083 Developing a well focused project in Costa Rica

[Richard Bexon]

Good morning to you. 

Good morning. It's an absolute pleasure to have you on the podcast. 

I feel very honored to have someone of your pedigree on this podcast. Last I checked, my pedigree was not what it sounds like. But that's great.

[Gabriel Saragovia]

I'm happy to be flattered at least once once in a while. 

[Richard Bexon]

There you go. There you go.

Well, I mean, you've been in tourism for many years. You've been here in Costa Rica for many years. But I mean, you know, the past couple of years have been, I would say, interesting, to say the least.

But I mean, what have you seen recently? What surprised you? And are there any unique trends that you're seeing on your end? 

[Gabriel Saragovia] 

Well, I think that anybody that says that along the last two years, they weren't surprised during the whole trajectory would be lying to you, because, you know, we've certainly seen craziness anywhere from the prices in the coast to airline tickets surging in recent months for flights that were normally super inexpensive. So we've been surprised with the legality of everything surrounding COVID. So, you know, but in retrospect, if we think about it, none of it is surprising, because it is a product of everything that's going around the world.

Finally, I think finally, the world is noticing exactly what Costa Rica brings to the table besides, you know, the natural aspects, it has always been flaunting to the rest of the world. But now, it goes, it goes beyond that, not that there's anything beyond nature and beyond, you know, the beauty of, of all that is Mother Earth. But, you know, I think that for the people that we're seeing moving here in the last year or two, it goes, it goes to a different extent, like, it's more of a liberty to live their lives in the way that they see fit, not in the way that a particular government could determine as correct.

Not that there's a lack of legality here, because that's a misconception. Costa Rica, one of the things that makes it a very stable country is that there is a quite present legal environment. There are laws, there is enforcement. 

You know, it is a civil country, but not because it's, you know, naturally occurring within its inhabitants, but also because there is law. So that's a misconception. This is not the Wild South.

And this is one of the things that Costa Rica is going for, in which there are rules. But I feel like the rules, compared to what's going on in North America, are, are, they make sense. 

They just make sense. 

[Richard Bexon]

Yeah, I mean, I think Costa Rica, I think, as you mentioned, Costa Rica has a great framework, a good basis there. And it does because a lot of people ask me, hey, what are my rights as a property owner here, and that's like, it's exactly the same as a citizen here.

I mean, it's, you know, within the legal framework here your rights are the same. Unless, of course, you get into concessions, but we're not getting to concessions at the moment. But like your ability to own property here is the same as a citizen.

[Gabriel Saragovia]

Right. And even the concession law has changed in the last 10 or 15 years, not, not so recently. So, so yeah, you have full rights. 

It's not easy. I mean, it's not like you, because that's another misconception. I think there was a book that I don't know if you remember, it was widely, widely sold in all the, you know, airport stores.

And then, it used to be called, how to invest in Costa Rica and not lose your camisa.

[Richard Bexon]

 I remember. Yeah.

[Gabriel Saragovia]

And, and it's because it was a very serious deal here where people would come from Europe or the United States or Canada and expect to make money quickly without having the correct guidance. And that's, that's a big mistake. And it's still being committed today.

But by and large, we have a lot of law firms with, with very well trained lawyers that are versed in Costa Rican law that have partners in the United States that are making things easier, at least for people to feel comfortable and for them to have the proper guidance. So that's good. That's good because it definitely generates fewer tragic stories.

[Richard Bexon]

So, I mean, I think that that's, you know, I mean, great, you know, a great viewpoint of Costa Rica being an extension of the US and also, you know, being more probably North American than Puerto Rico. But I still think, you know, I mean, I think the one thing that Costa Rica has to offer and you mentioned it there is just like its natural beauty and rawness. But I mean, I take it, I mean, I think you're going to be biased, but I mean, do you still think Costa Rica is a great place to invest? 

[Gabriel Saragovia]

I do. But you have to come with a purpose and generate a very concrete idea, have the humility to know that even though you have great ideas, you still have to confer with others and be supported by others to make things happen here, not just because of the legal aspects, but also because I've seen a lot of errors being committed. I recently was involved in, let's say, a consultancy with a gentleman from India, and they had come here originally to work for a technology company, and they decided to get involved in food and beverages. 

