Opinion – From Grão to Grão: Did Globo do a good deal selling its headquarters in São Paulo?

Last Friday, the real estate fund Vinci Offices FII released a relevant fact, informing the acquisition of 100% of Globo’s headquarters in São Paulo. This operation is emblematic to explain several doubts I receive from readers. Today I will assess the seller’s perspective and, tomorrow, I will comment on the transaction from the buyer’s point of view.

Globo will receive a total of R$ 522 million for the sale, equivalent to R$ 13,369/m². It also signed an atypical lease for 15 years, under which it undertakes to pay R$84.67/m² monthly, annually adjusted by the IPCA.

The difference between a typical lease used for residential rentals and an atypical lease is that the former can be terminated with a small fine. In the case of an atypical contract, the fine is usually the payment of rent until the end of the contract, that is, for the remainder of the 15 years.

At this point, the question always arises: does it pay for a company to get rid of its own property and pay rent? Wouldn’t paying rent be throwing money away?

Individuals should think more like legal entities in investment decisions. Real estate is a type of financial asset. So, it is necessary to evaluate on this perspective.

For example, imagine that you have $1 million in cash and you are offered two investment alternatives, named “A” and “B”, with equivalent risk and with an expected return of 12% and 15% per year, respectively. Which of the two alternatives would you invest in?

Putting it that way, the answer seems obvious. Everyone would choose alternative “B” with an expected return of 15% per year.

However, when the subject is immobile, it usually seems that most people think differently. Mainly, if the property is the residence itself or the company’s headquarters.

Now imagine yourself in the company’s shoes. You have R$ 522 million in hand and can decide between investing in a property or in your own business. Which one would you invest in?

If the answer is to invest in real estate, sell your business and go to work in the real estate rental business.

Globo’s decision demonstrates that the company believes that its business should generate a return greater than 7.6% per year, corrected by the IPCA, as it is this return that the property must produce at the price it sold.

In 15 years, assuming she is right, the R$ 522 million invested in her business today will be worth much more than the property she occupies.

Paying rent is not throwing money away, it is financing the operation of your business with third-party capital. I explain below.

Imagine that Globo did not have this property, this operation would be equivalent to borrowing R$ 522 million and paying IPCA + 7.6% per year for 15 years. The rate for a public bond with the same term is IPCA + 5.1% per annum. In other words, it would be paying a premium of just 2.5% per year for credit risk.

The next time you feel distressed about renting, understand how someone is “lending” you money. What you really should be concerned about is how well you are borrowing this “loan”.

It is important to understand that any transaction must always be evaluated in light of the information, economic scenario and current interest rates and risks.

At some point in the future, with the dynamics of the economy, someone might even say that one of the parties has benefited. For example, if the TV business is not successful, the land would have been something more valuable to keep.

However, at the moment the operation is being carried out, it seems that Globo did a good deal.

Michael Viriato he is an investment advisor and founding partner of Investor’s House

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