Risk Factors

Investing in our common shares involves a high degree of risk. You should carefully consider the risks described below before making an investment decision. Our business, financial condition, results of operations, cash flows and/or prospects could be adversely affected by any of these risks. The price of our common shares could decline due to any of these risks or other factors, and you may lose all or part of your investment. The risks described below are those that we currently believe may adversely affect us. Additional risks and factors not currently known to us, or those that we currently deem to be immaterial, may also adversely affect our business, financial condition, results of operations, cash flow and/or prospects, and/or the price of our common shares.

For the purposes of this section, when we state that a risk, uncertainty or problem may, could or will have an “adverse effect” on us or “adversely affect” us, we mean that the risk, uncertainty or problem could have an adverse effect on our business, financial condition, results of operations, cash flow and/or prospects, and/or the price of our common shares, except as otherwise indicated. You should view similar expressions in this section as having similar meaning.

RISKS RELATING TO THE COMPANY

We may have difficulties identifying opportunities for new joint ventures, or be unable to successfully negotiate and enter into such transactions, which may adversely affect us.

As an investment company, we do not directly carry out any construction or development activities. We operate through the co-development of specific projects with other real estate companies and through our portfolio companies. Accordingly, our ability to successfully identify and create new joint ventures for both co-development projects and new portfolio companies investments is essential to our growth. However, we may encounter difficulties in identifying attractive business opportunities in the future, and we may be unable to make new investments in joint ventures on favorable terms. If we are unable to make strategic acquisitions or to form new joint ventures, we may not grow as quickly as we expect, or at all, and this may adversely affect us.

Our joint ventures may be unsuccessful due to several factors.

We cannot assure you that our joint ventures will be successful and generate the financial results that we expect. Potential risks associated with our joint ventures include: (i) difficulties in maintaining good relationships with our present and future partners, (ii) financial difficulties of our partners, which could require us to make additional investments to fund our joint ventures’ capital requirements, (iii) events that may harm our reputation and trademarks, as well as those of our partners and subsidiaries, (iv) conflicts between our economic and commercial interests and those of our partners, (v) the possibility of being liable for the obligations of our special purpose vehicles, particularly for their tax, labor, environmental and/or consumer liabilities, and (vi) the existence of possible hidden liabilities in our portfolio companies that were not identified by us prior to our investment in such companies. All of these risks may have an adverse effect on us.

In addition, because our partners are generally small and/or regional family companies, they rely substantially on the skills and efforts of a limited number of persons, do not publish their financial and operating information, and are more susceptible to economic crises. These characteristics may adversely affect us, as we depend on our partners to play meaningful roles in defining and implementing the strategies of our joint ventures.

Our portfolio companies are generally organized as closely-held companies, and there is little publicly-available information concerning their businesses and financial condition. We must rely on our management team to obtain the necessary information in order to effectively evaluate the potential returns of our joint ventures. This lack of public information increases the risk of our investments, and may adversely affect us.

As a holding company, our cash flow from operations consists of distributions from our subsidiaries, and there is no assurance that their earnings will be distributed to us.

We control or hold interests in several companies, and our cash flow from operations consists of distributions from our subsidiaries in the form of dividends. Our ability to meet our financial obligations and to distribute dividends to our shareholders depends on our subsidiaries’ ability to properly manage their cash flows and generate earnings, and subsequently distribute these earnings to us. The payment of dividends by our subsidiaries is not mandatory, and such payment is generally determined by partners owning more than 50% of their capital stock. Accordingly, there is no assurance that any such funds will be made available to us, or that the funds distributed to us will be sufficient to fulfill our financial obligations or to pay dividends to our shareholders.

The loss of members of our senior management or our failure to attract and retain qualified senior management personnel could have an adverse effect on us.

Our ability to maintain our competitive position is dependant to a large degree upon the performance of our senior management team. None of our senior managers are subject to long-term employment agreements or non-competition agreements with us. There is no assurance that we will succeed in attracting and retaining qualified personnel to participate in our senior management. The loss of any members of our senior management or our inability to attract and retain qualified personnel could have an adverse effect on us.

