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The social construction of real estate market risk. The case of a financial investments cluster in Mexico City

Louise David


This article contributes to the study of the geographical concentration of financial investments in real estate markets. It demonstrates the social construction process at work in the evolution of real estate market risks. The objective is to highlight the conditions that allow or impede the implementation of ‘opportunistic’ and ‘conservative’ risk strategies. By analyzing the market entry of financial investors in the Cuautitlan industrial real estate market - an ‘emerging’ real estate market in Mexico City - this paper demonstrates that, due to the joint action of land developers, non-financial as well as financial real estate investors, this market moved from being ‘too risky’ to becoming an opportunistic market, and then a conservative one. There were two important phases in the transformation process. First, the contribution of land developers was fundamental to the transformation of the market from being too risky to being opportunistic from the perspective of financial investors. Two different types of land developers are evident: some are not willing to help financial investors’ entry in the market while others developed a business plan designed to facilitate financial investments. In the second phase of the market’s risks transformation, opportunistic financial investors enabled the conditions for the arrival of conservative financial investors, thanks to their presence in emerging markets and the diffusion of information.

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1Financialization refers to the increasing presence and influence of financial actors and practices in any economic sector and any country. Pike and Pollard (2010) highlight the increasing number of financial intermediaries, the heightened risk, uncertainty and volatility in investors’ behaviour and the attendant social, spatial and political impacts of this behaviour. It is evident that financial investments have geographical preferences (Edgington 1995a, 1995b, 1996). They appear to be concentrated in thirty to forty global cities such as New York, London or Tokyo (Sassen 2002) and, within these metropolitan regions, concentrations are prevalent in areas like the central business districts (Aveline-Dubach 2008, Corpataux et al. 2009, Henneberry and Roberts 2008, Lizieri 2009). Following Henneberry and his colleagues’ effort to deconstruct financial tools and logics (Guy and Henneberry 2000, Henneberry and Roberts 2008), this article aims at explaining financial investment concentrations by demonstrating the social construction process at work in the evolution of real estate market risks. This strengthens the idea that the evolution of market risks, as evaluated by financial investors, are the result of the joint action of different but complementary actors who are serial real estate investors.

2Corpataux et al. (2009: 321) noted that transnational financial investors introduce a new perception of risks into real estate markets. They explain that “in financial theory, the term risk is applied to situations in which the result is imperfectly controlled but for which all outcome scenarios are considered to be known from the outset”. On the contrary, in real economics, the risk taken by an entrepreneur is a gamble because the outcome is unpredictable: “From this perspective, the future is, by definition, considered to be fundamentally opaque” (Corpataux et al. 2009: 320-321). In financial economics, the literature on the different risk strategies elaborated by financial investors is extensive, especially around the theory of diversification that underlines the advantages of mixing assets according to their level of risks. Financial investors define an ‘opportunistic strategy’ as consisting of taking high risks for a short period of time in order to obtain yields of between 18% and 25%. On the contrary, in financial theory, a ‘conservative strategy’ consists of investing in already mature markets in order to capture long-term and stable rents between 8% and 12% (Nappi-Choulet 2009).

3This article departs from this differentiation. It adopts an institutional approach to these strategies in order to deconstruct what makes the appearance of an ‘opportunistic’ or a ‘conservative’ strategy possible. It will introduce the necessary conditions for the emergence of these two strategies in ‘emerging’ markets and shows that those conditions are built by different, but complementary, actors. The objective is then to go beyond the classical financial view of real estate markets and to understand what enables or impedes different risk strategies of financial investments in real estate markets.

4This hypothesis will be explored through the analysis of the market entry of financial investors in an emerging real estate market, i.e., where financial investments are still scarce. The industrial real estate market of Cuautitlan, a municipality at the periphery of Mexico City, serves as the empirical example. In 1994, the North America Free Trade Agreement (NAFTA) was signed between Mexico, the USA and Canada. This event triggered a wave of transnational investments by institutional investors into Mexico. These investors first focused on the Maquila industrial real estate markets in the North of Mexico. Later, during the 2000s they became interested in the logistics and commercial real estate markets of the Mexico City metropolitan area. A quarter of the transnational financial investments realised in the central region of Mexico between 1994 and 2010 were concentrated in Cuautitlan’s industrial real estate market.

