Investor Opportunities?

Is it time to buy? Will prices continue to drop? Is Guam's economy set to begin the turnaround everyone wants? No group is more anxious about the answers to these questions than the people whose capital is wrapped up in real property. Though the scientific answers may not have been forthcoming, information and opinions were in abundance at the Second Annual Micronesia Real Estate Investment Conference in Guam on Sept. 19.

Some of Micronesia's most successful business people offered their insights on real estate investment to more than 150 interested individuals at the Hyatt Regency Guam. The conference was hosted by real estate appraisal, brokerage and consulting firm The Captain Company owned by W. Nicholas Captain.

The keynote speaker was Willie Tan, president of Tan Holdings Corporation and executive vice president of Luen Thai International Group Inc. His regional and global business interests include garment manufacturing, shipping, fishing, tourism, real estate and entertainment. Other featured speakers were Captain; Richard Gushman, president of the DGM Group of Hawaii, developers of the Waikele Center on Oahu, the Guam Premiere Outlets, and David Wickline, managing partner of Pacific Holdings Trust of California, a former investment banker with Micronesia experience.

While one panel discussion focused on investment conditions outside Guam, the focus of the conference was market conditions and the outlook in the territory. Following a welcoming address by Guam Gov. Felix Camacho, Captain opened the conference with a summary of real estate activity in Guam since 1999.

Though there has been some variation across market sectors, the number of real estate transactions from 1999 to 2002 declined only about 6 percent (1,082 in 1999 to 1,016 in 2002) while the total value of the transactions declined by 27 percent ($168.4 million in 1999 to $122.9 million in 2002). In 2003, Captain noted a flurry of activity as sales volume increased 19 percent over the previous year to $146.4 million. Commercial property has been particularly strong in 2003, said Captain. In the residential sector, low mortgage rates have not caused an increase in sales and rising interest rates may be a risk factor to future sales. Foreclosure sales remain high.

As for Guam's economic outlook, Captain cited favorable and unfavorable indicators. Positive factors include an influx of capital from storm recovery efforts in the wake of Typhoons Chataan and Pongsona, the shrinking of real estate listings by 50 percent, the frenzy of activity caused by foreclosures and recent substantial commercial investment by a number of entrepreneurs including Henry Sy, Tan Holdings, Jerry Kramer, Tanota Partners and Lucio Tan.

Negative signs include the recent Guam gross receipts tax increase, the continuing threat of terrorism, the stagnant Japanese economy and the possibility of a payless payday for government workers.

Most speakers talked about the types of conditions that will attract investors to the region. "Investors are motivated by long-term prospects, for making profit in activities that they can control," Tan told the group. "This means minimal interference and supportive laws and regulations." Guam has a number of advantages including its proximity to Asia, the security and economic political stability afforded by its relation with the United States, a large inventory of hotel rooms, the military investment in infrastructure and currently low real estates prices.

However, businesses would also be attracted by technical assistance, up-to-date economic information, continuing low interest rates, regional trading partners and formal cooperation between business and governments throughout the region, Tan said.

The 50 percent increase in Guam's gross receipts tax from 4 percent to 6 percent, which took effect in April, was cited by several speakers as being a detriment to investment in Guam. Michael Ysrael, president of Tanota Partners, said his company has put major projects on hold until it feels the government will not enact any more tax increases. Jerry Kramer, CEO of Pacific International Inc. objected to the GRT as "too many bites out of the same apple."

One thing the speakers agreed on was that Guam's real estate prices are at the bottom. "There's a lot of red in the streets in Guam right now," said Gushman.

But, the market may not turn around for awhile. A surprisingly small number of panel members expressed support for casino gambling (gambling legalization is an ongoing Guam issue). Most mentioned social problems as the basis for their objections. Kramer said it strips expendable money from the community. Ysrael said that it could be beneficial if implemented properly. "Execution is everything," he said.