News Room

Property Week - May 25, 2007

London & Regional is planning the world's biggest scheme at a former US Air Force base. Sinead Cruise reports from Panama.

Bigger Than the West End

Trust Richard and Ian Livingstone to have garnered a position in one of the world's most promising property prospects before the rest of us can even confidently pinpoint its location on a world map.

The industry's most celebrated explorers have already have already invested millions in nascent real estate across Europe; from the alluring but almost impenetrable markets of Russia and Ukraine to the comparatively genteel regions of the Baltic states and Germany. Their global presence stretches as far south as Cape Town, where last year they captured the £600m Albert and Victoria Waterfront development, perhaps the most recognised leisure and tourist resort on the entire continent of Africa.

London & Regional has already proved that boundaries, borders and unchartered territories have little bearing on its ambition to put together the world's most diverse and lucrative property portfolio. The $705m (£352.5m) acquisition of a 802 ha (1,980 acre) site in the small Central American nation of Panama can only boost its profile.

News that the Livingstone's had bought the former US Air Force base at Howard in Panama reached the UK in late January. The investment of such a large sum in such an obscure market sparked a short-lived frisson of excitement in property circles. But as Jason Mills, development director and head of London & Regional Panama agrees, the sheer economic and historic significance of the transaction has yet to be grasped.

"It's almost impossible to quantify the potential of this site," Mills explains.

"The chance to design and deliver 50m sq ft of development and effectively create a new city from scratch has got be considered big in anyone's eyes, but we know that such an opportunity comes with awesome responsibility. This site is integral to the future economic capacity of an entire country."

This bold statement is not an exaggeration. The site is considered the most strategically located parcel of land in Panama, a country whose national prosperity is almost guaranteed simply by its geographical position and the influence it wields on billions of dollars of trade between North and South America via the Panama Canal.

Colon expansion

In a national referendum held last October, the people of Panama voted overwhelmingly in favour of plans to invest $5bn – a sum equivalent to the country's total annual budget – in an much-needed expansion of the canal and the surrounding tax-free trade zone just north of the city of Colon.

As North American retailers and consumers continue the hunt for cheaper goods, the manufacturing prowess and export activity of South American economic powerhouses like Colombia and Brazil grows. The canal gets busier and Panama gets richer.

The hope is that more and more countries will follow the likes of the US and Canada, which have signed special commercial agreements with Panama to ensure their traders have unrestricted import and export rights at fixed duty rates via the canal.

The rapid influx of goods to Panama and further extension of its importance as a pan-American trading outpost provides natural stimulus for real estate in the area where the extension of the canal is due to take place. Cue instant demand for more warehouse space and light industrial premises where unfinished products and perishable goods can be processed. Follow this with the need for sophisticated logistics hubs, offices and call centres where thousands of people help direct the onward journey of goods worth hundreds of millions of dollars across the world. Demand for retail, leisure and residential property naturally ensues, and a brand new city is born.

It is not difficult to work out where this city will take root. The London & Regional site, sprawling across an area bigger than London Transport's central zone 1 and nestling neatly to the left of the canal, is the only place where Panama can nurture its economic future for the 21st century and beyond.

Realising this, the Panamanian government has granted virtual autonomy to London & Regional and the Agencia del Area Economica Especial Panama-Pacifico (AAEEPP), the government agency that conducted the sale of the site to the Livingstone's, with regard to planning issues after the initial masterplan has been agreed. This is in addition to the common tax breaks and fiscal incentives enjoyed by all native and foreign property developers active in Panama today.

The Panamanian economy is already growing faster than any other Latin American country on the back of immigration and an emerging aspirant middle class. This organic growth coupled with the insatiable desire for two continents to trade with one another efficiently via the Panama Canal virtually guarantees capital and rental growth for property in the region. The sudden $705m (£352.5m) investment that seemed so bizarre at first now seems like the deal of the century.

Through Panamanian eyes, it actually was. The Howard Air Force base, renamed Panama Pacifico following the exodus of 25,000 US servicemen and women and their families on 31 December 1999, became a symbol of modern Panama and its political and economic independence. It was offered for sale by way of public competitive tender because the government felt it couldn't afford to divert public money to its redevelopment from more pressing needs such as improving Panama's national health and education services and helping thousands of Panamanians out of poverty.

Some 17 bids were logged, including one from the Chinese Space Agency, which wanted to use the onsite airport to test rockets. A protracted sale process followed, whereby each company had to develop an initial masterplan that the AAEEPP would then present to central government for approval. London & Regional was pitched against Florida-based Easton Group when the shortlist was slashed to two, and in a final public round of blind bids, the Livingstone's topped Easton's offer by $2m. The monumental deal was sealed.

"It was on the front page of every newspaper for days," recalls Mills. "We had been working to close this deal for two years but it had somehow escaped us that the privatisation of this site represented the transition of an entire country from the developing world to the developed. For someone with a background in town planning, this is a dream gig. It's like playing SimCity, only we're doing it for real."

London & Regional has recruited Atkins to put the finishing touches to the masterplan before starting work on the project this summer. Mills forecasts the site will have an end completion value of $5bn, not including the income generated by occupiers over the 20 years he estimates it will take to develop the vast site.

If India was the jewel in the crown of the British Empire, Panama has a strong claim to becoming the most priceless asset London & Regional has ever laid its hands upon. The Livingstone empire grows apace.