2020, https://www.milenio.com/negocios/fusiones-
adquisiciones-mexico-caen-22-pandemia.

7 Interview between Luis Gutierrez, president of AMEFIBRA, and el Heraldo Radio, dated 6 November 2019, consulted on 2 June 2020.

8 ibid., National Consumers' Price Index (CPI).

9 Santiago Judith, 'FUNO emite deuda por 1000 mmd', el Economista, 27 June 2019, consulted on 2 June 2020, https://www.eleconomista.com.mx/mercados/Funo-emite-deuda-por-1000-mdd-20190627-0114.html.

10 Rivera Ruben, 'Fibra Uno estima elevar el nivel de capitalización en portafolio Titán', El Financiero, 5 December 2019, consulted on 2 June 2020 https://elfinanciero.com.mx/economia/fibra-uno-estima-
elevar-el-nivel-de-capitalizacion-en-portafolio-titan.

11 'Fibra Terrafina invertirá 11.2 mmd en una ampliación en Aguascalientes', Obras por Expansión, 1 July 2019, consulted on 2 June 2020, https://obras.expansion.mx/inmobiliario/2019/07/01/fibra-
terrafina-invertira-11-2-mdd-en-una-ampliacion-en-aguascalientes.

12 Rodrigo Velasco, interview for Inmobiliare.

13 Certificados Bursátiles Fiduciarios Inmobiliarios.

14 Bolsa Mexicana de Valores.

15 Ley del Mercado de Valores.

16 Ley del Impuesto Sobre la Renta.

17 LISR, Article 187.

18 Tapia Ramírez, Rubí 'Cuál es la situación actual de las FIBRAs en México?', Inmobiliare, 28 May 2019: https://inmobiliare.com/cual-es-la-situacion-actual-de-los-fibras-en-mexico/.

19 'BIVA ya tiene su primera fibra y abre la pelea para listar más', Expansión, 16 May 2020.

20 Institutional Stock Exchange (Bolsa Institutional de Valores).

21 Fibra Macquarie, 'Overview' https://www.fibramacquarie.com/about-us.

22 Danhos Fibra Portafilio, https://www.fibradanhos.com.mx/portafolio.

27 Viviana Bran, 'La Resistencia de las Fibras a la Incertidumbre', Reporte Indigo, January 2020, https://www.reporteindigo.com/indigonomics/la-resistencia-de-las-fibras-a-la-incertidumbre-economia-acciones-
inversiones-vehiuiculos/.

28 'Por Pandemia de COVID-19, Mal desempeño de Fibras en la Bolsa', El Economista, 2 April 2020.
https://www.eleconomista.com.mx/mercados/Mal-desempeno-de-fibras-en-Bolsa--20200402-0116.html.

29 ibid.

30 Promotora del Desarrollo de América Latina.

31 Carbajal Braulio, 'En plena contingencia, Promotora Ideal coloca Fibra E en la BMV', La Jornada, 21 April 2020, https://www.jornada.com.mx/ultimas/economia/2020/04/21/en-
plena-contingencia-promotora-ideal-coloca-fibra-e-en-la-bmv-9394.html.

33 Ley de Inversión Extranjera.

34 Ley de Instituciones de Crédito (LIC).

35 Further information can be found under Article 8 of the LMV.

36 Sociedades Anónimas.

37 Ley General de Sociedades Mercantiles.

38 Sociedades Anónimas Promotoras de Inversión.

39 Sociedad de Responsabilidad Limitada.

40 Fideicomiso de Inversión en Capital Privado (FICAP).

41 LISR, Article 192.

42 Pursuant to Article 27 of the Federal Constitution (Constitución Política de lo Estados Unidos Mexicanos, the Constitution).

43 Pursuant to Sections IX and X of Articles 23, and Articles 56 and 81 of the Agrarian Law.

44 Ley Agraria.

45 47.3 per cent of all rural property.

46 Pursuant to Articles 2549 of the Civil Code of Quintana Roo (Código Civil para el Estado Libre y Soberano de Quintana Roo).

47 See footnotes 36, 38 and 39.

48 A Mexican financial institution authorised to offer trustee services.

49 Ley Federal para la Prevención e Identificación de Operaciones con Recursos de Procedencia Ilícita.

50 The selection of the financial institution to be appointed as trustee is crucial, given that only a handful of them have the sophistication, agility and responsiveness for transactional matters.

51 Ley General de Títulos y Operaciones de Crédito (LGTOC).

52 Which comprises: (1) acknowledging and subjecting to Mexican laws and Mexican courts' jurisdiction; (2) refrain from invoking the protection of their foreign governments with regard to the interests that they acquire in Mexico; and (3) be forewarned, that a breach under the foregoing Covenants 1 and 2 will result in the forfeiture of the interests that they had acquired in favour of the Mexican Nation.

53 In the event a real estate trust or company asset is located within the Restricted Zone, the trustee or company must file and obtain the corresponding permit issued by the Ministry of Foreign Affairs (MFA) for converting into a restricted zone trust (foreigners are not allowed under any circumstances to hold a property title within the Restricted Zone).

54 See footnote 13.

55 In accordance with Article 187 of the LISR.

56 Administradoras de Fondos para el Retiro.

57 Promoción de Emisoras, 'CKD's vs FIBRA's ¿cuáles son sus principales diferencias?', Bolsa Mexicana de Valores, 2 August 2019, consulted on 5 June 2020, https://blog.bmv.com.mx/2019/08/20/ckds-
vs-fibras-cuales-son-sus-principales-diferencias/.

58 Comprobante Fiscal Digital por Internet.

59 Pursuant to Article 14-B of the Federation's Fiscal Code (Código Fiscal de la Federación, the Tax Code).

60 Pursuant to Article ۱۳ of the LISR.

61 Gutiérrez, Luis (AMEFIBRA/Fibra Prologis), Lomelín, Javier (Colliers International), Garciarramos, Feliciano (Fibra HD). Et al, 'COVID-19: Efectos en el sector inmobiliario comercial: Fibras y Mercados de Capital' (Podcast), https://amefibra.com/covid19-efectos-en-el-sector-inmobiliario-comercial/.

62 JLL, 'COVID-19 Global Real Estate Implications'.

63 Sarah Stanley, 'US Green Building Council Announces Top 10 Countries and Regions for LEED Green Building', 13 February 2019 https://www.usgbc.org/articles/us-green-building-council-
announces-top-10-countries-and-regions-leed-green-building.

64 George Kell, 'The remarkable rise of ESG', Forbes, 11 July 2018, https://www.forbes.com/sites/georgkell/2018/07/11/the-remarkable-rise-of-esg/#27d8fd041695.

65 Diario Oficial de la Federación, Disposiciones de Carácter General en Materia Financiera de Los Sistemas de Ahorro para el Retiro, 18 September 2019.

66 Nacional Financiera SNC.

67 'Nafin coloca su primer bono verde por 2,000 mdp', Forbes, 12 September 2016.

68 'First ever Mexican Green Bond Issuer', NAFIN https://www.cbd.int/financial/greenbonds/mexico-nafin2016.pdf.

69 Mexico City's New International Airport (Nuevo Aeropuerto Internacional de la Ciudad de México).

70 'La emisión de bonos verdes llegó a USD 231 mil millones en 2019', Mexico2, January 2020.

71 Climate Bonds Initiative.

72 Louise Patzdorf for the CBI, '57 Mexican Investors with USD 214bn in AUM Back Green Bonds', 1 June 2017, https://www.climatebonds.net/2017/06/57-mexican-investors-usd-214bn-aum-back-green-bonds,