The food and beverage industry, we know, is one of the most complicated all over the world. That's universal. And all of a sudden, you know, jumping into it and thinking that you can do it almost alone, you know, is going to put you in that statistic of nine out of ten failing within two years. 

And that's true in New York here. The number is a little lower, but, you know, you have to really, really understand that even though you think you have it all figured out, you have to have the right people behind you. And ideally, people you really can trust, and that's complicated, and people that have the criteria and the expertise.

So this is not the wild south. You need to come in with concrete plans. 

[Richard Bexon]

Yeah, I mean, again, the rules don't all apply down here.

There may be some of the variables apply, but sometimes the rules are a little bit different here as well, and I think it just goes back to just, like, you know, your network is your worth and surround yourself with great people if you're going to be doing something down here, you know, and don't skimp on that because it will come back and bite you, you know, and we've seen it too many times here of, like, you know, is something that, like, you know, success in one area of business doesn't always translate to another area of business. You know, I've seen that in my businesses, but it also is that, like, understand is that, like, there's a lot that you don't know. 

[Gabriel Saragovia]

Right, right.

And the more you know, the more you realize there's a lot more you don't. 

[Richard Bexon]

Exactly, exactly.

[Gabriel Saragovia]

So through experience, you don't necessarily eliminate the aspect of ignorance.

You know, I've always thought that when it comes to lawyers and doctors, particularly surgeons, you don't skimp. You mentioned that word before. And a lot of people come to Costa Rica thinking that they're going to make, you know, an amount of money, and have a better performance.

If we're going to make an investment with a defined amount of capital, give you, you know, a certain return, they say, well, we'll make that work better in Costa Rica. I don't know if that's the case. I'm not sure about that, actually.

I know that right now, for example, in certain parts of South Florida, it is practically impossible to get a return on investments from $100,000 to $10 million. You know, you see all these little residential developments or even a person buying a house for Airbnb or, you know, at this moment right now in South Florida, you can't. I mean, unless you're fully leveraged, unless you're, you know, if you're building, building to the absolute maximum that that entitlement allows you to do, you're just not going to make money because everything is so expensive. 

I understand that. But there are other parts of Florida and other parts of the United States where there are a lot of amazing opportunities to invest. Now, we're seeing a lot of people invest here, not just because it's an opportunity to make your money go further, but because they like how it feels.

They like going back to, you know, the laws, going back to the lifestyle. I think that's what's convincing a lot of people to invest here now. So it's not just about maximizing the return. 

This is not going to be, especially right now, you know, it's not going to be your best return, your best bang for the buck. And certainly, in my opinion, certainly not for speculation. 

[Richard Bexon]

No, I agree.

I mean, I still think there's a lot of equity to be made here in Costa Rica comparatively to what you can buy and what you could sell for. But in the future, you know, compared to the US, because I don't know where that, you know, that is at the moment, because it feels like stuff's hitting the limit there, you know, and it somehow has to come down. You know, but here, comparatively, you know, you could buy something a lot cheaper than you can in the US or build something a lot cheaper here and also kind of have that, you know, that gain there maybe a little bit higher as well. 

I mean, I just think it's, you just need to understand here that the access to buyers is not as big as the US because of the access to finance. 

[Richard Bexon]

Yeah, that's true. That's true.

[Gabriel Saragovia]

There are opportunities. As you know, the coast here, especially in Guanacaste, has skyrocketed. You're looking personally south of, in the southern part of the Central Pacific. 

There's opportunities on the coast front, but we're looking at a little bit of saturation and what we call beachfront. But that doesn't mean that if you have a really good idea and you build something beautifully or you have, you know, something that works, that either you've done a marketing study or you're coming in with a lot of confidence in what you're doing. I mean, for sure, you can do quite well down here.

[Richard Bexon]

Yeah, definitely. Well, I mean, I've always admired Gabriel, your passion for wellness and sustainability. I mean, it's, you know, it's always invigorating when we're together, when you, you know, when we talk about it.

