With projected revenues this year of 800 million soles, V&V Real Estate Group has focused its business on the mass residential segment, but now seeks to begin building clinics and schools. At the same time, the company is strengthening its position in Florida, where it has launched three projects from a portfolio valued at US$1.6 billion and has entered the restaurant business.

The letter V is perhaps the most special one for Víctor Arce, founder and CEO of V&V Real Estate Group. It is not only the first letter of his name, his wife Viviana’s, and his father’s—which explains the name V&V—but also the initial of his three children and of the holding’s companies. “The V was a symbol of good luck. It has always meant ‘victory,’ ‘a good outcome,’” says the executive. Arce created his company in 1996, five years after graduating in business administration, amid rampant inflation and a drought of real estate projects in Peru. Today, he leads a group made up of four companies whose business has crossed national borders: V&V Bravo, the construction arm that began diversification in 2008; V&V Comercial, in charge of performance and commercial intelligence; VYVE Inmobiliaria, a developer of affordable housing through the state program Techo Propio and the Mivivienda Fund; and Vertical Developments, the Florida-based developer founded in June 2021 in partnership with Location3 Investments.

This is the first time Arce has given an interview in the 28 years since he bought his first plot of land to build an eight-unit apartment building in Casuarinas Baja. Until now, the managers of the group’s other companies had taken on that role. He now has news to share, reflecting how the business has been repositioned over the last three years and outlining plans for the future.

It was precisely in 2021, on the group’s 25th anniversary, that the company took the turn that led to its current structure. That year, they decided to step away from developing homes for the A segment—buildings of 20 to 30 apartments—and move into the “mass” segment, meaning buildings of around 100 units or more. “From 2021 onward, our strategy shifted to that kind of building: 70-square-meter apartments where demand is very strong. We locate them near universities. It’s still Modern Lima, but no longer the top-tier areas,” explains Arce. He notes that what shifted the group’s strategy was Peru’s political and macroeconomic instability, the crisis of confidence during 2021, and capital flight amid the pandemic, the change of government, and the election of former president Pedro Castillo. According to the Ministry of Economy and Finance, some US$20 billion left the country between 2021 and 2022. 

 

Profitable, but on Standby

Today, the group has 14 residential projects in Lima and two in the provinces—both in Piura (one outside the city and another in Sullana, each with 1,000 homes). These projects are part of their social housing portfolio, which the group expects to expand this year with another project outside the capital (1,500 homes, potentially in Chincha or Ica). In Lima, they recently launched a project in Chorrillos benefiting from the Mivivienda Fund’s “green bond” (which rewards water and energy efficiency), and between July and November they plan to launch similar projects in Surquillo and Santa Catalina.

According to Arce, the group has decided to freeze investment in offices and hotels—two real estate segments that in 2020 represented 12% and 10% of its Peruvian portfolio, respectively. In offices, the group owns two buildings: Prisma, in Magdalena, and Vértice, in Jesús María. “We located those buildings there precisely to avoid going into the premium segment and later facing demand problems. We did it when the market was strong, and everything was placed,” he says. Currently, they own and lease 50% and 40% of those buildings, respectively, with an annual return of 16%.

In the hotel segment, they entered in 2016 with the purchase of land at the corner of La Paz and Ernesto Diez Canseco avenues, alongside a Chilean partner, at a time of “very good rates” and high tourist arrivals. “It was the perfect moment to build a hotel,” Arce recalls. Today, on that land they operate two hotels in Miraflores, managed by Meliá and Marriott. “We had bought another plot on Larco Avenue [for another hotel], but we didn’t go through with it. We had approved plans, but everything fell apart. It cost us a lot to cancel the contract with Marriott. We had to switch to a residential and commercial project. As a strategy, we decided: no more hotels,” he explains, noting that this decision was made in 2021 while accelerating expansion abroad.

A New Thesis

In June 2021, the group planted its flag in Florida. The group’s partners—Arce, Óscar Bravo, Alonso Bravo, César Paniagua, and Nicolás Labarte—had traveled to the United States to get vaccinated against COVID-19, took the opportunity to explore the market, and decided to open a subsidiary. “At first we rented a very small office,” recalls Arce.

