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Cesar Mancillas commits to expanding foreign investment in Ensenada

Newly elected Mayor Cesar Mancillas hosted a gathering of 300 multi national investors, politicians and entrepreneurs to a sit down dinner at the Hotel Coral. The gathering was to present Ensenada´s strategic plan to promote and assist foreign investment

Ensenada has always been friendly to foreigners but never eager, and certainly not aggressive, about pursuing their investment. Historically, Ensenada´s economy and real estate has been the domain of a handful of families who were indifferent to foreign capital.

The largest municipality in the world, Ensenada has more than 400 miles of coastline on both the Pacific Ocean and the Sea of Cortez., The Northern borders of Ensenada begin 20 miles South of San Felipe on the east coast and Rosarito on the Pacific. Both coastlines extend south to the state of Baja Sur.

At the end of the revolutionary war (1910), Ensenada was awarded to three generals: Clark, Rodriquez and Zertuche. Ensenada was a territory of Mexico until gaining it’s statehood in 1952.

The generals’ descendants and those of their cronies ruled Ensenada, without much regard for foreign investment until 1985. A major political and economic shift occurred that year with the election of Ernesto Ruffo as Mayor.

Ruffo, by birthright, was the first important “bi national” leader in Mexico. Born in San Diego and raised in Ensenada , he and a growing number of “free enterprise” entrepreneurs, had the vision to cultivate foreign investment in Baja California and abandon the nepotistic exclusionism of past generations.

Ruffo, in 1989, went on to become the first opposition party governor in Mexico’s history. Mexico was controlled autocratically by the PRI party for the first seventy years of the republic. The PRI´S roots are socialist, whereas, Ruffo’s Pan Party is orthodox free enterprise.

Ruffo’s win caused a renewed optimism that real democracy in Mexico might work. It was dubbed Ruffomania – A political windstorm, it spread across Mexico and led to Vicente Fox becoming the first Panista (opposition party) President of Mexico in 2002.

Among the “global visionaries”, that joined with Ruffo, was Cesar Mancillas‘ family. Successful business people that were not the sons of the privileged, they succeeded through tenacious entrepreneurial effort. Hardcore PANISTAS (Pan Party members), they were always aligned with Ruffo’s bi national strategies. The new mayor appears to take his family legacy seriously as he starts the first of his three year term.

We have not seen an Ensenada leader so expressive in his commitment to bi nationalism since Ernesto Ruffo Appel. Ruffo was present at the Thursday night event and was given appropriate respect by Mancillas in his introduction. He acknowledged Ruffo as having initiated the first serious foreign investment effort for this city.

Los Angeles city councilman Tony Cardenas commented that Cesar Mancillas is the first Ensenada mayor, in his memory, that visited Los the Angeles movers and shakers the first week after his inauguration as mayor.

Cardenas further heralded the new mayor’s uniqueness in that he actually had an articulated vision. A rarity among Ensenada leaders, Mancillas presented Los Angelinos with a strategic plan of cooperation with specific goals and a method for measuring results.

Lou Correa, Orange County board of supervisors and Rudy Fernandez from the City of San Diego , echoed the sentiments of Tony Cardenas. That Mancillas is a breath of fresh “cross border” air. A results oriented politician who recognizes the importance of effective planning and teamwork for the two Califonias. All agreed, that Cesar Mancillas has generated new confidence in Ensenada among California´s leadership .

Jose Perez Nuñez, representing Baja’s Department of Tourism, shared the results of a market study – a joint effort by the prestigious Monterey technical institute in Monterey Mexico and a U.S. consulting firm. The study concluded that Ensenada address five areas of need to foment tourism:

• Insure access to Ensenada with improved roads and street signs (a fraction of Ensenada streets have signage).
• Land use regulations – Ensenada neighborhoods are a hodge podge of non planning.
• Ensenada needs a “cleanup type facelift”, debris, littering and graffiti is a scourge to many tourists.
• Improve Ensenada’s security and police protection.
• Improve the marketing of Ensenada

Andres Armenta spoke of the resilience of Ensenada’s fishing industry. Once Baja California had the largest tuna fleet in the world. The industry was dessimated by the U.S. ban on Mexican tuna, supposedly caught without sufficient dolphin protection. As a result, Ensenada’s fisheries shifted to Aqua culture; successfully breeding tuna, oysters, mussels and abalone for expanding world markets.

Fernando Favela spoke about the rapidly growing acceptance of Baja wines throughout the world (95% of all Mexican wines are produced in Ensenada) and the conditions that make them so desirable: soils that produce a low quantity but flavor intense product, climate, days of sunlight and wine making technology by experts who understand drip irrigation, hand picking of grapes, ageing in French oak and “state of the art” bottling.

