BajaNews
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Baja California luxury developments go from boom to bust
http://www.latimes.com/business/la-fi-baja-bust16-2010apr16,...
By Alana Semuels
April 15, 2010
Reporting from Rosarito Beach, Mexico - The condo in the Palacio del Mar development just south of Mexico's Rosarito Beach spares no luxuries.
Travertine tile. Stainless steel appliances. A customized wine rack.
Then there's the view. On one side is the glittering Pacific. On another, just 30 feet away, is the half-completed shell of an adjacent condominium
project. The building looks like an abandoned parking garage, with floors of concrete piled atop one another and steel spikes poking out from the
floor.
This luxury condo belongs to Dan McNeil, a Phoenix real estate investor who put it up for sale a year ago after the value of his properties above the
border tanked. He hasn't found a buyer yet; this area is littered with vacation units for sale.
"It paints a picture of a depressed economy, depressed conditions. It doesn't make it look like a happy place to go live or vacation," McNeil said of
his condo's lifeless neighbor.
These days, many views in northern Baja California feature both sea and skeleton. Up and down the Pacific Coast from the Tijuana border to Ensenada,
the concrete-and-steel frames of half-completed luxury towers stretch up into the sky.
Some of these oceanfront properties are surrounded by piles of garbage, fences and rusting beams. Billboards that once advertised swanky real estate
developments are now neglected, tatters of ads hanging off them as if they've been shredded by a storm.
This area, about 30 miles south of San Diego, is one more casualty of the U.S. housing boom and bust. As U.S. real estate values inflated during the
bubble, American homeowners pulled equity from their properties and put down hefty deposits on vacation homes in planned developments in Baja, driving
up prices here. Many of those purchasers were speculators hoping to resell their units before construction was finished.
When the U.S. bubble burst, buyers vanished. So did financing. Some owners walked away, and cash-strapped developers halted projects midway. Thousands
of Baja properties are now for sale or for rent, or are only half completed. Real estate experts estimate that prices have fallen 25% to 30% since the
peak.
"It was a gold mine to build a big tower on the beach, but once the market tanked, all of a sudden everyone wanted out," said Jean-Paul de Kervor,
chief executive of Maquila Properties Inc., a consulting firm in Baja California.
News of narco killings involving Mexican drug gangs in Baja is also keeping buyers and renters away.
"It's a double whammy: Mexico is tied to the U.S. economy, then you have the added fear factor of what people read about the drug war," said Brian
Flock of Flock Dream Homes, which sells real estate in San Diego and Baja.
Many American buyers in Baja put 30% to 40% down, which is typical in Mexico, with the balance due upon the completion of construction. Now that the
condos are finished, many purchasers don't have the cash or credit to close their deals, said Kathy Katz, co-owner of Baja Real Estate Group, which
represents two of the largest developments on the coast.
"At the time, the demand was there -- we sold out. But now about half the people have pulled out," Katz said as she walked past squares of Italian
porcelain, a tarp and a wheelbarrow in a luxury condo in the Palacio del Mar development.
Most developers have altered ambitious building plans since the real estate slowdown. Although construction is complete on a fifth tower at the
Calafia development, developer Groupo Gor is leaving the interiors of the condos unfinished until someone buys them. The floors and walls are gray
concrete covered in splotches of white paint. Pipes and wires stick out of the floors.
Down the road in the Club Marena project, developer Marena Pacifico is waiting until the economy picks up to build a third luxury tower. Next to a
recently completed tower there's a deep pit gouged in the soil. Behind it, what locals say is the world's second-largest statue of Jesus is perched on
the hill.
In Las Gaviotas, an older community that features brick homes and tiled streets, about 15% of the 298 homes are for sale, Katz said. During the last
decade those properties turned over only occasionally, she said.
At the 72-unit Palacio del Mar, nearly 25% of buyers have defaulted on their contracts. McNeil, the Phoenix investor, purchased his three-bedroom
condo for $477,000 after seeing ads for it three years ago on a Baja trip. Then came the economic downturn. McNeil, who owns five rental properties in
the U.S., saw his net worth cut in half. He's now trying to sell the Mexican condo for $439,000.
After 20 years of visiting Baja with his family, McNeil says he's finished with the seaside community.