Certain of our subsidiaries depend on the credit facilities provided by the CEF, and institutional and/or operating changes in this government agency could adversely affect us.

We frequently use credit facilities provided by the CEF to finance the sale of residential units developed for middle and low middle-income classes, especially those developed by Goldfarb. These credit facilities are essential to leverage our residential unit sales capacity and to enable us to develop new projects, because their availability reduces our need to use our own capital to grant loans to our customers. The CEF is a government agency and is vulnerable to political influence. There may be changes to the current rules and policies for granting credit facilities, which could prompt us to seek other sources of financing in the future. If new sources of financing are not made available to our customers under similar conditions as those granted by CEF, we could be adversely affected.

We do not have financial statements that permit an analysis of the historical evolution of our business and financial condition.

Until August 2006, when some of the contributed subsidiaries were contributed to us, we had no operating assets and had not generated any relevant revenue, except for the assets and revenue related to Goldfarb and Avance. Our financial statements for periods prior to August 2006 cannot be used to properly analyze the historical performance of a substantial portion of our current assets and operations, as they do not include financial information concerning the contributed subsidiaries for periods prior to August 2006. Accordingly, except as otherwise specifically noted herein, the financial information included in this offering memorandum with respect to all periods prior to December 31, 2006 is derived from our pro forma consolidated financial statements. See “Presentation of Financial and Other Information—Pro forma Consolidated Financial Statements.” Our pro forma financial statements do not reflect our historical financial condition and results of operations. They reflect, instead, our financial condition and results of operations consolidated with the historical financial condition and results of operations of the contributed subsidiaries. See “Presentation of Financial and Other Information.” For these reasons, our pro forma financial statements may not adequately or accurately reflect our past performance and our projections for the future.

Our use of an outsourced labor force exposes us to labor and social security liabilities.

We have a reduced number of employees. As of June 30, 2007, approximately 90.0% of our direct and indirect labor force was outsourced. The use of an outsourced labor force, mainly with respect to the hiring of construction companies, exposes us to labor and social security liabilities. We may be held liable

for the outsourcing companies’ labor and social security debts if such companies violate any labor and/or social security laws. These liabilities are difficult to assess and, although we may legally seek indemnification from the outsourcing companies, they may adversely affect us.

Problems with our real estate projects that are beyond our control may damage our reputation and expose us to civil liability.

Our reputation and the quality of our real estate projects have a significant impact on our sales and our growth. The timely completion and quality of construction of our real estate projects depend on certain factors that are beyond our control, including the quality and availability of materials supplied for our projects and the technical skills of the construction companies and contractors that we hire. The occurrence of one or more problems in our real estate projects may adversely affect our reputation, which could in turn adversely affect our future sales, as well as expose us to civil liability. All of these risks could have an adverse effect on us.

RISKS RELATING TO THE BRAZILIAN REAL ESTATE INDUSTRY

The Brazilian real estate industry is highly competitive, which could adversely effect our market position and our expansion strategy.

Increased competition in the Brazilian real estate market by our current and future competitors, including foreign competitors, could increase our land acquisition costs, and make it impracticable to acquire new land for real estate development on advantageous terms. Competition may also impact the profitability of our operations, including by reducing the prices we are able to realize for our residential units and by increasing our marketing costs. All of these risks could adversely affect us.

In addition to being competitive, the Brazilian real estate industry is highly fragmented, and lacks high-entry barriers that would restrict new competitors from entering the market. The main competitive factors in the real estate development business include availability and location of land, terms and availability of financing, characteristics of the projects, quality of the developed residential units, reputation of the developer and ability to enter into joint ventures with other developers. We compete with a number of residential and commercial developers and real estate companies in seeking land for acquisition, obtaining financial resources for development and identifying prospective buyers and tenants. Other companies, including foreign companies working in joint ventures with local companies, may become active in the real estate development business in Brazil in the near future, further increasing competition in this industry. If we fail to respond to such pressures as promptly and effectively as our competitors, we could be adversely affected.

