Molino de Agua

We continue to be impressed with this project.

Since the developer reduced prices by up to 20% in August, units are selling at a much better pace than other projects where developers resist price reductions.

A penthouse unit is now being offered at $300,000 less than it was in January, 2007.

The project is the only Puerto Vallarta condominium being built that is on schedule.

Altazor Condominiums

Altazor (aka Altazor Blue) condominiums is a niche project in a Mexican residencial, rather than tourist, area of Puerto Vallarta.

The project was originally supposed to include 12, 2-bedroom condos with terraces.

But with prices falling in Puerto Vallarta, the developer redesigned the building to add 4 additonal smaller units with no terraces.

The building structure has been completed and one or two condominiums completed and delivered. 8 of the 16 units have now been sold and those condominiums will likely be delivered in the next 90 days.

This is a unique project because owners are able to take full possession of their units while the remaining 8 units are for sale. All of the common elements are completed

Construction risk is low, but there is some risk that some units might never get completed.

Environmental risk is lower than average for the Pacific Coast.

Prices have been reduced at this project in the past year, and other than the top floor units, this building now has very attractive pricing. A brand new 2-bedroom unit with a terrace is available for under $200,000 which works out to about $140.00 per square foot. Other than the penthouse units, financial risk is lower than average.

Title risk for condominiums can be mitigated throught the purchase of title insurance. However, since parking units are assigned as part of the common elements and are not deeded, it is not possible to mitigate the risk that a claim on a parking space might be taken by another owner. In addition, the city has not yet indicated it will take possession of the road necessary to access parking in the building. Maintenance of this road is at issue.

This building is not in a traditional toursit rental area, but it is in a central location and has its own rooftop pool. We are of the opinion that this building has slightly better than average rental income opportunities.

Operational risk should be lower than average at this project.

Recommendation: Buy for select units on the 3rd, 4th and 5th floor. Pass on higher priced units including penthouses.

Puesta del Sol

There are two condominium developments in Puerto Vallarta with the name Puesta del Sol.

One is in Marina Vallarta and is not being reviewed here. The second is in central or downtown Puerto Vallarta, about half-way up the mountain and is the subject to this review.

Puesta del Sol is an 81 unit complex of 2 bedroom and 2+1 bedroom units built between 1977-1980. It has been renovated. The complex is very stable with little turnover. It has a very central location which precludes the need for an automobile.

There is no construction, delivery or financing risk. Environmental risk lower than average for the Pacific Coast of Mexico.

Operational risk is lower than average for Puerto Vallarta. A 2-bedroom condo pays $350 per month in maintenance fees. The location of this project, part way up the mountain, will significantly reduce the requirement for air conditioning. Annual electricity costs at these condos will likely be USD5,000 lower than similar sized beachfront condos.

Rental income opportunities are higher than average for Puerto Vallarta. A 2-bedroom condo will likely generate in excess of USD20,000 in rent per year. We have access to records which show a 2- bedroom condo with USD21,000 of rental income for the period Nov 1 - April 30.

Net rental income will likely reach the minimum investment threshold to make owning desirable on an annual cash flow basis. There is a sign outside the complex that indicates it is not a rental building. That sign is there to discourage walk-in traffic.

All infrastructure in the area is complete and functioning. However, the local roads can be difficult to use in the rainy season and pedestrian access is only for the sure footed.

Units are premium priced due to the higher than average rental opportunities. However, there have been recent price reductions in the building, and sellers are offering financing to buyers. A 2-bedroom unit can be purchased for less than $370,000, making this project, financially, more desirable than Selva Romantica, Quinta Luna and Molina de Agua, buildings in the same market. The rental opportunities, and the stability of the building provide downside price protection.

Recommendation: purchase

Villas Quinta Luna

Villas Quinta Luna is the type of project we expect to be seeing more of in the next 2-3 years in Puerto Vallarta. The project is only 6 units and in an already developed area, high in the hills in downtown Puerto Vallarta. From concept to completion, this project took just over one year (in contrast The Grand Venetian project is now 4 years old and Tower 1 is not yet complete).

The project will be delivered within the next few days. Total infrastrucutre in the immediate area is 100% complete.

This is little environmental risk relative to other projects on the west coast.

We expect operating costs to be lower than average. Most importantly, owners will have considerable leeway with respect to how they operate their units. Units come with infinity pools and air-conditioning, but the location of the project will limit the need for air conditioning. And the pools are small, and easily maintained. There is no need for on site management, conceirge etc.

This building will have high potential for rental income. The location is excellent. The product is of high quality and has the desired features of the other products we see in Puerto Vallarta that generate considerable rental interest.