5This paper will demonstrate that the Cuautitlan industrial real estate market, which was initially classified as ‘too risky’, progressively became an ‘opportunistic’ market, and then a ‘conservative’ one, due to the joint action of land developers and non-financial as well as financial real estate investors. The first part of this paper will discuss the classical approaches to understanding the transformations provoked by financial investors’ entry in real estate markets. In the second part we present the case study and methodology. The third part develops the first phase of the Cuautitlan market’s transformation: when it transitioned from ‘too risky’ to being qualified as ‘opportunistic’. A ‘too risky’ market, in the financial investors’ perception, is a market where financial investors do not identify adequate and sufficient demand. It is also a market where land development is needed, i.e. where buying land implies negotiating with a lot of different small owners, verifying their property rights, and negotiating with public authorities for legal authorizations and public services. We show that land developers were the first and most important actors in this transformative phase. They realised land development and, according to their strategy and business plan, functioned as gatekeepers allowing financial investors to enter the market, or preventing their participation. This first phase is decisive as it determined whether financial investors will have access to the market or not. A fourth part of this article shows how the Cuautitlan market then became conservative. This second phase started when opportunistic investors entered the market. They were looking for emerging markets that were of interest to multinational firms but were not yet too expensive or saturated in order to capture large yields. These first financial investors opened up access to conservative financial investors in order to sell property at higher prices. By their presence in the market and the multinational firms they attracted to occupy their buildings, ‘opportunistic’ investors reduced perceived market risks and spread information on the market, thereby raising conservative investor confidence.

Understanding the mechanisms of real estate market transformations

6Financialization has provoked the transformation of urban landscape not only through the increase in geographic concentrations of financial real estate markets, but also through the introduction of new tools, new logics and new behaviours (Aveline-Dubach 2008, Nappi-Choulet 2009, Rutland 2010). How these transformations are implemented in real estate markets is a rarely investigated research field.

7As Pike and Pollard (2010: 37) note, research is still needed to demonstrate the “inescapable geographic construction, context, and rootedness of financial networks and practices”, especially in southern countries. Different studies have demonstrated the cultural embeddedness of economic and political practices and the role of local networks and local elites in the transformations of real estate markets in face of global processes (Theurillat 2011, Wood 2004, Yañez et al. 2010).

8De Magalhães (2001) demonstrates the place-specific dimension of the market entry of international real estate professionals in emerging real estate markets in Milan, Madrid and São Paulo. He uses Ball’s (1986) concept of “structures of building provision” in order to highlight the local dimension of the internationalization of real estate markets. These structures refer to “the nature of the social agents who produce, fund and use buildings; the system of market practices and institutions whereby land and buildings are traded; the legal framework regarding property rights and property finance; investment practices; planning regulations; cultural attitudes towards property ownership and trade” (De Magalhães 2001: 100-101). In Madrid and Milan, De Magalhães analyzes how international property consultants mediate international and local real estate interests. He demonstrates that this mediation takes different forms according to the “structures of building provision” of each local market. In Madrid, international property consultants introduced their “culture of professional property services” more quickly than in Milan, where “the commercial property market has largely remained secretive and opaque, and dominated by principal-to-principal deals” (De Magalhães 2001: 118).

9Through this new culture, international property consultants try to generate income not only from the passive increments of real estate values, but also from their active management (i.e., management that consists of evaluating the building’s value on a quarterly basis, and that aims at maintaining and/or increasing this value by realizing physical improvements, by rearranging funding or by selling the property when its value cannot increase anymore). This new culture of real estate is a move away from long-term and transgenerational holding strategies. Using the concept of ‘maturity’ as developed by Keogh and D’Arcy (1994), De Magalhães (2001: 104-105) qualifies the international property consultants’ culture as ‘modern’, while the patrimonial owners’ culture is ‘traditional’. This opposition between modern and traditional practices is ethnocentric as it overvalues the “new property culture” and fails to show that its introduction into real estate markets is a power struggle and not merely an evolution to better ways of doing (see David and Halbert 2012).