"I am pretty certain that I won't be investing any more money in that area for a long time," he said.
Judging by the half-completed buildings that dot the coast, many other would-be Baja residents are in the same position.
There's the gigantic Residences at Playa Blanca, which advertises "24-hour gourmet dining" and a "world class spa" on banners next to the highway, but
which remains frozen in construction, scaffolds and pipes lined up on the grounds. The fortress-like condos at Las Olas Mar y Sol, which sit next to a
steel skeleton structure, are surrounded by piles of trash.
Perhaps the best-known such flop is at Trump Ocean Resort Baja, a luxury hotel-condo project developed by Irongate Wilshire and PB Impulsores.
Flamboyant real estate tycoon Donald Trump licensed his name to the resort, whose units sold for as much as $3 million in splashy pre-construction
sales events.
But the project was never built. All that's visible now is a fenced-in hole, faded pink Trump Baja banners waving in the breeze. Buyers, who are out
$32.2 million in deposits, sued Trump and the developers last year.
The real estate bust and tourism slowdown have crippled businesses in Rosarito Beach. On the main street, Boulevard Benito Juarez, sushi joints and
coffee shops that cater to Americans sit empty. Lupe Perez, owner of El Nido restaurant, says his business has dropped 80% in the last year or so.
Still, he has resisted firing staff members.
"This waiter has been here 28 years. He's third generation. I can't tell him to just go home," Perez said, gesturing toward a man clearing off an
empty table.
Some observers say the downturn in Baja is just a temporary blip and buyers will come back soon. Rosarito Beach is on the coast, after all, and only
about half an hour from San Diego. Prices on three-bedroom condos on the shore start at around $280,000, a fraction of what they'd cost in the U.S.
But the promise of cheap real estate just across the border isn't quite as appealing when there's plenty of it to be had in the U.S. too.
"What's hurting us is that now you can buy a nice Vegas condo for $150,000," Baja real estate agent Katz said. "We used to be that."
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wilderone
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"you can buy a nice Vegas condo for $150,000,"
don't have to go to the desert for affordable condos - plenty of condos in San Diego - a resort town don't forget - within 3 miles of the beach, no
heads hanging from bridges, an honest police force, several cheap golf courses right in town, an actual sewer system and water you can drink from the
tap, etc., etc. If you really feel you just have to go to Rosarito for an ocean view, you can rent a house for a couple months per year at Las
Gaviotas. Florida has plenty of ocean views from cheap condos too.
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tehag
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SD tap water
About that San Diego tap water, eeeweeeeyy!
Certainty is the child of ignorance, knowledge is the mother of doubt. Question everything!
http://bcsbirds.com |
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chippy
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The waiter clearing off an empty table kinda says it all. Drinking SD water? I used to feel bad giving it to my dog.
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gnukid
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| Quote: | Originally posted by chippy
The waiter clearing off an empty table kinda says it all. Drinking SD water? I used to feel bad giving it to my dog. |
To the south, the projects continue unabated, likely with government funding to avoid this. Magote continues and baosts a new gold course as does
Costa Baja Marina adding new holes to its course quickly, La Concha and so many others boast new condos starting in the low 400-500s for box condo?
Though sales are light. Right now we are visiting Cabo where tourism is high and the luxury market is defiantly strong. Spas offer great deals for
vacationers and service is excellent. In Todos Santos Cerritos beach is packed weekday with waiters, chachka sales and massage tables lining the
federal zone. Something eerily calm and pleasant down here... yet confoundingly confusing.
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Woooosh
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The story reports the obvious to anyone driving through the area. I am surprised so many people are walking away from their deposits though. That's
why new project real estate prices aren't dropping much- the developers aren't harmed financially when a buyer walks away- they just wait for another.
The blight is a serious problem- all those half-finished buildings because of the "no completion bond" required system.
El Nido business is 80% down? And that's a busy place.
\"The only thing necessary for the triumph of evil is for good men to do nothing\"
1961- JFK to Canadian parliament (Edmund Burke)
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josie
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Good point Woooosh. When friends ask me about investing in Mexico I tell them to buy only what they can afford to pay in cash and is built, ready to
move in. The empty towers all along the toll road serve as a reminder as to what you can lose by relying solely on a developers promise.