Scarcity of financing and/or increased interest rates may reduce demand for real estate, which could negatively affect the real estate market and adversely affect us.

Scarcity of financing and/or an increase in interest rates may adversely affect the ability or willingness of prospective buyers to purchase the units in our real estate development projects. Most of the bank financing obtained by consumers for the purchase of real estate comes from the SFH, which in turn is financed with funds raised from savings account deposits. The CMN may reduce the amount of funds that banks are required to make available for real estate financing. If the CMN restricts the amount of funds available to finance the purchase of real estate, or if there is an increase in prevailing interest rates, demand for and construction of new properties could decrease, which may have an adverse effect on us. Additionally, if the Brazilian economy experiences a recession, our sales may slow down and customers could default, which could also have an adverse effect on us.

Our activities are subject to extensive regulation, which may increase our costs and limit our expansion.

The Brazilian real estate business is subject to extensive building and zoning regulations imposed by federal, state and municipal authorities that govern land acquisition, development and construction activities primarily through zoning restrictions, license requirements, and consumer protection laws. We are required to obtain the approval of various governmental authorities for our development projects. New laws or regulations could be adopted, enforced or interpreted in a manner that could have an adverse effect on us.

Our operations are also subject to Brazilian federal, state and municipal environmental laws and regulations. These environmental laws may result in delays, may cause us to incur substantial costs, and may prohibit or severely restrict commercial and residential development activities in environmentally sensitive regions. Regulations governing the Brazilian real estate industry as well as the environment have tended to become more restrictive over the years, and this increased regulation could have an adverse effect on us.

In addition, zoning and environmental laws may change after the acquisition of a parcel of land and before its development, causing delays and modifications to the originally proposed project, which may have an adverse effect on us.

The real estate industry is subject to risks generally associated to development and construction activities.

The risks associated with the development and construction activities of real estate companies like ours include, without limitation, the following: (i) due to the significant time lag between the commencement and completion of a project, possible changes in the macroeconomic scenario during such period, such as the devaluation of land stock or other demographic changes, could occur and make our projects less attractive to our customers; (ii) construction costs may exceed initial estimates; (iii) the developer or the construction company may not be allowed to index their costs to certain industry inflation rates or to index their receivables, as currently permitted, which could potentially make the real estate project economically unattractive; (iv) the level of customer interest in a project, or the residential unit sales price necessary to sell all of the residential units, may not be sufficient to make the project profitable; (v) the lack of customer interest or the difficulty in obtaining customer financing may reduce the pace of sales, generating additional selling and marketing costs; (vi) there may be interruptions in the supply or volatility in the prices of construction materials and equipment; (vii) construction and sales may not be concluded on time, resulting in higher costs; (viii) we may face difficulties in acquiring land, such as environmental and land-related negotiations; (ix) land that we acquire may be expropriated, or the beginning of public works may impair its use or access; and (x) project costs may be increased as a consequence of delays during development and increases in the construction costs, since, except for Goldfarb, none of our subsidiaries performs its own construction activities. The occurrence of one or more of these factors may have an adverse effect on us.

Real estate projects entail risks usually associated with granting consumer financing.

As is common in our industry, we grant loans to some of our customers. As a result, we are subject to the risks associated with this financing activity, including the risk of default in the payment of principal or interest on our loans and the risk of increased costs for the funds we raised. In addition to the interest rate of 12% per year, our sales agreements provide for monetary adjustment based on the National Index of the Construction Cost (¥ndice Nacional de Custo da Construção), or INCC, applicable during construction of the residential units, and on the General Market Price Index (¥ndice Geral de Preços - Mercado), or IGP-M, applicable after the completion of the work. Both these indexes vary according to the inflation rate. If there is an increase in the inflation rate, our customers’ indebtedness may increase as a result of the sales agreements, causing higher customer default. This could have an adverse effect on us. In the event of default after the delivery of financed residential units, Brazilian law provides for the filing of a judicial collection claim to recover the amount owed or to repossess the unit. The collection of overdue amounts or the repossession of property usually takes two years. Thus, if a customer is in default, we cannot guarantee that we will recover the full amount of the unpaid principal, which could adversely affect us.

