It is June in Panama and the “Green Season” is in full swing.  In the coming month we are going to see a new President take office with the hope that this pro-business leader will help build the tourism business that has just started here in Panama.  New coastal highways, new international airports and title reform are all on the front burner and Panama is set for yet another boom once the overbuilding of the condominium market in the City settles down.

What will be one of the driving forces behind the next wave of development in Panama?  We have just finished reading a very informative paper written by HVS Consulting in Miami, Florida and here are some of the highlights.

The Hospitality Industry Drives Mixed-Use Development in the Emerging Markets of Central America

Tourism has become an integral industry for growth in the economies of the Central American region consisting of Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama.

• In 2006 the World Tourism Organization (WTO) identified the region as the second fastest growing destination in the Americas.
• According to the Central American System for Integration (SICA)i; between 2000 and 2007, international tourist arrivals have grown at an annual compounded rate of 9.0%. Tourism receipts between 2000 and 2006 have grown at a compounded annual rate of approximately 10.9%.
• Currently, the most notable growth in the tourism industry has been realized in Costa Rica, Panama, Belize and Guatemala.
• According to Smith Travel Research, in 2007 the lodging market in Central America realized double digit growth in average daily room rate (ADR) and room revenue at 13.5% and 18.8%, respectively.

This significant growth of the tourism industry is the direct result of changes in international consumer behaviors as well as economic prosperity and political stability within the region. Historically, the supply of lodging facilities within the region has proved to be both inadequate in terms of product quality as well as insufficient in quantity for meeting the increasing levels of demand. These elements of supply and demand have created a favorable investment climate for development within the region, resulting in a real estate boom in both tourism and residential development. The growth in residential real estate development has been primarily driven by foreign demand for vacation and retirement homes in both urban and resort destinations within the region. Investment and development has been further supported by the variety of financial incentives for investment in tourism projects offered by national governments as well as the availability of local capital for the financing of large projects. We note that to date, most of this development activity is taking place in Costa Rica, Panama, Honduras and Belize.

The facts presented in this study shows that there are 33 active hospitality driven mixed use projects, representing a cumulative total of 5,854 new hotel rooms, which are either under construction or in the planning and approval process. Panama has 50% of these with 2933 rooms. There are 12 hospitality driven mixed-use projects in planning or under construction with 15 hotels of an average size of 196 rooms. Costa Rica has 15 new projects and it is interesting to see the opportunity emerge when we look at the comparison between the two countries.

• Costa Rica has the largest share of projects in planning or under construction in the region, at a total of 45%, while Panama has the second largest share of projects in the region at a total of 36%. In terms of total hotel rooms, Panama ranks first in the region at a total of 50%, while Costa Rica has the second largest share at 36%, followed by Honduras at 8% and Belize at 6% of total hotel rooms for the region.
• In Costa Rica, 93% of the total hotel rooms are being developed in resort destinations, with the remaining 7% of the hotel rooms in mixed-use developments are in urban destinations. Panama on the other hand, only has 32% of its total hotel rooms being developed in mixed-use developments in resort destinations, with the balance (68%) planned or under construction in urban destinations. We believe that there exists future resort hotel development opportunity in Panama.

Here is the Conclusion:

Despite the global economic downturn, the development of hospitality driven mixed-use projects will continue in Central America; although we do recognize that the pace of these developments has slowed significantly. Until mid 2008, most of the hospitality driven mixed-use development activity had taken place in Costa Rica. Recent trends indicate that the development pace in Costa Rica is slowing, as this market, particularly in resort destinations, is moving into the stabilized stage of its development life cycle. In 2008, hospitality driven mixed-use development activity in Panama increased significantly. Most of this activity has taken place in Panama City and the surrounding areas which serve as the economic center of the country and generate significant room night demand. However, currently the Panamanian government is investing in significant infrastructure improvements throughout the country, which in turn will facilitate development in its various resort areas. The trend is clear that the initial growth phase for resort hospitality driven mixed-use developments has begun. Honduras and Belize are both emerging as markets with significant potential for the development of these mixed-use projects, although there are limitations to development resulting from less developed infrastructure and support services. With the exception of Panama, most of the hospitality mixed-use development activity is occurring in resort destinations throughout the region. Panama City enjoys a unique position as an important international destination for both business and leisure travel, much of which is driven by the economic activity stimulated by the Panama Canal and the Colon free trade zone.

HVS can be reached in Miami at: (305) 378-0404 (305) 378-4484 Fax

Thomas H. Brymer II and I. Roberto Eisenmann III have joined forces in order to provide advisory services to clients both here in Panama and abroad. With over 50 years in combined experience in commercial and residential real estate development and sales, we are advisors to select clients requiring real estate services including acquisition and disposition, real estate and business development and the placement of equity and debt.

We are often asked why invest in Panama. We offer a few reasons that we see as a constant in all discussions with people who have experienced significant successes here.

