An easy investment that earns 6% to 9.4% in Panama City

Panama enjoys one of the world’s booming economies, with its role as the Americas’ business hub still rapidly expanding.

I’m writing to you today about an opportunity to make a property investment in Panama City, with an increasing forecast yield of 6% to 9.4%. The developer is also offering a couple of financing options and a discount for cash buyers.

The offer will interest investors seeking a professionally managed income investment, which also brings some personal benefits and perks from Global Hotels and Resorts. The name of the project is Hotel Las Américas Golden Tower.

Background on the Golden Tower project
Global Hotels and Resorts is no newcomer to the hotel construction and operations business, and they have a number of properties already in production. Two that I’m familiar with are the Capilla del Mar—a traditional oceanfront luxury hotel in Cartagena, Colombia—and the Hotel Las Américas Resort, Spa, and Convention Center, a megaplex resort development also in Cartagena.

After staking their claim in Cartagena’s hot market, Global Hotels and Resorts turned their sights to Panama City and the opportunity to take advantage of its economic expansion that continues to gain momentum.

Why Panama?

As the “Hub of the Americas,” Panama remains the region’s business and economic center. And the long-term economic picture in Panama continues to be bright. I don’t need to rehash all the reasons why Panama has been successful to this point…let’s look at the future.

On top of everything Panama had going for it already, the current canal expansion is set to double the Panama Canal’s capacity next year, which will have a significant long-term impact.

Canal profits are expected to increase from about US$800 million to US$2 billion annually. (That averages out to about US$600 profit per citizen.) In practical terms, this means that Panama will have an additional US$1.2 billion to spend each year to enhance their already-strong economy; something they’ve been good at in the past. The GDP is expected to double within eight years of the expanded canal’s opening and triple within 20 years.

So there’s every reason for a hotel developer to expect that the demand for space will continue to gain momentum into the foreseeable future.

I walked over to have a look at the Golden Tower site and found construction well underway at their prestigious Balboa Avenue address. As an investor, it’s good to see that this project is far beyond the “idea stage,” it’s sited at a premium location, and that plenty of developer funds have already been invested.

With just one apartment per  floor, every room has a view

Construction is well underway on Panama City’s luxury Golden Tower hotel

I also liked the fact that the developer spared no expense or effort by acquiring the services of one of the world’s most renowned architects, Uruguayan Carlos Ott. Global Hotels can be assured that an Ott creation will stand out against Panama City’s urban landscape and be one of Panama City’s signature buildings.

Golden Tower is a creative investment that brings good returns
The returns on investment start at 6% and grow from there over time (I’ll have specifics on that in a moment). Here are a few other points to consider.

One of the reasons for the good return is that it’s not just a dividend payment from the developer, but more of a profit-sharing plan. You not only get a share of the room earnings, but rather a share of all the hotel’s profits, from the rooms to the restaurant to the gift shop.

The property investment is hassle-free. The developer takes care of buying and maintaining all furnishings, marketing and property management, utilities, and all of the practical chores that come with property ownership.

By investing in the Golden Tower project, you’re buying into Panama’s boom at a good time, at a strategic location in Panama City.

As an operator, Global Hotels and Resorts has more than 37 years in the business. So I have confidence in their ability to site a hotel, and in their projections for what it can make.

And aside from these considerations, this deal offers a few in-house benefits to its investors.

  • You can stay at the Golden Tower for just 25% of the standard rate (a 75% discount), with no restrictions.
  • You’re entitled to a food and beverage discount—20% off—that applies to you and your guests for expenses in the restaurant, bar, and cafeteria.
  • You’ll have preferred rates in all of their other hotels, which include those five star resorts in Cartagena.

Here are the terms of their offer and a few examples
The way to look at this offer is that rather than buying a piece of real estate, you’re actually partnering in the hotel, and you do this by buying a room…or rooms.

With just one apartment per  floor, every room has a view

This floor plan layout of the nonsuite rooms is designed to provide everyone with a good view

There are 15 different room sizes, so you can determine the amount of your investment by picking a room size or by buying multiple rooms.

The size of your room will vary from about 445 to 1,005 square feet, which is 41 to 93 square meters (M2). Thereafter, your returns are based on your percentage of ownership in the hotel, based on how many square meters you own.

For example, if you own a small room of 41 M2, you also own about 0.24% of the hotel, and earn a return of that same percentage of the hotel’s profits. In the case of this room, that’s estimated to be just over US$12,000 in the first year, or 6%.

A Junior Suite of 93 M2 represents about 0.54% ownership, which will net you US$27,347 in year one…also 6%.

Earnings projections increase each year, from 6% in year one to 8.2% in year five to 9.4% in year ten. They go up because of two factors: an increase in startup occupancy rates during the first three years, as well as the normal increase in room rates over the entire period.