Since developments have this nature are few and far between presently in Puerto Vallarta, units are commending premium prices. Three of the six units are still available from $550,000 to $840,000. Given that the developer expected to sell out prior to completion we expect price reductions. In the immediate area there are other buildings such as Quinta Luna coming on-line and we expect to see better value pricing in those projects.

Recommedation: Pass until additional inventory is available in the immediate area.

Monday, December 10, 2007


Continued Market Softness

In the real estate business there is a a very predictable statement that occurs in a falling market. Real estate agents will use that statement when asked whether a market is in decline. That statement is "sales are slow right now, compared to last year, but last year was record." This statement is considered the equivalent of the "we have confidence in [insert coach's name]" statement which precludes the firing of said coach in two weeks.

Costa Vallarta has just published its real estate trends for 2007/8. On the subject of a real estate turndown, Costa Vallarta published the following statement, "when asked if the market has slowed down, most realtors expressed that it is slower than last year, but that last year was exceptional."

We have additional information Puerto Vallarta real estate projects.

Quinta del Mar, which was pre-selling 2-bedroom units in the Fall of 2006 for $330,000 increased prices later that year to $385,000. Those prices have now been rolled back to $330,000.

Pacifica condominiums in La Cruz, just north of Puerto Vallarta have reduced the entry level prices of units from $199,000 to $185,000

Worldstar Realty is advertising condos at ICON Vallarta from $240,000. That is $60,000 less than the $300,000 that ICON advised me in October would be the introduction price for Phase 2.

Villas Colina II have been repriced down again to the mid $300s, from $385,000.

Villa Estancia has closed their central Puerto Vallarta sales office, and will market only from their Nuevo Vallarta site. It does not appear that the central office closed a sale in the year it was open.

Developers have now accepted that, with the heavy season while underway, but sales continuing to fall, they must adjust their marketing, including promotion and pricing. The developers who have niche projects, with unique selling positions, will be able to last out the longest.

Pacific Coast Decline in Prices?








I have received a number of calls since the release of HSC Financial Inc's position on the end of the speculative boom in Puerto Vallarta.


In this post, I am addressing some of the questions I was asked via telephone.


Our data does not indicate that prices are down year-over-year. Prices are down at the end of November, 2007 from January, 2007 when prices in Puerto Vallarta peaked .


We do not include the impact on inflation on price changes. As a result, the price decline, IN REAL TERMS, is greater than the 5-20% range we reported. For instance if house prices stayed the same from one year to the next, when inflation is 3%, that is a 3% decline in price in real terms.


There are some projects which may appear to show slight increases in prices over the past 10-11 months, only because recent marketing material does not disclose that parking, or appliances are now included in the price, which they were not 10 months ago. In addition, two developers raised their list prices by about 3%, then immediately added discount sweetners to their sales agreements from 5-8%


We do not follow all markets along the Pacific Coast however we are seeing anecdotel evidence of price declines in other markets. In certain cases it is near impossible to determine statistically how prices are changing because of the absence of disclosure.


Both ICON VallartaTower 1 in Puerto Vallarta and Trump Tower 1 in Ensenada claim the record for the highest value of $ sales for a Mexican real estate pre-sell in one day. Neither project will provide any further disclosure. Although both projects claim that their initial towers sold out in one day, both projects have had second towers available for as long as 3 months, and the second towers are not yet sold out. This in spite of the fact that both projects claim their first Towers were oversubscribed by 100%. ICON Vallarta has replaced its entire marketing and sales staff.


The third tower in the Peninsula project is actually called Peninsula 1.


Prices at Horizon in Amapas are clearly down in November, 2007 from earlier in the year. Units of about 200 sq. meters, that were selling for about $550,000 last winter, are now listing for sale at $535,000 and remaining on the market unsold. A much larger than average 230 sq. meter condo did list for $620,000 and sell for less than the list price. On a $ per square meter basis the sale represents decline in prices since last winter.


The price history for a typical Bayview Grand 1-bedroom condo is as follows:

1. Presale in year 2000 = condo + furnishings = $135,000

2. Resold in 2006 = $200,000

3. Listed for resale November, 2007 = $197,500 (typicaly a condo of this nature will sell for about 94% of its list price, in this case = $186,000)


Grand Venetian marketing material listed the delivery date for Tower 1 as May, 2007. As of December 5, 2007, no units have yet been delivered.


We do not have sales volume for 2007 yet.


We cannot provide a general recommendation on whether to buy now or wait because individual investors have different objectives and portfolios. We can say that the market is very liquid presently, and there is no risk in waiting to make a purchase.