A blast from the past — and when you think about it, perhaps a predicate act for a RICO case

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Volume 13, Number 16
August 19 – September 8, 2007

business & economy

Months ago, they said that full financing was lined up and almost all of the units were pre-sold…

Trump Tower project tries to sell bonds

by Eric Jackson

The most heralded symbol of Panama City’s upscale construction boom, the Trump Ocean Club, International Hotel & Tower Panama, appears to be in serious trouble. The $404 million project, which bears Trump’s name but whose main promoter is Colombian developer Roger Khafif, was according to rosy press releases issued last year fully financed and almost entirely pre-sold. Now the Newland International Properties Corporation, the consortium created for the project, has applied to Panama’s Comision Nacional de Valores (National Securities Commission) for permission to sell $220 million in private bonds to complete the sail-shaped luxury condo and hotel tower.

When the project was first announced, $220 million was the cost figure that Khafif and Trump first cited. That figure has in less than two years risen to $404, which can’t be entirely explained by rising materials and labor costs. Pre-construction buyers of units in the project had to put 20 percent of the price down, with further payments coming due well before the properties they bought are ever ready for occupancy. Notwithstanding that, a lot of the units have been “flipped” by speculators for even higher prices than would be owed to the developers. Work began on the project in May but is not at a very advanced stage.

That Khafif and Trump have had to go the private bond issue route is an indication that the promoters can’t get ordinary bank financing. Speculation among people in the real estate and construction industries is that with the US housing market in trouble and thus the anticipated trend of baby boomers exchanging their homes in the states for new places in Panama likely to slow as a result, and with the collapse of several other high-profile construction projects, it’s going to be hard to sell those bonds to private investors as well.

However, another current of murmurs from among a section of the real estate industry and its acolytes has it that if the Trump project collapses it will take the rest of Panama City’s upscale housing construction boom with it, and thus everyone who has Panama’s best interests in mind will support whatever it takes to rescue the development. It can be reasonably anticipated that, with the privatizations of several public pension funds, these murmurs may mutate into an insistence that public employees’ retirement funds or the Social Security Fund buy these bonds. In the latter case the 2005 privatization law requires that bonds be rated at least AA for Seguro Social to buy them and in any case that would put Colombian and American interests in competition with Panama’s oligarchy for control of a major portion of the country’s retirement savings. There will be no public bailout of the Khafif/Trump project without a huge controversy that will not only reignite the 2005 brawl over pension fund privatizations but most likely also divide the nation’s business sectors.

A real estate analyst for the Dallas Morning News concluded that “It’s hard to find evidence that white-haired North Americans from Florida, California, New York, Texas and Canada are mounting an invasion of retirees, and you can almost hear the air escaping from this bubble.” One of the local developers who has long been skeptical of the speculation in high-end real estate in Panama City added that “They certainly will have difficulties selling the bonds and yes it shows that Khafif was full of BS when he said all financing was lined up.”

 

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