The Business Year

Luis Fernando Correa Bahamón

COLOMBIA - Real Estate & Construction

New & Fresh

President, Red Empresarial Luis F. Correa


Luis Fernando Correa Bahamón is a specialist international real estate developer with 32 years of experience. He graduated from the Universidad Javeriana with a degree in Economics, and obtained an MBA in Marketing from Xavier University. He is currently the President of Red Empresarial Luis F. Correa.

"Many real estate and construction companies are basing their future growth on real estate funds."

How do you assess the evolution of the real estate sector in Colombia?

We’ve been steadily growing for the last 10 years, and it is the first time that we are growing not only because of internal demand, but also because of business coming into the country. Colombia experienced a decrease in interest in the 1990s, and that made us learn a lot about how companies need to manage crises within their boundaries on their own. We were, therefore, very prepared for the global financial crisis in 2008 and 2009, even with banks in the US, Spain, the UK, and Australia coming down hard in terms of real estate. We’ve avoided the worst, but we can’t forget about the crisis we had in Colombia from 1995 to 2001. There was a very bad crisis throughout the country, and we managed to survive. At that point we had a lot of problems with the banks, and we had a large interest bubble, so we experienced the same problems in real estate that the US and Europe had in 2006-2008. Since we had experienced this in the late 1990s, we had learned and were nearly untouched by the crisis in 2009. What has happened is that we have a healthy economy, and we’re being looked at in a different way by most international investors. Politically we are very stable, but we have a lot more reasons to remain concerned about what is going on around the country in terms of the economy, security, and controls on handling cocoa crops. The world is in turmoil, and this makes countries like Colombia attractive for investors looking to grow businesses. Plus, the next generation of Colombians, educated abroad, are returning to Colombia in much greater numbers than they did in the 1990s. Now that they are coming back they are managing and generating huge interest from their peers working in real estate funds, which is a very popular method for accumulating wealth in today’s world. Many real estate and construction companies are basing their future growth on real estate funds. This makes a big difference also because we’re not simply thinking about initial sales or presales to fund projects anymore. Now we’re getting new and fresh money to build projects, and then evaluating which markets will be able to buy mature products in four or five years. This is another way of enhancing property value. With regard to retail, office space, hotels, and industrial space, we have been selling everything piece by piece. This is how the sector operated until about five years ago, when builders and investors began to keep properties with the intention of renting or offering them to different funds, such as pension managers. This development is changing the whole spectrum and horizon of the real estate sector in Colombia, and it will bring more and bigger investors to the country.

Fiduciary rights are becoming more popular with local investors. What advantages do these rights offer?

This is not exactly a new medium of sales and financing. Our company began the fiduciary or trust style of sales 20 years ago. We were the first company in Colombia to do this, and we successfully brought this model to Ecuador. However, when we took it to Panama, people didn’t pursue it. At that point the biggest problem was that we didn’t have the money to fund whole projects, and we had to go to small investors to get them to fund pieces of a project. At this time, maybe from 1991 to 1993, individual hotel suites, which might cost $50,000 to $60,000 per unit, were significant investments for small investors. We divided the units into five or six parts to make it easier for people to get into the market and expand it. Now people can get into the real estate sector or hotel business by paying only a fifth of a room; this is the basis of the fiduciary trust system. When we began doing this we had a lot of success because we could bring investors with just $5,000 or $7,000, and let them gain access to the profits of a high-yield business with only a small investment. That was a big hotel investment title (HIT) at that point. We did very well in the 1990s with this model and sold many hotels in this manner, including all of the Sheraton hotels in Colombia. This model hasn’t changed, and it is still a valid model for raising money for a project. However, it is just one of many tools that we have for raising funds. National and international investment funds are playing a bigger role nowadays, particularly because it is difficult to put the property together again for one person. This is a weakness of the fiduciary trust system; it’s nearly impossible to sell the whole property. New funds still use something similar to fiduciary trusts, but they have mechanisms for allowing single ownership over an entire property. While large investors are looking for stability and long-term growth, smaller investors are looking for monthly gains. We have to be very careful because the fiduciary system can be problematic in a couple of ways. The first is if we set the price of the property too high, and the second is if developers give small investors the wrong data. It is sad, but this is something that has happened in and around Bogotá.

“Many real estate and construction companies are basing their future growth on real estate funds.”

With 20 years of experience in the hotel sector and developing large projects such as Sheraton and Capital Towers, what are you expecting with your latest project?

We’ve had several good years; we’ve been growing steadily for more than six years. About two years ago we decided to focus mainly on hotels. Even though we do some residential, second-home, and retirement developments, our main focus in the current period is hotels. We just opened the first hotel, the Tryp Hotel. This was recently bought by Wyndham, a US company. It is a neat, clean chain with attractive offerings for normal business people, such as the right colors, amenities, price, convenience, and comfort. We just opened this hotel, and it has a beautiful location in front of the US Embassy. This is a great location because it is safe and close to the airport. We’re planning to open the others in the coming months. We also operate hotels through a management company called Diplomat Hotels, and we are pursuing many more opportunities. Colombia is similar to a child that is beginning to grow, and we want to nurture this growth. Colombia is a new economy. Although we have 200 years of independence, we opened ourselves to the world in 1991 with a new constitution. We were looking inward—we didn’t interact well with the outside world in the past, and there were only a few immigrants moving to Colombia. This was the result of a lack of vision from past policy makers. In my opinion, immigrants are an important aspect of growing a prosperous country. We need immigrants—they are the people who will take new jobs and fight for the future of the country. Recent changes have led to more openness in the economy, and we are seeing international franchises move in to compete with established Colombian businesses. This competition and growth is good for our economy overall.

What are you expecting from the hotel that your company is planning to develop on San Andrés Island?

We aim to have the land secured by the end of 2012 and then begin construction in 2013. It’s going to be a four- or five-star hotel with its own beach. San Andrés used to be the only free port in Colombia. In 1991, the Constitution changed, opening up our economy. This allowed us to deal in US dollars and open dollar accounts, as well as import many more products. This meant that we didn’t have to go to San Andrés to get a TV or other imported items. San Andrés’ position declined after this change. However, in the last five years there has been a lot of rejuvenation in the San Andrés region.

What other main projects are you working on?

We are working on a boutique hotel project in Cartagena. It is called the Santa Catalina, and it will be the third-largest hotel in the walled city with more than 40 rooms. The houses that make up the hotel are older than the walls themselves, dating back to the 16th century and giving the hotel a unique atmosphere. At the same time, we plan to continue to develop our partnerships with Wyndham and Tryp Hotels. We also aim to partner with AC by Marriott. Marriott is a highly regarded brand in Colombia, and we’re hoping to help it develop franchises throughout the country. The AC line is a strong brand; Antonio Catalan is a hands-on designer in hotel development. We’ve also been investing in a number of small projects in oil-related services. We currently have 54 potential projects, and we expect to add about 10 more projects to this portfolio in 2013.

© The Business Year – January 2013



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