Along with other real estate companies, we raise funds at different rates, and we may be unable to match our payment conditions with the terms of the loans we grant to our customers. This possible mismatch of rates and terms between the funds we raise and the loans we grant could adversely affect us.

The real estate market may be subject to a liquidity crisis.

Like other companies in the real estate industry, we depend on a variety of factors outside our control in order to build and develop real estate projects. These factors include the availability of market resources for customer financing, land acquisition and construction. We also rely on our customers to make timely payments on residential units that they buy for which we provide financing. Any scarcity of market resources may decrease our sales capacity due to difficulties in obtaining credit for construction or land acquisition, or due to fewer launchings of new projects. The combination of these risks could reduce our earnings and our liquidity, which could adversely affect us.

In addition, a possible legislative change, allowing employees to use the Severance Payment Fund (Fundo de Garantia por Tempo de Serviço), or FGTS, for purposes other than the ones currently permitted, may reduce the overall funds available to purchase real estate properties.

An increase in tax rates or the creation of new taxes on real estate transactions may have an adverse effect on us.

The real estate industry is influenced by government policies and an increase in the tax rates applicable to the industry could adversely affect real estate transactions. The Brazilian government has changed tax rates and created new taxes in the past, as well as modified the system of taxation with some frequency. If the government increases tax rates or creates new taxes on the purchase and sale of real estate while our sales contracts are in force, we may suffer an adverse effect if we cannot amend these agreements in order to pass such increased costs on to our customers. In addition, an increase in, or creation of, new taxes imposed on the purchase and sale of real estate that are passed on to our customers may increase the final price to our customers, which could potentially reduce the demand for our properties, causing an adverse effect on us.

Furthermore, the Brazilian government may decide to terminate the “presumed profit” method used to calculate corporate income taxes used by many of our subsidiaries, in particular the special purpose vehicles established for co-development activities. If the government replaces the latter method with the “real profit” method, the tax burden on our special purpose vehicles would increase and we could be adversely affected.

We are exposed to numerous risks associated with the incorporation, construction, lease and sale of real properties.

We are exposed to risks related to the real estate sector, including (i) changes in supply and demand for real estate projects in the regions in which we operate, (ii) reductions in the sales of units in our projects, (iv) strikes and (v) environmental and zoning regulations, in addition to the following specific risks:

  • economic conditions in Brazil may adversely affect growth of the real estate business generally, by means of an economic slowdown, an increase in interest rates, exchange rate fluctuations and political instability;
  • failure to record title to the properties we acquire may expose us to the risk that sellers acting in bad faith will resell the same property;
  • bankruptcy or significant financial difficulties of a major real estate company, may adversely affect the real estate market as a whole, particularly if customers lose confidence in other real estate companies;
  • potential buyers may have a negative perception concerning the security, convenience and attractiveness of our real estate properties and the regions where they are located;
  • increases in operating costs, including insurance premiums, real estate taxes and utilities, may affect our profit margins;
  • real estate development opportunities may slow down or disappear; and
  • construction and sale of units may not be completed on schedule, resulting in increased construction costs or early termination of contracts to purchase our units;

The occurrence of any of these factors may have an adverse effect on us.

Additionally, pursuant to the terms of our standard contracts to sell our units, the purchasers have the right to terminate the contract, without incurring any penalty, and to receive back a significant portion of payments made to us as adjusted for inflation, if the purchased units are not timely delivered, i.e. within 180 days counted as from the original delivery date. We cannot guarantee that we will not be subject to future construction delays in our projects. In addition, according to certain provisions of the Brazilian Civil Code, we provide a five-year warranty with respect to structural defects which may be exercised during such period of time. The occurrence of any such events may also have an adverse effect on us.

