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The musings of a newcomer’s

August 1, 2006
I have been involved with real estate investors since 1968. After spending forty years in California, three, soon to be four grandchildren proved to be a powerful draw back to Arizona, and fortunately to Puerto Penasco. About ten months ago a group of investors and I purchased some property in Puerto Penasco for a condominium development.

By my interpretation in the Puerto Penasco marketplace, there, are eight significantly different market segments that lie between the upper most Cholla Bay developments and the Mayan Palace development. Each sector offers a somewhat different investment model - none bad, all a bit different.

Starting at the current south end of what constitutes the greater Puerto Penasco marketplace, the Mayan Palace development is the granddaddy of the projects taking place. When completed it will be roughly twice the size of the current city of Puerto Penasco. Rather than consume space talking about this gigantic property just go to their web site www.mayanislandpenasco.com.

Moving up the coast, my next market segment would be Playa Dorada/North Beach area. There are currently about 800 plus beach front condominium developments, and subdivisions promoting units for sale in the area. A hotel is also slated to be built in this area. The success of properties located here will be strongly influenced by the success of the Mayan Island project – a very good bet by the way. A new international airport and the federal highway linking Southern California to Puerto Penasco will certainly contribute to their success. Purchasers in this sector should like to hang out and enjoy the great beach, as the current trek there is a dozen miles down a somewhat narrow two lane road with no paved shoulders. From the turn beach ward off the highway, one proceeds maybe another half a dozen miles down a graded dirt road to the beach. (The new federal highway will be a welcome addition when it is completed). Currently there are no commercial outlets or restaurants, so one faces a thirty mile round trip excursion to get provisions or to dine out. It seems, at this time to have less kid friendly amenities close at hand versus Sandy Beach. In my opinion, investors in this area should have a tad of speculator blood in their veins, and they should choose their project carefully as the sheer number of units coming into this sector is significant. I have no doubt that the demand for these units exists, I just wonder about the time that will be needed to absorb them. As a newcomer, I have had most real estate professionals tell me that Puerto Penasco is a sellers market – demand exceeds supply. I have yet to experience this rush to buy phenonom. Some of the agents that have been in the market for awhile and have feasted in the robust sales see no end to it. The market is changing. There is more inventory than ever. If one or more projects begin to experience a lag in sales, they might try discounting as a way to spur sales; however, there are two properties in this area that have been trying to sell their units for over a year and still haven’t sold out, and they have not done any discounting. Reportedly they have very deep pockets. Slow sales may delay other parts of a master plan, and pushing one’s exit strategies out a bit further in time.

Moving up the coast, my next sector would be Playa Encanto – no man’s land. I say that not as a bad thing, but to illustrate that it lies between the two areas that will have the greatest economic impact in the area – The Mayan development and the Sandy Beach development. At this point in its development, this sector seems to be mirroring the Las Conchas area although most of the single family dwellings require solar power. This sector will also have a higher number of multiple structure projects than Las Conchas currently with a 287 unit development at the end of the peninsula about to begin and a smattering of smaller condominium properties throughout the area. Again and as with the Playa Dorada/North Beach sector, I believe that a bit of a pioneer spirit will help one determine if this is the market for them.

Crossing the mouth of the estuary is Las Conchas, my next sector. This is perhaps the most established primarily single family, foreigner dominated sector in Puerto Penasco. In talking with one of the early architects in Las Conchas, he never expected it to ever be more than two rows deep. It is now four or five rows deep with condominiums now going in on the other side of the main road. For many Las Conchas is the place to be, and it will remain so for many years. Purchasers in this sector should be desirous of having real estate in a very stable area. I have little doubt that property values will continue to go up, but the slope of the growth curve will be somewhat less than in newer areas.