10In another article, De Magalhães (2002) demonstrates the existence of different structures of building provision in São Paulo’s real estate markets in the 1980s. This shows that transformations in real estate markets are not only produced by intermediaries such as the international property consultants that mediate local and global interests, but also by so-called local actors, who become partners of international real estate professionals. This study concludes that “property markets and the optimizing rationality upon which agents act are social products and therefore deeply rooted in a context-specific history” (De Magalhães 2002: 461). This allows the author to identify the actors who provoked the office boom in São Paulo in the late 1980s, but does not permit us to understand the mechanisms of the internationalization of those markets.

11Guy and Henneberry’s (2000) approach to real estate development goes beyond De Magalhães’ study. Those two authors defend the idea that the “economic structuring of development is a product of and, in turn, affects social processes; and, secondly, that social structures and processes are as important as their economic equivalents in ‘explaining’ property development” (Guy and Henneberry 2002: 1471). To understand urban development processes, they analyze economic practices. According to Henneberry and Roberts (2008: 1222): “The economy is a constantly changing assemblage of many and varied extant practices. These practices embody economic, social, political and cultural logics, not just the first, and these are endogenous to economies. […] Cultural and economic decisions are different sides of the same coin. […] Beliefs, values and symbols (culture) are thus embodied in the actions which form and perform the economy”.

12Henneberry and Roberts (2008) explain financial investments concentrations by the instruments and practices used by financial investors in real estate markets. One of the instruments widely used by financial investors around the world is property portfolio benchmarking. The authors highlight the cultural biases of this financial practice: their evaluation is based on information about existing buildings mainly concentrated in London and other few major cities; little information is then available about minor cities’ office markets. As a result, investors hardly invest there and further reinforce the concentration of their investments. This study demonstrates that there is an important cultural dimension to investor practices. It invites an analysis of the calculative practices and their construction, in order to understand their impact on urban development process. Henneberry and Mouzakis (2012) demonstrate that yields do not necessarily reflect characteristics and performance of local property markets but are fundamentally influenced by the level of familiarity financial investors have with the markets they are studying.

13Following this approach, the analysis of the mechanisms of financialization of emerging real estate markets could focus on the construction of risks evaluated by financial investors. Yields and risks are the two main references used by financial investors to determine whether to make an investment and to elaborate their diversification strategy. Halbert and Rouanet (2012: 2) demonstrate in Bangalore, India, that a Transcalar Territorial Network (TTN) “performs (i.e. makes possible, translates and shapes) the landing of finance capital in local-regional business property markets [by] filtering risks away”. They develop the concept of TTN in order to “explain how resources from multiple horizons are pulled together in a given business property development” (Halbert and Rouanet 2012: 2). Those resources can be information, capital, land, development competencies, social relationships, etc. and they are pulled together by actors situated in different places, but connected through a network.

14As has been demonstrated in the case of Mexico City, if transnational financial investments are considered as a network (as defined by the Actor Network Theory), this is a useful way to analyze how property investments are built across frontiers and across power struggles (David and Halbert 2012). The transcalar dimension of the network described by Halbert and Rouanet (2012) adds the territorial dimension to the conception of this network. As Corpataux et al. (2009) put it, financialization is a territorial process as it is enabled by different territorial transformations that permit the circulation of capital across real estate markets: national suppression of barriers to the capital circulation, promotion of transparency and public information on real estate markets, development of suitable technological and human capital (see also Colletis-Wahl et al. 2008). Using an approach based on territorialised networks is one way to answer Pike and Pollard’s (2010: 39) invitation to analyze “financialization as a way to understand the social agency of actors who are connected and articulated across and between space and place”.

