The ripple effects of the credit crisis in the United States appear to have reached Cancun’s time-share real estate market, where the monthly cancellation rate on time-share purchase contracts increased to 8% in October 2008, which is 4% to 6% over the average monthly cancellation rate, according to a report in today’s El Financiero. 

Miriam Cortez, executive director of the Association of Vacation Clubs (Asociacion de Clubes Vacacionales – Acluvac), who was interviewed in the report, said that for the first time in many years the outlook for new time-share sales looks bleak.

Hilton Hotels Corp. announced plans to build 60 hotels in Mexico over the next five years as part of its plan to quadruple its presence in Latin America and the Caribbean, according to a report in today’s El Financiero. 

Hilton currently owns 19 hotels in Mexico, which operate under various brands, including the Hampton Inn and Homewood Suites marques. 

Hilton was acquired by Blackstone Group in October 2007 for approximately US$26 million.

Hipotecaria Su Casita, S.A. de C.V. (HSC) and El Puerto de Liverpool, S.A.B. (EPL) (MXK: LIVEPOLC1) have signed a collaboration agreement under which they will provide loans to consumers to finance home furnishing or appliance purchases at Liverpool and Fabricas de Francia department stores, both of which are operated by EPL, according to a September 4, 2008 report in El Universal. 

The loans will available to consumers who obtain mortgage loans from HSC and do not borrow the maximum authorized amount, as determined by HSC based on consumer credit histories and income levels.  Such consumers will be offered a credit card, branded with both the HSC and EPL logos, that enables them to use the difference between the amount they actually borrow for their mortgage loans and the maximum authorized amount to make home furnishing and applicance purchases at Liverpool and Fabricas de Francia department stores.  Gonzalo Palfox, director of business development at HSC, said in the report that HSC has determined that 30% of Mexican mortgage loan borrowers do not use maximum authorized amount of mortgage financing.

The loans will bear interest at 35% per year, mature in five years, and be prepayable by consumers without penalty, according to a report in El Financiero.  The report also said that the collaboration agreement provides that EPL will place HSC kiosks in its Liverpool and Fabricas de Francia department stores, where consumers may request information about HSC mortgage loans.   

HSC was founded in 1994 as the first specialized mortgage lender in Mexico.  It is structured under Mexican law as a limited purpose finance company (sociedad financiera de objeto limitado – SOFOL), which means, very generally, that it is a specialized financial institution in terms of the types of loans it grants.  SOFOLs became particularly prominent in Mexico’s mortgage sector after December 1994, when the tequila crisis resulted in the collapse of the Mexican banking system and the banks ceased all mortgage lending operations.  SOFOLs, which now offer loans in various sectors of the Mexican finance market (e.g., agriculture, automotive, consumer goods, real estate, etc.), are not authorized to accept deposits.

Grupo del Blanco, a Hidalgo, Mexico-based housing construction company, and Federal Development, a Washington, DC-based real estate development company, have formed a joint venture to develop homes and resorts in Mexico, according to an August 27, 2008 report in El Financiero. 

The first project of the joint venture will be a US$500 million development called Golf & Resort, Real del Monte, located to the north of Mexico City.  The project will include homes, a golf course, and the longest synthetic downhill ski run in North America.

The President of Grupo del Blanco, Ernesto del Blanco Arjona, said in the report that vacation and retirement homes have been the fastest growing segments of the Mexican real estate market in recent years, with annual growth in excess of 80%.  He said that experts forecast sales of 25,000 homes in Mexico with a value of $9 billion in 2008.  Annual sales were expected to rise to 40,000 homes by 2010, he added. 

John Infantino, President of Federal Development, said in the report that the joint venture expected to develop projects in Mexico City, in Mexico’s beach communities, and other regions.  (In other words, anywhere the group finds opportunities.)

Clients often ask about the restrictions on foreign ownership of Mexican coastal and border real estate. 

Here are the basics:

1.   Article 27 of the Mexican Constitution prohibits foreign (i.e., non-Mexican) ownership of: (A) Land within 100 kilometers (62 miles) of the territorial borders of Mexico; and (B) Land within 50 kilometers (31 miles) of the coast of Mexico (collectively, this land is called the “Restricted Zone“)

2.   The 1998 Foreign Investment Law creates certain exceptions to the constitutional prohibitions on foreign ownership of Mexican real estate located in the Restricted Zone.  The availibility of the exceptions depend on whether the real estate will be used for residential or non-residential purposes, as defined under the Foreign Investment Law.

