Three major real estate developments in Puerto Vallarta - Grand Venetian, Peninsula and Tres Mares - have decided to change their designation to condo-hotels starting later this year. This information was announced by the Jalisco's Secretary of the Federation of Workers, Rafael Yerena Zambrano, who was contacted by the owners of these developments. He said, "This insures the strengthening of the local tourism industry, starting with generating sources of employment that this action entails."
Work is in progress to change the land use designations of the area occupied by these three developments. The condo-hotel is a variant between a hotel business and a real estate investment. We note that just changing the land use designation does not make the developments condo-hotels. The next step is changing the escritorio.
We do not know all the details of these changes. It is possible that not all towers will be converted to condo-hotels.
Once we review the details, we can make recommendations regarding investments.
Thursday, January 8, 2009
Playa del Sol/Blue Seas Resort
There are several legal conflicts that have been created through the transition of the original Playa del Sol on Playa Los Muertos to the Blue Seas Resort.
The original Playa del Sol is a mix of condominiums, "fractionals" and timeshares. And it is also marketed as a hotel and resort. This is one of the most bizarre legal structures for a building that we have seen. For instance, the legal description of this real estate continues to be Playa del Sol, but apparently all new documents use the name Blue Seas Resort.
Apparently the developer has migrated all timeshare owners to other Playa del Sol locations. That is not unusual in the timeshare business. And made changes that may be detrimental to fractional and condo owners, which is unusual.
There are pages and pages of legal issues that need to be addressed. We are going to address only the risk issues that we normally review.
There is no delivery risk as the building is complete. There is no construction risk. Environmental risk is below average for the location.
Operational risk is high. It is impossible to determine what parts of what appear to be three buildings that are common elements owned by condo owners, or are owned by the timeshare developer. The fractional units do not appear to be fractionals as we define them legally in Canada and the US. Should an elevator, the parking garage, internal pipes etc. need to be replaced, we do not know how costs would be assigned. There should be a separate legal entity which owns things such as the pool, but we haven't seen any evidence of such entity.
Financial risk is high for this product. There are many specifics of the financial structure which make it impossible to assess probabilities of cash flow. We would not finance anything.
Our recommendation is to pass on timeshares and fractionals.
Sunday, December 14, 2008
Groupo Iberostar Pulls Out of Litibu
Litibu is a major development adjacent to the Four Seasons Resort in Punta de Mita.
Litibu was being developed as a stand alone resort with at least three hotels, two condo developments, townhouse condos and golf courses. The Litibu project was a joint venture involving Mexico's tourism and land development crown corporation, Fonatur, and one of the world's largest resort developers, Group Iberostar, among others.
As a result of poor sales and slow cash flow, Groupo Iberostar is walking away from the Litibu project. We do not have further details except to say the Iberostar was not able to find a buyer for their share in this partially completed project and is unwilling to commit any further money to the development.
There are condo projects on the site including La Tranquila. HSC Financial attempted a site visit at La Tranquila in March of 2008 to confirm construction progress and we were denied entry to the grounds without attending a sales presentation. At the time, we had very serious concerns about claims made regarding sales-to-date and construction progress.
We are unable to report on the status of sales contracts for Litibu sub-projects.
Any developments to any projects related to Litibu should have no further funds advanced. If any cash has been advanced, it is probably lost, however we recommend that you hire a local solicitor in an attempt to recover money or to at least document losses.
Litibu is a major development adjacent to the Four Seasons Resort in Punta de Mita.
Litibu was being developed as a stand alone resort with at least three hotels, two condo developments, townhouse condos and golf courses. The Litibu project was a joint venture involving Mexico's tourism and land development crown corporation, Fonatur, and one of the world's largest resort developers, Group Iberostar, among others.
As a result of poor sales and slow cash flow, Groupo Iberostar is walking away from the Litibu project. We do not have further details except to say the Iberostar was not able to find a buyer for their share in this partially completed project and is unwilling to commit any further money to the development.
There are condo projects on the site including La Tranquila. HSC Financial attempted a site visit at La Tranquila in March of 2008 to confirm construction progress and we were denied entry to the grounds without attending a sales presentation. At the time, we had very serious concerns about claims made regarding sales-to-date and construction progress.
We are unable to report on the status of sales contracts for Litibu sub-projects.
Any developments to any projects related to Litibu should have no further funds advanced. If any cash has been advanced, it is probably lost, however we recommend that you hire a local solicitor in an attempt to recover money or to at least document losses.
Friday, November 7, 2008
Gran Venetian - More Problems
There are three major condominium projects just north of the Hotel Zone - The Peninsula, Gran Venetian and ICON Vallarta.