15The hypothesis developed by Halbert and Rouanet (2012: 2) is that the TTN “internalizes series of (perceived) risks that foreign investors are reluctant to take and that they associate with the local-regional dimension of the property markets of the South”. In emerging countries such as India or Mexico, buying land is particularly difficult because of unclear property rights, illegal occupation, public authorities’ resistance to granting legal authorizations or provide basic services, etc. (see Smolka [2005] for the case of Latin America). In the case of Bangalore, Halbert and Rouanet (2012) highlight the role played by different actors in the internalization of risks: land consolidators buy various small parcels of land in order to build larger parcels that satisfy international investors’ needs; they also negotiate with the public authorities for legal authorizations and public services. Legal counsellors also play an important role in sorting out property rights in order to guarantee smooth land acquisition. Global brokers are also important as they produce information about property markets that allow financial investors to calculate risks and expected yields. In this sense, the TTN makes the realization of financial investments possible as they filter away the risks financial investors are reluctant to take.

16Following this approach, this article shows that risk evaluation is done not only through the internalization of risks that financial investors are reluctant to take, but through the progressive transformation of the risks attached to a market, thanks to the action of heterogeneous actors.

A financial real estate investments cluster in Mexico City

17One has to track financial real estate investments in a specific context in order to identify the objectives, constraints, advantages and difficulties financial investors confront in the process of seeking out real estate opportunities. The Cuautitlan case study presented here is part of a research conducted in the Mexico Valley metropolitan area between 2008 and 2011. Every phase, actor and tool involved in the financial real estate investment process was analyzed, from transnational capital gathering to buying and developing specific land in Mexico City. The investigation was not restricted to financial investors. Instead, all of the actors and elements involved in the investment process were included in order to understand interaction, division of labour decisions and how they either facilitated or hampered the process.

18The history of the real estate market and development in the Cuautitlan corridor illustrates investment processes and the new division of labour that financial investors are trying to introduce in an ideal-typical way. This corridor is organised between two neighbouring municipalities called Cuautitlan and Cuautitlan Izcalli situated in the periphery of Mexico City. Eighteen major investments have been made by transnational financial investors in these two municipalities since 1994. Fourteen of them were in the market segment of logistic parks and industrial real estate. The investments are localised along the road that connects Mexico City to Queretaro, which is an important national manufacturing centre. Moreover, this corridor includes a railroad line along which merchandise circulates from the South of Mexico to the United States. Commercial ties with the USA have always been important for Mexico, but since the 1994 NAFTA agreement investment opportunities in Mexico have expanded even further for U.S. firms and investors.

19The following analysis is based on semi-structured interviews with 19 transnational financial investors identified as having invested in commercial real estate markets in the Mexico City Region since 1994. The investors were identified through press releases. The semi-structured interviews addressed three topics: (i) a description of the investment process focusing on the actors, tools, rules and objectives involved; (ii) the identification of the actual investments carried out by financial investors (their location, characteristics, value, etc.); and (iii) the identification of the specific features of Mexico City’s commercial real estate markets in terms of land use, development constraints, competitors and legal procedures. The information gathered through these interviews was complemented with an analysis of official statistics and research literature concerning Mexico City’s urban and economic development, and with an analysis of real estate expert publications.

The risk construction of the Cuautitlan industrial real estate market

20The Cuautitlan case study enhances our understanding of the construction process of risks attached to industrial real estate development in emerging markets. First, the contribution of land developers, especially specialised land developers, is fundamental for the transformation of the market from being ‘too risky’ to being opportunistic to financial investors. Then, we demonstrate that opportunistic financial investors establish the conditions that make the market entry of conservative financial investors possible, thanks to their market experience and the diffusion of information.

