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Baja Is The New Rancho

More opportunities to embrace life or second home ownership in Baja are coming your way

From the 1960's through the 80's, San Diego developers named most of the big, master-planned projects Rancho something or other. The list includes Bernardo, Penasquitos, La Costa, San Diego, etc. Presumably, the idea was that consumers would embrace the idea of moving into a Mexican-themed village whether derived from a Mexican land grant or a thematic tip-of-the-hat to our Mexican heritage. We were close, yet nobody wanted to go there, so we enjoyed the fiction of thinking we were there.

No more. Large scale master plans in San Diego are a thing of the past. There is no more developable land (Otay Ranch is about the last of that dying breed). So, let's travel south to the real thing.

South Is Not A Problem

To get there, just motor down Interstate 5 or Interstate 805, which merge near the international border. Once you cross the border (good idea to have Mexican auto insurance for the day, although I haven't been very good about this) you have two basic choices: you can go straight into Tijuana or bear right and travel west and south along the coastal toll road.

Drivers heading into Tijuana are surrounded by a heavily developed tourism and commercial district. But those who travel to the coastal toll road quickly will be whisking down a highway, marveling at the Pacific Ocean views while being bombarded with an onslaught of residential real estate signs touting the latest projects.

Our research over the past two years along the Baja peninsula has unveiled 34 active developments where 7,000 attached and detached residential units are scheduled to be built in the next five to 10 years.

That is just the beginning. This area is filled with prime oceanfront and ocean view property, much of which hasn't begun to be developed. Literally tens of thousands of acres are available. The farther south one travels toward Ensenada, which is less than a two-hour drive from San Diego, the more pristine and wonderful the property.

It is a great trip. The road is fast; the many restaurants along the way from Puerto Nuevo to Ensenada are tasty; the Mexican people are warm and hospitable; and the area generally is safe for investors.

And You Can Get Title Insurance

The reality once was different. Legendary stories are told of American buyers losing their home or real estate investments. These stories are now old, and the problem mostly corrected. The big American title companies are doing business in Mexico, and the American consumer can safely purchase real estate along the coast through a long-term Mexican trust, which is renewable in perpetuity.

Our market research suggests that more than 80 percent of sales are to Americans purchasing vacation or retirement homes. While the target segments are ethnically, demographically and motivationally diverse, there is a definite American demand for housing product. The price points can be as little as one-third that of similarly priced property along the Southern California coast, regardless of whether the product is a condo, a home or a lot to build a custom house.

The Baja peninsula will remain a relative bargain to Americans for the foreseeable future. The pricing gap is very large. But recent history, in places like Cabo, suggests that when all of the ingredients are in place, the price points will explode.

The advantage of the Northern Baja Peninsula is obvious by looking at a map: you can get there by car. Unlike Cabo, Puerto Vallarta or certainly the Caribbean coast of Cancun, this is an easy place to visit. This is similar to San Diego's relative advantage to other vacation and destination markets. It is no accident that San Diego's hotel occupancies were 76 percent last year, almost 10 percent higher than the national average. In the post 9/11 era, many vacationers prefer to drive than fly.

The potential drive-in market is certainly big enough to justify greater Baja development. We have projected that the market size is more than 3 million baby boomers in the U.S., who, by the year 2015, will be in the prime age demographic to be attracted by, and able to afford, a second home. Between now and 2015 Southern California alone will add more than 250,000 eligible second home buyers.

The Future Is Tropicalization

Next up is the tropicalization of the peninsula, the blending of American and Mexican venture and consumer expertise. Just as Trump and his partners are building a three- tower extravaganza on the coast in Rosarito, many more American developers will be putting their imprimatur on Mexican developments. Many of these will be high-rises, but because there is so much land to the south, the next push will be master-planned communities.

These communities will include resort hotels, spas and vacation options such as condo-hotels, fractionals, time shares, etc. New golf courses will be designed. Commercial projects will start to come in to support the new population. Health care facilities will be built, and the entire infrastructure of the peninsula will improve.

If you're adventurous, travel east from Ensenada. There you will encounter the Valle de Guadalupe, or in a phrase, Mexico's Napa Valley. As a child reared in California's Napa and Sonoma valleys, this place feels like Napa of 40 years ago before Napa was, well, Napa. The wine is very good, and the resort and housing potential is enormous.

These developments will be under way sooner rather than later, many within the next 10 years. The reason? They want us. Americans bring money and economic infusion to the market. Mexican government, tourism officials and private entrepreneurs are all on the same page. Many deals are now being struck between them, and they are starting to bring in American partners.

Look for more American big-name developers to migrate south. Do not be surprised when you see the real estate signs begin to go up with the logos of American builders, seeking opportunity in a place where their buyers will travel south with the American builder. These developers will have purchased land or ventured with Mexican developers to build homes where Americans can feel safe and secure with the quality of construction and the sensitivity to their needs.

That is the indisputable future. There have been setbacks along the way, and perhaps more are facing this market. But the future prosperity of the northern Baja peninsula is inevitable. Perhaps you will soon be able to supplement your current rancho home with an authentic Mexican rancho. And the margaritas are genuine, too!

Gary H. London is president of The London Group Realty Advisors Inc., providing real estate consulting and economic analysis. Check him out on the Web at Londongroup.com or e-mail him at glondon@sandiegometro.com