Thor Urbana Capital: brick and mortar in the online era

Delivering exciting experiences and emotional connections through real estate

Thor Urbana Capital, a Mexican real estate investment and development company seeks to create value for communities through the acquisition/development, leasing and management of real estate projects in Mexico’s largest markets. Capitalizing on Mexico’s lack of cutting edge projects and approved structural reforms (finance, telecom, energy), the company is trying to redefine the way consumers shop, eat and sleep.

The Traditional Business Model:

Hotels, office buildings, industrial warehouses and shopping centers are known as Income Producing Properties (IPP) in real estate lingo. Creating a successful IPP requires an extensive skillset since you are dealing with and coordinating architects, government officials, investors, tenants, spreadsheets, marketers, brokers, banks, lawyers, fiscal strategists, property administrators and more. The investor/developer who is best able to manage these different players while delivering new and differentiated projects in carefully selected locations (location, location, location) should enjoy long term success.

The aforementioned operating model requires many different companies, with different incentives and cultures to coordinate effectively. Each engaged company or supplier will bill the investor/developer for its share of project expenses plus a profit margin. The more service providers the development process involves, the more expensive and more difficult to manage it becomes. Information sharing is usually centralized by the development company and shared to the suppliers/advisors as the project advances, but with complex and sometimes long developments (12-36 months for large projects), errors can easily occur. These are not a problem when you are on the drawing board, but pouring cement 1 foot away from the desired location because the construction team didn’t get the updated architectural renderings can quickly raise costs or have the project stopped for inspection by local government.

It’s not as hard as it sounds, this model is still the norm in the Mexican development community and will be for the foreseeable future. But for companies seeking to create grade-A, institutional quality projects, it is often not enough. In an era where technology has enabled shoppers to buy virtually any product from their mobile devices, how does a real estate developer create projects who entice shoppers to physically shop at the stores when they can get the same products from home?

The New Business Model:

TUC’s business model is unique in many different ways. Firstly, it has decided to focus on acquiring and developing projects in Mexico’s densest cities, therefore significantly increasing the competition’s barriers to entry since well-located real estate lots are few and far between. It has also decided to develop fashion centers (sometimes called “lifestyle” centers), the country’s best performing type of retail asset which accounts for only ~7% of all available shopping centers. This coupled with Mexico’s 2011 lowering of tariffs for Chinese clothing products, has created unprecedented demand for newer and trendier shopping spaces, such as those offered by TUC, from the large fashion brands who have entered and are still entering the market (Forever 21, H&M, Aeropostale, etc.). But its execution is what really sets TUC apart. Instead of subcontracting the development, leasing, marketing and management of the projects to third parties, TUC does it all in-house. This vertical integration provides many benefits to the real estate development process, among them:

  • Savings to investors as a decrease in the fees paid to third party suppliers
  • Incentive alignment of the in-house departments
  • Accountability and easier information management
  • More creative and tailored marketing strategies

Many tasks, however, still remain in the hands of more experienced teams. Processes such as architecture and design, landscaping, signaling and car inflow and outflow simulations are outsourced, to ensure the highest quality.

The Results:

It’s been a little over three years since the company raised equity. It is now among the top three most active developers in the country, with ~1.0M m2 (11M SF) under construction. Its projects have captured some of the market’s highest rents, and some even have waiting lists from tenants looking to lease space in them. Having processes in-house has enabled TUC to control more effectively its process times, react quicker to tenant demands or competing bids while focusing its energy on the development aspects that online shopping cannot replicate: architecture and design. When these combine, in a well-constructed and well-located project that has the latest retailers showcasing their products, you create a sense of arrival and a sense of place. A place where people like to see and be seen, impossibly replaced in online commerce.

Real estate development is long and tedious in nature, and only time will tell if TUC’s projects will indeed be successful, nevertheless, it is pushing Mexican real estate development in the right direction.


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Student comments on Thor Urbana Capital: brick and mortar in the online era

  1. Very interesting, Seba! I’m curious to what degree you feel TUC’s vertical integration has to do with the nascency of the Mexican market and how long you foresee them maintaining this model, or whether you think it will ultimately become more efficient for them to outsource the various aspects of development as the market matures.

  2. Interesting read, Sebastian. I’m curious as to why other real estate development companies haven’t followed suit with regard to in-sourcing development, leasing, marketing and property management. Perhaps it only makes sense for these high-end “lifestyle” centers which require a more cohesive strategy and full-service offering? Or is it more of a cost-saving strategy since TUC can perform these tasks more cost efficiently in-house? Given that “architecture and design” are the most critical differentiating points that online cannot replicate, I would have expected TUC to focus on this rather than outsourcing such an important aspect of the development. Lots of interesting options to think about!

  3. Sebastian – very well written and informative post about the old and new business models for real estate development in Mexico. I wonder how sustainable the operations model is in the long term if there are only a few available real estate spots in the densest cities for TUC to develop? If I were in the market and well capitalized, I would simply buy an attractive spot and wait for TUC to come and offer me a ridiculously high price for the property because I know they are limited in the types of properties they are willing to develop… Also, as Steve mentions above, it looks like there are a few steps in the model that they have chosen to continue to outsource to ensure they get the highest quality product. I wonder if those players will steal their business model and start to vertically integrate themselves and push out TUC? Sounds like they have a great niche right now, but as time moves on I expect the returns will normalize and competition will become fierce.

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