Lund Report: Speculate to accumulate

Now that our real estate market decline has slowed and appears to be bottoming out, this is a good time to look ahead at where the opportunities will be for investment. However, in order to get a strong rate of return, investors will have to be ready to speculate and get into investments now, prior to trends developing and prices increasing.

As we pull out of these doldrums, a good guess would be that we will start seeing improvement in the real estate market by the end of this year. At that time, the US economy should be doing better and that will help with our tourism and investment. Our new government is already looking at ways to stimulate our economy and we should hopefully see the benefit of these efforts, later this year.

The bottom line is that real estate investors with foresight will seize opportunities while others are sitting on the sidelines, as these opportunities slip by. With our lack of any noteworthy capital appreciation over the last several years and the potential for inflation ahead, it is not that big of a leap of faith to take some calculated risks on Cayman real estate investment. Just step back for a minute, look at our current real estate market, and see what trends will develop.

One of the biggest trends and priorities with our new government appears to be increasing tourism numbers, as well as hospitality industry development. Government is looking for investment into Boatswain’s Bay and Pedro St James to make them profitable, as two government tourism projects to potentially join in a venture with private sector investors.

It makes perfect sense to attract private sector funds and experience. There is an infrastructure already in place which just needs to be taken to another level. Over the next few years, it would be a good bet that as these areas are further developed, property nearby should increase in value and provide opportunities for more development and business prospects.We desperately need more five-star brand accommodations.

We do not currently have the tourism product to attract the affluent traveller in any significant way. Again, this is a high priority for tourism and hospitality industry development. We have fallen behind our competition to attract tourism, due to the lack of development to the infrastructure at our airport (most notably a runway extension) and our cruise ship port (next year, the larger ships will be sailing by us because we still do not have a dock).

Three properties come to mind, immediately, as good prospects for five-star accommodations – the old Hyatt Hotel site, Waterford Private Residence Club in Crystal Harbour, and The Island Resort and Residences in Colliers. Each one of these entities is ahead of any others in terms of providing an opportunity for five-star hotel branding/development and strong capital appreciation and rental income for their condominiums and residences.

Looking at each one individually, there is no shortage of opportunity. The old Hyatt Hotel is due to be knocked down and redeveloped. We are coming up on five years of this eyesore needing to be condemned and rebuilt. I doubt very much if our current government will let this property languish much longer. Opportunity can be found at the Britannia condominiums, right behind the hotel site, which are generally selling for less than land and building costs. There is probably as much as a 50 per cent discount to the true market value, once a new hotel is announced.Waterford Private Residence Club has already been branded with an international five-star hotel brand, Wyndham Grand Bay and has started construction on their first two buildings. As tourism improves, demand will increase and this property will continue to develop into a master planned five-building property with all the facilities and amenities. There is only one way for the current rock bottom condominium prices to go and that is upwards. Fractions, as well as whole ownership condominiums, are currently for sale.

The Island Resort and Residences on the east end of Grand Cayman will compete head on with The Ritz-Carlton, in terms of their five-star hotel brand, service, facilities, and quality. This is already a given. Yet, condominiums are currently selling for probably half of what they will be worth in two to three years. A brand will be announced, later this year and it will shock the market – in a very positive way. Stay tuned on this one, as it should be a big addition to our tourism plant.

As the world finally becomes a bit less fearful and investors re-awake to the opportunities in front of them, those who act now will profit from the turn in our real estate market versus being frozen on the sidelines while this unfolds.

Lund230

Government is looking for investment into Pedro St James

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