Jesse Levin of the Archer group sent me this article about the changing dynamics in Panama due to the credit crisis and how some entrepreneurs are weathering the storm. His main focus is on the Pedesi area of Panama, but the same advice could be applied to all of the country. At the end of the article a few investors offer up their advice. Jessie had asked me to lend mine which I added at the end of his article.
Survival of the fittest
This December marks the beginning of the dry season and represents a critical telltale time for on the fence investors. Even the most optimistic bullish market participants seem to be a bit on edge, as this past rainy season knocked some confidence out of the international investment contingent in Panama.
It's a survival of the fittest time and those who are unwilling or unable to adapt their strategies and who are pegged into the speculative real estate mind frame and operating mentality are going to have to morph or risk failure. One of the most difficult things to do is to alter the course of a previously sound business plan. Those who have spent time formulating their strategies, building their teams, and expanding their networks based on a specific model know what a daunting task it is to start anew, especially in Panama.
The market dynamics of the real estate sector have changed and previous, more traditional approaches to adding value and differentiation may no longer be applicable. This very paradigm has become increasingly more prevalent in my area of expertise, Pedasi.
Those who bought on pure speculation without a clear repositioning strategy are going to be in the tightest spots. Many underestimated the carrying costs associated with even the maintenance of a relatively hands off land banking acquisition in rural Panama, let alone developing it. The question is how to maintain the integrity of the investment without having to dispense unavailable/limited discretionary funds or falling prey to the swooping vultures looking for distressed sales. I am of the persuasion that this takes a hands on, out of the box approach, requiring time and energy most don't have to devote to their Panama portfolio. The larger investors in the area are now more actively then ever trying to gain a sense of the true value of their assets, incase a fire sale were to be deemed the most advantageous exit strategy, as apposed to continued investments into development.
While some are finding themselves in a distressed situation others are doing quite well. The timeliness of the Israeli investors who bought and quickly subdivided the areas along playa Torro and La Garto are selling cheap home sites with basic infrastructure for prices buyers can afford to put on their credit cards, even with their recently decreased limits. Although the merit of these projects has yet to be proven, In this market this strategy happens to be more appropriate then the sale of expensive villas at Azueros or Panameas for example.
Its never a good idea to fall in love with your investments, that is unless you are over the hill, have paid your dues, and now are at it for kicks and can afford to do so. The good news is that most of the major players in Pedasi fall into this category. Almsote everyone with the exception of the most savvy have been affected by the credit crises in some facet, but It is important to remember that there is a lot of money being invested in the region that does not come form the States. That is not meant to instill a false sense of confidence. Those who bought sub par properties in the area just because of their proximity to "major developments" are running a risk, but if land was purchased intelligently for a fair price with strong developable attributes then it is only a matter of figuring out how to hold on through the slow times so as to maximize the capitalization of the acquisition in a time when the market is stronger.
If you are on the younger side, have made an investment in a raw, non cash-flow producing asset anywhere in the country, and are counting on a quick exit to fill the account, then it might just be time to break this cardinal rule. Fall in love with the investment, because unless you have the means to execute a repositioning strategy on the property to add some real tangible value or are willing to part with the hard won asset at a discount you might be sitting on it for a while (I hope lots of you prove me wrong)! A major point here is the perceived value of assets held. Many who purchased land three to four years ago bought in at great prices. There is no doubt assets have greatly appreciated but during the boom years many got fixated on landing huge sales. Reality in regards to expected returns went by the wayside, as huge gains were being made in very short periods. In these times a profit is a profit and there is always a buyer. The sales price might not be as sexy as the seller would like, but if you bought smart there is still money to be maid.
While the real estate market in Panama is transforming, for the enterprising entrepreneur not afraid to give up all semblances of comfort and security to dive into the next project there is always business to be done. Whether the focus is altered in the realm of real-estate to the budding distressed assets segment or redirected entirely to another sector like hospitality, logistics, Internet based ventures, or consulting, there is still ample opportunity in country; its not time to pack up for home just yet.
One of the truly great aspects of conducting business in Panama is the openness and willingness of most people to lend a hand or advice to those who seek it. Matt Landua at the Panama Report has always harped on this, and it may be cliché, but in Panama the success of a venture will be greatly determined by who you know. This is the best time to focus on networking. Rub up against as many people in as many different fields as possible to get the entrepreneurial juices flowing. It will surprise you to realize the willingness of people to help out. There is a real sense of camaraderie, especially amongst the expatriate community in Panama.
