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2014 - Mid-Year

MARKET REPORT
MID-YEAR 2014
AN HONEST APPRAISAL OF THE CAYMAN MARKETPLACE

Review
In our last report we predicted slowly clearing skies and some sunny weather. That happened as predicted with a notable increase in business over the Winter Season.

General Outlook
Summer is here in Cayman. It came early this year and descended upon us right after Easter. It is very hot as early as we can remember. We are hoping it is also a rainy summer to help keep the water cool, so as not to add to storm potential. The Real Estate Market also has some heat in it. As described in our last report business began to pick up last October and that trend continued through our Winter Season which was up 47% in # of sales and 18% in sales volume YTD over 2013. Business volume has slacked a bit since Easter and the end of the High Season, but there is still more activity than there was at this time last year.

Property absorption has increased but there are still 7.5% more properties on the market than YTD 2013. So we have not reached the point where demand exceeds supply which is what needs to happen before prices can rise again. But that day may not be too far off. The Cayman market is already firming despite the nearly 3% contraction of the US GDP in the first quarter. Potential purchasers need to be aware of this and should try to get their place in the sun purchased over the next 6 months.

Condos
The number of Condo sales increased 9% YTD over last year and the average price increased 11% to $559,000 which only means there have been more sales of the higher priced condos YTD this year. The time on the market for Condos is also still increasing and is 18% longer YTD than last year. The WaterColours Development on Seven Mile Beach is nearing completion. This has been in the works for many years but it looks to have been worth the wait. It is expected to set a new luxury standard for condos in Cayman. About 41 of the 57 units are sold. We have a few units for sale and are happy to get you a tour.

There are only 2 Developer units left for sale at Sea Breeze. They are bank repossessions being sold through Coldwell Banker. They are both beachfront second floor corner units of nearly 3,000 sq. ft., with 4 beds & den & 4.5 baths at the amazing prices of US$1.50M ? US$1.55M. Call us for a private showing.

Residential
The housing market has not been as active as the Condo market with 6% more homes being sold YTD over last year. The average sales price is down 25% but that just indicates fewer of the larger homes have sold over the past 12 months. And marketing time is still increasing, although only by 15% YTD over last year. The luxury home market has been fairly quiet as noted above. Sellers who are still holding to higher listing prices have had little success and their homes are still on the market.

Commercial
As low bank interest rates continue, interest in Commercial properties with ?verifiable" returns over 6% are in greater demand. Of course the word verifiable is the key and many of the current Commercial listings are priced based on projected occupancy. That is a no-no in the view of those properly versed in Commercial transactions. Our Commercial Department, relying on a variety of different professional sources, has some large Commercial transactions in the works and is looking for more property owners who have a real desire to sell their Commercial property. Give us a call. We can help you.

As reported by Todd Younghans, SIOR, CCIM, with the Coldwell Banker Cayman Islands Commercial Division, below is an excerpt from the forthcoming 2nd Quarter 2014 Grand Cayman Market Report to be completed in conjunction with the Integra Realty Resources office on Grand Cayman.

The Commercial Market in Grand Cayman continues to show signs of some improvement through the first half of 2014 as was the case in the latter half of 2013.With new construction well underway at Camana Bay on a new 80,000sf office building, construction starting at the new 200 million dollar Kimpton Hotel Development, and the completion of the 42,000sf mixed use, Caribbean Plaza, cautious optimism is the theme for the 2nd half of 2014. The completion of Shetty Hospital at East End should spur some retail activity on the East side of the island and what the announcement of Ironwood Golf Community development will bring there remains to be seen. A slight uptick in the world economy has transcended into growth for many of the existing national financial, accounting and law firms here. This of course is leading to additional hiring and increasing space needs which we are starting to see in the office sector. With tourism clearly showing signs of improvement over last year in both air and cruise ship traffic, the retail sector should remain stable securing signs of a needed recovery for many retail tenants on the island.

Overall the outside investment sector has picked up with increased interest in the local hotel and tourism sectors and well as investment properties. The Cayman Islands stable economy and overall safety in comparison with other Caribbean markets, continues to attract outside investment which is slowly returning. Expect some tangible activity in the second half of the year, with potential announcements ahead, to show actual signs of improvement in these areas." Please contact us for a full Commercial Market Report Update which is forthcoming for the first half of 2014.

Development
A new condominium project on 7 Mile Beach will shortly be announced. This yet to be named project will be developed by James Lagan along Snooze Lane between Grandview and George Town Villas. It will be a 10-story tower beach side and a 4-story tower roadside comprising a total of 13 three & four bedroom units with sizes expected in the 3,500 sq. ft. range and prices in the US$2.5M to US$3.5M range. In the ocean tower each floor will house only 1 unit so there will be no party walls and great views from every vantage point. This project is brilliantly located for access to the 7 Mile Commercial Corridor and some massaging of the iron shore is being allowed to ensure easy water access. For further information please contact us here at Coldwell Banker.

The new Kimpton Hotel being developed by Dart, is well underway and moving swiftly. This will be two 10-story towers of which one will be hotel rooms and the other Condo units. No information is yet available on sizes or pricing for any of the sale units, but we are sure the quality will be first rate as in all Dart products.

