Cuba is the last great frontier market for real estate investors. This Pennsylvania-size island of 11.2 million people, with 2,320 miles of coastline and more than 1,000 largely undeveloped beaches, offers unprecedented value-creation opportunities and returns on investment.
Since December 2014, historic changes have transpired in the diplomatic and commercial relationships between the United States and Cuba. President Raul Castro’s government has made significant changes. A reasonably robust foreign investment law has been enacted, real estate can now be freely bought and sold by ordinary Cubans, and small and medium-size private-sector businesses have been legalized to foster an entrepreneurial class.
For the foreseeable future, Cuba will become a steadily growing destination for billions of dollars in foreign direct investment to support the nation’s economic development. The Cuban government has set a target of $2.5 billion a year, not including additional billions needed to modernize an infrastructure that has seen little capital investment for the past six decades.
Cuba is the Caribbean region’s second-most popular destination after the Dominican Republic and is expected to become the top destination for tourism draw within four years. Already 110 flights per week travel from the United States to Cuba, and the island receives more than 3.5 million foreign visitors per year, with expectations that it will grow to 6.0 million by 2020 after repeal of the U.S. travel ban (which is expected in 2017).
The best opportunity for investors and developers is in Cuban commercial real estate, and the hotel sector has the greatest potential. Cuba has about 63,000 hotel rooms, with an additional 3,000 under development or planned. The Cuban government recently announced the country needs 108,000 more rooms within five years to meet the anticipated increase in tourism. Havana hotels are fully booked for six months in advance during the high tourist season, and accommodation in resort areas such as Varadero, Trinidad and Cayo Coco is near 100 percent capacity throughout the year.
Demand is growing for office space, as well. The entire country has only 2 million square feet of class A/B space that meets international standards, most of which is occupied by government workers. The Havana market alone could absorb an additional 500,000 to 1 million square feet of modern office space if new properties were developed. Some of this need will come from existing tenants expanding their requirements as the economy opens, but most of the demand will come from new tenants operating businesses in Cuba.
The Cuban government is actively encouraging the development, in conjunction with foreign partners, of resorts combining golf courses, hotels and real estate development. The entire country only has one world-class golf course, located in the Varadero beach resort area two hours east of Havana. These real estate developments are part of a plan to allow foreign nationals to buy houses or apartments around golf courses.
Cuba is a ground-floor opportunity for investors, but business ventures in Cuba currently need the “three Ps” — patience, persistence and pesos.
Timothy Ashby is CEO of Pembury Capitaland a senior legal counsel with Dentons.