Investments in Central America

The crisis in the US has brought new competition challenges to the Real Estate business in our region.

Monday, August 17, 2009

Fuente: Calvet & Associates

Projects in Central America and in Nicaragua will need to present returns above 25% to compete with less risk and equal or better yield opportunities in the U.S. market due to all the distress sales available, foreclosures and REOs (repossessed bank properties) offering ROI’s (return on investment) above 63% annualized returns.

Hotels Cap rates have also suffered modifications. During 2006, cap rates of 5% to 8% were accepted as good return rates. Then, during 2007, 8% to 10% rates were considered decent as well. Today, though, with declining asset values, cap rates of 11% and even 12% are expected (Cap Rate = Net Operating Income/Asset Value).

Most lenders and banks will wait until the REVPAR (revenue per available room) shows signs of increase prior to financing the hospitality industry once again. REVPAR declines have been falling at much faster rates than the slow increases have been made.

The present economic and regulatory environments in the U.S. are encouraging some lenders to look abroad at other markets. Calvet & Associates requested the IREFAC (Industry Real Estate Financing Advisory Council) panel in Los Angeles to elaborate on what would induce them to start looking to Central America for financial resources allocation. Out of three panelists, two were in favor of limited investments in the region, especially if they were short- to medium- term. Only one panelist was reluctant to invest in the area. He cited the latest news regarding Honduras, showing how volatile the perception is about the region, mostly due to media hype rather than any real facts. This panelist also insisted that risk adjusted returns are simply not sufficient. On the other side of the debate, Michael Murphy, head of Lodging and Leisure Capital Markets of First Fidelity Companies, commented that after the downturn, some capital cities in the region will present vibrant dynamics for urban hotels, with renewed business, lower labor costs and fiscal incentives offered by many Central American countries.

Pressrelase of Calvet & Associates
published by Raul F. Calvet

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