Local builders poised for Mexico boom on the heels of August election.

A virtual boom of real estate investment and construction activity in Mexico by prominent Southern California companies has slowed momentarily in anticipation of the Aug. 21 Mexican presidential election, but is likely to explode again after a stable new government is installed in Mexico City, according to several major participants.

On the flip side, Mexican investment in Southern California real estate has als been increasing, sources said.

Ernesto Hernandez, director of Latin America real estate services for Los Angeles-based accounting and consulting firm BDO Seidman, said: "We are helping two large developer firms in Mexico invest in U.S. housing and mobile home park and a central Mexico investment firm seeks ownership of existing Southern California properties."

Grupo Gruma -- the most aggressive Mexican firm working north of the border -- is developing several new plants in California, including a Mission tortilla manufacturing plant in Rancho Cucamonga. That company plans to invest $50 million in California in the next year, said Duane H. Zobrist, senior partner i the downtown L.A. office of law firm Carlsmith, Ball, Wichman, Murray, Case & Ichiki.

Grupo Posadas of Mexico City, owner-operator of most Fiesta Mexicana hotels, is planning to develop a chain of mid-size affordable hotels in Southern California. Grupo Situr, Mexico's largest real estate development company, recently acquired the Viscount hotel near LAX and is seeking other U.S. investments. Meanwhile, several Mexican banks are increasing their Southland space commitments. And La Jolla has become a hotbed for Mexican-owned apartment office and condominium projects, Zobrist said.

Javier Gorozpe, marketing vice president for Grupo Dine, a major real estate developer based in Bosque de Duraznos, Mexico, said: "We are exploring several possibilities with American partners. Southern California is a very attractive place for development because of the climate, its renewed growth and the cultural and ethnic ties between us."

According to the World Bank, half of Mexico's population of 83 million is younger than 20. "The need for single-family and multi-family residential units (in Mexico) is astronomical -- perhaps as high as 600,000 a year. But what is being built is approximately 250,000 units a year," Hernandez explained. "The greatest opportunity is in building small, moderately priced units." Hernandez defined "small" as 600 to 700 square feet, and "moderately priced" as $20,000 t $30,000.

"Since NAFTA passed (Nov. 17, 1993), U.S. companies have flocked to Mexico, and the brokerage and property management groups have followed them," said L.A. attorney Zobrist. He further said he believes there are great commercial real estate opportunities in Mexico City.

"The Mexican hospitality industry wants to build 60,000 new rooms over the next six to 10 years," he said.

San Diego's Hahn Co. is one of several Southern California real estate companie involved in Mexico City's huge World Trade Center office/retail/hotel complex.

Kaufman and Broad Home Corp. is also active in Mexico and has aggressive plans for California-style residential development there. Other players include Century 21; Centex; Pulte Homes; the Koll Co.; which is creating a resort in Cabo San Lucas, and the Newport Beach office of national brokerage firm CB Commercial Real Estate Group Inc.

Grubb & Ellis Co., Cushman & Wakefield Inc. and LaSalle Partners have all established leasing, management and commercial brokerage operations in Mexico.

L.A.-based Excalibur Development Group is developing an 831-acre destination resort near Mazatlan. "Mexican laws have changed this year so that now foreigners now can have 100 percent ownership of properties, through their own Mexican corporations," explained Steven Seemann, Excalibur's CEO. Previously, foreigners were prohibited from outright ownership of property within the so-called "forbidden zone," which extended 50 kilometers inland from the coast and 100 kilometers from international borders.

"Southern California business people are flying to Mexico in such numbers that now I am lucky to get a hotel room," Seemann said. "The Mexican government is proactive and will assist you, although they don't rubber-stamp everything you want. I've been to lots of seminars where Americans and Mexicans try to link up in ventures or make some kind of deal."

Another reason Americans are keen to head south is that Mexico has brought its inflation rate down -- from 26.7 percent in 1990 to about 9.5 percent today -- and interest rates on loans have become more reasonable as a result. Mexican loans made four years ago at 33 to 39 percent interest rates are being made at 19 to 25 percent today.

Mexican banking standards are now conforming more closely with international standards, which means the country's interest rates may come down further befor too long. And that would likely result in a tremendous flurry in economic activity, Seemann predicted.

L.A. law firm Morgan, Lewis and Bockius is counseling a number of American, European and Asian investor/developer groups interested in pursuing residential resort, office and retail projects in major Mexican cities. Most of those group are seeking significant Mexican joint venture partners.

"In the first few months after NAFTA, my phone was ringing off the hook," said senior partner David Ellsworth. "Now things are flat, but we'll see a significant foreign real estate boom once the election is past. Within three to five years, Canadian, American and Mexican developers will analyze future real estate opportunities based on the economics, without regard for borders."

Irvine-based Voit Commercial Brokerage reported its business in Mexico has soared since the first of the year. Voit has industrial and warehouse projects in Guadalajara, Celaya Queretara, Aguascalientes, San Luis Potosi, Puebla, Hermosillo, Monterrey, Matamoros and Reynosa.

"Most of what exists is substandard, so the thrust is to new construction," sai Jim Palmer, a Voit vice president. "Several investment financial groups are starting to seek out development opportunities in Mexico, including a major pension fund group, insurance institutions and personal investors."

Mexico's port areas -- particularly Veracruz, Ensenada and Guaymas -- are just opening up for investment since Mexico's privatization of industry and its ports, according to Larry K. Thompson, vice president for international operations at Torrance-based North American Plant Relocation, which is working in Mexico with four California companies.

"There are golden opportunities for U.S. firms to come in and build things the ports lack, like refrigerated warehouses," he said.

One of the biggest Southern California players in Mexico is the Birtcher Group, a Laguna Niguel-based real estate company. Its largest completion to date is th $22 million expansion and remodeling of the Hyatt Regency Hotel in Guadalajara, which was completed in March of this year.

"Residentially, there is a need for developers to partner with Mexican firms an grow with the market," President Brandon Birtcher said. "In industrial, office and retail, speculative development will be approaching high risk soon, althoug I do see growth in the build-to-suit market. Retail is exploding in every city, from neighborhood shopping centers to regional malls."

Florian Martinez Associates, a Tustin-based landscape architectural firm involved in international resorts and the growing Mexican second-home market, has seen its Mexico business volume jump from 5 percent of companywide volume a few years ago to 30 percent this past year.

But Vice President Richard A. Knowland cautioned potential investors about getting swept up in the excitement. "There is a huge amount of hype involving real estate development in Mexico, including lots of conferences that make it sound like the best place in the world to do business," Knowland said.

"There is still lots of risk involved, financing is very difficult to obtain, and you still have to go through the bureaucracy," he added. "Working in Mexico has been the most difficult, complicated thing we've ever done, but it has been worth it."