Industrial Parks - Key Players in the attraction of foreign investment

On October 19, 1964, Arthur D. Little, a business consulting firm from Boston delivered its report "Promoting New Industries for Ciudad Juarez" to the National Frontier Program of Mexico. It is in this report that we find the first footprint of a modern industrial park.

The report recommended three major actions: First, the formation of a fiscal zone for the free movement of goods; second, the establishment of an industrial park (the report goes on to actually outline Restrictive Covenants for the park); and third, the implementation of an industrial promotion program.

This report is the foundation of the modern maquiladora industry, and the concept of Industrial Parks has gone hand in hand with the successful attraction of maquiladoras to Mexico.

Simply put, an Industrial Park is a subdivision of land ("fraccionamiento", in Spanish) developed together with road and utility infrastructure, zoned according to city code for industrial use, and governed by a set of restrictive construction and operation covenants and guidelines.

Industrial Parks help not only in the attraction of industry, but also serve as detonators of development and growth. A new urban area of development often starts with an industrial anchor, followed by housing and eventually commercial areas. Urban plans for modern cities in Mexico now provide for the orderly development and use of the various activities with long term vision.

In Mexico, excluding warehouses, there are approximately 175 million square meters of industrial space, of which, about 25 million square meters are used by maquiladoras, approximately 12 million square meters of which are within modern industrial parks. Please see Exhibit 1.

Although most of the modern industrial developments started in northern Mexico, the concept of the modern Industrial Park has spread throughout the country, validating the key role that this type of development plays in the attraction of industry, particularly higher tech operations. Exhibit 2 shows the main market shares of maquiladora plants by city.

Industrial foreign investors are often times surprised by the higher price levels of developed industrial land in Mexico (See exhibit 3) as compared to the United States or Canada, and some times, Europe.

The procurement of utility issues that a Mexican developer faces are expensive and complicated. An industrial developer in the USA receives electrical service complete with distribution lines and transformers for the buildings by only advising the local power company of its planned location. On the other hand, a developer in Mexico needs to pay for the generation, wholesale transformation and distribution of power as well as distribution lines to individual users. Thus, for power service alone, a Mexican developer is at a disadvantage of approximately $0.40 dollars per square foot compared to his American counterpart. The situation is not much better for water and sanitary sewer, telephone and data lines, natural gas and roads.

A value-added activity used by industrial park developers is the construction of speculative and build-tosuit facilities. The strict requirements of global companies has resulted in the development of high quality and sophisticated buildings, rivaling the best in the world. Likewise a select group of construction companies, trained in this global and demanding environment has developed in the main markets. Exhibit 4 in page 63 and exhibit 5 show typical lease rates and construction costs for selected cities.

In the maquiladora industry, almost half of the facilities are within an industrial park as opposed to stand-alone sites. The corporate users own approximately half of the facilities, while the other 50 % are under a lease contract. But due to the recent economic downturn, there is a marked preference for lease arrangements, maybe as high as 80 %.

The spread and number of Industrial Parks grew to such a point that many of these developers have joined together in an institution called the Mexican Association of Business and Industrial Parks. Please see the related story on this mature organization.

The development of modern industrial parks and the global quality of facilities, coupled with scare credit in Mexico, obliged the parties to engage in dollar denominated lease contracts, and, backed by tenant lease income streams, loans flowed from US banks to Mexican developers.

This stable business environment, on the back door of the United States, attracted the attention of international real estate brokers in the early 1990's and of international investors in the latter part of the past decade.

With the growth of properties among the various regional development groups, the portfolio concept evolved naturally, turning the game into a financial focus. Exhibit 6 shows an example of the largest portfolios of industrial properties in Mexico with dollar denominated leases.

The future of the industrial park concept and its derivatives is bright: an increasing number of players, new financial tools, new alliances, a process of consolidation; their key role in economic development will continue to make the "Industry" of industrial parks a most interesting and rewarding one.


Comment XML feeds: RSS | Atom

Banners - Home

Mexico Autoindustry