• Lifestyle resort developers say that their market has recovered from the recession, and demand is booming.
  • The most successful projects mix for-sale residential property with hotels and a wide range of amenities, activities, and services.
  • Golf, beaches, and marinas attract buyers, but so do activities that interest other family members and allow families to spend quality time together.
  • Thanks to recent changes in laws affecting investment and coastal property ownership, as well as its own growing economy and expanding middle class, the resort market in Mexico is experiencing strong growth.

Far from the gloomy tone of last year’s discussion on the same topic, lifestyle resort developers at ULI’s 2013 Spring Meeting in San Diego were saying: “Viva Mexico!” and touting the success of developments from Virginia to Montana to Hawaii.

The turnaround in Mexico, however, is probably the most dramatic within the North American resort industry, said John P. McCarthy of Mexico City-based Leisure Partners. McCarthy, who served as director of Mexico’s National Tourism Promotion Fund (FONATUR) from 2000 to 2006, recalled that Mexico’s tourism business went through a “perfect storm” in 2009: “a bad image, the world economic crisis, and even the H1N1 influenza virus; it’s not easy to attract tourists while wearing a mask on your face.”

The storm cleared, however, with two major national policy changes initiated by the Mexican government, McCarthy went on. First, pension funds are now allowed to invest in real estate; second, the Mexican constitution was amended to allow non-Mexicans to own coastal real estate. This will trigger a boom in places like Rosarito and Ensenada, both on Mexico’s Pacific coast in Baja California, he said.

McCarthy’s company is involved in raising $300 million in equity from Mexican pension funds, to be leveraged with another $300 million in debt, to invest in distressed resort property and new resort development.

Saying that he is also bullish on Mexico, Steve Adelson of Scottsdale, Arizona–based Discovery Land noted that it is difficult to keep up with the demand for residences at his company’s El Dorado Golf and Beach Club at Los Cabos. But that is not the only location where Discovery has discovered success; its Yellowstone Club at Big Sky, Montana, is expected to close $350 million in sales this year.

“We identify properties in unique markets and try to create places where people can spend quality time with their families,” Adelson explained. “Our success has been generated one family unit at a time. “

Implementing this model requires offering a wide range of amenities, Adelson commented: “Our first project was a golf club in Scottsdale, but when we moved on to our next project in Montana, we realized we had to provide many more activities than golf. We still include golf, but now also provide a lake, an ocean, or a beach, as well as surfing, fly-fishing, fitness centers, spas, wellness activities, even motorsports on a private racetrack, depending on the property. We need to occupy Mom, the kids, and the grandparents and provide opportunities for whole families to spend time together.”

McCarthy added that, in addition to beaches, successful Mexican resorts now must offer two “necessary evils”—golf and rarely profitable marinas.

Mexico offers relatively affordable second-home opportunities for both Americans and Mexico’s rising middle class, and also is bullish on fractional ownership, which has fallen out of favor with U.S. resort developers. At the higher end, Discovery Land’s lifestyle communities offer opportunities for family bonding in stunning settings for seven-figure prices.

Jeffrey J. Mongan of the Phoenix-based Athens Group also has found a niche specializing in the development of branded luxury resort properties, combining a luxury hotel with a residential component. “Our business plan is geared around the idea that there will be a continued growth in affluence,” said Mongan. “This is a huge psychological shift from where we were just a year ago.

“People are buying this type of product because they can afford it,” he went on. “It is highly amenitized and service-oriented, and fits what they want to do as a family. At Deer Valley, for example, we have buyers who had large mountain homes that they didn’t use much, so they are buying smaller homes with us.”

As the market for high-end lifestyle resort property grows, Mongan sees opportunities in redevelopment rather than greenfield development, especially when it comes to rare coastal settings. “We look for established infrastructure in great established destinations within primary markets,” he said. “We also are focusing on smaller projects.”

Now in the ULI Bookstore: Resort Development