RISKS RELATING TO THE OFFERING AND OUR COMMON SHARES

An active and liquid market for our common shares may not develop, which may limit opportunities to sell our common shares.

We cannot anticipate that the market for our common shares will be sufficiently liquid. The Brazilian securities market is substantially smaller, less liquid, more volatile and more concentrated than the major international securities markets. For example, the BOVESPA had an exchange capitalization of approximately R$1.971 trillion as of June 30, 2007, and an average daily trading volume of R$4.0 billion in the six months ended June 30, 2007. In contrast, the New York Stock Exchange, or NYSE Euronext, had a market capitalization of US$30.8 trillion as of June 30, 2007, and an average daily trading volume of US$127 billion during the first six months of 2007. The top ten stocks according to trading volume accounted for approximately 44.38% of all shares traded on the BOVESPA in the six-month period ended June 30, 2007. These market characteristics may substantially limit the capacity of holders of our common shares to sell them at the price and time when they choose, and this may negatively affect the market price of our common shares.

The sale of a significant number of our common shares after this offering may adversely affect their market price.

We, our controlling shareholder, and our directors and executive officers will agree that, subject to certain exceptions, we will not issue, offer, sell, buy, contract the sale, or otherwise dispose of, until six months after the date of this offering memorandum, any of our common shares, or any options or warrants regarding our common shares, or any securities convertible into, or exchangeable or exercisable for, our common shares or representing a right to receive our common shares. In addition, in accordance with the listing rules of the Novo Mercado segment of BOVESPA, the controlling shareholder and the members of the board of directors will still be prevented from selling and/or offering to sell, until March 1, 2008, more than 40% of the shares and derivatives thereof held immediately after the initial offering of our common shares (which took place on January 24, 2007). If any of the shareholders decides to sell a significant number of our common shares, or if the market perceives an intention to sell a significant number of our common shares, the market value of our common shares may decrease significantly.

We may need additional funds in the future and may issue additional shares of our common stock in lieu of incurring indebtedness, which may result in a dilution of investors’ interests in our common shares.

We may need to raise additional funds and, in case public or private financing is unavailable or if our shareholders decide, we may issue additional common shares. Any additional funds obtained by such a capital increase may dilute your interest in us.

We may be subject to shareholders’ alliances or conflicts, in addition to other potential events deriving from the absence of a shareholder or group of shareholders holding more than 50% of our capital stock.

Our current or new shareholders may enter into certain alliances or arrangements to form a controlling group to control us. Such a controlling group may unexpectedly change our current corporate policies and strategies, including by dismissing our current senior management. Additionally, we may become more vulnerable to hostile takeovers attempts and the conflicts inherent to such activities.

On the other hand, the absence of controlling group may adversely impact the efficiency of our decision making process, insofar as the minimum quorum required by law for approval of certain matters may not be met. Additionally, senior management and minority shareholders may also be deprived from certain protections provided by the Brazilian Corporate Law concerning illegal or abusive action taken by other shareholders. Consequently, we may experience difficulties to obtain proper indemnification for any losses we may incur.
Changes in our management team, corporate policies and strategies, shareholders’ disputes or any takeover attempt may adversely affect us.

Holders of our common shares may not receive any dividends.

According to our by-laws, we must pay our shareholders at least 25% of our annual adjusted net income as dividends, calculated and adjusted pursuant to the Brazilian Corporate Law. This adjusted net income may be capitalized, used to absorb losses or otherwise retained as allowed by the Brazilian Corporate Law, and may not be available to be paid as dividends. In addition, we are allowed to suspend the mandatory distribution of dividends in any particular fiscal year if our board of directors decides and informs our shareholders that such distribution would negatively impact our financial condition. See “Dividends and Dividend Policy.”

Dividends paid by us will not be eligible for the favorable rate of U.S. federal income taxation applicable to certain “qualified dividend income.”