To move the business forward, it was key to partner as co-developers with Location3 Investments, a local developer. From this alliance, Vertical Developments was born in 2021. Arce highlights several advantages of this partnership: it not only gives them access to an important network of contacts, but also shortens their learning curve in the U.S. market and, crucially, validates them with banks. “Even if we had built 100 buildings here [in Peru], it doesn’t count on our résumé,” he says, referring to the credit history required for financing in the United States.

So far, Vertical Developments owns 12 plots of land in Florida and is developing three condo projects (rental buildings) in Brickell, Coral Gables, and Orlando. For the Orlando project, they partnered with a Mexican investor, and construction is already underway. In total, this pipeline is valued at US$1.6 billion through 2028. “By 2028, we expect the projects to be developed and completed. I don’t know what percentage will be sold, but one thing that tends to happen [in the U.S.] unlike here is that people love owning property,” says Arce.

How are they financing the investment? So far, they have raised US$40 million, of which US$15 million came from the group itself. The rest came from Peruvian investors. This investor backing was one of the reasons they considered international expansion in 2021. “Many of the investors with us had kept their money here, but those who had taken money abroad wanted to invest it,” Arce notes.

Although they expect to begin generating revenue in the U.S. in 2025, Arce estimates that Florida could produce about US$400 million annually (around S/1.5 billion), with a 20% return for co-developers and investors. “The numbers are much bigger,” he stresses, comparing foreign revenues to those in Peru, where they expect S/823 million this year, distributed among real estate (S/400 million), construction (S/350 million), VYVE Inmobiliaria (S/44.5 million), performance (S/24 million), and rents and assets (S/4.5 million). Do they see the U.S. as a long-term bet? “Yes, the organization we’ve built there is solid,” Arce replies. Indeed, V&V’s Florida plan goes further. In the next two years, Arce expects to start evaluating a second batch of projects. “The cash flows are moving, the projects are underway, and it will likely be in 2026,” he projects. That year will also mark the group’s 30th anniversary.

Gastronomic Venture

“There is one more area in which we’ve diversified in the United States: gastronomy,” Arce proudly announces. “We’ve opened a restaurant in Miami: Francesco,” he reveals, noting they invested US$1.6 million in the 300-square-meter venue for 160 diners, located in Coral Gables’ municipal theater. The group won a 10-year tender to operate the Italo-Peruvian restaurant. They partnered with Franco Danovaro, the brand’s creator, who had closed it in 2016. “Francesco had strong brand recall. We hope that sales and margins follow the plan so we can standardize processes, reach franchise-level operations, and expand to other Florida cities,” Arce says, adding they aim to open one new location per year over the next five years.

Two New Bets

This year, V&V is preparing to launch two new business units. On one hand, through V&V Bravo—its construction arm—it seeks to start building clinics and schools for third parties (which currently represent 50% of that unit’s sales). “We just hired a new management team in the construction arm to begin targeting that segment,” says Arce, noting that after the corruption crisis involving Graña y Montero (now Aenza), there are few strong construction firms left in Peru. “We have a very good reputation with banks and clients. We’re going to leverage that strength […] to serve this underserved market,” he adds.

They also want to boost their capital-raising unit by launching public funds for retail and institutional investors interested in betting on housing projects in Modern and Central Lima. “These projects would enter the public fund once they have building permits, at least 25% in pre-sales, and approved sponsor bank credit lines,” Arce explains. They expect annual returns of 12% to 14.5% in soles for funds lasting 24 to 30 months. This plan is currently under review by the Securities Market Authority (SMV), and Arce estimates operations could begin within three months.

Interest Rates: The Current Brake

For Arce, the real estate business is currently restrained both in Peru and in the United States. “People think rates will go down,” he says. In Peru, the company sees the impact of that expectation in slower sales. Before the pandemic, the company’s mantra was “finished project, sold project.” While that still holds, at delivery they now have around 10% unsold.

In the U.S., high interest rates are also holding developers back. “When rates rise, funds either don’t like it or they push property prices down, because rents don’t go up. So, high bank interest rates work against property values. You have to wait for rates to come down,” he explains, referring to their condo pipeline in Florida. Once completed, such condo projects are typically acquired by investment funds that manage them.