I remember when I first met you, I wasn't too sure whether you were a crazy or a genius. Now that I've seen the success that you've had with the projects that you've touched, you know, I think it's certainly leaning towards the crazy genius side, sir. But like, explain how you've aligned these, you know, and also is that like why you moved in this, why you've moved into this, I suppose, this area of expertise. 

[Gabriel Saragovia]

Okay, well, the fact that right now the whole wellness world is actually strongly with the development, you know, especially down here in Costa Rica, that's a coincidence. In my case, I am. I think you know that my academic expertise is in the biological sciences. 

And, you know, it was always a passion for me to explore and to get lost and just adventure beyond what for most people would be an acceptable comfort zone. That for me has always been a part of my personal wellness. And it turns out that that is very much the accepted formula today in this post COVID world.

People realize that being cooped up in an apartment in a, you know, at 40 or 50 degrees latitude with gray skies outside and with no ability to go out and walk around because in many parts of the world you weren't allowed to in Madrid, in Buenos Aires, even in New York, you were being confined. So, all these people said to hell with this. We need to be outside.

So everything that they have learned since kindergarten, being outside, getting fresh air, getting a little bit of sunlight on your skin all of a sudden became, you know, so much more important and impacting in their daily lives. And so all these people, a lot of these people decided to move to Florida. But we've also seen a lot of people come down here. 

And again, it's that freedom, it's all part of wellness. So wellness, which also inextricably comes with sustainability, is all of a sudden, a very integral part of development and investment. It wasn't like that before. 

But when we got started, we thought, hey, we love the idea of evolving wellness, taking it to the next level. We have seen a lot of wellness concepts in Asia, in Europe, even in the United States, you have, you know, Canyon Ranch has been around for 40 years, they have their formula. Let's take that to another level.

Let's not talk only about, you know, the fact that you're eating a low carb diet or that you're doing exercise every day. Let's make it a part. Let's make it comprehensive.

Let's talk about the social aspect. You know, when you come down to Costa Rica, many people say they love interacting with the people here. These are educated people that generally are at least bilingual.

So it's easy to communicate with them. They have family values, by and large, compared to other countries compared to First World countries. Here you have people that really believe in family from the heart, not because they were educated to do so.

So wellness goes deeper. It goes from everything that you do all day. The, you know, the social interactions, yes, the food, the exercise, sleeping well, breathing, you know, clean air, which we have an abundant amount of here. 

And this is something that we take for granted. Having clean water. A lot of parts of Costa Rica have pristine water coming out from the ground.

So you don't have a municipality chlorinating these waters so that you can actually drink it. That sounds crazy, but that's what they have to do in the First World. Here, you know, the best thing you can do is drink water that's alive. 

So you drink it from the ground. It comes with its own probiotics. 

[Richard Bexon]

Yeah, I mean, I've never I've never really thought about the water part, to be honest with you before, just because, you know, but I mean, I think that's everything comes from like, you know, it's all natural here. 

You know, it's not chlorinated. I mean, I yeah, I don't know why I'd never thought about that before. But yesterday I was in Ojochal and I saw a natural spring coming out of the floor and I asked the guy, what is that? He's like, it's a natural spring.

You can drink that water. And I mean, I've just just put those two things together right now. 

[Gabriel Saragovia]

Americans.

And when I say Americans, I'm not talking about the U.S. I'm talking about North Americans, which includes Mexico, Mexico, Canada, the U.S. By and large, I would say 99 percent of the people that we take to see the springs in Rio Perdido or in Tabacon or elsewhere, they've never seen one before. For them to see water coming out of a crack in a rock or out of the ground is what's going on there. That's spring.

Oh, that's spring. That's spring water. Yep.

 

They've never seen it before. And that water has minerals, has, you know, even dissolved metals. It is usually the good kind.

It has living beings. You know, we're drinking water and we're thinking, oh, we don't want bacteria in our water. Maybe you do.

Maybe you need to stop. You know, we still drink them in pills or in your yogurt or whatever it is because it's probiotic. But human beings got their probiotics historically, not from pills or from a dairy product. 

They got it from everything that they ate or drank. It was just full of life. We are full of life inside. 

So I think a lot of these people that are coming down here, as opposed to the people that are moving to Florida, I keep talking about that because I was recently there and I was just shocked because it's not what you would think it is. It's not a move to a healthier lifestyle at all. But the people that are coming here are coming with a different mentality.

