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View of Água Espraiada, São Paulo © Matheus Hidalgo
From the Field

The Brazilian Experience of Financialization Through Urban Redevelopment: The Case of “Urban Operations”

Laisa Stroher examines the history of large-scale urban regeneration projects in Brazil and shows how a policy instrument initially designed to respond to a lack of public funding has morphed into a tool that has helped transform urban land into a financial asset, leading ultimately to the displacement of populations without delivering on the initial social promises.

Large-scale urban development projects and their contradictions feature prominently in the literature on urban neoliberalization and planning. In Brazil, the market-friendly urban-development policy measures known as Operações Urbanas—literally “Urban Operations” (hereafter “UOs”)—are no exception. I reflect here on three historical steps that led to transforming UOs into a “financializing policy instrument” (Sanfelici and Halbert 2019) conducive to neoliberal urbanism. Financializing policy instruments can be understood as political devices that help facilitate the entanglements between the state and viewpoints, calculative practices, and valuation techniques that are specific to financial markets. From its inception in the late 1980s in São Paulo, UO funding has undergone a series of transformations, a process that in turn has transformed land and real estate into an asset class traded on financial markets.

This gradual transformation has resulted in an increasingly complex and financialized rationality being incorporated into UOs, first by transforming their financing mechanism into a tradable financial asset, and later through articulation with other instruments such as public–private partnership contracts (PPPs), investment funds (IFs), real-estate investment trusts (REITs), and publicly traded companies. While public officials and experts have claimed that UOs should serve to channel private investments into funding urban regeneration, I argue that these mechanisms have instead been used to conceal the capture and channeling of public resources to selective territories.

I will begin by exploring and discussing the perspective and the main arguments adopted by UOs’ promoters (such as public administrators, urban professionals and developers) before reflecting on some of their limitations, based on the analysis of how UOs have recently been implemented in São Paulo. I will then contrast this case with that of Rio de Janeiro, which served as a laboratory to complete the transformation of UOs into a financializing instrument, and which has since inspired the development of similar technologies. The case of Rio illustrates how the implementation of UOs eventually led to the capture of public resources for exclusionary renewal projects along with the transformation of land into an asset class, namely a commodity whose value is based on the expectation of future revenues it can provide [1]

The origin of Urban Operations as a “magic formula”

Like urban-development projects in many other countries, UOs in Brazil have emerged as a response on the part of local governments to austerity policies that have resulted in the downsizing or outright extinction of intergovernmental transfers and traditional sources of urban finance provided by the federal government. UOs were conceived in the late 1980s by the municipality of São Paulo in partnership with local real-estate contractors and developers, with the promise of articulating real estate, finance capital, and the state in order to promote area-based urban transformations.

The creators of the UO defined it as a kind of “magic formula” whereby the municipality would define an area in which it wanted to carry out an urban development project and offered incentives to attract private actors, whose investments were supposed to help fund the social and physical infrastructure that would serve the newly created urban areas. These incentives consisted of exceptional measures relating to density, and offered extra building rights (direitos adicionais de construção, hereafter additional building rights or ABRs) in exchange for a fee paid by the developer to City Hall when the project receives planning permission. The revenue collected from the sale of these additional building rights have to be reinvested within the UO’s perimeter, in order to fund public services and facilities (such as social housing, road improvements and public transportation). As a result of these improvements, it is expected that land prices will rise, and thus also the level of the fee charged by the municipality, which is based on the value of the land. Consequently, a hypothetical cycle is created that is (supposedly) beneficial to all the stakeholders involved: City Hall, the local population, developers, and contractors. One of the inspirations for this concept was the French experience of zones d’aménagement concerté, or ZACs (mixed development zones). [2]

Cepacs: an attempt to financialize additional building rights and obtain advance resources

Since 2004, ABRs have been transformed into a financial asset known as Certificados de Potencial Adicional Construtivo, or Cepacs (“Additional Building-Rights Certificates”). These bonds are periodically sold by São Paulo City Hall in public auctions via the stock exchange. Each Cepac confers the right to build a specific quantity of additional square meters of construction. Certificates may also be traded in secondary markets as investors seek capital gains by betting on an increased Cepac resale value. The probability of a Cepac price hike in the secondary market is mainly linked to its scarcity in the primary market, which may occur, for example, at a time when the real-estate market is booming and the number of Cepacs on offer in auctions falls short of demand.

In Brazil, since the late 1990s, municipalities have been prohibited from securitizing their debts and taxes, which consists of the act of transforming these income streams into tradable titles in the capital market. This situation differs from that of other countries, such as the United States, where tax-increment financing (TIF) titles have been used to securitize expected property-tax increases (see Weber 2010). Cepacs, which are considered receivables, thus became a means for municipalities to circumvent regulations which prohibited the securitization of other types of income earnings.

One of the most frequent justifications—used by the defenders of the instrument, such as urban-planning consultancies and public administrators—for the transformation of ABRs into receivables traded on stock markets relates to the anticipation and capitalization of future revenues. Instead of city halls collecting fees gradually, as real-estate developments are approved, it becomes possible to receive the fees up‑front by selling “packages” of Cepacs in auctions. In this sense, Cepacs have been instrumental for urban governments in bringing forward future financial flows into the present.