Major infrastructure projects in Ensenada, outlined at the conference, were: expansion of the Sauzal port, a dam in the Santa Rosa canyon to supply Ensenada’s increasing need for water, a rail line that will connect Ensenada’s port with Southern California and a heavy emphasis on new and better roads throughout the county, including the extension of the coastal road from downtown to the Cypress airport.

At the table, this reporter occupied, sat major U.S. developers and city planners along with Ensenada developers. These joint venture partners, had already been received by Cesar Mancillas in seeking their experience and expertise. The excitement at this table was evident to say the least.

During a one hour break for networking, midpoint in the presentations, Cesar Macillas “worked the room”. Shaking hands with all 300 invitees he looked extremely comfortable as he gave each one of us his card and an Ensenada supporter pin. Cesar Mancillas listened to everyone’s brief congratulations and thoughts. He played the role of populist quite well. Everyone on both sides of the border were won over by his openness and humility.

Buena Suerte Señor mayor!.

The development of property for commercial purposes in Mexico is often viewed negatively by gringos who apply U.S. construction standards for completion and quality of work. Gringos frequently point out that construction projects in Mexico are left abandoned, often for years. The conclusion made by foreigners is that Mexicans are inferior at construction planning and implementation. The factor that most results in construction delays or incompletion is the volatility and exorbitant costs of financing in Mexico; as a result most financing is done “out of pocket”. When the funds run out, construction stops.

Apart from out of pocket financing, major peso devaluations also stop construction by reducing the buying power of the capital for materials and labor. In the last major devaluation, capital reserves were reduced by 50%. This also sends the stock market into a tailspin, drying up even more desperately needed investment capital in Mexico for large development companies that are publicly traded. With devaluation, development loan rates soar. Fixed rate loans and cap limits do not exist in Mexico, therefore, ten to fifteen point loan rate increases are not uncommon after a devaluation, driving developers deeper into debt.

Commercial building in Mexico is quite unlike the “quick return on investment” objective that drives most U.S. construction. The U.S. construction industry enjoys the luxury of a stable currency and interest rates.

In addition to economic factors, commercial real estate development in Mexico is also affected by the cultural traditions mentioned earlier. Most Mexicano’s view real estate development through the lens of property ownership being a legacy rather than a commodity. The view is: if I don’t finish it right away so what? I’m not going anywhere. I’ll pay for progress that I can afford when I can afford it and If I die with the project unfinished my heirs can finish it. The cultural value is that the developer’s heirs will probably continue to live in the same town and run the family business.

Quality of construction in Mexico differs from the U.S. in that it reflects a simpler view of what is functional and an artesan’s standard of quality. The U.S. tradition is one of precision standards administered by building technicians. In Mexico construction work is not judged by how precise it is but by the overall ambiance it creates and its unique character, the builder as artesan.

These differences between the two cultural approaches to construction are exemplified by the titles used to describe builders in each country. In the U.S. builders are called: Engineers, Architects or Contractors. In Mexico the builder, who manages the job site, is most often a non technically trained person called a ” Maestro de Obra“. Just as an artist or teacher is referred to as a “Maestro” so is the construction supervisor.

Obra is the word used to describe a construction project or a work of art: painting, a play or a musical production. An artist doesn’t worry about the precision of his work. The artist’s concern is: does the finished product please the senses? Very often Mexican artesan builders cannot read building plans. As a result, architectural training in Mexico includes the making of scale models (sp. “mecate”). The Maestro de Obras can understand and follow, with incredible accuracy, the dimensions and details of a scale model. U.S. citizens who do not take the time to understand Mexico’s approach to real estate and the development of same will most likely become unhappy with their Mexican real estate investment.

You may never want to buy real estate in Mexico, but if you want to better understand your neighbor to the south. How Mexicans think and relate to the world, it is helpful to look at their relationship to the land. Legal, cultural and political forces in Mexico’s history have created a distinct psychology and legal framework of land ownership that differs considerably from that of the United States.

Mexicanos, like most Latinos, have a strong tradition of passing on “the family property” to their heirs. Property is not just a commodity, it is a legacy. In the United States we tend to view real estate as simply another commodity. Since the average gringo moves every four years, possession or family tradition is not as important as property resale value. When mom and dad die in the states the heirs most often sell the property. In many instances the heirs live in another city or state.

Mexicanos are very connected to their origins. You hear Mexicanos refer to “mi tierra”, my land, when referring to where they were born. Gringos refer to their birthplace as just that – “where I was born”. An often expressed fantasy of Mexicanos is to someday have a ranchito in the area of their family’s village or city of origin. It always seems to be a ranchito instead of a condo at the beach or a townhouse in the city – the gringo fantasy.

