Government plans to transfer federal properties to a fund with a private partner

The Ministry of Economy plans to transfer federal real estate to an investment fund with the participation of private partners. Talks between the government and the financial market for the first experience of its kind have already started and the launch is scheduled for later this year.

The model is a bet by Minister Paulo Guedes (Economy) team to boost business with these assets, but on a scale that is still far from the potential sale of R$ 1 trillion in properties already mentioned by the head of the economic team at the beginning of the government. .

The universe of properties considered alienable by the technicians amounts to approximately R$ 97 billion, but not every portfolio will be immediately available.

The government’s idea is to launch some funds to test the model. Although provided for in law since 2015, the format has never been applied in practice due to a series of preparatory discussions.

See what properties the government can transfer to the fund

Eligible properties are those that do not have a specific purpose, whether land, sheds or vacant buildings. Possible destinations range from logistics, development of residential projects and commercial spaces.

The Ministry of Economy has already contracted B3 to provide technical advice and operational support in promoting the public bidding session that will select the consortia managing the funds.

The next step is to complete the selection of properties that will integrate the menu of the first public notice. The program will be called “Incorpora, Brasil – Fundos Imobiliários Federais”.

The Special Secretariat for Privatization, Development and Markets, which manages the Union’s properties, has internally discussed the creation of at least two funds: one logistical, with properties and land close to highways and other strategic locations for the movement of goods, and another commercial area, with attractive buildings for this type of business.

In the logistical fund, for example, assets such as sheds and land must be included. Among the examples obtained by Sheet there is a 256 thousand square meter plot in Uberlândia (MG), where there is also a 26 thousand square meter warehouse.

Another property selected is a 40,400-square-meter plot in Bernardino de Campos (SP), which houses a 17,100-square-meter warehouse. There is also the offer of a plot of land of 87.7 thousand square meters in Birigui (SP), without improvements.

On the commercial side, the menu is not yet complete, but there is an expectation to include buildings in prime locations in Brasília, the federal capital.

In the future, other funds with specific profiles may be launched, as the Union currently has a broad portfolio, which also includes apartments and land in residential areas.

Congress also approved this year an authorization for properties managed by the INSS (National Social Security Institute) to also be sold through the funds, provided that the proceeds are reverted to Social Security.

Understand what would change with investment funds

For government officials, the use of investment funds will give more flexibility to both the Union and interested investors.

Today, in direct sales, the federal administration charges the payment in cash for the full value of the property, without financing, which is an obstacle for buyers given the amounts involved. There is also difficulty in managing these assets, which end up deteriorating over time.

Under the administration of the funds, the government’s bet is that the properties can be broken up, revitalized or managed in order to make more attractive businesses viable for potential interested in renting or buying them. Defenders of the format argue that the Union cannot do it alone, as it has no “real estate vocation”.

At the start, the funds must be constituted with 90% of the participation of the Union and 10% of private partners. While the government pays in its shares with the properties, the private partners will put their share in cash, which will be used to fund studies and strategies for the development of the assets.

In the future, the funds will be able to issue new quotas to raise more resources from the private sector and be able to carry out renovations or develop projects that contribute to making real estate even more attractive to investors.

The government’s expectation is that, with professional management, the quotas will be valued, benefiting the Union. The gains, however, will not be immediate.

The operating rules of a FII (Real Estate Investment Fund), governed by the CVM (Securities Commission), prevent the early redemption of shares, but the government can, if it wants, sell them at market price and profit from the appreciation.

The Federal Government will also receive dividends, paid from the profitability of these funds with sales and rentals. However, the notices for the creation of the funds must provide for a kind of grace period until the beginning of the transfers, to allow the maturation of operations before beginning to remunerate investors.

Even so, there is an expectation that the income will be higher than that obtained from the direct sale of properties by the Union, which has generated about R$ 200 million a year.

Government has already sounded out financial institutions, such as BTG Pactual and Itaú BBA

The government’s assessment is that the appetite for creating the funds is great. In surveys carried out at the beginning of the year, representatives of 14 financial institutions that operate in this market participated, including Genial Investimentos, Itaú BBA, Santander Asset and BTG Pactual.

The final preparations for the launch of the program are discussed in the wake of a decision by the TCU (Court of Accounts of the Union) that, in practice, facilitated Guedes’ plans to advance the sale of federal government properties.

As shown by Sheetthe plenary of the Court of Auditors authorized the federal government to transfer public properties owned by the Union to a private fund without this operation having to be recorded in the Budget.

The release opened up internal disagreements between technicians from the court itself. The defense of one of the TCU secretariats was that the operations be included in the Budget, including for the contributions to pass through the sieve of the Legislative.

Another area argued that registration was not necessary because the transaction does not involve the movement of financial resources – a position that ended up prevailing.

The decision took place after a consultation by the Ministry of Economy on how to register the operation, which consists of using the properties to pay in FII quotas — in practice, transferring the assets to the fund.

One of the fears among supporters of the measure was that the payment of quotas would need to compete for space within the spending ceiling (a rule that limits the advance of federal expenditures to inflation). Without going through the Budget, there will be no such risk.

The court itself, however, stressed that, when the Union redeems its shares of the funds or receives dividends, the revenues obtained must be in the Budget.

The process at the TCU was reported by Minister Jorge Oliveira, who was once Chief Minister of the General Secretariat of the government of Jair Bolsonaro (PL). He was close to the president, who nominated him for a court seat.