By Mr. London, London Group Realty Advisors

Baja California’s easy access, proximity, great weather and warm culture have always attracted Americans to travel to its Mexican next door neighbor. Now, world class housing and hotels, and great real estate value, add to the allure for Americans considering investing or living in Mexico.
 

Currently, there are approximately 50 active attached housing projects in Northern Baja, of which The London Group has identified 23 as being premium projects. Some of these projects include Trump Ocean Resort, Paradise del Baja, Palacio del Mar and Las Olas Grand. There are also other proposed luxury projects in the pipeline, which include the master plan community of Salsipuedes, Baja Mar, Olivares and Santini Greens.

These are projects that are defined by their high quality of community amenities, location/proximity to the border, luxury and comfort, private beach, concierge services and price per square foot. Attached units range from 460 square feet to 6,020 square feet and sell from $206,000 to $3.2 million.

It is also crucial to recognize that the true comparables are along the U.S. California Coast, where real estate prices are two to three times higher for comparable housing. For second home owners priced out of the U.S. California Coast, Baja is an answer.

In its market research over the past three years, The London Group has ranked all of the projects along the Northern Baja Peninsula. Most were selling at a torrid pace well into 2007. Since then, sales rates have slowed considerably – the American consumer is being very tentative because of the slow down in the residential cycle in the U.S. Many of the projects which we have surveyed have lowered prices or are offering better terms.

The down cycle may last for the next year or longer. In the meantime, some projects are moving ahead.

Trump Ocean Resort is the latest addition to the growing supply of new housing. It is the most luxurious, ambitious, and to date, successful real estate offering along Baja’s northern peninsula. The project is now under construction on 17 acres of pristine coastal land, overlooking the Pacific Ocean and the Coronado Islands. Located just 30 minutes south of San Diego, CA and across the International border, these three towers of oceanfront condominium hotels when completed, will feature 700 units, approximately 7,000 square feet of convention and meeting space, restaurants and a whole host of amenities in an ambitious project that is unprecedented in this emerging Baja California Gold Coast.  

This is the first northern Baja project to combine luxury resort amenities and services with property ownership. Trump Ocean Resort is targeting the high-end real estate market by offering a package of amenities and services not yet provided by any other project in Northern Baja, including a 24-hour concierge service, bar & lounge, pool house bar & café, fine dinning restaurants, full-service spa, fitness center, tennis courts, walking trails, among other features.

The other developers and realtors in the market held their breath when Trump announced his venture. Exhilarated by the fact that this much attention was finally being drawn to this emerging market, the high visibility also brought high anxiety.

What if he failed to attract the same cadre of luxury investors and home owners on the same level that he recently achieved in a similar project in Hawaii? What if the price points were perceived by consumers as too prohibitive? What if the project doesn’t deliver in some way?

That concern has subsided. Trumps marketing people held an eye-popping marketing event in an Diego and sold out 80% of the first of the three towers in a matter of hours. They are now marketing, in phases, the remaining project, and everything is full speed ahead.

In the meantime, a number of the other ventures along the coast have been announced, are in initial marketing or are under development.

We expect that many new projects will eventually target the same American consumer by offering features that emulate what the current high end offerings already introduced to the market. All will compete for attention in a growing consumer segment that values luxury and quality. Studies show that 75% of Baja sales are to a pool of over seven million Baby Boomers (now aged 43 to 61), who total 30% of the U.S. population. They come into Baja principally from California, Arizona and Nevada.

There is plenty of the pie left for many years to come.

There is also a lot of “dirt.” This is the Mexican coastal peninsula, a 1,100 mile, narrow sliver of endless beaches on both east and west that attaches San Diego, CA to Cabo San Lucas on Mexico’s far western coast. With its vast array of quaint beach towns and never-ending shoreline, Baja California offers visitors luxury resorts and dining, wineries, gourmet food, art galleries, golf resorts, medical facilities and even bullfights.  All of these attractions and the warm Southern California climate help to create an active and attractive real estate market.

The “Tropicalization” of Baja

This market is undergoing a transformation which we have dubbed the “tropicalization” of Baja, a reference to the two-nation/one region cross border geography which fuses American culture with the Mexican ambience in a unique cross cultural dynamic.  As a result, Baja has become home to thousands of Americans who either live there full time or simply enjoy using their property for vacations.

Make no mistake: a real estate investment in Baja California is not “pioneering”. For Americans choosing to retire, Baja California has become one of the top five destinations in Mexico. Currently there are over 200,000 Americans living permanently in Baja. In terms of Real Estate, Baja caters to all types of consumers ranging from affordable custom lots to high-rise luxury condominiums.

One only needs to travel to the very southern tip of Baja California to Cabo San Lucas to recognize the value created by a “boom” of Americans who have discovered paradise. Residential pricing in Cabo, which is accessible to the U.S. market mainly by commercial airline or private air transportation, has soared from an average of $300,000 in 2000 to $800,000 today.

For consumers who missed that market rise, the northern Baja Peninsula might be attractive in anticipation of similar pricing velocity.

Debunking the Myth of “Risky” Mexico Investments

The London Group Realty Advisors has been conducting extensive market research for real estate projects in Baja California. Through it all, we have encountered resistance from U.S. buyers in three critical areas: title and financing, access and security.
 

• Title and Financing: Property ownership rights are secure, and backed by the major American title insurance companies including First American, Stewart Title and Land American, among others. Further, Americans have the ability to obtain mortgages on the properties from divisions of GE Finance and other major US Financing companies. There is a common misconception that Americans cannot own land in Mexico. This is not the case. American property ownership in Mexico is structured through a fideicomiso, a trust agreement with the Mexican bank to ensure clear title to the property.  

• Accessibility: The Northern Baja Peninsula enjoys a clear location advantage over other competitive Mexican beach resorts: it is accessible by automobile. Most of the quality projects are accessible within 30 to 90 minutes from the US border by auto, traveling south on I-5 across the International Border (at Tijuana). Normally there are no border waits or passport checks and little chance of going off course. Passing quickly through into Mexico, access to the Coastal Highway is immediately to the right. One travels west parallel to the border and within minutes the Toll road begins. The highway is modern, secure, and exit signs are easy to understand.

To facilitate the needs of regular travelers and visitors, the return trip to the U.S. is expedited by securing a fast-track permit, called SENTRI, which reduces the normal border wait time from hours to approximately 15-30 minutes. As of the first quarter of 2007 there have been 7.7 million border crossings. The border is just a visual impediment and not a limitation for pleasure, business or to enjoy Baja.

And compared to the entry and exit waits associated with air travel, a northern Baja destination is infinitely quicker.
 

• Security: Mexican law enforcement is visible, friendly and particularly protective of tourists. Reports of lawlessness, extortion and exploitation are exaggerated, and are normally domestic issues. Tourists are not usually “targets”, although there has been a disturbingly large number of incidents over the past several months. Importantly, the Mexican government at the federal, state and municipal levels has taken extraordinary measures to crack down on lawlessness.

Baja California is a market with an “up side”, albeit it is a market delayed until there is a cycle turn. Look for activity to pick up by 2009. There are early investment opportunities in this emerging, high-end luxury condominium market, and in projects that could very well permanently alter the quality and dynamics of all real estate development in this Mexican market.

Mr. London is President of the London Group Realty Advisors, international strategic consultants specializing in real estate economic studies, market analysis and equity placement. Mr. London can be reached at glondon@londongroup.com