[UPDATE: as referenced in the original post below, important meetings took place this week between Replay and Citi, and the early word on the outcome is positive. From myloretobay:
“A letter from Michael Coyle will be emailed out very soon regarding this, but here is the answer:
I am pleased to tell you that the business plan was unanimously approved and we already are ramping up efforts to take this resort to the next level.
This is definitely the positive news we were all expecting. We will share more as we learn the details about this exciting next chapter in the LB development. BTW – for those who have not seen the golf course photos, you’ll be impressed. Beautiful stretchs of golf fairways against the blue expanses of the Sea of Cortez. Wow. Clint]
Yesterday, Michael Coyle from Replay Resorts was in San Jose at the Doubletree Hotel, a mile from the airport, to update the San Francisco Bay Area Loreto Bay homeowner’s on the development. It was an especially important meeting because of the recent change in ownership. From what I could tell there were over 150 people crowded into the room to watch the presentation.
Investing outside of the US (and Canada) has brought Loni and I some new perspective and colorful stories, all of which we anticipated as part of the experience. From securing FM3 visas, following the development progress of the property we bought over 2 years ago, to making new friends and learning about non-drywall based construction techniques. The vision of Loreto, “where the mountains meet the sea”, as a beautiful village of villas, blending into the dramatic Baja landscape removed the hustle and bustle of city living appealed to us as an investment, and a vacation home. In particular, the architecture was unique. The development was not to be a series of sky-soaring condos, looming over a crowded beach. Rather it would be a “horizontal hotel” of sorts featuring homes with open courtyards, expansive terraces and viewing towers for taking in the surrounding beauty. A bonus is the historic town of Loreto (once the capital of Baja, now La Paz), only 20 minutes away offering charm, authentic Baja culture, and an innocence not found in the over-developed tourist regions of Mexico (Los Cabos for example).
So we were eager to hear from the new management team. Would the vision change? How were they planning to build out the project? And what changes, for better or worse, would be made?
For over 2 hours on Sunday, Michael Coyle provided a convincing update on Replay (the new management company, minority partner to Citibank), the principles, their unique expertise in the resort development industry, priorities of Loreto Bay going forward, why Loreto, and the current situation in terms of the construction and development itself for the next 12-18 months. All of this information came with a sense of in-the-moment, with Coyle city hopping to provide homeowner updates while also working on the business plan with Citi and his partners. In fact he was very open about an important meeting this week (Tue and Wed) to review final details of the re-worked financials and business plan.
From my 17 pages of notes, here are some of the key points worth sharing with existing homeowner’s or those considering purchasing in Loreto. I think it’s going to be a wonderful development, unlike anything else in the Baja region, and thanks to a new management team with world-class resort experience (Tremblant, Whistler Blackcomb, Sandestin) we are in good hands.
Side note: for those that have retained The Construction Coach in Loreto (highly recommended) their February newsletter is out and provides some excellent updates on construction, the 10″ PerformWall, an important change to the 1 year warranty, and other pertinent information. Thanks Bill & Laurie for being such trustworthy and expert eyes and ears!
Background on Replay:
- Michael Coyle has “deep respect” for the LBC founders, and although would have done some things differently, believes the vision, architecture and pioneering efforts were excellent
- Replay (or Re:play) is about “play” and is a new company, based out of Vancouver, created by former Intrawest executives (after Intrawest was acquired in 2006 by NY-based private equity firm Fortress)
- The key partners are: Joe Houssian (majority), Michael Coyle, Mike Miller and Bill Green
- At Intrawest the team garnered some tremendous success developing resorts including: Whistler Blackcomb (BC), Tremblant (Quebec), Sandestin (Florida), and many others
- They have only 1 Mexican project (Zihuatanejo), and apparent relationships with President Fox, the department of ministry and FONATUR
- Their flagship project at Intrawest is Whistler Blackcomb (1.5 hours north of Vancouver) which now hosts around 2M visitors per year ranking in top 3-4 ski resort destinations in the world
- Coyle stressed the importance of “the experience”; if you focus and enhance the experience at a destination, people will stay longer, bring their friends and ultimately will increase value of property and “achieve economic stability”
- Their first warm weather resort was Sandestin in Florida, a resort residential community; beach & golf is not enough – they took down gates, opened it up, built a pier and invited “the great unwashed”; 750 units; about 100,000 ft. commercial
- After 2001, were able to buy Abercrombie & Kent, an adventure brand to help Intrawest become a leader in experiential adventure -> a key trend in the market was that people (especially boomers) were valuing TIME more than money
- The idea behind Replay was to capitalize on this trend, and to re-enter industry, but focus on 4-5 projects that they loved
- Planning is essential; once completed for each phase then fixed-price construction contracts will be put in place along with timelines before anything starts
- Change to buying process: it will be more conventional now, with 10% deposit, 15% at close, and 75% remainder at completion after buyer acceptance
- The first 75 homes of Agua Viva are on track
- Custom homes are slower due to their uniqueness, and Coyle has been having conversations with 38 owners
- Green energy will potentially cost more; for example, a typical annual utility bill is estimated at $1,000. Same bill using green (wind mill, etc.) is $1,700. Decide whether this is acceptable, and also competitive concerns
- Turbines have shot up in price and are hard to get, also impacts EBIT
- In Founder’s should finish 100 homes in next 60 days
- Posada underway (Martin-Ross); only issue was that it’s a condo project but was treated as a series of custom homes
- “This place is going to look a lot different in 12 months.”
- Lots of focus on finishing amenities
- By April 2009: Beach Club, Tennis Club, Golf Club, Fitness Club
- Baby boomers sense of guilt from largest transfer of wealth in history “Spent health to gain wealth”, now “Spend wealth to gain health” -> foundation will continue
- We used to go to grandma’s house, now grandma and the family go to the vacation home
- Read “Younger Next Year”
- Golf course: 7 holes playable by March 2008 with grand opening scheduled for March 2009
- Remodel all bars, landscape, pool areas, etc. a the Inn to provide for temporary club-like experience in short-term
- Rental program: 35% LBC, 65% homeowner
Infrastructure, Q&A, Other:
- Fractional ownership/all-inclusive not considered at this point
- Differentiation: continue along same path (it’s good), possible addition of condo/hotels style units in future phases
- Wider walkways between club and homes from 10ft. -> 35ft. proposed
- Transportation master plan forthcoming with phases 1, 2 and 3
- Plan for parking lot by highway -> electric cars are not substitute for car, and will need to accommodate them
- Distribution system and warehouse also planned close to highway for staging of delivery (Fedex model) as a hub then to hotel, beach club, etc.
- Commercial model is under review with Bill Green, need an integrated plan then financial model to support it
- New Replay web site goes live March 15th
- No additional funds are sought at this point
- Homeowner communication is one of the biggest challenges and many changes are being made to improve it
- Occupancy goal for rental program needs to eventually hit 65% for scale
- Warren McLeod is the head of sales, sold out Four Seasons at Whistler, lots of experience
- Price appreciation can only happen so much, until amenities are in place
- Resale: no obligation to sell through LBC, commission down to 6% from 10%