A second justification refers to Cepacs’ potential to expand the pool of ABR buyers. As they are financial titles that can be acquired by investors of any kind—not just real-estate developers—they are likely to enhance revenues for city halls.

A third argument relates to the pricing of ABRs, which is supposed to have become more impersonal. The previous method of calculation, based on land prices, was widely criticized by urban planners because of the interference of private interests in negotiating the final value of the fee. [3] By contrast, in the case of Cepacs, the price of ABRs is defined by “modern” techniques derived from corporate finance, such as the discounted-cash-flow and residual-value models, through studies conducted by financial consultancies. Based on the combination of these two methods, the starting point for defining the value of ABRs has become the minimum cost level that guarantees developers’ profit expectations based on their own projections (as calculated using metrics such as the internal rate of return they expect to obtain through real-estate developments). Pricing has also been guided by the objective to guarantee viable projections for asset-price appreciation in the capital market. These factors combined to reduce the unit price of ABRs. For example, while according to the original methods of calculation (based on land price) the average cost of the developer’s contributions was around 42% of the price per square meter of land, the price charged in 2004 for Cepacs in one of the most expensive areas of São Paulo (Avenida Berrini in the Faria Lima UO) corresponded only to about 3% of the price per square meter. I argue that this is a reinvented and updated form of private-sector interference in the design and implementation of urban policy, as its own private expectations of profit were incorporated into calculation practices under the supposedly technical and neutral guise of economic studies.

Urban Operations in practice: financialization without financial investors

Twenty-five years after the first implementations of UOs, only two (out of four ongoing experiences, and several unsuccessful attempts to start others) have been successful in terms of selling Cepacs: Faria Lima UO and Água Espraiada UO. Not coincidentally, these two UOs are located in the heart of the highest-value area of São Paulo, in the city’s renowned southwest sector, where the largest public and private investments have been historically concentrated. This success was also possible owing to the specificity of the complex coalition of actors and institutions involved (City Hall, large contractors, developers, architectural firms, national pension funds linked to state-owned companies, managers of real-estate investment trusts), which, at least since the 1960s, have had a particular interest in developing a new luxury centrality in that locality (Fix 2011).

The presence of pension funds has ensured the success of these UOs, not because they directly invested in Cepacs, but because they invested in real-estate investment trusts (REITs) [4]. Most investments in REITs in metropolitan São Paulo are concentrated within the perimeter of these two UOs, and occurred in conjunction with the implementation of the UOs. The pension funds were one of the biggest investors in REITs during the 1990s, which led to an appreciation of real-estate values within UOs and in surrounding areas. These conditions (prime location and a stable growth coalition) are not easily replicable. This helps to explain why the materialization of UOs takes much more than just the “magic formula” of UOs in order to work.

Contrary to the idea that UOs would attract financial investors, Cepacs in all ongoing UOs have until now been mainly bought by local developers and builders. This situation illustrates a truncated financialization scenario, i.e. a scenario where the instruments and calculation techniques of capital markets have been imported, but where capital-market investors are nowhere to be seen (Klink and Stroher 2017). One reason for this situation lies in the high interest rates of federal government bonds, which make almost any other type of investment less attractive to financial investors (in recent decades, Brazil was the country with the highest interest rates in the world). Another reason is the fact that Cepacs do not provide a periodic income stream, which is what most risk-adverse investors are usually looking for.

Even without financial investors, Faria Lima and Água Espraiada UOs raised a large amount of money: about €107.4 billion from 1995 to 2019, exceeding initial projections (City of São Paulo 2019). However, the UOs still required a lot of public resources to complement Cepac revenues and cover the cost of social and physical infrastructure. Moreover, the planned urban interventions have not yet been completed to date. Most of the slum-dwelling low-income populations that had been evicted during the early phases of the UOs’ implementation have not received the housing they were promised. While part of the evicted population has built slum housing in other areas, another part received only a small amount of rent support, which has proven insufficient even to pay rent on a dwelling in another slum neighborhood. Most of the investments are related to major roadwork, which is more efficient in driving land appreciation than social housing. The new luxurious city emerges as a smoke screen that masks the exclusion of the poor populations that occupied parts of these areas. The exclusionary effects of the implementation of UOs have been denounced by social movements and countless academic studies (such as Fix 2011).

Figure 1. View of Água Espraiada UO

© Matheus Hidalgo.

Urban Operation 2.0: a public solution for the lack of private financial investors in the Cepac market

Since the late 2000s, the “model” of UOs has spread to other big cities, such as Rio de Janeiro. In Rio, the Porto Maravilha UO has inaugurated a new phase, marked by the involvement of various levels of government, an expansion of the role of the private sector, with the large-scale capture of public funds, and a more intense articulation of Cepacs with other financial instruments. This was the first UO in which the contractors designed the urban, financial, and economic modeling themselves, which resulted in many “innovations,” such as the combination of the UO formula with a PPP contract for the provision of public services, and the creation of a publicly traded company to manage the UO, part of whose board was occupied by private stakeholders. This company was capitalized with a large amount of public land (mainly from the federal government), which represented around 75% of the land available for real-estate development in the perimeter of the project area.

