Our Upcoming Surfside Deal

March 30, 2020

Transcript

SPEAKER_00 0:15

Hi, Ronan here. Welcome to your notes from the field and greetings from Los Cabos. Wherever you are, I hope you're safe and well and making your health your number one priority. But the world keeps turning, opportunities keep being created despite or even thanks to the current situation. And what I'm committed to doing here at Real Estate Trend Alert is to block out all the noise and to stay a hundred percent laser focused on our mission to find you the best international real estate opportunities for profit. And you know, we're we're literally just about a month into this crisis, and already it's creating opportunity. And it's creating opportunity for us in one of the most stable places in the world, and one of the in a place that's increased its prosperity over the past decade like nowhere else on Earth has. So I'm talking about true, true beachfront. So um let me kind of break out the the main pillars of why this opportunity is is so strong, why it's so compelling, and why now is the moment. And maybe first of all, I'd start with the with the why now. Um this is a project. The project is called Surfside, it's right on those pristine caracol sands. It's a building or it's a project that's 50-50 divided between luxury beachfront hotel and condos. So this is a project that's been on my radar for for quite some time. And um about six months ago, I sat down with the developer Alfredo Aleman, and at that point the pricing he was he the the the the the lowest price point he was open to for a Rita members only deal was in the in the region of of $280,000. And you know, this felt felt high to me. You know, I went to Alfredo and I said, you you you need to give us more. You you know, we you know, we we we want more because you know, in terms of the the upside for these condos, I'm figuring that these are condos that will be worth maybe in the region of $350,000 five or so years out. So we want more upside for the opportunity to cut Rita muster than going from 280 to 350. And so he he he opened his books to me and and showed me his numbers, and you know, in in truth, he was offering us a really, really fair deal because the nature of this project is such that there's there's so many amenities. There's you know, there's the the beachfront restaurants, there's the beachfront pools, there's the gym that you know will look out onto the the ocean. There's all this stuff. So you're you're not just paying for for your condo, you're paying for your condo plus a piece of of all these amenities. Um so I guess then you know we both went on and were were working on other things. And then recently, just literally, as the world started reeling with this um with this coronavirus and and COVID-19 crisis, the Panamanian government rushed through a change to their their tax code. Basically, it's this mother of all tax breaks to to folks who invest in creating hotel rooms. So it works like this. Let's say you spend ten million dollars in hard costs on building a hotel, you then have a ten million dollar credit which can be used to reduce a Panamanian income tax bill by that same ten million dollar amount. So it's it's more than just a ten million dollar tax credit, it's a straight write-off. It's it's it's of value to the to the tune of ten million dollars straight away. Now this this tax write-off, um, it can't all there, there's some small stipulations, but nothing too limiting. The most of it you can use in a year is is 20%. The you can spread it out over five years, but all of a sudden, every penny of hard cost that's being invested in a Panama operation that will create hotel rooms and that will create capacity for the industry that they want to incentivize has this value as a tax write-off. And then on the other side of the equation, so that you can use that tax write-off yourself, or it can be packaged up and sold on to people who have a tax liability that they're looking to offset. So contacts down there already have created this mechanism or a market where as soon as a deal is is inked and as soon as those funds are invested in in creating that hotel infrastructure, the full tax credit can be can be sold on. So you know, I heard this was was happening, you know, the developer Alfredo Aleman as a as an industry bigwig was in the the thick of the process. We sat down and we hammered out a new set of numbers, and I said, Look, Alfredo, you you you need, you guys are getting this gargantuum bailout. You're getting this like great big the developers and the hoteliers of of Panama are getting this huge bailout from the Panamanian Tax Authority. Over at Rita, we we want our piece of that. And it's fair and reasonable because Alfredo, we are bringing group buying power to you right at this moment when when when you need it most. Now, word from from Panama, you know, even though they're in lockdown, it's it's interesting. People are still buying and selling properties with virtual tours. There's the thing about Panama is that you know money flows into it in good times and bad. But that said, in moments of global uncertainty, that's when our group buying power, me being able to come to a developer and say, hey, we've got this pool of people ready, willing, wanting to act, and that's when we're of maximum value. So the developer agreed to basically hand us each a sixty-five thousand dollar plus in value um discount. Effectively, effectively, he's just taking a portion, he's just allocating, um, allocating across the entire project the hotel portion of those tax breaks. So this moment is really exciting because all of a sudden we've gone from having a deal that looked looked pretty good or are okay at $280,000. This crisis envelops the world around the same time the Panamanian government is taking this immediate action to incentivize or bailout or create this huge handout for the developer and hotel industry, and we're getting we're getting our piece of that. So, you know, this is an opportunity that in it's a buying moment and a situation that's in large part created, you know, thanks to the thanks to the crisis, because if it if it wasn't for the this crisis, there's no way that we'd be getting our our piece of of that bailout, that bailout action. Um so that's major leg number one. We have this opportunity thanks to this Panamanian handout to the the rich, connected, high-flying developers and hoteliers. And I think it's really cool that we're now able to sit at the table and ask for and get our piece of what these what these big wigs are getting. Then the the the other huge point which I just want to to to spend some time on and really, really dwell on is the fact that this building and this community is full frontal, full frontal, true beachfront. Now, true beachfront anywhere in the world is is such a rare commodity, you know. I mean, in in many parts of the world, many places on our beach, you can't even build in beachfront. You can't even, you know, in many places you need to be a kilometer back to build. In other places, building is permitted, but it's just so expensive, you know, that the the the land is so valuable, the only thing you could put there is a is a really, really expensive hotel. Even today, you know, luxury hotels near kind of near beaches like this, those total hotels sell typically at a at a value of you know maybe $300,000 per per hotel room. So it's