Urbi Desarrollos Urbanos, S.A. de C.V. - Company Profile, Information, Business Description, History, Background Information on Urbi Desarrollos Urbanos, S.A. de C.V.

Av. Reforma 1401-F
Baja California

Company Perspectives

Our promise: To stimulate, protect, and recompense all action and thought that develops the Great Spirit, which consists of: Seeking truth. Trusting in you and others. Seeking well-being. Giving in order to grow. Seeking beauty. Being part of a whole.

History of Urbi Desarrollos Urbanos, S.A. de C.V.

Urbi Desarrollos Urbanos, S.A. de C.V. is Mexico's second largest homebuilder in terms of annual revenue and the largest in terms of market value. Originally operating in the states that border the U.S. Southwest, Urbi is doing an increasing amount of business in the metropolitan areas of Mexico's three largest cities. Like other big Mexican homebuilders, Urbi depends largely on low-income buyers subsidized in one way or another by the federal government, but a growing number of its sales are coming from unsubsidized middle- and upper-class customers.

Master Plan: 1981-99

Cuauhtémoc Pérez Román, the founder of Urbi, did not have the usual background for an entrepreneur. Of Cachanilla Indian ancestry, he was named for the Aztec prince who heroically but vainly led the resistance to Mexico's Spanish conquerors, and was the older son of a journalist who wrote about life in his adopted city of Mexicali and also wrote poetry. (Another son, Netzahualcóyotl, was named for an earlier Aztec king who was a philosopher and poet.) The entrepreneurial spirit seems rather to have passed to them from their paternal grandfather, who built homes in Mexicali without any knowledge of engineering. While Cuauhtémoc was attending the Hermosillo, Sonora, branch of Monterrey's Technological Institute of Graduate Studies, he founded Urbi with fellow students, including another pair of brothers, Raymundo and Javier García de León. The partners pooled the equivalent of $70,000 to start operations on a handshake basis in November 1981. They thought big, envisaging as their goal that in 20 years they would rival Empresa ICA Sociedad Controlodora, S.A. de C.V., the largest construction firm in Mexico. They signed a document in which, in words that serve as the company mission statement, they pledged "to stimulate, protect and recompense all action and thought that develops the Great Spirit." By that they did not mean religion, but agreement to defend the values of honesty, trust, and conformity between what they said and what they did.

The enterprise, like most housing construction companies in Mexico, was dedicated to building government-subsidized homes. The first undertaking was a two-stage development project: one of 211 houses and one of 204. From the fast food franchises and assembly plants of Mexicali, which lies on the frontier with California, they had learned that repetitive processes should be analyzed in such a way as to simplify each step. The enterprise was divided into a number of areas, such as finance, planning, organizational development, technique, and design, coordinated to function like a Swiss watch and to combine efficiency, aesthetics, and functionality. It was dedicated not just to putting up houses but also to linking housing with education, recreation, and business services, and even to creating a homeowning culture, one not easily translated to poor people in the northern frontier cities of Mexico.

A Spanish colonial style was adopted for both the construction and finish of Urbi's houses. They were designed to permit add-ons when the homeowners had the money to make their dwellings larger. Even though these homes were subsidized, Urbi's founders considered their owners to have the right to live in houses that were dignified and secure. These rights, however, came with certain responsibilities, such as paying the allotment for maintenance and respecting the urban image of the development as a whole.

Urbi formed a close association with Mexico's largest cement company, Cemex, S.A. de C.V. Urbi's "big brother," as some called it within the company, helped develop a formula called Concreto Comfortable, to save homeowners energy. Hewlett-Packard Co. helped the company design Urbinet, a system that allowed Urbi to anticipate changes in the tastes and needs of the housing market. Urbi did not become an official enterprise until 1988. The shares that had been in the names of the partners were redistributed between them in accordance with a system of points that took into account the initial capital contributed by each, the time devoted to the project, and a risk factor that was defined by the team. In this form Cuauhtémoc Pérez Román obtained the largest percentage of the shares.

