I have traveled the world as a venture capitalist, successfully investing in businesses and projects of many types including here in Colombia. I have seen many countries' economies turn and others crumble in the course of my thirty years on Wall Street.
During the last seven, I have watched a mismanaged economy like Brasil's turn 180 degrees on its own and grow to one of the top seven leading economies in the world. Others, such as Colombia, have also worked hard to get their house in order with a focus on education and an open free-trade stance that can only benefit its cheap labor force and reduce the cost of living for its citizens. However, in Colombia's case, some of the success is masked by the aid provided by the United States as well as the re-patriotization of money often from the ill-gotten gains of the illicit trade Colombia is so famous for.
To see a good example of this underground economy, one need only look at Colombia's "Riviera" and charming UNESCO city, Cartagena. Of all the real estate bubbles I have studied in the world, this one could be the biggest. And when it pops, there is very little visibility as to where the floor is. Cartagena could see price declines in excess of 50% in its "new Miami" - Boca Grande, and far greater in the old city of El Centro where prices have risen beyond the most insane logic. The concept of return on investment or cap-rates have been thrown out the window and mania has taken on new meaning - all in a city where unemployment is far higher than most parts of Colombia and, as a resort area, offers little beauty in its beaches. To say the market is artificial is an understatement.
To understand Cartagena's real estate market, one must go back and look at it's neighbor Panama City and its boom in high rise condo buildings. Nine years ago, as the buildings began to rise from the mud on the eastern shore of this city on the Pacific, one need only look up at night and notice something very odd about all these massive high-rise condo buildings - they were all dark. No one lived in them!
Sure, they were all sold and, as construction of new ones where announced, they were sucked up in purchases of not just one, but 5 at a time. The intriguing thing in Panama was where the demand was coming from. It was like a vacuum that was attracting ill-gotten money trying to find its way back from the States and other parts of the developed world, but unable to get across the border into Colombia.
Colombians can easily travel to Panama unlike the US and other parts of the world and it is close to home where they speak the language. Banks from all over the world set up shop in the form of subsidiaries in Panama City in an effort to get a share of the action. Publishers, such as Escape Artist, cranked up the marketing machine claiming the new "mecca" had been found with great tax benefits, while all the while cutting deals with developers in exchange for turning up the cheerleading to "buy-buy-buy". But that bloom is off the rose as buyers have begun to realize, like a game of musical chairs, there is no place to sit down when the music stops. There are no buyers left to buy, simply because it is not a great place to live, earn a living, or even vacation beyond a few days in ones life.
Just a short hop across the border, these folks have found a new market to pump. Outfits like Juan Paul Realty hype their news letters claiming "Utopia" is here on the Colombian Caribbean coast in Cartagena. They promote investment opportunity offering statistics with little factual evidence of sustainable economic support. As the threat of guerilla groups faded with the aid of the US, travel by road within Colombia reopened spurring demand for vacation homes in Cartagena by the rich from Bogota, Cali, Medellin and other Colombian cities where people earn their livings.
Buildings went up so fast and with such little oversight that at one point the tallest in all Colombia, and first steel structure on the sandy terra of Boca Grande, had all of its 50 floors fully erected prior to suddenly tilting over several degrees like a giant leaning tower of Pisa and authorities were forced to dismantle it to the ground. With barely any foundation or footings it nearly collapsed on the city much like present prices will soon enough.
Much like Panama City, most of the high rise condos have an erie darkness to them a night. Upon a recent visit to one building I was informed that all are sold, but many un-occupied. A friend and local furniture store owner revealed that one customer last year came in and bought furniture for all four condos he recently purchased in the same new building and, as far as she knows, none have been ever used.
Another interesting trend has been for money to buy up historic buildings in El Centro, which sold for less than US$50,000 six years ago, for total renovation into petit hotels. Most of these hotels have room prices equal to the best hotels in Paris, NYC or London. In many cases, money was not invested with the intention of operating a hotel, but merely to find a place to park money and occasionally entertain one's elite friends. Most remain shuttered after renovation and show little desire to find guests. Simple analysis could determine that these are not businesses with any real interest or ability to obtain any kind of return on invested capital. It is difficult to make money with so few rooms.
Other old buildings have been converted to condos with prices commanding 600-1000 dollars a square foot, which is equal to London rates. Certainly not a bad return if you can find a buyer, especially when costs don't even approach $100 per square foot. If this is not enough, the classic sign of a market peak is that Caldwell Banker has moved to town. The phenomenon of rising prices and declining sales is a classic sign of a market in transition. Along with Colombia's over-valued stock market I don't see this ending well.
