Strategic Pounces on Punta Mita

Posted in: Puerto Vallarta Real Estate
By Peter Slatin
Dec 17, 2007 - 12:07:07 PM
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The Punta Mita peninsula is 1,500 acres and sits about a 45-minute drive north of Puerto Vallarta on the Pacific.

Seeking to expand the already expansive success of its Four Seasons Punta Mita property, Strategic Hotels & Resorts has acquired the lone remaining hotel site – indeed, the lone remaining for-sale development site - at the 1,500-acre Mexican resort development, on the Pacific Coast near Puerto Vallarta.

 

With the $53 million purchase of the 57-acre site from DINE, the Mexican firm that originated and remains the master developer of Punta Mita, Strategic (nyse: BEE) now owns three of the four hotel and resort sites there and is poised to profit from the continued development of the sprawling gated peninsula.

Strategic bought the Four Seasons in early 2001, when Punta Mita was still a largely conceptual adventure for DINE, the real estate arm of Mexican giant DESC (although DINE has spent $150 million of very real money in infrastructure costs). The hotel was having trouble attracting guests and selling the villas affiliated with the property. That has changed: today, some 20 percent of the roughly 900 residential units planned for the entire low-density Punta Mita project have been built or are under construction, and sales through the third quarter of 2007, at some $84 million, were more than 30% higher than year-earlier figures.

As for the Four Seasons, with 160 rooms (double the original total), the hotel is among the top earners in the Four Seasons group in occupancy (80 percent) and room rates, which average above $700 a night. And DINE has built and sold more than 50 Four Seasons villas at the property, with some units in the most recent phase of development selling for more than $4 million.

 


DINE has sold off development parcels, where builders have put up a variety of villas and condos, like this one at the Four Seasons. Only about 20% of the expected 900 homes have been completed.

How deeply the Mexican resort market overall and Punta Mita itself will be affected by the global liquidity event now under way, or by a recession in the U.S., is an open question. However, few Punta Mita buyers require loans for what are second, third or fourth homes. For many, interest begins during a stay at the hotel; naturally, Punta Mita’s marketing group hopes that more hotel rooms will bring more interested buyers.

 

“The residential sales will feed off the hotels,” says Strategic Chairman and CEO Laurence Geller. “We’re really pandering to Gen X and baby boomers.”

Lynne Bairstow, who directs the marketing and sales effort throughout Punta Mita, says the precedent for that was set early on and is now being expanded. “Originally, the vast majority of buyers came from the hotel,” explains Bairstow. “But now they come from referrals, villa rentals, and local brokers as well. If you double or triple resort guest rooms, you will double or triple the buying pool.” That’s important too, notes Bairstow, because “no one buys without coming down first.”

Strategic is based in Chicago and owns and operates a strong collection of high-end hotels. Geller says the company plans to break ground Jan. 15 on what it is calling La Solana at Punta Mita, which is adjacent to the Four Seasons; the company bought that site from DINE in 2006 for $29.5 million, and now intends to build some 90 hotel suites, at a service/amenity level that Strategic CEO Laurence Geller says will take the Four Seasons up a serious notch. Those units will be completed by 2010, and work on BEE's newly acquired site should be finished a year after that. So far, no flag has been signed there, but Geller, winking madly through the telephone, says he expects to build "something of the quality level of a Ritz Carlton.”

 


A villa at Las Palmas, one of the development parcels sold to an independent U.S. builder.

Before either of those properties opens, though, the Four Seasons will face competition from a 120-room St. Regis, which is expected to begin receiving guests this summer with a grand opening in the fall. When all four hotels are open – with barely 500 rooms in total – Punta Mita will have done more than its share to establish the image of Mexico as a high-end resort destination for North American travelers.

 

Indeed, says Geller, with its concentration of gated top-name resort hotels and tight visitor control throughout, “Punta Mita suddenly becomes the most exclusive luxury enclave on the western coast of North America. It’s a gated community with the luxury hotels where rubberneckers aren't welcome.” And like any proper riff-raff free area, it will have the shopping to match – most of it in Geller’s hotels. Together, his three properties will have 20,000 square feet of “very exclusive retail” along with ten restaurants (three are at the Four Seasons already).

As important as the hotels are on their own, Punta Mita's master developers see them as essential marketing tools for the condos, villas and mansions that are being slowly developed. Then there is the sine qua non of resort development: golf courses. Punta Mita’s have been designed by Jack Nicklaus. One, connected to the Four Seasons, stretches along a spectacular ocean vista, and another is being built as part of the St. Regis.

(Click here to see a list of development projects at Punta Mita.)

 


The Jack Nicklaus golf course at the Four Seasons stretches along the Pacific Ocean.

With all of the development sites on the peninsula now spoken for, DINE will be focusing on its own projects and on supporting sales for the entire peninsula, as well as on continuing the massive infrastructure development of the area. DINE acquired the huge site in the early 1990s and began to build out roads and other infrastructure; it also built a town for residents of the scattered fishing villages that dotted the seaside. Those locals who remained now live in that town, which abuts some of the luxury developments.

 

Punta Mita’s success has spawned other resort projects nearby and Puerto Vallarta is at the heart of a somewhat disturbing condominium boom that crowds the highways with signs for prospective buyers. However, hotel development there remains surprisingly sluggish. Still, with large resort projects aimed at midscale as well as upscale travelers by both private interests and Mexico’s government development agency, Fonatur, under way in the area, local roads from the airport in Puerto Vallarta are strained at peak times of the year. DINE and others are exploring everything from road expansion to an airport upgrade and even the creation of a new airport.

As development in the still-young project moves into its next phase with a more secure footing, thanks to the success of the Four Seasons and the developers that brought product to market to date, DINE and its partners can claim some vindication in carrying out what seemed an outsized vision, both in physical proportion and in its business trajectory.

After all, when DINE acquired the land, says Bairstow, “People at the time thought they were nuts. Nobody thought of Mexico as a luxury destination.” But bringing the first Four Seasons to Latin America should have been a tip-off to DINE's determination, and its resources. Now, she says, “for gated communities with a hotel anchor, Punta Mita has become a model.”