Like many, or most, of the more than 2,000 Mexican firms engaged in housing construction, Urbi was competing for funds allocated by the federal government to subsidize this activity. Urbi's main client became the Institute of the National Fund for Workers' Housing, which in its Spanish form became the acronym Infonavit. Starting in 1972, employers were required to pay 5 percent of their workers' monthly salaries directly to this federal agency, whose mandate was to finance affordable housing for workers, chiefly by loans to homebuilders. Because Infonavit was said to have assigned construction in a preferential and inefficient manner, the agency, as of 1992, was barred from making these contracts. However, it continued to be the essential agency for subsidized housing because it extended mortgages to qualified workers and made loans to construction companies for worker housing. Also important was another federal agency, the Operating and Bank Financing Fund for Housing, known by its Spanish acronym Fovi, whose mission was similar to that of Infonavit but dedicated exclusively to public-sector workers. In 1997 the government announced a new housing credit and subsidy program called Provasi that would provide qualified applicants with direct cash subsidies instead of just offering below-market interest rates, as Infonavit and Fovi.

Expanding and Going Public: 1999-2004

Urbi, by 1999, was the second largest company in its field in Mexico and the largest in northern Mexico. It had built more than 50,000 homes and had 43 housing developments underway in 11 cities throughout the country. Furthermore, the company had territorial reserves covering more than 2,500 acres, sufficient in size for the construction of about 55,000 additional units. Because of its success in controlling costs, Urbi had the best gross profit margin in its sector, over 34 percent. Although the vast bulk of its revenue came from subsidized homes, about 5 percent derived from free market houses for middle- and upper-income clients. These homes, built in northern Mexico cities, shared certain similarities with the subsidized ones. They were, for example, in a colonial style, organized in enclosed communities, and prefabricated in such a way that each unit could be finished in two weeks. Cuauhtémoc Pérez Román, the chief executive officer, headed an experienced team that included 60 executives who had been with the company for ten or more years.

One of Urbi's strengths was in the area of post-sale service. It received a government award in 1999 for the effectiveness of its program to respond rapidly and effectively to customer complaints. Peréz Román claimed that 40 percent of the company's sales were coming from the word-of-mouth recommendations of satisfied customers. By 2005, when Urbi, in collaboration with Seguros Inbursa, S.A. de C.V., began offering a homeowners' insurance policy for clients subsidized by Infonavit, this percentage was said by the company to have climbed to 60 percent.

The government of President Vicente Fox Quesada took office in 2000 with one of its principal goals to stimulate the economy by increased home ownership. His overall goal was to grant two million mortgages during his six-year term. By 2005 the government agencies involved in this activity included the Federal Mortgage Society (SHF, by its Spanish acronym), established in 2001, which directed funds to commercial banks and Sofoles (specialized lenders). Qualifiers for SHF-backed loans could be earning as much as $75,000 a year; on the other hand, they could be very poor and completely outside the formal economy, thereby ineligible for Infonavit loans. These direct efforts to stimulate homebuilding were enhanced by economic policies aimed at reducing interest rates. Through the first four years of Fox's presidency, 1.3 million mortgage loans were made, and the beneficiaries included companies such as Urbi.

Urbi had desired for several years to go public but postponed the effort because of low demand for Mexican equities. In 2004, however, it raised $183 million in an offering that was four times oversubscribed. This offering was made not only on the Bolsa Mexicana de Valores, Mexico's stock exchange, but also in the United States and Europe, in what was the first Mexican initial public offering of stock internationally distributed since 2000. About 60 percent of the stock sold was in the form of American Depositary Receipts on the NASDAQ, and another 10 percent was sold outside of North America. The funds were expected to be used to pay down debt and purchase more land on which to build new units. Some of the money was needed to pay off the García de León brothers, who had decided to cash in their one-fifth holding in the enterprise.