Throughout this gentrification in the last several years, a sad byproduct has occurred as it always does; the poor, of which Cartagena is mostly made up of, have been pushed out of the coastal and downtown historic area and the city is dark and quiet as a church mouse at night other than during the holidays. The charm of the fabulous Cartagenero culture and its super friendly and happy people is not to be seen, displaced by often closed upscale fashion stores which turnover often. For the visiting tourist, most claim it is a boring place at night - certainly not NYC, Paris, Rome or Miami where real estate prices, as well as prices for everything else, are a bargain when compared to those of Cartagena.
Author Peter Koslowski is managing director of Windward Venture, a Boston-based investment group
tomtom33
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... I would like to disagree with parts of this article. Juan Paul is no worse than any other Realtor anywhere. Of course they hype their product. That is what sales people do. I know Juan. He is no scam artist, and I resent the implication. The displacement of the common folk from el Centro must have happened a long time ago. They weren't there when I first arrived in Cartagena in Feb. of 2003. And you can hardly compare Cartagena to NYC, Paris, Rome or Miami under any circumstances. Certainly the author must know that there have been and will be booms and busts in real estate. There probably is a bubble now. There probably will be a correction. I know of profits of 300% in 4 or 5 years. But the market will correct and life will go on. |
gringomedeliin
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... I have to agree the prices are over inflated, as is the case I think in many Cities of Colombia where people suddenly think they can get prices one would pay in the US market for a condo. But I wonder if it is not part of what is happening in Central America also, I watched a program called International house hunters which have featured a few Central American countires that have homes selling for 1 to 2 million USD near the coast. Over inflated if you ask me. |
James Ahacar
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... There is a bit of Armageddon on this article. I have also been around several years in different Real state markets all around the world, and one big mistake is to assume that all real state markets are alike or that what happened to one will happen to another or becasue in one specific market you saw a trend that you see somewhere else the end will be the same. Yes there is overpriced real state in Cartagena, but I ask Peter, how many times have you visited Cartagena, is this your fisrt trip? you forgot to mention the North part of Cartagena, the goverments free tax policy in hotels, and many other details that can change your dramatic view of Cartagena. Each city has its own magic, and compare Cartagena with cities like Paris and NY is absurd. If the angle is that cartagena is not a good place to invest, I disagree becasue markets like Cartagena present very good opportunities, but you need to know where to look, for example you can pay 400 dollars suqare foot for a Condo Hotel unit, or you can find also five star condo that produce rent at 120!. I dont disagree with all you say but you made a very simplistic analysis of the situation, and believe me when I say so, since I work for a Private Equity Fund, and we have bought real state in NY, Miami, Paris, Madrid, Peru, Brasil and Colombia, and have done so for many years and our returns specially in Cartagena are amongst the best. |
InvestBA.com
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... Excellent analysis of Panama City and Cartagena status quo and general frothiness. How can I contact Windward Venture Partners? |
Laureles191
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... As far as what James writes, I respect your point of view, but your statement about returns in Cartagena only solidifies Peter's argument. He wrote that the ROI on Cartagena's real estate has been extremely high for a while now. The trend of rising prices and declining sales says it all. There was an extreme amount of bottled up demand suppressed by the countries violence. Now people aren't afraid to invest their money, and prices have out-raced demand. A bubble has indeed formed, which hasn't yet popped like the rest of the world. This is apparent in Medellin as well (which hurts me to say since I own property there). It won't decrease more than 50% like he says, but I won't let my positive feelings for this country blind my judgment either. This is a classic feeding frenzy going on. |
anonymous1962
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... I couldn't agree more with this article. I spend a day every two weeks in Cartagena doing business there. The folly of the current real estate market there staggers the mind. Prices have absolutely no correlation with demand. The only potential market for these overpriced properties is an extremely limited retiree market -- and really, what retiree can afford the current prices for this town, given its limited amenities, mediocre hospitals and medical care, and lousy airline connections? -- and the also very limited holiday market, which was long since saturated. There are maybe six good restaurants in Cartagena, NOT A SINGLE ACCEPTABLE BEACH, and no golf courses within a reasonable distance of the city. The only viable market today is the one-day cruise ship see-the-old-town market, but you can't build a sustainable tourist economy on that. The city is ringed with dangerous and depressing slums. Cartagena today makes Spain's Costa Del Sol at the height of its bubble look like a good deal. It's no accident that the same crowd of Spanish and Latino speculators who swam in the froth of the Spanish and Miami real estate bubbles are now trying to to same in Cartagena; they will be unable to escape the fate that they suffered elsewhere, however: great profits for the first guys in, huge losses for everybody else! |
tomtom33
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... Who on earth would want to play golf in that heat? I guess that acceptable is in the eye of the beholder. But the beaches certainly are not very good. However, a short boat ride to Playa Blanca or a little longer ride to the Islas del Rosario places you on spectacular beaches. There is a huge difference between prices for new and existing properties. I personally wouldn't touch anything new for the premium demanded. |