• Residential Purposes.  If the real estate will be used for a second home, rental income property, or a primary residence, then the foreign buyer must buy the real estate through a Mexican trust (fideicomiso), with a qualified Mexican bank serving as trustee (fiduciario).  The seller (and settlor of the trust, or fidecomitente) will convey the title to the trust at the closing.  The buyer will be the beneficiary (fideicomisario) of the trust and may generally use, transfer, gift, or sell the real estate contained in the trust to third parties, either directly or by instructing the trustee to do so.  The trust has an initial term of 50 years, which may be extended for additional 50-year periods by written application to the Ministry of Foreign Relations (Secretaria de Relaciones Exteriores), which, as long as the purposes of the trust are the same as when the trust was formed, should be approved.  The buyer may name secondary beneficiaries of the trust to make it easier to pass the real estate to children or other heirs.  Such beneficiaries may be individuals, corporations, partnerships, or other entities.  However, when the real estate held in the Mexican trust is a condominium or other property that is subject to bylaws or regulations, an entity is the beneficiary of the trust, and ownership of the entity is shared among investors, the entity should make certain that the shared ownership structure does not violate such bylaws or regulations prior to purchasing the property.  
• Non-Residential Purposes.  If the real estate will be used for non-residential (i.e., commercial) purposes, then the foreign buyer may purchase the land through a foreign-owned Mexican corporation, limited liability company, or other entity.  Article 5 of the 1998 Regulations to the Foreign Investment Law list some of the activities that are deemed non-residential use of real estate, as follows:

subject to a time share;

intended for some industrial, commercial, or tourism activity, and which may be used simultaneously for residential purposes;

acquired by credit institutions, financial brokers, and credit auxiliary organizations, repossessed to recoup debts in their favor;

used by legal entitites to fulfill social objectives that may consist in the transfer, urbanization, construction, and all other activities inherent to the development of real estate projects until they are commercialized or sold to third parties; or

used for commercial, industrial, agricultural, livestock, fishing, forestry, or the rendering of services.

The foregoing is merely a summary of the restrictions on foreign ownership of Mexican coastal and border real estate.  Foreign investors in Mexican real estate should consult a competent Mexican attorney before entering into any real estate transaction in Mexico.

A consortium of investors, led by Pedro Aspe’s Protego Asesores, a boutique investment bank, will build the largest building in Latin America on Mexico City’s historic Paseo de la Reforma, according to reports today at Bloomberg.com and El Universal.com.mx. 

Construction is to begin at the end of 2008 and is expected to be completed by 2011.  The building, which will be 244 meters high (800 feet), will be equipped with LED lighting and solar panels to reduce energy costs. 

The Torre Mayor, also located on Paseo de la Reforma, is currently the tallest building in Latin America at 225 meters (783 feet).

The real estate arm of the Government of Singapore Investment Corporation (GIC) announced today that it has acquired an (undisclosed) ownership interest in Mexico Retail Properties (MRP), according to a Reuters report. 

Founded in December 2001, MRP is a Mexican company affiliated with Denver-based real estate private equity firm Black Creek Group (BCG).  MRP develops, builds, and manages shopping malls (centros comerciales) and other retail properties in Mexico.  BCG’s website also indicates that BCG is affiliated with Corporate Properties of the Americas, an “institutionally owned industrial property company operating throughout Mexico” that “has invested over US$1 billion in Mexican industrial real estate” since its inception in 1998.  The managing principals of Black Creek Group include John Blumberg, Jim Mulvihill, Tom Wattles, and Evan Zucker.

Based on a Denver Business Journal report, it appears that The Blackstone Group’s Equity International Properties Ltd., which was founded by Chicago real estate mogul Sam Zell and sold by Zell to Blackstone, made an investment of approximately $42 million in MRP in early 2004.

There is significant interest among investors in commercial retail real estate in Mexico, thanks in large part to Mexico’s emerging middle class.  Oralé!

Fueled by a nationwide housing deficit, strong demand for homes among Mexico’s young and emerging working class, government mortgage lending programs, and a growing mortgage-backed securities market, Mexico’s low-cost housing sector continues to flourish.  Mexican homebuilders Desarrolladora Homex, S.A. de C.V. (NYSE: HXM) and Corporacion Geo, S.A.B. de C.V (GEO.B:MEX) are two of the major players in the sector, which generally focuses on mass producing homes that sell for less than US$40,000.  The Mexican housing industry expects the sector to grow by 15% over the next few quarters, according to a Reuters report.

Another U.S. developer, Baja Properties, LLC, is seeking to bank on the throngs of Americans buying property in Mexico for retirement and vacation purposes in Baja California with a new project near La Paz.  According to the project website, the company and its Mexican subsidiary, Mesa Verde Corp, S. de R.L. de C.V., have entered into an agreement to acquire and develop 500 acres of land and the subsidiary has closed its acquisition of 125 of those 500 acres.  The developer is also active in the virtual real estate market: it bought the bajavillas.com website to help market the Mesa Verde project.  Property sales are expected to began in Q1 2009.

La Paz is just over 100 miles south of another relatively new and impressive Baja California development called Loreto Bay, located on around 8,000 acres adjacent to the hamlet of Loreto on the east coast of the Baja peninsula.  Loreto Bay bills itself as the “largest sustainable resort community under development in North America” and even has a Director and Vice President of Sustainability.  There are plans for a golf course, desalination plant, a wind farm, and solar powered buildings.  Sustainability may not be an option: Loreto is in the middle of the desert.  The project appears to be well-financed; investors include Citigroup Property Investors (CPI).  Homes and condominiums range from US$350,000-$900,000+.