Every real estate market has a heart, and the heart of this marketplace is the Mirador, Old Port, and the Harbor. The potential for real estate development in this sector is similar to that in any other real estate hub, and there is a lot of property yet to be brought to its highest and best use in the area. The Mirador is loaded with cash cow RV parks, but it is only a matter of time before someone puts a big enough check in front of the current owners that the RV parks will give way to vertical condominium projects that will entice people to stay closer to town. The first has already begun. There is no other place in the greater marketplace that equals the views from Whale Hill. For individuals desiring living around the activity of a small town, Old Port offers this coupled with great views. And, as the Harbor area transforms itself, it will have fantastic appeal not unlike Portofino, Italy. The Mexican government tourist organization anticipates making a Sea of Cortez loop for cruise ships with Puerto Penasco as one stop. If anyone doubts the value added by cruise ships, I suggest they visit the port of Cabo San Lucas. Larry Large, one of the areas shrewdest, most forward looking, and long tenured investors in Puerto Penasco, is already starting a Harbor project. I believe that stability will be the mark of investment in this area.

Where it all started post 9/11 – Sandy Beach is my next sector. At this point Sandy Beach is way ahead of any of the other sectors in size scope, density, and amenities, and outside of the Mayan, Sandy Beach has the largest master plan in the marketplace. My guess is that the familiar American franchise trademark entities will find a base in Sandy Beach - Holiday Inn, Applebee’s etc. Beginning at the harbor entrance, Mike Hanson’s group controls around to Playa Bonita. Neither this end of Sandy Beach or the Playa Bonita are even close to being employed at their best use. Their best use will more likely than not serve a more upscale clientele. Next up the beach, the Worldwide Group has a 350 + acre planned development that that will include the largest condominium complex on Sandy Beach and boasts the first of four maybe five golf courses that will provide for the greening of Sandy Beach. Sandy Beach Resorts controls the rest of the beach front to the mountains of La Cholla. On the interior from the beach, the master plan calls for a development similar to the highly successful Discovery Bay development in Eastern Contra Costa County Northern California. How fast much of Sandy Beach grows will be at the behest of Gus Brown which seems to irk some in the local real estate community – “You can’t deal with Gus” seems to be their mantra, yet my dealings with him have always been good.

La Cholla is the least understood by many real estate professionals. I am amazed when I hear real estate agents that in fact slam La Cholla. When I was doing the research from a small project in La Cholla, I actually had one agent for a brand name firm tell me I could never get clear title in La Cholla. It’s like that great Steve Martin line in The Jerk, “Waiter, waiter, why are you always bring us old wine, why can’t you bring us some new wine?” New, New, New! That’s all that many real estate agent think. They like to remind people that two times a day Cholla Bay ebbs and it is not pretty. I prefer to see it as two times a day it is full, and it’s beautiful. They say if you want to make money, you have to go beach front verticals and homes with water views. Certainly they are not been wrong in this assessment, but to think that things have to be new to make money in real estate shows a certain lack of understanding of the dynamics of gentrification. La Cholla is simply the oldest established foreigner dominated enclave in the marketplace, and it is not going away, it will gentrify. It will become the art center. And of all of the sectors, La Cholla is the only one that has the true sense and feel of a community, and that’s because it is one and will always be one – “No Sniveling”. Beach front properties offer a 180 degree view of water. Good sites in La Cholla offer 270 degrees. When the mountains open for homes, 360 degree views will be available. From almost everywhere on the peninsula one has a panoramic view of the Pinacate Mountains. Very soon Cholla Bay will become known as a Mecca for kite sailing because of its shallow waters and its on shore winds. And, seeing the full moon rising over Cholla Bay, is a post card moment every time it happens. Thank goodness for people like Gretchen Ellinger, Marla Chandler, John and Peggy Clayton, and Fayth’s gang at Sandy Beach Realty. Want to now what’s great about La Cholla, talk with these folks (me too).

Looking across Cholla Bay you come to my last sector in the greater Puerto Penasco marketplace – the Black Mountain area. There are great plans for this area, and one company Allient Energy has pumped many millions of dollars into infrastructure. A cry that you will often hear from many in the real estate crowd is “The Californians are coming, The Californians are coming” and this area will be the first area that they see driving into Puerto Penasco on the new federal highway making it somewhat more of a speculative play now and place for those with a frontier spirit.

Gene Hildreth is a manager for a condominium development, and he specializes in helping investors, large and small, make highly informed decision when they acquire property.

ghildreth@wbhsi.net
520 203-0102
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