In addition, instead of organizing several Cepac auctions throughout the implementation of the UO, a single auction was held and generated an unprecedentedly large up‑front collection of ABR fees. Ironically, the buyer of all these titles was a national investment fund (IF) owned by Fundo de Garantia do Tempo e Serviço (FGTS), a semipublic worker severance fund that receives the compulsory social-security contributions of all registered workers in Brazil. This investment fund, IF FGTS, also acquired all the public land available. In exchange for the acquisition of Cepacs and this public land, IF FGTS became responsible for funding the PPP and all the infrastructure works through the profit generated from the sale of these assets. Rather than reselling the Cepacs and land to builders or other investors, IF FGTS decided to exchange these assets for real-estate units or shares of REITs related to the development of skyscrapers within the UO perimeter—that is, IF FGTS became an associate of the developments and the REITs in question. In its negotiations, IF FGTS prioritized triple-A-rated developments (i.e. high-profile buildings) that can generate bigger future income streams than other, lower-value-added uses. The result was the construction of a luxurious city devoid of any low-income counterpart in terms of social housing, in one of the most unequal cities in Latin America (see Mosciaro, Pereira and Aalbers 2019).

Owing to the macroeconomic crisis that Brazil has been facing since 2015, the performance of the UO was affected, and the IF FGTS has not been able to meet its financial obligations with regard to the project. Consequently, the municipality assumed part of the payment of the PPP, in a complete reversal of the role that City Hall was supposed to fulfill in the financing of works in the UO. Despite the failure of this experience, other municipalities have sought to replicate this “UO 2.0” model, such as Salvador, Belo Horizonte, São Bernardo do Campo, and Niteroi, based on modeling developed by large public-works contractors.

UOs as a Trojan horse for deepening urban financialization tendencies

Despite the lack of private financial investors in the trajectory of Cepacs, UOs can be seen as a financializing policy instrument (FPI) to the extent that they provide a connection with financial reasoning and practices in urban-planning strategies. The transformation of ABRs into a financial title made it possible to integrate financialized valuation techniques such as the use of discounted cash flows in determining their price, thus meeting the expectations of real-estate developers and potential future financial investors. The UO 2.0 model mixed Cepacs with other financial tools (PPPs, public traded companies, investment funds) without solving the lack of financial investors for Cepacs. Indeed, on the contrary, this model masked an even larger capture of public resources (in the form of contributions from FGTS and public land). As the financial engineering gets more complex, understanding of the ways public wealth is being appropriated to exclusionary ends becomes less apparent.

While in the 1990s and 2000s UOs represented one of the main strategies for financializing the city through urban planning, a greater diversification of approaches in this direction has emerged during the last decade. This period has been characterized by a greater variety of PPP-oriented instruments aimed at promoting real-estate redevelopment of specific areas with new, publicly traded, subnational state institutions capitalized with public goods, the securitization of an increasingly diversified number of financial flows extracted from cities, and the increasing entanglements between the private sector and urban management. UOs performed the role of a kind of laboratory for many of these instruments and rationalities that today continue to circulate, regardless of the trajectory of these projects.


  • City of São Paulo. 2019. “Operações Urbanas Consorciadas”, Cidade de São Paulo – Infraestrutura Urbana et Obras.
  • Fix, M. 2011. “A bridge to speculation or the art of rent in the staging of a global city?”, in M. Valença, F. Cravidão, J. Fernandes (eds.), Urban Developments in Brazil and Portugal, New York: Nova Publishers, pp. 35–75.
  • Klink, J. and Stroher, L. 2017.“The making of urban financialization? An exploration of Brazilian urban partnership operations with building certificates”, Land Use Policy, vol. 69, pp. 519–528.
  • Mosciaro, M., Pereira, A. and Aalbers, M. 2019. “The financialization of urban development: speculation and public land in Porto Maravilha, Rio de Janeiro”, in C. L. Chu and S. He (eds.), The Speculative City: Emerging Forms and Norms of the Built Environment, Toronto: Toronto University Press.
  • Sanfelici, D. and Halbert, L. 2019. “Financial market actors as urban policymakers: the case of real-estate investment trusts in Brazil”, Urban Geography, vol. 40, no. 1, pp. 83–103.
  • Stroher, L. 2019. A Constituição Social da Financeirização Urbana no Brasil: o Papel das Operações Urbanas com Cepac, PhD thesis, Universidade Federal do ABC (UFABC), Santo André.
  • Weber, R. 2010. “Selling City Futures: The Financialization of Urban Redevelopment Policy”, Economic Geography, vol. 86, no. 3, pp. 251–274.

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To quote this article :

Laisa Eleonora Marostica Stroher & translated by Liz Libbrecht, « The Brazilian Experience of Financialization Through Urban Redevelopment: The Case of “Urban Operations” », Metropolitics, 1 December 2020. URL :

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