Panama's Top 9 Developer Mistakes |
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| Written by Daniel Quesada |
| Thursday, 04 September 2008 01:00 |
 Over the last year and a half, I've had the privilege, or the curse, of working with a wide range of developers in Panama and Costa Rica. I have worked on mega-deals and mom and pop 10-lot subdivisions. I have seen big successes and some monster flops. If you are a developer, or a wannabe developer, there are certain things you need to make sure you do, and don't do, that can spell the difference between a big win and a big waste of time and money.
Here are the 9 biggest mistakes I think developers make in today's market: 1. Lacking Feasibility - What are you going to build, and why? Listen to the market, not your pie-in-the sky projections, and let it design your product. Too many developers are developing blind, or worse, copying other developers, and not doing their homework. Like in any business, make sure there exists a market for your $590,000 condo. If not, you will be the proud owner of 50 empty luxury condos, which is probably not your goal. 2. Being The Do-it-all Non-developer - There are too many land-owners turned developers right now in Panama that think it's a no-brainer to develop a real estate project to sell to the market. I recommend hiring a team of experts and sticking to your strengths. Try not to get in over your head doing the things that you are not best suited for, or you will waste time, money: and the quality of your development will suffer. Sometimes it pays to give away a piece of the pie, to get someone else's hard earned experienced devoted to your project. And if you are a land-owner, do not scoff at the idea of a joint venture with an experienced developer as an option. If they are good, they will make you much more money than you can make yourself. Also do your homework and know exactly who it is you are dealing with. To give you an idea of a common JV structure, usually the developer will take 50% of the project which will cover the projects soft costs including: feasibility, land planning, permitting, engineering, marketing, overhead, sales, etc... The land owner will usually throw the land in at an agreed-upon price, and from the profits of the development, they get paid that amount first. Afterwards, the developer's soft costs are repaid, and then profits are split 50/50. This is just a common example of a typical joint venture, but negotiations vary. 3. Lacking of Capital - No money, no project. Unless you are extremely skilled in negotiation, you will usually need to bring equity (money) to invest. Make sure you know what will fuel the equity portion of the project before you commence acquisition and development. If you don't have enough money, find people that do and that will agree to finance your ideas. Also, during the process of convincing these people to invest in your deal, you will sharpen your edges when it comes to thinking your plan through. Know exactly how much you need. I have heard too many times investors ask a would-be developer, "Well, how much do you need and what's my ROI?" And they answer, "Well I don't know, around $10,000,000 should do it... and what's an ROI?" Don't be that guy! 4. Lacking a proper business plan - Without a good plan, it will be difficult to know where you headed at all times. Develop a strong timeline and make sure that all the gaps are filled, especially because of Panama's notorious delays. Do not wing it with your business plan. This will be the roadmap for your project and will help keep you on course and on budget. Without this, you may find yourself scratching your head asking, well what now? 5. Being Greedy - "Hey Bob look! If we raise the prices of our condos by $50,000, we make $5,000,000 more!!!" Be wary of this temptation. It is VERY easy to play with your numbers in excel and get wowed by how much money you can potentially make. Trust me, I have done this before, gotten excited, than slapped myself back down to earth. This is a fantasy, like looking at the Victoria Secret catalogue for the girlfriend you don't have. We all know the name of the game is money, but you have to listen to the market, or else you will find yourself in a project with its wheels stuck in the sand and no sales. I know too many developers who let greed dictate their product and pricing instead of the market, and who end up pushing their development into an unattractive market. This no es bueno. 6. Running Too Much Debt - Leverage (or the borrowing of money) is a two-edged sword that can really cut you down if the market slows down (like right now). Make sure that you have enough equity capital in the project so that it stands alone, and use debt wisely. Only borrow what you know you can pay back. And understand that banks will usually only want to give you money for your project when you no longer need it. 7. Joining Unreliable or Inexperienced Partners - Make sure that before you get into bed with someone, you know their background. We've all gone to bed with someone just to wake up next to a monster (or at least I have). Do your due diligence, and enter very carefully. Doing a project with someone in Panama should be treated like a marriage rather than a one-night stand. 8. Lacking of Differentiation - Developers are generally promoters by nature. They will all give you twenty reasons why theirs is the latest and greatest. "Oh we have spectacular ocean views, and a gym, and spa!" Oh yeah? So does every other high-rise condo in Panama City! You have to be able to truly understand what sets your particular development apart from the neighbor. When selling your product, try and make sure you have a distinct competitive advantage, be it location, price, or amenities. Know your competition, and try and find things that make your project unique and one of a kind. It is much easier to swim in your own little fishbowl market niche, than it is to jump in the tank with twenty identical sharks. Differentiate your project, and you will stand out from the competition. 9. Making Your Product Hard to Buy - I still don't understand why so many developers make their product a headache to buy. They don't answer their phones, the sales people are useless, their website is confusing, they are hard to find, and it is a pain in the butt to get a price list! Worse, if you actually do sign up, good luck with the financing, title, and escrow services. Too many developers think these things are not their problem. Good developers will make sure all their clients' needs are taken care of, even if it means doing things that are not typically their responsibility. We are in Panama after all, and here getting good title, escrow and financing services is like trying to wrestle a greased pig. Make it easy for your clients to reach you, and make the buying process smooth and painless by including good solutions for these services. Go above and beyond and your efforts will be rewarded. And please, PLEASE, answer your sales line... I have called multi-million dollar developments and waited DAYS to get through to a sales person. Buyers are not as forgiving. Regardless of what level you are at, developing in Panama is a rewarding and interesting business if done correctly. The risks can be high, but so can the rewards. There is definitely game in these markets, as long as you know where to look, what to do, and, more importantly perhaps, what not to. Daniel Quesada is our resident development guru, having consulted a number of projects in both Panama and Costa Rica. Â
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Comments (2)
  written by Mike from Canada , September 04, 2008 Interesting piece. I could think of a few to add to that list, having crawled my way through ONE house construction in David. But your list is otherwise impressive. I might add to "expect things being on time" as we all know in Panama that's never the case. However, with your list, doing things right, maybe my addition isn't necessary
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 written by Edgardo , December 01, 2008 Is someone interested in developing a RESIDENTIAL AIRPARK in PANAMA?
That would be the first one ever! pls contact me if you are interested e-mail: mascarex@hotmail.com cellphone: (507) 6533-1851 report abuse
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| Last Updated on Thursday, 04 September 2008 06:37 |
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