They are coming because they want to be healthier, because they are conscious of what it is to be healthier. 

[Richard Bexon]

Yep. No, I mean, I agree.

The more conversations I have with people, I mean, people are looking for a balance. They're looking for community. They're looking for more liberty. 

They're looking for a healthier lifestyle. And Costa Rica certainly has that. You know, and I don't think we understand living here sometimes is what we have here until we leave it and go somewhere else.

And then it really shows us. But let me just change gears here a bit because I remember you telling me kind of about the story about how you found Rio Perdido's property. But I mean, how did you find it? And I mean, what was the process that you went through? Just because a lot of people listen to this podcast who are looking to do some form of project here, whether it's to build a home or build some form of small hotel or even a large hotel. 

But I mean, what was the process that you went through to find that property? 

[Gabriel Saragovia]

So if we rewind a little bit and look at what was happening back then, this was around 2008, 2009. A lot of people then and now consider that to have been a very risky move, because, of course, if you want to, let's say, create a hospitality product, one of the first things that most developers will do is they will look at areas that have already been developed that are already considered poles of existing tourism because they appear in search engines. They appear in social media.

They appear in TripAdvisor. They're developed. There's already people looking to go there.

You don't say, I'm going to Costa Rica. You can say, I'm going to Arenal. I'm going to the Central Pacific, or more specifically, I'm going to Manuel Antonio.

I'm going to Papagayo. People already come with ideas. They've learned.

So for us to have started to develop east of the Liberia airport, people were like, but what's there? We don't know a county called Bagaces. What are you doing? Why are you guys going to invest a significant amount of your capital, the free capital that you have, in something that is a huge risk? And what I said is that going back to the restaurant operators, we've seen so many restaurants go up from people that we know or that we've come to know, and when everything is aligned, when everything is just, there's a formula. When the formula works, it's very difficult to fail.

And what I mean is, if you have a restaurant that has delicious food, good prices, ample parking, not far from points where people live, where people can move around, you know, service is good. If everything just aligns, it's very difficult to fail. And you think, well, then how come so many fail? If you look at the ones that do fail, they very clearly missed at least one or usually two or three of those points.

So when we found this property, which I'll get into that later, we found something unique that could not be replicated. We found, first of all, a thermal river, and it was in the hands of people that knew what they had, but they hadn't been able to, they were locals, they hadn't been able to make it work. They had tried for years. 

We said, we're, you know, we'll definitely assimilate this challenge, because we believe that what we had was one of a kind in the world. And that was the first brick. So again, if you look at people that are investing in the coast, if you're going to be, you know, five kilometers from the ocean in a mountain, you know, you're already starting at a bit of a, you know, you have a deficient start, you're going to have obstacles.

So, but if you have something that's unique, if you have a beautiful, you know, view of the ocean, and you're walking distance from the ocean, you know, you're going to have a, you're going to have a price point that is much lower than being oceanfront, but it's going to be, you know, it's going to be unique, that in the sense that you have a great view, and you're really close to the ocean, which for some people might actually be better than being in front of the ocean, but having no view, you know, because Costa Rica, a lot of oceanfront property actually doesn't have a view of the ocean because of the forest in the jungle.So I just think that if you align everything, and you can, I mean, there's so much beauty in this country. 

And everything is, you know, how it should be. It's hard to fail. 

[Richard Bexon]

Oh, I mean, I think you said something interesting there, which is, again, location, no, because a lot of people are going to go location, location, location, but you'd also got the other side, which is kind of the Red Ocean, Blue Ocean, Red Ocean, everyone's attacking each other and competing.

Blue Ocean is you're there on your own. Like, where the real part of the deal is, I mean, you guys are there on your own. And maybe you took some, not maybe, you guys took some arrows when you first started.

I mean, it's, you knew you were going to be in it for the long run, because you guys were creating a location. I mean, you guys have created a location, you know, and there are many people that have done well doing that. There are some people that have struggled doing that, you know, but I think that the location that you chose, though, was smart, because again, it's close to Liberia Airport. 

[Gabriel Saragovia]

That's right there. You just mentioned one very important of those elements that have to be aligned. There's less than 10.

