A Reno-based construction services company thinks it can profit from inefficiency in the Mexican housing market, and Nevada investors are fueling its bet.
Global Building Solutions in the next few weeks will complete its first model homes in Baja, Mexico, just across the border from San Diego, and it expects to build about 100 homes by the end of 2004.
The inefficiency the company seeks to exploit, GBS President David Chase said, is this: While some 30,000 residential lots are ready for homes in Baja imagine all of Double Diamond and all of Spanish Springs homebuilding is limited because contractors typically don't have access to construction financing through banks.
That, in turn, causes uneasiness among potential buyers who wonder if the builder and his subcontractors have the financial strength to complete a project.
At the same time, demand is rising quickly as the region between Tijuana and Ensenada provides an affordable alternative to sky-high housing prices in San Diego.
The GBS project is about a 30-minute commute from San Diego.
Further fueling demand, Chase said, is the number of existing homeowners in southern California who hope to cash out by selling their home and purchasing something less expensive south of the border.
Perhaps the biggest opportunity for the company, however, comes as Mexican real estate law has changed in recent years to more closely resemble U.S.
practices.
Those changes, many of which are tied to the North American Free Trade Agreement and the growth of maquiladora manufacturing facilities along the border of the United States and Mexico, aren't widely recognized.
"This is an inefficient market because of the myths versus the realities," Chase said.
The GBS homes will carry title insurance similar to that used in the
United States.
The belief that Mexican real estate laws discourage home ownership, particularly by foreigners, created a challenge as well for Reno-based Sierra Capital Resources LLC, which raised seed capital and construction financing for GBS.
"Real estate is inherently difficult to fund for start-ups," said Jeff Sunderman, president of Sierra Capital Resources.
"But if you want a real challenge, try funding property located outside the United States."
The company's work to raise $400,000 in equity and $1.6 million in construction financing for GBS also came in the post-Sept.
11 environment in which venture capital dried up.
Still, Sunderman said, it's noteworthy that all but $50,000 of the equity his company raised for GBS came from Nevada despite concerns that the state is capital-poor.
The seed equity funded start-up expenses including legal, architectural, engineering and marketing for GBS.
Along with construction financing and title insurance, other innovations GBS will bring to the Baja housing market are pre-engineered building systems and American-style mortgage financing.
Chase, a Harvard graduate who spent 17 years in Wall Street's capital markets, devoted the last three years to putting the GBS project together.