Dividends received before January 1, 2011 by non-corporate U.S. shareholders on shares of certain foreign corporations will be subject to U.S. federal income tax at lower rates than other types of ordinary income if certain conditions are met. However, because our common shares are not readily tradable on an established securities market in the United States and there is no income tax treaty between Brazil and the U.S., we currently do not expect that those conditions will be met. As a result, distributions on our common shares paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles, will generally be taxable as ordinary income to United States shareholders and will not be entitled to a reduced rate of taxation. See “Taxation—Certain Material U.S. Federal Income Tax Consequences—Taxation of Dividends.”

The protections afforded to minority shareholders in Brazil are different from those in the United States and may be more difficult to enforce.

Under Brazilian law, the protections afforded to minority shareholders are different from those in the United States. In particular, the legal framework and case law pertaining to disputes between shareholders and us, our directors, our officers or our controlling shareholder, if any, is less developed under Brazilian law than U.S. law and there are different procedural requirements for bringing shareholder lawsuits, such as shareholder derivative suits, which differ from those you may be familiar with under U.S. and other laws. There is also a substantially less active plaintiffs’ bar dedicated to the enforcement of shareholders’ rights in Brazil than in the United States. As a result, in practice it may be more difficult for our minority shareholders to enforce their rights against us or our directors or controlling shareholders than it would be for shareholders of a U.S. company.

Holders of our common shares may face difficulties in serving process on or enforcing judgments against us and other persons.

We are a corporation (sociedade por ações) organized under the laws of Brazil, and all of our board members, executive officers and independent public accountants reside or are based in Brazil. Most of our assets and those of these other persons are located in Brazil. As a result, it may not be possible for you to effect service of process upon us or these other persons within the United States or other jurisdictions outside Brazil. Because judgments of U.S. courts for civil liabilities based upon the U.S. federal securities laws may only be enforced in Brazil if certain conditions are met, you may face greater difficulties in protecting your interests in the case of actions by us or our board of directors or executive officers than would shareholders of a U.S. corporation.

There is a risk that we are a passive foreign investment company, which could result in adverse United States tax consequences to United States investors.

Adverse United States federal income tax rules apply to holders owning shares of a “passive foreign investment company,” or PFIC, directly or indirectly. We will be classified as a PFIC for United States federal income tax purposes if 50% or more of the gross value of our assets (based on an annual quarterly average) is attributable to assets that produce passive income, or 75% or more of our annual gross income is passive income. Although, based on current estimates of our income and assets, we do not expect that we will be treated as a PFIC, this determination depends on various facts that are inherently uncertain and could change from year to year. If we are treated as a PFIC, such a characterization could result in adverse United States tax consequences to United States investors in our common shares. In particular,
absent an election described below, a United States investor would be subject to United States federal income tax at ordinary income tax rates, plus a possible interest charge, in respect of gain derived from a disposition of our shares, as well as certain distributions by us. In addition, a step-up in the tax basis of our shares would not be available upon the death of an individual shareholder. If we are treated as a PFIC for any taxable year, a United States investor may be able to make an election to “mark-to-market” our shares each taxable year and recognize ordinary income pursuant to such election based upon increases in the value of our shares. For a more detailed discussion of the potential tax impact of being a PFIC, see “Taxation—Certain Material U.S. Federal Income Tax Considerations—Passive Foreign Investment Companies (“PFIC”).”

RISKS RELATING TO BRAZIL

The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy. This involvement, as well as Brazilian economic and political conditions, could adversely affect our business and the market price of our common shares.

The Brazilian economy has been characterized by frequent, and occasionally drastic, intervention by the Brazilian government, which has often changed monetary, credit and other policies to influence Brazil’s economy. The Brazilian government’s actions to control inflation and affect other policies have often involved wage and price controls, currency devaluations, controls on remittances abroad, fluctuations of the base interest rate of the Central Bank, as well as other measures. We have no control over, nor can we foresee, any measures or policies that the Brazilian government may adopt in the future. We may be adversely affected by changes in the policies of the Brazilian government, in addition to other general economic factors, including, without limitation:

  • economic and social instability;
  • inflation;
  • negative diplomatic developments;
  • exchange controls and restrictions on remittances abroad;
  • tax policy and amendments to the tax legislation;
  • interest rates;
  • liquidity of domestic and foreign capital and lending markets;
  • exchange controls and restrictions;
  • expropriation of privately-owned land;
  • environmental and sanitary laws and regulations; and
  • other political, social and economic policies or developments in or affecting Brazil.