Phase I of Health City is now complete and ?operational" (pardon the pun). It is an impressive facility which looks much like the advance renderings. It is hoped that 2014 will see it flourish. Unfortunately some of the support facilities earmarked for adjoining land parcels may not come to fruition as a result of a difference of opinion between the developer and landowners. It remains to be seen how that will shake out.

Non-Development
Unfortunately the solution to Mt. Trashmore is no closer than it has been since the deal agreed by the previous Government with Dart was reneged upon (unless, you count new expensive studies as progress). We would have thought the Environmentalists would have been upset at losing more trees to the creation of yet another report. The unsurprising finding of the new report was that Cayman cannot afford to remediate the dump. Perhaps that was the reason for the previous deal in the first place. Ya think?

The proposed Brac Marina by the Dilbert family which we described in detail and supported in our last report, was approved subject to an Environmental Impact Study. Two other Brac Marina Proposals were also approved but without EIS requirements. So it appears the Brac will have from 1 to 3 new marinas in the future. The Dilbert Marina was a much larger scale project, however, all 3 required offshore dredging. While we are certainly not encouraging the requirement of EIS reports for all projects going forward, a level playing field would have been nice. (And we are really not sure anything that smells that bad is worth saving!) During this process the Tweeters on a local news service seemed upset that Mr. Dilbert might actually profit from his proposed Development. Imagine that! Since when did making a profit on a project which also satisfied a fundamental community need in the Brac become a bad thing?

Sister Islands
As is usual historically, Little Cayman and the Brac are quick to suffer from bad times in Grand Cayman and slow to recover when the market turns. So we have not seen the improvement in those markets that we have seen in Grand Cayman. However, if the trend in general continues, it is only a matter of time before improvement is seen there. The closing of the Alexander Hotel, a pleasant venue for family dinners, and live music outside (when the pond wasn?t too smelly) has been lost. The rooms and amenities were very nice. All of the Brac suffers from the stench of the pond, and regardless of the media spin, many of the Brackers feel very uncertain about their economic future in the face of losing another accommodation.

Our Brac agent Irene Scott-Thornton reports: ?The properties on the bluff with road access are sub-divided, with beautiful garden views, fruit trees, and many Bluff edge panoramic ocean view properties. The roads on the Bluff are being blacktopped now to provide a nicer ride. A new CINICO office has just opened here to service the Brac customers. The shore diving is phenomenal and the local divers have marked the access points with easy to see signs. We have pristine reefs, huge groupers and plentiful marine life.

Tennis courts are planned at Parrot Estates on the Bluff, and there is an area for commercial development here, as well as in plenty of other locations. "A golf course would make the retirement community idea a slam-dunk, and the perfect property is at the East end overlooking the sea at 150 feet. So what is missing? Buyers! Investors like Dart are what the Brac is desperate for. We are primed and ready with infrastructure and properties for homes and businesses."

Tourism
Air arrivals continue to increase. Thus far each month in 2014 there have been more air arrivals than we saw in the corresponding month of 2013. For example April 2014 was up 23% over last April. We are also seeing an increase in Cruise Ship arrivals for 2014 (9% in April).

The breakdown of where our air arrival tourism customers come from is as follows for a typical winter month: USA 75%; UK & Europe 10%; Canada 6%; all others 9%. Over the years, this shows an increase of our customer base from Europe and a decrease from the USA. However, the US remains by far our single biggest customer base.

Hamptons
Our exclusive partnership with Hamptons, a leading estate agency in the UK, is working well. As detailed above, the tourism figures from Europe and the UK are rising and having a well respected and productive partner over there gives us another marketing dimension to add to our already well know Coldwell Banker network. Several of our listings were recently featured in the Hamptons Collection which was the centerpiece of property shows in London, Hong Kong & Dubai in April & May (pages 117 & 118). www.hamptons.co.uk/the-collection-microsite Beyond that, Hamptons produces a high value, medium value, and low value property list every month in which our Cayman properties appear. We continue to expect and enjoy good results from this symbiotic relationship. While we got into this relationship for the benefit of business coming to Cayman, if you are interested in property in the UK or Europe we can put you in touch with some excellent Hampton agents to make your search easier.

CIREBA
The Cayman Islands Real Estate Brokers Association has taken some licks in the media and on the street over the past year or so; most of it completely undeserved. This organization, founded in 1985 has been responsible for progressing the Cayman Real Estate Industry out of the wild west and into the most professional and efficient Real Estate body in the Caribbean.

As one of the founding 6 Members I can vouch for the many unethical and even fraudulent practices which were commonplace in the Real Estate Industry in Cayman in the 70?s and early 80?s. Not only have those excesses been cleaned up, an MLS system was created, rules for ethical behaviour were compiled, and an entire course of study was created to help ensure the depth of knowledge, ethics and professionalism of its members. Much of this history is lost on the younger generation who did not see the previous excesses to understand the need for self regulation. Prospective new members balk at some of the specific criteria for Membership even though this was put in place to protect the Principals of every transaction and any competitor who is willing to work together for the betterment of all.