Phase one: from a too risky market to an opportunistic one

21Since the 1910 Revolution, most of the rural land in Mexico had been collectivised. Collectively-owned rural land is called ejido. Several families are entitled to work the same plot of land. Until 1994, it was forbidden to sell ejidos, however it became possible to privatize the land if all of the owners agree and if specific procedures were followed. The municipality of Cuautitlan is no exception. Even though the region had become increasingly urbanised since the 1960s, most of the municipality remained predominately rural in the 1990s. Buying land in these municipalities is therefore a long and difficult process that financial investors do not want to get involved with. The unanimity rule makes the success of a negotiation process with ejidatarios very uncertain. Legal authorization processes can take a long time and getting connections to water, electricity and public sewer systems require lengthy and expensive negotiations, particularly in a context where public authorities are deeply corrupted.

22These barriers associated with land development are considered too risky by financial investors. As a representative of a transnational financial investor explains: “This land that we built up here was ejido land. You have to gather all the farmers, all the community and get them to agree. That is not my job. And that’s not my developer’s job either. More often than not, there is a certain type of person that does this job. A land developer. My guys are building developers. We don’t want to go out and take the land risk. We don’t want to go out for all the pipes and road, and all that kind of things. Sometimes we do. Generally we find somebody to do it. That is a high risk / high reward business. I am in the lower risk / high reward business. I am in the opportunity fund business. My first objective is not to lose your money”(Interview with the representative in Mexico of a transnational financial investor, Mexico, 2009).

23The risk of industrial real estate site development in Mexico is taken by land developers who, however, can have different characteristics and follow different objectives. Well-established and independent developers – independent in the sense that they do not invest financial capital nor do they develop in partnership with financial investors – were first in working the Cuautitlan land and real estate market. They developed land and buildings, organised the construction work and managed large portfolios of industrial real estate. They have been quite reluctant to sell their properties or buildings and therefore represent quite an important barrier to financial investors’ entry in this real estate market. By the 1990s, another type of land developer appeared – the specialised land developers – focused on financial investors’ need for land. They only developed land in order to sell it to financial investors. Their business plan was quite different from the independent developers and rather than standing in the way of financial investors’ entry they were facilitators.

24By the 1970s and 1980s, the construction of warehouses increased significantly in Cuautitlan. Industrial parks initially situated in the centre of Mexico City were progressively relocated to the periphery. Most active were former textile industrialists. They still own large plots of land and some older industrial and logistic parks in Cuautitlan. Those well-established and independent developers do take land development risks but refuse to either sell their lands or to partner with financial investors in order to capitalise on new buildings. As the director of an independent developer explained: “There have been many bridge buildings with financial investors but we never took the decision to become partners. We feel at ease with the way we work. Certain funds’ policies were in contradiction with the way we like to work. A certain degree of control… a certain aversion to risk, too. […] We do have the capacity to buy the best and the cheapest land, so this gives us a comparative advantage” (Interview conducted in Mexico, 2009).

25These independent developers follow a patrimonial strategy as they want to retain ownership of the industrial parks they build, and as they are not in any rush to develop their vacant land. Financial investors see this strategy as an important barrier to entry into the Cuautitlan real estate market. Acquiring land from an independent developer involves very high costs. Where normal price levels for the square meter lie between US$100 and US$120, Prologis, a financial investor that has been interviewed, acquired a 35-hectare portfolio of industrial parks and land for around US$238 million ($732/m²). Prologis explained that this acquisition was the only way to enter the market. The independent developer who sold this portfolio asserted that he usually never sells his properties, but that this time, a price was offered “that could not be refused”.

26Another kind of actor appeared in Cuautitlan by the 1990s: specialised land developers, who took the land development risk and purposefully built their business plans around financial investors’ needs for land. A developer entered into negotiations with 751 individuals who collectively owned a 360 hectare ejido called San Martin Obispo. The firm SANMO was created, when the land owners agreed to aggregate their land and the land developer added his know-how to develop and commercialize the property. They began the privatization of the land and in 1989 the first plot was eligible for sale. The initial objective was to develop a residential project on the ejido land. However, in 1995, Walmart negotiated the acquisition of a plot from SANMO. This triggered the interest of transnational financial investors in the area and SANMO then reoriented its strategy towards them and transformed into a specialised land developer: SANMO abandoned its development project and focused on the land development, playing on the increase of the land value in the area. At the beginning of the 2000s, the North-American investment fund, O’Connor, and Prudential Real Estate Investment (PREI) bought two more plots from SANMO. O’Connor first arranged a so called built-to-use-agreement for Sony, one of its major clients. This is a contract in which a property owner agrees to construct a real estate according to a tenant’s exact specifications, and then leases it on a long term basis. Then, O’Connor developed several logistics parks and rented them to other multinational firms who were interested in setting up business in the Cuautitlan region.