Albeiror24
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... Peter Koslowski, managing director of Windward Venture? Is this the way You promote your 'service in real estates'? By creating an article like this? I do not find the most single true in your exposition. Who are you? How is it possible that you are writing in CR? I can guest that your passport (if you have one) has not any Colombian stamp on it. Please be honest. In Cartagena there are more serious and professional real estate companies and people than your 'Wundward Venture' that you are promoting here in a very dishonest way. |
gringomedeliin
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... Alberior24 read the article he is a venture Capilist not a real estate firm, they invest in properties around the world, the article is his opinion of the current market in Cartegena which like many central american countries is over priced just becuase it is near the coast. my personal opinion of Cartegena is it is a dump not worth visiting let along buying property there, if I were to buy I would look to Santa Marta area to buy and invest the beach is much nicer than anything in Cartegena, but then that is my opinion. Those honest professionals you claim are working in Cartegena they are there soley looking to make a buck, once the market falls you will see them all pack up and try moving to the next hot spot. Cartgena 4 years ago was the time to buy, today you going to be left with a over priced property for years to come. |
Shep
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... This article is incredible BS The author does not know the RE market in Cartagena. A Vulture Capitalist! I am trying to sell my Ocean front 2b 2b condo 3 doors from the Hilton for $180 K and get no offers?! He has never visited Cartagena!! S |
gringomedeliin
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... Shep that is his point the market is over priced, the price are to high for venture caps to even buy in, the time to have bought in Cartegena was 4 years ago, today you will be sitting on your over priced property for years to come. |
tomtom33
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... Hola Shep. Good to see you here. Good luck with your sale. I'll drop you a note. Shep's place, by the way, is spectacular. You won't find anything like that in Miami for anywhere near the price even today. |
Subrosa
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... I agree with virtually everything stated in the article. I live in Cartagena, I have been looking for a property for 18 months. Sellers are getting desperate, the market is on the turn, prices are already falling. This is a city full of empty high rise blocks, more being built and few buyers. Added to the present problems is the potential of Cuba being opened up. Should that happen why come to Cartagena? As for Paul Juan Realty, he has a good reputation, he's just runing his busines. |
tomtom33
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... "Added to the present problems is the potential of Cuba being opened up. Should that happen why come to Cartagena?" Hmmmm...to avoid the Cubans? Havana's Old City puts Cartagena's to shame, but Old Havana is rapidly deteriorating. And it will take a good long time to teach the Cubans to actually work. |
Bobb
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... Be very careful before doing any type of business with Paul Juan because he uses business practices for "gringos" that no other sales agent would even think of using with a Colombia. For instance, Paul Juan earns a 3% commission from the seller like almost all other sales agents in Colombia. However, he likes to tell the gringos that he will "help" them to make sure all the documents are done correctly. For his "help" he asks for an additional 1.5% commission from the BUYER which is UNHEARD of in Colombia. His "help" consists of going to the tax office and the registry office which together take about 30 minutes of his valuable time to file a simple form. In most cases he sends his secretary to do this for him anyway! He only pays his secretary $200 a month and he is making 1.5% commission from gringos because they are ignorant of how simple the process is. There are many other games he plays with gringos who are new to Colombia. I certainly do not recommend him, and would strongly recommend any of the traditional real estate brokers that have been in business in Cartagena for more than 20 years. Paul Juan is just one of those guys who is taking advantage of first time buyers. BEWARE! |
tomtom33
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... Gee Bobb, if the process is so simple, why would you even bother with any real estate agent, attorney or notary? After all, they all cost money. You just do a little legwork and deal directly with the owner. I hope your Spanish is up to snuff. Do you know how to research tax liens? Since the telephone line is sold with the property, do you check with the phone company to avoid billing surprises? Do you know how to get the utility billings in your name? Does it matter? There are so many ways that Colombians screw each other that extranjeros on their own stand little chance especially extranjeros who have never been through the process before. In my seven years in Colombia I keep finding new ways to take it up the back end. But maybe I'm just stupid. |
rock
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... Agree that cartagena is in trouble. I was there for the first time in the apparent 'high' season of Dec & Jan. It struck me that there was a lot of empty apartments and generally not enough people around to satisfy even half the number (subjective I know) of dwellings, more than a few 'se vende' etc also. That being said other, especially outer, areas of bogota are under more visible stress. At current levels I'm more than happy to sit out of bocagrande & laguito's boom. |
- 01/01/2010 12:04 - Colombia Reports 2009 / 2010
- 12/17/2009 08:02 - Cartagena, Colombia vs Casco Viejo, Panama
- 11/04/2009 22:01 - Palace of Justice siege: 24 years of injustice
- 10/01/2009 22:01 - Colombia Reports is taking a stand
- 09/21/2009 22:13 - The security, professionalism and restraint of Colombia's police
