Money, Money, Money… Where is the Money?

It’s not that there are not funds available… 

it is the aversion to risk! 

The IMF is actually reporting that the global economy will exceed expectations in 2011. But, whilst individual and corporate finances may be strengthening, the rebalancing of credit and investment portfolios will be ruled by an aversion to risk.

Most funders/ bankers/ investors have been trying to reduce their exposure to real estate over the last two years, and their blood pressure skyrockets at the mere mention of another non-liquid real estate deal.

Hotel RevPars throughout the European capitals and the major cities of the US are now recovering at levels unseen for the last two years. Yet mixed-use hotel/residential projects that have proved healthy are still experiencing major problems re/negotiating loans with only a minority capable of securing required funding. In general, the weather forecast for the hospitality, leisure and residential tourism industry still reports "frequent showers with intermittent storms" and so, right now, bankers will not be prepared to lend an umbrella until the industry is looking decidedly sunnier.

So, how to attract the money?...

We must start to bet on the duration of the production cycle.  Many projects that were started in 2008 have suffered from a lack of liquidity during 2009-2010 that has resulted in a slow-down or a total halt that will only pickup once the market has fully recovered. This acts as no surprise. We have seen this stop-go situation several times in the last 30 years and the market will pick up (at reasonable levels) within the next 18 months. Therefore, some selected projects restarting now could be ready to be completed by 2012-2013 – a moment in which the market should be in full recovery. The key question is how to assure lenders/ investors that sales and revenue will be there and they will get repaid… and for this, one must go back to basics and trust in three major truths:

• Location, Location, Location
• The power of the brand
• Productivity and return

The best product that unites the above is the Branded Residences. They attract customers with powerful brands, running with operational agreements/ condo-hotels that provide a source of revenue. Additionally, the nature of the business requires them to be in the right location.

From a funder point of view, they provide a higher level of liquidity (being secured by the brand and the market niche) when compared to standard assets. But, most importantly, they grant an additional level of security by bringing a built-in source of revenue. Indeed, even if sales are sluggish in the initial stages, the operation will provide the revenue required to cover payment of at least the interests from day one.

Hence, for Buyers and Investors, the Branded Residences concept provides overall solidity to the project. And, in the same way that the brand serves the final client and the operator, it does also attract the banker/funder as it buffers many of the risk factors.

First Logic understands, implements and manages the Branded Residences concept. 

Tunisia: riots to bring increased opportunities?

After 23 years of rule, Tunisian President, Zine al-Abidine Ben Ali, has been ousted. The unrest was instigated by a single protester who set himself on fire following the confiscation of his stock (police claimed that he had been selling vegetables without a license). Whilst this seems an extreme response to unwarranted police rule, the Tunisian people have been driven to desperate actions due to, amongst other things, a crisis of unemployment. Job opportunities in Tunisia have been slashed due to structural reforms and the country's free-market policies.

Much of the world has been protected from the inequalities in Tunisia. The popular tourism destination reported a total of $US 3 million receipts in 2010. It possesses a pleasant Mediterranean climate, beautiful beaches and historic architecture. So, with tourists fleeing and incoming flights being cancelled for the foreseeable future (the Foreign Office advises against anything other than essential travel) will the riots bring more or less opportunities?

Whilst real growth has slowed in Tunisia over recent years due to a decrease in European import demand, in general the economy has proved to be stable. World Bank recently predicted a GDP rise of 4.8% for 2011, but this now seems less likely.
 

Obviously this is not the first time that a tourism destination has been hit by internal conflict. The riots in Greece last year saw costly widespread damages and business relocations. And the adverse effects of the LA riots back in 1992 amounted to nearly US$4 billion. Any signs of violence also lead to an increase in the risk rating which influences lower rates.
 

However, in 2009, it was forecast that the Thai tourism market would shed 200,000 jobs following street battles in Bangkok – having an almost immediate impact on the property industry. But the withdrawal of the transfer fee, stamp duty and business tax exemptions helped to see property prices in Bangkok increase during 2010 and tourism receipts continue to rise.
 

It does indeed seem that the promise of sunshine is a good remedy for the fright of domestic unrest but any negative factors in such a competitive market cannot be overlooked. Tunisia’s ultimate strength may be in the spirit of its citizens who are certainly gathering much international support. President Obama states “I applaud the courage and dignity of the Tunisian people. [I urge] the Tunisian government to respect human rights, and to hold free and fair elections in the near future that reflect the true will and aspirations of the Tunisian people” He continues by saying “I have no doubt that Tunisia's future will be brighter if it is guided by the voices of the Tunisian people.”



First Logic applies sound research and market analysis to create projects that benefit the investor and the surrounding community www.first-logic.com


Brazil: A season for thought

-->

Brazil is a compelling option for anyone considering investments in emerging markets. It is South America's largest economy and it is still reporting steady growth with ADR on the increase.



