Mexico lacks the spectacular growth rates of China and India, but it has one thing going for it: proximity to the United States.
That means big business for maquiladoras: factories that import parts and machinery duty-free, then assemble, manufacture or package them and ship them back to the country of origin or to a third country. Mexico's government has been a big supporter of maquiladoras since 1965, when the end of the U.S. guest worker program sent thousands of well-paid Mexican workers home.
"It's a way to transfer technology to Mexico, upgrade skills and increase the demand for Mexican goods," says Peter Linneman, chief economist for NAI Global, a New Jersey real estate services firm.
U.S. companies like investing in maquiladoras because they offer lower transportation costs than factories in Asia, while wages and utilities are a fraction of what they would be in Texas or California. As more multinational companies have taken advantage of Mexico's cheap land and skilled workforce, construction standards have improved, putting them on par with those in the United States.
While demand for office space is greatest in Mexico City and Monterrey, hotels are filling every inch along the coasts that doesn't have an ancient ruin on it, especially around Los Cabos and the Mayan Riviera.
But the real prize will go to investors who capture the nascent growth in consumer spending. The unprecedented political and economic stability Mexico has experienced since the end of one-party rule in 2000 has produced a thriving middle class that has more disposable income, but only 2,500 malls in the entire country in which to spend it. The United States, with three times Mexico's population, has more than 90,000 malls.
"A high-end resort in Cabo is obvious, so it's a competitive market," says Héctor Klerian, executive vice-president of Chicago-based Jones Lang LaSalle Inc.'s Mexico branch. "But there's a huge opportunity to build shopping centers or business hotels in mid-sized cities" like Zapopan, Mexicali and Hermosillo.
One Chicago company taking aim at this market is Walton Street Capital LLC, which has been investing in Mexican malls and movie theaters since 1993. The company is so gung-ho on Mexico it's raising $350 million for a fund exclusively for property there.
Overall, Mexico has attracted more than $17 billion of foreign direct investment annually since 2000. The pro-business government of President Felipe Calderón is busy building airports, seaports and roads to attract even more investment. And a provision of the North American Free Trade Agreement gives U.S. and Canadian investors most-favored nation trading status, meaning they're treated the same as local developers.
That doesn't mean anybody can walk across the border and snap up cheap land. Many maquiladoras are built by the manufacturers themselves, leaving fewer opportunities for real estate developers. Patience, too, is a virtue, not so much because of a mañana attitude but because there is more bureaucracy in real estate deals.
There's also one big cultural difference: Mexican business relationships are more personal. They're built less on experience and reputation than on trust and compatibility. For that reason, experts say it's critical to choose a local partner who's simpatico.