When it comes to Latin American real estate markets, Cuba now ranks number one for US investors interested in the region.
According to the 2016 Akerman US Real Estate Sector Report, 32 percent of industry executives who participated in the survey anticipated that the island nation would see the greatest increase in US investment among Latin American countries this year. This year’s survey represented the first time that Cuba was the top ranked country in the region in terms of its investment potential.
Indeed, the results represented a surge in interest in Cuba as compared to last year’s survey, when only 8 percent of respondents thought the nation would receive the greatest increase in US investment in Latin American real estate. At the time, the law firm noted: “For the first time in more than 50 years, US executives are considering real estate investment opportunities in Cuba,” largely in response to the White House announcing plans to normalize diplomatic relations with the island nation in December 2014.
In this year’s survey, Cuba also overtook Latin America’s traditional powerhouse real estate markets of Mexico and Brazil by a wide margin, with the two countries accounting for 19 percent and 14 percent of votes, respectively. By contrast, in last year’s report, 34 percent of participants thought Brazil would see the largest increase in US investment into the region, while 11 percent believed the same of Mexico.
The 2016 report cited a number of factors for Cuba’s newfound popularity as a destination for US real estate capital, including the gradual easing of restrictions by the US Treasury and Commerce Departments to allow US companies to enter the Cuban market; the nation’s removal from the State Department’s list of countries that sponsor terrorism; and the reopening of the Cuban and US embassies, respectively, in Washington DC and Havana. “Between those events and the 2016 presidential visit to Cuba, an uptick of travel, investment and commerce has made many real estate investors eager to jump into the land rush,” Akerman said in its report.
“It’s a brand new market,” said Richard Bezold, chair of the law firm’s national real estate practice, in an interview with PERE. “After the recession, you saw people going after distressed properties because of the potential to get higher returns. Cuba presents a new opportunity to generate higher returns.”
Bezold noted that one of the property sectors that is attracting the most demand from US investors in Cuba is hospitality. “You’re going to have a new tourism industry that didn’t exist before, so this is going to be a whole wide new opportunity.” Additionally, there will be a need for more industrial real estate as US firms begin to do more commerce with Cuba, he added.
The major obstacles for US investment in the Cuban real estate market, however, are that US investors are still banned by the US embargo from purchasing or selling property in Cuba, while the Cuban government generally prohibits foreign ownership of land. Nevertheless, some US firms have been able to form joint ventures to manage Cuban-owned properties. For example, Starwood Hotel and Resorts announced in March that it had signed three hotels in Cuba after receiving approval from the US Treasury Department to operate hotels in the country.
Moreover, the rules governing US investment into Cuba’s property market continue to evolve, said Bezold. “There are regulations on both the US and Cuba sides being proposed and worked through,” he said. “It’s in flux, that’s part of what we’re doing with our clients, looking at what the current rules are and where they may end up.”