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Niche for Vacation Home Market Grows in Mexico
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Dan Harwood, an Idaho developer, is building condominiums and villas in Puerto Peñasco, Mexico for vacationers and retirees from Arizona.
| Sun Development, a small builder/developer based in Idaho, is building affordable luxury condominiums and villas along the beaches of Puerto Peñasco, which, at about three hours from Tucson, is the closest beach resort to Arizona — and growing.
Puerto Peñasco, in northwest Mexico on the Gulf of California, began as a tiny shrimping village more than a century ago. Known as “Rocky Point” to many visiting Americans, it has been quietly attracting Arizonans to camp on its sandy beaches and enjoy the warm, clear waters for 50 years.
But all that changed about five years ago. Now, vacationers stay in condos, and in addition to swimming, sunning and sport fishing, they enjoy snorkling and golf.
Dan Harwood, CEO of Sun Development, began building the Casa Blanca golf villas and condonimiums in Puerto Peñasco in 2003, and he expects to complete his 225-unit project next year.
"It's always been thought of as a 'locals only' recreational area where you 'roughed it' in a tent on the beach," Harwood said. "2000 is when the tide began to turn, in large part due to the cost of similar vacation properties in the states, dwindling inventoiry in the states and modern building and landscping techniques." Harwood is selling his 1,300-square foot condos for $350,000.
NAHB’s International Department caught up with Harwood to see how his project was progressing. Here’s what he had to say:
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Harwood's project at Casa Blanca under construction.
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More Profit South of the Border
Q: As a small builder from Idado, how profitable do you find it in Mexico?
A: Sun Development’s experience has been that gross margins in Mexico run around 10%-15% better than similar projects here in the United States. That is a substantial increase to the bottom line.
Q: What is Mexico’s lure for a small builder who is only interested in the bottom line?
A: Mexico represents incredible untapped profit potential for anyone who is willing to sort through the multiple opportunities and come up with a project that is well suited to their organization.
Q: Give us a ballpark figure on the cost of building the same unit in Mexico vs. the U.S.? And include your risk factor.
A: We estimate that if an organization identifies solid, competent management for the project, it will realize cost savings of around 10% on inputs, labor and management. You have to be very careful, though, because those saving can easily disappear if you mismanage distance and communication.
I also believe that is why a smaller developer has an advantage in these situations. They are lean and can react readily!”
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Harwood's project is part of a growing bearch resort area in Puerto Peñasco, which is less than three hours from Tucson, Ariz.
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Getting Started
Q: Did you do a market viability analysis for this project? And if so, what stood out the most?
A: You will need to conduct an in-house viability study. Unfortunately, there is a lack of qualified consultants that conduct this sort of study south of the border.
A critical part of Sun Development’s strategy is to have first-hand knowledge about the target market we’re catering to. In our market analysis, the one thing that stood out the most was the millions of Americans in Phoenix and Tucson. Many already vacation frequently at Rocky Point, the closest beach to Arizona.
Q: You work with a Mexican partner. How did you find your partner and what gave you the confidence to go into business with them?
A: There are a myriad of developers in Mexico who are capable, dynamic, determined to succeed — and who are looking for American investors. Once you find a potential partner, verify his or her credentials and make your decision based on past performance and past projects.
Q: How does a small- to medium-sized developer acquire financing in Mexico?
A: Once a builder is established in Mexico, a project can attract the attention of local banks. For our particular development, we used private U.S. financing and in-house funds.
Attend the 3rd International Housing Conference of the Americas on Nov. 3-5
Thinking about building in Mexico? Attend the 3rd International Housing Conference of the Americas for ideas and information about everything from supplies to financing and technology.
The 3rd International Housing Conference of the Americas will be on Nov. 3-5 at the Four Seasons in Mexico City and feature educational panels, housing tours of middle to high-end housing, table top exhibits, networking events and valuable insight from key industry leaders and government officials.
For more information, visit the Conference of the Americas Web page, or contact Marco Amaro at 800-368-5242 x8419.
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