The days of financial success being a “sure thing” when investing in Costa Rican real estate have come and gone.
No longer is this a market for amateurs, speculators and early adopters. To be successful today, an investor must buy right, understand market dynamics, have a good plan and execute it well.
In the many success stories and failures I have seen in this market, one factor can be singled out in many cases as being responsible for success or failure: project management.
Project management should incorporate two important functions: assembling a team of experts to carry out tasks critical to the project’s success; and effective coordination of all resources.
Managing a real estate development project requires the ability to oversee the efforts of multidisciplinary teams with differing interests and backgrounds and deal with a multitude of institutions, regulatory entities and stakeholders. Adding to the complexity of the job in this country are a saturated institutional environment, an ever-changing regulatory framework, strong environmental regulations that are subject to interpretation, and a culture in which project timelines and budgets are a constant challenge.
To face this challenge, management with a deep knowledge of the local environment, a strong network of proven professionals in all required disciplines, and local experience in real estate project management are required.
The project manager must be capable of coordinating the efforts of all required specialists, establishing and maintaining project timelines and budgets, and managing effective communication with stakeholders.
This work is best accomplished by an independent professional or group that is not directly providing specialized services to the project. Conflicts of interest often arise when project attorneys, architects, engineers or other service providers are charged with general project management responsibilities.
A project manager must be able to effectively handle the following challenges to succeed in this market:
Site Selection. Understanding the potential of a site for a real estate project in Costa Rica can be complex. This is often aggravated by the fact that the various institutions governing land use are not always in agreement. For this reason, it is critical to conduct full due diligence before committing resources to a project. This investment up front will assure the developer that the site is suitable for the project from all perspectives – technical, legal, zoning, etc. There are many cases in which developers have purchased land for a given project only to discover later that it is not suitable because of zoning or technical issues.
Technical Studies and Planning. This phase of the project will set the stage for all that is to follow, and the quality of work is critical to success. The repercussions of cutting corners at this stage can be costly. For example, if the initial topography work is not done with the required precision, the design will be based on a faulty model of the site. This will result in expensive redesigns, reworks and retrofits. Also, grounding in the local entitlement process is critical; otherwise, you may end up with a great master plan that will never survive the entitlements process. Market research should be conducted to ensure that the end product will be attractive to the target audience and to provide input for financial feasibility models.
Entitlements. It doesn’t take much effort to identify stalled projects around Costa Rica. This is every developer’s nightmare. Most of the projects in this state have run into entitlement problems. Because of the complexity of this issue, it is wise to include entitlements as an element of planning and management from the feasibility analysis and due diligence process all the way through to execution. Environmental impact studies, water concessions and condominium law are a few areas in which entitlements are particularly complex. Working with a resource that possesses deep knowledge of the entitlements process and contacts within local institutions will prove invaluable.
Execution. Once a project has gone through the hurdles of entitlements, there are many local resources available for execution. However, because of rapid growth, many of the best resources are tapped out or experiencing growing pains, and local firms tend to be weak in areas of planning and budgeting. Therefore, foreign investors will greatly benefit from a local resource that can help identify the best service providers to execute a given project and coordinate bidding, contracting and management of the execution.
Daniel Harris is founder and CEO of The Project Office, a firm dedicated to managing real estate development projects in Costa Rica. He has worked in brand management for Black & Decker Europe and in business development for ACNielsen throughout Latin America, and has been an investor and project manager in various real estate projects in Costa Rica. He can be contacted at [email protected].