27PREI followed the same logic. In 2006, it developed a built-to-suit arrangement for Mattel warehouses on the plot bought from SANMO, and then started to develop its own logistic parks. Later on, PREI acquired land in Cuautitlan from another specialised land developer named Akerlan, who had previously successfully negotiated with the Autonomous University of Mexico, another huge land owner, and with the local authorities in order to obtain land use concessions and public services. Akerlan was created in the 2000s and a representative of this firm explained that their activity was “basically to sell lands to firms like O’Donnel, CPA, AMB, Frisa” (Interview with a representative of Akerlan, Mexico, 2009). Most of those firms are transnational financial investors. Specialised land developers work as strategic intermediaries for them while independent developers act much more as obstacles to financial investors’ entry as very few consent to sell their properties.

Phase two: from an opportunistic market to a conservative one

28The arrival of O’Connor and PREI marked a new phase in the Cuautitlan industrial market risk construction process. Those two financial investors were pursuing an opportunistic strategy when they acquired land in the Cuautitlan market at the beginning of the 2000s. Because such markets were still unknown to investment committees based outside Mexico and had not been mapped by global brokers, financial investors considered their investment risk higher. O’Connor and PREI’ s objective was to buy land at a low price and develop buildings on this land, before selling up after a period of between five and seven years. They raised capital through private funds that last for a certain period of time. At the end of this period, O’Connor and PREI have to pay back the capital invested in the funds, along with the yield stipulated in the fund agreements.

29Opportunistic and conservative risk strategies are different, but complementary. Opportunistic strategies consist of selling the properties at a high price to get the highest yield possible. As the investor with a conservative strategy favours a stable return, they are ready to pay a large amount of money for a prime location. The location becomes ‘prime’ when various multinational firms and financial investors are present in the place. By the beginning of 2006, O’Connor and PREI had been present in the Cuautitlan market for more than five years. That year, Corporate Properties of the Americas (CPA) and Prologis entered and bought land of their own. CPA was then owned by the Washington Pension Fund and bought half of the ejido of San Martin Obispo (a 160-hectare plot). Prologis, as mentioned previously, acquired a 35-hectare portfolio of industrial parks and land from an independent developer. Prologis is an international real estate investor and manager that had to be present in Cuautitlan in order to provide services and locations to its major clients (mainly multinational firms looking for space to rent): “Our major client in the world is DHL. See, if DHL needs an industrial park in Japan, we go there for him. He needs one in Poland, we go to Poland… So Prologis looks at the locations that its clients could need. […] When our director in Mexico saw the opportunity of buying lands and buildings in Cuautitlan, he said to our investment committee in Denver: ‘We have to do this! It’s vital. That’s the only way for us to grow in Mexico. Because this allows us to be present in the central region where distribution and logistics are growing very quickly. We have to be positioned here to consolidate our presence in the country. If you want to have a distribution network in Mexico that can support the supply chain of any firms in Mexico, we have to be there’(Interview with a representative of Prologis Mexico, Mexico, 2009).

