I continue the Mexican Real Estate 101 series with a list below of some of the essential due diligence actions that should be performed before entering into a Mexican real estate transaction.
Investors in Mexican real estate should always consult with a licensed Mexican real estate attorney before buying any property in Mexico.
In the wake of TSD Loreto Partners, S. en C. por A. de C.V.’s June 6, 2009 announcement that it had suspended all operating and construction activities on the Loreto Bay project, I decided to perform an informal internet-based investigation on the companies involved in the development of the project.
At the top level appears to be The Trust for Sustainable Development, a Canadian non-profit corporation. According to its website, the Trust first identifies and provides seed financing for sustainable projects. It then creates a for-profit company to develop each project. The Trust has developed (or commenced the development of) projects in Canada, the U.S., and, of course, Loreto Bay, Mexico. We did not investigate the projects the website says were developed in connection with the Trust.
The Trust created several affiliated for-profit entities to develop the Loreto Bay project. TSD Loreto Partners, S. en C. por A. de C.V., a Mexican partnership, is the principal Mexican development entity.
The Loreto Bay Company, an Arizona corporation, appears to have initially been the principal U.S. sales and marketing arm for the project. Based on public records obtained from the Arizona Secretary of State, Mr. David Butterfield (who is discussed below) served as Chairman of the Board of the Loreto Bay Company, Mr. James Grogan served as Director and President & CEO, and Mr. David J. Shreene served as Senior Vice President and Secretary.
In January 2007, the Loreto Bay Company was merged into Baja Developments, LLC, a New York limited liability company, the Manager of which is The Trust for Sustainable Development. Upon the merger, Baja Developments, LLC likely became the principal U.S. sales and marketing entity for the Loreto Bay project.
Another entity indirectly involved in the project was a British Columbia entity named Baja Developments Limited Partnership, which was probably Mr. Butterfield’s holding company for his investment in TSD Loreto Partners and/or Baja Developments, LLC.
One or more of Baja Developments, LLC, Baja Developments Limited Partnership, and the Loreto Bay Company likely controls a portion of TSD Loreto Partners, but there is no public document by which we could confirm the ownership structure of TSD. The formation documents of TSD filed in the Public Registry of Commerce in Mexico located in its state of organization would show only the initial partners of TSD and not any subsequent changes in ownership structure (we have not sought to obtain copies of TSD’s Public Registry documents).
Based on the press release discussing the formation of a joint venture between the Loreto Bay Company and Citi Property Investors to develop the Loreto Bay project, we speculate that the remaining portion of TSD is owned by Citi and other persons. However, we would have expected that Citi would have preferred to make its equity investment in the Loreto Bay project through a U.S. joint venture entity, such as Baja Developments, LLC, in order to avoid the difficulty of enforcing joint venture obligations under Mexican law.
The Trust for Sustainable Development is led by Mr. Butterfield, whose LinkedIn profile is available here. The profile indicates that Mr. Butterfield is a Director at Arizona State University’s Global Institute of Sustainability and the President of ICC Power, Inc., which the profile says was formerly International Composting Corporation. The Institute’s website no longer names Mr. Butterfield as a Director and ICC Power, Inc.’s website is under construction. International Composting Corporation has a website, which may or may not be the same International Composting Corporation that Mr. Butterfield is referencing on his LinkedIn profile, but we did not find any mention of Mr. Butterfield on that site. Mr. Butterfield probably has not recently updated his LinkedIn profile.
(Note: Loreto Bay’s developers have taken down the original project website, which may now be viewed via the Wayback Machine.)
In a July 24, 2008 post, Mexico Law Blog questioned the viability of the ambitious 6,000-unit Loreto Bay tourist development project called Loreto Bay, located on around 8,000 acres adjacent to the hamlet of Loreto on the east coast of the Baja peninsula. Although the project, particularly its goal of self-sustainability, is impressive, its timing is unfortunate.
The San Diego Times has reported that the project developer, TSD Loreto Partners, S. En C. por A. (”TSD“), has sold fewer than 800 units and suspended construction and operations. The report also said that Fonatur, Mexico’s tourism development agency, was asking for “custody” of the project so that it could reopen a golf course and a hotel while TSD searches for a buyer. The principal lender for the project is Citigroup Property Investors. Whether TSD has breached its loan covenants is unknown, but highly probable.
