The%20Americas

1
The Americas

• WELCOME!

2
Objectives

• Introduce
• Social, economic, political, geographic
  characteristics
• Laws and real estate practices
• Methods to evaluate investment patterns, investor
  profiles and opportunities
• Methods to develop a business network
• Promote properties, markets and services

3
Buenos Dias Neighbor!

• Networking is key to success
• Mix with classmates for next 5 minutes
• Find class members who have been to or done the
  items in one of the boxes
• Have that person sign the box
• Move on to someone else
• First person getting a BINGO, call out

Continue networking throughout the day
4
Interesting Facts

• Worlds largest free-trade zone
• Largest pocket of poverty in W. Hemisphere
• Largest Japanese population outside Japan
• 30 of USA immigrants from Mexico
• Americas contain over ¼ worlds land mass
• USA, Brazil, Canada and Mexico GDPs are each
  1 trillion dollars plus!

5
Course Guidelines

• Turn OFF cell phones
• Periodic breaks
• Lunch
• Activities
• Task groups
• Final exam

6
Chapter 1 Review
7
Globalization

• What is it?
• How does it impact real estate?
• What do international investors expect of their
  agent?

8
Capital Flow

• Expanding markets require foreign capital
• Patterns of capital flow
• Supply and demand
• Investment return
• Currency, assets, credits, debt move
  capital around the world

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Currency
10
Investors

• Buy real estate because of the favorable trend
  of their currency against the foreign
  currency

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Market Assessment

• Evaluate
• Real estate market
• Cultural influences
• Political influences
• Stability
• Population
• Local real estate practices

12
Market Assessment

• Free market philosophy
• Social harmony
• Democratic institutions
• Infrastructure
• Economic strength

13
Culture

• Build relationships
• Do not make assumptions
• Cultural elements

14
Conducting Business

• Banks with international experience
• Tasks similar to domestic transactions
• Differences
• Rewards

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Currencies and Measures
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Three Conversion Steps
1
3
2
Convert The Currency
Convert The Area
Convert The Time
c
A
T
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Reciprocals
If you are converting The Exchange Rate is
USA to MXN pesos US1 MXN10.6945
MXN pesos to USA MXN1 US0.0935
If you are converting The Reciprocal is
US to MXN pesos 1 10.6945 .0935
MXN pesos to US 1 .0935 10.6945
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Sample Problems

• Convert MXN850 to US
• MXN859 X US ________ US ________
• Currency unit X Exchange Rate
• Convert US250 to MXN
• US250 X MXN ________ MXN ________

0.0935
79.48
10.6945
2673.63
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Converting Area

• Conversion Factors
• Square feet in 1 square meter 10.7639
• Square meters in 1 square foot .0929

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Square Meters to Square Feet

• Formula
• Meters X 10.7639
• Square Feet in a Meter
• Convert 1250 m² to square feet
• 1250 m² X _________ _________ sq.ft.

10.7639
13,455
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Square Feet to Square Meters

• Formula
• Square Feet X .0929
• Meters in 1 square foot
• Convert 20,000 square feet to m²
• 20,000 sq. ft. X __________ __________m²

.0929
1858
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Price to New Area Denomination

• Formula
• Price or Rent X Area Conversion Factor
• Problem
• Apartment rents for 1000 pesos/m²/month
• Rent in square feet would be?
• 1000 pesos X __________ __________
  pesos/sq.ft./month

.0929
92.90
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Sample Problem

• Office space rents for US25/sq.ft./mo. Rent in
  square meters would be?
• US25 X __________ __________ US/m²/month

10.7639
269.10
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Convert The Time

• IF
• Price is quoted per month
• MULTIPLY by 12 to get price per year.
• Price is quoted as an annual amount
• DIVIDE by 12 to get price per month.

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Putting It Together

• Convert the Currency
• 258 pesos X __________ US__________/m²/month
• Convert the Area
• US __________ X __________ US__________/sq.ft.
  /month
• Convert the Time
• US_________/sq.ft./mo. X __________
  US__________/sq.ft./year

.0935
24.12
24.12
.0929
2.24
2.24
12
26.88
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Practice Problems

• These problems may be done as homework to apply
  the formulas we just covered.