By the end of 2004, Urbi's shares had risen more than 50 percent since the initial offering of stock. The Mexican housing market was booming because low rates of interest had allowed Infonavit and private lenders to sell about $400 million in mortgage-backed securities. Urbi ended the year with a gross profit margin greater than any of its competitors, and still almost 34 percent. It also had a greater market value ($1.22 billion) than any of its rivals.

The business magazine Expansión named Pérez Román its man of the year. Interviewed in a small book-lined office that aides called his "minibunker," he told Adolfo Ortega that he believed the houses that Urbi was selling, and the small cities where they were located, were the physical spaces that, together with education, most supported Mexico's middle class, which had lived through almost three decades of crises. On a side wall of the room hung a blackboard bearing the words, "Why am I doing all this?" and, below, color graphics and scrawled words comprehensible only to Urbi employees. On his desk was a book by business consultant C. K. Prahalad, arguing that the world's poor actually make up the future of the global economy. Pérez Román was said to practice yoga and meditation daily. When Urbi was preparing to go public, he left some analysts nonplussed by evoking the "Great Spirit" so often that Mexico's biggest bank ordered one of its executives to translate the entrepreneurial philosophy of the company into language that businesspeople could understand.

Urbi in 2005

Urbi recorded sales of MXN 8.19 billion ($765 million) in 2005, one-fifth higher (in real peso terms, thereby discounting inflation) than the previous year and 135 percent (in real terms) higher than in 2000. Its net profit was more than three times as high as in 2000. Its long term debt came to MXN 3.6 billion ($339.4 million) at the end of 2005. Urbi constructed a record 24,865 units in 2005, 14 percent more than in 2004 and 70 percent more than in 2000. However, the kinds of houses it was constructing and selling had been changing during this period. In 1999, almost 97 percent of the homes Urbi built were subsidized. In 2003, only 77 percent were subsidized, and sales of these houses accounted for only 60 percent of Urbi's revenues. Unsubsidized middle- and upper-class homes accounted for the remainder. The average subsidized home sold for about $22,000 in 2005, while Urbi's upper-class homes and its most expensive middle-class homes averaged almost $64,000 in price.

Urbi maintained, at the end of 2005, a land reserve of 2,874 hectares (7,101 acres) in five Mexican states, four of them bordering the United States, and the metropolitan areas of Guadalajara, Mexico City, and Monterrey. These reserves gave the company enough land to build an estimated 155,739 homes. Urbi had constructed more than 178,000 homes since its inception. The company had 58 housing developments in progress in 13 cities.

As a vertically integrated company, Urbi typically began the design and planning of a housing development with a market survey, the main purpose of which was to analyze demand for housing, the target location for the development, and design alternatives for the development and the architecture of the homes. It then obtained the necessary authorizations, approvals, permits and licenses required from government bodies and any private interests. After obtaining commitments from mortgage loan providers, Urbi prepared a work plan and timeline for the installation of infrastructure, connection of utilities, and roadways to the urban grid. A typical affordable entry-level home took approximately two to three months to build, using mainly mass-produced materials delivered to the development and assembled onsite. Approximately 90 percent or more of the construction process was being subcontracted to third parties.

At the end of 2005, Cuahtémoc Pérez Román owned nearly 30 percent of Urbi's shares of common stock. Netzahualcóyotl Pérez Román owned 22.5 percent, and public shareholders had 35.5 percent.

Principal Subsidiaries

Constructora Metropolitana Urbi, S.A. de C.V.; Cyd Desarrollos Urbanos, S.A. de C.V.; Ingener√≠a y Obras, S.A. de C.V.; Obras y Desarrollos Urbi, S.A. de C.V.; Promoci√≥n y Desarrollos Urbi, S.A. de C.V.; Propulsora Mexicana de Parques Industriales, S.A. de C.V.; Tec Dise√Īo e Ingener√≠a, S.A. de C.V.; Urbi Construcciones del Pac√≠fico, S.A. de C.V.

Principal Competitors

Consorcio Ara, S.A. de C.V.; Consorcio Hogar, S.A. de C.V.; Corporación Geo, S.A. de C.V.; Desarrolladora Homex, S.A. de C.V.


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