Real Estate: Central America for sale (The second home market)
The real estate boom in Central America is the result of 10 years of economic growth in the U.S. International investors are interested in bringing their capital to certain developing countries where property prices are still low. The franchise real estate companies’ brand is already well-known throughout the world. Therefore, whenever they arrive in a country they are recognized.

By Juan Pablo Arias
San José

Acquiring a luxurious residence on a Central American beach, surrounded by nature, with a year-round tropical climate and facilities such as airports, marinas and shopping centers is a reality in today’s regional real estate market.

Central America’s recently acquired attractiveness for tourism, business and entrepreneurial ventures have made vigorous development of the real estate market possible. Together with this development, and the coming foreign investment, this real estate activity has grown hand in hand with the construction of new industrial facilities, hotels, shopping centers, luxury residences and vacation residences.

Mauricio Castro, President of the Costa Rican Chamber of Real Estate Agents, says that this real estate boom is the result of economic growth in the United States for the last 10 years, which has generated interest in investing in certain developing countries where prices are still low.

In response to this growing international interest to invest in Central America, international real estate companies have opened branches in the region, offering their services to foreign buyers who are eager to purchase “properties in paradise” at very low prices compared to properties in their own countries. These companies also serve as intermediaries with local owners and, lately, have developed their own projects and placed them on the international market.

Franchises

North American real estate companies, such as Remax, Century 21 and Coldwell Banker, have an increased presence in Central America, not just in terms of the numbers of franchises of each company, but also by the quality of their regional real estate portfolios.

These companies are characterized by offering a number of real estate options, like residential housing or vacation residences. In contrast, other companies are focused on taking care of the real estate needs of big corporations. This is the case with CB Richard Ellis, which focuses on finding clients for commercial real estate developments.

“The advantage of franchise real estate companies is that their brand is already known in the world, therefore wherever they arrive they are recognized,” states Mario Artavia, partner of AK Consulting, a company that services the real estate business. According to Artavia, the primary difference between franchises and individual brokers is that franchises have large databases and very efficient marketing programs.

Pioneers

One of the real estate pioneers in the Central American market is Century 21. The company is the world’s largest residential real estate sales organization, with more than 6,600 independently owned and operated franchises in over 40 countries and territories worldwide.

From its Central American regional office in Costa Rica, the company provides training services to its broker offices in the following areas: brokerage, valuation, training, management, finances, and operation of real estate companies. The most important business area for Century 21 varies depending on the country, but it mainly focuses on supplying residential properties in the Caribbean and Pacific coasts of Central America.

Another real estate leader in the region is Remax. The company has 59 branch offices in Central America. According to the company’s executives, Central America properties are popular for foreign investors because it allows them to choose between a wide variety of tropical properties, ranging from private islands, mountain bungalows, villas and beachfront luxury condominiums, to farm and city properties. Remax’s first franchise was established in Costa Rica. “Costa Rica was initiating its international real estate expansion, while other countries [in the region] had still not opened this door,” said Ricardo Cárdenas, Regional Vice-president of Remax. After opening a franchise in Costa Rica, the company opened offices in Honduras, including Roatán, Islas de la Bahía. Then it opened franchises in Guatemala, where it specialized in commercial and residential real estate in Guatemala City. Cárdenas believes that Panama has emerged as a key country in Central America in a short period of time; the company has a number of franchises in that country. Remax also operates franchises in El Salvador and Nicaragua, where international buyers have begun to arrive.

Remax includes all real estate segments in its portfolio, from luxury apartments in Panama and Costa Rica to large rural properties in Honduras and Nicaragua, which Cárdenas calls “raw diamonds.”

“There are good properties, those that were acquired at high prices and will be apprised a little above the rate of inflation, and also there are undeveloped properties which are higher risk but are available at lower prices and have a high potential for becoming profitable investments,” states Cárdenas.

In addition, Coldwell Banker and ERA have operations on both Central American coasts. Coldwell Banker arrived in Venezuela in 2003 and it divided into two units: one focused on the local market and other, referred to as Coldwell Banker Latin America, focused on the rest of the region. Today, the company has 40 offices in seven Central American countries.

A database business

CB Richard Ellis first appeared in the region in 1999, when it opened an office in Panama. Since then, the company has spread throughout the region. Currently, it has 14 branch offices in eight countries. Panama generates the most business for the company, followed by Costa Rica.

According to Jorge Hurtado, Regional Director for CB Richard Ellis, “The company applies international experience to local needs in the region.” Mr. Hurtado believes that the company’s office in Panama is essential for the real estate activity in the region. The company’s headquarters for Latin American and the Caribbean are located in Miami. The Miami office controls the management in countries where the company does not have a presence.

CB Richard Ellis’ most important projects in the region are in tourist areas in Costa Rica and Panama, as well as business-commercial initiatives such as “Europlaza,” a fourbuilding office development in Guatemala. The project will be repeated in El Salvador. The company is also involved in joint ventures with Grupo Poma and Grupo Cusezar.

However, the company’s most important project is the “Panamá – Pacífico,” This project will transform the old Howard Air Base into a modern urban center with housing, hotels, golf courses and shopping centers.

Altogether, the project is expected to generate more than 40,000 jobs and it will complete in the next 15 to 20 years. The project is being headed by the London & Regional Construction Company. CB Richard Ellis’s role in this project is to market the commercialization of the International Business Park.

The new Panama Pacific community will include 20,000 new houses and apartments, a million square meters (10.7 million square feet) of commercial space, which will house corporate headquarters, business offices, call centers, hightech companies, luxury hotels, and shopping centers. It will be the new downtown of the city with stores, restaurants, parks, primary schools, high schools, universities, hospitals, health centers, and recreational facilities.

Developers and sellers

Some of the brokers who settle in the area develop real estate projects by themselves and then place them in the market to sell.

The Spanish Group Diursa has more than 30 years of experience in the real estate market in Spain and has developed more than 1.5 million square meters of property in that country. Its business volume surpasses $187 million annually and the total value of its properties is more than $1 billion. Its developments are located in Spain, Costa Rica, Ecuador, and Miami, and more recently in Germany, Poland and Hungary.

Diursa has invested more than $20 million to date in Costa Rica. Once the EuroCenter’s business center - the first stage of the development - is finished, the group plans to initiate the second stage of development by constructing two towers compromising 12,000 square meters (129,000 square feet) of office space and a parking tower. The estimated budget for this expansion is $22.5 million.

A growing market According to Jorge Hurtado, “The volume of the construction has been adapting to the possibilities of the market. Once in a while, the volume is ahead, but the demand quickly levels things up.” Similarly, Ricardo Cárdenas says, “We must remember that real estate is local and cyclical. At this moment, the supply of real estate projects is greater than the demand in several important markets in the area, but it will be revised in a couple of years. At this point it looks like the market will have stable growth for the next five to ten years.”

Even so, ERA Franchise Systems LLC recently announced that it has signed a master franchise agreement with Sunstruck Ltd. to expand its franchise rights into three new countries – Belize, Mexico and Nicaragua. Sunstruck Ltd., which is headed by Craig Williamson, currently holds the master franchise rights for Costa Rica and Panama.

“We are thrilled to build further upon the strong foundation we have with ERA in Latin America,” said Brenda W. Casserly, President and CEO of ERA Franchise Systems, Inc.

Tourism has long been a major income generator in Mexico and Central America. A healthy tourism trade typically generates interest for foreigners looking to invest in real estate and boosts the development of luxury homes, hotels, and resorts, mostly in coastal areas. This can be plainly seen in a number of Central American countries.