Donald Trump’s Baja Investment

Anyone following news reports in the last week or two will not have missed the headline stories about the collapse of the Donald Trump property project in Baja California, Mexico.

When the Trumps announced their entry to the Mexican realty market in 2006, the news was accompanied by huge fanfare, and the company pre-sold millions of dollars worth of luxury condos at its launch event at a swanky hotel in San Diego in December 2006.   A story published by the Associated Press in the summer of 2007 quoted Ivanka Trump saying “I went out and saw this site, and I was blown away by it. From the minute I saw it, it was a deal I had to do.”

More than two years after the launch event, the site which was to have been Trump’s showcase debut project in Mexico consists of nothing more than a hole in the ground and some drainage pipes.   Investors who had handed over deposits received letters earlier this year stating that the project is cancelled and that investors will not be receiving any refunds.  The Trumps have since withdrawn their auspice, citing violations by the developer in its agreement governing use of the Trump brand name, which was licensed to the project.  Collectively, investors are estimated to have lost some US$33 million in off-plan deposits; published case studies demonstrate that individual sums forfeited range from $200,000 to $1m.

‘Devil take the hindmost’ is a saying often connected with the collapse of asset bubbles – after the fact.   The Trump name has given this particular case study a high media profile; however, the story is not unique and not limited to Mexico.  There are many similar projects in the USA and world-wide in which investors who purchased property “off-plan” when the market was near or at its peak have come unstuck.

It’s not unusual for realty project launch-events to be held at grandiose venues bestowed with a serious amount of marketing excitement; conducted principally to entice buyers into signing legally-binding documents at the event proper.  We published a general guide to investment in realty development projects a couple of years ago and in there, we highlighted the specific characteristics of buying ‘off plan’ as well as key considerations to take into account when buying from realty developers.

Baja California and Baja California Sur remain two of the most promising Mexican states for long term investment: a great climate, good local infrastructure, easy access to the Pacific Ocean and Sea of Cortes, proximity and links to the USA, and inward investment – from abroad as well as within Mexico – continues to afford a strong story in favor of the region.

Meanwhile, as markets and prices continue to experience a significant correction, it’s now more important than ever to undertake due diligence in regard to property investment in Mexico or elsewhere.  As with any market, when prices reach a level where investors deduce that the price offered represents a good risk, the market stabilizes, buyers return and, in due course, asset values are restored.

The off-plan market will be shut-down (in all but name) for a while, but solid developers in Baja will be offering physical units for sale at attractive prices.  Investors who perceive Mexico – and the Baja peninsula – as a good long-term bet will return, notwithstanding the high-profile fiasco created by the misgivings of the ‘Trump Investment’ south of the border.