The slump in the global housing market is changing business around the world. But it's not all bad news. Just ask Jorge Pérez. The 57-year-old chairman and chief executive of the Related Group, one of the top U.S. condominium and rental-apartment builders, made his estimated $1.8 billion fortune largely in south Florida's real-estate boom. When that bubble began to burst in 2005, his Miami-based company's annual revenues fell sharply, from a peak of more than $3.2 billion to $1.4 billion in 2006. So Pérez is now setting his sights south of the border—and across the ocean. He will soon break ground on three luxury hotel-condominium development projects valued at more than $1 billion in the Mexican resort cities of Puerto Vallarta, Acapulco and Zihuatanejo. NEWSWEEK's Joseph Contreras asked Pérez for his thoughts on the global housing market. Excerpts:
NEWSWEEK: How concerned are you about predictions of a bust in the worldwide housing market because prices have risen so high so fast?
Jorge Pérez: I wake up every day concerned. That's what I get paid for. [But] I think "bust" is a relative word. There's going to be a housing downturn, and you have already seen that downturn take effect in places like Australia, England, Miami, Las Vegas and some of the other places around the world that had been oversupplied with housing.
Why did real estate take off the way it did?
For the first time that I can remember, housing became a commodity, not just a place that you bought to live in permanently or for a vacation. You saw people pulling resources to buy apartments and houses with the expectation that they would get a very quick return, and that's what produced this large oversupply.
How did you respond?
We decided to get out of Las Vegas and the other huge land deals. The market was starting to tip, and we felt that it didn't warrant the investments we were going to make there. We dropped many of the plans we had in Miami and some areas of New York. We looked at markets where we thought the economics, the long-term growth, would be very solid over the next 10 years. We looked to move into some of the growing areas that we thought the market had not gone to, like Nashville, Atlanta and places in Latin America where European and U.S. travel was creating a boom and where prices were lower.
Does your foray into Latin America reflect a belief that the U.S. market is maxed out?
It has something to do with it. In a couple of years Miami produced more condominiums than in the last 10. So we looked at Baja, Cancún, Acapulco, Zihuatanejo, Panama, Costa Rica. You find you could get branded properties at a fraction of what you could get in the United States, and as long as those places were safe and relatively stable, we felt that there would be a shift in demand to those locations. That's where we made our bets. I've been plotting doing things in Latin America for at least three years, and places like Puerto Vallarta, Cabo San Lucas and Ensenada are just another natural progression of the American market for second-home ownership and tourism.
Are you finished with Florida?
We're still doing a lot of things in Miami—not at the level that we were doing three or four years ago, but we know the way real-estate markets go up and down, and one of the reasons for our success has been spotting changes in the market. You're always playing with timing. When do you get in and when do you get out? And where do you get out to?
Why did you choose Mexico as your first major international market?
It's on the border with the United States. It's got a great climate, great beaches, great mountains, great culture, great food and a population that generally likes the United States and Americans.
Where do you expect your customer base to come from?
For our first project, in Puerto Vallarta, the buyers will probably be 50 percent U.S., 30 percent Mexican and 20 percent European. Because of the strength of the euro, it's very, very cheap for Europeans to pay between $300 and $400 per square foot for a very, very high-end product with all the resort amenities.
Have you considered building condominiums elsewhere around the world?
We're looking in Panama. [It's] a cheap market—you're getting 50- and 60-story buildings on the water, and people are buying for $180 to $200 a square foot. Waterfront property is a cheap buy, it's a dollar economy and there's a level of security for Americans. Panama City is not a place you're going to go because you're saying, "My goodness, the great traditions and the great beaches and the beautiful city." People are going because of price, proximity and security.
We've been asked to go beyond Latin America, to Europe and Dubai, Abu Dhabi. China has potential, definitely, [as do] Russia and India, but I have no interest in going to Russia, China and India. I know no one there, nor do I speak the language. I'm a Latin American by birth; I know the mentality of the people in these countries, so it's much easier and more pleasant for me to do business there. We feel comfortable in Latin America.