Each of these problems is a proposed 3 tower complex.
Each is beset with problems. ICON is the most flexible in dealing with projects because nothing has really been built yet.
Gran Venetian has had to suspend construction of its third tower. You pick the reason - an injunction brought forcing the tower to be built as a hotel rather than condos, poor sales, no financing, a re-structuring of the entire project. It doesn't matter. This project will eventually go into work-out status. The problem is that the Mexican market has very little experience with this type of work out. Actually, we have never seen a work-out created as a result of a legal requirement to change an escritorio (a declaration) to allow the development of a hotel instead of condos, anywhere.
This is a unique project for us to review. Because, while we are recommending a sell status for existing owners, we are not sure it is possible to divest of an investment in this project due to the issues surrounding the escritorio. As a result, it may be better for an owner who is actually residing in the completed tower(s) to hold their investment.
Again, we stress that individual owners have unique financial profiles, and our comments are general in nature only. Specific investment advice should be sought before decisions are made.
Each of these problems is a proposed 3 tower complex.
Each is beset with problems. ICON is the most flexible in dealing with projects because nothing has really been built yet.
Gran Venetian has had to suspend construction of its third tower. You pick the reason - an injunction brought forcing the tower to be built as a hotel rather than condos, poor sales, no financing, a re-structuring of the entire project. It doesn't matter. This project will eventually go into work-out status. The problem is that the Mexican market has very little experience with this type of work out. Actually, we have never seen a work-out created as a result of a legal requirement to change an escritorio (a declaration) to allow the development of a hotel instead of condos, anywhere.
This is a unique project for us to review. Because, while we are recommending a sell status for existing owners, we are not sure it is possible to divest of an investment in this project due to the issues surrounding the escritorio. As a result, it may be better for an owner who is actually residing in the completed tower(s) to hold their investment.
Again, we stress that individual owners have unique financial profiles, and our comments are general in nature only. Specific investment advice should be sought before decisions are made.
Saturday, October 18, 2008
Slow Start to New Season
The new real estate year in Puerto Vallarta has now started and it has started slowly.
A number of projects have either been cancelled outright or are proceeding at a much slower pace than originally anticipated.
American buyers have not returned to the market. And with prices down near 30% in traditional US vacation/investment destinations, Americans with money are getting much better value in their domestic market.
The 2007/2008 season was the year of the Canadians, as the Canadian dollar hit par and better with the US dollar. With the Canadian dollar having dropped to 85 cents US, the Canadian buyer has effectively disappeared.
Puerto Vallarta and Riviera Nayarit are definitely buyers markets presently.
Prices peaked in the Vallarta market area in February 2007 and proceeded to drop 5-20% over the next year. There has been a decline in price since then, but it has been moderate and mostly with re-sale condos in the $300M - $650M range. For instance Horizon 503 is listed at $499,500, the first Horizon product we have seen listed for below $500M. Typically, that product would sell for about 95% of list or about $475M. That product peaked in price at around $620 - $650M.
New developer-based product is difficult to price since developers are generally not reducing their advertised list prices and are, instead, applying deep discounts or sweetners to offers. For instance, one Riviera Nayarit development has not changed its advertised price, but is offering as much as a 23% discount against the published purchase price based on financing options selected.
Disclosure by developers continues to be a problem. ICON Vallarta, for instance, has not updated its published prices and inventory since August of 2007. ICON, you may recall, claimed it sold out Tower 1 in a just days back in the spring of 2007, and that the sell-out of Tower 2 was imminent. Well, here we are some 18 months later, and there is plenty of Tower 2 product available. Tower 3 is probably light-years away.
A number of projects have either been cancelled outright or are proceeding at a much slower pace than originally anticipated.
American buyers have not returned to the market. And with prices down near 30% in traditional US vacation/investment destinations, Americans with money are getting much better value in their domestic market.
The 2007/2008 season was the year of the Canadians, as the Canadian dollar hit par and better with the US dollar. With the Canadian dollar having dropped to 85 cents US, the Canadian buyer has effectively disappeared.
Puerto Vallarta and Riviera Nayarit are definitely buyers markets presently.
Prices peaked in the Vallarta market area in February 2007 and proceeded to drop 5-20% over the next year. There has been a decline in price since then, but it has been moderate and mostly with re-sale condos in the $300M - $650M range. For instance Horizon 503 is listed at $499,500, the first Horizon product we have seen listed for below $500M. Typically, that product would sell for about 95% of list or about $475M. That product peaked in price at around $620 - $650M.