30So the aim of Prologis was not to gain from a real estate opportunity in the short term, but to build a portfolio in order to satisfy its clients. CPA, as it is owned by the Washington Pension Fund, also had a long-term perspective. Its goal was to own properties situated in places with high demand and low vacancy risk. Opportunistic financial investors worked to build an attractive location by developing the first ‘Class A’ buildings that suit international standards and multinational firms’ needs. Those Class A buildings were characterised by higher quality construction materials, better circulation design within the industrial parks and by modern security systems. They were also characterised by rental agreements that gave guarantees to the park’s owner and that fit international standards: “Our contracts are much more rigorous than those of other owners, because they are standard contract that we elaborate in Houston. So, it does changes things in the market. I would say that we ‘raise the bar’. And I think that this is what all the funds are doing in Mexico that look for some protection. It is not only us” (Interview with a representative of an opportunistic financial investor present in Mexico, Mexico, 2009).

31Opportunistic financial investors develop information on the emergent markets they enter, in order to increase the confidence of any financial investor. The representatives of opportunistic financial investors were very present in the media. They organised events to promote the opportunities to invest in Mexico. They even created an association of real estate and infrastructures funds by the mid 2000s, the Asociación Mexicana de Fondos Inmobiliarios y de Infraestructura (AMFII). Then, conservative financial investors get in touch with opportunistic investors to be advised on investing in real estate markets in Mexico: “I was working in an opportunistic financial investor at the beginning of the 2000’s. At this time, there were still few funds in Mexico. They were just arriving. Between 2000 and 2004, you saw them arrived. They came to us. For example a fund from Singapore came asking us about the market. I don’t remember all of them […] And, with the passage of time, they got convinced and entered the market” (Interview with the director of an opportunistic financial investor in Mexico, Mexico, 2009).

32Opportunistic financial investors actively reduced the perceived risk attached to the Cuautitlan corridor. It kick started a process that transformed the perceived real estate market risks in the eyes of conservative financial investors. The Cuautitlan market is only one example. The opportunistic financial investor O’Connor followed the same strategy in several places in the northern frontier regions of Mexico. By the end of the 1990’s, O’Connor – with the same partner developer as in Cuautitlan – managed to build up a portfolio of fifty-five industrial properties, summing 5 million square feet. In 2003, these were sold to the Californian pension fund Calpers – one of the most important conservative investors in the world – for around US$300 million. This was the biggest real estate transaction ever seen in Mexico.


33This case study demonstrated the process of social construction at work in the evaluation of an emerging real estate market’s risks by financial investors. It first followed Halbert and Rouanet (2012)’s work in showing that actors who are not directly linked to financial investors, do work at transforming real estate markets’ risks. This shows that financial investors do not invest just anywhere and that they need territorial transformations to realize their investments and exchange their assets. This article supports the need to consider financialization as a territorial process (Colletis-Wahl et al. 2008, Corpataux et al. 2009) as it is socially built in different places, specific by their history, culture, and social and political organization.

34Second, this article demonstrated that financial investors also contribute to this social construction of risks as they work to attract solid and famous multinational occupiers and at spreading information on the emerging markets. Their presence alone in the market contributes to reducing its perceived risk. Moreover, opportunistic and conservative investors are complementary as the first look to buy cheap and sale expensive, while the second are ready to buy expensively if the market is renowned and demanded by multinational firms. This complementarity explains the geographic concentration of financial investments in the periphery of the Mexico City Metropolitan Area.

35Finally, the insights given here on the social production of a market’s risk demonstrate the need to develop approaches that consider that economic practices embody economic, social, political and cultural logics at the same time. Considering social and economic processes and practices as separate usually leads to a focus on the place-specific dimension of global processes. Conceptualizing social and economic processes as embedded in one another allows a deconstruction of the mechanisms of global processes such as the financialization of real estate markets.

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Electronic reference

Louise David, “The social construction of real estate market risk. The case of a financial investments cluster in Mexico City”Articulo - Journal of Urban Research [Online], 9 | 2012, Online since 23 November 2012, connection on 24 June 2024. URL:; DOI:

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About the author

Louise David

Louise David is a PhD candidate in Urban Planning and Regional Studies at the LATTS Laboratory, University of Paris-Est, France. Email:

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The text only may be used under licence CC BY-NC-ND 4.0. All other elements (illustrations, imported files) are “All rights reserved”, unless otherwise stated.

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