It has been sometime since I sat down to write a newsletter so as I have been reminded, thought it would be a good idea to do so today tocatch up on events and progress forward.

This week we continued with the top coating of mortar on the walls and started putting the roof on the admin. building after a long battle over wood for the rafters.  Through this battle I found out that there is a serious wood shortage in Costa Rica due to few cutting permits being issued and a high demand in the construction industry (more on this later).  Due to this I am now looking elsewhere as authorities in the industry are now estimating that half of the lumber used this year will have to be imported and on that vain I am already getting a quote from a Venezuelan supplier and another from one in Chile.  We definitely cannot have the hassle we have had on this roof repeated
over and over again before I kill someone or end up in the nut house.

The other catch we ran into in January on our Covintech wall system is the someone else took all the available inventory one day prior to my making our order and then the plant in El Salvador decided to break down so that we had to wait for new supply.  This is about to be further solved by the dealer here buying his own plant that should be in production prior to us needing more product.  This is just another example how this first building is kind of the testing grounds for all issues, materials, suppliers, professionals and contractors.  These examples are just the typical fun and games of construction that will happen it is just a question of how fast you make the corrections or eliminate in the future.  This is a large part of why this one has moved slowly but that has not been a real problem in the overall picture without the master permits in place.  On that note we move forward on these permits as the sewage treatment plan was approved a month ago after a slow process in getting the first bio-filter ever built in Costa Rica through the process.  After that approval the plans went over to INVU which is the housing authority and as per their normal process they sent the plan back for some changes which have been done and were resubmitted week before last.  We expect this step to complete next week.  Then it is on to Salud (health department) to approve our overall design in public areas, bathrooms etc.  No problem is anticipated with this as they have already seen the preliminaries.  Meanwhile the drawings are going to the Municipality of Garabito this week as the final step in the long  process.  Erika our architect expects we should be out of the woods next month.  To say the least this is longer than we expected but still under the time it would take to do the same in Canada.  I am pushing to get started on the foundations at least of the next buildings so that we are moving forward while we clear these last two hurdles.  In general every step along the way has been more time consuming than expected as no department is overly speedy due to the work load under the current market conditions as you will note later in this memo.  The bio-filter treatment system slowed us down but I have no regrets of proceeding in this fashion it will be more than worth it in the long run as we establish the project as an industry leader in both construction and tourism management is a key part of the whole formula for long term occupancy success.  We also had one engineer that  was problematic but he has been replaced by Frank Czul taking over those areas and all is full steam ahead now.

We are making a considerable change in the marketing of the project brought about by two things brought about by timing.  As we move into full steam construction I do not have the time to do the marketing as well as everything else that is on my platter that I consider of greater value of my time.  Then several weeks ago I had a marketing group out of Miami approach me saying that they liked our project and were interested in marketing it.  What is interesting is that this same group sold out an entire project here in a most obscure location in the middle of nowhere with no infrastructure what so ever in three months.  They feel with our product that they will certainly not take more time to accomplish the same.  Hence I have given all the current leads two weeks notice to get their deposits in prior to the new group getting the exclusive to sell all the remaining units.

Now for the annual construction update which is kind of a good news bad news scenario.  Great in the general view of the market we are in but also an explanation of how things can be challenging when faced with this kind of growth.  To me there is definitely more good news in here than bad and it does certainly explain some supply issues.

http://www.insidecostarica.com/dailynews/2007/january/17/nac01.htm

Construction Up 64% Driven By Tourism

The construction sector grew by 64% in 2006, driven mainly by construction of homes in tourist areas. According to information by the Cámara Costarricense de la Construcción (CCC), between January and December of 2006, some 5.95 million square meters (64 million square feet) of construction was recorded, a record in the history of the country.

In 2005, a total of 3.68 million square meters was construction, up 11% over 2004 when it saw a record 3.26 million square meters.

Residential construction accounted for 70% of all construction, while 18% was attributed to commercial space; 10% to industrial space; and the rest to various types of construction.