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Chapter 2 Features of The Americas
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Objectives

• Define Americas region
• Identify major countries and territories
• Describe social and economic sub regions
• Discuss treaties
• Evaluate business environments
• Identify market-unifying trends

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Nations and Territories

• The Americas known as W. Hemisphere
• Consist of North, Central, South America and
  islands of Caribbean
• Range from highly developed and wealthy to
  undeveloped and impoverished
• Contains 28 of worlds total land mass
• Total GDP exceeds 8.6 trillion

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Nations and Territories

• 35 Independent Nations
• 16 Dependent Nations/Territories

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Two Myths

1. Canada and the USA are NOT identical.
2. South American countries are NOT a monolithic
   cultural bloc.

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Influential Culture Groups
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Aboriginal
Mayan, Inca, Aztec
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Colonial

• Spanish, English, Dutch, French, Portuguese

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Immigrant
Voluntary and Involuntary
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Religion
Indigenous animism, Roman Catholicism, African
animism, Protestant Evangelicals
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Cultural Subgroups

• Much of North, Central and South America is
  Spanish or Portuguese
• Canada is mostly English or French
• Various cultural groups distinguish one country
  from another

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Potential Investment Sites
Argentina Brazil Canada
Chile Costa Rica Mexico
Puerto Rico United States of America Venezuela
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Geographic Subregions

• Smaller than continents, larger than countries

Canada And USA Central America and Mexico Andean Countries
Argentina Brazil Caribbean
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Economic Subregions
Southern Cone
NAFTA
CAFTA-DR
Andean Countries
The Caribbean
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Organization of American States

• Established in 1910
• Known as Pan American Union until 1948
• Encompasses all countries in the Americas except
  Cuba
• Work for peace and justice
• Promote solidarity among American states
• Aid economic, social and cultural development of
  the hemisphere

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Inter-American Development Bank

• Created in 1959
• Accelerate economic and social development in
  Latin America
• Largest and oldest multilateral development
  institution in region
• Has mobilized financing of 194 billion
• Lending in 2004 was 16.4 billion

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Explore
The Economic Environments of the Americas
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Exercise 2-15
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Key Point Review

• The Americas are culturally, economically and
  geographically diverse
• This diversity has led to the development of
  subregions
• Notable regional differences
• Important for investors and agents to know and
  understand

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Chapter 3 Economic Trends and
Opportunity for Investment
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Objectives

• Identify capital flow in Americas
• Evaluate economic integration
• Recognize role of offshore banking
• Identify developments and reforms needed to
  enhance investment climate
• Identify investment trends, risks and
  opportunities

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Market Characteristics

• Trade agreements
• Offshore banking opportunities
• Free trade treaties and agreements
• Focus on increasing market size
• Patterns of specialization

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NAFTA

• North America Free Trade Agreement
• Largest trading block in the Americas
• 2003 was the end of trade barriers
• Represents 1/3 of worlds total GDP
• Significantly larger than EU
• All member economies have grown
• US1.7 billion/day in trilateral trade

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PAECA

• Central American Economic Action Plan
• Approved in 1990
• Costa Rica, El Salvador, Guatemala, Honduras and
  Nicaragua
• Goals include
• Common tariff structure
• Cooperation rebuilding infrastructure
• Free movement of people and merchandise
• Elimination of trade barriers

51
CAFTA-DR

• Central America Free Trade Agreement
• Free trade agreement, not a treaty
• USA, Costa Rica, El Salvador, Guatemala,
  Honduras, Nicaragua and Dominican Republic
• Guarantee foreign investment
• Reduce government corruption

52
CACM

• Central American Common Market
• Common trade alliance1963
• Costa Rica, El Salvador, Guatemala, Honduras and
  Nicaragua
• Established free trade area with Mexico
• Help equalize trade deficit
• Spread benefits of economic expansion
• Considering similar agreement with Venezuela

53
CARICOM

• Caribbean Common Market1973
• Designed to remove barriers between Caribbean
  countries
• 1991, common tariff on non-CARICOM countries
• Largest countries now use tariffs
• Barbados, Guyana, Jamaica, Trinidad, Tobago

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CBI

• Caribbean Basin Initiative1984
• 23 independent countries
• Goals
• Promote economic development
• Expand foreign and domestic investment
• Diversify CBI country economics
• Expand CBI country exports

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ANCOM

• Andean Group Common Market
• Colombia, Venezuela, Peru, Bolivia and Ecuador
• Originally a free trade alliance called the
  Cartagena Agreement
• Began free area trade phase in1992