Government efforts to curb inflation, notably by increasing official interest rates, may contribute to economic uncertainty in Brazil, adversely affecting our operations and the market value of our common shares.

The Brazilian government has taken certain measures to combat inflation that have contributed to economic uncertainty and heightened the volatility of the Brazilian securities market. The Brazilian government’s measures have frequently included the maintenance of a restrictive monetary policy with high interest rates, which restricts the availability of credit and hinders economic growth. Consequently, interest rates have presented significant fluctuation. For example, the official interest rates in Brazil at the end of 2002, 2003, 2004, 2005, 2006 and June 30, 2007, were 25.0%, 16.5%, 17.8%, 18.0%, 13.25% and 12.00%, respectively, as established by Central Bank’s Monetary Policy Council (Conselho de Política Monetária do Banco Central), or COPOM. On the date of this offering memorandum, the official interest rate was 11.25%, which is still considered too high to spur economic growth. Should Brazil experience high inflation rates again in the future, we cannot guarantee that we will be able to pass on the full increase in costs in our sales price. An increase in inflation rates may also be accompanied by an increase in interest rates, which would increase the costs of financing available in the market. This increase may also affect our customers’ ability to make payments for the residential units they have acquired, generating higher customer defaults and adversely affecting us. In general, because there is a strict relation between the real estate industry growth and the growth of the economy as a whole, high interest rates may hinder the growth of our real estate development activities.

Exchange rate instability may adversely affect the Brazilian economy and the market price of our common shares.

As a consequence of several inflationary pressures, the Brazilian currency has been devalued periodically during the last four decades. Throughout this period, the Brazilian government has implemented various economic plans and adopted a number of exchange rate policies, including sudden devaluations, periodic mini-devaluations during which the frequency of adjustments has ranged from daily to monthly, floating exchange rate systems, exchange controls and dual exchange rate markets. From time to time, there have been significant fluctuations in the exchange rate between the Brazilian currency and the U.S. dollar and other currencies. For example, the real devalued 18.7% in 2001 and 52.3% in 2002 against the US dollar. Although the real appreciated 18.2%, 8.1%, 13.7% and 8.7% against the US dollar in 2003, 2004, 2005 and 2006, respectively, we cannot guarantee that the real will not again be depreciated or devalued against the US dollar. On June 30, 2007, the exchange rate of the real to the U.S. dollar was approximately R$1.926 to US$1.00. See “Exchange Rates.”

The devaluation of the real against the US dollar may create additional inflationary pressures in Brazil and increase interest rates, which may negatively affect the Brazilian economy and have an adverse effect on us.

Economic and market conditions in other emerging market countries may adversely affect the Brazilian economy and, therefore, the market price of our common shares.

The market for securities issued by companies operating in Brazil is influenced by economic and market conditions in Brazil, and to a certain extent, in other Latin American and emerging market countries. Although economic conditions are distinct in each country, the reaction of investors to events in one country may cause the capital markets in other countries to suffer fluctuations. Political, economic and social events in other emerging market countries, including in Latin America, or investors’ perception of increased risk because of crises in other emerging markets, may adversely affect the availability of credit for, and the price of foreign commodities of, Brazilian companies, resulting in a significant outflow of resources from Brazil and a reduction in the level of foreign currency invested in Brazil.

If any such political, economic and social events in other emerging market countries were to affect the Brazilian capital markets, our ability to borrow funds at an acceptable interest rate or to raise additional equity capital when and if there should be a need for us to do so may be adversely affected.

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