Maybe some US based health care companies can buy some of them and turn them into long term care facilities?
Maybe this would be a good opportunity for the local government to require a completion bond for any future projects like this???
[Edited on 4-16-2010 by josie]
rude people and dog haters suck
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Lee
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Looking on the sunny side
| Quote: | Originally posted by wilderone
"you can buy a nice Vegas condo for $150,000,"
don't have to go to the desert for affordable condos - plenty of condos in San Diego - a resort town don't forget - within 3 miles of the beach, no
heads hanging from bridges, an honest police force, several cheap golf courses right in town, an actual sewer system and water you can drink from the
tap, etc., etc. If you really feel you just have to go to Rosarito for an ocean view, you can rent a house for a couple months per year at Las
Gaviotas. Florida has plenty of ocean views from cheap condos too. |
This is all true. Taxes are a bit higher, though, in SD, as are some real estate prices. There are honest MX cops though many argue otherwise
based, I believe, on coverage of the bad cops. Yes, there are bad cops too.
Rosarito, and Ensenada, use to be happening places. To some, still happening down there.
In a few years (5-10?), I predict this stretch of Baja will have turned around, empty condos will have happy owners, and the Gold Coast will have it's
day.
DOW at 11k? Everything changes.
US Marines: providing enemies of America an opportunity to die for their country since 1775.
What I say before any important decision.
F*ck it.
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DENNIS
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All good points, Lee, but the border probably won't return to what it was. It's a major deterrent to day travel and is one big negative for the whole
region.
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bajabass
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I lease a lot in La Mision with a million dollar view. I had planned on building my retirement home there, secluded, yet close to the border. Now, to
close to the border for me. I still spend every weekend I can there, but I will be building or buying a home in La Paz. I have had no narco related
problems, but crime is on the upswing, most of my neighbors don't come down any more, so I'm thinking go south old man!!!
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Woooosh
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| Quote: | Originally posted by DENNIS
All good points, Lee, but the border probably won't return to what it was. It's a major deterrent to day travel and is one big negative for the whole
region. |
USA home equity and the cheap access to it will never be available like it was before the mortgage meltdown- which is what drove up the sales and
prices. Speculators have their hands full with stateside foreclosures- no one is looking south to invest right now. Nothing to do with crime or the
border waits- simply the availability of cheap money and how best to use it.
\"The only thing necessary for the triumph of evil is for good men to do nothing\"
1961- JFK to Canadian parliament (Edmund Burke)
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Bajahowodd
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Forgive my crocodile tears for Dan McNeil, the Phoenix real estate investor. Anyone who thought they could pay $477,000 for a 3 bedroom condo in
Mexico and flip it for a profit deserves what they get. What amazes me, is given the huge price crash in the Arizona market, that should be some sort
of guide to him, this guy is still looking for $439,000 to unload his property.
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MitchMan
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Man, I can't believe the prices that they are asking for those condos on Mogote, La Paz. In January 2010 I past by their sales office on the malecon
and they said that the prices started at $600,000 USD! I cannot understand how they could ask for that kind of price with a straight face. There is a
massive terrible disconnect between reality and fiction here somehow. I know that there are many, many people that are fabulously wealthy even right
now, but to start out asking for $600 K?
Maybe I am naive and maybe there are many more people than I think that have a bunch of money and they are simply keeping a low profile and not
letting the public on about their cushy circumstances...but they are out there, complaining about high taxes and government takeover of the US economy
even though the US economy is showing very positive signs of a recovery (seen the DOW lately?), while actually lurking about, waiting to be able to be
visibly ostentatious once again when the coast is clear.
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The Gull
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| Quote: | Originally posted by Bajahowodd
Forgive my crocodile tears for Dan McNeil, the Phoenix real estate investor. Anyone who thought they could pay $477,000 for a 3 bedroom condo in
Mexico and flip it for a profit deserves what they get. What amazes me, is given the huge price crash in the Arizona market, that should be some sort
of guide to him, this guy is still looking for $439,000 to unload his property. |
Ditto.
�I won\'t insult your intelligence by suggesting that you really believe what you just said.� William F. Buckley, Jr.
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