But certainly, if you're three hours from Liberia's airport, or even two hours, you're already outside of that comfort zone. People, actually, there's a general rule. I don't know if you apply it as well.

But we always apply the 90 minute rule. If you're over 90 minutes, it becomes like a day or a half day lost in the transfer. And it loses a lot of attractiveness to both investors and visitors.

So if you're developing a hospitality destination, you need to think about that. And you need to think because that's another huge obstacle that you'd be creating for yourself. This is, for example, what the people down in Osa have to go through.

You have these absolutely spectacular, one of a kind destinations, but they have pretty low off seasons. And a few years ago, they had fluctuating high seasons as well. Yet the product was amazing.

Why? Because it wasn't easy to get to. But what I told my friends that I referred to there, I said, listen, sometimes making that effort to get out there is worth it because when you get there, you're like, wow. So that's how they differentiated themselves.

They said, it's harder to get to us, but we're going to make it worth your while. And once that word got out, and now with everybody looking for things that are off the beaten path more than ever, all these remote places, people are making that effort to get there. So again, you have to be conscious of what your target market is willing to do for the product that you are offering.

[Richard Bexon]

I mean, I often ask people that are looking to do products here, who is your client? Describe them to me. Because if you can't answer that, you don't know who you're going after. 

[Gabriel Saragovia]

It's true. 

But in our case, for example, we actually made mistakes. However, we were able to correct them perfectly. Sometimes when you build something and do something the wrong way, correcting it is so complicated and expensive that you find yourself in a pickle. 

But in our case, for example, one of the mistakes that we made is we started off as a glamping project. And our price point was, I would say, if we're talking about rack rates, was less than half of what we're charging today for almost the same product. So while the food, the service, and a lot of things have improved, the actual physical sense of the product is pretty much the same.

But we're charging more than twice as much for it as we were eight years ago. And guess what? Not only do we have a higher occupancy and a higher rate, but we have basically no complaints. Once you find and you hone in on the right market, not only do you sell better, but you have less resistance, which is actually very important.

Again, sometimes you think that by raising prices, you're going to generate more complaints. But all of a sudden you change your market. You're in the right market for your product and the complaints disappear.

And that was what we felt. So that was something we were able to correct quickly. We were fortunate.

[Richard Bexon]

Yeah, I mean, you guys have done a great job. I mean, I always say to people, it's like everything's an experiment. Success is not a straight line.

You're going to fail at some stuff, change, and then see what impact it has. And I mean, I think a lot of the time it just comes back to data that people want to run on feelings sometimes. But you need to look at the data as well. 

You need to use the feelings, but your data is going to give you that baseline. So that when you make those decisions, you're going to see how it impacts it. Then you can then make a decision based on, again, having a baseline of data.

Gabriel, what are the projects that you're currently working on at the moment? Don't worry if you can't tell us at the moment, because I always know that you're juggling some chainsaw out there.

[Gabriel Saragovia]

 You know that I'm brutally direct sometimes, and I'm pretty transparent. I don't believe in secrets.

Sooner or later, everything else, everything gets out. This is a small country. We all know each other.

You go for a permitting in the municipality, and everybody finds you. Yeah, of course. So I'd rather just come out and say we have had a beachfront property for almost two decades.

It's taken us almost that long, and this is an important lesson for anybody that may be listening that is thinking about developing on the coast or investing in the coast. We've gone through a 16-year legal process.

16 years. I'm sure now you could do it more quickly, but the trajectory that we went through to get this where it is now could have not been accelerated, because there was simply no regulatory plan, and we couldn't do anything without the regulatory plan. So after 16 years of working really hard to get the typical permits, like the concession, not only over the maritime zone, but over the wells and the water sources, to get the electricity there, which was close to begin with, to get the road paved all the way to the property, all that stuff, that's normal. 

But we also got a new type of permit, which is basically a permit over natural patrimony. So a lot of people think that in Costa Rica, when a piece of your land is set by the municipality or by other competing entities or involved entities, when it's destined as patrimony, the first reaction is to say, oh, that's horrible news. We can't do anything with it.

But sometimes, patrimony, you can receive permits to develop certain projects over it. In this case.