New developer-based product is difficult to price since developers are generally not reducing their advertised list prices and are, instead, applying deep discounts or sweetners to offers. For instance, one Riviera Nayarit development has not changed its advertised price, but is offering as much as a 23% discount against the published purchase price based on financing options selected.
Disclosure by developers continues to be a problem. ICON Vallarta, for instance, has not updated its published prices and inventory since August of 2007. ICON, you may recall, claimed it sold out Tower 1 in a just days back in the spring of 2007, and that the sell-out of Tower 2 was imminent. Well, here we are some 18 months later, and there is plenty of Tower 2 product available. Tower 3 is probably light-years away.
Wednesday, May 21, 2008
Gran Venetian
Since our initial review of the Gran Venetian project in early 2007, we have been recommending a "pass" on potential investments in the project.
Over the past 15 months, we have published updates to our initial review and advised that the risk to the project has increased since our initial review.
We have now been advised that the developer will have to financially restructure in order to complete the project. And that sub-contractors are not being paid.
We are downgrading our recommendation to "sell" for any existing purchasers. Our recommendation to potential purchasers remains to "pass". We continue to advise mortgage providers not to provide mortgages for investments in this project.
Since our initial review of the Gran Venetian project in early 2007, we have been recommending a "pass" on potential investments in the project.
Over the past 15 months, we have published updates to our initial review and advised that the risk to the project has increased since our initial review.
We have now been advised that the developer will have to financially restructure in order to complete the project. And that sub-contractors are not being paid.
We are downgrading our recommendation to "sell" for any existing purchasers. Our recommendation to potential purchasers remains to "pass". We continue to advise mortgage providers not to provide mortgages for investments in this project.
Monday, May 19, 2008
Canadian Government Urged to Review Risk
HSC Financial Inc. has requested that the Canadian government, through its Foreign Affairs department, review its existing published travel report for Canadians in Mexico. At present Foreign Affairs is advising that Canadians "exercise a high degree of caution" while in Mexico.
We have advised Foreign Affairs that prior to making substantial investments in a foreign country, Canadians have a right to determine the level of risk with their investments and their personal safety.
We have made the request to Foreign Affairs as a result of what may be an increased risk profile for Canadians and other foreigners in Mexico as evidenced by the following:
1. A highly visible series of recent deaths of Canadians in Mexico including, but not limited to, Bouabal Bounthavorn of British Columbia, Domenic & Nancy Ianiero of Ontario, Janette Lerch of Ontario, and Jeff Toews of Alberta. In addition to several Canadians dying, under mysterious circumstances in Mexico, other foreign nationals have recently been murdered in Mexico.
2. Canadian investors in time-share programs who have not had their contracts honored
3. Potential developer and builder malfeasance at major building sites including the Grand Venetian and Icon developments in Puerto Vallarta.
4. Increased reports of police corruption in specific resort communities, including Puerto Vallarta, Mexico
5. Increased reports of drug related violence in several Mexican communities including assassinations of several high ranking law enforcement officials.
HSC Financial Inc. provides detailed risk assessments to Canadian investors and to Canadian and American lenders financing investments in Mexico. We rely on country risk assessments provided by, among others, the Canadian government and rating agencies. These assessments need to be complete and up-to-date.
HSC Financial Inc. has requested that the Canadian government, through its Foreign Affairs department, review its existing published travel report for Canadians in Mexico. At present Foreign Affairs is advising that Canadians "exercise a high degree of caution" while in Mexico.
We have advised Foreign Affairs that prior to making substantial investments in a foreign country, Canadians have a right to determine the level of risk with their investments and their personal safety.
We have made the request to Foreign Affairs as a result of what may be an increased risk profile for Canadians and other foreigners in Mexico as evidenced by the following:
1. A highly visible series of recent deaths of Canadians in Mexico including, but not limited to, Bouabal Bounthavorn of British Columbia, Domenic & Nancy Ianiero of Ontario, Janette Lerch of Ontario, and Jeff Toews of Alberta. In addition to several Canadians dying, under mysterious circumstances in Mexico, other foreign nationals have recently been murdered in Mexico.
2. Canadian investors in time-share programs who have not had their contracts honored
3. Potential developer and builder malfeasance at major building sites including the Grand Venetian and Icon developments in Puerto Vallarta.
4. Increased reports of police corruption in specific resort communities, including Puerto Vallarta, Mexico
5. Increased reports of drug related violence in several Mexican communities including assassinations of several high ranking law enforcement officials.
HSC Financial Inc. provides detailed risk assessments to Canadian investors and to Canadian and American lenders financing investments in Mexico. We rely on country risk assessments provided by, among others, the Canadian government and rating agencies. These assessments need to be complete and up-to-date.
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