The identification with rural life is very Mexicano and is reflected in their relationship to animals both domestic pets and farm animals. Animals are more central to the Mexican experience; including Mexican folk lore and indigenous cultural traditions.

The population in Mexico is: 10% European, 30% indigenous and 60% mestizo is reflected in the way property is viewed. A people whose traditions are integral to the land.
All of these cultural, historic and sociological factors create a strong bond to the land and what it can produce and sustain.

What gringos perceive as curious and illogical in the Mexicano approach to selling, leasing or developing property is due to cultural, political and legal differences, “Property title” for example. For the Mexicano possesion of the land is what counts, properly recorded title is nice to have but not that important. If you expect to pass property on to your heirs, who will also continue to possess and occupy and develop the land, title papers become less important. In addition, the Mexicanos upbringing and experience has taught him to mistrust the government. It is best to avoid any unnecessary involvement with the government, especially if there are tax advantages to not having property title recorded.

Mexico Origins are socialist not capitalist

To further confuse the foreign real estate buyer, there are Ejido lands that were established in a land reform movement initiated by President Lazaro Cardenas in the 1930′s. He also confiscated foreign owned lands, nationalized the nation’s oil (threw out the foreign owned oil companies), and established the Ejido peasant cooperatives. The Ejidos were given the use of large parcels of land for agricultural purposes and government loans to finance planting and cultivation. Much of Baja California’s Ejido properties are coastal desert, unsuitable for farming but ideal as tourist camps and gringo retirement communities.

The Possessors of land and the Ejidos cannot sell their property to anyone, be they foreigner or Mexicano but can rent or sell the use rights to the property. At this writing, the Ejido privatization program is in process and under certain conditions foreigners can purchase property from Ejidos or enter into joint venture commercialization of the property. The laws controlling Ejido property agreements are subject to conditions that are specific and unique to each cooperative and require expert counsel for interpretation.

Conflicts often result when the foreign client becomes confused and paranoid about the legal right of his “landlord” to assure compliance with a long term lease or contract for usage. Problems can also occur when a landlord dies and the heirs decide to change the relationship; or at lease renewal time when the landlord wants a significant increase in the lease payments. The flames of conflict are often fanned by an unethical, often unlicensed, Mexican attorney who perceives an opportunity to extract fees for title studies, lease contract analysis and promised litigation to secure the foreigner’s “rights”. Unscrupulous Mexican attorneys often extract a hefty retainer and provide no real services for the client.

Mexico’s socialist traditions create property “ownership” concepts that baffle Gringos . For example, there is a phenomenon in México called PARACAIDISTAS, (translation: parachutists). A quick descent upon public or private lands by squatters who literally seem to fall from the sky to create “overnight” cardboard shack communities. Until the mid 1980′s, the best a private land owner could do in Baja California was contain the invasion by fencing and guarding the remaining lands un-invaded by the squatters. Government officials were sympathetic to property owners but would usually avoid the political risk of taking action against the invaders. The PAN party came to power in Baja California in 1988 and began providing more protection of personal property rights than previous PRI party governorships.

The political and historic gringo view of protecting “private property” is based on a capitalist tradition and model; quite different than the more socialist view of land in Mexico. The Mexican tradition: if you are not working or occupying all of your land you obviously have too much land. Therefore, why not share it with your less fortunate countrymen. The idea of land banking or using real estate as a commodity is rare among Mexicanos. It is typically the reserve of corrupt politicians who control regional planning and commit public funds to accelerate property values in which they have a vested interest.

Comercial Use of Property in Mexico

The development of property for commercial purposes in Mexico is often viewed negatively by gringos who apply U.S. construction standards for completion and quality of work. Gringos frequently point out that construction projects in Mexico are left abandoned, often for years. The conclusion made by foreigners is that Mexicans are inferior at construction planning and implementation. The factor that most results in construction delays or incompletion is the volatility and exorbitant costs of financing in Mexico; as a result most financing is done “out of pocket”. When the funds run out, construction stops.

Apart from out of pocket financing, major peso devaluations also stop construction by reducing the buying power of the capital for materials and labor. In the last major devaluation, capital reserves were reduced by 50%. This also sends the stock market into a tailspin, drying up even more desperately needed investment capital for large development companies that are publicly traded. With devaluation, development loan rates soar. Fixed rate loans and cap limits do not exist, therefore, ten to fifteen point loan rate increases are not uncommon after a devaluation, driving developers deeper into debt.

Commercial building in Mexico is quite unlike the “quick return on investment” objective that drives most U.S. construction. The U.S. construction industry enjoys the luxury of a stable currencey and interest rates.