• Panama Canal expansion a cornerstone of the global transport system
• Panama Qatar Occidental Petroleum Oil Refinery Agreement
• The banking system in Panama is world-class. A law passed in 1998 modernized this sector and enhanced the Government’s regulatory function. Banking institutions have strong ties to both Latin American and G7 countries. There are more than 120 banks in Panama City, making it a serious player in the international financial stage.
• Panama´s ambiance welcomes ethnic diversity and people from all countries and walks of life, lacking the common hostility found in many corners of the world. Because the isthmus holds a central position as a transit zone, Panama has long enjoyed a measure of ethnic diversity.
• Cost of living is low and life is quite easy, as domestic labor is still available quite inexpensively.
• Accessibility: there are mayor airlines offering daily flights to mayor cities of the world.
• Security is not a major issue in Panama.
• Health Care: 5 major private hospitals provide us all with tranquility. Johns Hopkins, Miami Children’s Hospital, Tulane University and Miami’s Baptist Health Center are affiliated to a number of Hospitals here.
• Panama does not have hurricanes or other major weather events or seismic events
• Property: there is only one Public Registry, thus one title for each property. Title insurance is also available if requested.
• English is widely spoken
• Major Corporation relocating or opening new offices – Dell, Caterpillar, Singapore Airlines
• Colon Free Trade Zone (“CFZ”) is the largest free zone in the Americas and the second largest in the world.
• Latin America remains resilient to the international credit crunch.
• Fitch Global Sovereign Review expects LatAm including Panama to maintain relatively healthy growth rate.
• Gross Domestic Product has reached rates of 4.1%, 6.0%, 6.4%, 8.1% 8 % during 2004, 2005, 2006 2007 and 2008 respectively.
• Investment Stability Law provides a 10 year stability as of the registration of the investment that all legal, tax, customs, municipal and labor rules will remain identical to those in force at the time of registration. This is an important guarantee to secure no-changes will affect the amortization of investments.
• Panama is at the top of the list of the Latin American countries with best access to capital.
• Panama’s currency, the Balboa, is at par with the US dollar since 1904.

Another important fact about Panama and the investment climate is the existence of Law Number 8 (Enacted in 1994) is the most comprehensive law for the promotion of tourism investment in Latin America.

The incentives and benefits under this law are available to natural persons or companies engaged in tourist activities registered at the National Registry of Tourism (Registro Nacional de Turismo) and certified by the Panama Government Tourism Bureau (Instituto Panameño de Turismo – IPAT).

These include public lodgings, tour agencies, tourist transport services, tourist restaurants, discotheques, nightclubs, recreational or theme parks, zoos, convention centers, and marinas.

The incentives for tourism investments include:

• 20-year exoneration from real property taxes (including land)
• 20-year exoneration of import duties of all materials, vessels, vehicles, and equipment used to build and furnish public lodging establishments.
• Exoneration from any tax or assessment on its capital.
• Exoneration of all fees for using piers, airports or heliports.
• Income tax exemption on interest earned by creditors of public lodgings.
• 10% annual real property depreciation (not including the cost of the land).
• Twenty (20) years full exoneration from the payment of real property tax on the land or any improvements owned and being used for tourist development activities.
• Fifteen (15) years full exoneration from the payment of income tax.
• Twenty (20) years full exoneration on import duties and sales tax on imported materials, equipment, furniture, accessories and spare parts used to construct, renovate and furnish their establishments.
• Twenty (20) years exoneration from duties, contributions, taxes or fees on the use of piers or airports built by the company. The Government of Panama may use these facilities free of charges, according to the appropriate regulations.
• Twenty (20) years exoneration from the payment of income tax on interest earned by its creditors from tourist activity operations.

ABOUT US

• We are a commercial advisor to select clients requiring real estate services including acquisition and disposition, real estate and business development and the placement of equity and debt.
• We provide a host of services including seeking out investment opportunities related to real estate, developing commercial and residential projects and the marketing and sales of various types of real estate property. In addition we are involved in obtaining equity investment and financing from both private and institutional lenders.
• We are involved in the Panama real estate market and offer services following multiple disciplines including strategic analysis and planning, development, marketing, sales and contract negotiation.
• We have the experience and knowledge in complex planning and organizational development necessary to provide strategic partnerships with a network of professional planners, developers, sales and marketing experts.
• We assist our clients by assessing market potential and timing, and forecasting market direction. We help identify viable applications for various types of real estate product and services, assess competitors and develop winning strategies. We direct or support negotiations and when local collaboration is appropriate, we assist clients in the development of joint ventures.
• Opportunity identification and success in local representation is the heart of our business.
• Our Group puts clients in the right place, with the right people, at the right time.

We invite you to visit our country and learn how Panama has a developed the base from which to take a quantum leap in the near future when the next wave begins. Please contact either of us to discuss opportunities we feel are of merit.