Overall, Brazil has an enviable array of resources, including agricultural commodities, such as soy, sugar-cane and coffee, huge mineral reserves, major energy reserves (in classical oil & gas but also in non-traditional hydrocarbons), it has a great internal market soon reaching 200M with a huge expansion of middle classes … and in addition, it has world renowned beaches – a key factor for most international investments.



These beachside locations can be divided into three distinct areas…

The Northeast is widely known as a destination for European sun-seeking holidaymakers (Natal, Recife, etc). But, although it benefits from a year-round benign climate ­– with no hurricane season – it tends to compete with consolidated markets such as the Caribbean, Pacific Mexico and the Mayan Riviera where there may be a language affinity and/or shorter flight-time.



Central Brazil includes the more characterized destinations, such as Rio de Janeiro. But from a sun-worshipping point of view, the weather is unreliable as Summer has a tendency to be rainy and murky and Winters can be cool.



Further south, Brazil has some fantastic spots, such as the State of Santa Catarina. The region, as a whole, has great appeal for South Americans and Brazilians who flock to locations such as "Floripa" (the capital of Santa Catarina Island) for summer holidays.

Santa Catarina Island includes fantastic beaches, a variety of good hotels, niche attractions (outstanding surf spots) and beautiful colonial villages built by Azorean immigrants. In addition, it also offers remarkable grounds for nautical tourism and acts as a natural stopover for cruisers going both north and south, offering sheltered waters in natural bays and well equipped marinas. 

Whilst investments in Santa Catarina have proven to be highly profitable for the local investor (capable of using capacity during the low season), the short season has proven to be difficult for international chains (weather is only reliable 3 months a year).

The best of both worlds is undoubtedly found in the coast of Bahia State, benefiting from the continually pleasant Northeastern weather. The beaches are beautiful & immaculate with opalescent waters.

Most importantly, Bahia State is among the few world locations that enables year-round tourism as it is accessible for both North & South originating markets: European and North American visitors who looking for a sunny and exotic destination for year end or winter breaks as well as South American visitors in their winter/spring break (June - August).

The capital of Salvador is Brazil’s 3rd largest city and plays host to numerous historic & cultural attractions with a World Cultural heritage centre and annual Carnival festivities. The south opens to All Saints bay reuniting a large area of sheltered water with predictable winds ideal for all nautical sports.

 Close to Salvador, there are well know operational resorts (Praia do Forte, Costa Sauipe,) as well as in the inner bay (though Itaparica is due an upgrade)…and there is still a lot to come: for example, Ilha de Cajaiba within All Saints Bay and Indias Galantes. 



First Logic has assisted tourist destinations in Brazil, Morocco, Middle East & the Caribbean in the market assessment; pre-feasability studies; master planning; successful licensing processes; hotel management agreements with 1st rank hotel chains; implementation, design & marketing of branded residences; finance & funding and overall evaluation & implementation of monitoring systems.

We can help you to analyze your investment and to prove to funders, financers, investors & buyers that their investments have limited risk and significant profit potential

Ensure that your investments have limited risk and significant profit potential. www.first-logic.com

Are we ready to face the emerging markets again?

A decade ago there was a new hype about investing in “emerging markets”. And over the following years it seemed that everybody with a healthy savings fund was in the process of building a “property portfolio” that included worldwide destinations as varied as Bulgaria, Northern Cyprus and Thailand. Dr Nandu Narayanan, Manager of the C.I. Emerging Markets Fund was quoted as saying “Fundamentally, there are many positive issues: Values are exceptional, some of the best growth and earnings stories in the world exist in the Emerging Markets and even the liquidity is reasonable.” But in his interview with Jim Yih (dated 2001) he continues by saying “the emerging markets are like roach hotels . . . it's pretty easy to get in but when everyone else is trying to get out, it is near impossible to do so."

However, whilst there are some investors who will now remain forever shy of the property industry aside from a safe 2-up, 2-down in a good catchment area, 2010 did start to hear a faint hum of renewed interest for the less developed nations.

Fund Managers at a Reuters summit recently picked emerging markets as a top bet for next year, predicting good returns thanks to fast growth. Many eyes are looking toward Latin America and the “Powerhouse” of Brazil that continues to develop, relatively unscathed by global difficulties. But Brazil presents a good example of a country with plentiful opportunity if the right project is selected (such as the Amazones, Chapada Diamantina), or, adversely, ample risk if investments are misinformed.

Whilst many of the construction cranes that used to be firmly pointed at the Middle East are currently directed at India (having positive indicators from 2010 with a 12.4 percent rise) its future potential is limited due to a mostly domestic-driven market. However, UBS analysts suggest Taiwan as a place to put the clever money thanks to a low market evaluation and heavy exposure to technologies.

The speculative opportunities of Africa are also being considered due to rich resources and good links with the East.

In general, emerging markets are a cyclical affair. There are always booms and so, in balance, there will always be a degree of bust. The key to a successful investment is timing and, equally importantly, to determine a sound strategy that also protects against potential market downturn.

We can help to build a strategic property portfolio www.first-logic.com