Eco- tourism. So we actually were able to secure one of the first of its type. And we are very proud of that. We also went through a process of making the yearly canons, the amount that you pay to have access to this land. Originally, its amounts were exorbitant and they had applied formulas that just didn’t make any sense.So, we had to, you know, fight is a negative word.

[Richard Bexon]

Negotiate?

[Gabriel Saragovia]

Yeah… it was more of a fight but-

[Richard Bexon]

Aggressively negotiate?

[Gabriel Saragovia]

Aggressively negotiate. But, you know, fortunately, the government has really realized that more and more, as they have gotten used to the idea of development, they've realized that it is in their best interest to, to partner with, you know, the private sector. 

So we've actually been able to have a beautiful dialogue with the local government and with some of the federal entities. And things are happening. And, you know, I have actually, one of the positive things that I will say about working with the government is that with each new government, I see younger and more open minded people start to work in these positions that originally were kind of being filled by these older, extremely close minded professionals, which sometimes, which oftentimes weren't professionals at all.

There is someone here in Escazu that is working in the municipality. And it's a pleasure to work with them, because they have their architects, this particular person that I'm thinking about as an architect, I'm sorry, an engineer and a lawyer. 

[Richard Bexon]

Wow, you don't often see that.

[Gabriel Saragovia]

You don't often see that in the government. These are the kind of professionals you see in the private sector. So to all of a sudden be having access to people with, you know, so much of the academic part with so much of the theoretical part, in addition to the experience, is all of a sudden opening a whole new world of possibilities.

And, and it's important to say that that doesn't mean that all of a sudden, Costa Rica is going to start exploiting its natural resources in a bad way at all. These people are still extremely, you know, pro environment, actually more so. You're seeing a lot less corruption, I think. 

It's still present. But, I guarantee you that not to a greater degree than in the United States. And that's something that could come as a shock to a lot of Americans, North Americans, the perception that Costa Rica is more corrupt than first world countries, I think is false.

[Richard Bexon]

I agree as well. I just think that there are different mechanisms in the first world to do it, whereas here that they have not developed yet, but we'll, we'll not get into that. But I mean, this project sounds very, very interesting.

I think I'm going to have to have a few beers and discuss it with you. But my last question, my last question for you, Gabriel, if you inherited $500,000 and had to invest it into a business or real estate in Costa Rica, what would you do with it? 

[Gabriel Saragovia]

Well, this is a very personal question. I think everybody you asked will have a different answer.

There's no right answer for Costa Rica. $500,000 for, you know, hospitality projects, even if you're leveraging, and it's harder, I think it's harder for foreigners to get, you know, ample housing here. If you want to, I would personally probably invest in properties, in up and coming urban areas, whether it's houses that have ample entitlements, that you can convert into an Airbnb.

I'm a hotelier that does not feel anything against the whole Airbnb world. You're very unique, because most of them do. Well, it's like taxi drivers that hate Uber people. 

What we've been seeing lately in the third world, in the US, it's happening for many years. But here, all of a sudden, people are working on all the different platforms, and they're realizing that that's the way to go. Open yourself to everything.

Don't fight it, join it. Or just if you're going to stick to hospitality in the hotel world, make your hotel so unique, which is what we do, that there's really no Airbnbs that can compete with it, because it's, you know, it's just a completely different type of product. But I really believe that these little towns, or these little parts of the city like Barrio Escalante, and Barrio Dent, and Amon, still have a lot to offer. 

You're seeing new restaurants pop up. And property value, in my opinion, is still maybe not in the main streets. But you know, there's still a lot of properties that are, you know, at fair values, which is not anything that you're seeing in going back to Florida.

[Richard Bexon]

I agree. 

[Gabriel Saragovia]

So I think that there's a lot of possibilities. I would personally invest in a house that has a good legal standing, a good ample entitlement.

[Richard Bexon]

I agree. Well, Gabriel, this has been absolutely amazing. I mean, just a huge amount, a wealth of information here.

I'm going to put the contact details for Alfred Tabacon and also Rio Padillo's URLs in the bottom there. But again, I want to thank you for taking the time to chat with us. And I'm sure we'll get you on again in the future. 

[Gabriel Saragovia]

I appreciate it.