Pondering the investment status of Casco Viejo, I recently came across an article discussing the effects of the recession on historical real estate in Charleston, South Carolina. “While the local real estate market overall has weakened amid the recession,” the article said, “real estate agents who specialize in high-end downtown Charleston homes say the slowdown hasn’t affected demand for the top echelon of historic properties the peninsula has to offer.”
The top echelon of historic properties detailed were only a few dozen addresses in old town Charleston: elite homes with “irreplaceable features” and “priceless pedigrees” that, according to the aficionados, couldn’t be found or replicated in most newly built luxury properties. I imagined touring one of these top echelon homes with an indisputably southern sales agent. Eva I like to think she’s called. “And this here’s the parlor,” Eva would say in that thick drawl. “Idn’t just the most wonderful thing? Imagine the amount of parties ya’ll could throw in hea’. Hey, lemme know in advance and I’ll make ya’ll some of those famous grits I was talkin’ bout?”
While the article was not meant to argue that the entire high-end housing market is recession-proof, it made several good cases for the anomalous characteristics of historic real estate in an otherwise downward real estate spiral. Which drew the analogy to Panama City and Casco Viejo.
In the midst of a tight credit crunch, Panama City, Panama is to a major condo bust, as a cannon is to the inevitable boom. More specifically, the capital’s modern high-rise market, which took off over the past five years and now sits in unenviable position of lack of demand and over supply. There was a period of intense construction activity, followed by an over-saturation of the market and simultaneous decrease in buyer demand: the recipe for a Miamiesque real estate crumble. With high-rise apartments showing marginal signs of depreciation, how does the City’s niche historic district fit into the story?
Casco Viejo’s historic real estate, against what you might hear from realtors or diehard optimists, is indeed reflecting some of the negative trends we see elsewhere in Panama City. First, the past two years saw major development and construction: a boom spurred by generous bank loans and a general increasing hype about Panama as a whole. Materials in Casco Viejo development, much like elsewhere in Panama City, began to increase. Sales were great during this period too; and with an increase in demand, an active construction sector, and an increase in projected supply, prices multiplied (whether we could justify it or not) significantly.
This past year, Casco Viejo historic real estate began to see the same effects of Panama City’s condo bust, but on a much smaller, more intimate scale. Sales have slowed, almost to a stop. Construction, in some cases, has either stalled or been put on hold: until better financing becomes available or the market improves (note: this is not to overlook the handful of projects progressing as scheduled). Rental rates in Casco Viejo, just like rental rates elsewhere in Panama City, are irresponsibly high. The cynic might point to our apartments (here at Los Cuatro Tulipanes) and say, “well, with $200/night, you’re helping fuel this hype.” To which we would respond that we cater not to long-term apartment rentals but rather short-term stays, like a hotel. Rental rates in the neighborhood come purely from owners who believe their estimate to be fair.
With Casco Viejo’s historic real estate rental rates so high, relatively few of the people that should be living here (artists, young people, musicians) are able to afford the neighborhood’s charm. Other renters who otherwise might snatch up an apartment for full or part time use, are deciding not to do so because money is tight.
As a result, you have a factor that’s been made notorious in downtown Panama City, and that is “empty apartment syndrome” or the completion of a building void of full-time residents. With so many original buyers looking at Casco Viejo historic real estate solely as an investment (as opposed to actually living here), a lack of renters translates to empty apartments and because many of these owners are not desperate for cash, an unusually large percentage of Casco Viejo’s newly renovated historic apartments sit empty for much of the year: a cancer in the progress of an evolving neighborhood.
So where does this leave us?
Top echelon historic properties in Casco Viejo seem to be a bit slow, and midrange historic properties are slow also. But perhaps, as many would projet about Panama City’s unsubstantiated condo boom, this lull is exactly what Casco Viejo’s historic real estate market needed? A correction. A slow down in the market would allow Casco Viejo as a neighborhood to solve a number of issues: community issues (like garbage, parking, and crime which have gotten worse throughout Casco Viejo’s boom period) as well as issues inherent to it’s investment identity (over-inflated prices, high-cost rentals, and a growth-only-as-much-as-is-needed trend).
I like to compare the evolution of Casco Viejo to that of a professional career. Certain failures are necessary to succeed: some of which may seem disadvantageous or critical at the time, but which, in the end, prove to have made a professional stronger and more structurally sound. So not to mislead any potential investors, Casco Viejo’s historic real estate market is not booming as it once was. It’s experiencing a lot of the same ailments as downtown Panama City but they seem to be more manageable and healthy. The allure of Casco Viejo’s market is still its limited supply and tight construction restrictions, which aren’t going anywhere, anytime soon. And waiting out this recession storm might be just what the doctor ordered.