Development Magazine Summer 2012

Development - Ownership

The Panama Connection

Fortune 500 companies are setting up regional operations in Panama City to serve both North and South America.  Combined with the government of Panama, these corporations are creating training programs to educate and increase the skill level of Panamanians to fill their white-collar positions.

The Panama Canal, scheduled to be completed in 2014, is expected to be a major catalyst of growth for ports located on the East Coast. What does this mean for investors and developers? A group of 20 NAIOP members and staff learned first-hand about the impact of the Panama Canal expansion on the global supply chain/logistics during a recent trip to the region. The trip, organized by the NAIOP Research Foundation, took place from February 27 to March 2, 2012 and included an inside look at the canal expansion project as well as the Panama Pacifico mixed-use project and Panama City.

The objective of the trip was to explore commercial real estate investment and development opportunities in Panama and to gain a better understanding of the capacity and operations involved with moving goods through the canal. “Panama is much more than a short-cut between two oceans. The free trade zone in Colon and the ‘value add’ component to goods moving through Panama clearly establishes the country as a vital link in the global supply chain. Once the improvements are made to the canal in 2014, this importance will greatly increase,” said Thomas J. Bisacquino, president, NAIOP.

Housing development in Panama

A master-planned community featuring 20,000 homes within several neighborhoods is part of the $705 million redevelopment of the former Howard Air Force Base in Panama.

The group tour of the Panama Pacifico mixed-use project was also insightful. London & Regional Properties and Colombian banker Jaime Gilinski are developing the business and residential development in the Arraiján District of Panama. The $705 million project, transforming the former Howard Air Force Base in Panama, includes 2,005 acres of land. The master-planned community, 15 minutes from downtown Panama City, will feature 20,000 homes within several neighborhoods.

Panama is home to the Colon Free Zone (CFZ), with over 2,500 companies operating within its 1,100 acres. The CFZ is the world’s biggest free zone after Hong Kong, generating exports and re-exports valued at more than $16 billion (USD). Free Zone importers from Asia, Europe and North America specialize in bringing in container loads of goods and breaking them down for resale. Services include importing, storing, assembling, re-packing and re-exporting products from all over the world.

Group of NAIOP members in Panama

From Left to Right: Michael Semeraro, Jr., Langan Engineering & Environmental Sciences; David Gockel, Langan Engineering & Environmental Sciences; Randal Johnson, Havener Companies; Ron Rayevich, Raymar Associates, Inc.; Richard Asta, CommerCenters, LLC; Richard Whaley, MAS Companies; George Livingston, NAI Realvest and CommerCenters

Types of goods include:

  • Electrical appliances;
  • Pharmaceutical products;
  • Liquor and cigarettes;
  • Office and home furniture;
  • Clothing/shoes; and
  • Jewelry and toys.

The CFZ employs more than 28,000 people and hosts 250,000 buyers, business people and tourists each year.

What is Old is New Again

Many large ships off-load product that is ultimately re-loaded on smaller ships with other product and shipped to smaller ports in North and South America.  A number of major heavy equipment manufacturers use Colon as a refurbishment area where older product is re-conditioned, loaded on smaller ships and sent to third-party destinations -- typically developing countries that do not wish to purchase new equipment.

“The Ports of Manzinilla and Colon move over 5.6 million TEUs per year -- more than I would have thought for a location that is typically referred to as a transit location through the canal and not an intermediate stop,” noted trip participant Robert G. Cutlip, managing director, southeast & mid atlantic region, Sealy & Company, LLC. “The expansion itself is a ‘bucket list’ must-do for anyone interested in heavy construction.  The integration of four major international and local firms has been accomplished quite well and observing the construction activity reflects a well-orchestrated operation,” said Cutlip.

ship in Panama canal

Nearly 40 ships cross the Panama Canal daily, taking 8-10 hours to transit through.

Other takeaways from the trip include:

  • Panama is set to take advantage of the rapidly growing demand for goods in Brazil, as their middle class continues to grow.
  • Panama is quickly becoming a financial services center for Central & South America, as large multi-national banks (i.e., HSBC) are establishing a strong presence there.
  • To stay competitive, United States ports -- especially on the East Coast -- will need to invest heavily in their infrastructure to accommodate the Post-Panamax ships.
  • Fortune 500 companies are setting up regional operations in Panama City to serve both North and South America.  Combined with the government of Panama, these corporations are setting up training programs to educate and increase the skill level of Panamanians to fill their white-collar positions.
  • There is limited U.S. company interest from a commercial and industrial real estate standpoint.  Most of the office towers have been condos, although participants observed that the most recent towers moved to joint venture relationships. 
  • Major infrastructure projects are underway in the country and will, over time, draw more tourism and second homes for foreign individuals, including U.S. citizens.  

The Panama Canal

Panama canal expansion

The $5.2 billion Canal expansion project begins with excavation of access channels to the new locks, and the widening and deepening of existing navigational channels.

Then…

Late 1880 France begins the canal project
1889 France abandons the project. Over 25,000 people die during eight years of work, mostly from malaria and yellow fever.
1903 Panama declares independence.
1914 Panama Canal opens. The total cost incurred by the United States was $375 million, the highest ever spent by any government during those decades.
1999 Panama takes over ownership and operations of the canal from the United States.
2007 The $5.2 billion (USD) Canal expansion project begins with excavation of access channels to the new locks, and the widening and deepening of existing navigational channels.

And Now…

Nearly 40 ships cross the Panama Canal daily, taking 8-10 hours to transit through.
A Panamax container ship pays approximately $250,000 to transit one-way.
A ship is raised 85 feet to Gatun Lake and then lowered to reach either the Pacific or Atlantic Ocean.
2014 Targeted completion.
Current lock size 1,000 feet long x 110 feet wide x 42 feet deep.
New lock size 1,400 feet long x 180 feet wide x 60 feet deep.
Panamax ship 5,000 TEU’s.
Post-Panamax ship 12,000 TEU’s.

From the Archives: Development / Ownership Articles from the Previous Issue

owners and brokers headshots

Owners and Brokers: Can We Talk? 

Are property owners from Venus and commercial real estate brokers from Mars? Do they understand enough about each other’s business to move transactions along in a challenging environment? Development magazine set out to learn what owners wished brokers knew about their business and negotiations and vice versa.

exterior of the Midland Building

Small Town America Is Building. And Building Green! 

At a time when few construction cranes were in operation, the small town of Effingham, Ill., had not one but two working, and on adjacent private projects. These two projects, an 80,000-square-foot mid-rise office and a 100,000-square-foot technology center, were designed with LEED certification in mind and were completed near the end of 2011.