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MERCOSUR

• Common market treaty between Argentina, Brazil,
  Paraguay, Uruguay
• Market established in 1994
• Tariff barriers were lifted
• More than doubled trade in 20 years
• Multiple natural resources

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FTAA

• Free Trade Area of the Americas
• Introduced in 1994
• Stalled in 2005 at Summit of Americas
• If carried out, would create trading area twice
  size of EU
• Would assist north-south capital flow

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Off Shore Banking Centers

• Caribbean a major host to OBCs
• Do business outside jurisdiction where they are
  chartered
• Attract foreign capital
• Deposits and loans in currencies other than that
  of host country
• Bank controls are few, if any
• Considered a tax haven

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Subsidiary/Affiliate

• USA Firm
• Exports to affiliate
• Undercharge subsidiary
• Taxable income decreases

• European Affiliate
• Pay USA firm through subsidiary
• Taxable income decreases

• Subsidiary
• Overcharges Affiliate
• Shifts USA firm income from Europe to tax haven
• Low or no taxes apply to subsidiary in tax haven
• Taxable income increases

60
Tax Laws

• USA Tax Reform Act of 1986
• Limits or eliminates legal means of deferring
  taxes on
• Interest
• Dividends
• Capital gains
• of subsidiaries until income repatriated

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Latin America Regional Trends
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Latin America Challenges
Reducing Poverty
Settling Foreign Debts
Conserving Natural Resources
Adequate and Sustained Growth
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Policy Reforms

• Depreciation of exchange rates
• Dismantling trade barriers
• VAT to replace taxes on foreign trade
• Incentives for foreign investment

64
Needed Reforms

• Financial
• Labor
• Regulatory
• Central bank
• Administrative
• Judicial and legal
• Education

65
The USA

• Strongest economy in the world
• Per capita GDP of 40,100
• 2004 real estate FDI was 1.709 trillion
• Reasons for foreign capital inflow
• Has net negative international position
• Low inflation and unemployment
• Long term problems

66
Mexico

• Hospitality-related properties
• Restructured companies
• Manufacturing facilities
• Hotel operating companies

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Brazil

• Attractive investment target
• Immense privatization effort
• Large capital expenditures
• Economy expected to continue recovering and
  growing

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Economic Indicators
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Ecuador
2002 2005
Population (M) 13.4 13.3
GDP (USB) 39.6 49.5
GDP/capita (US) 3,000 3,700
GDP Growth 4.3 5.8
Inflation 22 2
Unemployment 14 11.1
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Population

• Challenge to economies of Americas
• Puts strains on an economy
• May not be enough jobs
• Decline in GDP
• Decrease in living standards
• Increased poverty

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Productivity Trends

• USA, Brazil, Canada and Mexico have trillion
  dollar economies
• USA and Canada are most productive
• Bahamas, Argentina and Chile next
• Americas unemployment manageable
• Latin American countries with per capita output
  of less than 5,000
• Bolivia, Ecuador, Guatemala, Paraguay

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Key Points

• Renewed economic integration
• Attractive to FDI in real estate
• Capital flow needs to move more freely
• OBCs and tax havens still important
• Working to liberalize trade, privatize business,
  achieve growth, conserve environment and attract
  FDI
• Statistics/trends provide investment overview

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Chapter 4 How to Look at
a Country
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Objectives
Identify Investment Characteristics
Social
Political
Economic
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Analyze a Country
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International Market Knowledge
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International Markets

• Do not make assumptions
• Know your market
• Knowledge increases your value
• Knowledge reduces your risk
• Knowledge increases opportunities
• International is an exciting specialty
• Experience personal growth

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Knowledge Useful To
Advise Outbound Investors
Work With Inbound Investors
Network Effectively
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Be Aware Of

• Sources of capital
• Government structure and attitudes
• The economy
• Market landmarks
• Local culture

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Country Assessment Model
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Data

• Factors to consider
• What the data can mean
• Favorable characteristics

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Country Assessment Model
Real Estate
Model Components
Economy
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Sample Analysis

• Use current data
• Multiple resources
• Expand or modify the model
• Interpret data to meet objectives

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Sample Analysis Group Activity
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Working With an Inbound Residential
InvestorWorking With an Outbound Commercial
Investor

• Group Activities

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Key Point Review

• Know as much as possible about a country
• Understand its potential for investment
• Provide meaningful information for potential
  investors
• The Country Assessment Model is a tool for
  evaluating markets

