Total Gut Jobs

Dear International Living Reader,

Old brick and ornate plaster work. High ceilings and shuttered windows. Parquet floors and arched entrances. Tapered columns, stone walls...marble mantels, carved moldings, clay-tiled roofs...

These things are irresistible to us, regardless their condition. The paint may be faded, the wallpaper peeling...the floor boards rotted, the plumbing ancient. The walls can be tumbling...the roof missing altogether. These details barely register. We are drawn to buildings of history and character instinctively...and, sometimes, some might say, foolishly.

A long-distance renovation can be an opportunity...and it can be trouble. Usually it's both.

In the past few years, we've been involved with nine renovation projects in five countries. Every one has taken longer and cost more than we expected (even though our expectations have become more modest with each experience). None of this has put me off the idea. We've just launched a 10th project in Paris. The 18th-century apartment we're renovating in that city will be our home, fingers crossed, starting Aug. 26. And yesterday I received a note from our contact in Nicaragua, writing to tell me of a colonial house on offer in Granada, across the street from the colonial we're already renovating in that city. "A total gut job...but a gem," he opined. Of course, he had my attention.

The price being quoted got my interest, too.

That's one of the attractions of a renovation--buy cheap...invest time, money, and energy in improvements...and end up with a maybe dramatically more valuable piece of real estate.

We've been lucky. Most every renovation we've taken on has worked out this way. In one case, our efforts, over four years, resulted in a property that sold recently for more than 2 1/2 times the total investment (including the purchase price and the total amount put into the restorations).

Some outcomes have been more modest. For example:

We are this month hoping to complete the 10-month renovation of a building in Casco Viejo, Panama. Again...a total gut job. And, again, a gem.

Casa Remon sits on a corner across from the central plaza in this historic neighborhood of Panama City, on Calle de San Pedro, with views from its upper balconies of both the square and the Panama harbor in the other direction. The original building dates to the early 1700s but was lost to fire later that century. The current structure dates only to the end of the 19th century but boasts architectural features worthy of an earlier age. It's a stone and brick building of three stories. Three wooden balconies dress the facade. Doorways are arched. Windows are tall and fitted with working shutters. The courtyard in the back hides the property's original well.

We toured the building for the first time a few weeks into the start of its renovation. Staircases were missing. Floors were torn up. The remains of the three balconies hung on precariously. "Tumble-down ruin" was the kindest description.

Some may have recommended demolition. We fell in love.

The architect/developer/owner took us from room to room as best she could (some were inaccessible), describing plans for the building's rebirth. Interior stone and brick walls would be left exposed. Original wall niches would be reclaimed. All original wood would be stripped and treated; missing pieces would be replaced, where possible with old wood reclaimed from other properties. Floor tiles would be handmade and hand-painted in Columbia. The three balconies would be recreated as they were originally, each wooden spindle hand-carved. Colors and fixtures would match those used in the time the building was built insofar as possible. The original well would become a feature in the back courtyard.

How could we resist?

The challenge was to rationalize our interest. In fact, we'd been looking for a building in Casco Viejo for three years. All the while we'd watched prices rise, as the old town became less...gritty. As the Spanish and French colonials were one by one restored and reclaimed...as the plazas were cleaned up, the gardens replanted...as new galleries and cafes, nightclubs and restaurants opened...an investment in the region became less speculative...and more costly. Still, we hadn't found the investment we couldn't resist.

Casa Remon, finally, presented the right opportunity at the right time. We had several agendas; it suited them all.

First, we wanted new, bigger office space for International Living's Panama office team. Second, we wanted a couple of apartments we could rent, on the open market and to IL readers passing through. Finally, we wanted a private library/office/meeting space. The plans for the renovation of Casa Remon's three floors accommodated all these objectives.

And the numbers worked. Lief Simon, my husband (and editor of our Global Real Estate Investor), figured that we could net 7% from rental income...plus we'd have more space for Greg's growing business...and grand new digs.

The kicker was the potential for appreciation. As I mentioned, prices in this neighborhood have been rising steadily the past few years (by maybe 5% to 10% a year) and stand today (for a finished renovation) at $1,000 to $1,100 per square meter on average, which is higher than the average for downtown Panama City. We think they'll continue up, not quickly, but steadily.

We invested in Casa Remon as a package, buying the building, the plan for renovation, and the services of the architect/developer/seller. The deal was that she (and her organization, San Felipe, S.A.) would proceed with her plans for the work, managing the team on the ground, and we'd take possession six months later of the new Casa Remon. Six months have extended to 10, but we have no complaints. The standard of the work is high...and the finished product is impressive.

Kathleen Peddicord
Publisher, International Living

P.S. If we were to turn around and put Casa Remon on the market, renovated, it'd be worth about 15% more than we have put into it. Not a home run...but not bad.

The alternative would be to buy a ruin in this town and manage its renovation on your own. Cut out the middle man (in our case, the seller who we've retained to complete the project). The savings could be considerable...and the return much greater. I wouldn't recommend this, though, unless you have experience and time to focus (and to be in Panama overseeing things).

Another caution: If you buy one of these old buildings directly from a local owner...make sure you understand who currently inhabits the space. Could be a family with no interest in leaving...could be a half-dozen families with no interest in leaving.