Office Buildings and Ongoing Construction Sites in Caracas: Do We Even Have a Crisis?

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Photos: Javier Liendo

New construction sites in Caracas, big shopping malls opening at the most unexpected places, office buildings inaugurating at the lomito locations of the Francisco de Miranda Avenue; tell me in what country, in the middle of hyperinflation, does this happen? Is there even a crisis going on with this type of business running?

Buddy, buckle up: yes, there’s a crisis, and that’s why this happens.

Multinational companies and national banks started years ago a new strategy to fight off their high demand of foreign currencies and get rid of their ever depreciating bolivars without much suffering. The play? Mass construction of office buildings and commercial real estate to shield their gains, in the face of an economic improvement, so loses are recuperated and revenue is acquired. The move started in 2014, when people demanded office spaces, rents were going up and shopping malls had a normal flow of customers. Problems solved and happily ever after, right?

In Venezuela vacancy rates are very high and rents are going down, currently being absurdly low, even compared to those in low income countries.

Well, no. Four years later, the strategy was at full speed and a common phenomenon at the real estate cycle called “the oversupply phase” began: the demand for renting spaces goes down, and constructions go up. Unlike a real estate cycle in normal conditions, the average price of office building rents in Caracas’ metropolitan area plummeted down more than 46% of their real value in 2017, according to the Cámara Inmobiliaria Metropolitana. Anyone in Caracas can see the “ghost buildings”, as we call them: The shopping mall Parque Cerro Verde, the office building/hotel Paseo La Castellana, the new Venezolano de Crédito Tower, and the many constructions in Las Mercedes. All of this is due to abnormalities in the Venezuelan market. In any country, the market for office space follows a cycle dominated by vacancy rates and rental growth rate. In Venezuela, we see that vacancy rates are very high (because no one wants to rent an office) and rents are going down, currently being absurdly low, even compared to those in low income countries. A prime office in a nice building at the heart of Chacao can be as low as 250 bucks, for a huge office of 15 workstations and five private offices.

The point we want to make here is that, according to the market cycle, we should be in recession, but when we look out the window, there are cranes and workers in future office buildings at Las Mercedes and Francisco de Miranda Avenue. This is just another example of the Venezuelan economy absurdity: companies rather use their liquidity to build or acquire assets that will generate losses, ask for maintenance and stay empty, than to keep a lot of bolivars that will depreciate faster than you can read this.

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  1. Oooooooorrrr, it’s enchufados and military men investing their stolen or ill gotten gains in construction and real estate, the former being VERY cheap to do with the ridiculously low prices of cement and rebar and labour, and the later something that can only go up in price as time goes on. I am CERTAINLY NOT an inchufado or a military man but I’m still plodding along in my construction projects as well, cement and sand and rock are very cheap compared to international prices and I have high hopes that in 10 or 20 or 30 years my properties will be worth MANY more times then it’s costing me to build them- even if I can’t enjoy them, they will be around for a couple of generations of my children and their kids. This is a good time for construction, lots of masons looking for work and I can pick and choose the best, pay them ten times more then they can get anywhere else and still come out on top with the labour and materials cost. You can’t build real buildings anywhere for what it costs to build here right now. And now that prices in BS are going up, materials are finally becoming abundant again.

  2. So, when the Regime (Maduro or his successor) finally gets to full Cuban communism (which will happen absent some sort of military intervention – and maybe even with a military intervention), and all of these private properties are expropriated without remuneration, will this still be a good strategy? Maybe I am wrong about this, but I don’t think any of the Cubans or business that had the properties taken over by Castro got paid anything for the privilege.

    • THAT would be the downside. I hope to GOD that you are wrong and I somehow cling to the hope that full scale expropriation on ALL levels will not happen.

      • I am like you, except that I am not betting the farm. You are right that the properties EVENTUALLY will be much more valuable. But, WHEN?

        It doesn’t do us any good if we are dead when the investment pays off.

  3. The article is spot on in pointing out the strategy of companies some years ago that could not send their dividends abroad because no foreign currency was available and sought to invest them in buildings that presumably would retain their value in time except that the economys downfall has been inordnately steep and traumatic and those buildings started 4 years ago are now near worthles . most of them abandoned and lacking occupants ……!! the enchufados I guess had no problem taking their money abroad ( ever hear of Andorra anyone) or using their ill gotten gains in the rebuilding of fine homes sold by their former owners and transforming them into sumptuous mansions …..!!