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Chapter 5 Working in the Americas

• Mexico

88
Objectives

• Assess real estate markets for activity and
  opportunities
• Integrate country-specific cultural and business
  knowledge
• Incorporate crucial aspects of cultivating
  relationships
• Review key elements of a transaction

89
FDI in Mexican Real Estate

1. Improvement in Mexican economy
2. Liberalization of investment and ownership laws
3. North American Free Trade Agreement

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Commercial Properties

• Multiple opportunities
• Little or no speculative development
• High-rise office markets in big cities
• Buildings constructed by user
• Built for specific purpose
• Occupied indefinitely

91
Residential Properties

• More speculative than commercial
• Financing
• Self
• Government-subsidy
• Subdividers
• Population increase causes shortage
• Growing cities need new housing

92
Vacation Ownership

• Timeshares, apartments, resort clubs
• Mexican, Canadian and USA buyers
• 1993 Foreign Ownership Law Revision
• Higher developer credibility
• Government regulation

93
Fideicomiso

• Established in 1972
• Bank trust encourages foreign investment
• Allows foreigners to hold real estate rights in
  restricted areas
• Authorized institutions hold title
• Foreign owner is beneficiary of trust
• Trust can be renewed indefinitely

94
Agricultural Land

• 1993 Foreign Investment Law
• Allowed foreign nationals or their companies to
  own agricultural land
• Small farms yielding to foreign agricultural
  firms
• Mexican authorities expect the land to be
  purchased after leasing period

95
Maquiladoras

• Foreign owned factories
• Employ Mexican labor
• Assemble products sold in foreign market
• Mexican government incentives
• Low industrial vacancies in established
  maquiladora cities
• Foreign manufacturing sector growing at 18/year
• Agromaquila fastest growing industry

96
Hotel/Resort Properties

• Expanding in Mexico
• Conversions, rehabs and new construction
• USA investors prefer existing properties
• European investors prefer to build
• 80 existing properties not franchises
• Golf courses have great potential
• Marina market is strong

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Three Professional Skills
Networking And Relationships
Technical Aspects of a Transaction
Selling and Marketing
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Who You Need to Meet
Potential Clients
Colleagues
Owners and Sellers
Connections to all
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Where to Find Them
100
Cultural and BusinessDifferences
101
General Attitudes

• People more important than time
• Will be late for meeting to talk to a friend
• Punctuality is not business standard
• Two-three hour lunches common
• Many public and religious holidays
• Literacy rate 88 and rising

102
Language
103
Importance of Family
104
Access to Information
105
Mordidas

• Bribe, kickback, payoff
• May be punishable under criminal law
• Can be very expensive
• Effects may not last
• Undermines integrity and reputation
• Hinders internal accounting controls
• May damage or destroy relationship

106
Elements of a Transaction

• Brokerage Practices
• Contracts and Notaries
• Timeshare Regulations
• Foreign Ownership Limitations
• Forbidden Activities
• Minority Ownership Activities
• Majority Ownership Activities
• Unrestricted Activities

107
Taxation

• Non-residents pay 20 of sales price
• Corporate income rate is 35
• Withholding tax of 35 with stipulations
• Royalties subject to 40 withholding
• Asset values may increase with inflation
• One-time deduction for newly purchased assets
• Deduction amount is set by law

108
Financing

• Foreigners not discriminated against
• USA entities provide loans
• Title insurance now available
• Increased buying stimulus
• Variable costs
• Fideicomiso

109
Leases

• Commercial
• Net leases
• 1-3 years
• Limited options and indexed rents
• Residential
• Minimum 1 year
• Payments in local currency
• Rent increased annually

110
Listing Guidelines

• Mexico is a big country
• Exclusive representation arrangement
• Consider joint ventures
• Information is protected
• Reliable appraisals are hard to find

111
Marketing Properties

• Presentations are low-key and leisurely
• Resort properties often marketed on-site
• Additional resort property marketing
• Information booths in town centers
• Presentations for hotel guests
• Referrals by restaurant hostesses

112
Negotiating and Closing

• Request for proposal
• Direct negotiations
• Price agreement reached
• Buyer pays 10-50 of purchase price
• Balance due at closing
• Notary handles the money

113
Key Point Review

• Learn as much as you can
• Establish a strong network
• Work with capable and trustworthy partners
• Expect things to move differently