The CCC report says that the total investment reached ¢9.27 billion colones (us$1.800.087.378 dollars), more than double the record amount of ¢4.7 billion colones in 2005.

Forty percent of the residential construction was in single family homes, while 31% was for apartments or multifamily structures, with the balance going to industrial and commercial construction Jaime Molina, president of the CCC, said that the growth in the sector confirms the projections for 2007 which the CCC conservatively estimates at between 15% and 20% over 2006.

Molina attributed the growth to lower interest rates, in both dollar and colones loans, over the latter part of 2006, which increased the demand for the construction of residential projects.

Interest rates lowered during the year 2006 from an average of 20.05% to 15.34%.


Molina added that the influx of foreigners who decided to have a "second home" in Costa Rica and nationals who decided to build a vacation home at the beach contributed to the increase. The CCC report also shows that a number of foreigners, choosing to move to Costa Rica, decided to build their home in the San José area.

 The CCC report shows that San José had the largest percentage of construction (28.1%), followed by Guanacaste (19,8%), Heredia (15,5%), Alajuela (13,7), Puntarenas (13,0%), Cartago (6,6%) and Limón (3,4%).

Randall Murillo, executive director of the CCC, emphasized that the cantones of Santa Cruz, Guanacaste - Tamarindo and surrounding areas - and Garabito,Punternas - Playa Jacó and surrounding areas - led the list of the 81 cantones with the most construction projects, taking the lead away from Santa Ana and Escazú (San José), due to the strong tourism market in those areas.

The CCC calculates that 1.5 million Costa Ricans either directly or indirectly benefit from the increase in the construction sector. The CCC estimates that the construction sector directly provides 125.000 jobs, Further to back up this information is the latest news out of the Daystar camp.  We have certainly known for some time that they were to have purchased 7 beach-front properties, one of which is where the massive billboards are right beside Tangerie Hotel and directly at the end of our street.  One thing I must say about this operator is that they have a surprisingly good community attitude as most large developers are not quite the example of good citizens as well their practices in the business community here have been reported as exceptionally good.  Patrick one of the main shareholders is the one heading up the formation of the new Chamber of Commerce which will without question only help Jaco giving the business community not only a say in what is going on but in pushing forward and funding improvements that we have neither the time nor patience to wait for government to theoretically do, not a good plan anywhere and most certainly not here!   AS you may remember from past newsletters this is the group that purchased and donated an $80,000 paid of beach kings for maintaining the beach.  The agenda of the Chamber is quite impressive for what they see as the metamorphosis of Jaco and this folks without doubt has a huge affect on the security of our investments.  Further to that point I found out last week that their next project is on land just a 100 meters south of Tangerie Hotel on  2/3 of a block where El Bohio restaurant used to be.  Here they are building a 14 story building, ground story retail shopping, second parking, the entire third floor is casino being designed by major players from Vegas and then 11 stories of condos above that.  I am very glad this is not going to be in front of us but to say it is a significant factor that it is going to be an easy three block stroll to it is a gross miss understatement.  These units will no doubt sell for around the $5,000 a square meter  wheras we are now at $1,500 and may go as high as $1,600 towards the end of our sell out hence what is our room rate going to be like in comparison to theirs?  Will any of our clients actually want the low density environment with much lower prices a short stroll from a world class casino?  You be the judge!

Just as a reminder two of our current competitor's density factors are Ramada 400% higher and ConCasa 250% higher and this new casino/condoarea will at my best guess at this moment be at least 1000% higher so my question is, is there anyone out there that might want to go to a casino of this caliber but once done in the anthill to return to their piece of tranquility and spaceousness at affordable prices not $300+ per night?  This property I believe is smaller than our phase 1 yet is 14 stories high hence I don't believe my 1000% difference is way out to lunch.  We will indeed attract very different clients with different wants but all in all what I am saying is the location we settled on is just getting better day by day.  At any rate I thought you would all find this new information interesting!!!

The Central Pacific market continues to be explosive to say the least.

I hope this memo finds you all well.

Regards,

Trevor