StarkSilverCreek.com reports that TSD is subject to a lawsuit in Arizona, in which Baja Developments, LLC, a New York limited liability company, alleges breach by TSD of a services agreement and seeks damages in excess of $7,000,000. According to a detailed article about the Loreto Bay project in the Phoenix Business Journal, Baja Developments, LLC was a company formed by The Trust For Sustainable Development (note the “TSD” initials), a Canadian non-profit, federally chartered land and community development corporation, that arranged financing for the Loreto Bay project.
Carlos Slim’s industrial conglomerate, Grupo Carso, S.A. de C.V. (MXK: GCARSOA1), plans to spin off its real estate assets into a new company that would trade on the Mexican stock market, according to a Reuters report. The company would likely include Carso’s mall construction operations, the report said.
Carso, which recently announced a US$800 million multi-use real estate project near Mexico City, has industrial, retail, infrastructure and construction businesses.
Carlos Slim’s conglomerate Grupo Carso announced that it will invest US$800 million in the construction of a multi-use real estate complex in the Irrigacion neighborhood located in northwest Mexico City to be named Plaza Carso, which will include retail and office space, residential apartments, and a contemporary art museum and movie theatre, according to a Sentido Comun report.
The shopping center, which will offer 45,000 square meters of retail space, will be housed in an old General Tire plant and include as anchor tenants Sears, Sanborns, Mixup and Banco Inbursa. Three separate towers will house 430 residential apartments and a separate corporate office building will hold office space. Museo Soumaya will run the musuem, which will hold the magnificent Jumex Collection of contemporary art. The real estate complext is expected to be completed in 2010.
The island, called Cayo Culebra (Snake Key), appears to be privately owned by one Maria Vasquez Rubio, and consists of approximately 89 acres (36 hectares) of island land in the beautiful Mayan Riviera. The catch is that the only human use of the property permitted is scientific ecological research; the construction of permanent structures is prohibited.
The listing agent is the LandRod Law Firm and Real Estate Office (in Mexico, a law firm is permitted to act as a real estate brokerage and a law firm notwithstanding the potential conflicts), which also has several other nice looking coastal properties listed for sale.
Starwood Hotels & Resorts (NYSE: HOT) announced on November 7, 2008 the debut of its St. Regis brand in Latin America with the opening of the St. Regis Punta Mita Resort, a joint venture between Starwood Hotels & Resorts and Ideurban Consultores, which constructed the project, according to a company press release.
The resort is located in Bahia de Banderas, in the Riviera Nayarit, just north of Puerto Vallarta.
The land on which the resort is located is owned by Grupo 1818, S.A. de C.V., a company owned by a group of undisclosed Mexican real estate investors.
Mexican real estate development company Consorcio Ara, S.A.B. de C.V. (MXK: ARA) has commenced work on a major real estate development project called Citara on land located north of Mexico City in Huehuetoca, state of Mexico, according to a Mexbiznews.com report. The report said that the project was expected to include 26,000 housing units, 25 schools (kindergarten through secondary school), green spaces, and commercial and industrial facilities.
Consorcio Ara warned on October 22, 2008 that it did not expect revenue growth in in 2008 compared with the previous year because of choppy markets and delay in new residential construction.
Mexican billionaire Carlos Slim Helu’s real estate holding company, Inmobiliaria Carso, S.A. de C.V., has acquired a 7.64% stake in Edmond, Oklahoma-based Bronco Drilling Company, Inc. (NASDAQ: BRNC), which has a contract to drill three wells for Pemex, according to an October 22, 2008 Schedule 13G SEC filing by Bronco.
All of the outstanding voting shares of Inmobiliaria Carso are controlled by a Mexican trust, the beneficiaries of which are Carlos Slim Helu and family members Carlos Slim Domit, Marco Antonio Slim Domit, Patrick Slim Domit, Maria Soumaya Slim Domit, Vanessa Paola Slim Domit and Johanna Monique Slim Domit.
Inmobiliaria Carso purchased 2.2 million shares of Bronco on October 15, 2008 for approximately US$15 million, based on the company’s share price at the time of acquisition.
Grupo Aeroportuario del Sureste (Asur), S.A.B. de C.V. (NYSE: ASR) has acquired approximately 321 acres of land in Huatulco Bay, Oaxaca state, for approximately US$21.6 million, according to a report in Business News Americas (BNA).
Asur acquired the land on October 20, 2008 from Mexico’s National Trust for Tourism Development (FONATUR). The Mexican government has sought to make Huatulco a new pacific coast tourist hub.
The terms of the acquisition require Asur to build 1,300 hotel rooms on the property over a four-year period, the BNA report said.