    • Bill, do you think that enchufados and Military men fear their properties being expropriated here in Venezuela? Also with all of the sanctions going on, would it be wise for them to invest these moneys in ANYWHERE else but here in Venezuela? Expropriated here or sanctioned and confiscated elsewhere…THAT is the question. And I am sure that you get way more bang for your construction buck here that anywhere else in the world.

    • THATS what I said. Money laundering. Bang on. With very good odds that the value will eventually go up. God isn’t making any more real estate, it can only get more expensive.

    • Of course.

      Money laundering BUILT post 80s Miami, and Miami was a DYING city before this. No one invested a penny.

      It’s actually a BENEFIT in some ways, putting the criminal activity aside.

  4. First, 250 bucks for a large office?–must be 250 bucks a square meter? Second, I doubt seriously few/if any multinational companies invested, or were even permitted by their home offices to invest, in Ven. real estate, even with blocked/worthless Bs. Third, the vast majority of Ven. office/residential, usually luxury, construction recently is drug-trafficking laundered money financed, mostly cartel, not individuals (except as front men), as are luxury shopping center locales, where very few can afford to shop, but where construction/on-going rents-expenses are high.

    • I’m sure the author meant $250 a month to rent the office. You can find a pretty nice apartment in Caracas for that much these days.

      MercadoLibre is a prime example of a multi-national that owns a great deal of real estate in Venezuela.

      • My mistake. Was thinking sale, not rental. But, Mercado Libre is a platform for bringing buyers-sellers together; not sure they own real estate, though possible.

  5. It seems like it all comes down to a roll of the dice. Will the regime implement full blown, Hardline communism going forward or won’t they? I am thinking that is their goal but will be done incrementally and the concept of private property will slowly go away. As the old saying goes….”Ya rolls the dice and ya takes yer chances”

    • Right now, they come up snake eyes. Others will roll, yelling, “Baby needs a new pair of shoes!” Others will say, “This ain’t Cuba”-yet. Only a U.S. hard intervention will probably save their asses, now postponed due to N.Korea cancellation, plus Colombia/Brasil Pres. elections soon, plus U.S. Congressional Mid-Terms year-end.

  6. Yet they seem to be trying to attract investers (or at least they talk that way), and there will be no investers if there is no respect for private property.

  7. This story reminds me of the cocaine fueled construction boom in Miami back in the day. Are we witnessing the same in Caracas?

  8. And with this boom comes the demolition of historic buildings like Gastizar in Las Mercedes. All this to build ugly Miami style narco buildings.

  9. Classic money laundering. speaking of which. I still remember When I first went to Amuay in 1996, we drove to the east side of the Paraguaná, going to Cabo San Roman. When we got 15 kilometer from the cape we noticed the big set of deserted building / oblivious a former hotel site. Ruinas del Complejo Medano Caribe – I was told (but I know how true it was) that a Caracas bank money laundered 2.25 billion dollars (in late 1980’s or early 1990’s. Let’s see that much – 1) It’s on the beach, 2) you can see Aruba and Curacao. 3) you over 200 rooms to chose. 4) The Nearest airport is over 90 minutes away. 5) the roads are not good and you have stop frequently to let the burros go bye, 6) and lastly, there a salt evaporation pond next door (for over three miles. Sound like a place you would want invest in.

      • Really impressive pictorially-a metaphor for Venezuela today (also somewhat similar to the “Industrias Basicas” of Ciudad Guayana). Bank which financed went belly-up, high-profile bank pres. (family relative of real bank owners) was in Vail or Aspen with his former Miss Universe lover at time of bankruptcy, bank was semi-bailed out by Ven. Govt., though individual depositors only finally collected up to a relatively low max limit per deposit, and depositors of U.S. dollars in bank store-fronts in Aruba/Curacao lost everything.

        • Plus, I almost forgot – the other engineers that worked with said you can not discuss it (and many other thing – this was before Chavez). Any wonder that left (class of 2002). I still miss Venezuela coffee.

  10. Good luck when the overdue Earthquake takes place. All of that shit is going to crumble like a card castle taking thousands of lives along with it. And there is nothing there to help. Although there isn’t worse natural catastrophe than the Venezuelan themselves


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