Condo Hotel Investments In Panama City, Panama
Since 2008, when property bubbles worldwide began to burst, property investing has become less about speculating for appreciation and more about buying for yield. Invest for cash flow from rental, for example, and you don’t have to worry whether market values are rising or not.
My acceptable range for net cash yield from a rental is 5% to 8%. You can do better in some markets for short periods of time, but you’ll find, over time, that rental yields generally return to this range everywhere.
Often the biggest challenge to do with owning rental property, especially overseas, is management, both property management, which is taking care of the property and paying the bills, and rental management, which is finding the tenants and collecting rents. As an independent long-distance landlord with an apartment or house to rent out, finding decent management can be the difference between a successful investment and a losing proposition.
This is why what’s known as a “condo hotel” investment can make sense. Investing in a condo hotel unit, you get both professional management and a reservation system that helps keep the hotel full, meaning this can be a very turn-key option.
Condo hotels function like any other hotel for the most part with the exception that individuals own the rooms. Those rooms are managed by the hotel operator, and the net revenue is shared between the operator and the unit owners.
Most condo hotel investment opportunities are pre-construction. Most investors buying condo hotels are doing so for the yield. Once they start getting their monthly or quarterly checks, they just let the investment do its job. Therefore, resales in the condo hotel business for producing properties are few and far between.
One specific pre-construction opportunity that I like right now is in Panama City. Like many construction projects around the world, the timeline for completion of this project has slowed since the global real estate bubble burst. However, the development is moving ahead, with the foundation work nearly complete and vertical construction starting soon. With a completion date now projected for the end of 2014, the timing for investing is excellent.
The developer in this case is building an all-suites property that will target the businessman. Many new hotels are coming online in Panama City, and the number of hotel rooms overall in this market is expanding; however, the executive traveler and higher-end tourists remain under-served. That’s the market this project is going after. It’s a relatively small property, with 98 units. Given the growing demand among the target market, occupancy rates should be high.
Panama continues to attract multi-national businesses and organizations, setting up regional and sub-regional offices in this country in ever-greater numbers. From Dell, which has been in Panama for more than a decade, to Procter and Gamble, Caterpillar, and even the United Nations, these groups mean a lot of executive-level traffic to Panama City. The carry-on effect for the hotel industry is important.
Additionally, Panama, with its central location, is also a growing destination for business meetings in general, especially regionally.
To date, business travelers have no real option but to mingle with the tourist crowd. In Panama, that generally means the party crowd, which means loud guests who stay up late and have visitors to their rooms at all hours. The serious businessman would prefer a more relaxed setting.
That’s the niche this project is looking to fill. The hotel will be five-star, from the rooms to the service.
In addition, the developer has conceived a unique marketing plan that should also help to make sure occupancy rates remain high by attracting foreign companies to hold events at the hotel. Specifically, the developer is working with an Italian design firm interested in using the hotel as the platform for their regional product launches and fashion shows. Again, this will contribute to hotel occupancy; it will also help to bring a level of prestige that should help to attract a more affluent clientele.
For you as the investor, the investment is turn-key. The purchase price includes all the furnishings for the room from the bed to the flat-screen TV and the in-room safe. The investor doesn’t have to do anything other than select from the three sizes of rooms available for the investment.
The size of the room dictates the amount of the investment; larger rooms are more expensive. However, the larger rooms also receive a bigger split of the net income.
Room prices start in the US$260,000 range, and the average yield over the first five years of operations is projected at 10.4%. Yields are lower in the first few years, increasing to low double-digit yields by year five.
I see this as one of the best opportunities available right now for positioning yourself to take advantage of Panama City’s continued growth. This remains one of my preferred markets long term.
Lief Simon
Editor’s Note: Today’s essay from Lief Simon is excerpted from the most recent issue of his Simon Letter.
To read Lief’s complete report on condo hotel investments around the world, as well as this month’s special feature comparing the advantages, the costs, and the processes involved with qualifying for the top residency programs in Latin America, subscribe here now.
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