Here are a couple of examples in tablular form. Remember that there are 15 room sizes, so you can pick an investment anywhere in between the ones shown. Your return percentage is the same in any given year, regardless of your room size.

All prices in U.S. dollars

All prices in U.S. dollars.
*Includes furniture. Does not reflect available discounts.

Keep in mind that these returns are estimates based on Global Hotels and Resorts’ experience as a hotel operator. Their estimate is better than mine would be, but it’s not a guaranteed return.

To exit the investment, you’ll sell your room to another investor. There is a chance that the developer will buy your unit back if you want to sell, depending on their needs at the time, but there is no guaranteed buyback.

The price you get when you sell will be based on the actual earnings you’ve collected and how they stack up against interest rates at the time of the sale. If your earnings are at or near the projections above, it will be an attractive income investment.

Choose from two financing packages or pick a discount level to increase your return
You can take advantage of three different payment options, two of which result in a discount off the purchase price.

If you finance the maximum amount—20% down, 50% over 14 equal payments, with the final 30% at closing—then the prices and returns are those described above in the example. The starting price is US$201,586, and the first-year return is 6%.

If you opt to pay 20% down, and the remaining 80% over 14 equal payments, you get a 2% discount. The price would be US$197,554, and a starting return of 6.11%.

If you pay cash up front, you’ll get a 5% discount, lowering the starting price to US$191,507 and raising the starting return to about 6.31%.

In the latter two cases, the later-year returns are also correspondingly higher.

With just one apartment per  floor, every room has a view

This conception shows that the Golden Tower is unique in Panama’s cityscape

What sets this offer apart from most others
The Golden Tower project gives you a way to invest in Panama City’s booming economy, and it offers the deferred payment package, which can be hard to come by.

Also, it’s hassle-free.

Frankly, for what it costs to buy a room in Golden Tower, you could buy a rental unit in the city. But then you’d have to buy and maintain furniture, arrange property and rental management, and take care of Homeowner Association fees and utility bills. With Golden Tower, all this is done by the operator, while still providing a good rate of return.

If you’re interested in more information on the investment—including the entire price list for each financing option—follow the link to connect with English-speaking Ana Paniza of Global Hotels and Resorts. She can answer any questions.

Lee Harrison
Editor, Overseas Property Alert

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Letters To The Editor

Hi Lee,
After three years in Santiago, Chile, I am considering a move.

The project you described in Colombia is appealing. I visited Bogota for business between 2003 and 2006 and was always impressed with the modern city, charming people, and strong business climate. I am increasingly drawn to the country for its warmer weather, wonderful people, and improving long-term potential. It would be great to learn more about the different Colombian initiatives as well as a comparative analysis of pros and cons of Colombia versus Chile, Uruguay, and Spain.

I look forward to learning more of your views regarding these issues.

Saludos cordiales,
Tim

A head-to-head comparison like Tim suggests is a great idea. They’re useful and interesting to read, and frankly, they’re fun to write.

I’ll do one next week, on Colombia versus Chile.

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To the editors,
I always enjoy Lee Harrison’s thorough, objective information and comparisons—the comparison he shared about Cuenca and Medellin was perfect. In fact, for us, we love both Cuenca and Medellin so much that we are making both places our “home.”

We plan to go back and forth between the two because they really cannot be pitted “against” each other, and both have SO much to offer. We intend to have the best of both worlds.

The conference last month in Medellin was (again) absolutely fantastic. Thanks, and keep it coming!

Andrea

This is a great retirement option, and one that I see more and more often. Given the affordable real estate and lifestyle in much of the world, the “perfect location” for many people is actually two locations…

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Lee,

Are there any places in Central America or Latin America that are wheelchair friendly and in close proximity to health care facilities? Prior to my husband’s stroke in 2013, we were planning on travelling to Panama and/or Ecuador to investigate at least part-time expat living options. However, now that my husband uses a wheelchair, continues with ongoing physical therapy, and has a live-in caregiver, I don’t know if living overseas is still a viable option. I would appreciate your advice.

Thank you.

Adele

Generally speaking, Central and South America fall well-short of U.S. standards when it comes to wheelchair access. One of the best cities I’ve seen for handicapped access is Medellín, Colombia. But as with most of Latin America, accessibility can vary from one neighborhood to the next, so you really have to scout your specific overseas candidates with that in mind.

On the other side of the coin, things like therapy and a live-in caregiver—and medicine, for that matter—are very affordable, allowing many people to obtain a better standard of care than they could get back home.

But remember that Medicare is not available outside the United States, so be sure to factor that in when moving abroad with an expensive medical condition.

However, for Medicare purposes, the “United States” includes Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa, and the Northern Mariana Islands. In these places, you can still enjoy that “living abroad” experience while remaining eligible for Medicare.

Have a question? You can write to Lee here.

Posted in Featured, Income Properties, Property Regions, Property Types, South America, Top Investments.

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