Potential Solution for Real Estate Developers facing slowing sales

Bruce Greenberg of Montaña Verde, a consulting and appraisal company that has been doing work in Mexico for many years, is currently teaming up with Deloitte Mexico (Deloitte as this time has not signed onto the program officially, but they are studying it), to offer a potential solution for real estate developers in Mexico during this economic downturn. Their recovery plan is structured to assist the many multi-facted problems developers are facing, such as:

1. Lack of liquidity and insolvency problems

2. Possible foreclosure proceedings

3. Inability to comply with construction deadlines

4. Unable to meet obligations to deliver units to buyers

5. Market/product mismatch leading to inaccurate sales, absorption and pricing projections

6. Consumer defaults on payments

7. Lack of consumer confidence and buying power

The above mentioned issues, have already had a detrimental impact on various regions of Mexico, most significantly in the Tijuana and Puerto Peñasco regions. Puerto Vallarta has so far managed to avoid the problems the other regions face, but there may be a few projects that could use assistance as we move into 2009.

The objective of the recovery plan is to provide solutions in order to bring the development project to a successful completion. It involves a two-part process. The first part provides market, demographic and economic analysis to provide a comprehensive overview of the housing market including current supply, pricing, absorption rates, sales history and competitive comparisons.

The second part is rather interesting and involves a “Buy-Out / Buy In” strategy where projects that have begun sales, taken deposits but have not yet begun construction, (Project A) could transfer their clients to another development that is well along in construction but is facing a slowdown in sales to complete the project (Project B). Project B could offer to absorb the deposit the Project A has taken from purchasers (and most likely already spent) and offer it as a discount to these purchasers. The purchaser would get a similar style and priced unit in a different project (Project B). Project B wouldn’t make as much, but they get to finish off the project. What Project A has to offer is a motivated buyer who has already put money down (something getting rather rare these days). Project A gets out of their tough predicament and best yet, the local real estate market manages to avoid a potential public relations nightmare when upset buyers of the incomplete Project A are not only not getting their condominium, but are concerned about their deposit as well. 

This program is just in the discussion stage right now, but Bruce and his team hope to have something ready to present to interested developers before the end of the year. Anyone interested in more information can contact Bruce Greenberg at bruce@mvconsultants.com.

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