Over the years, a few companies or individuals have been expelled from CIREBA for misuse of client funds. Others have been refused membership due to less than stellar reputations or a lack of experience to run a professional Real Estate Company. This last part is important because many Real Estate transactions involve two brokerages, and if one cannot be either trusted or depended upon to do their share of the work, the system breaks down. You would think the public would recognize and be appreciative of these efforts, and you might also expect prospective Members to as well. But CIREBA has not spent a lot of time or money marketing itself over the years, preferring instead to focus on doing what it was created to do. As a result, the biased viewpoints of self serving individuals often get the media attention and CIREBA has sometimes been painted as a club which works to keep people out. Nothing could be further from the truth. There are very few professional and active Real Estate companies working outside CIREBA, and the fact is that most of them who would like to be in are not Members for very good reasons. The CIREBA model is the envy of the Caribbean and serves to ensure fair dealing for Buyers and Sellers and a level playing field for its Members. It?s benefit and contribution to our community, and the financial well being of the industry and the country itself, have been significant.

The Cayman Islands Real Estate Brokers Association just announced it was making a CI$100,000 donation to Cayman HospiceCare. Hospice is a non-profit has been serving the Cayman community for 14 years and has recently begun a capital project drive to provide a facility to house its patients. Up to now such care was only provided in the patients own accommodation. The CIREBA funds come directly from fees charged on all sales made by its Members. This contribution was made possible through the hard work of many CIREBA Brokers and Agents throughout Cayman over the years.

Airport Expansion
As reported in the Cayman Compass, a recently released PWC study and Master Plan suggests more than $120 million investment will be required at Cayman Islands airports over the next two decades to meet the growing demands of the islands? tourism industry. The bulk of that cost ? some $90 million ? will be for the severely overcrowded central airport in Grand Cayman. It calls for an expansion of the existing terminal building at Owen Roberts International Airport ? starting with the departure hall ? which it warns is inadequate for current passenger volumes and a barrier to future growth. It suggests an extension of the runway to accommodate larger jets used on long-haul routes is not currently affordable without a concrete commitment from an airline, such as British Airways, to fly direct to Cayman. The plan also recommends a new publicly owned airport for Little Cayman, projected to cost $20 million.

The vast majority of the funding for this expansion is expected to come from the passenger facilities charges ? currently $13 - levied by the airlines on every departing visitor at the airport. However, the viability of the $120 million project is contingent on the national airline settling some of its debts with the Cayman Islands Airports Authority and paying its bills on time in future. The CIAA is owed around $10.5 million in unpaid Passenger Facilities Charges ? the key source of funding for the planned developments.

As we have been saying for years in this report, the airport expansion (especially an extended runway) needed to be a top priority item for Cayman. The increases in tourism that we have experienced over the past 2 years have increasingly exposed the inadequacy of our current facility which was built back in 1985. With Phase I of Health City now operational and The Kimpton Hotel under construction, the situation will only get worse. It is heartening to hear the current Government also sees the need. However, due mainly to the frailty of the US economy it would be wise to find the funding to also extend the runway now. We have seen no recent figures for the cost of doing that, however there are so many untapped longer route markets out there, and so few safe warm weather destinations, it seems short sighted not to include it in the new plan. We realize ?If you build it they will come" is a harder sell in our current economic climate than it was when coined by Kevin Costner in Field of Dreams, however, it still has merit.

HSBC
After a comparatively short run (HSBC opened in 2008) it appears HSBC will shortly close its retail and commercial banking operations in Cayman. About 75% of the staff has already been given notice and the rest will stay on for a while to handle the closing process. As the bank was reportedly doing very well in Cayman, there is likely a global strategy behind the move. However, the hassles created by the new US reporting policies have no doubt played a large part in all this. Besides a loss of about 60 jobs, approximately 30,000 sq. ft. of class A space will be coming on the commercial rental market and need to be absorbed.

FATCA etc.
As a result of Government overspending & deficits worldwide it seems like the entire world is searching for ?new sources of revenue". Some countries realize that can only happen consistently if the economic engine of business is encouraged to shift into a higher gear. But the majority of countries look for the quick fix (quick meaning: before the next election). That fix is taxation. And when one of the last bastions of capitalism also takes the easy route, it is not surprising that most follow suit. But the US has taken it to a new level in expecting the rest of the world to help police its tax regime. And due to the fact that the US Dollar is still the world?s chosen currency, they get away with it. It is not that Americans buying or moving offshore are doing anything illegal, it just seems more comforting to have their hard earned savings a little further from Uncle Sam these days. As stated above there are some real negatives to all countries including Cayman as a result of this reporting initiative. However, Cayman could also benefit from the overbearing attitude of our big brother to the North.

Forecast
There has already been some sales momentum building over the past 8 months. Despite (or maybe because of) the world?s difficulties we see a continuing of that trend. We see continued slowly clearing skies this summer punctuated by the normal intermittent showers that come with our rainy season, but more sun than rain. And next Winter may be very interesting here, indeed. Stay tuned.

Have a great summer!