Young and old champions of the entrepreneurial spirit in Panama offer some insight below as to their thoughts on transitioning to survive and prosper in these times:
Mackenze McAleer – Internet Marketing Consultant and partner in PanamaRealEstate.com
"Do what you know, love what you do." That piece of advice has always helped me as an entrepreneur. Whether you're visiting Panama or live here, the strategy is the same. Think about your experiences here and like any good salesperson, find your pain. If there's something that you know is missing or that isn't being done right, especially in an area that you have a passion for or previous experience in, jump in and fix it. Businesses built on passion and knowledge are always the best investments and entrepreneurs do better when they do what they love.
Matt Landau - Founder of The Panama Report, travel and investment portal (and creator of everything that is pretty good).
"Overall the state of the economy doesn't matter so much for good entrepreneurs. Drugs and booze aren't the only markets that flourish in a depression, real estate does too...if you look carefully. Cash-heavy investors will come to Panama just as they have (in the way of vulture funds preying on desperate sellers) in the States and Europe. If real estate is your thing in Panama, don't quit because the economy stinks: simply adapt to a different niche -- in this case, distressed assets. If an entrepreneur has the right kind of mentality, he'll win in a good or bad economy. "
Ursula Kiener - CEO of Panahealth Corp.
"Globalization has long erased from our minds the concept our grandparents used to have about staying with one job and moving forward towards retirements and pensions. With so much competition and emerging markets becoming the future and such an unstable world we are forced to adapt and grow as individuals. There are more opportunities than ever, with more risk than ever. You need to assess risks, evolve, and know when to let go of projects.
I am an example of this being Panamanian with a business degree background in insurance catering to expat clients, now working in medical tourism, which was derived as a global solution to the current health crisis faced by developed countries."
Ricardo Garces - Owner of Hospedaje Casco Viejo and Hostel San Expedto in Casco Viejo
"Don't invent your markets; cater to the market that exists. Find a niche, which may not be the most sexy or glamorous segment, and don't reinvent the wheel. Replicate what you have learned and know, pay attention to the shifts in the market that have transpired and strike, don't reminisce on the old days. For me that niche has been the budget travel segment."
Spencer Woodard – Landscape architect for High-net-worth individuals and exclusive resorts
"Do something different. Step outside the proverbial "box". Question the dominant paradigm. Follow a personal interest, something that you would pursue regardless of whether or not you could make a living doing it - something that makes you happy. Let an occupation evolve around that thing - be confident it will happen. Your job doesn't have to be something thousands of people did before you. Start something new, something conducive to your lifestyle, beneficial to human and non-human organisms, and adaptable to a wide variety of applications and environments. And most importantly, don't think about it too much."
Sam Taliaferro
I would guess that land developers all over the world are faced with a similar problem of what to do in such a changing financial environment. Many are just too heavily in debt and are forced to go out of business. We are all driven by sales and when it stops the game is over for some and delayed for others.
For many foreign developers in Panama, they have little bank debt as they are mostly financed by angels. Local developers usually work with the banks and have more immediate exposure. Foreign developers are not under the pressure of coming up with debt payments, but they still need to have a plan for returning the investment. Most were counting on sales to fund their dreams and without it they have just land and dreams. If the investment is just in land, then a wait and see attitude may be in order. Carrying costs are not too great and no loss is experienced unless it is sold at one.
For those who have started construction of buildings there is a scramble on to morph into some other type of product that may still have a market. We at VE were focusing strictly on foreign buyers, but have now changed our strategy to target local buyers for one month fractional ownership. Our condo hotel project became unsaleable in this current market. With millions tied up in construction we don't have the luxury of waiting. This appears to be a strategy being played out in a number of projects around the country. It remains to be seen how successful any of us will be because we need substantial volume to make it (fractional sales) work. I believe we are working against a clock as it is only a matter of time until Panama too begins to feel the economic reality like the rest of the world.
The one bright spot we are starting to see is the fear of a democratic leadership in the U.S. by those with capital rather than debt. We are getting more calls now from conservatives who fear they will be the ones who will have to pick up the tab for all the mistakes made by the past administrations as well as to fund the promises of the next one. Maybe Panama will come back even stronger.
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