In addition to economic factors, commercial real estate development is also affected by the cultural traditions mentioned earlier. Most Mexicano’s view real estate development through the lens of property ownership being a legacy rather than a commodity. The view is, if I don’t finish it right away so what? I’m not going anywhere. I’ll pay for progress that I can afford when I can afford it and If I die with the project unfinished my heirs can finish it. The cultural value is that the developer’s heirs will probably continue to live in the same town and run the family business.

Quality of construction in Mexico

It differs from the U.S. in that it reflects a simpler view of what is functional and an artesan’s standard of quality. The U.S. tradition is one of precision standards administered by building technicians. In Mexico construction work is not judged by how precise it is but by the overall ambiance it creates and its unique character (the builder as artesan). These differences between the two cultural approaches to construction are exemplified by the titles used to describe builders in each country. In the U.S. builders are called: Engineers, Architects or Contractors. In Mexico the builder, who manages the job site, is most often a non technically trained person called a “Maestro de Obra”. Just as an artist or teacher is referred to as a “Maestro” so is the construction supervisor.

“Obra” is the word used to describe a construction project or a work of art: painting, a play or a musical production. An artist doesn’t worry about the precision of his work. The artist’s concern is: does the finished product please the senses? Very often Mexican artesan builders cannot read building plans. As a result, architectural training in Mexico includes the making of scale models (sp. “mecate”). The Maestro de Obras can understand and follow, with incredible accuracy, the dimensions and details of a scale model. U.S. citizens who do not take the time to understand Mexico’s approach to real estate and the development of same will most likely become unhappy with their Mexican real estate investment.

Living along the federal zone in Mexico

Mexico’s beaches are public land. Twenty meters from mean high tide is the precise measurement for the public lands that adjoin waterways: oceans, rivers, lakes, estuaries and streams.

If you have a beach house you must construct it above the 20 meter mark.

The government can grant a special concession for commercial use of said land if the federal zone agency deems it is in the best socioeconomic interests of the community. Examples are Marinas, hotels, commercial shipping etc. A major criteria for granting commercial use of the federal zone is employment and the resultant economic benefits.

The point of all this, for a foreign owner of beach property, is that you must pay zone taxes on your land adjoining the federal zone and you must also apply for a concession to protect yourself against encroachment by a commercial venture as described in the above paragraph.

Federal zone taxes in Mexico are the same whether you have the concession or not, therefore, why not protect yourself by obtaining the concession? The concession must be applied for with the assist of an engineer licensed to provide the service of federal zone surveying and solicitation of use.

The range of costs for this service, on a lot less than 30 meters wide, is in the fifteen hundred to three thousand dollar range on government fees. Cost differential depends on proximinty to a major city. The more rural and severe the road to access the property the greater the cost.

Notarios in Mexico, as we have previously mentioned, are attorneys who oversee the transition of title on properties who cannot represent you in litigation but can advise you in preventing litigation. These attorneys give up private practice to become agents of record. They are required by law to assure that the property in question is free of liens “Certificacion Libre de Gravamen” and that the true property owner is the seller. The notario must receive an appraisal by a licensed appraiser to determine the tax obligations in transferring title. He assures the state that the foreign buyer is properly represented by a Mexican bank in a property trust or that the foreign owned Mexican corporationthat acquires the property is duly constituted and registered.

With the assistance of a competent Notario the foreign buyer can be reasonably assured that the process will be completed properly. However mistakes do happen and you may want a consultant, accountant or attorney, experienced in foreign investment, to oversee the proper completion of title transfer. What to look out for:

1. That the property title at completion of sale in the Notario’s office in fact gets registered at the Department of Public Records, it is not automatic and a failure to follow through can result in the property not changing owners with the possibility of future liens against the seller affecting your right to clear title. A lack of follow through by busy Notarios is not uncommon and can have disastrous results.

2. If it is a trust the buyer should receive a copy of the bank trust document. Unless requested the buyer is usually not given a copy of the completed trust and told they have the trust they ordered with both primary and secondary beneficiaries listed properly. On occasion the names are in error or a husband is named as a single primary beneficiary and the wife listed as the secondary beneficiary along with the heirs, usually their children. We have a case pending in which the wife should have been listed as the co beneficiary with her husband but was listed instead as the secondary beneficiary with an individual, unknown to the family or the bank. Since the husband died in testate two court trials will be required to unravel the bank error at a cost to the widow of eight thousand dollars in legal fees.

3. Since reasonable financing is difficult to secure in Mexico many properties are purchased with a mortgage held by the seller. Therefore, it is important that the buyer has a mortgage registered at the department of public record and not simply a contract of sale. The risk of postponing title transfer until the mortgage is paid off is that the property is subject to liens for credit problems of the seller before actual transfer of property is completed. A mortgage, called a Hipoteca, sp., registered in the Department of Public Records, safeguards the buyer from potential seller credit problems.