Chuck Bedsole

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Published on October 25, 2007

Author: Nivedi

Source: authorstream.com

Slide1:  Trends in Resort and Second Home Development Presented by: Chuck Bedsole Managing Director Practice Leader Hospitality & Latin America Real Estate Advisory Services June 7, 2006 Featured Panelists :  Mr. Luiz Augusto Pereira de Almeida Director of Sales and Marketing Sobloca Construtora, S.A São Paulo, Brazil Featured Panelists Mr. Sam Talafierro Prima Panama Panama City, Panama Mr. Jaime Garbarsky Grupo ECIPSA Cordoba, Argentina Agenda :  Agenda Overview of Latin American Resort/ Residential Markets Hot Products Capital Market Environment Mini Case Studies Q&A Overview of Latin American Resort/ Residential Markets :  Guatemala Canada United States Mexico El Salvador Cuba Belize Nicaragua Honduras Costa Rica Panama Jamaica Haiti D.R. Puerto Rico Aruba Bahamas Reputation as a safe and friendly destination Natural resources and “nature tourism” infrastructure Will CR become a mega-destination Oversupply of residential products in certain markets Inadequate highway infrastructure Increasing land costs Lengthy permitting process Booming resort destinations, emerging secondary markets (e.g. colonial cities, eco-cultural heritage Investment grade country US banks have started to accept a property in Mexico as a collateral Overflow from Costa Rica is attracting opportunities in Nicaragua Tourism incentive legislation World-class hotels/destinations Still suffers from past perceptions Panama is becoming a destination for retirement and second home owners $10 to $12 billion USD in resort and second home projects Tax advantages for developers and buyers of residential projects Government commitment and bureaucracy Limited infrastructure in beach and mountain areas Foreign ownership in islands is currently forbidden but anticipated to be allowed this year Overview of Latin American Resort/ Residential Markets Guatemala is emerging as a desirable tourism and retirement destination The city of Antigua is becoming an upscale, second home destination World-class hotels/destinations Still suffers from past perceptions Overview of Latin American Resort/ Residential Markets:  Brazil Bolivia Peru Chile Argentina Paraguay Uruguay Guyana Suriname Ecuador Colombia French Guyana Largest market in South America Strong domestic and growing European demand Secondary markets Master-planned resorts Nature-oriented tourism ? Distance from major feeder market (e.g. US) X Visa requirements for US citizens Adventure tourism, wine country properties Increased interest from international markets Attractive pricing of properties Role of SECTUR and government support Distance from major market feeder (e.g. US) Improving political and economic situation Nature and cultural tourism opportunities New government’s politics Mass tourism Venezuela Overview of Latin American Resort/ Residential Markets Slide6:  Baby boomers are driving demand The strength of the Euro is driving demand A master-planned resort development, anchored by luxury hotel, is a dominant business model in many destinations Real estate prices in most destinations remain attractive relative to prices in US resort markets Mid-priced and retirement community products are gaining popularity International and domestic banks are starting to offer products and services to both developers and buyers Overview of Latin American Resort/ Residential Markets Hot Products :  Mixed-Use Developments Offer income diversification – transactional income and on-going cash flow stream Multiple income sources can be derived from a mix of lodging, retail, restaurant, residential, attractions and entertainment components Residential products can include lots, single family homes, condos, timeshare and fractional products Be cognizant of inter-relationships of all of the products within the development – this can be a game of chess Consider sharing some of the risk and reward with other developers and operators Hot Products Hot Products :  Hot Products The US State Department estimates that between 600,000 and one million US citizens live in Mexico, up from 200,000 ten years ago and other Latin American countries, such as Panama is becoming a retirement destination The growing influx of retirees is due to factors such as lower costs of living, more affordable housing, warm weather and a more relaxed pace of life According to AARP, more than 76 million US Baby Boomers are expected to retire within the next 20 years, and 25 percent of them have no health insurance or savings Relative to traditional resort products, there is very little product targeted to the mid-market retiree Retirement Communities Hot Products :  Financing tool increasingly used in resort areas (Rosewood Mayakoba) Reduces outside capital requirements and pre-sales can facilitate construction financing Can be structured as a pure investment vehicle, a second home investment or a combination In the case of the second home investor, rental income helps defray ownership costs (e.g. PITI and maintenance) In some markets, local investors view real estate ownership as a hedge against devaluation The structure is highly popular in the US and Brazil is anticipated to become more popular in other markets Hot Products Hotel-Condos Hot Products :  Hot Products Typically part of mixed-use project but can be developed as stand alone project Offers a viable alternative to a full ownership of a second home, matching ownership costs with actual use and reducing hassles associated with ownership and maintenance PRC/fractional units are typically priced at a 1.5 – 2.0x multiplier over a whole ownership unit price The affluent baby boomer is considered a target market for Private Residence Clubs Fractionals and Private Residence Clubs Slide11:  Debt Sources Development banks Attractive interest rates and loan terms; occasional equity participation Typically mezzanine financing and limited to a percentage or amount of total project cost Banks Local banks are expensive and amortization periods are relatively short term. Not well-suited for lodging projects Participation from international banks has increased (e.g. European banks, and US banks and Pension Funds) US REIT’s and Pension Funds Investigating the market Capital Market Environment Slide12:  Equity Sources Private Investors and Funds Opportunity Funds Funds for large-scale projects and portfolios Target higher-yielding “opportunistic” investments Strict accountability and control over operations Require strong operator and defined exit strategy Pension Funds Long-term investors Preference for a significant equity stake REIT’s – Considering portfolios and single assets Capital Market Environment Slide13:  Accessing the Capital Markets Develop solid business plan and ensure market supply and demand fundamentals are in place Select proper brand affiliation for anchor lodging project; ”flags” and operators are important Provide diversification of risk Select a skilled financial team to assess different strategies A strong majority of equity is contributed in cash as opposed to capitalized land and fees. Define exit strategies Source: Jones Lang LaSalle, Ernst & Young Capital Market Environment Slide14:  Trends in Resort and Second Home Development Presented by: Chuck Bedsole Managing Director Practice Leader Hospitality & Latin America Real Estate Advisory Services June 7, 2006

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