extraordinary to be able to get a to be able to get a beachfront condo for for significantly, significantly less than that. So there's two things on the on the beachfront side. First of all, this this community is straight on beach, you know. Not only is your condo just looking straight out at the water above the beach, your pool is like infinity edge that'll go to the go to the sea, your amenities where you'll take your morning coffee, that's all right out on the beach. So it's just super truly special and unique. And there's just nothing like that in all of Panama's Riviera. You know, there's there's resorts with a mix of hotels way back from the beach, some high-rise, there's all these kind of hodgepodge resorts, but none is beachfront, none is true beachfront in in in this way. And then the broader Caracol community is also angled like a wide rectangle. So most of the beach communities in in Panama along that Pacific Rivier, they're big properties that are really, really deep, several kilometers deep, and your condo building could be a kilometer in from the beach. This entire community is a is a narrow rectangle that focuses on the beach. So this is a true beachfront community where it's all about the the beach and everywhere is close to the beach. So what that means is that this is going to grow as as the ultimate beach destination in Panama, because you know who wants to go to the beach and to be a 40-minute walk or or a drive from it? You know, who the this is this is all this is all about the beach. So surfside is is that the highest amenities, the full frontal beach front facing um creme de la creme of a community that's that's creme de la creme. And I you know, I can't stress enough how right along Panama's Pacific coast there's nothing like this. There's no community with this proportion of beach, there's no community that makes so much of the the the beach views and and and and and accessibility. And it's also the closest nice beach to Panama City. So it's not like you're going right past all the other communities to get to this. You know, it's the closest beach. And you know, longtime real estate trend alert members will will recall that the reason that that happened, that this this area of beach was leapfrogged as development moved along the coast was because there wasn't infrastructure to connect up this area with the with the main Pacific Highway. But developer Alfredo Aleman was able to pull that together and that became a game changer for the for the whole place. So we have so the the the legs of the stool, so we have this moment that's thanks to the crisis and thanks to the bailout where we're getting this extra benefit, this extra $65,000 benefit. We have a project surfside, which is creme de la creme in a community that's creme de la creme in its true beachfront. And then we have the we have the the Panama leg. So then we're buying real estate at pricing that is just completely at odds with Panama's status as an international global hub. So Panama is an international global global hub city, but we can buy here, we can buy from like less than true beachfront condos in the closest beach to the closest beach that's nice to Panama City for less than $220,000. It's just it's insanely cheap when you compare it to any other major city, let alone a global hub city. So I mean we're talking about prices that are one-fifth of of Dubai prices or one-tenth to one-fifteent of of Singapore and and Hong Kong prices. And you know, Panama City isn't where Singapore is, but it's on that trend. You know, it's it's converging with all these with these other major global global hub cities. And you know, with the with the last crisis, it's it's it's very interesting just to have to for me to to have observed over the past close on 20 years as as Panama just came came came out of every crisis stronger and stronger. You know, in the early 2000s, there was um difficulties, crisis in Colombia and Venezuela. That led to a flood of money and and and a flood of money and highly qualified people to Panama. You know, then there was uh then there was somewhat of a of a property boom in kind of 2006 to 2008, quite a bit of it fueled by North American buyers. But when the crisis came, you know, nothing happened. There was no fire sales, there was no crash. The basically the Panama banks and the Panama developers were strong. There was a dip, there was a period where sales volumes went down, they just sat on their inventory, they waited it out, and then as soon as confidence started to recover, they took off again on their growth trajectory. So Panama is one of these places that, you know, it's in the early to mid-stages of what I expect will be a three to four decade growth trajectory, a three to four decade trajectory, and they're maybe they're 10 years in to converge with other world-class cities to become to grow to the point of being another Singapore or Dubai. And they're well on the route to that. This is a this is a serious country, a serious international, a serious international hub. And what's happening now is you know, we've done extremely well from our recent Panama deals, we've done extremely well from our recent Caracol deals. You know, Rita members who bought two years ago in one of the other condo buildings here have seen the the value of their condos go from $199,000 to $299,000. So we're getting this opportunity. This is an opportunity to buy by buy on a dip. So instead of buying at $280, if the world was as it was a month ago, now we're buying at 215. But while there's great uncertainty around the the the short term, while I think anyone who says they've any idea what the world is going to look like in one or two months or three months even, I think they haven't a clue what they're talking about. I think no one knows. But one thing I feel certain of is that this will pass, and when it does pass, Panama is just going to pick right up where it left. And I don't know whether that's gonna whether it's gonna pass in two months or in four months, but I can say with near certainty, planes will start flying again, freight will start moving around the world in big ships, banks will need regional hubs, money and people will will move around, and they'll all be looking for a friendly place to base themselves, and that's Panama. And all the global logistics will be looking for the most efficient way to move stuff around the world, and that's Panama. Um so I'm excited about this. I'm extremely excited that this early into the crisis, we're already getting our hands on an opportunity which basically puts an additional $65,000 into each member's pocket in in additional value. And then on you know, five years out, I expect these these condos will be will be uh will be worth um $350,000, five years. And uh the other huge thing to to understand about this the surf side is that this is the first major tourism driven investment into the into the the community. So so Surfside is going to the the hotel component is going to be very heavily marketed. It'll draw more people to Caracol. There'll be overflow and cross-selling for rentals. And it's also going to be a huge benefit to the to the community as a whole. So congratulations if you've already gotten in on our on our Caracol opportunities. Thanks to this big bailout, and then enjoy that kind of medium to long-term Panama growth trajectory. Thank you. Stay safe and look after yourself.