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FURTHER MUSING OFA NEWCOMER

August 22, 2006
In my last writing, I outlined what I consider to be the eight segments that form the greater Puerto Penasco marketplace, but I am still left wondering. What is Puerto Penasco to become? Who are the property owners? What is their exit strategy? What are the demographic of our visitors? Why do they come here? Is, as Alan Greenspan made famous, Puerto Penasco’s current market experiencing “excessive exuberance”?

I have not read any third party articles that did not talk about “boom times” in Puerto Penasco. I seem to remember the “boom times” describes a market condition whereby the right product is delivered to ready willing and able buyers at the right time, in the right quantity, and at the right price. The price points that a 2003 or 2004 owner/investor could contract for the delivery of a two bedroom, beachfront residential unit eighteen months out was around $229,000. Today on the resale market similar units (Flippers) are asking up to $469,000. Assuming that the “Flipper” used the standard developer financing being offered at that time, the flipper’s gross profit would be around 400%.

Under a similar 30% down scenario, today’s buyer/investor needs to come up with around $150,000 or 200% more than the 2003 or 2004 investor. And, their monthly payments would be 55%% more. Clearly it is not hard to see that today’s buyers have considerably different characteristics than in years past. That said are these investors coming to Puerto Penasco in sufficient numbers to support the current price points, and to continue to drive them higher? There is no question that they exist.

As I look at the current listings of property for sale in Puerto Penasco, I notice that there are many more properties on MLS than last year and that they are staying on the market for a much longer time. I also notice what seems like a very high percentage of the properties listed, aren’t really properly prepared for resale under today’s market conditions. Many sellers just called the broker that sold them their property in the first place and said “sell it”. Some brokers still think that selling in today’s market is the same as in the past – list it and it will sell. Go back and read the last two paragraphs – there’s a significant difference, and new marketing methods have to be implemented to penetrate markets for this different buyer.

One of the “new” methods starting to appear as a sales tool is called fractionalization. No one is a bigger believer of fractional ownership than me, but I am not sure that the way it is currently being used in Puerto Penasco, except by TCG and a few others, makes the best use of this marketing tool. In the markets where fractional ownership has been employed most successfully, I can tell you that affordability is definitely not an issue. There is no question that in some instances where fractional ownership sales in Puerto Penasco are being promoted, it represents nothing more than an attempt by a property owners to get the highest sales price they can. In my opinion, it demonstrates a lack of understanding of the best use of fractional ownership programs. Affordability, just may evolve as a key use for fractional ownership sales, but for now it supports my thesis that the demographic of the current, foreign, residential property owners in Puerto Penasco is sketchy, and something needs to be done to learn more about our visitors and then how can we keep them coming.

In the past and with much of the current new inventory coming up for sale, the “Build It and They will Come” sales philosophy proved successful at lower price points than exist today. And, even at the current price points for both resale’s and new units and judging from the number of public reports being sought, the majority of the developer still believe that the “Build It and They will Come” sales philosophy still rules. There is little doubt that buyers need to come to this market, but it’s time developers realized that they need to also work together to promote Puerto Penasco. Help get visitors here, and then fight like heck for their business.

Are you listening to me people that to some extent depend upon earning some rental income to offset the cost of operating a second residence? Do you think people will just appear here forever? How are renters finding out about your unit? What are you doing to stay competitive with new entries into the rental pool? This market needs a continued influx of weekenders, returnees and newcomers, as they are the best prospects for eventually purchasing property and fueling growth. This has to be accomplished by various groups pulling together to promote Puerto Penasco.

I don’t think that there is any doubt that Puerto Penasco is a significant Sea of Cortez resort destination in the making ergo it makes some sense to look at some of the more mature Mexican destinations and what brings them visitors. What do they have that we must have to compete for the buyers we need? A very quick summary would include marquee hotels and lodging for all price levels, international airports, convention facilities, harbor facilities, developed championship golfing, and in the case of the favorite five, the support of FONATUR.

What does Puerto Penasco have that the others don’t have – Puerto Penasco is a driver friendly destination for all of Arizona, New Mexico, El Paso, and soon Southern California. Having a new airport will be great for this marketplace; however, for at least the next five years and maybe ten, it will be people that drive here that will most influence Puerto Penasco growth. Played in reverse, I believe that this provides Puerto Penasco with a huge advantage over all of the other Mexican Sea of Cortez locations for the upcoming baby boomer market. Why? Because of the ease of “Escaping from Puerto Penasco” to Phoenix, Tucson, and Palm Springs for a little retail relief (important for my wife), regular medical check-ups, a hairdo, a golf junket, or a taste of fast foods.

What Puerto Penasco offers above all is the ease with which a family can reach an outstanding stretch of world class beaches on a very safe body of water. In Las Vegas “what goes on there stays there”. What’s Puerto Penasco’s handle? What do people do here? Fishing, parasailing, personal water crafting, ATVing. It has been a veritable feast – “Build It and They will Come”! Now what has to happen is everyone who benefits from having people come to Puerto Penasco must team together to make sure that it stays vibrant. No small task in a small town where in the past competing fractions did not mix and sometimes poisoned the well. Where is the welcome center? Why are there no commercials on Tucson and Phoenix broadcast media and in print media? Why are there not special events planned for almost every weekend? Simple, “Build It and They will Come” doesn’t foster cooperation – Master Planning does.

Not long ago I met with one of the top appraisers for Mexican property, Bruce Greenberg, and Mark Raven, a Tucson based attorney specializing in Mexican real property transactions, and we discussed ideas about things that could be done to bring awareness about the Puerto Penasco marketplace. I am not sure that getting developers together is a possibility (Sometimes they feel like they might give away some great trade secret if they talk with their competitors). We talked about who benefits the most by understanding what is going on in Puerto Penasco – simple property owners! We talked about a channel through which property owners could communicate and be heard. What we came up with was the possibility of an Association of Homeowners Associations and Merchants Associations. Such an organization would serve as an earpiece that will listen carefully to the thousands of owners/investors so that everyone can gain a better understanding what is best for the marketplace and how it can be improved. And it would operate as the spokes entity to stimulate interest in Puerto Penasco. Listen carefully, the days of 400% ROI’s are gone. The slope of the appreciation curve is off considerably. Don’t get me wrong there is substantial growth left in this marketplace – the wildcatters are moving south and north. Defining a market niche and developing to attract that segment, will, I predict, should become the mantra of the new developer in Puerto Penasco.

I would really like to hear from property owners and especially anyone connected with the HOA that regulates their property.

ghildreth@wbhsi.net
520 203-0102
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